DOJ Opinion No. 053, s. 1980

DOJ OPINION NO. 053 , s. 1980 April 16, 1980 The Acting Chairman Commission on Audit Quezon City Sir : This has reference to the question of whether or not Capitol Wireless, Inc. (Capitol) may, under Section 13 of Republic Act No. 4387 (law embodying Capitol's franchise), avail itself of the privilege of paying its franchise tax at the rate of 1/2% instead of 1-1/2 % as provided in its franchise, by virtue of the enactment of Presidential Decree No. 947 (the law granting a franchise to Domestic Satellite Philippines, Inc. [Domestic]) which imposes upon Domestic a franchise tax at the lower rate of 2%. LexLib Subject to the extended discussion hereunder, we answer the query in the negative. Capitol is a private corporation which is authorized under its franchise to operate "stations for international communications, public coastal radio stations with the corresponding relay stations, and public fixed and public based and land mobile station and radio paging systems for the reception and transmission of wireless messages on radio-telephony (voice) and/or radiotelegraphy, or both, within the Philippines and with vessels at sea and aircraft on the air, irrespective of whether such vessels and aircrafts are within or without the Philippines", for which it shall pay to the Government" one and one-half per centum of all gross receipts for the business transacted" under said franchise (Secs. 1/a/ and 13-A/b/, respectively). Section 13 of the franchise contains what is known as the "most favored treatment clause," providing that " any term or terms or authorized services more favorable than those herein granted on might in the future be granted in a similar fashion or temporary permit by Congress to any competing person , natural or juridical, tending to place the herein grantee at any disadvantage, 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 person". Subsequently, Domestic, another private corporation, was granted by Presidential Decree No. 947 a franchise to operate, "as a carrier's carrier, any and all types of telecommunications services available through the use of space relay and repeater stations for domestic public communications with authority to receive and transmit messages, impressions, pictures, music, entertainment, advertising, and signal throughout the Philippines and between the Philippines and ships at sea, airplanes and other conveyances, contract with and furnish channels of communication, both satellite and terrestrial to authorized users" (Sec. 1) and in consideration thereof, it is required to pay the Government a franchise tax of "one-half percent of gross earnings derived by the Grantee from its operations under this procedure and which originate in the Philippines". (Sec. 6.) Capitol now contends that it is entitled to the lower rate of franchise tax imposed upon Domestic in view of the above-quoted provision of Section 13 of Domestic's franchise. On the other hand, your Office is of the view that before Capitol may avail of the 1/2% rate, it is necessary to show, inter alia , that "there is an on-going competition between the two companies" and there appears to be no such rivalry. We subscribe to your abovestated view. In construing Section 17 of Act. No. 3636, which is similar to the "most-favored treatment" clause contained in Section 13 of R.A. No. 3037, as amended, supra , it has been held that the principle behind such provision is that of "fair play", i.e., "to place both competing groups or entities on equal footing and not to give one an advantage over the other". (Davao Light & Power Company, Inc. vs. The Commissioner of Customs, 44 SCRA 127 /1972/). However, an examination of the franchises of Capitol and Domestic discloses that while they are both engaged in telecommunication activities, they are not necessarily in competition with each other since, as your Office points out, Capitol renders services direct to the general public, whereas Domestic, being " a carrier's carrier", caters only to the needs of individual telecommunication companies using Domestic's facilities. Expressed otherwise, there can be no business rivalry between the two firms in as much as the customers of one are not necessarily the customers of the other and vice-versa. Moreover, what Capitol Wireless is claiming, in effect, is a reduction of its taxes due the Government. The rule is that as the power of taxation is a high power of sovereignty, its relinquishment is never presumed and any reduction or diminution thereof with respect to its mode or its rate must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied (84 C.J.S., pp. 659-60). Accordingly, we reiterate our conclusion that the query should be answered in the negative. prcd Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice