366 Phil. 428
"Sec. 2.09. Franchise Tax. - There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within this province, including the territorial limits on any city located in the province"On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520,628.42, under protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which read:
"Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current.On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the old decree invoked by petitioner.
"Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current."
"WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is hereby rendered in favor of the defendants and against the plaintiff, by:In the instant petition, MERALCO assails the above ruling and brings up the following issues; viz:
"1. Ordering the dismissal of the Complaint; and
"2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable and enforceable."
"1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of Presidential Decree No. 551.The petition lacks merit.
"2. Whether Republic Act. No. 7160, otherwise known as the Local Government Code of 1991, has repealed, amended or modified Presidential Decree No. 551.
"3. Whether the doctrine of exhaustion of administrative remedies is applicable in this case."
"Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions, and duties of local officials, and all other matters relating to the organization and operation of the local units.The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments.
"x x x x x x x x x
"Sec. 5. Each local government 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 governments."
"Sec. 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 a 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. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein. (Underscoring supplied for emphasis)"Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. This law states:
"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. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Underscoring supplied for emphasis)The Code, in addition, contains a general repealing clause in its Section 534; thus:
"Section 534. Repealing Clause. - x x x.To exemplify, in Mactan Cebu International Airport Authority vs. Marcos, the Court upheld the withdrawal of the real estate tax exemption previously enjoyed by Mactan Cebu International Airport Authority. The Court ratiocinated:
"(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (Underscoring supplied for emphasis)"
"x x x These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic service essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them."Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light Company, Inc.; thus:
"In an earlier case, the phrase `shall be in lieu of all taxes and at any time levied, established by, or collected by any authority' found in the franchise of the Visayan Electric Company was held to exempt the company from payment of the 5% tax on corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al., the Court has held that the phrase in lieu of all taxes "have to give way to the peremptory language of the Local Government Code specifically providing for the withdrawal of such exemptions, privileges," and that "upon the effectivity of the Local Government Code all exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim liability for the local tax." In fine, the Court has viewed its previous rulings as laying stress more on the legislative intent of the amendatory law - whether the tax exemption privilege is to be withdrawn or not - rather than on whether the law can withdraw, without violating the Constitution, the tax exemption or not.
"Similarly, we ruled that the provision: `shall be in lieu of all taxes of every name and nature' in the franchise of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila Railroad from payment of internal revenue tax for its importations of coal and oil under Act No. 2432 and the Amendatory Acts of the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
"The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified the exemption of the Philippine Railway Company from payment of the tax on its corporate franchise under Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal Revenue, 91 Phil. 35).
"Those magic words, `shall be in lieu of all taxes' also excused the Cotabato Light and Ice Plant Company from the payment of the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231).
"So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was required to pay the corporate franchise tax under Section 259 of the Internal Revenue Code as amended by R.A. No. 39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee."