THIRD DIVISION NACHURA, J.

:

SMART COMMUNICATIONS, INC., Petitioner,

G.R. No. 155491

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Smart Communications, Inc. (Smart) against the City of Davao, represented by its Mayor, Hon. Rodrigo R. Duterte, and the Sangguniang Panlungsod of Davao City, to annul the Decision1[1] dated July 19, 2002 of the Regional Trial Court (RTC) and its Order2[2] dated

Present:

- versus -

YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO,

September 26, 2002 in Sp. Civil Case No. 28,976-2002.

The Facts

THE CITY OF DAVAO, represented herein by its Mayor HON. RODRIGO R. DUTERTE, and the SANGGUNIANG PANLUNGSOD OF DAVAO CITY, Respondents.

NACHURA, and REYES, JJ.

On February 18, 2002, Smart filed a special civil action for declaratory relief3[3] under Rule 63 of the Rules of Court, for the ascertainment of its rights and obligations under the Tax Code of the City of Davao,4[4] particularly Section 1, Article 10 thereof, the pertinent portion of which reads:

Promulgated:

September 16, 2008 x------------------------------------------------------------------------------------x
1

[1] [2] [3]

Penned by Judge Renato A. Fuentes; rollo, pp. 101-108. Id. at 121-123. Records, pp. 2-11.

2

3

DECISION

[4] City Ordinance No. 519, series of 1992, amending Ordinance No. 230, series of 1991, otherwise known as the Tax Code of the City of Davao.
4

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.

On March 2, 2002, respondents filed their Answer8[8]in which they contested the tax exemption claimed by Smart. They invoked the power granted by the Constitution to local government units to create their own sources of revenue.9[9]

On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved in the case, the RTC issued an order requiring Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 72945[5]subsequent to R.A. No. 7160 shows the clear legislative intent to exempt it from the provisions of R.A. 7160;6[6](b) Section 137 of R.A. No. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future exemptions; (c) 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; and (d) the imposition of franchise tax by the City of Davao would amount to a violation of the constitutional provision against impairment of contracts.
7[7]

the parties to submit their respective memoranda and, thereafter, the case would be deemed submitted for resolution.10[10]

On July 19, 2002, the RTC rendered its Decision 11[11] denying the petition. The trial court 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. 12[12] The RTC ratiocinated that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority and, thus, those who assert a tax exemption must justify it with words too plain to be mistaken and too categorical not to be misinterpreted.13[13] On the issue of
8

[8] [9] [10]

Id. at 21-26. CONSTITUTION, Art. X, Sec. 5. Records, p. 62. Supra note 1. Id. at 104. Id. at 106.

[5] An act granting Smart Information Technologies, Inc. (Smart) a franchise to establish, install, maintain, lease and operate integrated telecommunications/computer/electronic services, and stations throughout the Philippines for public domestic and international telecommunications, and for other purposes.
5

9

10

11

[6] Smart’s franchise lapsed into law on March 27, 1992 without the President’s signature in accordance with Article VI, Section 27(1) of the Constitution.
6 7

[11] [12] [13]

12

[7]

Records, pp. 7-8.

13

violation of the non-impairment clause of the Constitution, the trial court cited Mactan Cebu International Airport Authority v. Marcos,14[14]and declared that the city’s power to tax is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the fundamental law. It added that while such power may be subject to restrictions or conditions imposed by Congress, any such legislated limitation must be consistent with the basic policy of local autonomy.15[15]

FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONER’S FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A SPECIAL LAW.

Smart filed a motion for reconsideration which was denied by the trial court in an Order16[16]dated September 26, 2002.

Thus, the instant case.

[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, AND SECTION 193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.

Smart assigns the following errors: [d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT BUT NOT TO FUTURE EXEMPTIONS.

[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONER’S FRANCHISE (REPUBLIC ACT NO. 7294), WHICH CONTAINS THE “IN LIEU OF ALL TAXES” CLAUSE, AND WHICH IS A SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO

14

[14] [15] [16]

G.R. No. 120082, September 11, 1996, 261 SCRA 667. Rollo, p. 107. Id. at 121-123.

15

[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST THE TAXPAYER.

16

[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONER’S FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, “THE PUBLIC TELECOMMUNICATIONS POLICY ACT,” TAKING INTO ACCOUNT THE FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY PROVIDING AN ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY .

The Issue

In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed by the City of Davao.

[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

The Ruling of the Court

We rule in the affirmative.

I. [h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS.

Prospective Effect of R.A. No. 7160

On March 27, 1992, Smart’s legislative franchise (R.A. No. 7294) took effect. Section 9 thereof, quoted hereunder, is at the heart of the present controversy:

[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.17[17]

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

17

[17]

Id. at 24-26.

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.

provided for the withdrawal of tax exemption privileges granted prior to the issuance of R.A. No. 7160 except for those expressly mentioned therein, viz.:

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. (Emphasis supplied.)

Section 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereon, as provided herein.

Smart alleges that the “in lieu of all taxes” clause in Section 9 of its franchise exempts it from all taxes, both local and national, except the national franchise tax (now VAT), income tax, and real property tax.18[18] Section 151. Scope of Taxing Powers. — Except as otherwise provided in this Code, the city may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

On January 1, 1992, two months ahead of Smart’s franchise, the Local Government Code (R.A. No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local government units; while Section 193 thereof 18 [18] Id. at 258.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.

The “in lieu of all taxes” clause in Smart’s franchise is put in issue before the Court. In order to ascertain its meaning, consistent with fundamentals of statutory construction, all the words in the statute must be considered. The grant of tax exemption by R.A. No. 7294 is not to be interpreted from a consideration of a single portion or of isolated words or clauses, but from a general view of the act as a whole. Every part of the statute must be construed with reference to the context.19[19]

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. (Emphasis supplied.)

Smart is of the view that the only taxes it may be made to bear under its franchise are the national franchise tax (now VAT), income tax, and real property tax.20[20] It claims exemption from the local franchise tax because the “in lieu of taxes” clause in its franchise does not distinguish between national and local taxes.21[21]

Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160, because its franchise was granted after the effectivity of the said law. We agree with Smart’s contention on this matter. The withdrawal of tax exemptions or incentives provided in R.A. No. 7160 can only affect those franchises granted prior to the effectivity of the law. The intention of the legislature to remove all tax exemptions or incentives granted prior to the said law is evident in the language of Section 193 of R.A. No. 7160. No interpretation is necessary.

We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart is
19

[19] [20] [21]

Aquino v. Quezon City, G.R. No. 137534, August 3, 2006, 497 SCRA 497, 507. Rollo, p. 258. Id.

20

21

II.

The “in lieu of all taxes” Clause in R.A. No. 7294

exempted from. It is not clear whether the “in lieu of all taxes” provision in the franchise of Smart would include exemption from local or national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal.

doubt, then the intention of the legislature must be resolved in favor of the State.24[24]

In this case, the doubt must be resolved in favor of the City of Davao. The “in lieu of all taxes” clause applies only to national internal revenue taxes and not to local taxes. As appropriately pointed out in the separate opinion of Justice Antonio T. Carpio in a similar case 25[25] involving a demand for exemption from local franchise taxes:

The uncertainty in the “in lieu of all taxes” clause in R.A. No. 7294 on whether Smart is exempted from both local and national franchise tax must be construed strictly against Smart which claims the exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all kinds of franchise taxes – whether local or national. However, Smart failed in this regard. [T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than income tax, imposed under the National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local taxes. The proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue Code." Also, the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code." Moreover, the same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local taxes. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local [24] Philippine Long Distance Telephone Company, Inc. v. City of Davao, 415 Phil. 764, 775 (2001).
24

Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. 22[22] They can only be given force when the grant is clear and categorical. 23[23] The surrender of the power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable construction consistent with the reservation of the power. If the intention of the legislature is open to [22] Commissioner of Internal Revenue v. Visayan Electric Company, 132 Phil. 203, 215 (1968).
22

[23] Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation, G.R. Nos. 83583-84, September 30, 1991, 202 SCRA 137.
23

[25] Philippine Long Distance Telephone Company, Inc. v. City of Davao, 447 Phil. 571, 594 (2003).
25

taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause does not apply to income tax.

on telecommunications companies.26[26] As admitted by Smart in its pleadings, it is no longer paying the 3% franchise tax mandated in its franchise. Currently, Smart along with other telecommunications companies pays the uniform 10% value-added tax.27[27]

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. Congress could have used the language in Section 9(b) of Clavecilla's old franchise, as follows:

The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the sale or exchange of services.28[28] R.A. No. 7716, as amended by the Expanded Value Added Tax Law(R.A. No. 8241), the pertinent portion of which is hereunder

x x x in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, x x x. (Emphasis supplied).

quoted, amended Section 9 of R.A. No. 7294:

However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. The only interpretation, under the rule on strict construction of tax exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local taxes.

SEC. 102. Value-added tax on sale of services and use or lease of properties. — (a) Rate and base of tax. — There shall be levied assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.

The phrase “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered
26

[26] [27]

Id. at 593. Rollo, p. 269.

It should be noted that the “in lieu of all taxes” clause in R.A. No. 7294 has become functus officio with the abolition of the franchise tax

27

[28] Section 108, National Internal Revenue Code, as amended by the Tax Reform Act of 1997 (R.A. No. 8424).
28

by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land, air, and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. x x x.29[29]

the “in lieu of all taxes” clause in R.A. No. 7294 was rendered ineffective by the advent of the VAT Law.31[31]

However, the franchise tax that the City of Davao may impose must comply with Sections 137 and 151 of R.A. No. 7160. Thus, the local franchise tax that may be imposed by the City must not exceed 50% of 1% of the gross annual receipts for the preceding calendar year based on the income on receipts realized within the territorial jurisdiction of Davao.
30

[30] SECTION 20. Repealing Clauses. — The provisions of any special law relative to the rate of franchise taxes are hereby expressly repealed. Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed. Paragraphs (c), (d), and (e) of Article 39 of Executive Order No. 226, otherwise as the Omnibus Investment Code of 1987, are hereby repealed: Provided, however, That the benefits and incentives under said paragraphs shall continue to be enjoyed by enterprises registered with the Board of Investments before the effectivity of this Act. Unless otherwise excluded by the President pursuant to Section 17 hereof, Sections 19 and 20 of the National Internal Revenue Code shall be repealed upon the expiration of two (2) years from the effectivity of this Act. During the period that the freight services rendered by international cargo vessels are not covered by the value-added tax imposed under this Act, said services shall pay a tax at a rate of three per centum (3%) of their quarterly gross receipts derived from outgoing cargoes. All other laws, orders, issuances, rules and regulations of parts thereof inconsistent with this Act are hereby repealed, amended or modified accordingly. [31] 24.
31

R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special laws relative to the rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and regulations, or parts thereof which are inconsistent with it.30[30] In effect,
29

Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note

[29]

Now Section 108, R.A. No. 8424, as amended. (Emphasis supplied.)

III.

Opinion of the Bureau of Local Government Finance (BLGF)

In support of its argument that the “in lieu of all taxes” clause is to be construed as an exemption from local franchise taxes, Smart submits the opinion of the Department of Finance, through the BLGF, dated August 13, 1998 and February 24, 1998, regarding the franchises of Smart and Globe, respectively.32[32] Smart presents the same arguments as the

Philippine Long Distance Telephone Company in the previous cases already decided by this Court.33[33] As previously held by the Court, the findings of the BLGF are not conclusive on the courts:

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

[T]he BLGF opined that §23 of R.A. No. 7925 amended the franchise of petitioner and in effect restored its exemptions from local taxes. Petitioner contends that courts should not set aside conclusions reached by the BLGF because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject.

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty. It does enjoy this presumption, but this has nothing to do with the question in this case. This case does not concern the regularity of performance of the BLGF in the exercise of its duties, but the correctness of its interpretation of a provision of law.34[34]

32

[32]

Rollo, pp. 303-309.

IV.

Tax Exclusion/Tax Exemption

[33] Philippine Long Distance Telephone Company, Inc. v. Province of Cebu, G.R. No. 151208, October 16, 2006; Philippine Long Distance Telephone Company, Inc. v. Province of Laguna, G.R. No. 151899, August 16, 2005, 467 SCRA 93; Philippine Long Distance Telephone Company, Inc. v. City of Bacolod, G.R. No. 149179, July 15, 2005, 463 SCRA 528; Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 25; Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24.
33

Smart gives another perspective of the “in lieu of all taxes” clause in Section 9 of R.A. No. 7294 in order to avoid the payment of local [34] Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 779-780.
34

franchise tax. It says that, viewed from another angle, the “in lieu of all taxes” clause partakes of the nature of a tax exclusion and not a tax exemption. A tax exemption means that the taxpayer does not pay any tax at all. Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more accurately a tax exclusion.35[35] SECTION 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 franchise 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. (Emphasis supplied.)

However, as previously held by the Court, both in their nature and effect, there is no essential difference between a tax exemption and a tax exclusion. An exemption is an immunity or a privilege; it is the freedom from a charge or burden to which others are subjected. An exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. An exclusion is, thus, also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that a tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.36
[36]

In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the franchise of Globe (R.A. No. 7227),37[37] which was enacted on March 19, 1992.

Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known V. Section 23 of R.A. No. 7925 as the “most favored treatment clause” or the “equality clause,” the provision in the franchise of Globe exempting it from local taxes is To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act (R.A. No. 7925):
35

automatically incorporated in the franchise of Smart.38[38] Smart posits that, [37] An Act approving the merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System and the consequent transfer of the franchise of Clavecilla Radio System granted under Republic Act No. 402, as amended, to Globe Mackay Cable and Radio Corporation, extending the life of said franchise and repealing certain sections of RA No. 402, as amended.
37 38

[35]

Rollo, pp. 276-277.

[36] Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 775.
36

[38]

Rollo, p. 256.

since the franchise of Globe contains a provision exempting it from municipal or local franchise tax, this provision should also benefit Smart by virtue of Section 23 of R.A. No. 7925. The provision in Globe’s franchise invoked by Smart reads:

[41]

Congress, in approving Section 23 of R.A. No. 7925, did not intend it to

operate as a blanket tax exemption to all telecommunications entities.42[42] The language of Section 23 of R.A. No. 7925 and the proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by R.A. No. 7160.43[43] The term “exemption” in Section 23 of R.A. No. 7925 does not mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission.44[44]

(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, effective from the date of the approval of Republic Act Numbered Sixteen hundred eighteen.39[39]

Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated that it will be liable for one and one-half per centum of all gross receipts from business transacted under the franchise, in lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, from which the grantee is hereby expressly

We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en banc decision of this Court in Philippine Long Distance Telephone Company, Inc. v. City of Davao,40[40] and recently in Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,41

exempted.45[45]The grant of exemption from municipal, provincial, or national is clear and categorical – that aside from the franchise tax
42

[42] [43]

Id. Id. Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note

43

39
40

[39]

Section 9 of R.A. No. 4540. (Emphasis supplied). Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note G.R. No. 152534, February 23, 2007, 516 SCRA 541.

[44] 25.
44

[40] 24.
41

45

[41]

[45] Section 11 of R.A. No. 7229 provides: “All other provisions of Republic Act No. 402, as amended by Republic Act Nos. 1618 and 4540, and the provisions of Batas Pambansa Blg. 95 which are not inconsistent with the provisions of this Act and are still unrepealed shall continue to be in full force and effect.”

collected by virtue of R.A. No. 7229, no other franchise tax may be collected from Globe regardless of who the taxing power is. exempted is not clearly specified. No such provision is found in the franchise of Smart; the kind of tax from which it is

As previously explained by the Court, the stance of Smart would lead to absurd consequences.

field" so to speak. This could not have been the intent of Congress in enacting §23 of Rep. Act 7925. Petitioner's theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities.46[46]

The acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1½%) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioner's theory would require that, to level the playing field, any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to "level the playing In view of the above-mentioned provision, Section 3 of R.A. No. 4540, the pertinent portion of which is quoted herein, is incorporated into R.A. No. 7229: "(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by an authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, effective from the date of the approval of Republic Act Numbered Sixteen hundred eighteen.”

VI.

Non-impairment Clause of the Constitution

Another argument of Smart is that the imposition of the local franchise tax by the City of Davao would violate the constitutional prohibition against impairment of contracts. The franchise, according to petitioner, is in the nature of a contract between the government and Smart.47[47]

However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine Constitution. As previously discussed, the franchise of Smart does not expressly provide for exemption from local taxes. Absent the express provision on such exemption under the franchise, we are constrained to rule against it. The “in lieu of all taxes” clause in Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this [46] Philippine Long Distance Telephone Company, Inc. v. City of Davao, supra note 24, at 776.
46 47

[47]

Rollo, pp. 310-313.

ambiguity in the law, the doubt must be resolved against the grant of tax exemption.

save only where a tax exemption has been granted for a valid consideration. x x x.

Moreover, Smart’s franchise was granted with the express condition that it is subject to amendment, alteration, or repeal.48[48] As held in Tolentino v. Secretary of Finance: 49[49] WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society.

SO ORDERED.

In truth, the Contract Clause has never been thought as a limitation on the exercise of the State’s power of taxation
48

[48] [49]

CONSTITUTION, Art. XII, Sec. 11. G. R. No. 115455, August 25, 1994, 235 SCRA 630, 685.

49

vs. PHILIPPINE JURISPRUDENCE - FULL TEXT The Lawphil Project - Arellano Law Foundation G.R. No. 119172 March 25, 1999 BELEN C. FIGUERRES vs. COURT OF APPEALS, ET AL. COURT OF APPEALS, CITY OF ASSESSORS OF MANDALUYONG CITY TREASURER OF MANDALUYONG, and SANGGUNIANG BAYAN OF MANDALUYONG, respondents.

MENDOZA, J.:

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Republic of the Philippines SUPREME COURT Manila

This is a petition for review on certiorari of the decision of the Court of Appeals, dated February 8, 1995, dismissing a prohibition suit brought by petitioner against the respondent officials of the Municipality, now City, of Mandaluyong to prevent them from enforcing certain ordinances revising the schedule of fair market values of the various classes of real property in that municipality and the assessment levels applicable thereto.

SECOND DIVISION

Petitioner Belen C. Figuerres is the owner of a parcel of land, covered by Transfer Certificate of Title No. 413305, and located at Amarillo Street, Barangay Mauway, City of Mandaluyong. In 1993, she received a notice of assessment, dated October 20, 1993, from the municipal assessor of the then Municipality of Mandaluyong, containing the following specifics:

TYPE AREA BASE VALUE MARKET ASSESSMENTS ASSESSED G.R. No. 119172 March 25, 1999 PER SQ.M VALUE LEVEL VALUE BELEN C. FIGUERRES, petitioner,

Residential 530sq.m. P2,500.00 P1,325,000.00 20 P265,006·.00 1

The assessment, effective in the year 1994, was based on Ordinance Nos. 119 and 125, series of 1993, and Ordinance No. 135, series of 1994, of the Sangguniang Bayan of Mandaluyong. Ordinance No. 119, series of 1993, which was promulgated on April 22, 1993, contains a schedule of fair market values of the different classes of real property in the municipality. 2 Ordinance No. 125, series of 1993, which was promulgated on November 11, 1993, on the other hand, fixes the assessment levels applicable to such classes of real property. 3 Finally, Ordinance No. 135, series of 1994, which was promulgated on February 24, 1994, amended Ordinance No. 119, §6 by providing that only one third (1/3) of the increase in the market values applicable to residential lands pursuant to the said ordinance shall be implemented in the years 1994, 1995, and 1996. 4

The approval and determination by the Department of Finance is not needed under the Local Government Code of 1991, since it is now the city council of Mandaluyong that is empowered to determine and approve the aforecited ordinances. Furthermore, contrary to the claim of petitioner that the Department of Finance "has not promulgated the necessary rules and regulations for the classification, appraisal and assessment of real property as prescribed by the 1991 Local Government Code," Department of Finance Local Assessment Regulation No. 1-92 dated October 6, 1992, which is addressed to provincial, city, and municipal assessors and others concerned with the proper implementation of Section 219 of R.A. No. 7160, provides for the rules relative to the conduct of general revisions of real property assessment pursuant to Sections 201 and 219 of the Local Government Code of 1991.

Petitioner brought a prohibition suit in the Court of Appeals against the Assessor, the Treasurer, and the Sangguniang Bayan to stop them from enforcing the ordinances in question on the ground that the ordinances were invalid for having been adopted allegedly without public hearings and prior publication or posting and without complying with the implementing rules yet to be issued by the Department of Finance. 5

Regarding petitioner's claim that there is need for municipal ordinances to be published in the Official Gazette for their effectivity, the same is also without merit.

Sec. 511 of R.A. No. 7160 provides that —

xxx xxx xxx In its decision, dated February 8, 1995, 6 the Court of Appeals threw out the petition. The appellate court said in part:

Petitioner's claim that Ordinance Nos. 119, 125 and 135 are null and void since they were prepared without the approval and determination of the Department of Finance is without merit.

The secretary to the Sanggunian concerned shall transmit official copies of such ordinances to the chief executive officer of the Official Gazette within seven (7) days following the approval of the said ordinances for publication purposes. The Official Gazette may publish ordinances with penal sanctions for archival and reference purposes.

Thus, the posting and publication in the Official Gazette of ordinances with penal sanctions is not a prerequisite for their effectivity. This finds support in the case of Tañada v. Tuvera (146 SCRA 446), wherein the Supreme Court declared that municipal ordinances are covered by the Local Government Code.

WHEREFORE, the petition is hereby DENIED due course and is hereby DISMISSED. 7

Petitioner Figuerres assails the above decision. She contends that —

Moreover, petitioner failed to exhaust the administrative remedies available to him as provided for under Section 187 of R.A. No. 7160, before filing the instant petition with this Court.

1. THE HONORABLE COURT OF APPEALS PATENTLY ERRED IN FINDING LACK OF EXHAUSTION OF ADMINISTRATIVE REMEDIES ON THE PART OF HEREIN PETITIONER WHEN UNDER THE CIRCUMSTANCES EXHAUSTION OF ADMINISTRATIVE REMEDIES IS NOT REQUIRED BY LAW AND WOULD HAVE BEEN A USELESS FORMALITY.

xxx xxx xxx 2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT STATED THAT THE CITY COUNCIL OF MANDALUYONG IS EMPOWERED TO DETERMINE AND APPROVE THE AFORECITED ORDINANCES WITHOUT TAKING INTO ACCOUNT THE MANDATORY PUBLIC HEARINGS REQUIRED BY R.A. No. 7160.

In fact, aside from filing an appeal to the Secretary of Justice as provided under Section 187 of R.A. No. 7160, the petitioner . . . could have appealed to the Local Board of Assessment Appeals, the decision of which is in turn appealable to the Central Board of Assessment Appeals as provided under Sections 226 and 230 of the said law. According to current jurisprudence, administrative remedies must be exhausted before seeking judicial intervention. (Gonzales v. Secretary of Education, 5 SCRA 657). If a litigant goes to court without first pursuing the available administrative remedies, his action is considered premature and not yet ripe for judicial determination (Allied Brokerage Corporation v. Commissioner of Customs, 40 SCRA 555).

3. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS PATENTLY ERRED IN STATING THAT THERE IS NO NEED FOR PUBLICATION OF TAX ORDINANCES.

As the petitioner has not pursued the administrative remedies available to him, his petition for prohibition cannot prosper (Gonzales v. Provincial Auditor of Iloilo, 12 SCRA 711).

4. THERE IS NON COMPLIANCE BY PUBLIC RESPONDENTS OF ASSESSMENT REGULATION No. 1-92 DATED OCTOBER 6, 1992, EVEN IF THE HONORABLE COURT OF APPEALS MENTIONED THE EXISTENCE OF THE SAID ASSESSMENT REGULATIONS. 8

On the other hand, the Municipality of Mandaluyong contends:

(1) the present case does not fall within any of the exceptions to the doctrine of exhaustion of administrative remedies;

With regard to questions on the legality of a tax ordinance, the remedies available to the taxpayer are provided under Sections 187, 226, and 252 of R.A. 7160.

(2) apart from her bare allegations, petitioner Figuerres has not presented any evidence to show that no public hearings were conducted prior to the enactment of the ordinances in question;

(3) although an ordinance concerning the imposition of real property taxes is not required to be published in the Official Gazette in order to be valid, still the subject ordinances were disseminated before their effectivity in accordance with the relevant provisions of R.A. No. 7160; and

Sec. 187 of R.A. 7160 provides, that the taxpayer may question the constitutionality or legality of a tax ordinance on appeal within thirty (30) days from effectivity thereof, to the Secretary of Justice. The petitioner after finding that his assessment is unjust, confiscatory, or excessive, may bring the case before the Secretary of Justice for questions of legality or constitutionality of the city ordinance.

Under Section 226 of R.A. 7160, an owner of real property who is not satisfied with the assessment of his property may, within sixty (60) days from notice of assessment, appeal to the Board of Assessment Appeals.

(4) the Municipality of Mandaluyong complied with the regulations of the Department of Finance in enacting the ordinances.

Exhaustion of administrative remedies

Should the taxpayer question the excessiveness of the amount of tax, he must first pay the amount due, in accordance with Section 252 of R.A. No. 7160. Then, he must request the annotation of the phrase "paid under protest" and accordingly appeal to the Board of Assessment Appeals by filing a petition under oath together with copies of the tax declarations and affidavits or documents to support his appeal.

In Lopez v. City of Manila, 9 we recently held: Although cases raising purely legal questions are excepted from the rule requiring exhaustion of administrative remedies before a party may resort to the courts, in the case at bar, the legal questions raised by petitioner require, as will presently be shown, proof of facts for their resolution. Therefore, the petitioner's action in the Court of Appeals was premature, and the appellate court correctly dismissed her action on the ground that she failed to exhaust available administrative remedies as above stated.

. . . Therefore, where a remedy is available within the administrative machinery, this should be resorted to before resort can be made to the courts, not only to give the administrative agency the opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature resort to courts. . . .

Petitioner argues that resort to the Secretary of Justice is not mandatory but only directory because R.A. No. 7160, §187 provides that "any question on the constitutionality or legality of tax ordinances or revenue measures" may be appealed to the Secretary of Justice. Precisely, the Secretary of Justice can take cognizance of a case involving the constitutionality or legality of tax ordinances where, as in this case, there are factual issues involved.

There need be no fear that compliance with the rule on exhaustion of administrative remedies will unduly delay resort to the courts to the detriment of taxpayers. Although R.A. No. 7160, §187 provides that an appeal to the Secretary of Justice "shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein," it likewise requires the Secretary of Justice to "render a decision within sixty (60) days from the date of receipt of the appeal," after which "the aggrieved party may file appropriate proceedings with a court of competent jurisdiction."

were conducted prior to the enactment of the ordinances in question. On the other hand, the Municipality of Mandaluyong claims that public hearings were indeed conducted before the subject ordinances were adopted, 10 although it likewise failed to submit any evidence to establish this allegation. However, in accordance with the presumption of validity in favor of an ordinance, their constitutionality or legality should be upheld in the absence of evidence showing that the procedure prescribed by law was not observed in their enactment. In an analogous case, United States v. Cristobal, 11 it was alleged that the ordinance making it a crime for anyone to obstruct waterways had not been submitted by the provincial board as required by §§2232-2233 of the Administrative Code. In rejecting this contention, the Court held:

Public hearings on tax ordinance.

Petitioner is right in contending that public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes. R.A. No. 7160, §186 provides that an ordinance levying taxes, fees, or charges "shall not be enacted without any prior public hearing conducted for the purpose."

From the judgment of the Court of First Instance the defendant appealed to this court upon the theory that the ordinance in question was adopted without authority on the part of the municipality and was therefore unconstitutional. The appellant argues that there was no proof adduced during the trial of the cause showing that said ordinance had been approved by the provincial board. Considering the provisions of law that it is the duty of the provincial board to approve or disapprove ordinances adopted by the municipal councils of the different municipalities, we will assume, in the absence of proof to the contrary, that the law has been complied with. We have a right to assume that officials have done that which the law requires them to do, in the absence of positive proof to the contrary. 12

However, it is noteworthy that apart from her bare assertions, petitioner Figuerres has not presented any evidence to show that no public hearings

Furthermore, the lack of a public hearing is a negative allegation essential to petitioner's cause of action in the present case. Hence, as petitioner is the party asserting it, she has the burden of proof. 13 Since petitioner failed to rebut the presumption of validity in favor of the subject ordinances and to discharge the burden of proving that no public hearings

were conducted prior to the enactment thereof, we are constrained to uphold their constitutionality or legality.

Publication and posting of schedule of fair market values

city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.

Petitioner is also right that publication or posting of the proposed schedule of fair market values of the difference classes of real property in a local government unit is required pursuant to R.A. No. 7160, §212 which in part states:

. . . The schedule of fair market values shall be published in a newspaper of general circulation in the province, city, or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous public places therein.

Hence, after the proposed schedule of fair market values of the different classes of real property in a local government unit within Metro Manila, as prepared jointly by the local assessors of the district to which the city or municipality belongs, has been published or posted in accordance with §212 of R.A. No. 7160 and enacted into ordinances by the sanggunians of the municipalities and cities concerned, the ordinances containing the schedule of fair market values must themselves be published or posted in the manner provided by §188 of R.A. No. 7160.

