GR 167260; (February, 2009) (Digest)
G.R. No. 167260 , February 27, 2009.
The City of Iloilo and Mr. Romeo V. Manikan, in his capacity as the Treasurer of Iloilo City, Petitioners, vs. Smart Communications, Inc. (SMART), Respondent.
FACTS
Smart Communications, Inc. (SMART) received a letter of assessment dated February 12, 2002 from the City of Iloilo requiring payment of deficiency local franchise and business taxes for the years 1997 to 2001. SMART protested the assessment, claiming exemption based on Section 9 of its legislative franchise ( Republic Act No. 7294 ), which contains an “in lieu of all taxes” clause, and Section 23 of the Public Telecommunications Policy Act ( Republic Act No. 7925 ), which contains an “equality clause.” The City Treasurer denied the protest for SMART’s failure to first pay the tax as required by Section 252 of the Local Government Code. SMART then filed a case before the Regional Trial Court (RTC) of Iloilo City, which ruled in SMART’s favor, declaring it exempt from local franchise and business taxes. The City of Iloilo appealed this decision to the Supreme Court.
ISSUE
Whether SMART is exempt from the payment of local franchise and business taxes.
RULING
The Supreme Court ruled that SMART is NOT exempt from the payment of local franchise and business taxes. The petition was granted, and the RTC decision was set aside.
The Court held that:
1. Claim under SMART’s Franchise ( R.A. No. 7294 ): Section 9 of SMART’s franchise, which imposes a 3% franchise tax “in lieu of all taxes,” does not constitute a clear and unequivocal exemption from local taxes. The provision’s language is uncertain regarding whether it covers both national and local taxes, and any doubt must be resolved against the taxpayer claiming exemption. Furthermore, the franchise tax was abolished by the Expanded Value-Added Tax Law ( R.A. No. 7716 ), rendering the “in lieu of all taxes” clause functus officio (inoperative) for lack of a franchise tax to serve as a substitute.
2. Claim under the Public Telecoms Act ( R.A. No. 7925 ): Section 23 (the “equality clause”) of the Public Telecommunications Policy Act cannot be invoked to claim tax exemptions. The clause is a general provision and cannot prevail over the specific and express withdrawal of tax exemptions under Section 193 of the Local Government Code. Furthermore, the clause does not automatically incorporate tax exemptions from other franchises; it requires a prior valid grant of an exemption, which SMART did not possess.
3. General Principle on Tax Exemptions: Tax exemptions are construed strictly against the claimant and in favor of the taxing authority. The burden is on the taxpayer to prove the exemption exists by a clear and unequivocal grant of law. SMART failed to discharge this burden.