16 (D) Manila Electric Company vs. Province of Laguna

Manila Electric Co, Inc.
vs Province of Laguna
G.R. No. 131359
Subject: Public Corporation
Doctrine: Power to generate revenues
FACTS:
MERALCO was granted franchise for the supply of electric light, heat and power by certain
municipalities of the Province of Laguna including, Biñan, Sta Rosa, San Pedro, Luisiana, Calauan and
Cabuyao. On 19 January 1983, MERALCO was likewise granted a franchise by the National
Electrification Administration to operate an electric light and power service in the Municipality of
Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the “Local Government Code of
1991,” was enacted to take effect on 01 January 1992 enjoining local government units to create their
own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, respondent
province enacted Laguna Provincial Ordinance providing for franchise tax at a rate of 50% of 1% of the
gross annual receipts. Provincial Treasurer, then sent a demand letter to MERALCO for the
corresponding tax payment.
Petitioner MERALCO paid the tax, which then amounted to P19,520,628.42, under protest. A formal
claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that
the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551
already included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that
the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as
it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which provides “Any
provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two
per cent (2%) of their gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current… Such franchise tax shall be payable to
the Commissioner of Internal Revenue or his duly authorized representative.”
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D.
Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the
Local Government Code of 1991, than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the RTC a complaint for refund against the
Province of Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of Laguna. RTC
dismissed the complaint holding that the power to tax exercised by the province of Laguna was valid.
ISSUE:
Whether or not the power to tax was validly exercised.
HELD:
Prefatorily, it might be well to recall that local governments do not have the inherent power to tax except
to the extent that such power might be delegated to them either by the basic law or by statute. Presently,
under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of
local government units.
Under the regime of the 1935 Constitution no similar delegation of tax powers was provided, and local
government units instead derived their tax powers under a limited statutory authority. Whereas, then, the
delegation of tax powers granted at that time by statute to local governments was confined and defined
(outside of which the power was deemed withheld), the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers subject only to specific exceptions that the
law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax
power must be deemed to exist although Congress may provide statutory limitations and guidelines. The
basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government
units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure
that, while the local government units are being strengthened and made more autonomous,[6] the
legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share of available resources;
(c) the resources of the national government will not be unduly disturbed; and (d) local taxation will be
fair, uniform, and just. The 1991 Code explicitly authorizes provincial governments, notwithstanding
“any exemption granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a
franchise.” Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax
powers to local government units, the Local Government Code has effectively withdrawn under Section
193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. The Code, in addition,
contains a general repealing clause in its Section 534 which states that “All general and special laws, acts,
city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.”
WHEREFORE, the instant petition is hereby DISMISSED. No costs.

16 (D) Manila Electric Company vs. Province of Laguna

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16 (D) Manila Electric Company vs. Province of Laguna

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Manila Electric Co, Inc.

WHEREFORE, the instant petition is hereby DISMISSED. No costs.

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