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P13 3
P13 3
RULING: The removal of the blanket exclusion of government instrumentalities from local
taxation as one of the most significant provisions of the 1991 LGC. Section 193 of the LGC, an
express and general repeal of all statutes granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC under its Charter.
When NPC assumed the tax liabilities of the BPC under the BOT Agreement, the LGC which
removed NPCs tax exemption privileges had already been in effect for six (6) months. Thus, while
BPC remains to be the entity doing business in said city, it is the NPC that is ultimately liable to
pay said taxes under the provisions of both the BOT Agreement and the 1991 LGC.
P12.3 Smart Communications v. City of Davao, GR No. 155491, September 16, 2008
FACTS: Smart filed contended that its Tel-center in Davao is exempt from franchise tax because
the power of the City of Davao to impose a franchise tax is subject to statutory limitations such as
the “in lieu of all taxes” clause found in Section 9 of R.A. No. 7294 (Smart’s franchise).
Respondents invoked the power granted by the Constitution to LGUs to create their own sources
of revenue. RTC denied petition and noted that the ambiguity of the in “lieu of all taxes” provision
in R.A. No. 7294, on whether it covers both national and local taxes, must be resolved against the
taxpayer.
RULING: Tax exemptions are never presumed and are strictly construed against the taxpayer and
liberally in favor of the taxing authority. They can only be given force when the grant is clear and
categorical. Smart has the burden of providing that, aside from the imposed 3% franchise tax, the
Congress intended it to be exempt from all kinds of franchise taxes whether local or national.