Bureau of Local Government Finance Opinion

December 19, 1997 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. R. A. Salalima 19th Fl. BPI Paseo de Roxas Condominium Center 8753 Paseo de Roxas Salcedo Village, Makati City S i r : This refers to your letter dated November 21, 1997 requesting in behalf of Eastern Telecommunication Phils., Inc. (ETFI) opinion that said corporation is exempt from payment of local franchise and business taxes under the Local Government Code of 1991 (LGC). Representations are made that ETPI is a grantee of a Congressional/statutory franchise pursuant to RA 808, as amended by PD 489 and RA 5002 authorizing it to construct and operate telecommunications systems and services within the Philippines and internationally. It is submitted that ETPI is free or not liable from local franchise and business taxes in view of the following: 1. Section 9 of RA 7294 granted Smart Information Technologies, Inc. a franchise which was approved on March 27, 1992. 2. Section 14 of RA 7372 granted the Isla Communications Co., a franchise which was approved on April 10, 1992. 3. Section 9 of RA 7692 granted the Bell Telecommunication Phils., Inc. a franchise and approved on March 15, 1994. 4. Section 10 of RA 7939 granted the Island Country Telecommunications, Inc. a franchise which was approved on March 1, 1995. 5. Section 10 of RA 8095 granted the IslaTel Corporation a franchise which lapsed into law on July 6, 1995. The abovementioned franchises provide that "the grantee, its successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts transacted under this franchise, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof." It appears that the franchise of ETPI was approved on June 21, 1952 and has a term of fifty (50) years which will expire on June 21, 2002. Section 8 of said franchise, likewise, contains the "in lieu of all taxes" proviso . However, Section 137 of the LGC, which took effect on January 1, 1992, provides as follows: "SEC. 137. Franchise Tax . Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses 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. ECcDAH "xxx xxx xxx." Moreover, Section 193 of the LGC, states that "Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions , are hereby withdrawn upon the effectivity of this Code." (Emphasis supplied.) Accordingly, and considering that the franchise holders of the telecommunications industry are not among those specifically mentioned in Section 193 aforequoted, then any tax exemption they may have been enjoying shall be deemed withdrawn upon the effectivity of the LGC on January 1, 1992. On the other hand, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995 provides for the equality of treatment in the telecommunications industry: "SEC. 23. Equality of Treatment in the Telecommunications Industry . Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however , That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise." (Emphasis supplied) On the basis of the aforequoted Section 23 of RA 7925, ETPI as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995. Accordingly, ETPI shall be exempt from the payment of franchise and business taxes imposable by LGUs under Sections 137 and 143, respectively, of the LGC, upon the effectivity of RA 7925 on March 16, 1995. However, ETPI shall be liable to pay the franchise and business taxes on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period ETPI was not enjoying the "most favored clause" proviso of RA 7925. It bears emphasis, moreover, that said company shall still be liable to pay annually the Mayor's permit and other regulatory fees or service charges that the local government unit concerned may have imposed under a duly-enacted tax ordinance, the exemption being applicable to the local franchise tax and business taxes only. Likewise, all other real properties of ETPI not used in connection with the operation of its franchise shall remain taxable, or subject to the real property taxes imposed by the LGU or LGUs where such properties are located. We trust that this will help clarify matters. Very truly yours, (SGD.) LORINDA M. CARLOS Executive Director