Title
Quezon City vs. ABS-CBN Broadcasting Corp.
Case
G.R. No. 166408
Decision Date
Oct 6, 2008
ABS-CBN claimed exemption from Quezon City's local franchise tax under its franchise's "in lieu of all taxes" clause. The Supreme Court ruled against ABS-CBN, stating tax exemptions must be explicit and the clause no longer applies due to abolished franchise tax.

Case Summary (G.R. No. 166408)

Key Dates

Grant of legislative franchise to ABS-CBN under R.A. No. 7966: enacted March 30, 1995; effective May 3, 1995.
Local franchise tax payments by ABS-CBN to Quezon City: various dates in 1995–1997 (total P19,944,672.66).
ABS-CBN claim for refund filed with Quezon City Treasurer and suit filed in RTC: 1997.
RTC decision declaring local franchise tax invalid and ordering refunds: January 20, 1999.
CA disposition dismissing Quezon City’s appeal: August 31, 2004.
Supreme Court decision resolving the legal issues and disposition on appeal: October 6, 2008.

Applicable Law and Legal Framework

Constitutional basis: 1987 Philippine Constitution governing the allocation of taxing powers and local autonomy (applicable because the decision date is after 1990).
Local Government Code (LGC) of 1991 provisions relied upon: Section 137 (franchise tax by provinces) and Section 151 (scope of city taxing powers), and Section 193 (withdrawal of tax exemptions upon effectivity of LGC).
Quezon City Revenue Code (1993): Section 31 imposing local franchise tax on franchise holders doing business in Quezon City.
Legislative franchise for ABS-CBN: R.A. No. 7966, Section 8 (imposition of a 3% franchise tax “in lieu of all taxes on this franchise or earnings thereof”; continued liability for national income taxes).
National tax statutes and amendments affecting broadcasting taxation: 1977 NIRC Section 117 (former franchise tax schedule), R.A. No. 7716 (Expanded VAT Law, effective Jan. 1, 1996), R.A. No. 8241 (1997 amendments), R.A. No. 8424 (Tax Reform Act of 1997), and later amendments including R.A. No. 9337 (increase of VAT rate).
Rules of Court on appeals: Rule 41, Rule 42, Rule 45, and Rule 50 Sec. 2 governing proper mode of appeal when only questions of law are raised.

Factual Background

ABS-CBN received a congressional franchise under R.A. No. 7966 effective May 3, 1995. Quezon City, pursuant to its Revenue Code, had imposed a local franchise tax on businesses enjoying franchises within the city. ABS-CBN continued to pay the local franchise tax but, relying on Section 8 of R.A. No. 7966 (which imposed a 3% franchise tax “in lieu of all taxes” on the franchise or earnings thereof), concluded it was exempt from the municipal franchise tax and paid certain amounts under protest. ABS-CBN formally filed a claim for refund and, having received no timely response, filed suit in 1997 seeking declaration of invalidity of the local franchise tax and refund of tax payments.

Contentions of the City Government

Quezon City contended that: (1) the “in lieu of all taxes” clause in R.A. No. 7966 could not be construed to override constitutional and statutory provisions that secure the fiscal viability and self-sufficiency of local government units; (2) taxes collectible by local governments are distinct from national taxes and the Constitution provides that local taxes “shall accrue exclusively to the local governments”; and (3) the Local Government Code withdrew previously granted tax exemptions unless otherwise provided, such that the claimed exemption was effectively withdrawn by Section 193 of the LGC.

RTC Judgment and Rationale

The RTC declared invalid the imposition and collection of local franchise tax from ABS-CBN pursuant to Quezon City Ordinance No. SP-91, S-93 after enactment of R.A. No. 7966 and ordered refund of payments made after the franchise’s effectivity. The RTC’s reasoning: (1) Section 8’s language “in lieu of all taxes” showed congressional intent to exempt ABS-CBN from local franchise tax; (2) the legislature’s grant of a special law franchise operates as an exception to the general Local Tax Code principles (citing Province of Misamis Oriental v. CEPALCO); and (3) the imposition of local franchise tax impaired ABS-CBN’s legislative franchise, which the RTC treated as a contract-like right; (4) ABS-CBN’s refund claims were not foreclosed by the absence of a strictly timely prior written claim because the City Treasurer’s inaction rendered further administrative claims futile.

Court of Appeals Disposition

The Court of Appeals dismissed the City’s appeal as the wrong mode of appeal because the questions raised were pure questions of law (jurisdictional and legal in nature) that should have been brought directly to the Supreme Court by petition for review on certiorari. The CA concluded the issues were legal and did not require factual reexamination.

Issues Presented to the Supreme Court

  1. Whether the “in lieu of all taxes” phrase in Section 8 of R.A. No. 7966 exempted ABS-CBN from payment of Quezon City’s local franchise tax.
  2. Whether petitioners (Quezon City and its Treasurer) raised factual and legal issues properly before the CA.

Procedural Ruling by the Supreme Court

The Supreme Court agreed that the City’s appeal to the CA raised pure questions of law and thus was properly dismissed by the CA for being the wrong mode of appeal. Notwithstanding this procedural defect, the Court exercised its discretion to relax strict procedural rules in the interest of substantial justice and proceeded to decide the case on the merits.

Analytical Framework on Local Taxing Power and Congressional Exemptions

The Court framed the dispute as a clash between Congress’s inherent power to tax and grant exemptions, and the taxing authority exercised by local governments under the 1987 Constitution and the LGC. While local governments now possess general taxing authority under Article X, Section 5 of the 1987 Constitution and the LGC, Congress retains the primary power to tax and to grant exemptions. The LGC itself contemplates that a local government may impose a franchise tax “notwithstanding any exemption granted by any law or other special law” (Section 137) but the legislature may still grant specific exemptions. The prior jurisprudence recognizes that a special legislative grant can operate as an exception to a general statutory tax scheme, but the scope of any exemption must be determined from the language of the grant.

Rule of Strict Construction for Tax Exemptions and Burden of Proof

The Court reiterated the established principle that tax exemptions are disfavored and must be established by the party claiming the exemption with language “too plain to be mistaken.” Statutory provisions granting tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. Thus the taxpayer bears the burden to prove by clear and unambiguous terms that it is entitled to the exemption claimed.

Application to the “in lieu of all taxes” Clause in R.A. No. 7966

Section 8 of R.A. No. 7966 imposed a 3% franchise tax and stated that the percentage shall be “in lieu of all taxes on this franchise or earnings thereof,” while separately preserving liability for income taxes. The Supreme Court found the clause ambiguous because it did not specify the types of taxes or the taxing authorities from which ABS-CBN was purporting to be exempted (national versus local; municipal, city or provincial). Because the exemption’s scope was not expressed in unequivocal terms “too plain to be mistaken,” ABS-CBN failed to meet its burden of proving an exemption from local franchise tax. The Court rejected reliance on prece

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