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CHAPTER 1
Introduction
Local taxes are important elements of the modern taxation system. This is
common where the organization system of a government has its levels of
government: central or national, cities, and municipalities or counties. This
system requires allocation of function to each level of government with specific
role and responsibilities to follow. The subordinate levels of government are now
given the right to independent taxation to finance and settle its operation.
income are the basic cable television service which packages of channels are
offered with different rates, and normally collected by way of subscription, the
lease of its channel, and pay-per-view service the fee of which is on a case-by-
case basis because of the demand of the show –either live or not-, movie or a
particular film.
Cable Television has more channels than the traditional television, such
as but not limited to news, business information, movies and special
entertainment, and these channels have superior signals, either a High Definition
(HD) or Standard Definition (SD). Pay-Per-View (PPV) channel is also available
in some special events like in the field of sports, i.e. boxing. Nowadays, cable
television is also offering Value Added Services (VAS), enhanced services, such
as but not limited web browsing, internet protocol, voice internet protocol (VoIP)
and similar services that are bundled with its basic cable television service.
The business models or at heart stories that explain how enterprises work
(Joan Magretta, 2002) of cable television businesses allowed it to operate in an
area or locality without physical presence through office or establishment of the
local government units not to mention the fact that their installations or
4
constructions i.e. cable and devices, can be contracted to a third party contractor
to do the works and even its collection works.
In the past, by practices it is not only the NTC grants franchise to operate
cable television but also the Local Government Units (LGUs) through passing a
local law or ordinance of its local council or known as “Sanggunian”. However, in
2004, the Philippine Supreme Court ruled, in Batangas CATV, Inc., vs. The Court
of Appeals, the Batangas City Sangguniang Panlunsod, and Batangas City
Mayor, that no specific law consenting the LGUs to grant franchises to cable
television operator, and whatever powers are given to LGUs to grant franchises
are withdrawn by the former President Marcos under P.D. 1512. It terminates all
previous franchises, permits or certificates given by the LGUs to cable operators.
Then in 2005, in Zoomzat, Inc. vs. People, et. al., the Supreme Court once more
reiterated its ruling and quoted in full its pronouncement in Batangas CATV case.
The practice of collection of local tax or taxes for one line or kind of
business, like cable television, except when it is engaged in the other line or kind
of business, either local business tax (LBT) or franchise tax is very confusing.
The practice would result in insolence to the principles of taxation that a tax
should be uniformly applied to all of one class, and if not may result to unjust,
excessive, oppressive or confiscatory which are contrary to the law, communal
5
policy including the economic policy and in restraint of trade. Also, it may
influence taxpayer’s willing to pay local taxes.
Theoretical Framework
Equity, this principle of taxation articulates that every taxpayer has to pay
its tax due in proportion to his or her income or earnings according to the existing
tax policy of the government. Generally, the practice is that there is this table or
list of rates in percentile corresponding to each bracket of income or earnings of
a taxpayer, which it should pay. Therefore, the higher the income or earnings a
particular taxpayer the higher tax rate or percentage it will be subjected.
pay, which help them to efficiently plan or budget their future actions. This
principle involves the “condition and assessment” of a tax system.
Efficiency, this principle of taxation conveys the idea that the tax system is
sound and operates well that the government collected the needed money to
finance its operations and services to its taxpayer. On the other hand, a taxpayer
pays its tax due according to the requirement of the government and receives the
expected services to the latter. This includes the administration of tax system, the
set up mechanism, fair law and regulation to be implemented.
Cable Television as one line of business should be taxed uniformly. All taxpayers
with similar circumstances should be taxed harmoniously this exemplifies equity
and fairness in taxation (AICPA, 2001). Also, there should be clearness as to
how and when to pay taxes including the explanation of its assessment (AICPA,
2001). Both views not necessarily refer to tax rate but to lawful and valid
classification, as laid in the LGC and Local Revenue Code or Ordinances passed
by the LGUs in Metro Manila. If the collection of the local tax to one line of
business differs from one LGU to another LGU then it shows existing policy of
the state is violating the principle of equity.
8
Conceptual Framework
The first box, Input, contains data and information gathered through
survey or interview concerning to the current cable television practices of LGUs
in Metro Manila that include: i) Passed Revenue/Tax Ordinance or Owned
Revenue/Tax Code; ii) Pro-forma Application Form for Business Permit; iii)
Actual Assessment/Order of Payment of business tax or franchise tax; and iv)
Legislative Franchise granted to Cable Television. These variables are the
sources of data and information that researcher used in getting current cable tax
collection practices.
The third box, Output, contains the proposed action plan on the provisions
of LGC about local business tax and franchise tax. The proposed action plan was
based on the results of matching the variables of first and second boxes. Results
equipped the researcher to make a conclusion on the current tax collection
practices to cable television.
10
This research seeks to study the collection practices of the local tax to
Cable Television in Metro Manila.
This research covered local taxes practices of all LGUs in Metro Manila,
the sixteen (16) cities and one (1) municipality, except barangays.
It should also be noted that due to resource limitation, time and money,
the first-hand study does not include other cities and municipalities outside Metro
Manila and also all the provinces and barangays, where other cable televisions
are operating. This does not include other local tax collection like real property
tax, regulatory and other charges.
12
Figure 2 below shows the cities and/or municipalities that composed metro
manila.
Figure 2
https://en.wikipedia.org/wiki/Administrative_divisions_of_Metro_Manila
13
This will help the local government units in the collection of local taxes to
cable television in a way that the fundamental principles of local taxation were
observed.
The Local Government Units (LGUs), being the taxing authority and Cable
Television, being a local taxpayer, both, will be benefited from this study.
To LGUs, the results of this study would supplement their insights and
assessment skill in collecting the local tax appropriate to cable television while
effectively observing the provisions of the LGC and their existing Local Tax Code
or tax ordinance on cable television.
14
Definition of Terms
The listed terms below are conceptually and operationally defined for
perceptive reading this research.
Congress - the branch of the Government that makes law or laws; or the body
of lawmakers.
Fee - means a charge imposed for the regulation of businesses including its
activity or activities in conformity with the local law or ordinance passed by the
LGUs.
Franchise Tax – is a local tax levied by the LGU to those businesses enjoying a
franchise.
Gross Sales or Receipt – It refers to entire amount of money that had been
actually or constructively received in rendering a service or services. It covers the
whole consideration of a particular contract including advance or deposits
payments, which represents compensation or payment to the service rendered. It
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also includes the price charged to the materials or supplies with the said services
within a taxable year but not include discounts -if can be identified at the time of
sales-, sales return, excise tax, and value-added tax (VAT).
Local Tax - refers both to local business tax and local franchise tax
Local Government Code (LGC) of 1991 - the governing law affecting all local
government units.
Republic Act – it refers to a written policy in a form of a law, and conforms in the
principles of the State’s Constitution. It is the Congress that crafted and passed it
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during the deliberation, and either approve or veto by the President. It can only
be abolished by another law passed by the Congress.
Local Revenue Code – a list of local tax laws, regulatory fees, and other
charges passed or enacted by the city or municipal sanggunian to levy local tax
or taxes including regulatory fees, and other charges.
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CHAPTER 2
This chapter presents the foreign and local literature as well foreign and
local studies to gather insights for the researcher strengthening the framework of
the study.
Foreign Literature
Moss, Mitchell L.; Payne, and Frances, entitled "Can Cable Keep Its
Promise?", New York Affairs, Volume 6, Number 4. New York University. 1981,
postulated that the attraction of cable television technology lies not only on
providing better reception but the features that its coaxial cable has a carrying
capacity of more than channels the an ordinary television can offer and options
are given to subscribers to choose channels what it likes to view. Also, the same
coaxial cable can provide services other than cable television and its low cost
access.
about how the media functions today because of wired cities. He described cable
television as emerging telecommunications infrastructure, from its genesis as
community antennae to wired community. He also described that cable television
is the source of better television reception. Same with the article written by Sir
Gerald K. Clode, Sir Eisenmann’ article validates how cable television works from
community antennas to a wired one.
Indeed, the very nature of a cable television nurtured many issues, and
another question that came to the minds of lawmakers is the impact of cable
television in the taxation systems.
territories of other state or local government, using only a single network and
head-end in one location, which ripens issues in taxation.
In their work Pieger and Nellen (October 2009) commented that the
existing laws seriously compromising equity, the principle of equal treatment the
providers and their services. In their article, they cited that both the local
exchange carrier provider and cable television provider, can now offer similar
communications services, but are not equally treated when it comes to tax, like
the number or types of taxes and their rates on the same nature of services they
do. They also posited that it is important that tax policies are well crafted
otherwise they have poor impact in the growth and development of one business
or industry.
On another topic, “what a tax system should be and not to be”, the works
of Abiola James and Moses Asiweh (2012) posited that the qualities of a good
tax are equitability, efficiency, neutrality, flexibility, and simplicity.
In his book of Wealth of the Nation, Sir Adam Smith opined that stability in
tax should be incidence in a government policy. If for an instance, the
government wants to help its citizens on inflation then it should not pursue the
policy of taxation that would increase its rate and burden the economy.
The well-known quote of Chief Justice John Marshall states that power to
tax is the power to destroy is another factor to consider in taxing a line of
business. The principle of this well-known quote may apply to many situations in
taxation. According to an article of Clarence B. Carson (October 01, 1976) the
axioms and principles set forth in support the decision (referring to McCulloch vs.
Maryland), if correct, apply to all taxation.
Above foreign literature taught that there are some instances known or not
known to the taxing authorities that the tax policy they made compromises the
principles of taxation when a new business comes in. Hence existing tax policies
require reform to settle problems and issues but the principles of taxation should
always be observed otherwise there is a violation. It also impresses that
knowledge in taxation is important both to the taxing authority and taxpayer.
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Foreign Studies
While there are limited studies relating to cable television and taxation the
following foreign studies show the taxation on cable television:
The study conducted by David Tuerck, Paul Bachman, Steven Titch, and
John Rutledge (2007) assessed that it cost the average household nearly $250 a
year in paying taxes and fees for cable television and phone services in 59 cities
found in the United States (U.S.) .
The study also showed that taxes vary from each of same level of
government, transaction to transaction and the technology used to deliver related
services. It recommended the local and national government to take action to
lower and uniform cable television, phone and related communication services.
The same study concluded that taxes and fees on cable television and
telephone services in US are double which is equal or as high as general sales
taxes imposed on other goods. It also concluded that the policymakers should
update their public policy to adopt the technological advancement and changes.
A public policy on taxes that would slash, simplify and uniform to the different
technology platforms. The study also shows that the technology offered by cable
television is very appealing to the taxing authority for them to concentrate on
communication services such as phone and other related services including
cable television. Also, remarkable, the report that some states in the U.S. took
the initiative to enact policy for the needed reforms which the other states
followed.
.
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The study entitled, Local Taxation: Principles and Scope, Sir Paul Berd
pointed out the significance of evaluating the existing tax rules, preferences and
exemption relating to local tax to test whether it passed the gauge of uniformity.
He stressed that uniformity is necessary through the whole nation with regard to
tax rules, preferences and exemption in order to avoid discrimination.
On the other hand, the following foreign studies narrated the importance of
tax knowledge.
A study by Kirchler et. al. (2008), maintained the idea that tax knowledge
boosts tax compliance and supported the previous studies of Wahlund, 1992;
Eriksen and Fallan, 1996; Park and Hyun, 2003.
Lymer and Oats (2009) in their study, posited that every tax system should
comply with the fundamental principles of taxation: equity, certainty, simplicity,
and convenience are necessary every tax system.
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Local Literature
The following local literature will give insights on the elementary things of
existing tax system in the Philippines, and it will help the taxing authority to
balance the imposition of tax to a certain business or businesses.
By the same token, the LGC provided that individual local government unit is
empowered to make income that are solely due to it, through passing of local
ordinance on taxes, fees and charges with the limitations provided in the code itself
that are consistent to the basic policy of local autonomy (LGC 1991, Section 129).
Further, the LGC of 1991 provides that taxation: i) Shall be uniform in each
local government unit (LGC, 130[a]); ii) Shall not be unjust, excessive, oppressive,
or confiscatory (LGC, 130[b][3]); and iii) Shall not be contrary to law, public, policy,
national economic policy, or in restraint of trade (LGC, 130[b][4]).
derived from the Constitution itself that grants them the power, and subject to
guidelines and limitation that the Congress may come up. It further held that the
explicit power is in agreement with the basic policy of governance on local
autonomy and decentralization. In the same case, it also held that a franchise tax
is a tax on the exercise of a privilege, and shall be based on gross receipts
precisely being a tax on business.
According to August 28, 2007 article of Arnel D. Mateo, that there are
instances the power to tax is treated as power to destroy.
Another article in Philippine law literature expressed that the power to tax is
correctly implemented if it is not against the limitations given by the Constitution and
27
related laws, and the happening of which may occur when tax authority steps over
the fundamental principles of taxation.
The following related literature explained how the legal system in the
Philippines works. It helped the researcher in assessing, analyzing and
interpreting his data and information to his research.
Primarily, in Philippines there are two source of law. One is the statutes or
statutory law, and two, jurisprudence or case law. Statutory law refers to those
laws that are originated to the legislative branch of the government, particularly
the Senate and the House of Representatives i.e. Act, Commonwealth Act,
Republic Acts (R.A.), Batas Pambansa (B.P.) and Constitution itself.
[http://www.tradechakra.com/economy/philippines/legal-system-in-philippines-235.php].
Equally, Secondary Sources are those that came from unofficial sources
and commonly known as commercial publications i.e. the publication of SCRA or
compilation of Supreme Court decisions published by the Central Book Supply or
publications not directly originated to the government itself or its agencies or
instrumentalities.
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[http://www.tradechakra.com/economy/philippines/legal-system-in-philippines-235.php].
Also, it is important to note that laws in the Philippine legal system have
had various nomenclature designations at different periods in the history of the
Philippines, as shown in below:
Nomenclature
Abbreviation Form of government Dates
designation
Philippine government
Act Act under United States 1900-1935
sovereignty
Commonwealth Act CA Philippine Commonwealth 1935-1946
1946-72, 1987-
Republic Act RA Republic
present
Republic under Martial
Presidential Decree PD 1972-1986
Law/Fourth Republic
Presidential Republic under Martial
PP 1972-1986
Proclamation Law
Modified parliamentary
Batas Pambansa BP 1978-1985
republic
Republic under Provisional
Executive Order EO 1986-1987
Constitution
[https://en.wikipedia.org/wiki/List_of_Philippine_laws]
30
Local Studies
has become the watchword of many theorists and practitioners involved in public
administration. This strategy of Decentralization provides the systematic and
rational dispersal of rights and calling from national to local level of government.
This strategy took effect with the passage of the LGC. The power and authority of
the National Government have been decentralized to the local government
through the devolution of the national government services such as health,
agriculture, social services, public works, and others. The success of the
implementation of devolution can be gauged on how the local government units
absorb these functions. It can be on the positive or negative on the financial and
managerial capabilities of the LGU.” (Page 13).
In the same project research study, he concluded that the passage of the
Revised Tax Code of the Municipality by virtue of a tax ordinance pursuant to the
provisions of the LGC was one positive step towards the attainment of their goal
of increase in the local revenues (p.88). He further recommended the
implementation of an intensive tax campaign and No non-sense implementation
of the Revised Tax Ordinance (p.89).
The review of the foreign and local literature and related studies shows
that a reform of taxation is maybe necessary when a new circumstance comes in
like a particular nature of business e.g. cable television. Otherwise, the existing
tax system may either compromise or if maintain will violate the fundamental
principles of taxation. .The review also manifested the while the taxing authority
has its power to tax but it should be with limitations.
The review also shows that on some occasions the tax and the way of
taxing cable television businesses cross to the line where it should only stand. As
cited in the review, cable and other similar technologies e.g. telephone and
internet services were taxed high by the taxing authority which crosses to the
borderline in the sense that it violates the principles of taxation. As mentioned in
some literature, cable television businesses are among the contributors to the
growth of one’s country, treating with fairness and equity will create a
harmonious working relation -between the local government units and cable
television businesses- to the development and enhancement of the nation.
CHAPTER 3
RESEARCH METHODOLOGY
The researcher collected and used for this research was predominantly
sourced from:
This research also considered the: i) The LGC and its implementing rules
and regulations; Issuances of ii) Department of Finance (DOF), iii) Bureau of
Local Government Finance (BLGF), and iv) National Telecommunications
Commission (NTC).
Most of these documents the researcher has used were of two types:
state documents through personal request, internet access, and at times, like in
San Juan and Pasig Cities, researcher bought copies of their revenue code.
While other documents often emanate from the private sector, cable television
businesses, as well of course from private individuals.
This study used the purposive sampling (Seaberg 1985), which generally
goes through the five steps; designation of: i) target population; ii)sampling
frame; iii) sampling method; iv) sample size; and v) sampling plan (Hair et al,
2008). To start with, the populations of this research are the local government
units and cable television operators in Metro Manila.
For local government units in Metro Manila, they are composed of sixteen
(16) cities and one (1) municipality; namely:
38
For cable television operators in Metro Manila, they are composed of sixteen (6)
namely:
1. Sky Cable Corporation (Formerly: Central CATV, Inc.) also known as Sky
Cable
3. Pilipino Cable Corporation (formerly: Sun Cable Caloocan, Inc.; Sun Cable
Systems Valenzuela, Inc.)
39
SkyCable brand and Destiny Cable brand now owned by Sky Cable
Corporation are available all throughout Metro Manila. Cablelink is only available
in selected areas in Metro Manila. There are also other cable television
operators, Pilipino Cable, Sunvision Cable and Dakila Cable, whose operation
are limited in some or one area in Metro Manila.
Per survey conducted by the researcher on an average, there are only two
to three operators in one local government unit. While there is a small variance
between the lists of provided by the LGUs and the National Telecommunications
Commission (NTC), but the matter can be best explained that the list given by
LGUs pertains to definite cable television business actually operating in their
locality. On other hand, the list given by the NTC to the researcher pertains only
to those cable television that had been granted an NTC franchise to operate a
cable television businesses but may or may not actually operating.
40
In gathering the data, the researcher first collected the LGUs’ revenue
ordinances or revenue codes and pro-forma application for a business permit.
The researcher personally –either- visited and requested or buy it, or through on-
line using the official website of concerned LGU.
The researcher collected the other data and information through the use of
the letter of request with a structured questionnaire. The structured questionnaire
aims to answer the tax actually collected/levied by the seventeen LGUs to cable
television operating in their locality for years 2016 and 2017. The researcher if
also conducted an in-depth interview with a representative of LGU to support the
data found in the documents.
The researcher also collected through online the latest decisions of the
Supreme Court affecting the local taxation and including other issuances from
related government agencies such as but not limited DOF, BLGF) and NTC using
their official websites.
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CHAPTER 4
This chapter deals with the presentation of the data. Each table gives
analysis, interpretation, and answer to the specific research problems.
1. What are the current cable television tax collection practices in each
city/municipality in Metro Manila in terms of:
Table 1
The list of LGUs (Cities and Municipalities) and their Legal basis to
Business Tax and Franchise Tax.
