PLDT vs. City of Bacolod

The "most-favored-treatment" clause in Section 23 of Republic Act No. 7925 does not operate to exempt telecommunications franchise holders from local franchise taxes, as the term "exemption" therein refers to exemptions from regulatory or reporting requirements imposed by the National Telecommunications Commission, not tax exemptions, which must be expressly and clearly stated in the statute.

PLDT holds a legislative franchise under Act No. 3436, as amended, consolidated under Republic Act No. 7082, which contains an "in-lieu-of-all-taxes" clause requiring PLDT to pay a 3% franchise tax on gross receipts in lieu of all other taxes. Upon the effectivity of the Local Government Code (Republic Act No. 7160) on January 1, 1992, local government units were granted the power to impose local franchise taxes (Section 137), and existing tax exemption privileges were withdrawn (Section 193). Subsequently, Congress enacted Republic Act No. 7925, the Public Telecommunications Policy Act, which took effect on March 16, 1995. Section 23 of this law provides a "most-favored-treatment" clause, stating that any advantage, favor, privilege, exemption, or immunity granted under existing or future franchises shall ipso facto become part of previously granted telecommunications franchises. Following the enactment of RA 7925, Globe Telecom and Smart Communications were granted franchises containing explicit exemptions from local franchise and business taxes.

• PLDT's Franchise and the Local Government Code: PLDT operates under a franchise (RA 7082) requiring it to pay a 3% franchise tax on gross receipts "in lieu of all taxes." With the effectivity of the Local Government Code (RA 7160) in 1992, cities were authorized to impose local franchise taxes (Sec. 137), and previously granted tax exemptions were withdrawn (Sec. 193).
• Assessment and Compliance: Invoking the Local Government Code, the City of Bacolod assessed PLDT for local franchise tax in August 1995. PLDT complied, paying the local franchise tax from 1994 until the third quarter of 1998, totaling ₱2,770,696.37.
• The BLGF Ruling and Cessation of Payment: On June 2, 1998, the Department of Finance's Bureau of Local Government Finance (BLGF) issued a ruling opining that, by virtue of Section 23 of RA 7925 (the "most-favored-treatment" clause), PLDT became exempt from local franchise and business taxes effective March 16, 1995. Relying on this ruling, PLDT stopped paying local franchise taxes to Bacolod City starting the fourth quarter of 1998.
• Withholding of Mayor's Permit: When PLDT applied for a Mayor's Permit in 1999, the City of Bacolod withheld issuance pending payment of unpaid franchise taxes amounting to ₱1,782,836.40 (covering the fourth quarter of 1998 and the full year of 1999).
• Protest and Trial Court Dismissal: PLDT protested the assessment and sought a refund of previous payments, but the City Legal Officer denied the protest. PLDT elevated the matter to the RTC, which dismissed the petition, prompting the present recourse.

• Applicability of the Local Government Code: Petitioner argued that the trial court erred in sustaining the City's position that Section 137 of the Local Government Code, which allows cities to impose franchise taxes, prevails over PLDT's claimed exemption.
• Most-Favored-Treatment Clause: Petitioner maintained that under its franchise (RA 7082), as amended by Section 23 of RA 7925, and considering the franchises of Globe and Smart—which were enacted after the Local Government Code and contain local tax exemptions—no franchise taxes may be imposed on PLDT by the respondent City. The grant of tax exemption to Smart and Globe ipso facto extends to PLDT.
• Weight of the BLGF Ruling: Petitioner argued that the trial court erred in not giving weight to the BLGF ruling, asserting that the BLGF is an administrative agency with technical expertise over local taxation matters.
• Tax Exclusion vs. Tax Exemption: Petitioner contended that the "in-lieu-of-all-taxes" clause in its franchise constitutes a tax exclusion rather than a tax exemption, and thus should not be strictly construed against the taxpayer.

• Primacy of the Local Government Code: Respondent countered that Section 137 of the Local Government Code remains the operative law despite the enactment of RA 7925, thereby maintaining the City's authority to impose and collect local franchise taxes from PLDT.

• Tax Exemption under RA 7925: Whether Section 23 of Republic Act No. 7925, the "most-favored-treatment" clause, operates to exempt PLDT from the payment of local franchise tax imposed by the City of Bacolod.

• Tax Exemption under RA 7925: The petition was denied, Section 23 of RA 7925 having been held not to operate as a blanket tax exemption for telecommunications entities. Tax exemptions are highly disfavored and must be clearly and expressly granted by positive law; any doubt must be resolved in favor of municipal corporations. The term "exemption" in Section 23 of RA 7925 refers to exemptions from certain regulatory or reporting requirements imposed by the National Telecommunications Commission (e.g., rate regulations, import permits), not local tax exemptions. Congressional records are bereft of any discussion indicating an intent to grant tax exemptions when enacting the "most-favored-treatment" clause. Extending the specific tax exemptions of Smart and Globe to PLDT would lead to absurd consequences, requiring the government to constantly adjust all telecommunications franchises to match the lowest tax rate granted to any new entity. Furthermore, the BLGF ruling was not given weight, as the BLGF is merely a consultative body lacking the specialized judicial functions of the Court of Tax Appeals, and the question at hand is purely legal. Finally, the "in-lieu-of-all-taxes" clause is indistinguishable from a tax exemption in both nature and effect; thus, the rule of strictissimi juris applies equally to tax exclusions.

• Strictissimi Juris in Tax Exemptions — Tax exemptions are highly disfavored, almost odious to the law. He who claims an exemption must point to a positive provision of law creating the right. The intention to surrender the taxing power must be manifested by words too plain to be mistaken. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. The exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
• Tax Exemption vs. Tax Exclusion — There is no difference between tax exemption and tax exclusion in their nature and effect. Exemption is an immunity or privilege freeing a taxpayer from a charge to which others are subjected. Exclusion is the removal of otherwise taxable items from the reach of taxation, which also operates as an immunity or privilege. Consequently, the rule that tax exemptions should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.
• Administrative Agency Deference (BLGF) — The Bureau of Local Government Finance (BLGF) is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. It was created merely to provide consultative services and technical assistance, unlike the Court of Tax Appeals which performs judicial functions. Legal questions of statutory interpretation are beyond its specialized expertise.

• "Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right." — Cited from Asiatic Petroleum Co. v. Llanes, establishing the foundational rule for the strict construction of tax exemptions.
• "Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion... Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions." — Clarifying that the strictissimi juris doctrine applies regardless of whether a privilege is framed as an exclusion or an exemption.

• PLDT vs. City of Davao, G.R. No. 143867, 415 Phil. 769 [2001] — Controlling precedent. The Court ruled on the exact same legal issue and factual matrix, holding that Section 23 of RA 7925 does not grant a blanket tax exemption and rejecting the ipso facto extension of Smart and Globe's tax exemptions to PLDT.
• Asiatic Petroleum Co. v. Llanes — Followed. Cited for the doctrine that tax exemptions are highly disfavored and must be indubitably shown to exist by clear and unambiguous language.

• Section 12, Republic Act No. 7082 — PLDT's franchise provision requiring a 3% franchise tax on gross receipts "in lieu of all taxes." Interpreted as a tax exclusion subject to the strictissimi juris rule, which did not shield PLDT from the local franchise tax imposed under the Local Government Code.
• Section 137, Republic Act No. 7160 (Local Government Code) — Grants provinces and cities the power to impose a franchise tax on businesses enjoying a franchise, notwithstanding any exemption granted by any law or special law. Applied to authorize the City of Bacolod to assess and collect franchise taxes from PLDT.
• Section 193, Republic Act No. 7160 (Local Government Code) — Withdraws tax exemption privileges enjoyed by persons upon the effectivity of the Code, subject to express exceptions. Operated to withdraw PLDT's "in-lieu-of-all-taxes" privilege vis-à-vis local franchise taxes.
• Section 23, Republic Act No. 7925 (Public Telecommunications Policy Act) — The "most-favored-treatment" clause providing that any advantage, favor, privilege, exemption, or immunity granted under existing or future franchises shall ipso facto become part of previously granted franchises. Interpreted to refer to regulatory exemptions from the NTC, not local tax exemptions.

Sandoval-Gutierrez, Corona, and Carpio-Morales.