In Ty v. Trampe, 14 it was held that, if the local government unit is part of Metro Manila, the abovequoted portion of §212 must be understood to refer to the schedule of fair market values of the different classes of real property in the district to which the city or municipality belongs, as prepared jointly by the local assessors concerned.

With respect to ordinances which fix the assessment levels (such as Ordinance No. 125), being in the nature of a tax ordinance, §188 likewise applies. Moreover, as, Ordinance No. 125, §7 provides for a penal sanction for violations thereof by means of a fine of not less than P1,000.00 nor more than P5,000.00, or imprisonment of not less than one (1) month nor more than six (6) months, or both, in the discretion of the court, not only §188 but §511(a) also must be observed:

In addition, an ordinance imposing real property taxes (such as Ordinance Nos. 119 and 135) must be posted or published as required by R.A. No. 7160, §188 which provides:

Sec. 188. Publication of Tax Ordinances and Revenue Measures. — Within ten (10) days after their approval, certified true copies of all provincial,

Ordinances with penal sanctions shall be posted at prominent places in the provincial capitol, city, municipal or barangay hall, as the case may be, for a minimum period of three (3) consecutive weeks. Such ordinances shall also be published in a newspaper of general circulation, where available, within the territorial jurisdiction of the local government unit concerned, except in the case of barangay ordinances. Unless otherwise provided therein, said ordinances shall take effect on the day following its publication, or at the end of the period of posting, whichever occurs later.

In view of §§188 and 511(a) of R.A. No. 7160, an ordinance fixing the assessment levels applicable to the different classes of real property in a local government unit and imposing penal sanctions for violations thereof (such as Ordinance No. 125) should be published in full for three (3) consecutive days in a newspaper of local circulation, where available, within ten (10) days of its approval, and posted in at least two (2) prominent places in the provincial capitol, city, municipal, or barangay hall for a minimum of three (3) consecutive weeks.

Apart from her allegations, petitioner has not presented any evidence to show that the subject ordinances were nor disseminated in accordance with these provisions of R.A. No. 7160. On the other hand, the Municipality of Mandaluyong presented a certificate, dated November 12, 1993, of Williard S. Wong, Sanggunian Secretary of the Municipality of Mandaluyong that "Ordinance No. 125, S-1993 . . . has been posted in accordance with §59(b) of R.A. No. 7160, otherwise known as the Local Government Code of 1991." 15 Thus, considering the presumption of validity in favor of the ordinances and the failure of petitioner to rebut such presumption, we are constrained to dismiss the petition in this case.

proposed schedules of fair market values of the different classes of real property in a local government unit, such as time tables for obtaining information from owners of affected lands and buildings regarding the value thereof. As in the case of the procedural requirements for the enactment of tax ordinances and revenue measures, however, petitioner has not shown that the ordinances in this case were enacted in accordance with the applicable regulations of the Department of Finance. The Municipality of Mandaluyong claims that, although the regulations are merely directory, it has complied with them. 16 Hence, in the absence of proof that the ordinances were not enacted in accordance with such regulations, said ordinances presumed to have been enacted in accordance with such regulations.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Bellosillo, Puno, Quisumbing and Buena, JJ., concur.

Compliance with regulations issued by the

Footnotes

Department of Finance

1 CA Rollo; p. 56. 2 Id., pp. 21-48.

Also without merit is the contention of petitioner that Ordinance No, 119 and Ordinance No. 135 are void for not having been enacted in accordance with Local Assessment Regulation No. 1-92, dated October 6, 1992, of the Department of Finance, which provides guidelines for the preparation of

3 Id., pp. 16-19. 4 Id., p. 51. 5 CA Rollo, pp. 1-15.

6 Per Associate Justice Jorge S. Imperial and concurred in by Associate Justices Pacita Cañizares-Nye and Conrado M. Vasquez, Jr. 7 Rollo, pp. 21-24. 8 Rollo, pp. 5-6. 9 G.R. No. 127139, Feb. 19, 1999. 10 Rejoinder, Rollo, p. 68. 11 34 Phil. 825 (1916). 12 Id. at 826. 13 Industrial Finance Corporation v. Tobias, 78 SCRA 28 (1977). 14 250 SCRA 500, 516-517 (1995). 15 CA Rollo, p. 20. 16 Rejoinder, Rollo, p. 68.

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