Exemption of the National Power Corporation (NPC) from the Payment of the Franchise Tax

July 22, 1998 BLGF MEMORANDUM CIRCULAR NO. 014-98 TO : All Regional Directors for Local Government Finance; District Treasurers of Metropolitan Manila; Provincial and City Treasurers; and Others Concerned SUBJECT : Exemption of the National Power Corporation (NPC) from the Payment of the Franchise Tax For the information and guidance of all concerned, the request of NPC for reconsideration of the ruling embodied under the letter dated July 28, 1992 of the Department of Finance, which held that "NPC is subject to franchise tax under Section 137 of R.A. 7160, otherwise known as the Local Government Code (LGC) of 1991" has been granted. In this connection, quoted hereunder is the pertinent portion of the ruling/opinion dated June 19, 1998 of the Department. ". . . NPC is a government and controlled corporation and, as such, is not subject to the 'local franchise tax' under Section 131(m), R.A. 7160, which applies only to 'private persons or corporations'. In view of the above, we find it unnecessary to rule on the applicability of Section 13, 2nd sentence, R.A. 6095, regarding the tax exempt status of NPC considering that NPC is clearly beyond the scope of the local tax on franchise holders. "xxx xxx xxx. "Accordingly, the request of NPC for reconsideration of the ruling of this Department dated July 28, 1992 is hereby granted. However, it is stressed that this ruling shall be prospective in application and that concerned LGUs are under no obligation to refund local franchise tax payments made sans protest by NPC prior to the issuance of this ruling." The Regional Directors for Local Government Finance and District Treasurers of Metropolitan Manila are hereby instructed to disseminate the contents of this Circular to all Provincial and City Treasurers within their respective jurisdiction. LLpr (SGD.) ANGELINA M. MAGSINO (Deputy Executive Director) Office-in-Charge June 19, 1998 Mr. Guido Alfredo A. Delgado President National Power Corporation (NPC) Cor. Quezon Avenue and Agham Road Diliman, Quezon City S i r : This refers to your subjoined letters dated October 5, 1995, November 16, 1995 and March 14, 1996, requesting reconsideration of the ruling embodied under the letter dated July 28, 1992 of this Department, which held that "NPC is subject to franchise tax under Section 137 of R.A. No. 7160, otherwise known as the Local Government Code of 1991 (LGC)." This Department issued the abovementioned ruling on the basis of the provisions of said Section 137 of the LGC, quoted hereunder: "SECTION 137. Franchise Tax . Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business 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." (Emphasis supplied) You are requesting reconsideration of subject ruling primarily on the basis of the definitions of "franchise" and "business" as provided for under Section 131(d) and (m) of the LGC, which read as follows. "SECTION 131. Definition of Terms . "xxx xxx xxx. "(d) Business means trade or commercial activity regularly engaged in, as a means of livelihood or with a view to profit." "xxx xxx xxx." "(m) Franchise is a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security, and safety." From the aforequoted definitions, it is contention that NPC is not subject to local franchise tax on the following grounds: First , that NPC is not engaged in "business" as defined in the LGC since NPC is engaged in the development, generation and transmission of electrical power pursuant to declared national policy "that (1) the comprehensive development, utilization and conservation of Philippine water resources for all beneficial uses, including power generation, and (2) the total electrification of the Philippines through the development of power from all sources to meet the needs of industrial development and dispersal and the needs of rural electrification are primary objective of the nation which shall be pursued coordinately supported by all instrumentalities and agencies of the government, including its financial institutions. (Sec. 1, R.A. 6395, as amended, the Revised NPC Charter). LLphil Second , that NPC is not a "business" by reason of its non-profit character as stated under Section 13 of R.A. 6395, as amended, the pertinent portion of which is quoted hereunder: "SECTION 13. Non-profit Character of the Corporation ; Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities . The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. . . .." Third , that no franchise from the government or any of its political subdivisions was secured by the NPC for undertaking the aforecited functions. Fourth , that NPC is "declared" exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedes bonds, in any court or administrative proceedings." (Section 13, Ibid ) Based on the above representations, it appears that NPC is not a "business" as contemplated by Section 131(d) of the LGC because it was not created pursuant solely to the proprietary powers of the State but in the exercise of its governmental functions under the principle of parens patriae . However, it may not be exactly correct to say the NPC did not obtain a franchise from the government because the very law creating NPC, R.A. 6935, as amended, serves as its franchise. At any rate, NPC is a government and controlled corporation and, as such, is not subject to the "local franchise tax under Section 131(m), R.A. 7160, which applies only to "private persons or corporations". In view of the above, we find it unnecessary to rule on the applicability of Section 13, 2nd sentence, R.A. 6095, regarding the tax exempt status of NPC considering that NPC is clearly beyond the scope of the local tax on franchise holders. The issue that remains to be resolved is whether or not NPC is entitled to a tax credit/refund on the franchise tax paid to LGUs based on the aforecited ruling. We note that there is no specific request for an opinion on this issue in your subject letters. But, while this Department is not obliged to render an opinion on this issue, we are constrained to make a pronouncement thereon for the proper guidance of all concerned parties. It is emphasized that the ruling of this Department embodied in its letter dated July 22, 1992, was legally proper inasmuch as said ruling was rendered on the basis of representations and admission of liability for local franchise tax by NPC itself. NPC paid franchise taxes to different LGUs, without protest in most, if not all cases. It was only after NPC saw the enormity of its potential local franchise tax payables that it realized the impact of its admission of liability and raised the above new issues in support of its subsequent request for reconsideration on October 5, 1995. Assuming arguendo that NPC seeks refund for local franchise tax payments it has made under R.A. 7160, NPC may only invoke either Section 252 or Section 253 of said law, which provide for refund of local tax payments. Section 252 governs refund of payments made under protect. This may not be available for NPC where no protest was made by it at the time it paid said local franchise taxes. With respect to Section 253, which prescribes the procedure for refund of tax payments made by mistake and, therefore, without protest, the circumstances described in the next two preceding paragraphs negate the condition that the local payment sought to be refunded was made due to an honest mistake. In sum, NPC cannot invoke honest mistake of law to demand refund of franchise tax payments it made without protest. Accordingly, the request of NPC for reconsideration of the ruling of this Department dated July 28, 1992 is hereby granted. However, it is stressed that this ruling shall be prospective in application and that concerned LGUs are under no obligation to refund local franchise tax payments made sans protest by NPC prior to the issuance of this ruling. The BLGF Regional Directors, Provincial, City and Municipal Treasurers shall be furnished a copy hereof for their information and guidance. We hope that this will clarify matters. Very truly yours, By authority of the Secretary (SGD.) MA. CECILIA G. SORIANO Undersecretary MEMORANDUM To All Concerned Government Officials/Personnel It has come to my personal attention that some government officials and even private citizens have been using motorcycle escorts and utilizing sirens and blinkers on their cars in making way through our streets. These officials are often in the habit of using motorcycle escorts, whether authorized or not, to drive away motorists and pedestrians in their path. These practices are repugnant to a democratic society, whose citizens are equal before the law, and equal among each other. They must be stopped. Henceforth, all government officials and also private citizens in the appropriate instances, are enjoined to stop using police escorts, sirens, blinkers, markers, stickers and similar and unnecessary symbols of authority and influence, except the following officials: The President of the Philippines The Vice President of the Philippines The Senate President The Speaker of the House of Representatives; and The Chief of Justice of the Supreme Court In other instances, under no circumstances shall these devices be used, unless these are for use under clearly appropriate circumstances, such as in plainly marked police cars, ambulances, fire trucks and other emergency vehicles. To ensure compliance with this Memorandum, the Philippine National Police is hereby instructed to check on all vehicles seen utilizing these devices, and to stop these vehicles even in transit, and enforce my instructions in accordance with established laws, rules and regulations. This Memorandum takes effect immediately. 14 July 1998 CERTIFIED COPY: (SGD.) AURORA T. AQUINO Director IV Malacaang Records Office