Case Summary (G.R. No. 142612)
Pertinent Facts
- Republic Act No. 7160 (Local Government Code of 1991), effective January 1, 1992, authorized LGUs to create revenue sources.
- Laguna Provincial Ordinance No. 01-92, effective January 1, 1993, imposed a franchise tax of 0.5% of gross annual receipts.
- The Provincial Treasurer demanded payment; MERALCO paid ₱19,520,628.42 under protest and filed an administrative refund claim, invoking PD 551’s 2% in-lieu-of-all-taxes provision.
- Governor Lina denied the claim on August 28, 1995. MERALCO then filed a refund complaint before the RTC on February 14, 1996, adding subsequent protested payments totaling ₱27,669,566.91.
- The RTC dismissed the complaint on September 30, 1997, upholding the ordinance’s validity. MERALCO elevated the case to the Supreme Court.
Applicable Constitutional and Statutory Provisions
- 1987 Constitution, Article X, Secs. 3 & 5: grants LGUs power to levy taxes, fees, charges under guidelines set by Congress.
- Presidential Decree No. 551, Sec. 1: fixes a 2% franchise tax on electric utilities, payable to the national government “in lieu of all taxes and assessments of whatever nature.”
- RA 7160 (Local Government Code of 1991):
- Sec. 137: authorizes provinces to impose a franchise tax up to 0.5% of gross receipts.
- Sec. 193: withdraws all prior tax exemptions or incentives, except those expressly preserved.
- Sec. 534(f): repeals or modifies all laws inconsistent with the Code.
Issues Presented
- Does Laguna Ordinance No. 01-92 violate PD 551 and the Constitution’s non-impairment clause?
- Did RA 7160 repeal, amend, or modify PD 551?
- Is the doctrine of exhaustion of administrative remedies applicable?
Supreme Court’s Ruling
The petition is dismissed. Laguna Provincial Ordinance No. 01-92 is valid, reasonable, and enforceable; MERALCO’s administrative remedy was properly invoked; PD 551’s exemption does not bar the provincial franchise tax.
Court’s Analysis of Local Taxing Power
Under the 1987 Constitution, LGUs enjoy broad taxing authority unless explicitly restricted. Congress implemented this delegation through RA 7160, prescribing guidelines and limits but affirming local autonomy. Absent statutory prohibition, provinces may levy franchise taxes within prescribed rates.
Effect of the Local Government Code on Prior Exemptions
RA 7160’s Sec. 193 withdrawn existing exemptions; Sec. 534 repealed inconsistent laws. The Code’s peremptory withdrawal of privileges overrides PD 551’s in-lieu-of-all-taxes clause insofar as local taxation is concerned. In City of San Pablo v. Reyes, the Court held that franchise exemptions must yield to the Local Government Code’s express repeal of special pri
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Procedural History and Background Facts
- Several Laguna municipalities (Biñan, Sta. Rosa, San Pedro, Luisiana, Calauan and Cabuyao) granted MERALCO franchises for electric service by municipal resolutions under existing laws.
- On January 19, 1983, the National Electrification Administration also granted MERALCO a franchise for Calamba, Laguna.
- Republic Act No. 7160 (Local Government Code of 1991) took effect January 1, 1992, empowering local governments to raise their own revenues.
- Laguna Provincial Ordinance No. 01-92, effective January 1, 1993, imposed a “Franchise Tax” of 0.5% of gross annual receipts on businesses enjoying a franchise within the province.
- Under protest, MERALCO paid the initial demanded tax of ₱19,520,628.42 and later additional payments totaling ₱27,669,566.91, then formally sought refund claiming that P.D. 551’s 2% tax in lieu of all other taxes preempted the provincial levy.
- The Provincial Governor denied the refund on August 28, 1995, citing the newer Local Government Code.
- On February 14, 1996, MERALCO filed a complaint for refund and injunctive relief in the RTC of Sta. Cruz, Laguna.
- The RTC dismissed the complaint on September 30, 1997, upholding Laguna Provincial Ordinance No. 01-92 as valid.
Legislative and Regulatory Framework
- 1987 Constitution, Art. X, Secs. 3 and 5, grants local governments power to create revenue sources and levy taxes, fees, and charges within guidelines set by Congress.
- P.D. 551 prescribes a 2% franchise tax on electric utilities “in lieu of all taxes and assessments of whatever nature” and prohibits contrary local levies.
- RA 7160 (Local Government Code of 1991) codified broad local taxing authority, including:
- Section 137: authorizes a provincial franchise tax not exceeding 0.5% of gross annual receipts.
- Section 193: withdraws all existing tax exemptions or incentives, except those specifically retained.
- Section 534(f): rep