Taxation Case Digest: PLDT vs City of Davao, et.al.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT)

vs.

CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as City Treasurer of Davao

GR. No. 143867

March 25, 2003
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TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL TAXES” PROVISION

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Facts:

PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid “in lieu of all taxes on this franchise or earnings thereof” pursuant to RA 7082. The exemption from “all taxes on this franchise or earnings thereof” was subsequently withdrawn by RA 7160 (LGC), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The LGC took effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income receipts realized within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained “in leiu of all taxes” provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which provides that 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. The law took effect on March 16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro exchange, it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax for the year 1997 and for the first to the third quarters of 1998.

Issue:

Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.

Held:

Petitioner contends that because their existing franchises contain “in lieu of all taxes” clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law “expressed in a language too plain to be mistaken” and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, “clear and unequivocal” way of communicating the legislative intent.
Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.