The Supreme Court denied Smart Communications' petition claiming exemption from franchise tax imposed by the City of Davao. The Court found that the "in lieu of all taxes" clause in Smart's legislative franchise was ambiguous and did not clearly exempt Smart from both national and local taxes. Any ambiguity in tax exemptions must be resolved in favor of the taxing authority. There was also no violation of the Constitutional prohibition against contractual impairment because Smart's franchise did not explicitly provide exemption from local taxes.
Original Description:
G.R. No. 155491 July 21, 2009 SMART COMMUNICATIONS, INC vs CITY OF DAVAO
Original Title
38d g.r. No. 155491 July 21, 2009 Smart Communications, Inc vs City of Davao
The Supreme Court denied Smart Communications' petition claiming exemption from franchise tax imposed by the City of Davao. The Court found that the "in lieu of all taxes" clause in Smart's legislative franchise was ambiguous and did not clearly exempt Smart from both national and local taxes. Any ambiguity in tax exemptions must be resolved in favor of the taxing authority. There was also no violation of the Constitutional prohibition against contractual impairment because Smart's franchise did not explicitly provide exemption from local taxes.
The Supreme Court denied Smart Communications' petition claiming exemption from franchise tax imposed by the City of Davao. The Court found that the "in lieu of all taxes" clause in Smart's legislative franchise was ambiguous and did not clearly exempt Smart from both national and local taxes. Any ambiguity in tax exemptions must be resolved in favor of the taxing authority. There was also no violation of the Constitutional prohibition against contractual impairment because Smart's franchise did not explicitly provide exemption from local taxes.
SMART COMMUNICATIONS, INC. vs. THE CITY OF DAVAO, represented Mayor DUTERTE, and the SANUNIAN !AN"UNSOD On March 27, 1992, Smart obtained it !e"i!ati#e $ranchie %nder R.&. No. 7294. Sec. 9 o$ aid !a' pro#ide that ()he "rantee, it %cceor or ai"n ha!! be !iab!e to pa* the ame ta+e on their rea! etate b%i!din" and perona! propert*, e+c!%i#e o$, thi $ranchie, a other peron or corporation 'hich are no' or herea$ter ma* be re-%ired b* !a' to pa*. .n addition thereto, the "rantee, it %cceor or ai"n ha!! pa* a $ranchie ta+ e-%i#a!ent to three percent /012 o$ a!! "ro receipt o$ the b%ine tranacted %nder thi $ranchie b* the "rantee, it %cceor or ai"n and the aid percenta"e ha!! be in lieu of all taxes on thi $ranchie or earnin" thereo$3 Provided, )hat the "rantee, it %cceor or ai"n ha!! contin%e to be !iab!e $or income ta+e pa*ab!e %nder )it!e .. o$ the Nationa! .nterna! Re#en%e 4ode p%r%ant to Section 2 o$ 5+ec%ti#e Order No. 72 %n!e the !atter enactment i amended or repea!ed, in 'hich cae the amendment or repea! ha!! be app!icab!e thereto.
)he "rantee ha!! $i!e the ret%rn 'ith and pa* the ta+ d%e thereon to the 4ommiioner o$ .nterna! Re#en%e or hi d%!* a%thori6ed repreentati#e in accordance 'ith the Nationa! .nterna! Re#en%e 4ode and the ret%rn ha!! be %b7ect to a%dit b* the 8%rea% o$ .nterna! Re#en%e. /5mphai %pp!ied.29 On :an%ar* 1, 1992, the ;oca! Go#ernment 4ode /R.&. No. 71602 too< e$$ect. Section 107, in re!ation to Section 151 o$ R.&. No. 7160, a!!o'ed the impoition o$ $ranchie ta+ b* the !oca! "o#ernment %nit.
R.&. No. 7716 or the =&) ;a' 'a enacted 'hich peci$ica!!* e+preed %nder Section 20, repea!in" pro#iion o$ a!! pecia! !a' /that inc!%de the !e"i!ati#e $ranchie R.&. No. 7294, a pecia! !a'2 re!ati#e to the rate o$ $ranchie ta+e. .t a!o repea!ed, amended, or modi$ied a!! other !a', order, i%ance, r%!e and re"%!ation, or part thereo$ 'hich are inconitent 'ith it.
.t i in e$$ect, rendered ine$$ecti#e the (in !ie% o$ a!! ta+e9 c!a%e in R.&. No. 7294. )a+ 4ode o$ the 4it* o$ >a#ao, Section 1, &rtic!e 10 thereo$, pro#ide3 (Not'ithtandin" an* e+emption "ranted b* an* !a' or other pecia! !a', there i hereb* impoed a ta+ on b%inee en7o*in" a $ranchie, at a rate o$ e#ent*?$i#e percent /7512 o$ one percent /112 o$ the "ro ann%a! receipt $or the precedin" ca!endar *ear baed on the income or receipt rea!i6ed 'ithin the territoria! 7%ridiction o$ >a#ao 4it*.
Smart $i!ed a pecia! ci#i! action $or dec!arator* re!ie$ $or the acertainment o$ it ri"ht and ob!i"ation %nder the )a+ 4ode o$ the 4it* o$ >a#ao and contend that it te!ecenter in >a#ao 4it* i e+empt $rom pa*ment o$ $ranchie ta+ to the 4it*, on the $o!!o'in" "ro%nd3 the i%ance o$ it $ranchie %nder Rep%b!ic &ct /R.&.2 No. 7294, %be-%ent to R.&. No. 7160 ho' the c!ear !e"i!ati#e intent to e+empt it $rom the pro#iion o$ R.&. 7160 that the (in !ie% o$ a!! ta+e9 c!a%e in Section 9 o$ it $ranchie e+empt it $rom a!! ta+e, both !oca! and nationa!, e+cept the nationa! $ranchie ta+ /no' =&)2, income ta+, and rea! propert* ta+ Section 107 o$ R.&. No. 7160 can on!* app!* to e+emption a!read* e+itin" at the time o$ it e$$ecti#it* and not to $%t%re e+emption@ 2 not co#ered bec. )he $ranchie 'a "ranted a$ter the e$$ecti#it* o$ the ;G4 the po'er o$ the 4it* o$ >a#ao to impoe a $ranchie ta+ i %b7ect to tat%tor* !imitation %ch a the # in lieu of all taxes clause $o%nd in Section 9 o$ R.&. No. 7294@ and on!* ta+e it ma* be made to bear %nder it $ranchie are the nationa! $ranchie ta+ /no' =&)2, income ta+, and rea! propert* ta+ e+empt $rom the !oca! $ranchie ta+ beca%e the (in !ie% o$ ta+e9 c!a%e in it $ranchie doe not ditin"%ih bet'een nationa! and !oca! ta+e. the impoition o$ $ranchie ta+ b* the 4it* o$ >a#ao 'o%!d amo%nt to a #io!ation o$ the contit%tiona! pro#iion a"aint impairment o$ contract. $ranchie i in the nat%re o$ a contract bet'een the "o#ernment and Smart.
Repondent in#o<ed it po'er "ranted b* the 4ontit%tion to !oca! "o#ernment %nit to create their o'n o%rce o$ re#en%e.
R)4 denied the petition on the "ro%nd that petitioner $ai!ed to pro#e that it i e+empt $rom ta+ app!*in" strictissimi juris a"aint the ta+pa*er and !ibera!!* in $a#or o$ the ta+in" a%thorit*. On the i%e o$ #io!ation o$ the non?impairment c!a%e o$ the 4ontit%tion, it cited Mactan Cebu International Airport Authority v. Marcos and dec!ared that the cit*A po'er to ta+ i baed not mere!* on a #a!id de!e"ation o$ !e"i!ati#e po'er b%t on the direct a%thorit* "ranted to it b* the $%ndamenta! !a'. )hat 'hi!e %ch po'er ma* be %b7ect to retriction or condition impoed b* 4on"re, an* %ch !e"i!ated !imitation m%t be conitent 'ith the baic po!ic* o$ !oca! a%tonom*.
ISSUES$ 5+emption $rom Branchie )a+ %nder Section 9, R& 7294 'hich contain (in !ie% o$ ta+e9 c!a%e (.n !ie% o$ ta+e9 c!a%e app!ie to nationa! ta+e or !oca! ta+e or bothC =io!ation to the 4ontit%tiona! prohibition a"aint (impairment o$ contract9 HE"D$ Detition i denied. On (.n !ie% o$ a!! ta+e( 4!a%e in R& 72943 R.&. No. 7294 i not de$inite in "rantin" e+emption to Smart $rom !oca! ta+ation. Section 9 o$ R.&. No. 7294 impoe on Smart a $ranchie ta+ e-%i#a!ent to three percent /012 o$ a!! "ro receipt o$ the b%ine tranacted %nder the $ranchie and the aid percenta"e ha!! be in !ie% o$ a!! ta+e on the $ranchie or earnin" thereo$. R.&. No 7294 doe not e+pre!* pro#ide 'hat <ind o$ ta+e Smart i e+empted $rom. .t i not c!ear 'hether the (in !ie% o$ a!! ta+e9 pro#iion in the $ranchie o$ Smart 'o%!d inc!%de e+emption $rom !oca! or nationa! ta+ation. Ehat i c!ear i that Smart ha!! pa* $ranchie ta+ e-%i#a!ent to three percent /012 o$ a!! "ro receipt o$ the b%ine tranacted %nder it $ranchie. 8%t 'hether the $ranchie ta+ e+emption 'o%!d inc!%de e+emption $rom e+action b* both the !oca! and the nationa! "o#ernment i not %ne-%i#oca!.
.n thi cae, the do%bt m%t be reo!#ed in $a#or o$ the 4it* o$ >a#ao. )he (in !ie% o$ a!! ta+e9 c!a%e app!ie on!* to nationa! interna! re#en%e 3 ta+e and not to !oca! ta+e. .t i c!ear that the (in !ie% o$ a!! ta+e9 c!a%e app!* on!* to ta+e %nder the N.R4 and not to !oca! ta+e. .t i not e#en app!ied to income ta+, a ho'n in the pro#iion ite!$, to 'it3 pro#io in the $irt para"raph o$ Section 9, Smart, $ranchie tate that the "rantee ha!! Fcontin%e to be !iab!e $or income ta+e pa*ab!e %nder )it!e .. o$ the Nationa! .nterna! Re#en%e 4ode.F econd para"raph o$ Section 9, pea< o$ ta+ ret%rn $i!ed and ta+e paid to the F4ommiioner o$ .nterna! Re#en%e or hi d%!* a%thori6ed repreentati#e in accordance 'ith the Nationa! .nterna! Re#en%e 4ode.F ame para"raph, dec!are that the ta+ ret%rn Fha!! be %b7ect to a%dit b* the 8%rea% o$ .nterna! Re#en%e.F .$ 4on"re intended the Fin !ie% o$ a!! ta+eF c!a%e in Smart, $ranchie to a!o app!* to !oca! ta+e, 4on"re 'o%!d ha#e e+pre!* mentioned the e+emption $rom m%nicipa! and pro#incia! ta+e. .t ho%!d be noted that the (in !ie% o$ a!! ta+e9 c!a%e in R.&. No. 7294 ha become functus officio 'ith the abo!ition o$ the $ranchie ta+ on te!ecomm%nication companie. 4%rrent!*, Smart a!on" 'ith other te!ecomm%nication companie pa* the %ni$orm 101 #a!%e?added ta+. )he =&) on a!e o$ er#ice o$ te!ephone $ranchie "rantee i e-%i#a!ent to 101 o$ "ro receipt deri#ed $rom the a!e or e+chan"e o$ er#ice, a pro#ided in R.&. No. 7716, a amended b* the Expanded Value Added Tax a! /R.&. No. 82412. On the b%rden o$ "rant to )a+ e+emption3 )a+ e+emption are ne#er pre%med and are trict!* contr%ed a"aint the ta+pa*er and !ibera!!* in $a#or o$ the ta+in" a%thorit*. )he* can on!* be "i#en $orce 'hen the "rant i c!ear and cate"orica!. .$ the intention o$ the !e"i!at%re i open to do%bt, then the intention o$ the !e"i!at%re m%t be reo!#ed in $a#or o$ the State.
On impairment o$ contract3 )here i no #io!ation o$ &rtic!e ..., Section 10 o$ the 1987 Dhi!ippine 4ontit%tion. )he $ranchie o$ Smart doe not e+pre!* pro#ide $or e+emption $rom !oca! ta+e. &bent the e+pre pro#iion on %ch e+emption %nder the $ranchie, 'e are contrained to r%!e a"aint it. >%e to thi ambi"%it* in the !a', the do%bt m%t be reo!#ed a"aint the "rant o$ ta+ e+emption. 4ontract 4!a%e ha ne#er been tho%"ht a a !imitation on the e+ercie o$ the StateA po'er o$ ta+ation a#e on!* 'here a ta+ e+emption ha been "ranted $or a #a!id conideration.