PLDT vs. City of Davao

 G.R. No. 143867            August 22, 2001

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner,

vs.

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

FACTS:

PLDT applied for a Mayor's Permit to operate its Davao Metro Exchange. Respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax.

Petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax previously paid. Petitioner contended that it was exempt from the payment of franchise tax on the basis of Section 23 of RA 7925, PLDT as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995. Petitioner argued that they shall be exempt from the payment of franchise and business taxes imposable by LGUs under Sections 137 and 143, respectively, of the LGC, upon the effectivity of RA 7925 on March 16, 1995. 

Respondent City Treasurer of Davao, denied the protest and claim for tax refund of petitioner.

Thus, petitioner filed a petition in the RTC of Davao seeking a reversal of respondent City Treasurer's denial of petitioner's protest.

The RTC denied it and affirmed the City Treasurer's decision. 

The trial court held that, under Sec 137 and 143 of LGC, which took effect on January 1, 1992, those sections provides that all exemptions granted to all persons, whether natural and juridical, including those which in the future might be granted, are withdrawn unless the law granting the exemption expressly states that the exemption also applies to local taxes. 

Hence petition for review.

ISSUES:

(1) Whether RTC is correct in ruling that all exemptions granted to all persons, whether natural and juridical, including those which in the future might be granted are withdrawn unless the law granting the exemption expressly states that the exemption also applies to local taxes, as provided under sections 137 and 143 of LGC.

(2) Whether, after the withdrawal of its exemption by virtue of Sec. 137 of the LGC, petitioner has again become entitled to exemption from local franchise tax.

RULING:

(1) No. Sec. 137 does not state that it covers future exemptions. The Tax Code provision withdrawing the tax exemption was not construed as prohibiting future grants of exemptions from all taxes.

Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy.

(2) No. Petitioner justifies its claim of tax exemption by strained inferences. It argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.

Tax exemptions are highly disfavored.

The 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 if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it.

In this case, it does not appear that, in approving Sec. 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, thus, Sec. 23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes.