Reversal of the Real Property Tax Exemption Previously Granted to GLOBE Telecommunications

October 25, 2004 BLGF MEMORANDUM CIRCULAR NO. 015-04 TO : All Regional Directors for Local Government Finance; Provincial, City and Municipal Assessors and Treasurers; and Others Concerned SUBJECT : Reversal of the Real Property Tax Exemption Previously Granted to GLOBE Telecommunications (GLOBE for brevity) in line with the Supreme Court (SC) Decision (G.R. No. 143867) dated August 22, 2001, and the Central Board of Assessment Appeals (CBAA) Decision (Case No. V-17) dated January 31, 2002 For the information and guidance of all concerned, quoted hereunder are the pertinent portions of the opinion/ruling rendered by this Bureau as embodied under its 1st Indorsement dated September 27, 2004, copy attached, re: reversal of the real property tax exemption previously granted to GLOBE in line with the abovementioned SC Decision entitled: " Philippine Long Distance Telephone Company, Inc. (PLDT), vs. City of Davao and Adelaida Barcelona in her capacity as the City Treasurer of Davao City ;" and the CBAA Decision, entitled: " Smart Communications, Inc . vs . City Assessor of San Carlos City and Local Board of Assessment Appeals of San Carlos City ," to wit: "The subject BLGF opinion is likewise the subject of the Decision of the Central Board of Assessment Appeals (CBAA), (copy attached) under Case No. V-17 entitled " Smart Communications Inc. vs. City Assessor of San Carlos City and Local Board of Assessment Appeals of San Carlos City , wherein the CBAA held as follows: 'The opinion of the BLGF did not expressly state that Globe was exempted from payment of the real property tax but, by saying that "all real properties of the corporation not directly, actually and exclusively used in the telecommunication operations or services shall be subject to the real property taxes" it, nevertheless, seemed to convey that Globe was indeed exempt from payment of said tax. 'The above-quoted pronouncement by the Supreme Court notwithstanding (G.R. No. 143867), we are at a loss as to the basis of BLGF's opinion as far as it concerned the real property tax. We venture to say that the same opinion may have been based on the tax provision common to telecommunications franchises. SMART was granted a franchise under R.A. 7294 which lapsed into law on March 27, 1992, Section 9 of which reads as follows: "xxx xxx xxx. 'With due respect, the BLGF might have misconstrued the phrase "exclusive of this franchise" as to include real property as part of its franchise. We find this interpretation erroneous. In jurisprudence, a franchise as a right and privilege is regarded as property, separate and distinct from the property, which the corporation itself may acquire . As property, a franchise is of great value to the corporation and its members. (Fletcher's Cyclopedia of the Law of Private Corporation, Vol. 6A, pages 427-428, citing Horn Silver Min . Co . vs . New York , 143 U.S. 305 36 L. Ed. 164, 12 Sup. Ct.-403; City of Campbell vs . Arkansas Missouri Power Co ., 55F (2d) 560, as cited in the City Government of Batangas vs . Republic Telephone Company, Inc ., CA-G.R. CV No. 21897, January 21, 1992.)" 'We hasten to add that a franchise as a right and privilege is not even a real property for purposes of the real property tax . The tax provision aforequoted (Sec. 9, RA. 7294) states that "The grantee, its successor or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise ." This could only mean that the grantee shall be liable to pay taxes on all its personal properties, excluding the franchise itself. ' (Emphasis ours) cACEHI "Relatedly, Globe might have misconstrued the phrase " ipso facto " provision of its franchise, which is common to all telecommunications franchises, as exemption on the payment of real property tax. . . .: 'xxx xxx xxx. "Under the Supreme Court Decision, G.R. No. 143867, dated August 22, 2001, in the case " Philippine Long Distance Telephone Company, Inc . (PLDT), vs . City of Davao and Adelaida Barcelona in her capacity as the City Treasurer of Davao City ", the Court explained: 'The fact is that the term "exemption" in Sec. 23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may actually have a limited application if read together with other provisions. Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order." 'xxx xxx xxx. 'R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry . There is nothing in the language of Sec . 23 nor in the proceedings of both the House of Representatives and the Senate in enacting R . A . No . 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC . 'What this Court said in Asiatic Petroleum Co . v . Llanes applies mutatis mutandis to this case: 'When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.' In this case, the word "exemption" in Sec . 23 of R . A . No . 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law .' (Italics for emphasis) 'xxx xxx xxx. 'In sum, it does not appear that, in approving Sec. 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities . . . ." (Emphasis supplied) "xxx xxx xxx. "Lastly, quoted below is a portion of the Supreme Court Decision (G.R. No. 120082, September 11, 1996) in the case entitled " Mactan Cebu International Airport Authority vs . Ferdinand J . Marcos , in his capacity as Presiding Judge of the RTC, Cebu City: 'As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislative which imposes the tax on the constituency who are to pay it. . . . Verily, taxation is a destructive power, which interferes with the personal, and property rights of the people and takes from them a portion of their property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority . A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken . Elsewise stated, taxation is the rule, exemption therefrom is the exception.' (Emphasis ours) "Viewed in the light of all the foregoing and based on the Decisions of the Supreme Court and the CBAA, the Bureau of Local Government Finance (BLGF) believes and so holds that Globe is liable to pay real property tax . This Bureau's opinion expressed in its letter dated February 24, 1998, with regard to exemption from payment of real property tax on real properties of Globe, is hereby reversed ." (Emphasis supplied) aEAIDH Accordingly, the subject real properties owned by GLOBE and SMART Telecommunications and all other telecommunication companies similarly situated are now subject to real property tax. Likewise, the opinion rendered by this Bureau in its 1st Indorsement dated May 21, 2001, and other earlier and subsequent opinions expressed on the matter with regard to real property tax exemption of SMART and GLOBE Telecommunications in view of the IPSO FACTO provision (most favored treatment clause), are hereby declared of no force and effect. The Provincial Assessors and Treasurers are hereby instructed to disseminate the contents of this Circular, including the attachments, to the Municipal Assessors and Treasurers within their respective jurisdiction. (SGD.) MA. PRESENTACION R. MONTESA Executive Director