The Supreme Court ruled that the National Power Corporation (NPC) is liable to pay franchise taxes to the City of Cabanatuan. Despite NPC being a government-owned corporation with a charter granting tax exemptions, the Local Government Code (LGC) of 1991 expressly withdrew these exemptions. This decision clarifies that local governments have the authority to impose franchise taxes on national corporations operating within their jurisdiction, promoting local autonomy and fiscal independence. The ruling highlights the balance between national and local interests in revenue generation.

Power Struggle: Can Cities Tax National Power Corporations?

This case revolves around whether the City of Cabanatuan can impose a franchise tax on the National Power Corporation (NPC), a government-owned corporation. The central question is whether the Local Government Code (LGC) effectively withdrew NPC’s tax exemptions granted under its charter. NPC argued that as a non-profit, government instrumentality, it should be exempt from local taxes. The City of Cabanatuan contended that Section 193 of the LGC repealed all prior tax exemptions, including NPC’s. This legal battle delves into the power dynamics between national and local governments regarding taxation.

The legal framework involves key provisions from both NPC’s charter (Commonwealth Act No. 120, as amended) and the Local Government Code (Rep. Act No. 7160). NPC relied on Section 13 of Rep. Act No. 6395, which provides exemptions from various taxes and charges. However, the City pointed to Section 193 of the LGC, which expressly withdraws tax exemptions previously enjoyed by all entities, including government-owned corporations. The trial court initially sided with NPC, emphasizing that the LGC, as a general law, could not repeal NPC’s specific charter. The Court of Appeals reversed, asserting the LGC’s clear intent to withdraw exemptions. This conflict highlights the core issue of statutory interpretation and legislative intent.

The Supreme Court ultimately sided with the City of Cabanatuan. The Court underscored that taxes are the lifeblood of the government, essential for fulfilling its mandate. Citing Article X, Section 5 of the 1987 Constitution, the Court emphasized that local government units (LGUs) have the power to create their own revenue sources, promoting local autonomy. This paradigm shift aims to strengthen local governance and reduce dependence on the national government. As such, the enactment of the LGC was deemed a measure towards this goal. The LGC intended to widen the tax base of LGUs and remove the blanket exclusion of national government instrumentalities from local taxation.

Building on this principle, the Supreme Court analyzed Section 133 of the LGC, which outlines limitations on taxing powers, stating that the taxing powers of LGUs generally do not extend to the national government, its agencies, and instrumentalities unless otherwise provided. The exception exists when specific LGC provisions authorize LGUs to impose taxes on these entities. Here, the Court explicitly states that the doctrine in Basco vs. Philippine Amusement and Gaming Corporation no longer applies because that case was decided before the effectivity of the LGC when LGUs lacked the power to tax national government instrumentalities. In this case, Section 151 of the LGC in relation to Section 137 grants the City of Cabanatuan the explicit authority to impose franchise tax on NPC.

The Court found that Commonwealth Act No. 120, as amended, granted NPC a franchise to operate and conduct business. NPC was found to be operating within the city and generating revenue under this franchise. Rejecting NPC’s argument that it should be exempt from franchise tax due to the National Government’s full ownership and that it’s defined as “non-profit,” the Court emphasized that franchise tax is imposed on exercising the privilege of doing business and not on ownership. As NPC generates and sells electric power in bulk, activities that do not involve sovereign functions, the court characterizes it as a commercial enterprise akin to a private utility.

The Court clarified the nature of statutory repeals in cases involving specific laws and general laws, and stated that NPC’s charter, as a specific law, does not supersede Section 193, the general tax provision within the Local Government Code, effectively negating existing tax exemption privileges. The Court then referenced the maxim, “expressio unius est exclusio alterius,” which means the express mention of one thing excludes all others. NPC is not included in the short list of LGC tax exemptions. Furthermore, LGUs retain the authority to approve tax exemptions through ordinances, and the City did not intend to exempt NPC, as detailed in Section 37 of Ordinance No. 165-92.

FAQs

What was the key issue in this case?	The central issue was whether the City of Cabanatuan could impose a franchise tax on the National Power Corporation (NPC), despite NPC’s claim of tax exemption under its charter.
What is a franchise tax?	A franchise tax is a tax imposed on the privilege of transacting business and exercising corporate franchises granted by the state, not simply for existing as a corporation or based on its property or income. It is based on its exercise of rights or privileges granted by the government.
What did the Local Government Code (LGC) change regarding tax exemptions?	The LGC withdrew tax exemptions previously enjoyed by both private and public corporations, aiming to broaden the tax base of local government units (LGUs) and reduce dependence on the national government.
Can LGUs tax national government instrumentalities?	As a general rule, LGUs cannot impose taxes, fees, or charges on the National Government and its instrumentalities, unless specific provisions of the LGC authorize them to do so.
What is the significance of Section 193 of the LGC?	Section 193 of the LGC expressly withdraws tax exemption privileges previously granted to various entities, including government-owned and controlled corporations, except for specific exceptions like local water districts and registered cooperatives.
Why was NPC’s claim of being a non-profit organization rejected?	The Court determined that NPC functions as a commercial enterprise, generating and selling electric power in bulk, activities that do not pertain to the sovereign functions of the government. The tax applies to corporations practicing this right rather than if it is a non-profit entity or not.
How did the court interpret the interaction between NPC’s charter and the LGC?	The court held that the LGC’s express withdrawal of tax exemptions supersedes NPC’s charter’s exemption provisions, emphasizing the legislative intent to grant LGUs greater fiscal autonomy. The LGC explicitly allows LGUs to impose franchise taxes regardless of any pre-existing exemptions under special laws.
What does the “expressio unius est exclusio alterius” maxim mean in this context?	This legal maxim means that the express mention of one thing excludes all others. In the context of the LGC, the express mention of specific entities that are exempt from the withdrawal of tax privileges implies that all other entities, including NPC, are not exempt.

In conclusion, the Supreme Court’s decision in National Power Corporation vs. City of Cabanatuan reinforces the principle of local autonomy in the Philippines. By upholding the City of Cabanatuan’s right to impose franchise taxes on NPC, the Court underscores the importance of empowering local government units to generate their own revenue for the benefit of their constituents and the promotion of local progress.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: National Power Corporation vs. City of Cabanatuan, G.R. No. 149110, April 09, 2003