QUEZON CITY vs. ABS-CBN G.R. No.
for reconsideration which was
166408, October 6, 2008)
FACTS:
Petitioner City Government of Quezon
City is a local government unit duly
organized and existing by virtue of
Republic Act (R.A.) No.537, otherwise
known as the Revised Charter of Quezon
City. Petitioner City Treasurer of Quezon
City is primarily responsible for the
imposition and collection of taxes within
the territorial jurisdiction of Quezon City.
ABS-CBN was granted the franchise to
install and operate radio and television
broadcasting stations in the Philippines
under R.A. No.7966. ABS-CBN had been
paying local franchise tax imposed by
Quezon City. However, in view of the
provision in R.A. No. 9766 that it “shall
pay a franchise tax x x x in lieu of all
taxes,” the corporation developed the
opinion that it is not liable to pay the local
franchise tax imposed by Quezon City.
ABS-CBN filed a written claim for refund
for local franchise tax paid to Quezon City
for 1996and for the first quarter of 1997.
For failure to obtain any response from
the Quezon City Treasurer, ABS-CBN filed
a complaint before the RTC in Quezon
City seeking the declaration of nullity of
the imposition of local franchise tax by
the City Government of Quezon City for
being unconstitutional. The RTC rendered
judgment declaring as invalid the
imposition on and collection from ABS-
CBN of local franchise tax and ordered the
refund of all payments made. The City of
Quezon and its Treasurer filed a motion
to justify his claim by clearest grant of
subsequently denied by the RTC. Thus,
appeal was made to the CA. The CA
dismissed the petition of Quezon City and
its Treasurer. According to the appellate
court, the issues raised were purely legal
questions cognizable only by the Supreme
Court.
ISSUE:
Whether or not the phrase "in lieu of all
taxes" indicated in the franchise of the
respondent appellee (Section 8 of RA
7966) serves to exempt it from the
payment of the local franchise tax
imposed by the petitioners-appellants.
HELD:
NO
The "in lieu of all taxes" provision in its
franchise does not exempt ABS-CBN
from payment of local franchise tax.
The present controversy essentially boils
down to a dispute between the inherent
taxing power of Congress and the
delegated authority to tax of local
governments under the 1987 Constitution
and effected under the LGC of 1991.
Petitioners argue that the "in lieu of all
taxes" provision in ABS-CBN's franchise
does not expressly exempt it from
payment of local franchise tax. They
contend that a tax exemption cannot be
created by mere implication and that one
who claims tax exemptions must be able
be expressed in clear and unambiguous
organic law or statute.
Taxes are what civilized people pay for
civilized society. They are the lifeblood of
the nation. Thus, statutes granting tax
exemptions are construed stricissimi
juris against the taxpayer and liberally in
favor of the taxing authority. A claim of
tax exemption must be clearly shown and
based on language in law too plain to be
mistaken. Otherwise stated, taxation is
the rule, exemption is the exception. The
burden of proof rests upon the party
claiming the exemption to prove that it is
in fact covered by the exemption so
claimed. The basis for the rule on strict
construction to statutory provisions
granting tax exemptions or deductions is
to minimize differential treatment and
foster impartiality, fairness and equality
of treatment among taxpayers. He who
claims an exemption from his share of
common burden must justify his claim
that the legislature intended to exempt
him by unmistakable terms. For
exemptions from taxation are not favored
in law, nor are they presumed. They must
be expressed in the clearest and most
unambiguous language and not left to
mere implications. It has been held that
"exemptions are never presumed, the
burden is on the claimant to establish
clearly his right to exemption and cannot
be made out of inference or implications
but must be laid beyond reasonable
doubt. In other words, since taxation is
the rule and exemption the exception, the
intention to make an exemption ought to
terms.
Section 8 of R.A. No. 7966 imposes on
ABS-CBN a franchise tax equivalent to
three (3) percent of all gross receipts of
the radio/television business transacted
under the franchise and the franchise tax
shall be "in lieu of all taxes" on the
franchise or earnings thereof. The "in lieu
of all taxes" provision in the franchise of
ABS-CBN does not expressly provide what
kind of taxes ABS-CBN is exempted from.
It is not clear whether the exemption
would include both local, whether
municipal, city or provincial, and national
tax. What is clear is that ABS-CBN shall be
liable to pay three (3) percent franchise
tax and income taxes under Title II of the
NIRC. But whether the "in lieu of all taxes
provision" would include exemption from
local tax is not unequivocal.
As adverted to earlier, the right to
exemption from local franchise tax must
be clearly established and cannot be
made out of inference or implications but
must be laid beyond reasonable doubt.
Verily, the uncertainty in the "in lieu of all
taxes" provision should be construed
against ABS-CBN. ABS-CBN has the
burden to prove that it is in fact covered
by the exemption so claimed. ABS-CBN
miserably failed in this regard.
ABS-CBN cites several cases to support its
claim that that the "in lieu of all taxes"
clause includes exemption from all taxes.
However, a review of the case laws
reveals that the grantees' respective
franchises expressly exempt them from
municipal and provincial taxes and ABS-
CBN's franchise did not embody an
exemption similar to those cases. Too, the
franchise failed to specify the taxing
authority from whose jurisdiction the
taxing power is withheld, whether
municipal, provincial, or national. In fine,
since ABS-CBN failed to justify its claim for
exemption from local franchise tax, by a
grant expressed in terms "too plain to be
mistaken" its claim for exemption for
local franchise tax must fail.
CEPALCO v. City of Cagayan de Oro
G.R. No. 191761, November 14, 2012
FACTS:
 The Sangguniang Panlungsod of
Cagayan de Oro (City Council)
passed Ordinance No. 9503-2005
imposing a tax on the lease or
rental of electric and/or
telecommunication posts, poles
or towers by pole owners to other
pole users at ten percent (10%) of
the annual rental income derived
from such lease or rental
 CEPALCO filed a petition for
declaratory relief to assail the
validity of the Ordinance:
o the tax imposed is a TAX
ON INCOME that CDO,
being an LGU,
prohibited to impose o CEPALCO’s action for lieu of all other
under Sec. 133(a) of the declaratory relief cannot taxes/assessments, unlike
Local Government Code prosper since no breach in its previous franchises
(LGC) or violation of the subject o CEPALCO’s action is
o and, assuming that the ordinance was yet BARRED BY
CDO can impose such tax, committed by the City PRESCRIPTION as it failed
CEPALCO is exempt to raise an appeal to the
therefrom by virtue of its Trial Court’s Ruling Secretary of Justice within
 The Ordinance is valid
franchise under RA 9284 the thirty-day period
o Section 143(h), in relation
 In its Answer, CDO argued: provided in Section 187 of
to Section 151, of the
o the enactment of the the Local Government
Local Government Code
Ordinance is a valid and Code
authorizes a city to
lawful exercise of its  Hence, CEPALCO appealed the
impose taxes, fees and
powers pursuant to the trial court’s decision to the Court
charges on any business
Constitution, the LGC and of Appeals
which is NOT SPECIFIED
other pertinent laws and
AS PROHIBITED under Court of Appeal’s Ruling
jurisprudence
Section 143(a) to (g) and  CA affirmed the trial court’s ruling
o the Ordinance legally
which the city council for the validity of the Ordinance
presumed valid and
may deem proper to tax o the tax imposed under
constitutional
o the tax imposed under the Ordinance is a
o CEPALCO is not exempt
the Ordinance is NOT a LICENSE TAX for the
from the Ordinance
tax on income but a tax regulation of business in
because of the express
on the privilege to which CEPALCO is
withdrawal of the
ENGAGE IN BUSINESS engaged
exemption provided by
since CEPALCO’s business o CEPALCO’s claim of tax
Section 193 of the LGC
of leasing its posts to pole exemption rests on a
o CEPALCO’s action has
users is what is directly STRAINED
already prescribed
taxed INTERPRETATION of R.A.
pursuant to Section 187
o CEPALCO is not exempt No. 9284
of the LGC
because it’s current o CEPALCO FAILED TO FILE
o CEPALCO failed to
franchise under RA 9284 A TIMELY APPEAL to the
exhaust administrative
does not expressly Secretary of Justice, and
remedies under the Local
provided that it is instead DID NOT EXHAUST ITS
is Government Code
subject to franchise tax in
 ADMINISTRATIVE b) But if the Secretary does not the province may impose
remedies act thereon, after the lapse of 60 days, a WON CEPALCO is correct in claiming a tax on businesses enjoying a
 Hence, CEPALCO filed the instant party could already proceed to seek relief exemption from the tax imposed by the franchise, at a rate not exceeding
in court. Ordinance? FIFTY PERCENT (50%) OF ONE
petition for review by certiorari
The foregoing provision should BE NO, CEPALCO is NOT CORRECT in PERCENT (1%) of the gross annual
with the Supreme Court CONSTRUED AS MANDATORY since the claiming exemption from the tax imposed receipts for the preceding
three separate periods are clearly given by the Ordinance. Such claim poles relies calendar year based on the
ISSUES:
for compliance as a prerequisite before on its strained interpretation of the incoming receipt, or realized,
seeking redress in a competent court. provisions of its franchise and of the Local within its territorial jurisdiction.
WON CEPALCO’s petition is
Such statutory periods are set to prevent Government Code. Meanwhile, for BUSINESS TAX,
procedurally flawed?
delays as well as enhance the orderly and Sec. 193 of the Local Government Sec. 143(h) provides:
WON the subject Ordinance is
speedy discharge of judicial functions. Code WITHDREW TAX EXEMPTION the municipality may
within the power of the City Council of
PRIVILEGES previously given to natural or impose on any business subject to
CDO to enact?
WON the subject Ordinance is within the juridical persons, and granted local the excise, value-added or
WON CEPALCO is correct in
power of the City Council of CDO to government units the power to impose percentage tax under the
claiming exemption from the tax imposed
enact? franchise tax under Sec. 137. National Internal Revenue Code,
by the Ordinance?
YES, the subject Ordinance is It is hornbook doctrine that tax as amended, the rate of tax which
WON the subject Ordinance is
within the power of the City Council of exemptions are strictly construed against shall not EXCEED TWO PERCENT
valid? CDO to enact since it is A TAX ON the claimant. For this reason, tax (2%) OF GROSS SALES OR
BUSINESS, not a tax on income. exemptions must be based on clear legal RECEIPTS of the preceding
Section 143(h) of the Local provisions. calendar year.
RULING:
Government Code provides that the city
may impose taxes, fees, and charges on WON the subject Ordinance is valid? The issue revolves on the
WON CEPALCO’s petition is procedurally
ANY BUSINESS even if NOT SPECIFIED as NO, the subject Ordinance is NOT interpretation of the phrase MAY EXCEED
flawed?
among the businesses in Section 143(a) to VALID for violating the limits as to the THE MAXIMUM RATES … BY NOT MORE
YES, CEPALCO’s petition is
(g) and which the sanggunian concerned amount of the tax to be imposed set by THAN FIFTY PERCENT (50%) in Sec. 151.
procedurally flawed for failing to exhaust
may deem proper to tax. Section 151, in relation to Sections 137 CEPALCO’s City of CDO’s
administrative remedies under the Local
Business is defined by Section and 143(h), of the Local Government Interpretation Interpretation
Government Code since the subject
131(d) of the Local Government Code as Code. the phrase the phrase means a
Ordinance is a local revenue measure.
"trade or commercial activity regularly Sec. 151 of the LGC provides: means a city city can impose a
Sec. 187 of the LGC requires that
engaged in as a means of livelihood or The rates of taxes that can impose rate WHICH EXCEEDS
the dissatisfied taxpayer who questions
with a view to profit." the city may levy MAY EXCEED ONLY UP TO the maximum rate of
the validity or legality of a tax ordinance
Here, CEPALCO’s act of leasing for THE MAXIMUM RATES allowed ONE-HALF of taxes imposable by
must file his appeal to the Secretary of
a consideration the use of its posts, poles for the province or municipality what the provinces or
Justice, within 30 days from effectivity
or towers to other pole users falls under BY NOT MORE THAN FIFTY province or municipalities BY AS
thereof. Thereafter:
the Local Government Code’s definition of PERCENT (50%) except the rates municipality MUCH as 50%
a) If the Secretary decides the
business. of professional and amusement may impose
appeal, a period also of 30 days is allowed
Hence, the subject Ordinance is taxes. NB: mathematically,
for an aggrieved party to go to court.
within power of the City Council of CDO In relation to that, specifically for this means that to
has the power to enact. FRANCHISE TAX, Sec. 137 provides: arrive at the
 maximum amount, increase 151 does CEPALCO also erred when it
you add 50% to the provided NOT APPLY equates Section 137’s "gross annual
provincial/municipal under to the receipts" with Ordinance No. 9503-2005’s
rate Section 151 subject "annual rental income." Clearly, “gross
Franchise Tax However, the City of of the LGC Ordinance annual receipts” is broader and greater as
- province rate: CDO argued that: applies only affecting it encompasses not only CEPALCO’s
not exceeding  Section 143 to those CEPALC annual rental income but also other
50% of 1% of of the LGC businesses  CEPALCO is income sources. Hence, even if the
the gross prescribes identified differently Ordinance’s rate is 10% which is higher
annual receipts the rate of and situated vis- than Sec. 137’s rate of 50% of 1%, still,
- so, city rate: taxes on the enumerated á-vis the rest THE TAX BASE under the Ordinance,
only up to ½ of identified under of the which is the annual rental income of
50% of 1% of categories of Section 143 businesses "electric and/or telecommunication posts,
the gross business Business Tax  A reading of identified poles or towers by pole owners to other
annual receipts enumerated - municipal Section 143 under pole users", is definitely smaller than that
which is only therein from rate: not of the LGC Section 143 used by cities in the computation of
up to 0.25% (a) to (g) exceeding 2% reveals that of the LGC franchise or business tax (which is most
- hence, the  Section 151 of the gross it has likely not just income from electric and/or
10% tax under of the LGC sales or NEITHER The Court ruled that the City of telecom post). In effect, Ordinance No.
the Ordinance prescribes receipts IDENTIFIED CDO’s interpretation of Sec. 151 is the 9503-2005 wants a slice of a smaller pie.
is excessive the allowable - so, city rate: the correct interpretation and that CEPALCO (it’s all about the base, ‘bout that base...
rate of only up to ½ of operation of is wrong. It means that a city may exceed boom bo boom boom boom bo boom
increase over 2% of the gross a BUSINESS by "not more than 50%" the tax rates boom base, super base.. XD)
the rate of sales or ENGAGED IN allowed to provinces and municipalities. Nonetheless, limits imposed by
taxes receipts which LEASING nor Thus: Sections 143 and 151 of the Local
imposed on is only up to prescribed its FRANCHISE TAX BUSINESS TAX Government Code MUST STILL BE
businesses 1% tax rate. - province rate: not - municipal rate: OBSERVED, contrary to the City of CDO’s
identified - hence, the  Hence, since exceeding 50% of not 2% of the contention.
under 10% tax under the business 1% of the gross gross sales or
Section 143 the Ordinance referred to annual receipts receipts Section 143 recognizes separate lines of
and the is excessive the subject - so, city rate: may - so, city rate: business and imposes different tax rates
preceding Ordinance is exceed by as much may exceed by as for different lines of business. Ordinance
sections not among as 50% of the much as 50% of No. 9503-2005 is subject to the limitation
thereof those province rate, that the province rate, set by Section 143(h) since it is not among
 Reading enumerated is, (50% of 50% of that is, (50% of those enumerated in Sec. 143(a) to (g).
them in Sec. 143 1%)+(50% of 1%) 2%)+(2%) which is And, since, as previously discussed,
together, the but in Sec. which is 0.75% 3% reading Sec. 143(h) in conjunction with
allowable 186, the limit Sec. 151, cities like CDO may only impose
rate of under Sec. a tax rate which may exceed by as much
as 50% of 2% (which is 3%) of the gross
sales or receipts of the preceding year.
Hence, the 10% tax rate imposed by
Ordinance No. 9503-2005 clearly violates
Section 143(h) of the Local Government
Code.

Finally, in view of the lack of a separability

clause, we DECLARE VOID THE ENTIRETY
of Ordinance No. 9503-2005. Any
payment made by reason of the tax
imposed by Ordinance No. 9503-2005
should, therefore, be refunded to
CEPALCO. Our ruling, however, is made
WITHOUT PREJUDICE TO THE
ENACTMENT OF A TAX ORDINANCE THAT
COMPLIES WITH THE LIMITS set by the
Local Government Code.