BASCO vs PAGCOR -Exemptions-

FACTS:

o On July 11, 1983, PAGCOR was created under PD 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law.

o Basco and four others (all lawyers) assailed the validity of the law creating PAGCOR on constitutional grounds among others particularly citing that the PAGCOR’s charter is against the constitutional provision on local autonomy.

o Basco et al contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any “tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local” is violative of the local autonomy principle.

ISSUE: Whether or not PAGCOR’s charter is violative of the principle of local autonomy.

HELD: NO!

Purpose of PD 1869 : “to regulate and centralize thru an appropriate institution all games of chance authorized by existing frnachise or permitted by law”. PAGCOR is beneficial not only to government but also to the society in general. It is a reliable source of revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to “close scrutiny and control/supervision of the Government”

As to the contention of petitioners re Sec 13 of PD 1869 constituting waiver of the right of the City of Manila to impose taxes:

Sec 5 of Art X of 1987 COnsitution provides:

Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government.

A close reading of the above provision does not violate local autonomy (particularly on taxing powers) as it was clearly stated that the taxing power of LGUs are subject to such guidelines and limitation as Congress may provide.

Further, the City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. The Charter of the City of Manila is subject to control by Congress. It should be stressed that “municipal corporations are mere creatures of Congress” which has the power to “create and abolish municipal corporations” due to its “general legislative powers”.

Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power.

Further still, 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. Otherwise, its operation might be burdened,

impeded or subjected to control by a mere Local government. This doctrine emanates from the “supremacy” of the National Government over local governments. The principle of local autonomy under 1987 Consti = “decentralization” (Note the prohibiton re imperium n imperio”)

(*sub-issue: WON it violates equal protection clause (Petitioners’ contention: because it legalized gambling while most gambling are outlawed together w/ prostitution etc)

NO. The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as classification is not arbitrary. The mere fact that some gambling activities are legalized under certain conditions, while others are prohibited, does not render the applicable laws unconstitutional.)

NAPOCOR vs CITY OF CABANATUAN *(superseded the doctrine laid in Basco ruling; LGC removed the government instrumentalities exemption from local taxation)

FACTS:

o For many years now, petitioner NAPOCOR 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.

o City of Cabanatuan filed a collection suit against NAPOCOR, a government-owned and controlled corporation demanding that the latter pay the assessed franchise tax due, plus surcharge and interest.

o It alleged that NAPOCOR’s exemption from local taxes has already been withdrawn by the Local Government Code.

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.”

o Petitioner NAPOCOR submitted that it is not liable to pay an annual franchise because the city’s taxing power is limited to private entities that are engaged in trade or occupation for profit, and that the NAPOCOR Charter, being a valid exercise of police power, should prevail over the LGC.

Contentions:

(1)Exempted from payment of all forms of taxes pursuant to Sec 13 RA 6395

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:(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."1

(2) That Sec 131(m) 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." 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.

(3) That Sec 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.

(4) BASCO Ruling re: exemption; That it is an instrumentality of the National Government, and as such, may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation where the Court held that local governments have no power to tax instrumentalities of the National Government

(5) That Sec 193 in withdrawing the tax exemptions is an implied repeal. That 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,

(RTC ruling: in favor of NAPOCOR CA reversal on the ground that Sec 193 expressly withdrew the exemption thus petitioner’s petition)

ISSUE: WON NAPOCOR is exempted from local taxation

HELD: NO! The doctrine in Basco relied by the petitioner no longer applies. Note that Basco case was decided prior to the effectivity of LGC.

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,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. Ruling in favor of the local government in both instances, the court uled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:

“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, the court concluded 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.

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 the SC 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.” 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.

(*sorry mahaba talaga ito -_- )

CITY OF IRIGA vs CASURECO II

FACTS: Respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO), an electric cooperative organized under Presidential Decree (PD) No. 269 and registered with the National Electrification Administration (NEA), is engaged in the business of electric power distribution to various end-users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of Camarines Sur (or the Rinconada area).

Petitioner City of Iriga assessed CASURECO deficiency franchise tax and RPT covering the periods 1998 to 2003 and 1995 to 2003, respectively. CASURECO refused to pay and argued that as an electric cooperative provisionally registered with the Cooperative Development Authority (CDA), it is exempt from the payment of local taxes.

Petitioner filed a collection complaint against CASURECO with the RTC, which ruled that the city’s right to assess RPT for 1995 - 1999 had already prescribed. The RTC also ruled that CASURECO is liable for franchise taxes for 2000 – 2003 based on its gross receipts from Iriga City and the Rinconada area, on the ground that the “situs of taxation is the place where the privilege is exercised.”

On appeal, the Court of Appeals (CA) reversed the RTC on the ground that CASURECO is a non-profit entity which does not fall within the purview of businesses enjoying a franchise.

ISSUES: WON CASURECO is liable for payment of franchise taxes

HELD: YES

PD No. 269, which took effect on August 6, 1973, granted exemption from the payment of all national and local taxes and fees to electric cooperatives registered with NEA.

RA No. 6939, enacted on March 10, 1990, created and authorized the CDA to register cooperatives, while RA No. 6938, enacted on the same day, provides that electric cooperatives registered with NEA under PD No. 269 which opt not to register with the CDA shall not be entitled to the benefits and privileges under the law.

On January 1, 1992, the LGC took effect and withdrew tax exemptions or incentives previously enjoyed by all persons, natural and judicial, including GOCCs, except for certain entities, such as cooperatives duly registered under RA No. 6938.

The provisional registration of CASURECO with the CDA, which granted it exemption from payment of local taxes, was only until May 4, 1992. Thereafter, CASURECO was no longer exempt from the payment of local taxes, including the franchise tax.

A franchise tax is “a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state.” It is not levied simply for existing as a corporation upon its property or on its income, but on its exercise of the rights or privileges granted to it by the government.

To be liable for local franchise tax: REQUISITES:1) one must have a “franchise” in the sense of a secondary or special franchise; and 2) it must exercise its rights or privileges under this franchise within the territory of the pertinent LGU.

Both requisites being present, CASURECO is liable to pay franchise tax. Being in the nature of an excise tax, the situs of taxation is the place where the privilege is exercised. Hence, CASURECO is liable for franchise tax on all its gross receipts from Iriga City and the Rinconada area where it operates, regardless of the place where its services or products are delivered.