DOJ Opinion No. 016, s. 1995

DOJ OPINION NO. 016 , s. 1995 February 10, 1995 Dr. Patricia L. Lontoc President Assistant I Office of the President Malacaang, Manila (REF. AEV 9409-0168) M a d a m : This has reference to your request for a legal opinion on the request of Smart Information Technologies, Inc. (SMART) in a letter addressed to Executive Secretary Teofisto I. Guingona, Jr., for "an interpretative ruling confirming that SMART is entitled to the same tax and customs duty, exemption privilege enjoyed by the Radio Communications of the Philippines, Inc. (RCPI), in the light of the ' ipso facto' provision or 'most favored treatment clause.'" SMART contends that Philippine Telegraph and Telephone Corporation (PT&T) and Express Telecommunications, Inc. (EXTELCOM) formerly Felix Alberto and Company Incorporated, both competitors of RCPI and similarly situated as SMART have recently been granted the same privilege; that RCPI, PT&T, EXTELCOM and itself are competitors in the telecommunications industry based on the nature and scope of the activities they are authorized to perform under the terms and conditions of their respective franchises; that they are liable to pay franchise tax at the uniform percentage rates on gross receipts of the business transacted under their franchise; that the franchise of RCPI, contains an express provision exempting it from payment of customs duties, tariffs and other taxes on radio equipment machinery and spare parts needed in connection with its business; that EXTELCOM and PT&T enjoy similar exemption privilege reason of the " ipso facto " or most favored treatment clause found in their respective franchises, as confirmed by then Executive Secretary Edelmiro Amante, Sr., in a ruling dated December 11, 1992 with respect to EXTELCOM and by then Executive Secretary Franklin M. Drilon in a ruling dated January 23, 1992 in the case of PT&T. SMART argues that a favorable ruling will ensure full compliance with the principle of "fair play" which is the rationale for the " ipso facto " or "most favored" treatment clause, give life and meaning to the constitutional guarantee of equal protection of the law, put grantees of similar franchises on equal footing field in the Philippine business environment. It appears that your office is not inclined to issue a favorable ruling on the ground that unlike those of the PT&T and EXTELCOM or that of the RCPI, the franchise of SMART does not contain any " ipso facto " or "most favored treatment" clause. It is your view that the inclusion of a tax exemption provision in SMART's franchise is necessary since the Constitution requires the concurrence of a majority of all members of the Congress for any tax exemption. (Sec. 28[4], Art. VI, Constitution). On the other hand, SMART argues that based on the "principle of in pari materia" it should enjoy said duty exemption privilege even in the absence of the ipso facto provision in its franchise. We agree with the position taken by your office. In the case of RCPI, the exemption of the radio equipment machinery and spare parts needed by its business from customs duties, tariff and other taxes is expressly granted in Section 14 of Act No. 2036, as amended by Republic Act No. 4054, to wit: "Sec. 14. In consideration of the franchise and rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, copartnerships, private, public quasi-public associations, corporations, or joint stock companies, on real estate, buildings, and other personal property 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 properties declared exempt in this section . . . ." (Emphasis supplied) In the case of the PT&T and EXTELCOM, their exemption privilege is authorized under the respective " ipso facto " or "most favored treatment" clauses in Section 14 of Republic Act No. 4161, as amended by Republic Act No. 5048, and Section 13 or Republic Act No. 2090, respectively, which in effect incorporate into the franchise of PT&T and EXTELCOM the grant of exemption contained in the franchise of RCPI. The above-cited provisions read: R.A. No. 4161, as amended by R.A. No. 5048 "Sec. 14. This franchise shall not be interpreted to mean exclusive grant of the privileges herein provided for, however, in the event of any competing individual, partnership, or corporation, receiving from the Congress of the Philippines a similar permit or franchise with terms and/or provisions more favorable than those herein granted at any disadvantage, then such term or terms, and/or provisions, shall, ipso facto become part of the terms and/or provisions hereof, and shall operate equally in favor of the grantee as in the case of said competing individual, partnership or corporation." R.A. No. 2090 "Sec. 13. In the event of any competing individual, partnership or corporation receiving from the Congress a similar franchise in which there shall be any term or terms more favorable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms shall ipso facto become a part of the terms hereof and shall operate equally in favor of the grantee as in the case of said competing individual, partnership or corporation." Accordingly, SMART should likewise be able to point to either an express provision granting it exemption as in the case of RCPI or an " ipso facto " clause or "most favored treatment" clause in its franchise like PT&T and EXTELCOM in order to claim the same exemption privilege that said entities enjoy. Well-settled is the rule that exemption from taxation is never presumed. To be recognized, The grant of tax exemption must be clear and expressed and it cannot be made to rest on vague implications (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; Jai Alai Corporation of the Philippines vs. Court of Tax Appeals, and Collector of Internal Revenue, 106 Phil. 345; Insular Lumber Company vs. Court of Tax Appeals, 104 SCRA 170). The pertinent provision of SMART's franchise (Republic Act No. 7294) provides: "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 properties, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, 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 successor 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 enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the Nations Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue." Clearly, the aforequoted provision does not contain an express grant of exemption from customs duties, tariffs and other taxes nor an " ipso facto " clause. Thus, there is no legal basis for SMART to claim the subject exemption from duties and taxes. Furthermore, the principle of in pari materia does not apply. Statutes are considered to be in pari materia , that is pertaining to the same subject matter, when they relate to the same person or thing or to the same class of persons or things or have the same purpose or object (J.G. Sutherland, Statutes Statutory Construction, Third Ed. [1943], Vol. 2. pp. 535-536). Thus, the subject laws granting separate franchises to different entities do not come within the meaning of statutes in pari materia . The principle is further explained as follows: "The rule which requires the comparison of statutes in pari materia, for the purpose of the construction, does not apply to private acts. A statute conferring special privileges or imposing particular obligation is not to be construed by reference to any private act, unless, indeed the two relate to the very the same parties and the identical subject matter. Such private statutes stand upon the same basis with the contracts by deeds, which, generally are not to be affected by evidence aliunde. 'It is unquestionably a correct principle,' says Mellen, C.J., 'that public statutes made in pari materia should be construed as though their several provisions were embraced in one act, or that one act may be explained and construed by comparison with another, all having general relation to the same subject matter. It is at least doubtful, even in the construction of public statutes, whether the principle before stated can in any case be admitted where they relate and extend to subjects distinct and independent of each other, which have been the occasion of legislation at successive periods. Be this as if may, there is a manifest distinct between a public statute, which is of universal concernment and obligation and prescribes rule of action to all, and a grant by the legislature, or a private act granting certain chartered privileges to individuals, . . . Can an individual, when he receives a grant from the legislature, or when a private act is passed for his benefit, be bound to look into and carefully examine the language of other grants and private acts, in order to ascertain the true meaning of the grant or act made for his own benefit? This question seems to be of easy solution. . . . In the case at bar, the act itself, being a private act or grant, must be construed by a careful examination of its language, and by no other mode." (Black, Handbook on the The Constitution and Interpretation of the Laws, Second Ed. [1911], pp. 342-343) Under our laws, a legislative franchise also partakes of the nature of a contract (Commission of Internal Revenue vs. Court of Tax Appeals [CTA] 195 SCRA 444, 455-456 [March 18, 1991]. Hence, R.A. No. 7294 which granted to SMART its franchise provides: "SEC. 8. Acceptance and Compliance. Acceptance of this franchise shall be given in writing within sixty (60) days after approval of this Act. The grantee shall operate telecommunications systems for which this franchise is granted within two (2) years from the date of its acceptance in writing of the franchise. Refusal or failure to accept the franchise or to operate within the prescribed period shall render the franchise void." After such acceptance, the franchise becomes the law between the parties and they are bound by the terms thereof (Commissioner of Internal Revenue v. CTA, ibid .). In the absence of any express exemption or an " ipso facto " provision in its franchise which adopts the more favorable terms and conditions embodied in the franchise of another person or entity, the grantee's claim of tax-exemption privilege lacks legal basis. Moreover, the franchise being in the nature of a special privilege conferred by governmental authority (JRS Business Corp. et al. vs. Ofilada, et al., 20 Phil. 618, 623 [1964]), the issue of violation of equal protection clause raised by the grantee in this case SMART, which has accepted the franchise, is of doubtful validity. A legislative franchise also carries with it the presumption of constitutionality. LLphil Under the circumstances, if SMART believes that it should enjoy the same tax exemption privilege granted to RCPI, PT&T and EXTELCOM, the remedy is not an interpretative ruling which goes beyond the language of the statute, but a legislative amendment which SMART may pursue under Section 15 of Republic Act No. 7294, which reads: Sec. 15. Repealability and Non-Exclusivity Clauses . The franchise herein granted shall be subject to amendment, alteration or repeal by the Congress of the Philippines when the public interest so requires and shall not be interpreted as an exclusive grant of the privileges herein provided for." Please be guided accordingly. Very truly yours, (SGD.) DEMETRIO G. DEMETRIA Acting Secretary