BIR Ruling

April 15, 1970 Mr. Pedro V. Serranzana Naga City S i r : This refers to your letter dated December 10, 1969, requesting that you be allowed to import a car free from the payment of the compensating tax imposed under Section 190 of the Tax Code, or to purchase a car previously brought into the Philippines on a tax free basis. The car will be used in connection with your business as owner and operator of various electric and ice services which is covered by a franchise granted under Republic Act. No. 3702. Section 5 of said Act under which the request for exemption is predicated, reads as follows: acd "Section 5. In consideration of the franchise and rights hereby granted, the grantee shall pay a franchise tax equal to the three per centum of the gross earnings for electric current and ice sold or supplied under this franchise of which two per centum shall accrue to the National Treasury of the municipalities in which he is supplying electric current to the public and of the municipality where the ice plant is located or installed under this franchise: Provided, that the said franchise tax of three per centum of the gross earnings 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 authority whatsoever, municipal, provincial or national, now or in the future on his poles, wires, insulators, switches transformers and structures, installation, conductors and accessories, placed over and/or under all public property, including public streets and highways, provincial roads, bridges and public squares on his franchise, rights, privileges, receipts, revenues and profits and on all property owned by the grantee in connection with the operation and management of the rights and privileges granted by this franchise, from which taxes the grantee is hereby expressly exempted ." (Emphasis supplied) In reply, I regret to inform you that your request for exemption cannot be granted notwithstanding the provision in your franchise granting exemption on all property owned in connection with the operation and management of the franchise from all taxes of any kind, nature or description. A reading of the aforequoted provision will show that the exemption refers to those rights and privileges which are not enjoyed by the public in general but only by the grantee of the franchise, and does not embrace the common right or privilege of every citizen to make purchases from abroad. While the compensating tax is an internal revenue tax, it is not a tax to which franchises are ordinarily subject by virtue of their operations. Compensating tax is a tax of general application. Consequently, exemption from the payment of the compensating tax could not have been contemplated in the exemption granted to your franchise . (Panay Electric Co. vs. Collector of the Internal Revenue G.R. No. L-5753, July 30, 1955; Consuelo P. Borja vs. Collector of Internal Revenue, G.R. No. L-12134, November 20, 1961; Manila Gas Corporation vs. Collector of Internal Revenue G.R. No. L-11784, October 24, 1958; Manila Electric Co. vs. Benjamin Tabios, as Commissioner of Internal Revenue, CTA Case No. 1493, dated September 23, 1964. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue