EN BANC

G.R. No. 143867. March 25, 2003.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner,vs.CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of Davao, respondents.

Estelito P. Mendoza for petitioner.

The Office of the City Legal Officers for respondents.

SYNOPSIS

Petitioner PLDT paid a franchise tax equal to three percent (3%) of the gross receipts. The franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to

The Supreme Court held that after petitioner's tax exemption by

Finally, the ruling of the Bureau of Local Government Finance (BLGF) that petitioner's exemption from local taxes has been restored must give way to the ruling of the Court of Tax Appeals which is the special court created for the purpose of reviewing tax cases, unlike the BLGF which was created only for the purpose of providing consultative services and technical assistance to local governments and the general public on local taxation and other related matters. TIESCA

SYLLABUS

1. TAXATION; TAX EXEMPTIONS; "IN LIEU OF ALL TAXES" PROVISIONS IN TELECOMMUNICATION FRANCHISES GRANTING TAX EXEMPTIONS MUST BE STRICTLY CONSTRUED AGAINST THE TAXPAYER; CASE AT BAR. The Court considers "the in lieu of all taxes" provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly against the taxpayer and in favor of the taxing authority applies. Along with the police power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language. Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,exclusions from gross income and allowable deductions. Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To construe otherwise the "in lieu of all taxes" provision invoked is to be inconsistent with the theory that

2. ID.; ID.; PLDT HAS NO CLEAR GRANT OF EXEMPTION FROM PAYMENT OF FRANCHISE TAX; CASE AT BAR. Indeed, petitioner's justification for its claim of tax exemption rests on a strained interpretation of

3. POLITICAL LAW; ADMINISTRATIVE LAW; BUREAU OF LOCAL GOVERNMENT FINANCE; FINDINGS THEREOF ON TAX PROBLEMS ARE MERELY CONSULTATIVE AND NOT BINDING ON THE SUPREME COURT; REASON. The ruling of the BLGF that petitioner's exemption from local taxes has been restored has been considered in this case. But unlike the Court of Tax Appeals, which is a special court created for the purpose of reviewing tax cases, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation and other related matters. Thus, the rule that the "Court will not set aside conclusions rendered by the CTA, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority" cannot apply in the case of BLGF.

CARPIO, J.,Separate Opinion:

TAXATION; TAX EXEMPTIONS; MUST BE CLEAR AND UNEQUIVOCAL. Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. Tax exemptions cannot arise by mere implication, much less by an implied reenactment of a repealed tax exemption clause.

PUNO, J.,Dissenting Opinion:

CONSTITUTIONAL LAW; BILL OF RIGHTS; RIGHT TO EQUAL PROTECTION; DENIAL OF PLDT TAX EXEMPTION PRIVILEGE GRANTED TO OTHER TELECOMMUNICATIONS COMPANIES, A VIOLATION THEREOF; CASE AT BAR. I cannot understand what is unclear in Section 23 of any telecommunications company, it will be deemed granted to other telecommunications companies with prior franchises. The grant is unequivocal for the provision directs that it is "ipso facto," and should be immediately and unconditionally." The language of the law cannot be more limpid, indeed, the work of a worthy wordsmith. After the enactment of reiteration of the "equality clause" as well as the "in lieu of all taxes clause" in the telecommunications franchises granted by Congress after March 16, 1995 fortifies the claim for exemption of the petitioner. The reiteration of the clauses shows that Congress never wavered in its touchstone policy of equalizing the status of our companies in the telecommunications industry. To be sure, Congress need not reiterate the "equality clause" and the "in lieu of all taxes clause" in these subsequent telecommunications franchises for without it,

R E S O L U T I O N

MENDOZA, J p:

Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the decision bears directly on issues involved in other cases brought by petitioner before other Divisions of the Court, the motion for reconsideration was referred to the Court en banc for resolution. The parties were heard in oral arguments by the Court en banc on January 21, 2003 and were later granted time to submit their memoranda. Upon the filing of the last memorandum by the City of Davao on February 10, 2003, the motion was deemed submitted for resolution. TCcSDE

To provide perspective, it will be helpful to restate the basic facts.

Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to

The pertinent provisions of the

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. ...

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this

Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides:

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.

Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained "in lieu of all taxes" provisos. In 1995, it enacted ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises." The law took effect on March 16, 1995.

In January 1999, when PLDT applied for a mayor's permit to operate its Davao Metro Exchange, it was required to pay the local franchise tax for the first to the fourth quarter of 1999 which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what it had paid as local franchise tax for the year 1997 and for the first to the third quarters of 1998. For this reason, it filed a petition in the Regional Trial Court of Davao. However, its petition was dismissed and its claim for exemption under

In its decision of August 22, 2001, this Court, through its Second Division, held that

The question is whether, by virtue of

Petitioner contends that because their existing franchises contain "in lieu of all taxes" clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by clear and unequivocal provision of law "expressed in a language too plain to be mistaken." If, as PLDT contends, the word "exemption" in

But the best refutation of PLDT's claim that

Sec. 8. Equality Clause. If any subsequent franchise for telecommunications service 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 be deemed part of this Act.

Sec. 10. Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and personal property exclusive of this franchise, as other persons or telecommunications entities are now or hereafter may be required by law to pay. In addition hereto, 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; Provided, That the grantee shall continue to be liable for income taxes payable under Title II of the

Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the franchises of Cruz Telephone Company, Inc., Isla Cellular Communications, Inc., and Islatel Corporation.

We shall now turn to the other points raised in the motion for reconsideration of PLDT. TSHcIa

First. Petitioner contends that the legislative intent to promote the development of the telecommunications industry is evident in the use of words as "development," "growth," and "financial viability," and that the way to achieve this purpose is to grant tax exemption or exclusion to franchises belonging in this industry. Furthermore, by using the words "advantage," "favor," "privilege," "exemption," and "immunity" and the terms "ipso facto," "immediately," and "unconditionally," Congress intended to automatically extend whatever tax exemption or tax exclusion has been granted to the holder of a franchise enacted after the

The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing, and operations of all public telecommunications entities and thus to level the playing field in the telecommunications industry. An intent to grant tax exemption cannot even be discerned from the law. The records of Congress are bereft of any discussion or even mention of tax exemption. To the contrary, what the Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became

There is also a need to promote a level playing field in the telecommunications industry. New entities must be granted protection against dominant carriers through the encouragement of equitable access charges and equal access clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers. Equal access should be granted to all operators connecting into the interexchange network. There should be no discrimination against any carrier in terms of priorities and/or quality of services.

Nor does the term "exemption" in 23 of

Second. PLDT says that the policy of the law is to promote healthy competition in the telecommunications industry. According to PLDT, the

One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to new telecommunications entities protection against dominant carriers through equitable access charges and equal access clauses in interconnection agreements and through the strict policing of predatory pricing by dominant carriers. Interconnection among carriers is made mandatory to prevent a dominant carrier from delaying the establishment of connection with a new entrant and to deter the former from imposing excessive access charges.

That is also the reason there are franchises granted by Congress after the effectivity of If, by virtue of 23, the tax exemption granted under existing franchises or thereafter granted is deemed applicable to previously granted franchises (i.e., franchises granted before the effectivity of without defeating the very policy of leveling the playing field of which PLDT speaks.

Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to this case because the "in lieu of all taxes" provision in its franchise is more a tax exclusion than a tax exemption. Rather, the applicable rule should be that tax laws are to be construed most strongly against the government and in favor of the taxpayer.

This is contrary to the uniform course of decisions of this Court which consider "in lieu of all taxes" provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly against the taxpayer and in favor of the taxing authority applies. Along with the police power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language.

Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,exclusions from gross income and allowable deductions. Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To construe otherwise the "in lieu of all taxes" provision invoked is to be inconsistent with the theory that

Petitioner cites in support of its argument that a "tax exemption" is restored by a subsequent law re-enacting the "tax exemption." It contends that by virtue of ,however, is not in point. For there, the re-enactment of the exemption was made in an amendment to the charter of Cagayan Electric Power and Light Co.

Indeed, petitioner's justification for its claim of tax exemption rests on a strained interpretation of Surely, Congress could more clearly and directly have granted tax exemption to all franchise holders or amended the charter of PLDT to again exempt it from tax if this had been its purpose.

The fact is that after petitioner's tax exemption by no amendment to re-enact its previous tax exemption has been made by Congress. Considering that the taxing power of local government units under

Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken. They cannot be extended by mere implication or inference. Thus, it was held in Home Insurance & Trust Co. v. Tennessee that a law giving a corporation all the "powers, rights reservations, restrictions, and liabilities" of another company does not give an exemption from taxation which the latter may possess. In Rochester R. Co. v. Rochester, the U.S. Supreme Court, after reviewing cases involving the effect of the transfer to one company of the powers and privileges of another in conferring a tax exemption possessed by the latter, held that a statute authorizing or directing the grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity. Thus:

We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary, that a statute authorizing or directing the grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity. We, therefore, conclude that the words "the estate, property, rights, privileges, and franchises" did not embrace within their meaning the immunity from the burden of paving enjoyed by the Brighton Railroad Company. Nor is there anything in this, or any other statute, which tends to show that the legislature used the words with any larger meaning than they would have standing alone. The meaning is not enlarged, as faintly suggested, by the expression in the statute that they are to be held by the successor "fully and entirely, and without change and diminution," words of unnecessary emphasis, without which all included in "estate, property, rights, privileges, and franchises" would pass, and with which nothing more could pass. On the contrary, it appears, as clearly as it did in the Phoenix Fire Insurance Company Case, that the legislature intended to use the words "rights, franchises, and privileges" in the restricted sense. ...

Fourth. It is next contended that, in any event, a special law prevails over a general law and that the franchise of petitioner giving it tax exemption, being a special law, should prevail over the

This proposition flies in the face of settled jurisprudence. In , this Court held that the phrase "in lieu of all taxes" found in special franchises should give way to the peremptory language of 193 of the

As to the alleged inconsistency between the

In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioner's exemption from local taxes has been restored is a contemporaneous construction of 23 and, as such, it is entitled to great weight.

The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a special court created for the purpose of reviewing tax cases, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation and other related matters. Thus, the rule that the "Court will not set aside conclusions rendered by the CTA, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority" cannot apply in the case of BLGF.

WHEREFORE the motion for reconsideration is DENIED and this denial is final. CHEDAc

SO ORDERED.

Davide, Jr.,C.J.,Quisumbing, Corona, Carpio-Morales, Callejo, Sr. and Azcuna, JJ., concur.

Belosillo, Ynares-Santiago, Sandoval-Gutierrez and Austria- Martinez, JJ., join dissent of J. Puno.

Puno, J.,please see dissent.

Vitug, J.,concur; a statute effectively limiting the constitutionally-delegated tax powers of LGU's can only be done in a clear and express manner.

Panganiban, J.,took no part; same reason given in original Decision.

Carpio, J., see separate opinion.

Separate Opinions

PUNO, J.,dissenting:

The sole issue in the case at bar is whether petitioner Philippine Long Distance Telephone Company, Inc. (PLDT) is liable to pay the franchise tax imposed by the City of Davao. The issue can be resolved only by untangling the different laws dealing with local government and the telecommunications industry. It is thus necessary to first lay down these laws.

On January 1, 1992, the

"Sec. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law,the province may impose a tax on business 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. ..

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this 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 R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this ."

In accord with this

"Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on business enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City."

On March 19, 1992, Congress enacted Globe Mackay Cable and Radio Corporation, extending the life of said franchise and repealing certain sections of RA No. 402, as amended." Section 3 thereof provides:

"Sec. 3. Section 9 of the same Act is hereby amended to read as follows:

Sec. 9. ...

(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national from which the grantee is hereby expressly exempted, effective from the date of the approval of

Section 5 provides:

"Sec. 5. Section twenty of the same Act is hereby amended to read as follows:

Sec. 20. This franchise shall not be interpreted to mean an 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 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 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."

On March 27, 1992, Congress enacted Smart Information Technologies, Inc. (SMART) a franchise to establish, maintain, lease and operate integrated telecommunications/computer/electronic services, and stations throughout the Philippines for public domestic and international communications, and for other purposes." Section 9 of the Act provides:

"Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, 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 successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof ..."

On March 16, 1995,

"Section 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchise, 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."

It also appears that after 1995,Congress enacted laws granting franchises to other telecommunications companies. Some of these franchises contain the "in lieu of all taxes" clause as well as the "equality clause." The others, however, did not.

On the basis of these laws, petitioner PLDT wrote to the City Treasurer of Davao protesting the assessment of the local franchise tax amounting to P3,681,985.75 for the year 1999. It likewise claimed exemption from the payment of said franchise tax on the basis of the opinion of the Bureau of Local Government Finance (BLGF). The opinion holds that petitioner is exempt from payment of franchise and business taxes imposable by local government units upon the effectivity of

Petitioner thus filed a petition for review on certiorari with this Court. On August 22, 2001, the Second Division of this Court denied the petition. It held: (1) petitioner's claim of tax exemption is based on strained inferences; (b) the claim would result in absurd consequences; (c) the word "exemption" in

Petitioner contends in its Motion for Reconsideration, viz:

"A. THE 'ABSURD CONSEQUENCES' REFERRED TO BY THE COURT AS ALLEGEDLY RESULTING FROM PETITIONER'S POSITION(,) HAVE NO BASIS IN FACT AND IN LAW; IN ANY CASE, FOR THE COURT TO SAY THAT PETITIONER'S POSITION WOULD RESULT IN ABSURD CONSEQUENCES, IS TO QUESTION, UNDER THE GUISE OF INTERPRETATION, THE WISDOM OF THE POLICY BEHIND

B. THE PROVISIONS OF SECTION 23 OF

C. SECTION 23 OF

D. THE AUTHORITIES ON STRICT CONSTRUCTION CITED BY THE COURT HAVE NO APPLICATION IN THIS CASE.

E. THE 'IN LIEU OF ALL TAXES' PROVISION IN PETITIONER'S FRANCHISE WAS DEEMED RESTORED WITH REGARD TO LOCAL TAXES BY SECTION 23 OF

F. THE COURT FAILED TO CONSIDER THE OTHER ARGUMENTS OF PETITIONER."

Petitioner's Motion for Reconsideration was elevated to the Court en banc considering its significance and as similar cases are pending decision in its other divisions.

The majority will now deny petitioner's motion for reconsideration. It holds that section 23 of viz:

"Sec. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchise or may hereafter be granted,shall ipso facto become part of previously granted telecommunications franchise and shall be accorded immediately and unconditionally to the grantees of such franchises ..."

I cannot understand what is unclear in Section 23. Favor, privilege, exemption and immunity are ordinary words without any mystic meaning. The provision states without any flourish that if any favor, privilege, exemption or immunity is granted in the franchise of any telecommunications company, it will be deemed granted to other telecommunications companies with prior franchises. The grant is unequivocal for the provision directs that it is "ipso facto," and should be "immediately and unconditionally." The language of the law cannot be more limpid, indeed, the work of a worthy wordsmith.

Next, the majority holds that ". . . the best refutation of PLDT's claim that It cites the laws granting franchises to the Island Country Telecommunications, Inc.,Cruz Telephone Company, Inc.,ISLA Cellular Communications, Inc.,and Islatel Corporation.

I agree that all these subsequent laws should be considered and not only the laws granting exemptions to Smart and Globe. With due respect, however, I have great difficulty following the flow of the logic of the majority. To my mind, the reiteration of the "equality clause" as well as the "in lieu of all taxes clause" in the telecommunications franchises granted by Congress after March 16, 1995 fortifies the claim for exemption of the petitioner. The reiteration of the clauses shows that Congress never wavered in its touchstone policy of equalizing the status of our companies in the telecommunications industry. To be sure, Congress need not reiterate the "equality clause" and the "in lieu of all taxes clause" in these subsequent telecommunications franchises for without it,

Further to its stance that the law is vague, the majority parleys the proposition that "an intent to grant tax exemption cannot even be discerned from the law." It quotes the sponsorship speech of Rep. Jerome B. Paras of H.B. No. 14028, viz:

"There is also a need to promote a level playing field in the telecommunications industry. New entities must be granted protection against dominant carriers through the encouragement of equitable access charges and equal access clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers. Equal access should be granted to all operators connecting into the inter-exchange network. There should be no discrimination against any carrier in terms of priorities and/or equality of service."

Again, I do not see how this one-paragraph observation of Congressman Paras can serve as a crutch to support the majority ruling. Congressman Paras merely clarified that the aim of the law is to promote a level playing field in the telecommunications industry. And, doubtless, one way of leveling the playing field is by granting equal access to all operators connecting into the inter-exchange network. But this is not all that has to be done to level the playing field. There are other acts and practices that distort the playing field in the telecommunications industry and they were addressed by Congress. One destructive practice that can really dislevel the playing field is the imposition of discriminatory tax. Precisely to eliminate these practices, Congress enacted Section 23 decreeing for equality of treatment of all companies in the telecommunications industry. By one sweep, it did away with the grant of unequal favors to telecommunication companies, which is anathema to fair competition in deregulated industries. IcHTCS

More untenable is the majority ruling that "exemption" in Section 23 does not refer to tax exemption but "exemptions from certain regulations and requirements imposed by the National Telecommunications Commission" like, for instance, exemption from securing permits for every import equipment. The ruling is not based on any clear cut provision of law but is a mere surmise. It is all too easy for the law to define exemption as the majority interprets it but the law did not. I submit that the majority reading of the word "exemption" collides with the basic rule in statutory construction that the meaning of a word should be understood in light of the cluster of words to which it is associated. The word "exemption'' is clustered with the words "advantage, favor, privilege and immunity." Its most natural meaning is that it refers, to and at least includes, tax exemption.

Petitioner has also called our attention to what would result from the majority decision under reconsideration ". . . the result is that while the holders of franchise granted prior to January 1, 1992 when the The disparate treatment, petitioner contends, will not promote healthy competition in the telecommunications industry. The majority, however, dismisses petitioner's fear by holding:

"One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to new telecommunications entities protection against dominant carriers through equitable access charges and equal access clauses in interconnection agreements and through the strict policing of predatory pricing by dominant carriers. Interconnection among carriers is made mandatory to prevent a dominant carrier from delaying the establishment of connection with a new entrant and to deter the former from imposing excessive access charges.

"That is also the reason there are franchises granted by Congress after the effectivity of i.e., franchises granted before the effectivity of

Again, I am unable to agree with the majority. With due respect, the majority fails to grasp the processes of deregulation followed in the telecommunications industry. The key move to take before deregulating is to break up the monopoly or oligopoly in control of the industry. For with a monopoly or oligopoly enjoying a stranglehold on the industry, the market forces cannot have a free play and prices in the industry will be dictated by the lucre of commerce. For this reason, petitioner PLDT's monopoly had to be broken. Among others, the law made interconnection among carriers mandatory and provided for equitable access charges and equal access clauses in interconnection agreements. With this provision, the law busted the biggest barrier to the effective entry of new players in the telecommunications industry. The next step in deregulation is to level the playing field. The mechanism for leveling the playing field is installed in Section 23 of the law which requires equality of treatment in the telecommunications industry. In no uncertain terms, it orders that "any advantage, favor, privilege, exemption, or immunity granted under existing franchise, 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 ...." A level playing field is indispensable to prevent predatory pricing on the part of any player in the industry. Without a level playing field, competition will be unfair and prices in the industry will not be determined by market forces but by unregulated greed. Inexplicably, the majority would deny to petitioner PLDT the right to a level playing field. Its reasons are tenuous to say the least. Its prime reason is that petitioner PLDT had enjoyed virtual monopoly in the telephone service in the country for a long time. The monopoly status of petitioner PLDT is past and should be viewed in its proper historical perspective. In the early years of our economic history, monopolies in certain industries had to be allowed. They have to be entertained in industries which are high-risk, capital intensive and indispensable to economic growth. No company will risk venture capital in these industries unless they are accorded favored treatment, usually a monopoly status, for a certain time. Even then, administrative mechanisms were put in place to regulate their activities especially their pricing policies to protect the interest of the consuming public. Indeed, a great part of the United States would still be a wilderness if it did not allow monopolies in its railroad and telecommunications industries. We adopted this proven strategy and allowed monopolies in some of our industries like electric power, transportation and telecommunications. It is in line with this strategy that Congress granted to petitioner PLDT a monopoly status for a certain time. No company would then invest in our telecommunications industry but petitioner PLDT did, assumed the risk and undeniably played a vital role in our economic development which cannot be dismissed as insignificant. For this reason, our per se for they are not. AcISTE

It appears that a misappreciation of the past dominant role of petitioner PLDT in our telecommunications industry has poisoned the position of the majority. The majority thinks that if it orders equal tax treatment to petitioner vis- -vis the other companies in the telecommunications industry, there will be inequality because there is no parity between them in terms of resources. Following this thought, the majority again surmises that the strategy of Congress to achieve equality in the industry is to grant exemptions on a case to case basis. Thus, it holds that "that is . . . the reason there are franchises granted by Congress after the effectivity of Footnote no. 13 of the majority decision cites a list of telecommunications companies whose franchises do not contain the "in lieu of all taxes" clause while footnote no. 14 cites the companies whose franchises contain the said clause. A cursory glance at the companies in footnote no. 13 will, however, show that they are not the giant-type which will explain why their franchises do not contain the "in lieu of all taxes" clause. Similarly, there appears in footnote no. 14 big companies yet their franchises contain the aforesaid clause. Significantly, the majority does not cite the legislative proceedings of the laws granting these franchises to support its ruling that the grant or non-grant of the "in lieu of all taxes" clause in the franchises of the companies involved is part of the strategy of Congress to equalize them and level the playing field in the telecommunications industry. The ruling is an ex-cathedra pronouncement unsupported by any footnote. Again, I submit the view that Section 23 granted equal tax treatment to ALL telecommunications companies and to stress again, this was done only after breaking up the monopoly in the industry. Today, petitioner PLDT no longer controls the industry and there is no reason to treat it unequally from other companies. The inclusion of the "in lieu of all taxes" clause in some franchises simply reiterates Section 23 of

I vote to grant the Motion for Reconsideration.

CARPIO, J.:

I concur in the result of the ponencia of Justice Vicente V. Mendoza that petitioner Philippine Long Distance Telephone Company, Inc. (PLDT) is subject to the local franchise tax imposed by the City of Davao.

My concurrence is based on two grounds. First, the "in lieu of all taxes" clause was not re-enacted in the franchise of Globe Mackay Cable and Radio Corporation (Globe) when Congress adopted functus officio with the abolition of the franchise tax on telecommunications companies. Moreover, this clause applies only to national internal revenue taxes and not to local taxes.

PLDT claims that the "in lieu of all taxes" clause in the franchises of Globe and Smart applies to PLDT by virtue of the equality clause in

On June 19, 1965, Republic Act No. 4540 amended the franchise of Clavecilla and inserted the following "in lieu of all taxes" clause in Section 9 (b) of its franchise:

"The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description levied, established or collected by an authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, effective from the date of the approval of Republic Act Numbered Sixteen Hundred Eighteen."

On the other hand, the franchise of Globe contained no "in lieu of all taxes" clause.

The which took effect on January 1, 1992, repealed Section 9 (b) of Clavecilla's franchise with respect to local taxes. Sections 137, 151, and 193 of the

"Section 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 the 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.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereon, as provided herein."

"Section 151. Scope of Taxing Powers. Except as otherwise provided in this

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes."

"Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this

Thus, from January 1, 1992 up to the enactment on March 19, 1992 of caIEAD

The answer is a categorical no for two reasons. First, there is no language in then existing franchise of Clavecilla to the surviving corporation, Globe. When Congress approved

Second, expressly provides that original provisions of the franchise of Clavecilla under Republic Act No. 402, as amended, which have not been repealed, shall continue in full force and effect. The clear intent of the law is that provisions in Clavecilla's franchise which had already been repealed as of the enactment of

"All other provisions of Republic Act No. 402, as amended by Republic Act Nos. 1618 and 4540, and other provisions of Batas Pambansa Blg. 95 which are not inconsistent with the provisions of this Act and are still unrepealed shall continue to be in full force and effect." (Italics supplied)

Clearly, Congress did not intend to re-enact any of the provisions in the franchise of Clavecilla that had already been repealed by prior laws.

Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. Tax exemptions cannot arise by mere implication, much less by an implied re-enactment of a repealed tax exemption clause. In the instant case, there is even no implied re-enactment of Section 9 (b) of Clavecilla's old franchise since Section 11 of

PLDT also relies on Smart's franchise which PLDT claims contains the "in lieu of all taxes" clause. PLDT points to Section 9 of

"Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, 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 successors 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 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 " (Italics supplied)

PLDT's reliance on the "in lieu of all taxes" clause in Smart's franchise is misplaced for two reasons. First, The franchise tax in Section 119 of the Tax

The franchise tax is imposed only on franchise holders, while the VAT is imposed on all sellers of goods and services, whether or not they hold franchises. The franchise tax is now imposed in Section 119 of the Tax different tax from the VAT.

Smart's franchise states that the 3 percent "franchise tax" shall be "in lieu of all taxes." Clearly, it is the franchise tax that shall be in lieu of all taxes referred to in Section 9, and not the VAT or any other tax. Following the rule on strict interpretation of tax exemptions, the "in lieu of all taxes" clause cannot apply when what is paid is a tax other than the franchise tax. Since the franchise tax on telecommunications companies has been abolished, the "in lieu of all taxes" clause has now become functus officio,rendered inoperative for lack of a franchise tax. Revenue Memorandum Circular No. 5-96 issued by the Commissioner of Internal Revenue stating that the VAT shall be "in lieu of all taxes" since it merely replaced the franchise tax is void for lack of a legal basis.

Second, the "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than income tax, imposed under the

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. Congress could have used the language in Section 9 (b) of Clavecilla's old franchise, as follows:

"...in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, ..." (Italics supplied)

However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. The only interpretation, under the rule on strict construction of tax exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local taxes. ScCEIA

PLDT cites Philippine Railway Co. v. Nolting to support its claim that the "in lieu of all taxes" clause includes exemption from local taxes. However, in Philippine Railway the franchise of the railway company expressly exempted it from municipal and provincial taxes, as follows:

"Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and nature municipal, provincial or central upon its capital stock, franchises, right of way, earnings, and all other property owned or operated by the grantee, under this concession or franchise." (Italics supplied)

If anything, Philippine Railway shows the need to avoid ambiguity by specifying the taxing authority municipal, provincial or national from whose jurisdiction the taxing power is withheld to create the tax exemption. This is not the case in Smart's franchise, where the "in lieu of all taxes" clause refers only to national internal revenue taxes.

The existing legislative policy is clearly against the revival of the "in lieu of all taxes" clause in franchises of telecommunications companies. After the VAT on telecommunications companies took effect on January 1, 1996, Congress never again included the "in lieu of all taxes" clause in any telecommunications franchise it subsequently approved. Also, from September 2000 to July 2001, all the fourteen telecommunications franchises approved by Congress uniformly and expressly state that the franchisee shall be subject to all taxes under the

"Tax Provisions. The grantee, its successors or assigns, shall be subject to the payment of all taxes, duties, fees, or charges and other impositions under the :Provided, That nothing herein shall be construed as repealing any specific tax exemptions, incentives or privileges granted under any relevant law: Provided, further, That all rights, privileges, benefits and exemptions accorded to existing and future telecommunications entities shall likewise be extended to the grantee." (Italics supplied)

Thus, after the imposition of the VAT on telecommunications companies, Congress refused to grant any tax exemption to telecommunications companies that sought new franchises from Congress, except the exemption from specific tax. More importantly, the uniform tax provision in these new franchises expressly states that the franchisee shall pay not only all taxes, except specific tax, under the"other applicable laws." One of the "other applicable laws" is the

Lastly, although it has no bearing on the instant case, I find that the equality clause in Section 23 of

"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."

The legislative intent behind Section 23 is unquestionably to level the playing field among all competing companies in the telecommunications industry. If one telecommunications company enjoys a tax advantage over its competitors, while enjoying equal treatment with its competitors in all other aspects like interconnection, fee sharing and the like, then there obviously will be no level playing field. A tax exemption granted to one telecommunications company, but not to others, will sooner than later kill all its competitors and result in a monopoly. This obviously is not the meaning of "equality of treatment."

Besides, a tax exemption granted to one or more, but not to all, telecommunications companies similarly situated will violate the constitutional rule on uniformity of taxation. It will deny equal protection of the law to those similarly situated but to whom the tax exemption is denied. A tax exemption granted to one or some telecommunications companies, but not to all, can only be constitutionally justified if there is a reasonable basis for classifying some companies exempt and others not exempt. If this manifest state policy is to have any meaning, Section 23 must include tax exemption.

Under Section 23, a tax exemption in a franchise granted after the effectivity of ipso facto become part of previously granted telecommunications franchises." There is no limitation whatsoever that only franchises issued prior to the effectivity of

That Section 23 uses the word "exemption" and not the term "tax exemption" does not exclude exemption from tax, which by far is the most important exemption in a telecommunications franchise. If the word "exemption" is inadequate to embrace tax exemption, then it will be inadequate to embrace any kind of exemption. To have any significance, the law will have to spell out each kind of exemption before or after the word "exemption," like "exemption from reportorial requirements," "exemption from monitoring requirements" and the like. This will render the word "exemption" in Section 23 meaningless because at present this word stands alone. Certainly, we must avoid an interpretation that will effectively erase the word "exemption" from Section 23.

The reiteration in individual franchises of rights or privileges already guaranteed in The same right is expressly reiterated in 21 of the 23 franchises approved by Congress after the effectivity of granted after the effectivity of

In view of the foregoing, I vote to deny the motion for reconsideration for lack of merit.

Footnotes

1. Resolution, dated July 9, 2002.

2.

3.

4. ,293 SCRA 76, 88 (1998).

5.

6.

7.

8. 3 RECORDS OF PLENARY PROCEEDINGS, HOUSE OF REPRESENTATIVES 552 (Dec. 5, 1994).(Italics added)

9. 3 RECORD OF THE SENATE 827 (January 17, 1995);4 RECORD OF THE SENATE 52 (January 24, 1995);See

Expansion and financing of network and services, utilizing equipment compatible with or homologous to existing or previously approved plant and facilities, in order to service additional demand in the same areas where the previously approved network and services have been installed, shall not require any approval by the Commission.

The upgrading of existing plant and network facilities including the financing thereof, for the purpose of retiring or replacing obsolete or outmoded equipment with state of the art equipment and technology in order to improve the quality or grade of service being rendered to the public within the same areas covered by the existing plant and facilities previously approved, shall likewise not require the approval of the Commission.

10. Motion for Reconsideration, pp. 5-6, 16-17.

11. 3 RECORD OF THE SENATE, 810 (Jan. 16, 1995);3 RECORDS OF PLENARY PROCEEDINGS, HOUSE OF REPRESENTATIVES 552 (Dec. 5, 1994).

12. RECORD OF THE SENATE 872 (April 20, 1994);id.,p. 557.

13. E.g.,

14. E.g.,

15. Compare:"Free competition in the industry may also provide the answer to a much-desired improvement in the quality and delivery of this type of public utility, to improved technology, fast and handy mobile service, and reduced user dissatisfaction. After all, neither PLDT nor any other public utility has a constitutional right to a monopoly position in view of the Constitutional proscription that no franchise certificate or authorization shall be exclusive in character or shall last longer than fifty (50) years (ibid., Section 11; Article XIV, Section 5, ,190 SCRA 717, 737 (1990)).

16. , 216 SCRA 790 (1992), where real property taxes were held not included in the exemption granted to all electric franchise holders by the "in lieu of all taxes" provision of ,104 Phil. 727 (1958),where the Court ruled that the rights and privileges which the "in lieu of all taxes" provision exempts from taxation are those enjoyed by the grantee of the franchise and not by the public in general; ,58 Phil. 639 (1933),where the exemption was not extended to the income tax on the dividends paid and delivered to stockholders as they ceased to be corporate property and have already become property of the stockholders.

17. Memphis Gas-Light Co. v. Taxing District,109 U.S. 398, 27 L.Ed. 976 (1883).

18. ,77 Phil. 394 (1946).

19.

20. 138 SCRA 629 (1985).

21. All along, we simply assume that Globe and Smart enjoy exemption from local taxation.

22. See ,306 SCRA 750, 760 (1999),citing ,305 SCRA 353, 362 (1999).

23. ,342 SCRA 692 (2000);,328 SCRA 822 (2000);,293 SCRA 76 (1998).

24. ,302 SCRA 1 (1999).

25. 161 U.S. 198, 40 L.Ed. 669 (1896).

26. 205 U.S. 236, 51 L.Ed. 784 (1907).

27. At 252-253, 51 L.Ed.,791.

28. 305 SCRA 353 (1999).

29.

30. ,271 SCRA 605, 619 (1997).

PUNO, J.,dissenting:

1. Resolution, pp. 4-5. These subsequent laws are vital. Petitioner's motion for reconsideration should take them into account and its resolution should not be limited to the laws granting exemptions to Globe and Smart.

2. Ibid.

3. Ibid.

4. Id. at 6.

5. Resolution, pp. 7-8.

6. Ibid.

7. Id. at 9.

8. Id. at 8.

CARPIO, J.:

1. Section 23 of

2.

3. The first two sections of

Section 2. The transfer of the franchise of Clavecilla Radio System under Republic Act No. 402, as amended by Republic Act Nos. 1618 and 4540, as well as all the rights, privileges and licenses arising therefrom with the exception of broadcasting, to the grantee as a consequence of the merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System, is hereby approved."

4. p. 7, PLDT's Motion for Reconsideration.

5. 34 Phil. 401 (1916).

6. pp. 1-5, PLDT's Memorandum dated February 7, 2003.

7. RA Nos. 8955, 8956, 8959, 8961, 8962, 8992, 9002, 9101, 9116, 9117, 9124, 9130, 9133 and 9149.

8. Section 11 of

9. Section 28, Article VI of the

10. Section 4 (f) of

11. Sections 4 (g) and 5 (c) of

12. RA Nos. 7961, 8004, 8065, 8095, 8198, 8675, 8676, 8677, 8678, 8690, 8955, 8956, 8959, 8961, 8962, 9002, 9101, 9117, 9130, 9133, and 9149.

13. RA Nos. 7961, 8065, 8095, 8198, 8678, 8955, 8956, 8959, 8961, 8962, 9002, 9101, 9117, 9124, 9130, 9133 and 9149.