[G.R. No. 143867. August 22, 2001.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., ​Petitioner,​ v. CITY OF DAVAO and
ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of Davao, ​Respondents​.

DECISION

MENDOZA, ​J.​:

This is a petition for review on ​certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
resolution, 1 dated June 23, 2000, of the Regional Trial Court, Branch 13, Davao City, affirming the tax
assessment of petitioner and the denial of its claim for tax refund by the City Treasurer of Davao.​ chanrob1es virtua1 1aw

library

The facts are as follows:​ chanrob1es virtual 1aw library

On January 1999, petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayor’s
Permit to operate its Davao Metro Exchange. Respondent City of Davao withheld action on the
application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for
the first to the fourth quarter of 1999. 2 In a letter dated May 31, 1999, 3 petitioner protested the
assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year
1997 and the first to the third quarters of 1998. Petitioner contended that it was exempt from the
payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF), dated
June 2, 1998, which reads as follows:​ chanrob1es virtual 1aw library

PLDT:​ chanrob1es virtual 1aw library

Section 12 of RA 7082 provides as follows:​ jgc:chanrobles.com.ph

"SECTION 12. 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 or 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 telephone
or other telecommunications businesses transacted under this franchise by the grantee, its successors or
assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof . . ."​ cralaw

virtua1aw library

It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a franchise to install,
operate and maintain a telephone system throughout the Philippine Islands was approved on August 3,
1991. Section 12 of said franchise, likewise, contains the "in lieu of all taxes" proviso.

In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995,
provides for the equality of treatment in the telecommunications industry:​ jgc:chanrobles.com.ph

"SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall
ipso facto become part of previously granted telecommunications franchise and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the type of service authorized by the
franchise." (​Emphasis supplied​.)

On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications franchise holder
becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March
16, 1995.​ chanrob1es virtua1 1aw 1ibrary
Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs
under Sections 137 and 143 (sic), respectively, of the LGC, upon the effectivity of RA 7925 on March 16,
1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts
realized from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the
"most favored clause" proviso of RA 7025 (sic). 4

In a letter dated September 27, 1999, respondent Adelaida B. Barcelona, City Treasurer of Davao,
denied the protest and claim for tax refund of petitioner, 5 citing the legal opinion of the City Legal
Officer of Davao and Art. 10, §1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No.
519, Series of 1992, which provides:​chanrob1es virtual 1aw library

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax
on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the income or receipts realized within the
territorial jurisdiction of Davao City. 6

Petitioner received respondent City Treasurer’s order of denial on October 1, 1999. On November 3,
1999, it filed a petition in the Regional Trial Court of Davao seeking a reversal of respondent City
Treasurer’s denial of petitioner’s protest and the refund of the franchise tax paid by it for the year 1998
in the amount of P2,580,829.23. The petition was filed pursuant to §§195 and 196 of the Local
Government Code (R.A. No. 7160). No claim for refund of franchise taxes paid in 1997 was made as the
same had already prescribed under §196 of the LGC, which provides that claims for the refund of taxes
paid under it must be made within two (2) years from the date of payment of such taxes. 7

The trial court denied petitioner’s appeal and affirmed the City Treasurer’s decision. It ruled that the LGC
withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to
impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them.
The trial court likewise denied petitioner’s claim for exemption under R.A. No. 7925 for the following
reasons: (1) it is clear from the wording of §193 of the Local Government Code that Congress did not
intend to exempt any franchise holder from the payment of local franchise and business taxes; (2) the
opinion of the Executive Director of the Bureau of Local Government Finance to the contrary is not
binding on respondents; and (3) petitioner failed to present any proof that Globe and Smart were
enjoying local franchise and business tax exemptions.

Hence, this petition for review based on the following grounds:​ chanrob1es virtual 1aw library

I. THE LOWER COURT ERRED IN APPLYING SECTION 137 OF THE LOCAL GOVERNMENT CODE,
WHICH ALLOWS A CITY TO IMPOSE A FRANCHISE TAX, AND SECTION 193 THEREOF, WHICH PROVIDES
FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES.

II. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONER’S FRANCHISE, AS
IMPLICITLY AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC
TELECOMMUNICATIONS POLICY ACT), TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM,
INC. AND SMART COMMUNICATIONS, INC., WHICH WERE ENACTED SUBSEQUENT TO THE LOCAL
GOVERNMENT CODE, NO FRANCHISE AND BUSINESS TAXES MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.

III. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE BUREAU OF LOCAL
GOVERNMENT FINANCE THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND
BUSINESS TAXES, AMONG OTHERS, IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL
GOVERNMENT CODE.

First. The LGC, which took effect on January 1, 1992, provides:​ chanrob1es virtual 1aw library

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 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. 8

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.

The trial court held that, under these provisions, all exemptions granted to all persons, whether natural
and juridical, including those which in the future might be granted, are withdrawn unless the law
granting the exemption expressly states that the exemption also applies to local taxes. We disagree.
Sec. 137 does not state that it covers future exemptions. In Philippine Airlines, Inc. v. Edu, 9 where a
provision of the Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed by
PAL, it was held that a subsequent amendment of PAL’s franchise, exempting it from all other taxes
except that imposed by its franchise, again entitled PAL to exemption from the date of the enactment of
such amendment. The Tax Code provision withdrawing the tax exemption was not construed as
prohibiting future grants of exemptions from all taxes.

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. 10

The question, therefore, is whether, after the withdrawal of its exemption by virtue of §137 of the LGC,
petitioner has again become entitled to exemption from local franchise tax. Petitioner answers in the
affirmative and points to §23 of R.A. No. 7925, in relation to the franchises of Globe Telecom (Globe)
and Smart Communications, Inc. (Smart), which allegedly grant the latter exemption from local
franchise taxes.​
chanrob1es virtua1 1aw 1ibrary

To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in
Asiatic Petroleum Co. v. Llanes, 11 in which it was held:​
chanrob1es virtual 1aw library

. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be
odious to the law. He who claims an exemption must be able to point to some positive provision of law
creating the right. . . As was said by the Supreme Court of Tennessee in Memphis v. U. & P. Bank (91
Tenn., 546, 550), "The right of taxation is inherent in the State. It is a prerogative essential to the
perpetuity of the government; and he who claims an exemption from the common burden must justify
his claim by the clearest grant of organic or statute law." Other utterances equally or more emphatic
come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. v. Debolt (16 Howard,
416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been
surrendered, "unless the intention to surrender is manifested by words too plain to be mistaken." In the
case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said
that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of
no reasonable construction consistent with the reservation of the power. If a doubt arises as to the
intent of the legislature, that doubt must be solved in favor of the State. In Erie Railway Company v.
Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions,
observed that a State cannot strip itself of the most essential power of taxation by doubtful words. "It
cannot, by ambiguous language, be deprived of this highest attribute of sovereignty." In Tennessee v.
Whitworth (117 U.S., 129, 136), it was said: "In all cases of this kind the question is as to the intent of
the legislature, the presumption always being against any surrender of the taxing power." In Farrington
v. Tennessee and County of Shelby (95 U.S., 679, 686), Mr. Justice Swayne said: ". . . When exemption
is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A
well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to
admit fairly of any other construction that the proposition can be supported."​cralaw virtua1aw library

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be
interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 12

In the present case, petitioner justifies its claim of tax exemption by strained inferences. First, it cites
R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, §23 of
which reads:​chanrob1es virtual 1aw library

SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall
ipso facto become part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the type of service authorized by the
franchise.

Petitioner then claims that Smart and Globe enjoy exemption from the payment of the franchise tax by
virtue of their legislative franchises per opinion of the Bureau of Local Government Finance of the
Department of Finance. Finally, it argues that because Smart and Globe are exempt from the franchise
tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because
the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.

The acceptance of petitioner’s theory would result in absurd consequences. To illustrate: In its franchise,
Globe is required to pay a franchise tax of only one and one-half percentum (1½%) of all gross receipts
from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts
from business transacted. Petitioner’s theory would require that, to level the playing field, any
"advantage, favor, privilege, exemption, or immunity" granted to Globe must be extended to all
telecommunications companies, including Smart. If, later, Congress again grants a franchise to another
telecommunications company imposing, say, one percent (1%) franchise tax, then all other
telecommunications franchises will have to be adjusted to "level the playing field" so to speak. This could
not have been the intent of Congress in enacting §23 of Rep. Act 7925. Petitioner’s theory will leave the
Government with the burden of having to keep track of all granted telecommunications franchises, lest
some companies be treated unequally. It is different if Congress enacts a law specifically granting
uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities.

The fact is that the term "exemption" in §23 is too general. A cardinal rule in statutory construction is
that legislative intent must be ascertained from a consideration of the statute as a whole and not merely
of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning
which is different from the one actually intended. A general provision may actually have a limited
application if read together with other provisions. 13 Hence, a consideration of the law itself in its
entirety and the proceedings of both Houses of Congress is in order. 14

Art. I of Rep. Act No. 7925 contains the general provisions, stating that the Act shall be known as the
Public Telecommunications Policy Act of the Philippines, and a definition of terms. 15 Art. II provides for
its policies and objectives, which is to foster the improvement and expansion of telecommunications
services in the country through: (1) the construction of telecommunications infrastructure and
interconnection facilities, having in mind the efficient use of the radio frequency spectrum and extension
of basic services to areas not yet served; (2) fair, just, and reasonable rates and tariff charges; (3)
stable, transparent, and fair administrative processes; (4) reliance on private enterprise for direct
provision of telecommunications services; (5) dispersal of ownership of telecommunications entities in
compliance with the constitutional mandate to democratize the ownership of public utilities; (6)
encouragement of the establishment of interconnection with other countries to provide access to
international communications highways and development of a competitive export-oriented domestic
telecommunications manufacturing industry; and (7) development of human resources skills and
capabilities to sustain the growth and development of telecommunications. 16
Art. III provides for its administration. The operational and administrative functions are delegated to the
National Telecommunications Commission (NTC), while policy-making, research, and negotiations in
international telecommunications matters are left with the Department of Transportation and
Communications. 17

Art. IV classifies the categories of telecommunications entities as: Local Exchange Operator,
Inter-Exchange Carrier, International Carrier, Value-Added Service Provider, Mobile Radio Services, and
Radio Paging Services. 18 Art. V provides for the use of other services and facilities, such as customer
premises equipment, which may be used within the premises of telecommunications subscribers subject
only to the requirement that it is type-approved by the NTC, and radio frequency spectrum, the
assignment of which shall be subject to periodic review. 19

Art. VI, entitled Franchise, Rates and Revenue Determination, provides for the requirement to obtain a
franchise from Congress and a Certificate of Public Convenience and Necessity from the NTC before a
telecommunications entity can begin its operations. It also provides for the NTC’s residual power to
regulate the rates or tariffs when ruinous competition results or when a monopoly or a cartel or
combination in restraint of free competition exists and the rates or tariffs are distorted or unable to
function freely and the public is adversely affected. There is also a provision relating to revenue sharing
arrangements between inter-connecting carriers. 20

Art. VII provides for the rights of telecommunications users. 21

Art. VIII, entitled Telecommunications Development, where §23 is found, provides for public ownership
of telecommunications entities, privatization of existing facilities, and the equality of treatment provision.
22

Art. IX contains the Final Provisions. 23

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications
and provide the structures to implement it to keep up with the technological advances in the industry
and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry,
pricing, and operations of all public telecommunications entities and thus promote a level playing field in
the telecommunications industry. 24 There is nothing in the language of §23 nor in the proceedings of
both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it
contemplates the grant of tax exemptions to all telecommunications entities, including those whose
exemptions had been withdrawn by the LGC.​ chanrob1es virtua1 1aw 1ibrary

What this Court said in Asiatic Petroleum Co. v. Llanes 25 applies mutatis mutandis to this case: "When
exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against
it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit
to admit fairly of any other construction that the proposition can be supported." In this case, the word
"exemption" in §23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting
requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe
exempt from local taxes, the BLGF did not base its opinion on §23 but on the fact that the franchises
granted to them after the effectivity of the LGC exempted them from the payment of local franchise and
business taxes.

Second. In the case of petitioner, the BLGF opined that §23 of R.A. No. 7925 amended the franchise of
petitioner and in effect restored its exemptions from local taxes. Petitioner contends that courts should
not set aside conclusions reached by the BLGF because its function is precisely the study of local tax
problems and it has necessarily developed an expertise on the subject.

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given
weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax
Appeals, 26 a highly specialized court which performs judicial functions as it was created for the review
of tax cases. 27 In contrast, the BLGF was created merely to provide consultative services and technical
assistance to local governments and the general public on local taxation, real property assessment, and
other related matters, among others. 28 The question raised by petitioner is a legal question, to wit, the
interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF
that administrative agencies are said to possess in their respective fields.​
chanrob1es virtua1 1aw 1ibrary

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its
duty. It does enjoy this presumption, but this has nothing to do with the question in this case. This case
does not concern the regularity of performance of the BLGF in the exercise of its duties, but the
correctness of its interpretation of a provision of law.

In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as a
blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations
in interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925
cannot be considered as having amended petitioner’s franchise so as to entitle it to exemption from the
imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise
taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and
that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter
of 1998.

WHEREFORE, the petition for review on ​certiorari is DENIED and the decision of the Regional Trial Court,
Branch 13, Davao City is AFFIRMED.

SO ORDERED.​ chanrob1es virtua1 1aw 1ibrary

Bellosillo, Quisumbing, Buena and De Leon, Jr., ​JJ.​, concur.