698 Phil. 788
CARPIO, J.:
On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No. 9503-2005 imposing a tax on the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users at ten percent (10%) of the annual rental income derived from such lease or rental.
The City Council, in a letter dated 15 March 2005, informed appellant Cagayan Electric Power and Light Company, Inc. (CEPALCO), through its President and Chief Operation Manager, Ms. Consuelo G. Tion, of the passage of the subject ordinance.
On September 30, 2005, appellant CEPALCO, purportedly on pure question of law, filed a petition for declaratory relief assailing the validity of Ordinance No. 9503-2005 before the Regional Trial Court of Cagayan de Oro City, Branch 18, on the ground that the tax imposed by the disputed ordinance is in reality a tax on income which appellee City of Cagayan de Oro may not impose, the same being expressly prohibited by Section 133(a) of Republic Act No. 7160 (R.A. 7160) otherwise known as the Local Government Code (LGC) of 1991. CEPALCO argues that, assuming the City Council can enact the assailed ordinance, it is nevertheless exempt from the imposition by virtue of Republic Act No. 9284 (R.A. 9284) providing for its franchise. CEPALCO further claims exemplary damages of PhP200,000.00 alleging that the passage of the ordinance manifests malice and bad faith of the respondent-appellee towards it.
In its Answer, appellee raised the following affirmative defenses: (a) the enactment and implementation of the subject ordinance was a valid and lawful exercise of its powers pursuant to the 1987 Constitution, the Local Government Code, other applicable provisions of law, and pertinent jurisprudence; (b) non-exemption of CEPALCO because of the express withdrawal of the exemption provided by Section 193 of the LGC; (c) the subject ordinance is legally presumed valid and constitutional; (d) prescription of respondent-appellee’s action pursuant to Section 187 of the LGC; (e) failure of respondent-appellee to exhaust administrative remedies under the Local Government Code; (f) CEPALCO’s action for declaratory relief cannot prosper since no breach or violation of the subject ordinance was yet committed by the City.[5]
ORDINANCE IMPOSING A TAX ON THE LEASE OR RENTAL OF ELECTRIC AND/OR TELECOMMUNICATION POSTS, POLES OR TOWERS BY POLE OWNERS TO OTHER POLE USERS AT THE RATE OF TEN (10) PERCENT OF THE ANNUAL RENTAL INCOME DERIVED THEREFROM AND FOR OTHER PURPOSES
BE IT ORDAINED by the City Council (Sangguniang Panlungsod) of the City of Cagayan de Oro in session assembled that:
SECTION 1. - Whenever used in this Ordinance, the following terms shall be construed as:
- Electric companies include all public utility companies whether corporation or cooperative engaged in the distribution and sale of electricity;
- Telecommunication companies refer to establishments or entities that are holders of franchise through an Act of Congress to engage, maintain, and operate telecommunications, voice and data services, under existing Philippine laws, rules and regulations;
- Pole User includes any person, natural or juridical, including government agencies and entities that use and rent poles and towers for the installation of any cable, wires, service drops and other attachments[;]
- Pole Owner includes electric and telecommunication company or corporation that owns poles, towers and other accessories thereof.
SECTION 2. - There shall be imposed a tax on the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users at the rate of ten (10) percent of the annual rental income derived therefrom.
SECTION 3. - The tax imposed herein shall not be passed on by pole owners to the bills of pole users in the form of added rental rates.
SECTION 4. (a) Pole owners herein defined engaged in the business of renting their posts, poles and/or towers shall secure a separate business permit therefor as provided under Article (P), Section 62(a) of Ordinance No. 8847-2003, otherwise known as the Cagayan de Oro City Revenue Code of 2003.
(b) Pertinent provisions of Ordinance No. 8847-2003, covering situs of the tax, payment of taxes and administrative provisions shall apply in the imposition of the tax under this Ordinance.
SECTION 5. - This Ordinance shall take effect after 15 days following its publication in a local newspaper of general circulation for at least three (3) consecutive issues.
UNANIMOUSLY APPROVED.[6]
WHEREFORE, it is crystal clear that Petitioner CEPALCO failed not only in proving its allegations that City Ordinance 9503-2005 is illegal and contrary to law, and that [it] is exempted from the imposition of tax, but also in convincing the Court that its action is not barred for non-exhaustion of administrative remedy [sic] and by prescription. Hence, the instant petition is DENIED.
SO ORDERED.[12]
A. The lower court manifestly erred in concluding that the instant action is barred for non-exhaustion of administrative remedies and by prescription.
B. The lower court gravely erred in finding that Ordinance No. 9503-2005 of the City of Cagayan de Oro does not partake of the nature of an income tax.
C. The lower court gravely erred in finding that Ordinance No. 9503-2005 of the City of Cagayan de Oro is valid.
D. The lower court seriously erred in finding that herein appellant is not exempted from payment of said tax.[13]
1. In spite of its patent illegality, a City Ordinance passed in violation or in excess of the city’s delegated power to tax was upheld;
2. In a case involving pure questions of law, the Court of Appeals still insisted on a useless administrative remedy before resort to the court may be made; and
3. Recent legislation affirming [CEPALCO’s] tax exemptions was disregarded.[16]
SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings. — The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.
SEC. 188. Publication of Tax Ordinances and Revenue Measures. - Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.
Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.
SEC. 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 independent 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.
SEC. 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.
SEC. 9. Tax Provisions. — The grantee, its successors or assigns, shall be subject to the payment of all taxes, duties, fees or charges and other impositions applicable to private electric utilities under the National Internal Revenue Code (NIRC) of 1997, as amended, the Local Government Code and other applicable laws: Provided, That nothing herein shall be construed as repealing any specific tax exemptions, incentives, or privileges granted under any relevant law: Provided, further, That all rights, privileges, benefits and exemptions accorded to existing and future private electric utilities by their respective franchises shall likewise be extended to the grantee.
The grantee shall file the return with the city or province where its facility is located and pay the taxes due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the NIRC and the return shall be subject to audit by the Bureau of Internal Revenue.
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.
x x x x
SEC. 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.
SEC. 534. Repealing Clause. - x x x.
(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.
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. Tax exemptions cannot arise by mere implication, much less by an implied re-enactment of a repealed tax exemption clause.
5. Thus, the taxes imposable under either Section 137 or Section 143(h) are not unbridled but are restricted as to the amount which may be imposed. This is the first limitation. Furthermore, if it is a city which imposes the same, it can impose only up to one-half of what the province or municipality may impose. This is the second limitation.
6. Let us now examine Ordinance No. 9503-2005 of the respondent City of Cagayan de Oro in the light of the twin limitations mentioned above.
7. Ordinance No. 9503-2005 of the respondent City of Cagayan de Oro imposes a tax on the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users “at the rate of ten (10) percent of the annual rental income derived therefrom.”
8. With respect to Section 137, considering that the tax allowed provinces “shall not exceed 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,” the tax imposed by Ordinance No. 9503-2005 “at the rate of ten (10) percent of the annual rental income derived therefrom” is too much. There is a whale of a difference between the allowable 50% of 1% and the 10% tax imposed by the respondent. To illustrate: assuming that the gross annual receipt is Php100, the maximum tax that a province may impose under Section 137 (50% of 1%) shall be Php0.5 or only fifty centavos. Therefore, the maximum tax that the City may impose shall only be one-half of this, which is Php0.25 or only twenty-five centavos. But the questioned Ordinance imposes a tax amounting to 10% of the gross annual receipt of Php100, which is Php10, or Ten Pesos. This a whooping [sic] 40 times more than that allowed for the province! The violation made by respondent city of its delegated taxing authority is all too patent.
9. With respect to Section 143(h), the rate of tax which the municipality may impose “shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.” On the other hand, the tax imposed by Ordinance No. 9503-2005 is “at the rate of ten (10) percent of the annual rental income derived therefrom.” Again, it is obvious that the respondent City’s questioned tax ordinance is way too much. Using the same tax base of Php100 to illustrate, let us compute: Under Section 143(h), the maximum tax that a municipality may impose is 2% of Php100, which is Php2 or Two Pesos. Therefore, the maximum tax that the City may impose shall be one-half of this, which is Php1 or One Peso. But the tax under Ordinance No. 9503-2005 is Php10, or Ten Pesos. This is a whooping [sic] 10 times more than that allowed for the municipality! As in the earlier instance discussed above, the violation made by the respondent city of its delegated taxing authority is all too patent.[27] (Boldfacing and underscoring in the original)
6. Thus, Section 30 of [City of Cagayan de Oro’s] Ordinance No. 8847-2003, otherwise known as the Revenue Code of Cagayan de Oro, imposes a franchise tax on the gross receipts realized from the preceding year by a business enjoying a franchise, at the rate of 75% of 1%. The increase of 25% over that which is prescribed under Section 137 of the LGC is in accordance with Section 151 thereof prescribing the allowable increase on the rate of tax on the businesses duly identified and enumerated under Section 143 of the LGC or those defined and categorized in the preceding sections thereof;
7. Section 143 of the LGC prescribes the rate of taxes on the identified categories of business enumerated therein which were determined to be existing at the time of its enactment. On the other hand, Section 151 of the LGC prescribes the allowable rate of increase over the rate of taxes imposed on businesses identified under Section 143 and the preceding sections thereof. It is [City of Cagayan de Oro’s] humble opinion that the allowable rate of increase provided under Section 151 of the LGC applies only to those businesses identified and enumerated under Section 143 thereof. Thus, it is respectfully submitted by [City of Cagayan de Oro] that the 2% limitation prescribed under Section 143(h) applies only to the tax rates on the businesses identified thereunder and does not apply to those that may thereafter be deemed taxable under Section 186 of the LGC, such as the herein assailed Ordinance No. 9503-2005. On the same vein, it is the respectful submission of [City of Cagayan de Oro] that the limitation under Section 151 of the LGC likewise does not apply in our particular instance, otherwise it will run counter to the intent and purpose of Section 186 of the LGC;
8. Be it strongly emphasized here that [CEPALCO] is differently situated vis-á-vis the rest of the businesses identified under Section 143 of the LGC. The imposition of a tax “xxx on the lease or rental of electric and/or telecommunications posts, poles or towers by pole owners to other pole users at the rate of ten (10%) of the annual rental income derived therefrom” as provided under Section 2 of the questioned Ordinance No. 9503-2005 is based on a reasonable classification, to wit: (a) It is based on substantial distinctions which make a real difference; (b) these are germane to the purpose of the law; (c) the classification applies not only to the present conditions but also to future conditions which are substantially identical to those of the present; and (d) the classification applies only to those belonging to the same class;
9. Furthermore, Section 186 of the LGC allow [sic] local government units to exercise their taxing power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated in the preceding sections, more particularly Section 143 thereof, or under the provisions of the National Internal Revenue Code, as long as they are not unjust, excessive, oppressive, confiscatory or contrary to declared national policy. Moreover, a public hearing is required before the Ordinance levying such taxes, fees or charges can be enacted;
10. It is respectfully submitted by [City of Cagayan de Oro] that the tax rate imposed under Section 2 of the herein assailed Ordinance is not unjust, excessive, oppressive, confiscatory or contrary to a declared national policy;
11. A reading of Section 143 of the LGC reveals that it has neither identified the operation of a business engaged in leasing nor prescribed its tax rate. Moreover, a Lessor, in any manner, is not included among those defined as Contractor under Section 131(h) of the LGC. However, a Lessor, in its intended general application in [City of Cagayan de Oro] (one who rents out real estate properties), was identified, categorized and included as one of the existing businesses operating in the city, and thus falling under the provisions of Ordinance No. 8847-2003 (the Revenue Code of Cagayan de Oro) and, therefore, imposed only a tax rate of 2% on their gross annual receipts;
12. While the herein assailed Ordinance similarly identifies that the base of the tax imposed therein are receipts and/or revenue derived from rentals of poles and posts, [CEPALCO] cannot be considered under the definition of Lessor under the spirit, essence and intent of Section 58(h) of the Revenue Code of Cagayan de Oro, because the same refers only to “Real Estate Lessors, Real Estate Dealers and Real Estate Developers.” Thus, [CEPALCO] should be, as it has been, categorized as a (Distinct) Lessor where it enjoys not only a tremendous and substantial edge but also an absolute advantage in the rental of poles, posts and/or towers to other telecommunication and cable TV companies and the like over and above all others in view of its apparent monopoly by allowing the use of their poles, posts and/or towers by, leasing them out to, telecommunication and cable TV companies operating within the city and suburbs. Furthermore, [CEPALCO] has neither competition in this field nor does it expect one since there are no other persons or entities who are engaged in this particular business activity;
x x x x[28]
With gross sales or receipts for the preceding calendar year in the amount of: | Amount of Tax Per Annum | |||
Less than P10,000.00 | 165.00 | |||
P 10,000.00 or more but less than | 15,000.00 | 220.00 | ||
15,000.00 or more but less than | 20,000.00 | 302.00 | ||
20,000.00 or more but less than | 30,000.00 | 440.00 | ||
30,000.00 or more but less than | 40,000.00 | 660.00 | ||
40,000.00 or more but less than | 50,000.00 | 825.00 | ||
50,000.00 or more but less than | 75,000.00 | 1,320.00 | ||
75,000.00 or more but less than | 100,000.00 | 1,650.00 | ||
100,000.00 or more but less than | 150,000.00 | 2,200.00 | ||
150,000.00 or more but less than | 200,000.00 | 2,750.00 | ||
200,000.00 or more but less than | 300,000.00 | 3,850.00 | ||
300,000.00 or more but less than | 500,000.00 | 5,500.00 | ||
500,000.00 or more but less than | 750,000.00 | 8,000.00 | ||
750,000.00 or more but less than | 1,000,000.00 | 10,000.00 | ||
1,000,000.00 or more but less than | 2,000,000.00 | 13,750.00 | ||
2,000,000.00 or more but less than | 3,000,000.00 | 16,500.00 | ||
3,000,000.00 or more but less than | 4,000,000.00 | 19,800.00 | ||
4,000,000.00 or more but less than | 5,000,000.00 | 23,100.00 | ||
5,000,000.00 or more but less than | 6,500,000.00 | 24,375.00 | ||
6,500,000.00 or more | at a rate not exceeding thirty-seven and a half percent (37 1/2%) of one percent (1%) |
With gross sales or receipts for the preceding calendar year in the amount of: | Amount of Tax Per Annum | |||
Less than P1,000.00 | 18.00 | |||
P 1,000.00 or more but less than | 2,000.00 | 33.00 | ||
2,000.00 or more but less than | 3,000.00 | 50.00 | ||
3,000.00 or more but less than | 4,000.00 | 72.00 | ||
4,000.00 or more but less than | 5,000.00 | 100.00 | ||
5,000.00 or more but less than | 6,000.00 | 121.00 | ||
6,000.00 or more but less than | 7,000.00 | 143.00 | ||
7,000.00 or more but less than | 8,000.00 | 165.00 | ||
8,000.00 or more but less than | 10,000.00 | 187.00 | ||
10,000.00 or more but less than | 15,000.00 | 220.00 | ||
15,000.00 or more but less than | 20,000.00 | 275.00 | ||
20,000.00 or more but less than | 30,000.00 | 330.00 | ||
30,000.00 or more but less than | 40,000.00 | 440.00 | ||
40,000.00 or more but less than | 50,000.00 | 660.00 | ||
50,000.00 or more but less than | 75,000.00 | 990.00 | ||
75,000.00 or more but less than | 100,000.00 | 1,320.00 | ||
100,000.00 or more but less than | 150,000.00 | 1,870.00 | ||
150,000.00 or more but less than | 200,000.00 | 2,420.00 | ||
200,000.00 or more but less than | 300,000.00 | 3,300.00 | ||
300,000.00 or more but less than | 500,000.00 | 4,400.00 | ||
500,000.00 or more but less than | 750,000.00 | 6,600.00 | ||
750,000.00 or more but less than | 1,000,000.00 | 8,800.00 | ||
1,000,000.00 or more but less than | 2,000,000.00 | 10,000.00 | ||
2,000,000.00 or more | at a rate not exceeding fifty percent (50%) of one percent (1%). |
With gross sales or receipts for the preceding calendar year of: | Rate of Tax Per Annum |
P400,000.00 or less | 2% |
more than P400,000.00 | 1% |
With gross sales or receipts for the preceding calendar year in the amount of: | Amount of Tax Per Annum | |||
Less than | P5,000.00 | 27.50 | ||
P 5,000.00 or more but less than | 10,000.00 | 61.60 | ||
10,000.00 or more but less than | 15,000.00 | 104.50 | ||
15,000.00 or more but less than | 20,000.00 | 165.00 | ||
20,000.00 or more but less than | 30,000.00 | 275.00 | ||
30,000.00 or more but less than | 40,000.00 | 385.00 | ||
40,000.00 or more but less than | 50,000.00 | 550.00 | ||
50,000.00 or more but less than | 75,000.00 | 880.00 | ||
75,000.00 or more but less than | 100,000.00 | 1,320.00 | ||
100,000.00 or more but less than | 150,000.00 | 1,980.00 | ||
150,000.00 or more but less than | 200,000.00 | 2,640.00 | ||
200,000.00 or more but less than | 250,000.00 | 3,630.00 | ||
250,000.00 or more but less than | 300,000.00 | 4,620.00 | ||
300,000.00 or more but less than | 400,000.00 | 6,160.00 | ||
400,000.00 or more but less than | 500,000.00 | 8,250.00 | ||
500,000.00 or more but less than | 750,000.00 | 9,250.00 | ||
750,000.00 or more but less than | 1,000,000.00 | 10,250.00 | ||
1,000,000.00 or more but less than | 2,000,000.00 | 11,500.00 | ||
2,000,000.00 or more | at a rate not exceeding fifty percent (50%) of one percent (1%) |