City Government of Quezon City & City Treasurer Dr Enriga v Bayan Telecommunications Inc

J Garcia
March 6, 2006
GR 162015
Doctrine
According to Fr Bernas: Section 5, Art 10 of the Constitution merely confer municipal corporations a general power to levy taxes
and otherwise create sources of revenue. They no longer have to wait for a statutory grant of these powers. The power of the
legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on
municipal powers. Moreover, these limitations must be consistent with the basic policy of local autonomy.
1

Summary

Facts

Under Section 5 , Art 10 of the 1987 Constitution and the LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The legal effect of the constitutional
grant to local governments simply means that in interpreting statutory provisionson municipal taxing powers, doubts must be
resolved in favor of municipal corporations.
Under its franchise law, properties used by Bayantel for their operations are exempt from taxation. Soon after, the LGC was
enacted hence, giving the LGUs power to levy taxes. A few months after, the franchise law of Bayantel was amended and with this
amendatory law, the exemption from taxes was still granted. The problem arose when QC LGU sent tax declarations to Bayantel.
Bayantel argued that their properties were exempt from taxes. The SC held that the properties were exempt because even if the
LGUs had the power to levy taxes, this does not mean that it can override tax exemptions made by the legislature. It is important
to note that the tax exemption given by Congress to Bayantel was reiterated in the amendatory law, with the LGC already enacted.
In other words, when the congress stipulated on the tax exemption, they were fully aware of the capacity of the LGU to tax the
properties.

Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic Act No. 3259 (1961),
licensed to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and telecasting.
o Section 14 (a) of R.A. No. 3259 states: The grantee shall be liable to pay the same taxes on its real estate, buildings
and personal property, exclusive of the franchise, as other persons or corporations are now or hereafter may be
required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines each year, within ten
days after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross
receipts from the business transacted under this franchise by the said grantee

In 1992, R.A. No. 7160, otherwise known as the Local Government Code of 1991 (LGC) took effect.
o
Section 2322 of the Code grants local government units within the Metro Manila Area the power to levy tax on real
properties.
3
o Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code which
withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons, natural or juridical

Barely few months after the LGC took effect, Congress enacted R.A. No. 7633, amending Bayantels original franchise.
o The Section 11 of the amendatory contained the following tax provision: 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, xxx.

In 1993, the government of Quezon City, pursuant to the taxing power vested on local government units by Section 5, Article
X of the 1987 Constitution, in relation to Section 232 of the LGC, enacted City the Quezon City Revenue Code (QCRC),imposing
real property tax on all real properties in Quezon City, and, reiterating the withdrawal of exemption from real property tax
4
under Section 234 of the LGC. Furthermore, much like the LGC, the QCRC, under its Section 230 , withdrew tax exemption
privileges in general
o With the enactment of the Citys Revenue Code, new tax declarations for Bayantels 3 real properties in QC were
issued by the City Assessor

Meanwhile on Mach 1995, RA 7925, or Public Telecommunications Policy Act of the Ph was enacted. This law aimed to level
the playing field among telecom companies.
o Sec 235, of RA 7925 provided that telecom companies that are granted a franchise are unconditionally exempted
from paying taxes.

On Jan 1999, Bayantel wrote to the City Assessor, requesting that their real properties be excluded from the taxable real
properties . The request was denied, hence Bayantel elevated the issue to the Local Board of Assessment Appeals (LBAA).
However, because of the notice of delinquency being sent by the QC LGU, threatening to sell Bayantels property in a public

Section 5. Each local government unit shall have the power to create its own sources of revenues 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.
2
SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real
property such as land, building, machinery and other improvements not hereinafter specifically exempted.
3
SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:
xxx xxx xxx
Except as provided herein, any exemption from payment of real property tax previously granted to, or enjoyed by, all persons, whether natural or juridical, including
government-owned-or-controlled corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied).
4
SEC. 230. 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
6938, non-stock and non-profit hospitals and educational institutions, business enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively, are hereby withdrawn effective upon approval of this Code (Emphasis supplied).
5
SEC. 23. Equality of Treatment in the Telecommunications Industry. 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: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise

auction, Bayantel withdrew its appeal with the LBAA and filed a petition for prohibition and application for TRO with the RTC
of QC
The RTC declared that the properties are exempt from taxation
Hence, the recourse to the SC on pure questions of law

Ratio/Issues
(1) Whether or not Bayantels real properties in Quezon City are exempt from real property taxes under its franchise. (YES)
a. A clash between the inherent taxing power of the legislature, which necessarily includes the power to exempt, and the
local governments delegated power to tax under the aegis of the 1987 Constitution must be ruled in favor of the
former. The grant of taxing powers to LGUs 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. The legal effect of the constitutional
grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts
must be resolved in favor of municipal corporations.
b. The legislative intent expressed in the phrase exclusive of this franchise cannot be construed other than distinguishing
between two (2) sets of properties, be they real or personal, owned by the franchisee, namely, (a) those actually,
directly and exclusively used in its radio or telecommunications business, and (b) those properties which are not so
used. It is worthy to note that the properties subject of the present controversy are only those which are admittedly
falling under the first category. It must be understood that those properties falling under (b) are subject to taxation as
they do not fall under the franchise of Bayantel.
c. Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has already withdrawn
Bayantels former exemption from realty taxes, the Congress using, Section 11 thereof with exactly the same defining
phrase exclusive of this franchise is the basis for Bayantels exemption from realty taxes prior to the LGC. In plain
language, the Court views this subsequent piece of legislation as an express and real intention on the part of Congress
to once again remove from the LGCs delegated taxing power, all of the franchisees (Bayantels) properties that are
actually, directly and exclusively used in the pursuit of its franchise
Held
Case is Dismissed, CA is affirmed
Prepared by: Carla Cucueco [Tax| Prof. Cabreras]