City of Pasig v.

Meralco
G. R. No. 181710, 7 March 2018

NATURE:

The case is a Petition for Review under Rule 45 of the Rules of Court seeking to reverse
the Decision and Resolution of the Court of Appeals declaring the demand for payment
of franchise tax by the City of Pasig as invalid for being devoid of legal basis.

FACTS:

The Sangguniang Bayan of Pasig, which was then a Municipality, enacted Ordinance No.
25 on 26 December 1992, which imposed a franchise tax on all business venture
operations carried out through franchise within the municipality. On 25 January 1995, the
Municipality of Pasig was converted into a highly urbanized city, and then informed
Meralco, on 24 August 2001, through the City’s Treasurer’s Office, that it is liable to pay
taxes from the period 1996 to 1999.

Meralco protested the validity of the demand on 8 February 2002, claiming that Ordinance
No. 25 was declared void ab initio by the Department of Justice for being in contravention
of law through a resolution reiterated in another case that questioned the validity of the
franchise tax. Due to the inaction of the Treasurer’s Office, Meralco filed an action before
the Regional Trial Court for the annulment of said demand with a prayer for a temporary
restraining order and a writ of preliminary injunction, which was denied by the RTC.

The Court of Appeals then ruled in favor of Meralco stating that the City’s basis for the
demand of payment of franchise tax was enacted at a time when Pasig was still a
municipality and had no authority to levy a franchise tax, and that the conversion of Pasig
into a city did not rectify the effect of said ordinance.

ISSUE:

Whether the City of Pasig can demand payment of franchise tax for the period 1996 to
1999.

RULING:

NO.

Under the Local Government Code of 1991, a municipality is bereft of authority to levy
and impose franchise tax on franchise holders within its territorial jurisdiction, and the
authority belongs on provinces and cities only. Hence, a franchise tax levied by a
municipality is null and void, and cannot be cured by the subsequent conversion of the
municipality into a city. Regard must be made for the doctrine that a doubt or ambiguity
arising out of the term used in taxation must be resolved against the local government
unit.

In this case, while the municipal ordinances existing prior to the conversion of Pasig into
a city remain in force and effect, a void ordinance cannot legally exist, and cannot have
a binding force and effect.

The Decision of the Court of Appeals is hereby AFFIRMED.