LGUs can tax mobile phone providers

Sharing you this news story from Sun.Star Cebu today, March 7, 2009:

LGUs can tax mobile phone providers

LOCAL government units (LGUs) that had trouble collecting franchise and business taxes from telecommunication firms in the past can run after the firms again for surcharges and interest.

The Supreme Court (SC) clarified this in a ruling that stemmed from a case involving Smart Communications in Iloilo City, but will have an impact on those cities or towns where Smart and other players, including Globe Telecom, operates.

Many local governments, including the Cebu City Government, had problems collecting business and franchise taxes from telecommunication companies because of a provision in the firms’ congressional franchises.

The congressional franchises say players only need to pay three percent of all gross receipts “in lieu of all taxes.”

The firms said their franchises were issued after the Local Government Code was enacted in 1991, giving cities,
municipalities and provinces tax powers. They argued the law must have intended to give them the exemption.

Section 23 of Republic Act 7925, or the Public Telecommunications Act, states that any exemption given to new players under the scheme to deregulate the telecommunications industry should also be given to the old ones.

This, the players argued, means all telecommunication players are exempt from local tax.

Pangasinan

Whether or not phone companies can be taxed was only resolved partially by the SC in the case of PLDT vs. Davao City in 2001 and in the February 2007 case of Digitel vs. Pangasinan.

In the PLDT vs. Davao case, justices said the term “exemption” in RA 7925 didn’t specifically refer to taxation but certain regulatory and reporting requirements.

In the more recent Digitel vs. Pangasinan, the justices said the “in lieu of all taxes” provision in the franchise “basically exempts firms from paying all other kinds of taxes for as long as it pays the three percent franchise tax.”

However, the ruling added, franchise taxes on telecommunications companies have been abolished by RA 7716 or the Expanded Value-Added Tax Law. The “in lieu of all taxes” clause in the legislative franchise has thus become inoperative.
The rulings of the SC did not deal with the surcharges and interest accrued over the original tax assessments.

Only “good faith and honest belief” justifies the non-collection of interest and surcharges on taxes, the SC clarified.

In the Smart vs. Iloilo case, the justices said, Smart Communications claims to have relied on good faith and the conclusion of the Bureau of Local Government and Finance (BLGF) when it first refused to pay the business and franchise taxes assessed by the city government.

However, the SC said, Smart should have known the BLGF does not have the power and authority to interpret the Tax Code, as this was clearly indicated in the 2001 ruling in PLDT vs. Davao.

So, the High Court said, the reliance was “misplaced.”

“The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax laws are sufficient justification to delete the imposition of surcharges and interest,” the Supreme Court’s 2nd Division ruling dated Feb. 27, 2009 said. (KNR)