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Saturday, February 21, 2004
Peñaflorida: Hello?
By Atty. Jobert Peñaflorida
"THE number you dialed is not yet in service." When you get this recorded reply when you call the offices at the Iloilo City Hall nowadays, don't get surprised.
The hard economic realities have not spared even the City Government. So when you thought that only the average men on the streets get cut off from PLDT, think again.
Only this week, we saw a red-faced Mayor Jerry Treñas fuming mad after PLDT cut off practically all the telephone lines of the City Government for its failure to settle its bills.
In his outburst, we heard the usually mild-mannered mayor blasting PLDT for its failure to pay its local franchise tax and declaring bluntly that he will oppose any move of the City Council to waive the city's claim for unpaid franchise taxes amounting to some P10 million.
Some quarters are, in fact, saying that PLDT's drastic move is its way of pressuring the City Government to issue such waiver.
The latest PLDT brouhaha raised the question in everyone's mind: What is this local franchise tax all about?
In reply, this column will turn legalistic and will discuss an analogous case filed by PLDT against the City of Davao (G.R. No. 143867) decided by the Supreme Court en banc on March 25, 2003.
In the aforesaid case, PLDT challenged before the highest tribunal the legality of the imposition of local franchise tax by the City of Davao.
As the pioneer and, for the longest time, sole player in the telecommunications industry, PLDT's franchise was approved way ahead of the passage of Republic Act 7160 or the 1991 Local Government Code (LGC) and the special laws granting franchises to other telecom companies.
Under its own franchise, PLDT used to enjoy preferential tax of only three percent of its gross receipts, in lieu of all taxes.
However, the 1991 LGC has made a blanket withdrawal of all previous tax exemptions or privileges granted by Congress, including PLDT's, upon its effectivity on Jan. 1, 1992. Moreover, the LGC gave local government units (LGUs) the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction.
PLDT, however, argued that Republic Act 7925 (Public Telecommunications Policy of the Philippines), which took effect on March 16, 1995, contained an "equality clause" which provides that any advantage, favor, privilege, exemption, or immunity granted under existing or future franchises to telecom companies shall ipso facto become part of previously granted telecom franchises and shall be accorded immediately and unconditionally to the grantees of such franchises.
PLDT pointed specifically to franchises granted by Congress in favor of Globe and Smart, after the passage of R.A. 7925, which contained "in lieu of all taxes" provisos. PLDT claimed that in view of such subsequent franchises, the previous tax privilege it enjoyed under its own charter was deemed reinstated, thus obliging PLDT to pay only 3 percent gross receipts tax, in lieu of all taxes, including local franchise tax imposed by LGUs.
In its en banc decision, the Supreme Court denied PLDT's contention by saying that tax exemptions should be granted only by clear and unequivocal provision of law "expressed in a language too plain to be mistaken." If, as PLDT contended, the word "exemption" in R.A. 7925 means "tax exemption" and assuming that the charters of Globe and of Smart granted tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, "clear and unequivocal" way of communicating the legislative intent.
The Supreme Court made mention that the best refutation of PLDT's claim is the fact that after its enactment, Congress granted several franchises to other telecom companies containing both an "equality clause" similar to the provision of R.A. 7925 and an "in lieu of all taxes" clause. If the equality clause automatically extended the tax exemption of franchises with "in lieu of all taxes" clauses, there would be no need in the same statute for the "in lieu of all taxes" clause in order to extend its tax exemption to other franchises not containing such clause.
The Supreme Court reiterated the basic principle in taxation law of Strictissimi Juris, which means that tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken and cannot be extended by mere implication or inference.
The Supreme Court ruled that PLDT's justification for its claim of tax exemption rested on a strained interpretation of R.A. 7925, which is not based on an amendment to its charter but on a circuitous reasoning involving inquiry into the grant of tax exemption to other telecom companies and the lack of such grant to others.
The High Tribunal said Congress could have more clearly and directly granted tax exemption to all franchise holders or amend the charter of PLDT to again exempt it from tax if this had been its purpose.
The fact is that the LGC withdrew PLDT's previous preferential tax treatment and no amendment was passed by Congress to re-enact its previous tax exemption.
Thus, it appears from the Supreme Court's decision in the case of PLDT v. Davao City that the City Government of Iloilo has strong legal grounds to pursue its own claim for unpaid local franchise tax from PLDT.
For comments and reactions, email attyjobertpenaflorida@yahoo.com
(February 20, 2004 issue)
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