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Smart Communication Vs The City of Davao

1) Smart Communication filed a case against the City of Davao claiming exemption from franchise tax payments to the city. 2) The trial court ruled against Smart Communication, noting ambiguity around whether Smart's "in lieu of all taxes" provision covered national and local taxes. 3) The Supreme Court found that Smart is liable to pay the franchise tax imposed by the City of Davao. Tax exemptions must be clear and any doubts are resolved in favor of the taxing authority. The "in lieu of all taxes" clause applied only to national taxes, not local taxes.

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Junelyn T. Ella
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288 views1 page

Smart Communication Vs The City of Davao

1) Smart Communication filed a case against the City of Davao claiming exemption from franchise tax payments to the city. 2) The trial court ruled against Smart Communication, noting ambiguity around whether Smart's "in lieu of all taxes" provision covered national and local taxes. 3) The Supreme Court found that Smart is liable to pay the franchise tax imposed by the City of Davao. Tax exemptions must be clear and any doubts are resolved in favor of the taxing authority. The "in lieu of all taxes" clause applied only to national taxes, not local taxes.

Uploaded by

Junelyn T. Ella
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Smart Communication vs The City of Davao

Sept. 16, 2008

Facts: On February 18, 2002, Smart filed a special civil action for declaratory relief, for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao. Smart
contends that its telecenter in Davao City is exempt from payment of franchise tax to the
City because the power of the City of Davao to impose a franchise tax is subject to statutory
limitations such as the “in lieu of all taxes” clause found in Section 9 of R.A. No. 7294
(Smart’s franchise).

Respondents contested the tax exemption claimed by Smart. They invoked the power
granted by the Constitution to local government units to create their own sources of
revenue. On July 19, 2002, the RTC rendered its Decision denying the petition. The trial court
noted that the ambiguity of the in “lieu of all taxes” provision in R.A. No. 7294, on whether it
covers both national and local taxes, must be resolved against the taxpayer.

Issue: Whether or not Smart is liable to pay the franchise tax imposed by the City of Davao.

Held: Yes. The SC find that there is no violation of Article III, Section 10 of the 1987
Philippine Constitution.

Tax exemptions are never presumed and are strictly construed against the taxpayer and
liberally in favor of the taxing authority. They can only be given force when the grant is clear
and categorical. Moreover, Smarts franchise was granted with the express condition that it
is subject to amendment, alteration, or repeal. In this case since there is doubt it must be
resolved in favor of the City of Davao. The “in lieu” of all taxes clause applies only to national
internal revenue taxes and not to local taxes.

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