View full case

CITY OF ILOILO v. COMMUNICATIONS

FACTS:

The City of Iloilo filed an appeal seeking to set aside the decision of the Regional Trial Court (RTC) of Iloilo City, which declared that SMART Communications, Inc. (SMART) is exempt from the payment of local franchise and business taxes. SMART received a letter of assessment from the City of Iloilo requiring it to pay deficiency local franchise and business taxes for the years 1997 to 2001. SMART protested the assessment, claiming exemption from payment based on Section 9 of its franchise and Section 23 of the Public Telecoms Act. The City of Iloilo denied SMART's protest, citing failure to comply with Section 252 of the Local Government Code before filing the protest. SMART then filed a case against the City of Iloilo, and the trial court ruled in favor of SMART, declaring it exempt from the payment of local franchise and business taxes. The City of Iloilo appeals this decision, questioning SMART's exemption from the said taxes.

ISSUES:

  1. Whether SMART Communications, Inc. (SMART) is entitled to tax exemption under its franchise and the Public Telecoms Act.

  2. Whether the withdrawal of tax exemptions under Section 193 of the Local Government Code (LGC) applies to SMART's claim for tax exemption.

  3. Whether the "in lieu of all taxes" provision in SMART's franchise includes exemption from both local and national taxation.

  4. Whether Section 23 of the Public Telecoms Act extends tax exemptions granted by Congress to existing franchise holders.

  5. Whether or not SMART should be exempt from the local franchise and business taxes imposed by petitioner.

  6. Whether or not SMART's reliance on the letter-opinion of the Bureau of Local Government and Finance (BLGF) was justified.

RULING:

  1. SMART's claim for tax exemption under its franchise and the Public Telecoms Act is unfounded. SMART failed to show a clear and explicit provision of law conferring tax exemption.

  2. The withdrawal of tax exemptions under Section 193 of the LGC does not apply to SMART's claim for tax exemption. Section 193 only pertains to tax exemptions existing prior to the LGC, and since SMART's franchise was made effective after the LGC, it is not affected by the withdrawal of tax exemptions.

  3. The "in lieu of all taxes" provision in SMART's franchise does not clearly indicate whether it exempts SMART from both local and national taxation. The clause should be construed strictly against SMART, and the intent of the provision appears to apply only to taxes under the National Internal Revenue Code and not to local taxes. Furthermore, the franchise tax exemption has become inoperative since the franchise tax for telecommunications companies was abolished by the Expanded Value-Added Tax Law (E-VAT Law).

  4. Section 23 of the Public Telecoms Act does not grant tax exemptions to existing franchise holders. The term "exemption" in this provision refers to exemption from regulatory or reporting requirements, not tax exemptions. The intent to grant tax exemption cannot be discerned from the law, and the term "exemption" is too general to include tax exemption.

  5. SMART is not exempt from the local franchise and business taxes imposed by petitioner.

  6. SMART's reliance on the letter-opinion of the BLGF was unjustified as the BLGF's interpretation of local tax laws is not authoritative or persuasive.

PRINCIPLES:

  • The construction of laws granting tax exemptions requires a clear showing that the legislature intended to exempt the taxpayer by words too plain to be beyond doubt or mistake.

  • Tax exemptions must be clear and unequivocal, and any doubt whether a tax exemption exists is resolved against the taxpayer.

  • The burden of proof is on the taxpayer claiming tax exemption to justify the claim by showing the specific provision of law conferring exemption in clear and plain terms.

  • The withdrawal of tax exemptions under Section 193 of the LGC only applies to tax exemptions existing prior to the LGC. Tax exemptions granted after the effectivity of the LGC are not affected by Section 193.

  • The "in lieu of all taxes" provision in a franchise should be strictly construed against the grantee claiming the exemption.

  • The grant of tax exemption should be stated in clear and unequivocal language.

  • Good faith and honest belief in non-liability for taxes based on previous interpretations of government agencies can justify the exclusion of surcharges and interests.

  • The BLGF's function is to provide consultative services and technical assistance on local taxation, but it does not have the power to interpret tax laws.

  • The Commissioner of Internal Revenue has the express power to interpret the Tax Code and other national tax laws.