Tax1 Cases

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO

CARBONELL, in his capacity as National Treasurer, defendants-appellants.
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
GUTIERREZ, JR., J.:
What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking for a re-
examination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case
where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of
registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant
to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines
and engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended
by Republic Act Nos. 25) and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The
pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee shall
pay to the National Government during the life of this franchise a tax of two per cent of
the gross revenue or gross earning derived by the grantee from its operations under this
franchise. Such tax shall be due and payable quarterly and shall be in lieu of all taxes of
any kind, nature or description, levied, established or collected by any municipal,
provincial or national automobiles, Provided, that if, after the audit of the accounts of the
grantee by the Commissioner of Internal Revenue, a deficiency tax is shown to be due,
the deficiency tax shall be payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real property in conformity with existing
law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since
1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all
tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the
amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount
of P19, 529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951])
where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL
is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine
Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees
are regulatory exceptional and not revenue measures and, therefore, do not come within the exemption
granted to PAL? under its franchise. Hence, PAL filed the complaint against Land Transportation
Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of
Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as
National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In
support of the motion to dismiss, defendant’s repatriation the ruling in Republic v. Philippine Rabbit Bus
Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as
an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts
PAL from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt
the plaintiff from paying regulatory fees, such as motor vehicle registration fees. The resolution of the
motion to dismiss was deferred by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the
later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines,
Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and
Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section 8 of
the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of
"registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid., Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the payment
not of a tax but of a registration fee under the police power. Hence the incipient, of the
section relied upon by defendant-appellee under the Back Pay Law, It is not held liable
for a tax but for a registration fee. It therefore cannot make use of a backpay certificate to
meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of
additional tax on privately-owned passenger automobiles, motorcycles and scooters was
amended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A special
science fund was thereby created and its title expressly sets forth that a tax on privately-
owned passenger automobiles, motorcycles and scooters was imposed. The rates
thereof were provided for in its Section 3 which clearly specifies the" Philippine
tax."(Cooley to be paid as distinguished from the registration fee under the Motor Vehicle
Act. There cannot be any clearer expression therefore of the legislative will, even on the
assumption that the earlier legislation could by subdivision the point be susceptible of the
interpretation that a tax rather than a fee was levied. What is thus most apparent is that
where the legislative body relies on its authority to tax it expressly so states, and where it
is enacting a regulatory measure, it is equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:
The charges prescribed by the Revised Motor Vehicle Law for the registration of motor
vehicles are in section 8 of that law called "fees". But the appellation is no impediment
to their being considered taxes if taxes they really are. For not the name but the object of
the charge determines whether it is a tax or a fee. Geveia speaking, taxes are for
revenue, whereas fees are exceptional. for purposes of regulation and inspection and are
for that reason limited in amount to what is necessary to cover the cost of the services
rendered in that connection. Hence, a charge fixed by statute for the service to be
person,-When by an officer, where the charge has no relation to the value of the services
performed and where the amount collected eventually finds its way into the treasury of
the branch of the government whose officer or officers collected the chauffeur, is not a
fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the expenditures of the Motor
Vehicle Office are but a small portion—about 5 per centum—of the total collections from
motor vehicle registration fees. And as proof that the money collected is not intended for
the expenditures of that office, the law itself provides that all such money shall accrue to
the funds for the construction and maintenance of public roads, streets and bridges. It is
thus obvious that the fees are not collected for regulatory purposes, that is to say, as an
incident to the enforcement of regulations governing the operation of motor vehicles on
public highways, for their express object is to provide revenue with which the
Government is to discharge one of its principal functions—the construction and
maintenance of public highways for everybody's use. They are veritable taxes, not merely
fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act shall be
imposed," thus implying that the charges therein imposed—though called fees—are of
the category of taxes. The provision is contained in section 70, of subsection (b), of the
law, as amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act shall
be imposed for the registration or operation or on the ownership of any
motor vehicle, or for the exercise of the profession of chauffeur, by any
municipal corporation, the provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial board, city or
municipal council or board, or other competent authority may exact and
collect such reasonable and equitable toll fees for the use of such
bridges and ferries, within their respective jurisdiction, as may be
authorized and approved by the Secretary of Public Works and
Communications, and also for the use of such public roads, as may be
authorized by the President of the Philippines upon the recommendation
of the Secretary of Public Works and Communications, but in none of
these cases, shall any toll fee." be charged or collected until and unless
the approved schedule of tolls shall have been posted levied, in a
conspicuous place at such toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act
3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation
Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Bldg. 43,
74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.—Twenty per centum of the money collected

under the provisions of this Act shall accrue to the road and bridge funds of the different
provinces and chartered cities in proportion to the centum shall during the next previous
year and the remaining eighty per centum shall be deposited in the Philippine Treasury to
create a special fund for the construction and maintenance of national and provincial
roads and bridges. As well as the streets and bridges in the chartered cities to be allotted
by the Secretary of Public Works and Communications for projects recommended by the
Director of Public Works in the different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of this

Act shall be deposited in a special trust account in the National Treasury to constitute the
Highway Special Fund, which shall be apportioned and expended in accordance with the
provisions of the “Philippine Highway Act of 1935.” Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but not to exceed
twenty per cent of the total collection during one year, shall be set aside for the purpose.
(As amended by RA 64-67, approved August 6, 1971).
It appears clear from the above provisions that the legislative intent and purpose behind the law requiring
owners of vehicles to pay for their registration is mainly to raise funds for the construction and
maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from
the use of the term "fees," which appears to have been favoured by the legislature to distinguish fees
from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:
Sec. 13. Payment of taxes upon registration.—No original registration of motor vehicles

subject to payment of taxes, customs, duties or other charges shall be accepted unless
proof of payment of the taxes due thereon has been presented to the Commission.
Referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle
(Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, as
stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers
It is possible for an exaction to be both tax arose regulation. License fees are changes.
looked to as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300
U.S. 506) This is true, for example, of automobile license fees. Isabela such case, the
fees may properly be regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and
substantial purposes, then the exaction is properly called a tax. (1955 CCH Fed. tax
Course, Par. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97
Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes called
regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S.
Internal Revenue Code of 1954, which classify taxes on tobacco and alcohol as
regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on
Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The
conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case.
The same provision appears as Section 591-593). In the Land Transportation code. It is patent therefrom
that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration,
operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the
law specifically state that the imposition is a tax, Section 591-593) speaks of "taxes." or fees ... for the
registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of
chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speak of an "additional" tax," where the law could have referred to an original tax and not
one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle
under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the
imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees,"
such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for
change of registration (Sec. 11). These are not to be understood as taxes because such fees are very
minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593) of the Code as taxes like
the motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of
the Land Transportation Commission as provided for in the last proviso of see. 61, afore-quoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. Intended only for
rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic
exploded in number and motor vehicles became absolute necessities without which modem life as we
know it would stand still, Congress found the registration of vehicles a very convenient way of raising
much needed revenues. Without changing the earlier deputy of registration payments as "fees," their
nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the
Land Transportation and Traffic Code are actually taxes intended for additional revenues of government
even if one fifth or less of the amount collected is set aside for the operating expenses of the agency
administering the program.
May the respondent administrative agency be required to refund the amounts stated in the
complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated
June 27, 1968, repealed all earlier tax exemptions of corporate taxpayers found in legislative franchises
similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11,
1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act No.
41-42). to the effect that its franchise tax of one and one-half percentage (1-1/2%) of all
gross receipts was provided as "in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected by any authority whatsoever, municipal,
provincial, or national from which taxes the grantee is hereby expressly exempted." The
issue raised to this Court now is the validity of the respondent court's decision which
ruled that the exemption under Republic Act No. 41-42) was repealed by Section 24 of
Republic Act No. 5448 dated June 27, 1968 which reads:
(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this
section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable net
income as are imposed by this section upon associations or corporations
engaged in a similar business or industry. "
An examination of Section 24 of the Tax Code as amended shows clearly that the law
intended all corporate taxpayers to pay income tax as provided by the statute. There can
be no doubt as to the power of Congress to repeal the earlier exemption it granted.
Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
Constitution as amended in 1973 expressly provide that no franchise shall be granted to
any individual, firm, or corporation except under the condition that it shall be subject to
amendment, alteration, or repeal by the legislature when the public interest so requires.
There is no question as to the public interest involved. The country needs increased
revenues. The repealing clause is clear and unambiguous. There is a listing of entities
entitled to tax exemption. The petitioner is not covered by the provision. Considering the
foregoing, the Court Resolved to DENY the petition for lack of merit. The decision of the
respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because
the tax exemption in the franchise of PAL was repealed during the period. However, an amended
franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay to the
Philippine Government during the lifetime of this franchise whichever of subsections (a)
and (b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues. derived
by the grantees from all specific. without distinction as to transport or
non-transport corporations; provided that with respect to international air-
transport service, only the gross passengers, mail, and freight revenues.
from its outgoing flights shall be subject to this law.
The tax paid by the grantee under either of the above alternatives shall be in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind,
nature or description imposed, levied, established, assessed, or collected by any
municipal, city, provincial, or national authority or government, agency, now or in the
future, including but not limited to the following:
(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer
of air-transport equipment, motor vehicles, and all other personal or real property of the
gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is
now exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor
vehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a)
and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the
petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento,
Cortes, Griño Aquino and Medialdea, JJ., concur.
CASE DIGEST
Philippine Airlines v Edu

GR No L-41383, August 15, 1988
FACTS:
PAL is engaged in the air transportation business under a legislative franchise (Act 4271), wherein it is
exempt from the
payment of taxes. On the strength of an opinion of the Secretary of Justice, PAL was determined to have
not been paying motor vehicle registration fees since 1956. The Land Transportation Commissioner
required all tax-exempt entities, including PAL, to pay motor vehicle registration fees. PAL protested. The
trial court dismissed PAL’s complaint. Hence, this petition.
ISSUE:
Are motor vehicle registration fees taxes or regulatory taxes?
RULING:
- They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and
inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services
rendered in that connection.
- It is the object of the charge, and not the name, that determines whether a charge is a tax or a
fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor
Vehicle Law is not intended for the expenditures of the Motor Vehicles Office but accrues to the funds for
the construction and maintenance of public roads, streets and bridges.
- As the fees are not collected for regulatory purposes as an incident to the enforcement of
regulations governing the operation of motor vehicles on public highways, but to provide revenue with
which the Government is to construct and maintain public highways for everyone’s use, they are veritable
taxes, not merely fees.
PAL is, thus, exempt from paying such fees, except for the period between June 27, 1968 to April
9, 1979, where its tax exception in the franchise was repealed.
SUPREME COURT
Manila
EN BANC
G.R. No. 204429 February 18, 2014
SMART COMMUNICATIONS, INC., Petitioner,

vs.
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.
DECISION
CARPIO, J.:
CASE
This petition for review1 challenges the 26 June 2012 Decision 2 and 13 November 2012 Resolution3 of the
Court of Tax. Appeals (CTA) En Banc.
The CTA En Banc affirmed the 17 December 2010 Decision 4 and 7 April 2011 Resolution5 of the CTA
First Division, which in turn affirmed the 2 December 2008 Decision 6 and 21 May 2009 Order7 of the
Regional Trial Court of Tanauan City, Batangas, Branch 6. The trial court declared void the assessment
imposed by respondent Municipality of Malvar, Batangas against petitioner Smart Communications, Inc.
for its telecommunications tower for 2001 to July 2003 and directed respondent to assess petitioner only
for the period starting 1 October 2003.
FACTS
Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of
providing telecommunications services to the general public while respondent Municipality of Malvar,
Batangas (Municipality) is a local government unit created by law.
In the course of its business, Smart constructed a telecommunications tower within the territorial
jurisdiction of the Municipality. The construction of the tower was for the purpose of receiving and
transmitting cellular communications within the covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance
Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the Mayor of
the Municipality an assessment letter with a schedule of payment for the total amount of ₱389,950.00 for
Smart’s telecommunications tower. The letter reads as follows:
This is to formally submit to your good office your schedule of payments in the Municipal Treasury of the
Local Government Unit of Malvar, province of Batangas which corresponds to the tower of your company
built in the premises of the municipality, to wit:
TOTAL PROJECT COST: PHP 11,000,000.00
For the Year 2001-2003
50% of 1% of the total project cost Php55,000.00
Add: 45% surcharge 24,750.00
Php79,750.00
Multiply by 3 yrs. (2001, 2002, 2003) Php239,250.00
For the year 2004
1% of the total project cost Php110,000.00
37% surcharge 40,700.00
==========
Php150,700.00
TOTAL Php389,950.00
Hoping that you will give this matter your preferential attention. 8
Due to the alleged arrears in the payment of the assessment, the Municipality also caused the posting of
a closure notice on the telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the
assessment and closure notice. In the same protest, Smart challenged the validity of Ordinance No. 18 on
which the assessment was based.
In a letter dated 28 September 2004, the Municipality denied Smart’s protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas, Branch 6, an
"Appeal/Petition" assailing the validity of Ordinance No. 18. The case was docketed as SP Civil Case No.
04-11-1920.
On 2 December 2008, the trial court rendered a Decision partly granting Smart’s Appeal/Petition. The trial
court confined its resolution of the case to the validity of the assessment, and did not rule on the legality
of Ordinance No. 18. The trial court held that the assessment covering the period from 2001 to July 2003
was void since Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared
valid the assessment starting 1 October 2003, citing Article 4 of the Civil Code of the Philippines, 9 in
relation to the provisions of Ordinance No. 18 and Section 166 of Republic Act No. 7160 or the Local
Government Code of 1991 (LGC).10 The dispositive portion of the trial court’s Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment dated August
24, 2004 against petitioner is hereby declared null and void insofar as the assessment made from year
2001 to July 2003 and respondent is hereby prohibited from assessing and collecting, from petitioner,
fees during the said period and the Municipal Government of Malvar, Batangas is directed to assess
Smart Communications, Inc. only for the period starting October 1, 2003.
No costs.
SO ORDERED.11
The trial court denied the motion for reconsideration in its Order of 21 May 2009.
On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed as CTA AC No. 58.
On 17 December 2010, the CTA First Division denied the petition for review. The dispositive portion of the
decision reads:
WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly, the assailed
Decision dated December 2, 2008 and the Order dated May 21, 2009 of Branch 6 of the Regional Trial
Court of Tanauan City, Batangas in SP. Civil Case No. 04-11-1920 entitled "Smart Communications, Inc.
vs. Municipality of Malvar, Batangas" are AFFIRMED.
SO ORDERED.12
On 7 April 2011, the CTA First Division issued a Resolution denying the motion for reconsideration.
Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First Division’s decision
and resolution. The dispositive portion of the CTA En Banc’s 26 June 2012 decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby DISMISSED for lack of
merit.1âwphi1
Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April 7, 2011 are
hereby AFFIRMED.
SO ORDERED.13
The CTA En Banc denied the motion for reconsideration.
Hence, this petition.
The Ruling of the CTA En Banc
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En Banc declared
that it is a court of special jurisdiction and as such, it can take cognizance only of such matters as are
clearly within its jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No. 9282, the CTA En Banc
held that the CTA has exclusive appellate jurisdiction to review on appeal, decisions, orders or resolutions
of the Regional Trial Courts in local tax cases originally resolved by them in the exercise of their original
or appellate jurisdiction. However, the same provision does not confer on the CTA jurisdiction to resolve
cases where the constitutionality of a law or rule is challenged.
ISSUES
The petition raises the following arguments:
1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being
contrary to law and jurisprudence considering that the CTA En Banc should have exercised its
jurisdiction and declared the Ordinance as illegal.
contrary to law and jurisprudence considering that the doctrine of exhaustion of administrative
remedies does not apply in [this case].
contrary to law and jurisprudence considering that the respondent has no authority to impose the
so-called "fees" on the basis of the void ordinance.14
RULING OF THE COURT
The Court denies the petition.
On whether the CTA has jurisdiction over the present case
Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart maintains that the
CTA has jurisdiction over the present case considering the "unique" factual circumstances involved.
The CTA refuses to take cognizance of this case since it challenges the constitutionality of Ordinance No.
18, which is outside the province of the CTA.
Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282, created
the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3) 15 of the law vests the CTA with the
exclusive appellate jurisdiction over "decisions, orders or resolutions of the Regional Trial Courts in local
tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction."
The question now is whether the trial court resolved a local tax case in order to fall within the ambit of the
CTA’s appellate jurisdiction This question, in turn, depends ultimately on whether the fees imposed under
Ordinance No. 18 are in fact taxes.
Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not regulatory, but
revenue-raising. Citing Philippine Airlines, Inc. v. Edu, 16 Smart contends that the designation of "fees" in
Ordinance No. 18 is not controlling.
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the
power to create its own sources of revenues and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to each local government
unit. Specifically, Section 142 of the LGC grants municipalities the power to levy taxes, fees, and charges
not otherwise levied by provinces. Section 143 of the LGC provides for the scale of taxes on business
that may be imposed by municipalities 17 while Section 14718 of the same law provides for the fees and
charges that may be imposed by municipalities on business and occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or
property, while the term "fee" means "a charge fixed by law or ordinance for the regulation or inspection of
a business or activity."19
In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating the
Establishment of Special Projects," to regulate the "placing, stringing, attaching, installing, repair and
construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus, and provide for the correction, condemnation or removal of the same when found to be
dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]." 20 It was also envisioned
to address the foreseen "environmental depredation" to be brought about by these "special projects" to
the Municipality.21 Pursuant to these objectives, the Municipality imposed fees on various structures,
which included telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the
"placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus" listed therein, which included Smart’s
telecommunications tower. Clearly, the purpose of the assailed Ordinance is to regulate the enumerated
activities particularly related to the construction and maintenance of various structures. The fees in
Ordinance No. 18 are not impositions on the building or structure itself; rather, they are impositions on the
activity subject of government regulation, such as the installation and construction of the structures. 22
Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified
special projects, which included "cell sites" or telecommunications towers, the fees imposed in Ordinance
No. 18 are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute
to the revenues of the Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance
No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City, 23 the Court declared that "if the generating of
revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a
tax."
In Victorias’ Milling Co., Inc. v. Municipality of Victorias, 24 the Court reiterated that the purpose and effect
of the imposition determine whether it is a tax or a fee, and that the lack of any standards for such
imposition gives the presumption that the same is a tax.
We accordingly say that the designation given by the municipal authorities does not decide whether the
imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of
the imposition as may be apparent from the provisions of the ordinance. Thus, "[w]hen no police
inspection, supervision, or regulation is provided, nor any standard set for the applicant to establish, or
that he agrees to attain or maintain, but any and all persons engaged in the business designated, without
qualification or hindrance, may come, and a license on payment of the stipulated sum will issue, to do
business, subject to no prescribed rule of conduct and under no guardian eye, but according to the
unrestrained judgment or fancy of the applicant and licensee, the presumption is strong that the power of
taxation, and not the police power, is being exercised."
Contrary to Smart’s contention, Ordinance No. 18 expressly provides for the standards which Smart must
satisfy prior to the issuance of the specified permits, clearly indicating that the fees are regulatory in
nature.
These requirements are as follows:
SECTION 5. Requirements and Procedures in Securing Preliminary Development Permit.
The following documents shall be submitted to the SB Secretary in triplicate:
a) zoning clearance
b) Vicinity Map
c) Site Plan
d) Evidence of ownership
e) Certificate true copy of NTC Provisional Authority in case of Cell sites, telephone or telegraph
line, ERB in case of gasoline station, power plant, and other concerned national agencies
f) Conversion order from DAR is located within agricultural zone.
g) Radiation Protection Evaluation.
h) Written consent from subdivision association or the residence of the area concerned if the
special projects is located within the residential zone.
i) Barangay Council Resolution endorsing the special projects.
SECTION 6. Requirement for Final Development Permit – Upon the expiration of 180 days and the
proponents of special projects shall apply for final [development permit] and they are require[d] to submit
the following:
a) Evaluation from the committee where the Vice Mayor refers the special project
b) Certification that all local fees have been paid.
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is
questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition for lack of
jurisdiction. Likewise, Section 187 of the LGC, 25 which outlines the procedure for questioning the
constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the resolution of the issue on
non-exhaustion of administrative remedies.
On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues that the Municipality
exceeded its power to impose taxes and fees as provided in Book II, Title One, Chapter 2, Article II of the
LGC. Smart maintains that the mayor’s permit fees in Ordinance No. 18 (equivalent to 1% of the project
cost) are not among those expressly enumerated in the LGC.
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not appear in the
enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC, the
Municipality is empowered to impose taxes, fees and charges, not specifically enumerated in the LGC or
taxed under the Tax Code or other applicable law. Section 186 of the LGC, granting local government
units wide latitude in imposing fees, expressly provides:
Section 186. Power to Levy Other Taxes, Fees or Charges. - Local government units may exercise the
power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein
or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable
laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory
or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or
charges shall not be enacted without any prior public hearing conducted for the purpose.
Smart further argues that the Municipality is encroaching on the regulatory powers of the National
Telecommunications Commission (NTC). Smart cites Section 5(g) of Republic Act No. 7925 which
provides that the National Telecommunications Commission (NTC), in the exercise of its regulatory
powers, shall impose such fees and charges as may be necessary to cover reasonable costs and
expenses for the regulation and supervision of the operations of telecommunications entities. Thus, Smart
alleges that the regulation of telecommunications entities and all aspects of its operations is specifically
lodged by law on the NTC.
To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching, installing, repair and
construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus" within the Municipality. The fees are not imposed to regulate the administrative, technical,
financial, or marketing operations of telecommunications entities, such as Smart’s; rather, to regulate the
installation and maintenance of physical structures – Smart’s cell sites or telecommunications tower. The
regulation of the installation and maintenance of such physical structures is an exercise of the police
power of the Municipality. Clearly, the Municipality does not encroach on NTC’s regulatory powers.
The Court likewise rejects Smart’s contention that the power to fix the fees for the issuance of
development permits and locational clearances is exercised by the Housing and Land Use Regulatory
Board (HLURB). Suffice it to state that the HLURB itself recognizes the local government units’ power to
collect fees related to land use and development. Significantly, the HLURB issued locational guidelines
governing telecommunications infrastructure.1âwphi1 Guideline No. VI relates to the collection of
locational clearance fees either by the HLURB or the concerned local government unit, to wit:
VI. Fees
The Housing and Land Use Regulatory Board in the performance of its functions shall collect the
locational clearance fee based on the revised schedule of fees under the special use project as per
Resolution No. 622, series of 1998 or by the concerned LGUs subject to EO 72.26
On whether Ordinance No. 18 is valid and constitutional
Smart contends that Ordinance No. 18 violates Sections 130(b) (3) 27 and 186 of the LGC since the fees
are unjust, excessive, oppressive and confiscatory. Aside from this bare allegation, Smart did not present
any evidence substantiating its claims. In Victorias Milling Co., Inc. v. Municipality of Victorias, 28 the Court
rejected the argument that the fees imposed by respondent therein are excessive for lack of evidence
supporting such claim, to wit:
An ordinance carries with it the presumption of validity. The question of reasonableness though is open to
judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in
writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitive, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to
such an inquiry are the municipal conditions as a whole and the nature of the business made subject to
imposition.
Plaintiff, has however not sufficiently proven that, taking these factors together, the license taxes are
unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting that the
amounts levied exceed the cost of regulation and the municipality has adequate funds for the alleged
purposes as evidenced by the municipality’s cash surplus for the fiscal year ending 1956.
On the constitutionality issue, Smart merely pleaded for the declaration of unconstitutionality of Ordinance
No. 18 in the Prayer of the Petition, without any argument or evidence to support its plea. Nowhere in the
body of the Petition was this issue specifically raised and discussed. Significantly, Smart failed to cite any
constitutional provision allegedly violated by respondent when it issued Ordinance No. 18.
Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike down a law as
unconstitutional, smart has the burden to prove a clear and unequivocal breach of the Constitution, which
Smart miserably failed to do. In Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget
and Management,29 the Court held, thus:
To justify the nullification of the law or its implementation, there must be a clear and unequivocal, not a
doubtful, breach of the Constitution. In case of doubt in the sufficiency of proof establishing
unconstitutionality, the Court must sustain legislation because "to invalidate [a law] based on xx x
baseless supposition is an affront to the wisdom not only of the legislature that passed it but also of the
executive which approved it." This presumption of constitutionality can be overcome only by the clearest
showing that there was indeed an infraction of the Constitution, and only when such a conclusion is
reached by the required majority may the Court pronounce, in the discharge of the duty it cannot escape,
that the challenged act must be struck down.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO

Chief Justice
MARVIC MARIO VICTOR F. LEONEN

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court.
MARIA LOURDES P. A. SERENO

Chief Justice
CASE DIGEST
NATURE OF THE CASE:
PETITION for review on certiorari of the decision and resolution of the Court of Tax Appeals En Banc SC
RULING:
Petition was DENIED
FACTS:
- Smart constructed a telecommunications tower within the territorial jurisdiction of the

Municipality of Malvar.
- The construction of the tower was for the purpose of receiving and transmitting cellular
communications within the covered area.
- On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An
Ordinance Regulating the Establishment of Special Projects."
- On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the
Mayor of the Municipality an assessment letter with a schedule of payment for the total amount of
₱389,950.00 for Smart’s telecommunications tower. The letter reads as follows:
This is to formally submit to your good office your schedule of payments in the Municipal Treasury of the
Local Government Unit of Malvar, province of Batangas which corresponds to the tower of your company
built in the premises of the municipality, to wit:
TOTAL PROJECT COST: P11, 000, 000.00
For the Year 2001-2003
50% of 1% of the total project cost 55, 000.00
Add: 45% surcharge 24,750.00
79,750.00
Multiply by 3 yrs. (2001, 2002, 2003) P239, 250.00
For the year 2004
1% of the total project cost P110, 000.00
37% surcharge 40,700.00

P150, 700.00
TOTAL P389,950.00
- Due to the alleged arrears in the payment of the assessment, the Municipality also caused the
posting of a closure notice on the telecommunications tower.
= On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the
assessment and closure notice. In the same protest, Smart challenged the validity of Ordinance No. 18 on
which the assessment was based.
- Municipality of Malvar denied Smart’s protest.
- Smart filed with RTC an "Appeal/Petition" assailing the validity of Ordinance No. 18.
- RTC granted Smart’s Appeal/Petition.
- The trial court held that the assessment covering the period from 2001 to July 2003 was void
since Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared valid the
assessment starting 1 October 2003, citing Article 4 of the Civil Code of the Philippines, in relation to the
provisions of Ordinance No. 18 and Section 166 of Republic Act No. 7160 or the Local Government Code
of 1991 (LGC).
= On 8 July 2009, Smart filed a petition for review with the CTA First Division, denied the petition
for review.
- CTA En Banc, affirmed the CTA First Division’s decision and resolution.
ISSUES:
= Whether or not the fees imposed under Ordinance No. 18 are taxes. (NO)
- Whether or not Ordinance No. 18 is constitutional
RULING:
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the
power to create its own sources of revenues and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to each local government
unit. Specifically, Section 142 of the LGC grants municipalities the power to levy taxes, fees, and charges
not otherwise levied by provinces. Section 143 of the LGC provides for the scale of taxes on business that
may be imposed by municipalities. Section 147 of the same law provides for the fees and charges that
may be imposed by municipalities on business and occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or
property, while the term "fee" means "a charge fixed by law or ordinance for the regulation or inspection of
a business or activity."
The primary purpose of Ordinance No. 18 is to regulate the "placing, stringing, attaching, installing, repair
and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus" listed therein, which included Smart’s telecommunications tower. Clearly, the purpose of the
assailed Ordinance is to regulate the enumerated activities particularly related to the construction
and maintenance of various structures. The fees in Ordinance No. 18 are not impositions on the
building or structure itself; rather, they are impositions on the activity subject of government regulation,
such as the installation and construction of the structures.
Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the
identified special projects, which included "cell sites" or telecommunications towers, the fees
imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising.
While the fees may contribute to the revenues of the Municipality, this effect is merely incidental.
Thus, the fees imposed in Ordinance No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City, the Court declared that "if the generating of
revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a
tax."
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 166408 October 6, 2008
QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, petitioners,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
REYES, R.T., J.:
CLAIMS for tax exemption must be based on language in law too plain to be mistaken. It cannot be made
out of inference or implication.
The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of Appeals
(CA) and that2 of the Regional Trial Court (RTC) ordering the refund and declaring invalid the imposition
and collection of local franchise tax by the City Treasurer of Quezon City on ABS-CBN Broadcasting
Corporation (ABS-CBN).
FACTS
Petitioner City Government of Quezon City is a local government unit duly organized and existing by
virtue of Republic Act (R.A.) No. 537, otherwise known as the Revised Charter of Quezon City. Petitioner
City Treasurer of Quezon City is primarily responsible for the imposition and collection of taxes within the
territorial jurisdiction of Quezon City.
Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, 3 a franchise tax was imposed on
businesses operating within its jurisdiction. The provision states:
Section 31. Imposition of Tax. - Any provision of special laws or grant of tax exemption to the
contrary notwithstanding, any person, corporation, partnership or association enjoying a franchise
whether issued by the national government or local government and, doing business in Quezon
City, shall pay a franchise tax at the rate of ten percent (10%) of one percent (1%) for 1993-1994,
twenty percent (20%) of one percent (1%) for 1995, and thirty percent (30%) of one percent (1%)
for 1996 and the succeeding years thereafter, of gross receipts and sales derived from the
operation of the business in Quezon City during the preceding calendar year.
On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio and television
broadcasting stations in the Philippines under R.A. No. 7966. 4 Section 8 of R.A. No. 7966 provides the tax
liabilities of ABS-CBN which reads:
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to pay the
same taxes on their real estate, buildings and personal property, exclusive of this franchise, as
other persons or corporations are now hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns, shall pay a franchise tax equivalent to three
percent (3%) of all gross receipts of the radio/television business transacted under this
franchise by the grantee, its successors or assigns, and the said percentage tax shall be
in lieu of all taxes on this franchise or earnings thereof; Provided that the grantee, its
successors or assigns shall continue to be liable for income taxes under Title II of the National
Internal Revenue Code pursuant to Section 2 of Executive No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or repeal shall be applicable thereto.
(Emphasis added)
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in view of the above
provision in R.A. No. 9766 that it "shall pay a franchise tax x x x in lieu of all taxes," the corporation
developed the opinion that it is not liable to pay the local franchise tax imposed by Quezon City.
Consequently, ABS-CBN paid under protest the local franchise tax imposed by Quezon City on the dates,
in the amounts and under the official receipts as follows:
O.R. No. Date Amount Paid

2464274 7/18/1995 P 1,489,977.28
2484651 10/20/1995 1,489,977.28
2536134 1/22/1996 2,880,975.65
8354906 1/23/1997 8,621,470.83
48756 1/23/1997 2,731,135.81
67352 4/3/1997 2,731,135.81
Total P19,944,672.665
On January 29, 1997, ABS-CBN filed a written claim for refund for local franchise tax paid to Quezon City
for 1996 and for the first quarter of 1997 in the total amount of Fourteen Million Two Hundred Thirty-Three
Thousand Five Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) broken down as follows:

2536134 1-22-96 P 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
Total P14,233,582.296
In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN reiterated its claim for refund of
local franchise taxes paid.
On June 25, 1997, for failure to obtain any response from the Quezon City Treasurer, ABS-CBN filed a
complaint before the RTC in Quezon City seeking the declaration of nullity of the imposition of local
franchise tax by the City Government of Quezon City for being unconstitutional. It likewise prayed for the
refund of local franchise tax in the amount of Nineteen Million Nine Hundred Forty-Four Thousand Six
Hundred Seventy-Two and 66/100 centavos (P19,944,672.66) broken down as follows:

2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28
2536134 1-22-96 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
0067352 4-03-97 2,731,135.81
Total P19,944,672.667
Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could not have been intended
to prevail over a constitutional mandate which ensures the viability and self-sufficiency of local
government units. Further, that taxes collectible by and payable to the local government were distinct
from taxes collectible by and payable to the national government, considering that the Constitution
specifically declared that the taxes imposed by local government units "shall accrue exclusively to the
local governments." Lastly, the City contended that the exemption claimed by ABS-CBN under R.A. No.
7966 was withdrawn by Congress when the Local Government Code (LGC) was passed. 8 Section 193 of
the LGC provides:
Section 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. 6938, non-stock and non-
profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis added)
On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its claim for refund the local
franchise tax paid for the third quarter of 1997 in the amount of Two Million Seven Hundred Thirty-One
Thousand One Hundred Thirty-Five and 81/100 centavos (P2,731,135.81) and of other amounts of local
franchise tax as may have been and will be paid by ABS-CBN until the resolution of the case.
Quezon City insisted that the claim for refund must fail because of the absence of a prior written claim for
it.
RTC and CA Dispositions
On January 20, 1999, the RTC rendered judgment declaring as invalid the imposition on and collection
from ABS-CBN of local franchise tax paid pursuant to Quezon City Ordinance No. SP-91, S-93, after the
enactment of R.A. No. 7966, and ordered the refund of all payments made. The dispositive portion of the
RTC decision reads:
WHEREFORE, judgment is hereby rendered declaring the imposition on and collection from
plaintiff ABS-CBN BROADCASTING CORPORATION of local franchise taxes pursuant to
Quezon City Ordinance No. SP-91, S-93 after the enactment of Republic Act No. 7966 to be
invalid, and, accordingly, the Court hereby orders the defendants to refund all its payments made
after the effectivity of its legislative franchise on May 3, 1995.
SO ORDERED.9
In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in Section 8 of R.A. No.
7966 absolutely excused ABS-CBN from the payment of local franchise tax imposed under Quezon City
Ordinance No. SP-91, S-93. The intent of the legislature to excuse ABS-CBN from payment of local
franchise tax could be discerned from the usage of the "in lieu of all taxes" provision and from the
absence of any qualification except income taxes. Had Congress intended to exclude taxes imposed from
the exemption, it would have expressly mentioned so in a fashion similar to the proviso on income taxes.
The RTC also based its ruling on the 1990 case of Province of Misamis Oriental v. Cagayan Electric
Power and Light Company, Inc. (CEPALCO).10 In said case, the exemption of respondent electric
company CEPALCO from payment of provincial franchise tax was upheld on the ground that the franchise
of CEPALCO was a special law, while the Local Tax Code, on which the provincial ordinance imposing
the local franchise tax was based, was a general law. Further, it was held that whenever there is a conflict
between two laws, one special and particular and the other general, the special law must be taken as
intended to constitute an exception to the general act.
The RTC noted that the legislative franchise of ABS-CBN was granted years after the effectivity of the
LGC. Thus, it was unavoidable to conclude that Section 8 of R.A. No. 7966 was an exception since the
legislature ought to be presumed to have enacted it with the knowledge and awareness of the existence
and prior enactment of Section 13711 of the LGC.
In addition, the RTC, again citing the case of Province of Misamis Oriental v. Cagayan Electric Power and
Light Company, Inc. (CEPALCO),12 ruled that the imposition of the local franchise tax was an impairment
of ABS-CBN's contract with the government. The imposition of another franchise on the corporation by
the local authority would constitute an impairment of the former's charter, which is in the nature of a
private contract between it and the government.
As to the amounts to be refunded, the RTC rejected Quezon City's position that a written claim for refund
pursuant to Section 196 of the LGC was a condition sine qua non before filing the case in court. The RTC
ruled that although Fourteen Million Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and
29/100 centavos (P14,233,582.29) was the only amount stated in the letter to the Quezon City Treasurer
claiming refund, ABS-CBN should nonetheless be also refunded of all payments made after the effectivity
of R.A. No. 7966. The inaction of the City Treasurer on the claim for refund of ABS-CBN legally rendered
any further claims for refund on the part of plaintiff absurd and futile in relation to the succeeding
payments.
The City of Quezon and its Treasurer filed a motion for reconsideration which was subsequently denied
by the RTC. Thus, appeal was made to the CA. On September 1, 2004, the CA dismissed the petition of
Quezon City and its Treasurer. According to the appellate court, the issues raised were purely legal
questions cognizable only by the Supreme Court. The CA ratiocinated:
For another, the issues which appellants submit for this Court's consideration are more of legal
query necessitating a legal opinion rather than a call for adjudication on the matter in dispute.
xxxx
The first issue has earlier been categorized in Province of Misamis Oriental v. Cagayan Electric
and Power Co., Inc. to be a legal one. There is no more argument to this.
The next issue although it may need the reexamination of the pertinent provisions of the local
franchise and the legislative franchise given to appellee, also needs no evaluation of facts. It
suffices that there may be a conflict which may need to be reconciled, without regard to the
factual backdrop of the case.
The last issue deals with a legal question, because whether or not there is a prior written claim for
refund is no longer in dispute. Rather, the question revolves on whether the said requirement may
be dispensed with, which obviously is not a factual issue. 13
On September 23, 2004, petitioner moved for reconsideration. The motion was, however, denied by the
CA in its Resolution dated December 16, 2004. Hence, the present recourse.
ISSUES
Petitioner submits the following issues for resolution:
Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the respondent
appellee (Section 8 of RA 7966) serves to exempt it from the payment of the local franchise tax
imposed by the petitioners-appellants.
II.
Whether or not the petitioners-appellants raised factual and legal issues before the Honorable Court of
Appeals.14
RULING
The second issue, being procedural in nature, shall be dealt with immediately. But there are other
resultant issues linked to the first.
I. The dismissal by the CA of petitioners' appeal is in order because it raised purely legal issues,
namely:
1) Whether appellee, whose franchise expressly provides that its payment of franchise tax shall
be in lieu of all taxes in this franchise or earnings thereof, is absolutely excused from paying the
franchise tax imposed by appellants;
2) Whether appellants' imposition of local franchise tax is a violation of appellee's legislative

franchise; and
3) Whether one can do away with the requirement on prior written claim for refund. 15
Obviously, these are purely legal questions, cognizable by this Court, to the exclusion of all other courts.
There is a question of law when the doubt or difference arises as to what the law is pertaining to a certain
state of facts.16
Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA under Rule 41 raising
only questions of law is erroneous and shall be dismissed, issues of pure law not being within its
jurisdiction.17 Consequently, the dismissal by the CA of petitioners' appeal was in order.
In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the appeal of petitioner
was valid, considering the issues raised there were pure questions of law, viz.:
Petitioners interposed an appeal to the Court of Appeals but it was dismissed for being the wrong mode of
appeal. The appellate court held that since the issue being raised is whether the RTC has jurisdiction over
the subject matter of the case, which is a question of law, the appeal should have been elevated to the
Supreme Court under Rule 45 of the 1997 Rules of Civil Procedure, as amended. Section 2, Rule 41 of
the same Rules which governs appeals from judgments and final orders of the RTC to the Court of
Appeals, provides:
SEC. 2. Modes of appeal. -
(a) Ordinary appeal. - The appeal to the Court of Appeals in cases decided by the Regional Trial
Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the
court which rendered the judgment or final order appealed from and serving a copy thereof upon
the adverse party. No record on appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these Rules so require. In such cases, the
record on appeal shall be filed and served in like manner.
(b) Petition for review. - The appeal to the Court of Appeals in cases decided by the Regional
Trial Court in the exercise of its appellate jurisdiction shall be by petition for review in accordance
with Rule 42.
(c) Appeal by certiorari. - In all cases where only questions of law are raised or involved, the
appeal shall be to the Supreme Court by petition for review on certiorari in accordance with Rule
45.
In Macawili Gold Mining and Development Co., Inc. v. Court of Appeals, we summarized the rule on
appeals as follows:
(1) In all cases decided by the RTC in the exercise of its original jurisdiction, appeal may be made
to the Court of Appeals by mere notice of appeal where the appellant raises questions of fact or
mixed questions of fact and law;
(2) In all cases decided by the RTC in the exercise of its original jurisdiction where the appellant
raises only questions of law, the appeal must be taken to the Supreme Court on a petition for
review on certiorari under Rule 45;
(3) All appeals from judgments rendered by the RTC in the exercise of its appellate jurisdiction,
regardless of whether the appellant raises questions of fact, questions of law, or mixed questions
of fact and law, shall be brought to the Court of Appeals by filing a petition for review under Rule
42.
It is not disputed that the issue brought by petitioners to the Court of Appeals involves the
jurisdiction of the RTC over the subject matter of the case. We have a long standing rule that a
court's jurisdiction over the subject matter of an action is conferred only by the Constitution or by
statute. Otherwise put, jurisdiction of a court over the subject matter of the action is a matter of
law. Consequently, issues which deal with the jurisdiction of a court over the subject matter of a
case are pure questions of law. As petitioners' appeal solely involves a question of law, they
should have directly taken their appeal to this Court by filing a petition for review on certiorari
under Rule 45, not an ordinary appeal with the Court of Appeals under Rule 41. Clearly, the
appellate court did not err in holding that petitioners pursued the wrong mode of appeal.
Indeed, the Court of Appeals did not err in dismissing petitioners' appeal. Section 2, Rule 50 of
the same Rules provides that an appeal from the RTC to the Court of Appeals raising only
questions of law shall be dismissed; and that an appeal erroneously taken to the Court of
Appeals shall be dismissed outright, x x x.19 (Emphasis added)
However, to serve the demands of substantial justice and equity, the Court opts to relax procedural rules
and rule upon on the merits of the case. In Ong Lim Sing Jr. v. FEB Leasing and Finance
Corporation,20 this Court stated:
Courts have the prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to litigation and the parties'
right to due process. In numerous cases, this Court has allowed liberal construction of the rules
when to do so would serve the demands of substantial justice and equity. In Aguam v. Court of
Appeals, the Court explained:
"The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a
power conferred on the court, not a duty. The "discretion must be a sound one, to be
exercised in accordance with the tenets of justice and fair play, having in mind the
circumstances obtaining in each case." Technicalities, however, must be avoided. The
law abhors technicalities that impede the cause of justice. The court's primary duty is to
render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike
duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts." Litigations must be decided on their merits and not on
technicality. Every party litigant must be afforded the amplest opportunity for the proper
and just determination of his cause, free from the unacceptable plea of technicalities.
Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy
of the court is to encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense; rules of procedure are
used only to help secure, not override substantial justice. It is a far better and more
prudent course of action for the court to excuse a technical lapse and afford the parties a
review of the case on appeal to attain the ends of justice rather than dispose of the case
on technicality and cause a grave injustice to the parties, giving a false impression of
speedy disposal of cases while actually resulting in more delay, if not a miscarriage of
justice.21
II. The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN from payment of
local franchise tax.
A. The present controversy essentially boils down to a dispute between the inherent taxing power of
Congress and the delegated authority to tax of local governments under the 1987 Constitution and
effected under the LGC of 1991.
The power of the local government of Quezon City to impose franchise tax is based on Section 151 in
relation to Section 137 of the LGC, to wit:
Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at the rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized within its territorial jurisdiction. x x x
xxxx
Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city may
levy the taxes, fees and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
component cities shall accrue to them and distributed in accordance with the provisions of this
Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province
or municipality by not more than fifty percent (50%) except the rates of professional and
amusement taxes. (Emphasis supplied)
Such taxing power by the local government, however, is limited in the sense that Congress can enact
legislation granting exemptions. This principle was upheld in City Government of Quezon City, et al. v.
Bayan Telecommunications, Inc.22 Said this Court:
This thus raises the question of whether or not the City's Revenue Code pursuant to which the
city treasurer of Quezon City levied real property taxes against Bayantel's real properties located
within the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as
amended.
Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the
same taxes, as any other persons or corporations on all its real or personal properties, exclusive
of its franchise."
Bayantel's posture is well-taken. While the system of local government taxation has changed with
the onset of the 1987 Constitution, the power of local government units to tax is still limited. As
we explained in Mactan Cebu International Airport Authority:
"The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may
be exercised by local legislative bodies, no longer merely be virtue of a valid delegation
as before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. Under the latter, the exercise of the power may be subject to such
guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy. x x x"
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the
former doctrine of local government units' delegated power to tax had been effectively modified
with Article X, Section 5 of the 1987 Constitution now in place, the basic doctrine on local taxation
remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still]
primarily vested in the Congress."
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner
of the 1986 Constitutional Commission which crafted the 1987 Constitution, thus:
"What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5
does not change the doctrine that municipal corporations do not possess inherent powers
of taxation. What it does is to confer municipal corporations a general power to levy taxes
and otherwise create sources of revenue. They no longer have to wait for a statutory
grant of these powers. The power of the legislative authority relative to the fiscal powers
of local governments has been reduced to the authority to impose limitations on
municipal powers. Moreover, these limitations must be "consistent with the basic policy of
local autonomy." The important legal effect of Section 5 is thus to reverse the principle
that doubts are resolved against municipal corporations. Henceforth, in interpreting
statutory provisions on municipal fiscal powers, doubts will be resolved in favor of
municipal corporations. It is understood, however, that taxes imposed by local
government must be for a public purpose, uniform within a locality, must not be
confiscatory, and must be within the jurisdiction of the local unit to pass."
In net effect, the controversy presently before the Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which necessarily includes the power to exempt, and the
local government's delegated power to tax under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real
properties within the city's territory and removed exemptions theretofore "previously granted to, or
presently enjoyed by all persons, whether natural or juridical [x x x]" there can really be no
dispute that the power of the Quezon City Government to tax is limited by Section 232 of the
LGC which expressly provides that "a province or city or municipality within the Metropolitan
Manila Area may levy an annual ad valorem tax on real property such as land, building,
machinery, and other improvement not hereinafter specifically exempted." Under this law, the
Legislature highlighted its power to thereafter exempt certain realties from the taxing power of
local government units. An interpretation denying Congress such power to exempt would reduce
the phrase "not hereinafter specifically exempted" as a pure jargon, without meaning whatsoever.
Needless to state, such absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, this
Court has upheld the power of Congress to grant exemptions over the power of local government
units to impose taxes. There, the Court wrote:
"Indeed, the grant of taxing powers to local government units under the Constitution and
the LGC does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy. The legal effect of the constitutional grant to local
governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations." 23 (Emphasis
supplied)
In the case under review, the Philippine Congress enacted R.A. No. 7966 on March 30, 1995, subsequent
to the effectivity of the LGC on January 1, 1992. Under it, ABS-CBN was granted the franchise to install
and operate radio and television broadcasting stations in the Philippines. Likewise, Section 8 imposed on
ABS-CBN the duty of paying 3% franchise tax. It bears stressing, however, that payment of the
percentage franchise tax shall be "in lieu of all taxes" on the said franchise. 24
Congress has the inherent power to tax, which includes the power to grant tax exemptions. On the other
hand, the power of Quezon City to tax is prescribed by Section 151 in relation to Section 137 of the LGC
which expressly provides that notwithstanding any exemption granted by any law or other special law, the
City may impose a franchise tax. It must be noted that Section 137 of the LGC does not prohibit grant of
future exemptions. As earlier discussed, this Court in City Government of Quezon City v. Bayan
Telecommunications, Inc.25 sustained the power of Congress to grant tax exemptions over and above the
power of the local government's delegated power to tax.
B. The more pertinent issue now to consider is whether or not by passing R.A. No. 7966, which contains
the "in lieu of all taxes" provision, Congress intended to exempt ABS-CBN from local franchise tax.
Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does not expressly
exempt it from payment of local franchise tax. They contend that a tax exemption cannot be created by
mere implication and that one who claims tax exemptions must be able to justify his claim by clearest
grant of organic law or statute.
Taxes are what civilized people pay for civilized society. They are the lifeblood of the nation. Thus,
statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor
of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too
plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. 26 The burden of
proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so
claimed.27
The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions
is to minimize differential treatment and foster impartiality, fairness and equality of treatment among
taxpayers.28 He who claims an exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the clearest and most unambiguous language
and not left to mere implications. It has been held that "exemptions are never presumed, the burden is on
the claimant to establish clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought to be expressed in clear and
unambiguous terms.29
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3) percent of all
gross receipts of the radio/television business transacted under the franchise and the franchise tax shall
be "in lieu of all taxes" on the franchise or earnings thereof.
The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of
taxes ABS-CBN is exempted from. It is not clear whether the exemption would include both local, whether
municipal, city or provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay three
(3) percent franchise tax and income taxes under Title II of the NIRC. But whether the "in lieu of all taxes
provision" would include exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be clearly established and
cannot be made out of inference or implications but must be laid beyond reasonable doubt. Verily, the
uncertainty in the "in lieu of all taxes" provision should be construed against ABS-CBN. ABS-CBN has the
burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in this
regard.
ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal Revenue,30 Manila Railroad
v. Rafferty,31 Philippine Railway Co. v. Collector of Internal Revenue,32 and Visayan Electric Co. v.
David33 to support its claim that that the "in lieu of all taxes" clause includes exemption from all taxes.
However, a review of the foregoing case law reveals that the grantees' respective franchises expressly
exempt them from municipal and provincial taxes. Said the Court in Manila Railroad v. Rafferty:34
On the 7th day of July 1906, by an Act of the Philippine Legislature, a special charter was granted
to the Manila Railroad Company. Subsection 12 of Section 1 of said Act (No. 1510) provides that:
"In consideration of the premises and of the granting of this concession or franchise,
there shall be paid by the grantee to the Philippine Government, annually, for the period
of thirty (30) years from the date hereof, an amount equal to one-half (1/2) of one per
cent of the gross earnings of the grantee in respect of the lines covered hereby for the
preceding year; after said period of thirty (30) years, and for the fifty (50) years thereafter,
the amount so to be paid annually shall be an amount equal to one and one-half (1 1/2)
per cent of such gross earnings for the preceding year; and after such period of eighty
(80) years, the percentage and amount so to be paid annually by the grantee shall be
fixed by the Philippine Government.
Such annual payments, when promptly and fully made by the grantee, shall be in lieu of
all taxes of every name and nature - municipal, provincial or central - upon its capital
stock, franchises, right of way, earnings, and all other property owned or operated by the
grantee under this concession or franchise."35 (Underscoring supplied)
In the case under review, ABS-CBN's franchise did not embody an exemption similar to those in Carcar,
Manila Railroad, Philippine Railway, and Visayan Electric. Too, the franchise failed to specify the taxing
authority from whose jurisdiction the taxing power is withheld, whether municipal, provincial, or national.
In fine, since ABS-CBN failed to justify its claim for exemption from local franchise tax, by a grant
expressed in terms "too plain to be mistaken" its claim for exemption for local franchise tax must fail.
C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio with the
abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding Ten Million
Pesos.
In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu of all taxes" provision
contained in Section 8 of R.A. No. 7966, ABS-CBN is exempt from the payment of the local franchise tax.
The RTC further pronounced that ABS-CBN shall instead be liable to pay a franchise tax of 3% of all
gross receipts in lieu of all other taxes.
On this score, the RTC ruling is flawed. In keeping with the laws that have been passed since the grant of
ABS-CBN's franchise, the corporation should now be subject to VAT, instead of the 3% franchise tax.
At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was subject to 3% franchise tax
under Section 117(b) of the 1977 National Internal Revenue Code (NIRC), as amended, viz.:
SECTION 117. Tax on franchises. - Any provision of general or special laws to the contrary
notwithstanding, there shall be levied, assessed and collected in respect to all franchise, upon the
gross receipts from the business covered by the law granting the franchise, a tax in accordance
with the schedule prescribed hereunder:
(a) On electric utilities, city gas, and water supplies Two (2%) percent
(b) On telephone and/or telegraph systems, radio and/or broadcasting stations

Three (3%) percent
(c) On other franchises Five (5%) percent. (Emphasis supplied)
On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value Added Tax Law, 36 took
effect and subjected to VAT those services rendered by radio and/or broadcasting stations. Section 3 of
R.A. No. 7716 provides:
Section 3. Section 102 of the National Internal Revenue Code, as amended is hereby further
amended to read as follows:
SEC. 102. Value-added tax on sale of services and use or lease of properties. - (a) Rate
and base of tax. - There shall be levied, assessed and collected, as value-added tax
equivalent to 10% of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of
services in the Philippines, for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; x x x services of
franchise grantees of telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 117 of this Code; x x x (Emphasis
supplied)
Notably, under the same law, "telephone and/or telegraph systems, broadcasting stations and other
franchise grantees" were omitted from the list of entities subject to franchise tax. The impression was that
these entities were subject to 10% VAT but not to franchise tax. Only the franchise tax on "electric, gas
and water utilities" remained. Section 12 of R.A. No. 7716 provides:
Section 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further
SEC. 117. Tax on Franchises. - Any provision of general or special law to the contrary
notwithstanding there shall be levied, assessed and collected in respect to all franchises
on electric, gas and water utilities a tax of two percent (2%) on the gross receipts derived
from the business covered by the law granting the franchise. (Emphasis added)
Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more amendments to the
NIRC. Radio and/or television companies whose annual gross receipts do not exceed P10,000,000.00
were granted the option to choose between paying 3% national franchise tax or 10% VAT. Section 9 of
R.A. No. 8241 provides:
SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as follows:
"Sec. 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further
"Sec. 117. Tax on franchise. - Any provision of general or special law to the contrary,
notwithstanding, there shall be levied, assessed and collected in respect to all franchises
on radio and/or television broadcasting companies whose annual gross receipts of the
preceding year does not exceed Ten million pesos (P10,000,000.00), subject to Section
107(d) of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a
tax of two percent (2%) on the gross receipts derived from the business covered by the
law granting the franchise: Provided, however, That radio and television broadcasting
companies referred to in this section, shall have an option to be registered as a value-
added tax payer and pay the tax due thereon: Provided, further, That once the option is
exercised, it shall not be revoked. (Emphasis supplied)
On the other hand, radio and/or television companies with yearly gross
receipts exceeding P10,000,000.00 were subject to 10% VAT, pursuant to Section 102 of the NIRC.
On January 1, 1998, R.A. No. 842439 was passed confirming the 10% VAT liability of radio and/or
television companies with yearly gross receipts exceeding P10,000,000.00.
R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005. The said law further
amended the NIRC by increasing the rate of VAT to 12%. The effectivity of the imposition of the 12% VAT
was later moved from January 1, 2006 to February 1, 2006.
In consonance with the above survey of pertinent laws on the matter, ABS-CBN is subject to the payment
of VAT. It does not have the option to choose between the payment of franchise tax or VAT since it is a
broadcasting company with yearly gross receipts exceeding Ten Million Pesos (P10,000,000.00).
VAT is a percentage tax imposed on any person whether or not a franchise grantee, who in the course of
trade or business, sells, barters, exchanges, leases, goods or properties, renders services. It is also
levied on every importation of goods whether or not in the course of trade or business. The tax base of
the VAT is limited only to the value added to such goods, properties, or services by the seller, transferor
or lessor. Further, the VAT is an indirect tax and can be passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax imposed only on franchise holders. It is imposed
under Section 119 of the Tax Code and is a direct liability of the franchise grantee.
The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It cannot apply when what is
paid is a tax other than a franchise tax. Since the franchise tax on the broadcasting companies with yearly
gross receipts exceeding ten million pesos has been abolished, the "in lieu of all taxes" clause has now
become functus officio, rendered inoperative.
In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of all taxes" clause in
its franchise failed to specify the taxes the company is sought to be exempted from. Neither did it
particularize the jurisdiction from which the taxing power is withheld. Second, the clause has
become functus officio because as the law now stands, ABS-CBN is no longer subject to a franchise tax.
It is now liable for VAT.
WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED AND SET ASIDE. The
petition in the trial court for refund of local franchise tax is DISMISSED.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA- MINITA V. CHICO-NAZARIO

MARTINEZ Associate Justice
Associate Justice
ANTONIO EDUARDO B. NACHURA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice
CASE DIGEST
Facts:
- ABS-CBN was granted a franchise which provides that it “shall pay a 3% franchise tax and the
said percentage tax shall be “in lieu of all taxes on this franchise or earnings thereof”. It thus filed a
complaint against the imposition of local franchise tax.
Under Section 31, Article 13 of the Quezon City Revenue Code of 1993,[3] a franchise tax was imposed
on businesses operating within its jurisdiction. The provision states:
Section 31. Imposition of Tax. - Any provision of special laws or grant of tax exemption to the contrary
notwithstanding, any person, corporation, partnership or association enjoying a franchise whether issued
by the national government or local government... and, doing business in Quezon City, shall pay a
franchise tax at the rate of ten percent (10%) of one percent (1%) for 1993-1994, twenty percent (20%) of
one percent (1%) for 1995, and thirty percent (30%) of one percent (1%) for 1996 and the succeeding
years thereafter, of... gross receipts and sales derived from the operation of the business in Quezon City
during the preceding calendar year.
On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio and television
broadcasting stations in the Philippines under R.A. No. 7966.[4] Section 8 of R.A. No. 7966 provides the
tax liabilities of ABS-CBN which reads:
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to pay the same taxes
on their real estate, buildings and personal property, exclusive of this franchise, as other persons or
corporations are now hereafter may be required by... law to pay. In addition thereto, the grantee, its
successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of
the radio/television business transacted under this franchise by the grantee, its successors or assigns,
and the said... percentage tax shall be in lieu of all taxes on this franchise or earnings thereof; Provided
that the grantee, its successors or assigns shall continue to be liable for income taxes under Title II of the
National Internal Revenue Code pursuant to Section 2 of Executive No.
72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be
applicable thereto. (Emphasis added)
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in view of the above
provision in R.A. No. 9766 that it "shall pay a franchise tax x x x in lieu of all taxes," the corporation
developed the opinion that it is not liable to pay the local franchise tax... imposed by Quezon City.
Consequently, ABS-CBN paid under protest
Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could not have been intended
to prevail over a constitutional mandate which ensures the viability and self-sufficiency of local
government units. Further, that taxes collectible by and payable to the... local government were distinct
from taxes collectible by and payable to the national government, considering that the Constitution
specifically declared that the taxes imposed by local government units "shall accrue exclusively to the
local governments." Lastly, the City... contended that the exemption claimed by ABS-CBN under R.A. No.
7966 was withdrawn by Congress when the Local Government Code (LGC) was passed.
Issues:
Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the respondent appellee
(Section 8 of RA 7966) serves to exempt it from the payment of the local franchise tax imposed by the
petitioners-appellants.
Ruling:
The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN from payment of local
franchise tax.
NO. The right to exemption from local franchise tax must be clearly established beyond reasonable doubt
and cannot be made out of inference or implications.
The uncertainty over whether the “in lieu of all taxes” provision pertains to exemption from local or
national taxes, or both, should be construed against Respondent who has the burden to prove that it is in
fact covered by the exemption claimed. Furthermore, the “in lieu of all taxes” clause in Respondent’s
franchise has become ineffective with the abolition of the franchise tax on broadcasting companies with
yearly gross receipts exceeding P10 million as they are now subject to the VAT.
Principles:
The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of
taxes ABS-CBN is exempted from. It is not clear whether the exemption would include both local, whether
municipal, city or provincial, and national tax. What is clear is that
ABS-CBN shall be liable to pay three (3) percent franchise tax and income taxes under Title II of the
NIRC. But whether the "in lieu of all taxes provision" would include exemption from local tax is not
unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be clearly established and
cannot be made out of inference or implications but must be laid beyond reasonable doubt. Verily, the
uncertainty in the "in lieu of all taxes" provision should be construed... against ABS-CBN. ABS-CBN has
the burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in
this regard.
In the case under review, ABS-CBN's franchise did not embody an exemption similar to those in Carcar,
Manila Railroad, Philippine Railway, and Visayan Electric. Too, the franchise failed to specify the taxing
authority from whose jurisdiction the... taxing power is withheld, whether municipal, provincial, or national.
In fine, since ABS-CBN failed to justify its claim for exemption from local franchise tax, by a grant
expressed in terms "too plain to be mistaken" its claim for exemption for local franchise tax must... fail
C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio with the
abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding Ten Million
Pesos.
In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of all taxes" clause in
its franchise failed to specify the taxes the company is sought to be exempted from. Neither did it
particularize the jurisdiction from which the taxing power is... withheld. Second, the clause has become
functus officio because as the law now stands, ABS-CBN is no longer subject to a franchise tax. It is now
liable for VAT.

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Republic of the Philippines

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant

ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

Resolving the issue in the Philippine Rabbit case, this Court held:

Section 73. Disposal of moneys collected.—Twenty per centum of the money collected

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of this

Sec. 13. Payment of taxes upon registration.—No original registration of motor vehicles

The answer is NO.

(d) The provisions of existing special or general laws to the contrary

Philippine Airlines v Edu

G.R. No. 204429 February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner,

For the Year 2001-2003

50% of 1% of the total project cost Php55,000.00

Add: 45% surcharge 24,750.00

In a letter dated 28 September 2004, the Municipality denied Smart’s protest.

The CTA En Banc denied the motion for reconsideration.

Hence, this petition.

The Ruling of the CTA En Banc

The petition raises the following arguments:

RULING OF THE COURT

The Court denies the petition.

On whether the CTA has jurisdiction over the present case

These requirements are as follows:

SECTION 5. Requirements and Procedures in Securing Preliminary Development Permit.

The following documents shall be submitted to the SB Secretary in triplicate:

f) Conversion order from DAR is located within agricultural zone.

g) Radiation Protection Evaluation.

i) Barangay Council Resolution endorsing the special projects.

b) Certification that all local fees have been paid.

On whether Ordinance No. 18 is valid and constitutional

WHEREFORE, the Court DENIES the petition.

MARIA LOURDES P. A. SERENO

MARVIC MARIO VICTOR F. LEONEN

MARIA LOURDES P. A. SERENO

NATURE OF THE CASE:

Petition was DENIED

- Smart constructed a telecommunications tower within the territorial jurisdiction of the

TOTAL PROJECT COST: P11, 000, 000.00

For the Year 2001-2003

50% of 1% of the total project cost 55, 000.00

Add: 45% surcharge 24,750.00

Multiply by 3 yrs. (2001, 2002, 2003) P239, 250.00

For the year 2004

1% of the total project cost P110, 000.00

37% surcharge 40,700.00

- Municipality of Malvar denied Smart’s protest.

- RTC granted Smart’s Appeal/Petition.

- Whether or not Ordinance No. 18 is constitutional

G.R. No. 166408 October 6, 2008

QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, petitioners,

O.R. No. Date Amount Paid

O.R. No. Date Amount Paid

O.R. No. Date Amount Paid

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this

RTC and CA Dispositions

Petitioner submits the following issues for resolution:

2) Whether appellants' imposition of local franchise tax is a violation of appellee's legislative

SEC. 2. Modes of appeal. -