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Updated 21st March 2025
Commissioner of Internal Revenue vs. PLDT
The Supreme Court partially granted the BIR Commissioner’s petition, ruling that PLDT’s franchise tax under RA 7082 did not exempt it from indirect taxes (e.g., VAT) on importations but allowed a refund for erroneously collected advance sales and compensating taxes, minus unpaid VAT.

Primary Holding

PLDT’s “in lieu of all taxes” franchise clause exempts only direct taxes on its franchise/earnings, not indirect taxes like VAT; however, advance sales and compensating taxes collected during 1992–1994 were erroneous and refundable.

Background

PLDT sought a tax refund/credit for indirect taxes paid on imported equipment, citing Section 12 of RA 7082. The BIR and lower courts disagreed on whether the franchise’s “in lieu of all taxes” clause covered indirect taxes.

History

  • 1994: PLDT filed a refund claim with the BIR.

  • 1998: Court of Tax Appeals (CTA) granted reduced refund (₱223M).

  • 1999: Court of Appeals (CA) affirmed CTA.

  • 2005: Supreme Court modified CA’s decision, limiting refund to ₱94.6M.

Facts

  • 1. PLDT imported telecom equipment (1992–1994) and paid ₱280M in VAT, compensating tax, advance sales tax, and other BIR taxes.
  • 2. BIR Ruling No. UN-140-94 initially confirmed PLDT’s exemption from VAT under RA 7082.
  • 3. CTA reduced the refundable amount due to prescription and waived claims.

Arguments of the Petitioners

  • 1. The “in lieu of all taxes” clause applies only to direct taxes (e.g., income tax), not indirect taxes like VAT.
  • 2. Tax exemptions must be explicit; PLDT’s franchise lacks clear language exempting indirect taxes.

Arguments of the Respondents

  • 1. RA 7082’s “in lieu of all taxes” clause exempts all taxes, including VAT and compensating taxes.
  • 2. BIR’s own ruling (UN-140-94) confirmed its exemption.

Issues

  • 1. Did PLDT’s franchise exempt it from indirect taxes (VAT, compensating tax, advance sales tax)?
  • 2. Were advance sales/compensating taxes validly collected after their abolition under the VAT system?

Ruling

  • 1. Indirect Taxes: The “in lieu of all taxes” clause applies only to direct taxes on PLDT’s franchise/earnings. Indirect taxes (VAT) remain payable.
  • 2. Erroneous Collections: Advance sales/compensating taxes were invalid post-1988 (replaced by VAT), warranting a refund of ₱94.6M minus unpaid VAT.

Doctrines

  • 1. Strict Construction of Tax Exemptions: Exemptions must be clear and unambiguous.
  • 2. Direct vs. Indirect Taxes: Only direct taxes (e.g., income, property) are covered by PLDT’s franchise exemption.
  • 3. Stare Decisis Not Absolute: Courts may abandon precedents violating current law.

Key Excerpts

  • 1. “Taxation is the rule, exemption is the exception.”
  • 2. “The erroneous application of tax laws by public officers does not preclude the subsequent correct application thereo

Precedents Cited

  • 1. Manila Electric Co. v. Vera (1975): Held that “in lieu” clauses exclude indirect taxes unless explicitly stated.
  • 2. Maceda v. Macaraig (1991): Exemptions for “all forms” of taxes include indirect taxes if expressly granted.
  • 3. Borja v. Collector (1961): Tax exemptions require unmistakable legislative intent.

Statutory and Constitutional Provisions

  • 1. RA 7082, Section 12: PLDT’s franchise tax “in lieu of all taxes on this franchise or earnings.”
  • 2. NIRC Sections 105, 109: VAT provisions.
  • 3. EO 273 (1988): Introduced VAT, replacing advance sales/compensating taxes.