THIRD DIVISION
|
SMART COMMUNICATIONS, INC., Petitioner, - versus - THE CITY OF represented herein by its Mayor Hon. RODRIGO DUTERTE,
and the SANGGUNIANG PANLUNSOD OF Respondents . |
G.R.
No. 155491
Present: YNARES-SANTIAGO, J.,
Chairperson, CHICO-NAZARIO, NACHURA, LEONARDO-DE
CASTRO,* and BERSAMIN,**
JJ. Promulgated: July 21,
2009 |
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RESOLUTION
NACHURA, J.:
Before
the Court is a Motion for Reconsideration[1]
filed by Smart Communications, Inc. (Smart) of the Decision[2] of
the Court dated September 16, 2008, denying its appeal of the Decision and
Order of the Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and
September 26, 2002, respectively.
Briefly, the factual antecedents are
as follows:
On
February 18, 2002, Smart filed a special civil action for declaratory relief[3]
for the ascertainment of its rights and obligations under the Tax Code of the
City of
On
July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a
motion for reconsideration, which was denied by the trial court in an Order
dated September 26, 2002. Smart filed an appeal before this Court, but the same
was denied in a decision dated September 16, 2008. Hence, the instant motion
for reconsideration raising the following grounds: (1) the “in lieu of all taxes” clause in Smart’s
franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of
strict construction against tax exemptions is not applicable; (2) the “in lieu
of all taxes” clause is not rendered ineffective by the Expanded VAT Law; (3)
Section 23 of Republic Act No. 7925[4] (RA
7925) includes a tax exemption; and (4) the imposition of a local franchise tax
on Smart would violate the constitutional prohibition against impairment of the
obligation of contracts.
Section
9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9
of Smart’s legislative franchise contains the contentious “in lieu of all
taxes” clause. The Section reads:
Section 9. Tax provisions. — The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.
xxx[5]
Section 23 of RA 7925, otherwise
known as the most favored treatment clause or equality clause, contains the word
“exemption,” viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry — Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of the service authorized by the franchise.[6]
A
review of the recent decisions of the Court on the matter of exemptions from
local franchise tax and the interpretation of the word “exemption” found in
Section 23 of RA 7925 is imperative in order to resolve this issue once and for
all.
In
Digital Telecommunications Philippines,
Inc. (Digitel) v. Province of Pangasinan,[7] Digitel
used as an argument the “in lieu of all taxes” clauses/provisos found in the
legislative franchises of Globe,[8]
Smart and Bell,[9] vis-à-vis
Section 23 of RA 7925, in order to claim exemption from the payment of local
franchise tax. Digitel claimed, just like the petitioner in this case, that it was
exempt from the payment of any other taxes except the national franchise and
income taxes. Digitel alleged that Smart
was exempted from the payment of local franchise tax.
However, it failed to
substantiate its allegation, and, thus, the Court denied Digitel’s claim for
exemption from provincial franchise tax. Cited was the ruling of the Court in PLDT v. City of Davao,[10]
wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that
in approving Section 23 of RA No. 7925, Congress did not intend it to operate
as a blanket tax exemption to all telecommunications entities. Section 23
cannot be considered as having amended PLDT’s franchise so as to entitle it to
exemption from the imposition of local franchise taxes. The Court further held that tax exemptions are
highly disfavored and that a tax exemption must be expressed in the statute in
clear language that leaves no doubt of the intention of the legislature to
grant such exemption. And, even in the instances when it is granted, the
exemption must be interpreted in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.
The
Court also clarified the meaning of the word “exemption” in Section 23 of RA
7925: that the word “exemption” as used
in the statute refers or pertains merely to an exemption from regulatory or
reporting requirements of the Department of Transportation and Communication or
the National Transmission Corporation and not to an exemption from the
grantee’s tax liability.
In
Philippine Long Distance Telephone
Company (PLDT) v. Province of Laguna,[11]
PLDT was a holder of a legislative franchise under Act No. 3436, as amended. On
August 24, 1991, the terms and conditions of its franchise were consolidated
under Republic Act No. 7082, Section 12 of which embodies the so-called
"in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its gross receipts, which
franchise tax shall be "in lieu of all taxes." The issue that the Court had to resolve was whether
PLDT was liable to pay franchise tax to the
Applying the rule of strict
construction of laws granting tax exemptions and the rule that doubts are resolved
in favor of municipal corporations in interpreting statutory provisions on
municipal taxing powers, the Court held that Section 23 of RA 7925 could not be
considered as having amended petitioner's franchise so as to entitle it to
exemption from the imposition of local franchise taxes.
In ruling against the claim of PLDT,
the Court cited the previous decisions in PLDT
v. City of Davao[12]
and PLDT v. City of Bacolod,[13] in
denying the claim for exemption from the payment of local franchise tax.
In sum, the aforecited jurisprudence
suggests that aside from the national franchise tax, the franchisee is still
liable to pay the local franchise tax, unless it is expressly and unequivocally
exempted from the payment thereof under its legislative franchise. The “in lieu
of all taxes” clause in a legislative franchise should categorically state that
the exemption applies to both local and national taxes; otherwise, the
exemption claimed should be strictly construed against the taxpayer and
liberally in favor of the taxing authority.
Republic
Act No. 7716, otherwise known as the “Expanded VAT Law,” did not remove or
abolish the payment of local franchise tax. It merely replaced the national
franchise tax that was previously paid by telecommunications franchise holders
and in its stead imposed a ten percent (10%) VAT in accordance with Section 108
of the Tax Code. VAT replaced the national franchise tax, but it did not
prohibit nor abolish the imposition of local franchise tax by cities or
municipaties.
The power to tax by local government
units emanates from Section 5, Article X of the Constitution which empowers them
to create their own sources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide. The
imposition of local franchise tax is not inconsistent with the advent of the
VAT, which renders functus officio
the franchise tax paid to the national government. VAT inures to the benefit of
the national government, while a local franchise tax is a revenue of the local
government unit.
WHEREFORE, the
motion for reconsideration is DENIED,
and this denial is final.
SO ORDERED.
ANTONIO
EDUARDO B. NACHURA
Associate
Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate
Justice
Chairperson
|
MINITA V. CHICO-NAZARIO Associate
Justice |
TERESITA J. LEONARDO-DE CASTRO Associate
Justice |
LUCAS P. BERSAMIN
Associate
Justice
A T T E S T A T I O N
I attest that the conclusions in the above Resolution were
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
CONSUELO
YNARES-SANTIAGO
Associate
Justice
Chairperson,
Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution
and the Division Chairperson's Attestation, I certify that the conclusions in
the above Resolution had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO
S. PUNO
Chief
Justice
* Additional member vice Justice Ruben T. Reyes (retired) per raffle dated February 23, 2009.
** Additional member vice Justice Alicia Austria-Martinez (retired) per raffle dated May 13, 2009.
[1] Rollo, pp. 395-436.
[2]
[3] Rules of Court, Rule 63.
[4] Public Telecommunications Policy
Act of the
[5] Emphasis supplied.
[6] Emphasis supplied.
[7] G.
R. No. 152534, February 23, 2007, 516 SCRA 541.
[8] Republic
Act No. 7229.
[9] Republic Act No. 7692
[10] 415 Phil. 764 (2001).
[11] G.R.
No. 151899, August 16, 2005, 467 SCRA 93.
[12] G.R. No. 143867, 415 Phil. 769, August 22, 2001; 447 Phil. 571, March 25, 2003.
[13] G.R. No. 149179, July 15, 2005, 463 SCRA 528.