Philippine Long Distance Telephone Company v. Davao
REITERATIONFacts
The Antecedents: Petitioner Philippine Long Distance Telephone Company, Inc. (PLDT) paid a franchise tax based on its gross receipts, pursuant to its charter. This tax was paid 'in lieu of all taxes on this franchise or earnings thereof' under R.A. No. 7082. However, R.A. No. 7160 (Local Government Code of 1991) withdrew tax exemptions and empowered local government units to tax businesses enjoying franchises. The City of Davao enacted Ordinance No. 519, Series of 1992, imposing a local franchise tax. Subsequently, Congress granted franchises to Globe Mackay Cable and Radio Corp. (Globe) and Smart Information Technologies, Inc. (Smart) with 'in lieu of all taxes' provisos. R.A. No. 7925 (Public Telecommunications Policy of the Philippines), Section 23, provided that any advantage, favor, privilege, exemption, or immunity granted under existing or future franchises would ipso facto become part of previously granted telecommunications franchises. In January 1999, PLDT was required to pay local franchise tax for 1999. PLDT challenged this, demanding a refund of taxes paid for 1997 and parts of 1998, arguing that R.A. No. 7925 extended the tax exemptions of Globe and Smart to it. Procedural History: The Regional Trial Court (RTC) dismissed PLDT's petition, ruling that the Local Government Code (LGC) had withdrawn tax exemptions and authorized local government units to impose franchise taxes. The Court of Appeals affirmed this. The Second Division of the Supreme Court, in its decision of August 22, 2001, held that R.A. No. 7925, Section 23, could not be interpreted as granting PLDT exemption from local taxes because the word 'exemption' in the context of the law did not mean 'tax exemption.' This led to PLDT's motion for reconsideration, which was referred to the Court en banc. The Petition: PLDT sought reconsideration of the Second Division's decision, arguing that R.A. No. 7925, Section 23, automatically extended the tax exemptions of Globe and Smart to PLDT, thereby restoring its exemption from local franchise taxes.
Issue(s)
Whether R.A. No. 7925, Section 23, grants petitioner PLDT exemption from local franchise taxes by virtue of the 'in lieu of all taxes' clauses in the franchises of Globe Mackay Cable and Radio Corporation (Globe) and Smart Information Technologies, Inc. (Smart). Whether the 'in lieu of all taxes' provision in PLDT's franchise should be considered a tax exclusion rather than a tax exemption, and if so, whether the rule of strict construction against the taxpayer still applies. Whether a special law (PLDT's franchise) prevails over a general law (Local Government Code) in matters of tax exemption. Whether the ruling of the Bureau of Local Government Finance (BLGF) on the restoration of PLDT's exemption is entitled to great weight.
Ruling
The motion for reconsideration is DENIED and the denial is FINAL. Petitioner PLDT is subject to the local franchise tax imposed by the City of Davao.
Ratio Decidendi
On whether R.A. No. 7925, Section 23, grants PLDT exemption from local franchise taxes: The Court held that R.A. No. 7925, Section 23, cannot be interpreted as granting PLDT tax exemption. The phrase 'in lieu of all taxes' is a tax exemption and must be granted in clear and unequivocal terms. The Court found that the legislative intent behind R.A. No. 7925 was to promote deregulation and a level playing field, not necessarily to grant tax exemptions. The Court noted that the term 'exemption' in Section 23 likely refers to exemptions from certain regulations and requirements imposed by the National Telecommunications Commission (NTC), such as permits for importing equipment, rather than tax exemptions. Furthermore, the Court observed that Congress continued to grant franchises with both 'equality clauses' and 'in lieu of all taxes' clauses after R.A. No. 7925, suggesting that the 'equality clause' alone was not intended to automatically extend tax exemptions. The Court also pointed out that if the 'equality clause' automatically extended tax exemptions, there would be no need to include the 'in lieu of all taxes' clause in subsequent franchises. On whether the 'in lieu of all taxes' provision is a tax exclusion and the rule of strict construction: The Court reiterated that 'in lieu of all taxes' provisions are considered tax exemptions. Therefore, the rule of strict construction against the taxpayer and in favor of the government applies. The Court stated that tax exemptions are statutes in derogation of sovereignty and should be strictly construed. The Court also clarified that there is no substantial difference between tax exemption and tax exclusion in terms of their effect, as both grant immunity or privilege, and thus the rule of strict construction applies equally to both. On whether a special law prevails over a general law: The Court affirmed its settled jurisprudence that the peremptory language of Section 193 of the Local Government Code (LGC), which explicitly withdraws tax exemption privileges, prevails over the 'in lieu of all taxes' provision in special franchises. The legislative purpose to withdraw tax privileges was deemed apparent from the express provisions of Sections 137 and 193 of the LGC. Therefore, the rule that a special law prevails over a later general law does not apply when the legislative intent to withdraw tax privileges is clear and express, as in this case. On the weight of the BLGF ruling: While the ruling of the Bureau of Local Government Finance (BLGF) was considered, the Court distinguished it from the expertise of the Court of Tax Appeals (CTA). The BLGF was created to provide consultative services and technical assistance, not to adjudicate tax cases. Therefore, the principle that the Court will not set aside the conclusions of the CTA due to its specialized expertise does not apply to the BLGF. The Court found no abuse or improvident exercise of authority in disregarding the BLGF's ruling.
Main Doctrine
The 'in lieu of all taxes' provision in a franchise is a tax exemption that must be granted in clear and unequivocal terms. Such exemptions are strictly construed against the taxpayer. Section 23 of R.A. No. 7925, which mandates equality of treatment in the telecommunications industry, does not automatically grant tax exemptions to previously franchised entities based on exemptions granted to later franchisees, especially when the legislative intent for deregulation and a level playing field is not primarily served by such broad interpretation of tax exemptions.