CORPORATION,
Petitioner,
Present:
PANGANIBAN,
C.J., Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO,
SR., and
CHICO-NAZARIO,
JJ.
represented by
HON. BENJAMIN G. DY,
Provincial Governor, Promulgated:
Respondent.
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CALLEJO,
SR., J.:
This is a
petition for review on certiorari of
the Decision[1] of
the Court of Appeals (CA) dated
The antecedents are as follows:
Respondent alleged in the complaint
that petitioner’s Magat River Hydro-Electric Plant is located within its
territory and that, for this reason, it imposed a franchise tax on petitioner
pursuant to Section 137[2] of
Republic Act No. 7160 (Local Government Code of 1991). It averred that
petitioner paid the franchise tax for the years 1992 and 1993 in the amount of P9,473,275.00
but failed and refused to pay, despite demands, the franchise tax for the year
1994 in the amount of P7,116,949.00. Respondent likewise sought the
payment of legal interest amounting to P854,033.88 plus damages.[3]
In its
Answer, petitioner averred that the Magat River Hydro-Electric Plant is
constructed on the land owned by the National Irrigation Administration, which
is situated at Susoc, Sto. Domingo, Potia, Ifugao. It admitted that it paid
franchise tax to the respondent for the years 1992 and 1993, but that it did so
only upon respondent’s representation that the Magat Hydro-Electric Plant is
located within its territorial jurisdiction. It alleged that, due to the
boundary dispute between the respondent and the
The controversy on the payment of franchise tax could be settled in an action
for interpleader, which petitioner intended to file against respondent and the
With leave of court, the
1. Ordering the National Power
Corporation to pay unto intervenor the sum of P7,116,949.00 representing
the franchise tax for 1994 and all franchise tax accruing thereafter;
2. Ordering the Province of
Isabela to pay unto intervenor the aggregate amount of P9,473,275.00
representing the franchise tax for the years 1992 and 1993 plus legal interest;
3. Ordering defendants to pay
jointly and severally attorney’s fee and litigation expenses.
Other reliefs just and
equitable under the premises.[6]
In answer to the amended
complaint-in-intervention, respondent asserted that the Magat Hydro-Electric Power
Plant is located within its
territory. It averred that the power plant is an
expansion of the Magat River Irrigation System, constructed in 1957 and located
in Ramon, Isabela, and the Siffu River Irrigation System, located along the
boundaries of
Petitioner, for its part, asserts in its answer to the complaint-in-intervention that it is a non-profit corporation pursuant to Section 13 of Rep. Act No. 6395 (its charter); as such, it is not covered by the Local Government Code, and therefore not obliged to pay franchise tax. The imposition of the franchise tax on appellant would run counter to Section 13 of its charter.[8]
In a
Decision dated
WHEREFORE, for and in
consideration of all the foregoing, judgment is hereby rendered in favor of the
plaintiffs and against the defendant: declaring the defendant National Power
Corporation liable for payment of Franchise Tax and ordering said defendant, to
immediately deposit, in escrow, in favor of the plaintiffs, with the Land Bank
of the Philippines, Ilagan Branch, the amount of P7,116,949.00, representing
Franchise Tax for the year 1994, plus legal interest amounting to P854,033.00
for the same year 1994; and to pay the costs of this suit.
SO ORDERED.[9]
Petitioner
then filed an appeal with the CA. On
Petitioner,
through the Office of the Solicitor General, filed this petition for review
with only the
THE COURT OF APPEALS ERRED IN HOLDING THAT THE NATIONAL POWER CORPORATION IS LIABLE FOR THE PAYMENT OF FRANCHISE TAX UNDER THE LOCAL GOVERNMENT CODE.[12]
Petitioner
urges this Court to take a second look at its ruling in National Power Corporation v. City of Cabanatuan,[13] which held it liable for franchise tax
by virtue of the LGC. It contends that Section
193 thereof did not withdraw the tax exemption provided under
Section 13 of its charter, Rep. Act No. 6395, which provides:
Section 13. Non-profit Character of the Corporation;
Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the
Government and Government Instrumentalities. — The Corporation shall be
non-profit and shall devote all its returns from its capital investment as well
as excess revenues from its operation, for expansion. To enable the Corporation
to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section One of this Act, the
Corporation, including its subsidiaries, is hereby declared, exempt from the
payment of all forms of taxes, duties, fees, imposts as well as costs and
service fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings.
Petitioner stresses that there was no
provision in the LGC expressly repealing the said provision; neither was there
an implied repeal thereof. It points out that repeals by implication are not
favored. Moreover, a general law, such as the LGC, cannot repeal a special law,
such as Rep. Act No. 6395, unless it clearly appears that the legislature
intended to do so.[14]
Petitioner argues that, in this case, there was clearly no intention to repeal;
on the contrary, the intention to exempt it from local taxes is clearly
manifest in said Section 13. This is bolstered by the Declaration of Policy
which provides that “the total electrification of the Philippines through the
development of power from all sources to meet the needs of industrial
development and dispersal, and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by
all instrumentalities of the government, including its financial institutions.”
In addition, petitioner cites the case of Maceda
v. Macaraig, Jr.[15]
to show the intent of lawmakers to exempt it from all forms of taxes. Petitioner
further maintains that it is a government-owned and controlled corporation with
an original charter and its shares of stock are owned by the National Government;
as such, it is exempt from local taxes.[16]
In any
case, petitioner argues that, assuming that Section 13 of its charter has been
repealed by Section 193 of the LGC, it will still not be liable for franchise
tax for the following reasons:
First. Section 137 of the LGC is not
applicable to it, as the said provision empowers local government units to
impose franchise tax only with respect to private individuals and corporations.
Thus, Section 137 of the Code provides:
SECTION 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.
Petitioner
stresses that, under the LGC, “business” means a trade or commercial activity
regularly engaged in as a means of livelihood or with a view to a profit.[17]
On the other hand, “franchise” means a right or privilege, affected with public
interest which is conferred upon private persons or corporations, under such
terms and conditions as the government and its political subdivisions may
impose in the interest of public welfare, security and safety.[18]
Petitioner thus asserts that it cannot be held liable to pay franchise tax
because it is neither a private corporation nor a business created for profit.
Second. Petitioner contends that the
authority of respondent to tax does not extend to it. Section 133 (o) of the
LGC states that
Section 133. Common Limitations on the Taxing Powers of the Local Government Units.— Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following:
x x x x
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.
Petitioner claims
that it is an instrumentality of the National Government, which is beyond the
authority of local government units to tax. It points out that it remits the
profits derived from its operations to the National Government; Congress
approves its yearly budget, which forms part of the General Appropriations Act;
and all of its indebtedness, foreign or domestic, is guaranteed by the National
Government.[19]
Finally,
petitioner posits that to require it to pay franchise tax could have
deleterious effects on its operations. It would compel petitioner to borrow
from domestic and foreign financial institutions to meet both its operational
expenses and the franchise tax. Ultimately, it is the national government that
will pay the tax, and the burden shouldered by the Filipino people.
Respondent,
for its part, maintains that petitioner has failed to overcome the presumption
that it is taxable. It stresses that tax exemptions are highly disfavored and
construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power. Petitioner, as the taxpayer,
had the burden of proving that it is exempt from paying the franchise tax. Respondent
avers that petitioner cannot find solace in the tax exemption privilege
provided in its charter because this has already been withdrawn by the LGC.
Contrary to petitioner’s assertion, respondent contends that such tax exemption
privilege has been expressly repealed by the LGC, and cites the City Government of San Pablo, Laguna v.
Reyes[20]
where the Court declared that the legislative purpose to withdraw tax privileges
enjoyed under existing law is clearly manifested by the language used in
Sections 137 and 193 which categorically withdrew such exemptions subject only
to the exceptions enumerated.
Respondent
avers that petitioner’s status as a non-profit government corporation does not
exempt it from liability to pay franchise tax to local government units. Petitioner,
as a corporation created to undertake ministrant or proprietary function, has
long been treated in this jurisdiction as akin to a private commercial corporation.
Its dealings are considered to be purely private and commercial undertakings
although imbued with public interest.[21]
The
fundamental issue to be resolved in this case is whether or not petitioner is
subject to franchise tax under the LGC.
The
petition has no merit. The case is on all fours with the case of National Power Corporation v. City of
Cabanatuan,[22] where
this very same issue was settled by the Court. In the
Indeed,
taxation is the rule and exemption is the exception. The burden of proof rests
upon the party claiming exemption to prove that it is, in fact, covered by the exemption
so claimed.[23]
Tax exemptions should be granted only by clear and unequivocal provision of law
on the basis of language too plain to be mistaken. They cannot be extended by
mere implication or inference.[24]
In this case, petitioner relies solely on the exemption granted to it by its
charter, arguing that its exemption from franchise tax remained despite the
enactment of the LGC.
The Court also
addressed this issue in the
x x x [S]ection 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. It reads:
Sec. 193. Withdrawal of Tax Exemption Privileges.— Unless otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (italics supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax “notwithstanding any exemption granted by any law or other special law.” This particular provision of the LGC does not admit any exception. x x x[25]
Even prior to
the Cabanatuan case, the Court
already declared in City Government of
San Pablo, Laguna v. Reyes[26]
that the franchise tax may still be imposed despite any exemption enjoyed under
special laws, explaining thus:
x x x The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used in Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used.[27]
Nonetheless,
petitioner seeks to avoid paying the franchise tax by arguing further that it
is not liable therefor under Section 137 of the LGC because said tax applies
only to a “business enjoying a franchise.” It contends that it is not a private
corporation or a business for profit. Again, we do not agree. The Court also
declared in the
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the concept of taxation. As commonly used, a franchise tax is “a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state.” It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that the phrase “tax on businesses enjoying a franchise” in Section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a “franchise” in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 6395, constitutes petitioner’s primary and secondary franchises. It serves as the petitioner’s charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner [with x x x certain] powers which are not available to ordinary corporations x x x
x x x x
Petitioner also fulfills the second requisite. It is operating within the respondent city government’s territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. x x x[28]
Petitioner was
likewise characterized therein as a private
enterprise for profit, on the following ratiocination:
Petitioner was created to “undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis. Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.[29]
Petitioner
nevertheless contends that respondent cannot impose a franchise tax on it
because it is an instrumentality of the National Government. It also cites the
case of Basco v. Philippine Amusements
and Gaming Corporation[30]
which held that a government-owned and controlled corporation whose shares of
stock are owned by the national government is exempt from local taxes.
This contention,
however, is without merit. Although as a general rule, LGUs cannot impose
taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to
impose taxes, fees or charges on the aforementioned entities.[31]
Section 137 of the LGC is one of those exceptions. It authorizes the province
to impose a tax on business enjoying
a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction.
Thus, the
doctrine laid down in the Basco case
is no longer true. In the
WHEREFORE, premises considered, the petition
is DENIED. The Decision of the Court
of Appeals dated
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE
CONCUR:
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
Associate Justice
Associate Justice
Pursuant to Section 13, Article VIII of the
Constitution, it is hereby certified that the conclusions in the above decision
were reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
ARTEMIO
V. PANGANIBAN
Chief
Justice
[1] Penned by Associate Justice Edgardo P. Cruz with Associate Justices Godardo A. Jacinto and Jose C. Mendoza, concurring; rollo, pp. 44-54.
[2] Section 137. Franchise Tax. — Notwithstanding any
exemption granted by any law or other special law, the province may impose a
tax on business enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction.
[3] Records, p. 2.
[4]
[5]
[6]
[7]
[8]
[9] Rollo, pp. 67-68.
[10] 449 Phil. 233, 256 (2003).
[11] Rollo, pp. 49-53.
[12]
[13] Supra note 10, at 259.
[14] Rollo, pp. 24-25.
[15] G.R. No. 88291, June 8, 1993, 223
SCRA 217.
[16] Rollo, pp. 25-27.
[17] Section 131 (d), Rep. Act No. 7160.
[18] Section 131 (m), Rep. Act No. 7160.
[19] Rollo, pp. 28-35.
[20] 364 Phil. 842, 854 (1999).
[21] Rollo, pp. 85-86.
[22] Supra note 10.
[23] Cyanamid Philippines, Inc. v. Court of Appeals, 379 Phil. 689, 703 (2000).
[24] Philippine Long Distance Telephone Company,
Inc. v. City of
[25] National Power Corporation v. City of
[26] Supra note 20.
[27]
[28] National Power Corporation v. City of
[29]
[30] 274 Phil. 323, 339 (1991).
[31] National Power Corporation v. City of
[32]