BIR Ruling No. 005-65

April 5, 1965 BIR RULING NO. 005-65 4th Indorsement Returned to the Regional Director, B.I.R. Regional District No. 12, Iloilo City, the papers relative to the franchise tax case of Mr. Ituralde of Passi, Iloilo. The issues to be resolved in this case are: First, Whether the franchise tax paid by the grantee, Mr. Moises Ituralde, shall accrue to the National Government or to the Municipality of Passi, Iloilo. Second: Whether the franchise grantee is subject to the franchise tax rate of 5% in accordance with Section 259 of the Tax Code, as amended, or to the rate of 2% prescribed in its charter (Act No. 3647). On the first issue, this Office is of the opinion that the franchise tax paid by the grantee shall not accrue entirely to the Municipality of Passi, Iloilo, because the franchise tax is an internal revenue tax. (Sec. 18(g), Tax Code; Panay Electric Co. v. Collector of Internal Revenue, G.R. No. L-10574, May 24, 1958). Such being the case, the tax must be collected, disposed of and allotted in accordance with the pertinent provisions of the Tax Code. The contention that the tax accrues entirely to the municipality because the franchise provides that the tax shall be paid into the municipal treasury is without merit. Before the institution of the offices of the collection agents, all franchises invariably provide for such payment because the municipal treasurers were deputies of the Commissioner in the collection of internal revenue taxes. As a matter of fact, upon the institution of the collection agents, the franchise tax became payable to the latter and no longer to the municipal treasurers. Therefore, the provision in the franchise for payment of the franchise tax into the municipal treasury cannot have the effect of allotting the said tax entirely to the municipality. On the second issue, the proper rate of tax payable by the franchise grantee is 5%, as prescribed by Section 259 of the Tax Code, because the amendment to said law, which increased the rate of franchise tax to 5% should be read into the franchise in question since said franchise does not contain any provision which precludes the imposition of a higher rate of tax (Hao Hin Co., Inc. v. David & Hao Hin Co., Inc. v. Blaquera, G.R. Nos. L-9616 & L-11785, May 25, 1959) and in fact, expressly provides that "it should be subject to amendment, alteration or repeal by the Congress of the United States (now Congress of the Philippines)". (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue