Bureau of Local Government Finance Opinion

February 15, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned to the Commissioner, National Telecommunications Commission, the herein preceding indorsement relative to the request of the Sangguniang Bayan of Maripipi, Biliran regarding the proposed imposition of municipal tax on the operators of Globe and Smart Telecommunications in the said municipality embodied in Resolution No. 91-2009. In this connection, enclosed for your information and ready reference is copy of the 2nd Indorsement dated November 11, 2009 addressed to the Secretary to the Sangguniang Bayan of the said municipality wherein this Bureau expressed the following views: 1. Maripipi may levy and collect local business taxes from Smart Telecommunications pursuant to Section 143 of the Local Government Code (LGC) of 1991 as implemented under a duly enacted tax ordinance of the municipality. 2. Globe and Smart Telecommunications shall be liable for Mayor's permit and other regulatory fees and service charges that the municipal government may impose on said entities, including regulatory fees for maintaining cell sites, antennas, repeaters and other similar facilities within the territorial jurisdiction of said municipality. (SGD.) PRESENTACION R. MONTESA Executive Director ATTACHMENT 2nd Indorsement November 11, 2009 Respectfully returned to the Secretary to the Sanggunian, Office of the Sangguniang Bayan, Municipality of Maripipi, Province of Biliran, the within RESOLUTION NO. 91-2009 entitled "A RESOLUTION REQUESTING AN INFORMATION FROM THE COMMISSIONER, NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), AGHAM ROAD, EAST TRIANGLE, DILIMAN, QUEZON CITY, IN THE OPERATION OF GLOBE AND SMART TELECOMMUNICATIONS, IF SUBJECTED TO MUNICIPAL TAX." A careful perusal of Resolution No. 91-2009 shows that GLOBE and SMART Telecommunications (Telcos for brevity) had installed their respective cell sites in the Municipality and only the Zoning application was complied with. LGU Maripipi collects nothing from these telecommunications companies. In this connection, information is requested whether these Telcos are subject to municipal taxes. In resolving the herein issue it is imperative to appraise the tax provisions of the respective Congressional franchises of GLOBE and SMART Telecommunications, quoted hereunder: 1) SMART INFORMATION TECHNOLOGIES, INC. Franchise: R.A. No. 7294 Dated on March 27, 1992 AEDcIH "Sec. 9. Tax Provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition hereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enacted is amended or repealed, in which case the amendment or repeal shall be applicable thereto. xxx xxx xxx" Viewed from the taxing powers of municipalities provided for in the pertinent provisions of R.A. 7160, otherwise known as the Local Government Code (LGC) of 1991, and as can be construed from the abovequoted Section 9 of R.A. 7294, SMART, aside from real property tax and franchise, both of which are imposable by provinces and cities, shall be liable for local business taxes pursuant to Section 143 of the LGC. This view finds basis from the various court decisions and also from the DOJ Resolution dated February 27, 2004 in the case of MERALCO (a franchise holder) vs. The Municipal Mayor and Sangguniang Bayan of San Pedro, Laguna, the pertinent portions of which are quoted as follows: "The questioned Section 1(a) of the subject Ordinance, provides as follows: "Section 1. A municipal tax of FIFTY PERCENTUM (50%) OF ONE PERCENT (1%) of the gross sales or revenue on the following business, industries and tax bases, who have been engaged in the following activities, operations, or undertakings, is hereby imposed, viz. : aEHTSc a. The distribution of electricity to end-users and consumers in this municipality, was intended to be "business tax" rather than a "franchise tax" although it was termed as "municipal tax". Worth-noting is the distinction between "franchise tax" and "business tax" which can be gleaned from the definitions provided by Section 131, paragraphs (d) and (m) of the LGC of 1991, to wit: "(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 corporation, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security, and safety." In other words, "business tax" is a tax imposed on the trade or commercial activity, while "franchise tax" is a tax imposed on the right or privilege. "Business tax" and "franchise tax", impositions being of different characters and purposes, can be validly imposed simultaneously by a municipality/city and a province/city, respectively." 2) GLOBE TELECOM Franchise: RA No. 4540 (Amending RA No. 7279, approving the merger of Globe Mackay and Radio Corp. and Clavecilla Radio System on March 19, 1992) "Sec. 9(a). The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay, except radio equipment, machinery and spare parts needed in connection with the business of the grantee, which shall be exempt from customs duties, tariffs and other taxes, as well as those declared exempt in this section. (b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval on the accounts as prescribed in this Act, one and half percentum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national from which the grantee is hereby expressly exempted, . . . ." (Emphasis ours) CcTHaD As can be distinctively observed, Globe's congressional franchise, as compared to Smart's, is very clear and unequivocal in its wordings. Paragraph (b), Section 9 of R.A. 4540 is so worded clear, plain and free from ambiguity that it must be given its literal meaning and may be applied without interpretation. Thus, Globe, in view of the "in lieu of any and all taxes" proviso, is exempt from municipal or provincial taxes, except real property tax on its real estate, buildings, and personal property, save its franchise, which is an intangible asset, and "radio equipment, machinery and spare parts needed in the pursuit of its business. Having said so, LGU Maripipi may levy and collect local business taxes from Smart Telecommunications pursuant to said Section 143 of the LGC as implemented under a duly-enacted tax ordinance of that Municipality. However, Globe and Smart Telecommunications shall be liable for Mayor's permit and other regulatory fees and service charges that the municipal government may impose on said entities, including regulatory fees for maintaining cell sites, antennas, repeaters and other similar facilities within the territorial jurisdiction of that municipality. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executi ve Director Republic of the Philippines COMMISSION ON INFORMATION AND COMMUNICATIONS TECHNOLOGY NATIONAL TELECOMMUNICATIONS COMMISSION 2nd Indorsement 01 December 2009 Respectfully referred to DIRECTOR MA. PRESENTACION R. MONTESA, Executive Director, Bureau of Local Government Finance (BLGF), for appropriate action, the herein attached Resolution No. 91-2009 of the Sangguniang Bayan of Maripipi, Province of Biliran since the said resolution falls within the jurisdiction of the BLGF. SEIcHa (SGD.) GAMALIEL A. CORDOBA Commissioner Office of the President of the Philippines COMMISSION ON INFORMATION AND COMMUNICATIONS TECHNOLOGY 1st Indorsement 19 November 2009 Respectfully referred to Commissioner Gamaliel A. Cordoba, National Telecommunications Commission (NTC), the hereto attached Resolution No. 91-2009 of the Sangguniang Bayan of Maripipi, Province of Biliran, which was referred to the Commission by Atty. Doroteo A. Reyes II, Undersecretary for Civil Aviation and Head Executive Assistant, Department of Transportation and Communications, relative to the inquiry on the proposed imposition of municipal tax to the operation of Globe and Smart Telecommunications in the said municipality. (SGD.) SEC. RAY ANTHONY ROXAS-CHUA III Chairman Republic of the Philippines DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS OFFICE OF THE SECRETARY 1st Indorsement 24 September 2009 Respectfully referred to HON. RAY ANTHONY ROXAS CHUA III, Chairman, Commission on Information and Communication Technology (CICT), UP Diliman, Quezon City, the herein Resolution No. 91-2009 of the Sangguniang Bayan of Maripipi, Province of Biliran, re: inquiry on the proposed imposition of municipal tax to the operation of Globe and Smart Telecommunications in the said municipality, as the matter falls within the jurisdiction of CICT. DTEcSa FOR THE SECRETARY, DOTC: (SGD.) ATTY. DOROTEO A. REYES II Undersecretary for Civil Aviation and Head Executive Assistant