‘No ordinance filed to back up demand’
By Leila Salaverria - Inquirer
MANILA, Philippines – The Pasig City government lost its bid to claim P435 million in franchise tax from the Manila Electric Company because it did not have a valid ordinance to support its demand.
In its Aug. 28 decision, the Court of Appeals overturned the ruling of a lower court which declared as valid the city government’s demand for the payment of the franchise tax from 1996 to 1999, saying there was no legal basis for its collection since there was no ordinance mandating it.
The appellate court pointed out that the demand for payment was based on Section 32, Article 3 of Ordinance 25 which was issued in 1992 when Pasig was still a municipality. Under the ordinance, all business ventures carried out through a franchise were required to pay franchise taxes to the local government.
But the ordinance was later nullified since municipalities are not empowered to impose and collect the tax. Cities, on the other hand, are allowed to collect franchise taxes under the local government code.
According to the court, Pasig’s subsequent conversion into a city did not mean that it could automatically collect the tax since it did not enact an ordinance authorizing it to do so.
“Here, it is not disputed that since Pasig was converted into a city, it has not enacted a new ordinance for the imposition of a franchise tax … Since the Municipality of Pasig had no authority to enact the said ordinance, it could not be a valid basis for the City of Pasig to assess and collect the franchise tax in question,” the court said.
It pointed out that Republic Act 7829, which turned Pasig into a city, did not contain a provision that would validate Ordinance 25.
“Simply put, there is nothing in section 45 of RA 7829 that validates the ordinance in question; thus section 32, article 3 of said ordinance remains illegal, without force and effect. Therefore, until an appropriate ordinance is enacted by the legislative body of the City of Pasig, it is without legal ground to demand from the appellant the payment of a franchise tax,” the court said.