BATANGAS POWER CORPORATION vBATANGAS CITY and NATIONAL POWER CORPORATION, G.R. No. 152675; and NATIONAL POWER CORPORATION v. HON. RICARDO R. ROSARIO, et at., G.R. No. 152771, April 28, 2004

 

BATANGAS POWER CORPORATION vBATANGAS CITY and NATIONAL POWER CORPORATION, G.R. No. 152675; and NATIONAL POWER CORPORATION v. HON. RICARDO R. ROSARIO, et at., G.R. No. 152771, April 28, 2004

FACTS: Batangas Power Corporation (BPC) was registered with the Board of Investments (BOl) on September 13, 1992. On September 23, 1992, the BOl issued a certificate of registration to BPC as a pio[1]neer enterprise entitled to a tax holiday for 6 years. The BPC began operating the power plant in Batangas City.

On October 12, 1998, Batangas City, through its legal officer, demanded from the BPC payment of business taxes and penalties from 1994 as provided for in Ordinance XI or the Batangas City Tax Code. BPC refused to pay, citing its tax exempt status under Section 133(g) of the Local Government Code (LGC).

On April 15, 1999, the City Treasurer modified the City's tax claim and demanded payment of business taxes from BPC only for 1998-1999 on the ground that BPC enjoyed the 6-year tax holiday but such exemption period expired on September 22, 1998 or 6 years after the BPC registered with the BOI.

BPC refused to pay and claimed that its commercial operation commenced on July 16, 1993, the date designated by the BOT as the start of its tax holiday on account of its failure to operate immedi[1]ately on account of a force majeure. BPC claimed that the local tax holiday is concurrent with the income tax holiday and asserted in the alternative that tax should be collected from the NPC under the BOT Agreement.

Because the BPC and Batangas City refused to budge from their respective positions, the NPC intervened. While it admitted assumption of BPC's tax obligations under the BOT Agreement, the NPC refused to pay BPC's business tax as it allegedly constituted an indirect tax on NPC, a tax-exempt corporation under its Charter.

Consequently, the BPC filed a petition for declaratory relief with the Makati RTC against Batangas City and the NPC, and it prayed for a ruling that it was not bound to pay the business taxes imposed by the City. Pending the resolution of the case, the City refused to issue to BPC a permit to operate business unless business taxes amounting to around P29 Million were paid. The BPC, which has its principal office in Makati City, then filed a supplemental petition with the Makati RTC to convert its original petition to an action for injunction to' enjoin the City from withholding the issuance of its business permit and closing its plant. The City opposed on the grounds of lack of jurisdiction and lack of cause of action;

The Makati RTC' admitted the supplemental petition but on February 27, 2002, it dismissed the injunction, holding that:

(1) BPC is liable to pay business taxes to the City;

(2) NPC's tax exemption was withdrawn with the passage of HA No. 7160 (LGC); and

(3) the 6-year tax holiday granted to pioneer business enterprises starts from the date of registration with the BOl under Section 133(g) of the LGC, and not on the date of actual business operation.

Hence, BPC and NPC filed a petition for review on certiorari with the Supreme Court. The petitions were consolidated.

HELD: The effect of the LGC on the tax exemption privileges of the NPC has already been extensively discussed and settled in the recent case of National Power Corporation v. City of Cabanatuan. In said case, this Court recognized the removal of the blanket exclusion of government instrumentalities from local taxation as one of the most significant provisions of the 1991 LGC. Specifically, [the Court] stressed that Sec. 193 of the LGC, an express and general repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC under its Charter. We explained the rationale for this provision, thus:  In recent years, the increasing social challenges of the times expanded the scope of the state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, Section 5 of the 1987 Constitution, viz:

Section 5. - Each Local Government unit shall have the power to create its own sources of revenue to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments.

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders. The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, x x x the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers x x x"

To recall, prior to the enactment of the x x x Local Government Code x x x, various measures have been enacted to promote local autonomy. x x x Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base; (b) lack of fiscal control over external sources of income; (c) limited authority to prioritize and approve development projects;-..(d) heavy dependence on external sources of income; and (e) limited supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGU. It widen tax base of LGUa to includc taxes which were prohibited by previous laws x x x

Neither can the NPC successfully rely on the Basco case as this was decided prior to the effectivity of the LGC, when there was still no law empowering local government units to tax instrumentalities of the national government. Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT Agreement, the LGC which removed NPC's tax exemption privileges had already been in effect for six (6) months. Thus, while BPC remains to be the entity doing business in said City, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOT Agreement and the 1991 Local Government Code Hence, the petition of BPC and NPC were dismissed.