LEGAL OPINION RE SUN CELLULAR'S TAXABILITY

Republic of the Philippines
Province of South Cotabato
City of Koronadal
CITY LEGAL OFFICE
_______________________________________________________________

LEGAL OPINION NO. __________

Date: 23 June 2014

TO: MR. JOSELO V. GALLEGO
City Assessor
This City

RE: Request for Tax Exemption and Cancellation of RPT Assessment of Sun
Cellular (DMPI)


Sir:

Kanami Koronadal!

This is with reference to the letter of Sun Cellular (DMPI) to the City Treasurer, Mr. Marloun C. Gumbao, dated 20 May 2014, on their claim of real property tax (RPT) exemption on machineries. The claim for exemption is based on the following:

1. Republic Act No. 9180, dated December 11, 2002, otherwise known as “An Act Granting the Digitel Mobile Philippines, Inc. a Franchise to Construct, Install, Establish, Operate and Maintain Telecommunications Systems Throughout the Philippines”;
2. DOJ Opinion, dated May 18, 2007;
3. BLGF Memorandum Circular No. 01-2010, dated January 13, 2010 and No. 4-2006, dated May 2, 2006, reiterating that GLOBE is liable to pay RPT on its radio station building, machinery shed, and radio relay station tower, while radio equipment, accessories and spare parts needed in the business are exempt therefrom; and
4. Supreme Court Decision in RCPI v. Provincial Assessor of South Cotabato, GR No. 144486, April 13, 2005.

The City Government of Koronadal has long been confronted with similar issues. The City Legal Officer of the Koronadal City has previously issued Legal Opinion No. 2012-06-04, resolving the said issue on taxability of the real properties, although said legal opinion involved GLOBE TELECOM, Inc. Thus, any reference to Globe by Sun Cellular in its letter should be deemed resolved under the said legal opinion and will no longer be discussed in this opinion.

In the request of Sun Cellular, they cited the same grounds to support their claim on tax exemptions. Verily, Sun Cellular was granted with a franchise to construct, install, establish, operate and maintain telecommunications systems throughout the Philippines by virtue of Republic Act 9180. Hence, the implementing law relative to taxability of the Sun Cellular is RA 9180.

Section 12 of RA 9180 provides, thus:

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Sec. 12. Tax Provisions. - The grantee, its successor or assigns, shall be subject to the payment of all taxes, duties, fees or charges and other impositions under the National Internal Revenue Code of 1997, as amended, and other applicable laws; Provided That nothing herein shall be construed as repealing any specific tax exceptions, incentives, or privileges granted under any relevant law: Provided, further, That all rights, privileges, benefits and exemptions accorded to existing and future telecommunications franchise shall likewise be extended to the grantee.

The grantee shall file the return with the city or province where its facility is located and pay the income tax due thereon to the Commissioner of Internal Revenue or his duly authorized representatives in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue.

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Sec. 18. Equality Clause. - 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 franchise concerning territory covered by the franchise, the life span of the franchise, or the type of services authorized by the franchise. (Underscoring provided)

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Reliance by Sun Cellular on the provision of Section 12 as one of its bases in claiming tax exemptions holds no water. It is a hornbook rule that one who claims tax exemption shall prove it clearly since the general rule is always to tax. As worded by the Supreme Court in the case of DIGITEL v. Province of Pangasinan (G.R. No. 152534, February 23, 2007), “[t]he tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.”

In the said case, the Supreme Court has explained the word “exemption” as used in the statutes as follows:

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“The case at bar is actually not one of first impression. Indeed, as far back as 2001, this Court has had the occasion to rule against the claim for tax exemption under Republic Act No. 7925. In the case of Philippine Long Distance Telephone Company, Inc. v. City of Davao, we already clarified the confusion brought about by the effect of Section 23 of Republic Act No. 7925 – that the word “exemption” as used in the statutes refers or pertains merely to an exemption from regulatory or reporting requirements of the DOTC or the NTC and not to the grantee’s tax liability.

The issue in the PLDT v. City of Davao case was whether or not, by virtue of Section 23 of Republic Act No. 7925 (Public Telecommunications Policy of the Philippines), PLDT is again entitled to an exemption from the payment of local franchise tax in view of the grant of a tax exemption to Globe and Smart telecommunications companies. Before the enactment of Republic Act No. 7925 in 1995, the Congress of the Philippines granted in favor of Globe and Smart franchises that contain “in-lieu-of-all-taxes” clauses or provisos. Then came Republic Act No. 7925, particularly Section 23 thereof, providing, more or less, that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall be made part of previously enacted franchises and made automatically applicable to the grantees thereof. Subsequently, in “January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro Excahnge, it was required to pay the local franchise tax for the first to the fourth quarter of 1999 xxx. 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 third quarters of 1998.” The latter believed itself to be exempt from payment of such tax even though Section 12 of its franchise (Republic Act No. 7082) containing the “in-lieu-of-all taxes” proviso had already been withdrawn by the provisions of the Local Government Code. Its belief was anchored on the effect of the above-mentioned Section 23 of Republic Act No. 7925 – that because the franchises of Globe and Smart contain “in-lieu-of-all-taxes” clauses or provisos, the same grant of tax exemption must be regarded to have become ipso facto part of PLDT’s previously granted telecommunications franchise.

In denying PLDT’s petition, this Court, speaking through Mr. Justice V. Mendoza, held that in approving Section 23 of Republic Act No. 7925, Congress did not intend it to operate as a blanket tax exemption to all communications entities; thus, it cannot be considered as having amended petitioner PLDT’s franchise so as to entitle it to exemption from the imposition of local franchise taxes. x x x”

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More Importantly, in Digital Telecommunications v. City Government of Batangas, et.al. (G.R. No. 156040, December 11, 2008), the Supreme Court, with reference to Section 12 of RA 9180, clarified, thus:

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“In fact, Section 12 of Republic Act No. 9180 (RA 9180), the legislative franchise of Digitel Mobile, a 100% owned subsidiary of
petitioner, states that the franchisee, its successors or assigns shall be subject to the payment of “all taxes, duties, fees or charges and other imposition under the National Internal Revenue Code of 1997, as amended, and other applicable laws.”

Section 12 of RA 9180 provides:

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Thus, Digitel Mobile is subject to tax on its real estate and personal properties, whether or not used in its telecommunications business.” (Emphasis ours)

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Also, nowhere in the case of RCPI v. Provincial Assessor of South Cotabato (GR No. 144486, April 13, 2005) can we find that the Supreme Court exempts the RCPI from payment of realty tax. The Decision reads:

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“Respondents assert that RCPI not only changed its arguments, RCPI also made incorrect arguments. RCPI earlier maintained that its radio relay station tower, radio station building, and machinery shed are personal properties and are thus not subject to the real property tax. RCPI now argues that its radio relay station tower, radio station building, and machinery shed are tax-exempt because of the “in lieu of all taxes” clause in its franchise, which exempts RCPI from the real estate tax.
RCPI contends that the “in lieu of all taxes” clause in its amended franchise exempts it from paying all taxes other than franchise tax. It is thus no longer necessary to determine whether the tower, relay station building, and machinery shed are radio equipment for purposes of exemption from the real estate tax.
RCPI also states that legislative enactments during the pendency of this petition caused it to lose and then regain its tax-exempt status. RCPI enumerated thus:
First, Congress passed the Local Government Code that withdrew all the tax exemptions existing at the time of its passage—including that of RCPI’s.
Second, Congress enacted the franchise of telecommunications companies, such as Islacom, Bell, Island Country, IslaTel, TeleTech, Major Telecoms, and Smart, with the “in lieu of all taxes” proviso.
Third, Congress passed RA 7925 entitled “An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services” which, through Section 23, mandated the equality of treatment of service providers in the telecommunications industry.”
We are not persuaded.
As found by the appellate court, RCPI’s radio relay station tower, radio station building, and machinery shed are real properties and are thus subject to the real property tax. Section 14 of RA 2036, as amended by RA 4054, states that “[i]n consideration of the franchise and rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, copartnerships, private, public or quasi-public associations, corporations or joint stock companies, on real estate, buildings and other personal property x x x.” The clear language of Section 14 states that RCPI shall pay the real estate tax.”
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Based on the foregoing and the previous legal opinion issued by this Office, Sun Cellular’s real properties, like those of any other telecommunications company, are taxable.



Yours truly,




(SGD) ATTY. EUFEMIO A. SIMTIM, JR.
City Legal Officer

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(SGD) ATTY. MARY GRACE L. VENTURA
Attorney IV


cc: CMO, CTO, File