GR 131359; (May, 1999) (Digest)
G.R. No. 131359 May 5, 1999
MANILA ELECTRIC COMPANY, petitioner, vs. PROVINCE OF LAGUNA and BENITO R. BALAZO, in his capacity as Provincial Treasurer of Laguna, respondents.
FACTS
Manila Electric Company (MERALCO) holds franchises from various municipalities in Laguna to supply electric power. It paid franchise taxes to the national government pursuant to Presidential Decree No. 551, which fixed the tax at two percent of gross receipts and stated this payment shall be “in lieu of all taxes and assessments of whatever nature imposed by any national or local authority.” Subsequently, the Province of Laguna enacted Provincial Ordinance No. 01-92 under the Local Government Code of 1991 ( Republic Act No. 7160 ), imposing a franchise tax of fifty percent of one percent of gross annual receipts. The Provincial Treasurer demanded payment from MERALCO based on this ordinance.
MERALCO paid the provincial tax under protest and filed a claim for refund, arguing that the local tax ordinance contravened P.D. 551. The Provincial Government denied the claim, relying on the Local Government Code. MERALCO then filed a complaint for refund with the Regional Trial Court, which dismissed the complaint and upheld the validity of the provincial ordinance.
ISSUE
Whether the imposition of a local franchise tax under Laguna Provincial Ordinance No. 01-92 violates the non-impairment clause of the Constitution and Section 1 of P.D. 551, which grants a national tax exemption to franchise holders like MERALCO.
RULING
The Supreme Court dismissed the petition and upheld the validity of the provincial ordinance. The Court ruled that the tax exemption under P.D. 551 was effectively withdrawn by the subsequent enactment of the Local Government Code of 1991. The Code, under Section 193, expressly withdraws tax exemption privileges granted to natural or juridical persons, except those provided in the Code itself or other originating statutes. P.D. 551 is not among the enumerated exceptions.
The Court clarified that the franchise tax exemption in P.D. 551 is not a contractual exemption immune from impairment. Franchises are grants subject to amendment, alteration, or repeal by Congress when the common good requires, as mandated by the Constitution. The “in lieu of all taxes” provision in a franchise is a statutory privilege, not a vested contractual right. Therefore, Congress, through the Local Government Code, could validly delegate to local governments the power to impose taxes notwithstanding prior exemptions. The legislative intent to withdraw such exemptions to broaden the local tax base is paramount. The power of local governments to tax, derived from a constitutional delegation, prevails over prior statutory tax exemptions unless expressly preserved.