G.R. No. 162015, March 6, 2006
THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR. VICTOR B. ENRIGA, Petitioners, vs. BAYAN TELECOMMUNICATIONS, INC., Respondent.

FACTS

Respondent Bayan Telecommunications, Inc. (Bayantel) is a franchise holder under Republic Act No. 3259. Its original franchise tax provision stated it shall pay the same taxes on its real estate as others and a percentage tax on gross receipts. The Local Government Code (LGC) of 1991, effective January 1, 1992, empowered local governments to levy real property taxes and, under Section 234, withdrew all previously granted exemptions. Subsequently, Congress enacted R.A. No. 7633 in July 1992, amending Bayantel’s franchise. Its new tax provision, Section 11, stated the grantee shall pay a franchise tax of three percent on gross receipts, which “shall be in lieu of all taxes on this franchise or earnings thereof,” while remaining liable for income tax and taxes on real estate.
Pursuant to the LGC, Quezon City enacted its Revenue Code, imposing real property tax and reiterating the withdrawal of exemptions. The City Assessor issued new tax declarations for Bayantel’s real properties in Quezon City, which housed essential telecommunications facilities. Bayantel sought a declaratory judgment claiming exemption from real property tax, arguing the “in lieu of all taxes” clause in its amended franchise (R.A. No. 7633) prevailed over the LGC’s general withdrawal.

ISSUE

Whether Bayantel’s amended franchise under R.A. No. 7633, containing an “in lieu of all taxes” clause, exempts it from paying real property taxes to the City of Quezon City.

RULING

No. The Supreme Court denied the petition and affirmed the lower court’s decision, ruling that Bayantel is not exempt from local real property tax. The legal logic rests on the hierarchy of laws and the specific nature of the tax exemption claimed. The 1987 Constitution grants local governments the power to create their own revenue sources, including real property taxation. The LGC, enacted pursuant to this constitutional mandate, explicitly withdrew all existing tax exemptions unless otherwise provided in the Code itself.
While R.A. No. 7633, a later law, contains an “in lieu of all taxes” provision, it must be reconciled with the LGC. The Court applied the rule that a special law (the franchise) prevails over a general law (the LGC) only if they irreconcilably conflict. Here, no such conflict exists. The “in lieu of all taxes” clause in Section 11 of R.A. No. 7633 explicitly refers to taxes on the franchise itself or its earnings. It does not mention, and therefore does not specifically withdraw, the liability for real estate taxes, which are levied on property ownership, not the franchise. The franchise tax is paid in lieu of other national taxes on the franchise or business earnings, but not local property taxes. Since the LGC withdrew exemptions in clear terms, and the franchise amendment did not specifically re-grant an exemption for real property, Bayantel remains liable. The power to tax is inherent in local autonomy, and exemptions must be granted in explicit terms.