SECOND DIVISION

[G.R. No. 119172. March 25, 1999.]

BELEN C. FIGUERRES, Petitioner, v. COURT OF APPEALS, CITY OF ASSESSORS OF MANDALUYONG, CITY TREASURER OF

MANDALUYONG, and SANGGUNIANG BAYAN OF MANDALUYONG, Respondents.

D E C I S I O N

MENDOZA, J.:

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 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.chanrobles.com.ph : virtual law library

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:chanrob1es virtual 1aw library

TYPE AREA BASE VALUE MARKET ASSESSMENT ASSESSED

PER SQ. M. VALUE LEVEL VALUE

Residential 530 sq. m. P2,500.00 P1,325,000.00 20 P265,000.00 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 

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 

In its decision, dated February 8, 1995, 6 the Court of Appeals threw out the petition. The appellate court said in part:chanrob1es virtual 1aw library

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 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 assessments pursuant to Sections 201 and 219 of the Local Government Code of 1991.

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.

Section 511 of R.A. No. 7160 provides that ¾

x       x       x

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.

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.

x       x       x

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).

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).

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

Petitioner Figuerres assails the above decision. She contends that ¾

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.

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.

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

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:chanrob1es virtual 1aw library

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

(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

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

Exhaustion of administrative remedies

In Lopez v. City of Manila, 9 we recently held:chanrob1es virtual 1aw library

. . . 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. . . .

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.

Section 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.

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.

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.

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."cralaw virtua1aw library

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."cralaw virtua1aw library

However, it is noteworthy that apart from her bare assertions, petitioner Figuerres has not presented any evidence to show that no public hearings 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:chanrob1es virtual 1aw library

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 

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

Petitioner is also right that publication or posting of the proposed schedule of fair market values of the different classes of real property in a local government unit is required pursuant to R.A. No. 7160, §212 which in part states:chanrob1es virtual 1aw library

. . . . 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.

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.

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:chanrob1es virtual 1aw library

SECTION 188. Publication of Tax Ordinances and Revenue Measures. ¾ Within ten (10) days after their approval, certified true copies of all provincial, 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 are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.

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.

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:chanrob1es virtual 1aw library

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.chanrobles virtual lawlibrary

Apart from her allegations, petitioner has not presented any evidence to show that the subject ordinances were not 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.

Compliance with regulations issued by the

Department of Finance

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 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 not 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 must be presumed to have been enacted in accordance with such regulations.

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

SO ORDERED.cralawnad

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

SECOND DIVISION

[G.R. No. 143867. August 22, 2001.]

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., Petitioner, v. CITY OF DAVAO and ADELAIDA B. BARCELONA,

in her capacity as the City Treasurer of Davao, Respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the resolution, 1 dated June 23, 2000, of the Regional Trial Court, Branch 13, Davao City, affirming the tax assessment of petitioner and the denial of its claim for tax refund by the City Treasurer of

Davao.chanrob1es virtua1 1aw library

The facts are as follows:chanrob1es virtual 1aw library

On January 1999, petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayor’s Permit to operate its Davao Metro Exchange. Respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999. 2 In a letter dated May 31, 1999, 3 petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of 1998. Petitioner contended that it was exempt from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF), dated June 2, 1998, which reads as follows:chanrob1es virtual 1aw library

PLDT:chanrob1es virtual 1aw library

Section 12 of RA 7082 provides as follows:jgc:chanrobles.com.ph

"SECTION 12. 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 are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses 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 . . ."cralaw virtua1aw library

It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a franchise to install, operate and maintain a telephone system throughout the Philippine Islands was approved on August 3, 1991. Section 12 of said franchise, likewise, contains the "in lieu of all taxes" proviso.

In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995, provides for the equality of treatment in the telecommunications industry:jgc:chanrobles.com.ph

"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.)

On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995.chanrob1es virtua1 1aw 1ibrary

Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs under Sections 137 and 143 (sic), respectively, of the LGC, upon the effectivity of RA 7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the "most favored clause" proviso of RA 7025 (sic). 4 

In a letter dated September 27, 1999, respondent Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund of petitioner, 5 citing the legal opinion of the City Legal Officer of Davao and Art. 10, §1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No. 519, Series of 1992, which provides:chanrob1es virtual 1aw library

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. 6 

Petitioner received respondent City Treasurer’s order of denial on October 1, 1999. On November 3, 1999, it filed a petition in the Regional Trial Court of Davao seeking a reversal of respondent City Treasurer’s denial of petitioner’s protest and the refund of the franchise tax paid by it for the year 1998 in the amount of P2,580,829.23. The petition was filed pursuant to §§195 and 196 of the Local Government Code (R.A. No. 7160). No claim for refund of franchise taxes paid in 1997 was made as the same had already prescribed under §196 of the LGC, which provides that claims for the refund of taxes paid under it must be made within two (2) years from the date of payment of such taxes. 7 

The trial court denied petitioner’s appeal and affirmed the City Treasurer’s decision. It ruled that the LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them. The trial court likewise denied petitioner’s claim for exemption under R.A. No. 7925 for the following reasons: (1) it is clear from the wording of §193 of the Local Government Code that Congress did not intend to exempt any franchise holder from the payment of local franchise and business taxes; (2) the opinion of the Executive Director of the Bureau of Local Government Finance to the contrary is not binding on respondents; and (3) petitioner failed to present any proof that Globe and Smart were enjoying local franchise and business tax exemptions.

Hence, this petition for review based on the following grounds:chanrob1es

virtual 1aw library

I. THE LOWER COURT ERRED IN APPLYING SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH ALLOWS A CITY TO IMPOSE A FRANCHISE TAX, AND SECTION 193 THEREOF, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES.

II. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONER’S FRANCHISE, AS IMPLICITLY AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT), TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM, INC. AND SMART COMMUNICATIONS, INC., WHICH WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE AND BUSINESS TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

III. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE BUREAU OF LOCAL GOVERNMENT FINANCE THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES, AMONG OTHERS, IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

First. The LGC, which took effect on January 1, 1992, provides:chanrob1es virtual 1aw library

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 a 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 thereof, as provided herein. 8 

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 R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

The trial court held that, under these provisions, all exemptions granted to all persons, whether natural and juridical, including those which in the future might be granted, are withdrawn unless the law granting the exemption expressly states that the exemption also applies to local taxes. We disagree. Sec. 137 does not state that it covers future exemptions. In Philippine Airlines, Inc. v. Edu, 9 where a provision of the Tax Code enacted

on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed by PAL, it was held that a subsequent amendment of PAL’s franchise, exempting it from all other taxes except that imposed by its franchise, again entitled PAL to exemption from the date of the enactment of such amendment. The Tax Code provision withdrawing the tax exemption was not construed as prohibiting future grants of exemptions from all taxes.

Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. 10 

The question, therefore, is whether, after the withdrawal of its exemption by virtue of §137 of the LGC, petitioner has again become entitled to exemption from local franchise tax. Petitioner answers in the affirmative and points to §23 of R.A. No. 7925, in relation to the franchises of Globe Telecom (Globe) and Smart Communications, Inc. (Smart), which allegedly grant the latter exemption from local franchise taxes.chanrob1es virtua1 1aw 1ibrary

To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum Co. v. Llanes, 11 in which it was held:chanrob1es virtual 1aw library

. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis v. U. & P. Bank (91 Tenn., 546, 550), "The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden must justify his claim by the clearest grant of organic or statute law." Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. v. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been surrendered, "unless the intention to surrender is manifested by words too plain to be mistaken." In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In Erie Railway Company v. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by doubtful words. "It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty." In Tennessee v. Whitworth (117 U.S., 129, 136), it was said: "In all cases of this kind the question is as to the intent of the legislature, the presumption always being

against any surrender of the taxing power." In Farrington v. Tennessee and County of Shelby (95 U.S., 679, 686), Mr. Justice Swayne said: ". . . When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported."cralaw virtua1aw library

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 12 

In the present case, petitioner justifies its claim of tax exemption by strained inferences. First, it cites R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, §23 of which reads:chanrob1es virtual 1aw library

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 franchises 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.

Petitioner then claims that Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their legislative franchises per opinion of the Bureau of Local Government Finance of the Department of Finance. Finally, it argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.

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 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.

The fact is that the term "exemption" in §23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may actually have a limited application if read together with other provisions. 13 Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order. 14 

Art. I of Rep. Act No. 7925 contains the general provisions, stating that the Act shall be known as the Public Telecommunications Policy Act of the Philippines, and a definition of terms. 15 Art. II provides for its policies and objectives, which is to foster the improvement and expansion of telecommunications services in the country through: (1) the construction of telecommunications infrastructure and interconnection facilities, having in mind the efficient use of the radio frequency spectrum and extension of basic services to areas not yet served; (2) fair, just, and reasonable rates and tariff charges; (3) stable, transparent, and fair administrative processes; (4) reliance on private enterprise for direct provision of telecommunications services; (5) dispersal of ownership of telecommunications entities in compliance with the constitutional mandate to democratize the ownership of public utilities; (6) encouragement of the establishment of interconnection with other countries to provide access to international communications highways and development of a competitive export-oriented domestic telecommunications manufacturing industry; and (7) development of human resources skills and capabilities to sustain the growth and development of telecommunications. 16 

Art. III provides for its administration. The operational and administrative functions are delegated to the National Telecommunications Commission (NTC), while policy-making, research, and negotiations in international telecommunications matters are left with the Department of Transportation and Communications. 17 

Art. IV classifies the categories of telecommunications entities as: Local Exchange Operator, Inter-Exchange Carrier, International Carrier, Value-Added Service Provider, Mobile Radio Services, and Radio Paging Services. 18 Art. V provides for the use of other services and facilities, such as customer premises equipment, which may be used within the premises of telecommunications subscribers subject only to the requirement that it is type-approved by the NTC, and radio frequency spectrum, the assignment of which shall be subject to periodic review. 19 

Art. VI, entitled Franchise, Rates and Revenue Determination, provides for the requirement to obtain a franchise from Congress and a Certificate of Public Convenience and Necessity from the NTC before a

telecommunications entity can begin its operations. It also provides for the NTC’s residual power to regulate the rates or tariffs when ruinous competition results or when a monopoly or a cartel or combination in restraint of free competition exists and the rates or tariffs are distorted or unable to function freely and the public is adversely affected. There is also a provision relating to revenue sharing arrangements between inter-connecting carriers. 20 

Art. VII provides for the rights of telecommunications users. 21 

Art. VIII, entitled Telecommunications Development, where §23 is found, provides for public ownership of telecommunications entities, privatization of existing facilities, and the equality of treatment provision. 22 

Art. IX contains the Final Provisions. 23 

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. 24 There is nothing in the language of §23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.chanrob1es virtua1 1aw 1ibrary

What this Court said in Asiatic Petroleum Co. v. Llanes 25 applies mutatis mutandis to this case: "When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported." In this case, the word "exemption" in §23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on §23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.

Second. In the case of petitioner, the 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.

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, 26 a highly specialized court which performs judicial functions as it was created for the review of tax cases. 27 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. 28 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.chanrob1es virtua1 1aw 1ibrary

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.

In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925 cannot be considered as having amended petitioner’s franchise so as to entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.

WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Regional Trial Court, Branch 13, Davao City is AFFIRMED.

SO ORDERED.chanrob1es virtua1 1aw 1ibrary

THIRD DIVISION

[G.R. No. 149110. April 9, 2003.]

NATIONAL POWER CORPORATION, Petitioner, v. CITY OF CABANATUAN, Respondent.

D E C I S I O N

PUNO, J.:

This is a petition for review 1 of the Decision 2 and the Resolution 3 of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan.chanrob1es virtua1 1aw 1ibrary

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended. 4 It is tasked to undertake the "development of hydroelectric generations of power and the production of electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide basis." 5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and supplying such power to the inhabitants. 6 

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. 7 Pursuant to section 37 of Ordinance No. 165-92, 8 the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter’s gross receipts for the preceding year. 9 

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees 11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:chanrob1es

virtual 1aw library

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. — The Corporation shall be non-profit and shall devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby exempt:chanrob1es virtual 1aw library

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12 

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. 13 Respondent alleged that petitioner’s exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160, 14 which reads as follows:jgc:chanrobles.com.ph

"Sec. 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 R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code."cralaw virtua1aw library

On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No.

7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the national government. Pertinent portion of the Order reads:jgc:chanrobles.com.ph

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco v. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:chanrob1es virtual 1aw library

‘Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. . . . Being an instrumentality of the government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local government.’

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares of stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to this, it should be noted here that in the NPC Charter’s declaration of Policy, Congress declared that: ‘. . . (2) the total electrification of the Philippines through the development of power from all services to meet the needs of industrial development and dispersal and needs of rural electrification are primary objectives of the nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial institutions.’ (Emphasis supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose the subject tax on the defendant." 16 

On appeal, the Court of Appeals reversed the trial court’s Order 17 on the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. 18 It ordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P10,000.00 as litigation expense. 19 

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal’s Decision. This was denied by the appellate court, viz:jgc:chanrobles.com.ph

"The Court finds no merit in NPC’s motion for reconsideration. Its arguments reiterated therein that the taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the NPC Charter which is a special law — finds the answer in Section 193 of the LGC to the effect that ‘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 . . . are hereby withdrawn.’ The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED." 20 

In this petition for review, petitioner raises the following issues:jgc:chanrobles.com.ph

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC’S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A

LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE." 21 

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:jgc:chanrobles.com.ph

"Sec. 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 a 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 thereof, as provided herein." (Emphasis supplied)

x       x       x

Sec. 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.

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."cralaw virtua1aw library

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city government to private entities that are engaged in trade or occupation for profit. 22 

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of the public welfare,

security and safety." From the phraseology of this provision, the petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise," petitioner submits that it should refer specifically to franchises granted to private natural persons and to private corporations. 23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the franchise tax in question.chanrob1es virtua1 1aw 1ibrary

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and improvement of its facilities and services. 24 

Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be taxed by the respondent city government. It cites the doctrine in Basco v. Philippine Amusement and Gaming Corporation 26 where this Court held that local governments have no power to tax instrumentalities of the National Government, viz:jgc:chanrobles.com.ph

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere local government.

‘The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)’

This doctrine emanates from the ‘supremacy’ of the National Government over local governments.

‘Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even seriously burden it from accomplishment of them.’ (Antieau, Modern Constitutional Law, Vol. 2, p. 140, Italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as ‘a tool regulation’ (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the ‘power to destroy’ (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it." 27 

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:jgc:chanrobles.com.ph

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute. 28 

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner’s exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation." 29 

The petition is without merit.

Taxes are the lifeblood of the government, 30 for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, 31 the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; 32 without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the

protection of local industries as well as public welfare and similar objectives. 33 Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges 34 pursuant to Article X, section 5 of the 1987 Constitution, viz:jgc:chanrobles.com.ph

"Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments."cralaw virtua1aw library

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country’s highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:jgc:chanrobles.com.ph

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units."cralaw virtua1aw library

To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, 37 the Local Autonomy Act of 1959, 38 the Decentralization Act of 1967 39 and the Local Government Code of 1983. 40 Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory

control over personnel of national line agencies. 41 

Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian. 43 

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz:jgc:chanrobles.com.ph

"Section 133. Common Limitations on the Taxing Powers of the Local Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:chanrob1es virtual 1aw library

x       x       x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units." (Emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco v. Philippine Amusement and Gaming Corporation 44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) v. Marcos, 45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. 46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax, viz:jgc:chanrobles.com.ph

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in section 133, the taxing

power of local governments cannot extend to the levy of inter alia, ‘taxes, fees and charges of any kind on the national government, its agencies and instrumentalities, and local government units’; however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, ‘real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first paragraph of section 12.’" 47 

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question.chanrob1es virtua1 1aw 1ibrary

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right. 48 In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself. 50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use. 52 

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." 53 It is not levied on the corporation simply for existing as a corporation, upon its property 54 or its income, 55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government.chanrob1es virtua1 1aw 1ibrary

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes petitioner’s primary and

secondary franchises. It serves as the petitioner’s charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary corporations, viz:jgc:chanrobles.com.ph

"x       x       x

(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or connecting therewith or contiguous to its works or any part thereof. Provided, That just compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof, to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions . . .;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall be the fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway or railway of private and public ownership, as the location of said works may require . . .;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for instituting condemnation proceedings by the national, provincial and municipal governments;

x       x       x

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent environmental pollution and promote the conservation, development and maximum utilization of natural resources . . ." 58 

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry. Although Exec. Order No. 215 60 thereafter allowed private sector participation in the generation of electricity, the transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government’s territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued

under its own name, 61 and can exercise all the powers of a corporation under the Corporation Code. 62 

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:jgc:chanrobles.com.ph

"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock . . . ." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government. 64 Included in the class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), 65 among others.chanrob1es virtua1 1aw 1ibrary

Petitioner was created to "undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis." 66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society. 67 

A closer reading of its charter reveals that even the legislature treats the character of the petitioner’s enterprise as a "business," although it limits petitioner’s profits to twelve percent (12%), viz: 68 

"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of its business or to carry out the

purposes for which it was organized, to contract indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the said purpose . . . ." (emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference is that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from its operation, for expansion" 70 while other franchise holders have the option to distribute their profits to its stockholders by declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner’s contention that its tax exemptions under its charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions. 71 In the case at bar, the petitioner’s sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads:jgc:chanrobles.com.ph

"Sec. 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 R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. 73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly

does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax "notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v. Reyes, 74 MERALCO’s exemption from the payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of Laguna. 75 Ruling in favor of the local government in both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:jgc:chanrobles.com.ph

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position that MERALCO’s tax exemption has been withdrawn. The explicit language of section 137 which authorizes the province to impose franchise tax ‘notwithstanding any exemption granted by any law or other special law’ is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No

more unequivocal language could have been used." 76 (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. 77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises." 78 With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.