Case Summary (G.R. No. 271081)
Applicable Law
• RA 7082 Section 12: PLDT pays 3% franchise tax on gross receipts “in lieu of all taxes.”
• LGC Sections 137 & 151: grants local government units power to impose franchise taxes despite prior exemptions; Section 193 withdraws existing tax‐exemption privileges upon the Code’s effectivity.
• RA 7925 Section 23: any advantage, favor, privilege, exemption or immunity granted under existing or future telecommunications franchises becomes part of prior franchises “ipso facto” to promote a level playing field.
Factual Background
PLDT held a national franchise with a 3% “in-lieu-of-all-taxes” provision. After the Local Government Code took effect in 1992, local units assessed PLDT franchise taxes; PLDT paid from 1994 through Q3 1998 (P2,770,696.37). In June 1998, the Department of Finance’s Bureau of Local Government Finance (BLGF) ruled that upon RA 7925’s effectivity (March 16, 1995), PLDT became exempt from local franchise and business taxes under LGC Sections 137 and 143, save for the period January 1, 1992 to March 15, 1995. Relying on this, PLDT stopped payments as of Q4 1998. The City of Bacolod, withholding PLDT’s Mayor’s Permit for nonpayment, assessed P1,782,836.40 for Q4 1998 and 1999.
Procedural History
PLDT protested to the City Legal Officer, who denied relief and maintained the assessment. On May 14, 1999, PLDT filed a petition in the Regional Trial Court (Branch 42, Bacolod) seeking:
- Declaration of exemption from local franchise and business taxes;
- Injunction against further assessments and collections;
- Issuance of the 1999 Mayor’s Permit;
- Refund of P2,770,696.37 (overpayments for 1997–Q3 1998) plus interest.
The City answered that LGC Section 137 remained operative. After both sides waived testimonial evidence, the RTC dismissed PLDT’s petition on July 23, 2001. PLDT elevated the case by certiorari to the Supreme Court under Rule 45.
Issue
Whether Section 23 of RA 7925 (“most-favored-treatment” clause) automatically exempts PLDT from local franchise tax imposed by the City of Bacolod, notwithstanding the Local Government Code’s taxing powers.
Supreme Court Decision
The Supreme Court denied PLDT’s petition and affirmed the RTC decision dismissing its claim. Costs were awarded against PLDT.
Legal Reasoning
- Tax exemptions are disfavored and must rest on clear, unambiguous statutory language. Doubts resolve in favor of the taxing authority (citing Asiatic Petroleum Co. v. Llanes and U.S. precedent).
- Section 23 of RA 7925, construed in context, addresses regulatory and reporting exemptions under the National Telecommunications Commission, not blanket tax immunity from local franchises. Legislative history focused on promoting interconnection, competition and deregulation of rates, not local tax relief.
- In PLDT v. City of Davao, the Court held that Section 23 did not amen
Case Syllabus (G.R. No. 271081)
Facts
- PLDT holds a legislative franchise under Act No. 3436, as amended and consolidated by Republic Act No. 7082 (Aug. 3, 1991), which contains an “in-lieu-of-all-taxes” clause (Sec. 12) requiring payment of 3% of gross receipts in lieu of all franchise or earnings taxes.
- On January 1, 1992, Republic Act No. 7160 (Local Government Code) became effective, granting cities power to impose local franchise taxes (Sec. 137) and prescribing the scope of local taxing powers (Sec. 151).
- Section 193 of the Local Government Code withdrew all tax exemptions previously enjoyed by juridical persons, except those expressly saved (e.g., local water districts, cooperatives, non‐stock non‐profit hospitals and schools).
- Republic Act No. 7925 (Public Telecommunications Policy Act), effective March 16, 1995, embodies a “most-favored-treatment” clause in Sec. 23, declaring that any advantage, favor, privilege, exemption, or immunity granted in existing or future franchises “shall ipso facto become part of previously granted telecommunications franchises.”
- In August 1995, Bacolod City assessed PLDT for local franchise tax under Secs. 137/151 of the Local Government Code. PLDT paid taxes from 1994 until Q3 1998 (totaling ₱2,770,696.37).
- On June 2, 1998, the Department of Finance–BLGF ruled that, as of March 16, 1995, PLDT was exempt from local franchise and business taxes under Sec. 23 of RA 7925, but remained liable for taxes from January 1, 1992 to March 15, 1995.
- Relying on the BLGF ruling, PLDT ceased payments for Q4 1998 onward. The City withheld PLDT’s 1999 Mayor’s Permit pending payment of ₱1,782,836.40 in alleged back taxes.
- PLDT protested administratively and sought a refund of taxes paid for 1997–Q3 1998; the City Legal