National Power Corp.

v City of Cabanatuan (2003)

LGU taxing a GOCC case

The NPC is a GOCC tasked to undertake the development of hydroelectric generations of power, the production of electricity, and the
transmission of electric power on a nationwide basis
For many years, the NPC had been selling electric power to the residents of Cabanatuan City
Cabanatuan assessed the NPC a franchise tax which the NPC refused to pay
Franchise tax- imposed based on the exercise by the corporation of a privilege to do business
NPC claimed that Cabanatuan City, as an LGU, had no authority to impose tax on government entities
Cabanatuan filed a collection suit with the RTC; RTC dismissed the case, claiming that local governments have no power to tax instrumentalities
of the National Government
CA reversed, ordering NPC to pay the franchise tax to Cabanatuan
Issue- W/N Cabanatuan City has the power to impose a franchise tax on the NPC?; Held- Yes
SC held that the 1991 Local Government Code removed the blanket exclusion of instrumentalities and agencies of the National Government from
the coverage of local taxation
o SC: 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- when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or
charges on the aforementioned entities
o Sections 151 (scope of taxing powers of cities) and 137 (franchise tax) of the LGC clearly authorized the city government of Cabanatuan
to impose on the NPC the franchise tax in question
The SC also discussed on the importance of taxes
o Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure
o Exercise of taxing power is a principal attribute of sovereignty; derives its source from the very existence of the State
o Theory behind the exercise of the power to tax emanates from necessity
o Without tax, government cannot fulfill its mandate of promoting the general welfare and well-being of the people
o Taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress, and the protection of
local industries as well as public welfare and similar objectives
o Pursuant to Article X, Sec 5 of the Constitution, the power to tax is no longer vested exclusively in Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other charges