Bureau of Local Government Finance Opinion

May 28, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned, thru the City Assessor, to the City Treasurer, both of Laoag City, her within letters dated September 22, 2000 and March 5, 2001 in effect requesting clarification concerning the real property tax exemption of telecommunication companies, such as Smart Communication Inc., (SMART), and Globe Telecommunications (GLOBE). It appears that the abovementioned request was prompted by the Notice of Delinquency sent by that Office on August, 2000 to SMART demanding payment of their real property taxes due on their real properties amounting to P387,998.23, covering the period from 1998 to 1999. It also appears that the said telecommunication company (SMART) paid its real property tax under protest contending that their real properties are exempt from the payment of said taxes in the same manner that GLOBE was determined by this Bureau in a letter dated February 24, 1995, copy also attached, to be exempt from the payment of real property taxes on its real properties which are used in the operation of its franchise, by virtue of the " ipso facto provision (most favored treatment clause) in Globe's franchise (R.A. No. 7229). It is worthwhile to note hereon that R.A. No. 7925, promulgated on February 20, 1995, the "Public 'Telecommunication Policy Act of the Philippines" also contains the said "most favored treatment clause" under Section 23, which provides: "Section 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 telecommunication 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." caCSDT The Office of the President under its letter dated December 11, 1992, made a categorical clarification that "competing" telecommunication outfits or companies (like SMART), are liable to pay real property taxes on their real properties which are not used in the operation of its franchise. Such clarification is in line with the September 25, 1981 Opinion of the Office of the President which resolved that: "the phrase exclusive of this franchise found in Section 7 of R.A. No. 3662 (RETELCO's franchise, . . .) "has been construed to mean as excluding real estate, building and personal property of defendants RETELCO, Inc., directly used in the operation of its franchise, for which the latter is not subject to real estate tax as other persons or corporations are now or hereafter may be required by law to pay." As regards the effect of the withdrawal of exemption provisions of R.A. No. 7160 particularly the last paragraph of Section 234, quoted hereunder is the pertinent portion of the 1st Indorsement dated February 9, 2001 of this Bureau, viz: "The pertinent portions of the said DOF 1st Indorsement dated February 14, 1995, is quoted hereunder: "Clearly, SMART, Bell Telecommunication Philippines, Inc., and Digital Telecommunication Philippines, Inc., who were allowed to enjoy real property tax exemption on their real properties 'used in the operation' of their franchises, appear to be competitors of PT&T (in the same way that they are considered competitors of LBNI as clarified under the 1st Indorsement, May 15, 2000 of this Bureau). "In view thereof such pertinent portion of the Tax Provisions of the franchises of SMART, Bell Telecommunication Philippines, Inc., and Digital Telecommunication Philippines, Inc., stating that '(T)he grantee shall be liable to the same taxes on real estate, buildings and personal property, exclusive of this franchise,' is again deemed part of PT&T's franchise (or LBNI's franchise as well) 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 used in the operations of its franchise, shall be liable to the payment of real property taxes beginning January, 1992 (the effectivity of R.A. No. 7160),' is therefore hereby maintained . However, such real properties of said company (PT&T) which are directly used in the operation of its franchise, should again, in view of the foregoing considerations, be assessed exempt from payment of real property taxes commencing January 1, 1993, the year after the franchise of SMART took effect . . ."(Emphasis supplied) CTcSIA "Similarly, therefore, when the exemption of PT&T was restored by virtue of the " ipso facto " or most favored treatment clause which appeared in its (PT&T's) franchise, the exemption enjoyed by LBNI, which franchise also contains the same " ipso facto " or most favored treatment clause, is likewise considered restored despite the abovecited withdrawal of exemption under Section 234 of the Code." Be guided accordingly. (SGD.) BENJAMIN A. GERONIMO Executive Director