BIR Ruling

March 6, 1969 The Mayor Solano, Nueva Viscaya Gentlemen : This refers to your letter dated September 10, 1969 enclosing therewith Resolution No. 98, Series of 1968, of the Municipal Council of that town, which seeks to amend Paragraph 10 of the franchise granted to the Solano Electric Corporation so as to empower the treasurer of your municipality to collect the 5% franchise tax paid by the said corporation. aisadc In this connection, I have the honor to inform you as follows: Act No. 667, is the enabling Act, authorizing municipalities to issue franchises under certain fixed conditions, among which are: that the rates to be charged by a franchise grantee shall be subject to regulation by Congress and that the franchise shall become operative only upon approval by the President of the Philippines (formerly Civil Governor). Accordingly, amendments thereto necessarily requires Presidential approval. The act further provides that the franchise granted shall contain a provision that it shall be subject to alteration or repeal by Congress. Section 259 of the National Internal Revenue Code, as amended by Republic Acts Nos. 39 and 418, is the general franchise tax law, and is quoted as follows: "SEC. 259. Tax on franchise . There shall be collected in respect to all existing and future franchises, upon the gross earnings or receipts from the business covered by the law granting the franchise a tax of five per centum or such taxes, charges, and percentages as are specified in the special charters of the grantees upon whom such franchises are conferred, whichever is higher, unless the provisions thereof preclude the imposition of a higher tax. For the purpose of facilitating the assessment of this tax, reports shall be made by the respective holders of the franchises in such form and at such times, as shall be required by the regulations of the Department of Finance. "The taxes, charges, and percentages on franchises, shall be due and payable as specified in the particular franchise, or, in case no time limit is specified therein the provisions of section one hundred eight-three shall apply; and if such taxes, charges, and percentages remain unpaid for fifteen days from and after the date on which they must be paid, twenty-five per centum shall be added to the amount of such taxes, charges, and percentages, which increase shall form part of the tax. (As amended by Sec. 7, Republic Act No. 39 and sec. 1, Republic Act No. 418.)" The franchise tax being an internal revenue tax is collectible by the Bureau of Internal Revenue and allocated in accordance with the Allotment Law (Title XII, Tax Code), Section 359(d) of which provides as follows: "SEC. 359(d) Where the franchise is for the operation of a public service plant or system different from those specified above, and the same is doing business in one or more municipalities, one-fifth of the franchise tax shall accrue to the National Government, one-fifth to the province or provinces concerned, and three-fifths to the municipality or municipalities concerned; and where more than one province or municipality participates, the apportionment shall be in proportion to the gross receipts from the business transacted within their respective limits." The authority to issue franchises being only delegated, municipalities have no power to provide for the collection and allotment of the tax. Only congress from which their authority to issue franchises emanates has the power to do that. With the foregoing explanation, this Office hopes the Municipal Council of that town can see clearly the limitations of its governmental prerogatives on matters affecting franchises. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue