FACTS
Pursuant to Sec. 37 of Ordinance No. 165-92, the city government of Cabanatuan assessed NPC, a GOCC tasked to undertake the development of power plants, a franchise tax amounting to P808,606.41, representing 75 percent of 1 percent of the latter's gross receipts for the preceding year.
NPC refused to pay, arguing that the city government did not have the authority to impose tax on government entities, and that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA No. 6395.
The city government, on the other hand, claimed that NPC's exemption from payment of tax was already repealed by Sec. 193 of the Local Government Code.
RULING
The Court ruled in favor of Cabanatuan City.
One of the most significant provisions of the Local Government Code is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation because exemption privileges granted to GOCCs and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises.
Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. In the instance case, Section 151 in relation to Section 137 of the LGC clearly authorizes Cabanatuan government to impose on NPC the franchise tax in question.
To determine whether the NPC is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a “franchise” in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. NPC fulfills both requisites.
