Meralco's Franchise Tax - Basis for Computation

July 8, 1993 BIR RULING NO. 309-93 MERALCO'S FRANCHISE TAX BASIS FOR COMPUTATION 117 000-00 309-93 Meralco Ortigas Avenue, Pasig 1602 Metro Manila Attention: Mr . L . D . Torres Vice President and Head Legal Services Department This refers to your letter dated October 27, 1992, requesting clarification as to the correct basis of computing the franchise tax payable by you whether on " gross receipts " or upon " gross earnings ". It is represented that under the organic acts (Act. Nos. 1368 and 3436) underlying the grant of your franchise, the word "earnings" is used therein as basis in determining the franchise tax liability so much so that the uncollected gross receipts were subjected to the franchise tax, in the light of the Supreme Court decisions in the cases of PLDT Co. vs. CIR, 90 Phil. 674, January 21, 1952 and Escudero Electric Service Co. vs. Tabios, 33 SCRA 547, June 30, 1970 wherein it was held that "gross receipts" has the same meaning as "gross earnings". You now contend that since under Section 227 (now Section 11) of the Tax Code, as amended by E.O. No. 72, the term "gross receipts" is retained, the applicable provision of the organic acts has been repealed by the phrase "Any provision of the general or special law to the contrary notwithstanding . . ." which is the opening sentence of said Section 227 (now Section 117) of the Tax Code, as amended by E.O. No. 72. Hence, you are of the opinion that the interpretation of gross receipts as including uncollected amounts pursuant to the organic acts does not hold true anymore. In reply, please be informed that your opinion is devoid of legal basis The phrase "Any provision of the general or special law to the contrary notwithstanding . . ." did not repeal the organic acts underlying the grant of your franchise insofar as the manner of computing your franchise tax is concerned. The amendatory Executive Order merely subjected all franchise holders to the schedular rates prescribed therein and revoked the uniform rate of 5% as well as the rates of franchise tax prescribed in the individual franchises. Hence, while the law (Section 117) uses the term "gross receipts" we still adhere to the Supreme Court decisions enunciated in the cases of PLDT and Escudero Electric Service Co., supra to the effect that the term "gross receipts" is anonymous with the term "gross earnings". Accordingly, your uncollected earnings shall form part of your gross receipts for purposes of computing the franchise tax payable by you. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue