I. Title: City of Iloilo vs.
Smart Communications
G.R. No. 167260, February 27, 2009
II. Doctrine
One who claims an exemption from his share of the common burden of taxation must
justify his claim by showing that the Legislature intended to exempt him by words too
plain to be beyond doubt or mistake. A taxpayer claiming a tax exemption must point to a
specific provision of law conferring on the taxpayer, in clear and plain terms, exemption
from a common burden.
III. Facts
SMART received an assessment for it to pay deficiency local franchise and business
taxes for P764, 545.29 plus interest and surcharges. SMART protested thru a letter to
the City Treasurer claiming that it was exempted from paying the same as under its
franchise, it is only required to pay 3% of all of its gross receipts in lieu of all taxes,
which includes local franchise and business taxes.
SMART invoked by virtue of Section 231 of the Public Telecoms Act, tax exemptions
granted by the legislature to other holders of telecommunications franchise may be
extended to and availed of by SMART. The City denied SMARTs protest on the
ground that it failed to comply with the Sec. 525 of LGC which requires payment of
tax before protest v. tax assessment can be made. SMART then instituted a
prohibition case against it with RTC.
RTC: Telecommunications firm exempt from the payment of local franchise and
business taxes under Section 92 of its franchise and Section 23 of the Public Telecoms
Act.
Hence this petition for review on certiorari. City claims that language of Sec. 9 is not
couched in plain and unequivocal language such that it restored the withdrawal of
exemption under Sec. 1933 of LGC. That if Congress intended it to be exempted it
shouldve expressly so provide.
IV. Issues
(1) Whether SMART is exempt from payment of local franchise and business taxes. (NO)
V. Held
(1) One who claims an exemption from his share of the common burden of taxation must
justify his claim by showing that the Legislature intended to exempt him by words too
plain to be beyond doubt or mistake.
1 Section 23 declares that any existing privilege, incentive, advantage, or exemption granted under existing franchises shall ipso
facto become part of previously granted-telecommunications franchise
2 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.The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal
Revenue or his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be
subject to audit by the Bureau of Internal Revenue.
3 Section 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 RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
Right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of
the government. A well-founded doubt is fatal to the claim; it is only when the terms of the
concession are too explicit to admit fairly of any other construction that the proposition
can be supported.
Tax exemptions must be clear and unequivocal; A taxpayer claiming a tax exemption must
point to a specific provision of law conferring on the taxpayer, in clear and plain terms,
exemption from a common burden.
Under Sec. 9 of SMARTs franchise, it is only required to pay a franchise tax of 3% of all
its gross receipts in lieu of all taxes on its franchise provided that it shall continue to be
liable for income taxes. While Under Sec 193 of LGC, it withdrew all exemptions granted
to persons, natural or juridical. The intention of the LGC was to remove exemptions
granted prior its effectivity. SMARTs franchise was made effective after effectivity of
LGC, hence Sec. 193 does not apply.
However, the SC failed to fined encompassing grant of tax exemption to SMART from
both national and local taxes. Under SMARTs Franchise, it does not expressly provide
what kind of taxes SMART is exempted from. It is not clear whether in lieu of all taxes
it includes exemption from local or national. What is clear is that SMART shall pay
franchise tax of 3% but the exemptions from exactions by both local and national is not
unequivocal. Hence, this uncertainty must be construed strictly against SMART.
In PLDT v. City of Davao, Carpio, J. is of the opinion that Sec. 9 of SMARTs ranchise
that it is liable for taxes under Title II of NIRC. The clear intent of in lieu of all taxes
caluse applies only to taxes under NIRC and not to local taxes.
Nonetheless, even if Sec. 9 can be construed as covering local taxes as well, reliance
would now be unavailing since the in lieu clause exempts SMART as long as it pays
franchise tax, however the franchise tax was abolished by E-VAT Law which imposed
10% VAT on Telecom Companies under Sec. 108 of NIRC. Hence it was made
inoperative for lack of franchise tax.
As re: exemption under Public Telecoms Act (Sec. 23)
Whether Section 23 of the cited law extends tax exemptions granted by Congress to new
franchise holders to existing ones has been answered in the negative in the case of PLDT
v. City of Davao. Act does not mean tax exemption; rather, it refers to exemption from
certain regulatory or reporting requirements imposed by government agencies such as the
National Telecommunications Commission to promote gradual deregulation of all
telecoms and to level playing field. Language and proceedings in both Houses of
Congress are of anything that would signify grant of tax exemptions. Intent to grant
exemption cannot be discerned from the law. Exemption is too general to include
tax exemption and runs counter to the requirement that the grant of exemption
should be stated in clear and unequivocal language.
As re: surcharges and interest
Generally, surcharges and interest is not imposed if good faith and honest belief that one is
not subject to tax on the basis of previous interpretation of govt agenices tasked to
implent tax laws are sufficient not to impose this. However, SMART did not rely on good
faith. It anchored its claim on the opinion of Buerau of Loac Govt anf Finance whent it
stated that it is exempted. However, BLFG is whitohut authority to interpret tax laws. It is
th CIR who has been given express prowers to intpret Tax Laws.
Petition granted, RTC reversed.