Bureau of Local Government Finance Opinion

April 8, 1997 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr . William S . Pamintuan Senior Vice President Digital Telecommunications Phils., Inc. (DIGITEL) 110 E. Rodriguez, Jr. Avenue Bagumbayan, Quezon City S i r : This refers to your letter dated January 28, 1997, requesting opinion concerning the exemption from real property taxes of DIGITEL pursuant to the provisions of its franchise (R.A. No. 7678), which was approved on February 17, 1994. That company advanced the contention that Digitel "is not liable to pay the aforementioned tax" on its "real estate, buildings and personal property . . . inclusive of its franchise," in view of the provisions of Section 5 of Republic Act No. 7678 (Digitel's legislative franchise) which, among others, provides that "[T]he grantee (Digitel) shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive of this franchise. . . .." Moreover, Digitel's position is based on the ipso facto provision of Section 12 of their abovementioned franchise, which reads: "SEC. 12. Non-exclusivity of Franchise ; Interpretation of Franchise . The franchise granted under this Act is not exclusive and shall not prevent the grant of similar franchise to other qualified persons or entities: . . . Provided, finally, that if any subsequent franchise for telecommunications services is awarded or granted by the Congress of the Philippines with terms, privileges and conditions more favorable and beneficial than those contained in this Act, then the same privileges or advantages shall, ipso facto , accrue to the herein grantee and shall be deemed part of this Act." It appears that the abovementioned request was prompted by the following: 1. The letter dated March 12, 1996 of the Executive Secretary, Office of the President, Malacaang, Manila, which ruled as follows: "As clearly spelled out in the above ipso facto provision, it is the intent of the legislature to provide 'equality of treatment in the telecommunications industry.' Equally clear is the fact that the tax exemption being enjoyed by telecommunications companies similarly situated with Digitel or those whose franchises provide similar benefits constitutes an 'advantage, favor, privilege, exemption, or immunity' granted under an existing franchise. ACcHIa "Hence, Section 6, R.A. No. 7293 granting a similar franchise to Pilipino Telephone Corporation (PILTEL) ipso facto became part of Digitel's franchise pursuant to Section 23 of R.A. No. 7925. Digitel, therefore, became entitled to the tax exemptions provided for under Section 6, R.A. No. 7293 immediately upon effectivity of R.A. No. 7925." 2. The 1st Indorsement dated February 14, 1995 of the Department of Finance (DOF), concerning the request of the Philippine Telegraph and Telephone Corporation (PT&T) for reconsideration of the DOF's ruling embodied under a 1st Indorsement dated May 27, 1994 which held, in view of the withdrawal of exemption provision of Section 234 of R.A. No. 7160, that: "the real properties of PT&T, although directly used in the operation of its franchise, shall be liable to the payment of real property taxes beginning January 1, 1992, the effectivity of R.A. No. 7160." The said February 14, 1995 ruling, which is relatively similar to that of the abovecited ruling of the Office of the President, held, thus: "In view thereof, such pertinent portion of the Tax Provisions of the franchises of SMART, Bell Telecommunication Philippines, Inc., and Digital Telecommunications Philippines, Inc ., stating that "(T)he grantee shall be liable to pay the same taxes on real estate, buildings and personal property, exclusive of this franchise," is again deemed a part of PT&T's franchise when R.A. No. 7294 (SMART's franchise) took effect on April 15, 1992. "The stand of this Department under its 1st Indorsement dated May 27, 1994, 'that real properties of PT&T, although directly used in the operations of its franchise, shall be liable to the payment of real property taxes beginning January 1, 1992,' is, therefore, hereby maintained. However, such real properties of the said company (PT&T) which are directly used in the operation of its franchise, should again, in view of the foregoing considerations, be assessed as exempt from payment of real property taxes commencing January 1, 1993, the year after the franchise of SMART took effect, in line with Article III(B)(2) of the Manual on Real Property Tax Administration in the Philippines and Section 221 of R.A. No. 7160, . . .. "Moreover, it is emphasized that all other real properties of PT&T not used in connection with the operations of its franchise shall remain subject to the payment of real property taxes." It is worthwhile to note that under the aforecited 1st Indorsement of the Department of Finance, Digitel's real property tax exemption was already recognized in granting PT&T's request for real property tax exemption. ESTaHC Moreover, attention is likewise invited to the letter dated July 24, 1996, of this Bureau, also treating on a similar subject matter, to wit: "Like the abovementioned telecommunications (PT&T, SMART, BELL and DIGITAL), ISLACOM was granted, under Section 1 of R.A. No. 7372, the 'right, privilege and authority to construct, operate and maintain all types of mobile communications, including cellular, personal communication network, paging and trunk radio services (such as but not limited to the transmission and reception of voice, data facsimile, audio and video and all other improvements and innovations pertaining to or as may be applicable to mobile telecommunication technology) as well as multi-channel microwave fiber optic and satellite distribution . . .." "The exemption provisions under the legislative franchise of PT&T, SMART, BELL and DIGITAL is similarly found under Section 14 of ISLACOM's franchise (R.A. 7372), which provides as follows: 'xxx xxx xxx.' "Obviously, the same privilege (exemption from payment of real property taxes on properties used in the operation of franchise) should be enjoyed by ISLACOM, in the same way that the exemption of the abovecited telecommunications companies (PT&T, SMART, BELL and DIGITAL) were, in effect, considered by the Department of Finance (DOF)." In view of all the foregoing, this Bureau finds merit in the abovementioned contention and claim of that company for real property tax exemption. Hence, the real properties of DIGITEL, which are used in the operation of its franchise, are hereby similarly found to be exempt from the payment of real property taxes, beginning January 1, 1993. However, all other real properties of that company not used in connection with the operations of its franchise shall remain taxable. Very truly yours, (SGD.) LORINDA M. CARLOS Executive Director