SC allows Muntinlupa to collect franchise tax from Meralco

February 21, 2011, 8:05pm
MANILA, Philippines — The Court of Appeals (CA) has allowed the government of the City of Muntinlupa to collect the franchise tax from the Manila Electric Co. (Meralco) accrued since 1995.

The CA decision was written by Associate Justice Rebecca de Guia Salvador, and concurred in by Associate Justices Sesinando Villon and Amy Lazaro Javier.

It reversed a decision of the Pasig City Regional Trial Court (RTC) which declared void the implementation of Section 25 of Municipal Ordinance (MO) No. 93-95, known as the Revenue Code of the Municipality of Muntinlupa.

A check with the Energy Regulatory Commission (ERC) showed that power utility firms, like Meralco and electric cooperatives, recover the franchise taxes they paid to local government units by raising the rates they charge their consumers.

Among other things, MO 93-95 imposed a franchise tax on public utilities operating within what was then the town of Muntinlupa. With the passage of the ordinance, Muntinlupa town has since 1992 been demanding that Meralco pay the tax.

In its decision, the CA said that while it, in effect, affirmed the validity of MO 93-95, the assessment of Meralco’s franchise tax should be computed only from March 1, 1995, when Republic Act No. 7926 converted Muntinlupa into a city.

It pointed out that while the 1991 Local Government Code prohibits municipalities from levying taxes already collected by the province, the defect in MO 93-95 was effectively cured with the passage of RA 7926.

Section 56 of RA 7926 carried over all ordinances of Muntinlupa town into the city “which could only have the effect of curing whatever legal infirmities” of MO 93-95, the appellate court said.

It is worthwhile noting that when RA 7926 was enacted, MO 93-95 had not been voided by a final judgment of any court, it said.

“It is our view that although the ordinance was void when first passed, the legality of its provision was cured by the enactment of RA 7926,” it said, adding that Meralco must pay franchise tax to the city of Muntinlupa accruing March 1, 1995, when RA 7926 took effect.

With the ruling, the CA directed Meralco to comply with the demand of the Muntinlupa government for a certified statement of its gross receipts and other related documents so it could determine the franchise tax due.

Meralco has 15 days to file a motion to reconsider the CA decision.

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