MANILA ELECTRIC CO. vs. PROVINCE OF LAGUNA, (Public Corporation)

[G.R. No. 131359. October 4, 1999]

MANILA ELECTRIC CO. vs. PROVINCE OF LAGUNA, et al.

FACTS:

On the basis of Republic Act No. 7160 (Local Government Code of 1991), respondent province of Laguna enacted Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, imposing a tax on businesses enjoying a franchise, at a rate of fifty (50%) of one percent (1%) of their annual receipts. 

Upon demand from respondent Provincial Treasurer, petitioner Manila Electric Company ("MERALCO") paid the tax, then amounting to P19,520,628.42, under protest. 

But a formal claim for refund was forthwith sent by MERALCO. The latter contended that the franchise tax it was paying to the National Government pursuant to P.D. 551 already included the franchise tax imposed under the Provincial Tax Ordinance. MERALCO argued that Laguna Provincial Ordinance No. 01-92 contravened the provisions of Section 1 of P.D. 551, hereunder quoted, thus -

"Section 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current.

"Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the month as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current."

Refund was denied by the Province of Laguna. MERALCO thereupon filed with the Regional Trial Court of Sta. Cruz, Laguna, a complaint for refund against the province.

The trial court rendered its decision, dismissing the complaint of MERALCO and declaring Laguna Provincial Tax Ordinance No. 01-92 valid, binding, reasonable and enforceable.

ISSUE:

Whether the Laguna Provincial Tax Ordinance No. 01-92 is valid.

RULING:

Yes. Private respondent's invocation of the non-impairment clause of the Constitution is accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to ensure autonomy to local governments and to enable them to attain fullest development as self-reliant communities. 

The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article 10 of the Constitution. Thus, Article 10, Section 5 of the Constitution reads:

"Section 5 - Each Local Government unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local Governments.'

With or without reservations clause, franchises are subject to altercations through a reasonable exercise of the police power; they are also subject to altercation by the power to tax, which like police power cannot be contracted away.