50- MERALCO vs.

Province of Laguna Facts: Certain municipalities of the Province of Laguna issued resolutions through their respective municipal councils granting franchise in favor of Meralco for the supply of light, het and power within the concerned areas The Local Government Code of 1991 was subsequently enacted, enjoining local government units to create their own sources of revenue and levy taxes, fees and charges subject to the limitations expressed therein The province of Laguna enacted Laguna Provincial Ordinance which imposed tax on businesses enjoying a franchise at a rate of 50% of 1% of the gross annual receipts The provincial treasurer sent a demand letter to meralco for the tax payment Meralco paid the tax, which amounted to P19,520,628.42, under protest Meralco claims that the franchise tax it had paid and continued to pay to the National Government, already included the tax imposed by the Provicial Tax Ordinance RTC dismissed the complaint

Issue: Whether or not the Laguna Provincial Tax Ordinance is valid, binding, reasonable and inforceable Held: Yes. Under the present Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The reason for this is to safeguard the viability and selfsufficiency of local government units by directly granting them general and broad tax powers. The LGC of 1991 explicitly authorizes provincial governments, notwithstanding any exemption granted by law, to impose a tax on businesses enjoying a franchise. While the Court has referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being STRICTLY CONTRACTUAL. However, contractual tax exemptions should not be confused w/ tax exemptions under franchises. Contractual tax exemptions are those agreed to by the taxing authority in contracts, such as those contained in government bonds, where the government acts in its private capacity and waives its governmental immunity. Tax exemptions of this

kind may NOT be revoked without impairing the obligations of contracts. On the other hand, a franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Art 12 of the Consti provides that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.