Caloocan -City of
Caloocan-
3% of Gross Receipts
The Caloocan City
Section 66(22) Section 82% of 1% of Gross
Updated Revenue
143(e) as Contractors Receipts
Code of 2004
Manila In excess of
For Franchise Tax 2,000,000.00 at the rate
Fifty Five percent (55%)
of one percent (1%) plus
P12650.00
Makati (City of
Makati)
Malabon -City of
Malabon-
Muntinlupa (City of
Muntinlupa)
Rates Prescribed
under this Ordinance
Marikina (City of
Marikina)
Navotas City
Business Tax
(Service/
Contractor)
Parañaque City
Section 143(e) as
Contractors
Pasay City
Pateros
Quezon City
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Taguig City
Ordinance 24: 1993
Taguig Revenue Code 2,000,000 or more at the Franchise Tax at the rate
rate of 65% of 1% of of ½ of 1% (Chapter 19,
NOTE: Ordinance Gross Receipts Section 93, page 102)
24:1993 above was Section 75(e)
amended by Note: The nomenclature
Ordinance 85:2005 it used for franchise tax
Which is the one is also service
existing? However, the
same rate is applied to
“service”
Valenzuela City
Tax Ordinance No.
092-012, Series of 75% of Gross Receipts 75% of 1% of Gross
1992 Section 143(e) as Receipts
“An Ordinance Contractors
Providing for Revenue
Code of the TV Station/Cable TV
Municipality [now City] Stations
of Valenzuela”.
Source: Local Tax Code or Ordinance of concerned LGU and Assessment and/or Order payment
to cable television, and structured questionnaires
Table 1 shows that the legal basis/es used of each LGU are either the
revenue ordinance or owned local revenue code to collect Business Tax and/or
Franchise Tax. The revenue ordinance or local tax code is passed by the
Sangguniang Panglunsod for cities and Sangguniang Bayan for municipalities.
45
Table 1 shows that the tax rate of local business tax is usually directly
multiplied by gross receipts e.g. 78% of gross receipts, 99% of gross receipts. On
the other hand, the rate of franchise tax is usually first multiplied to another
percentage before it multiplied to gross receipts itself e.g. 50% of 1% of gross
receipts, 57% of 1% of gross receipts, 75% of 1% of gross receipts.
Table 1 shows that in general, all LGUs in Metro Manila used section
143(e) on contractors and other independent contractors of the LGC as a basis in
collecting Local Business Tax (LBT) to cable television businesses. As to
franchise tax the regular sections 131(m) and 137.
Table 1 also shows that most of LGUs in Metro Manila have used different
nomenclature or categorization in their local revenue code section 143 (e) of
LGC as Service, Tax on Other Services, Cable Communication Co, Business
Tax, Cable Co., City Tax, Service-Cable Program Provider, TV Station/Cable TV
Stations etc.
Table 2
BUSINESS TAX
Article Two, Section 143 (e) (e) On contractors and other independent
Scope of Taxation Powers contractors
Article Two, Section 146. (a) The taxes imposed under Section 143
Payment of Business Taxes. shall be payable for every separate or
distinct establishment or place where
business subject to the tax is conducted
and one line of business does not become
exempt by being conducted with some
other business for which such tax has
been paid. The tax on a business must be
paid by the person conducting the same.
Article Two, Section 150. Situs of the (a) For purposes of collection of the taxes
Tax under Section 143 of this Code,
manufacturers, assemblers, repackers,
brewers, distillers, rectifiers and
compounders of liquor, distilled spirits and
wines, millers, producers, exporters,
wholesalers, distributors, dealers,
contractors, banks and other financial
institutions, and other businesses,
maintaining or operating branch or sales
outlet elsewhere shall record the sale in
the branch or sales outlet making the sale
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Table 2 also shows that under section 150 of LGC, collection of local
business tax requires meeting the two requirements, one, a taxpayer has its
operating branch or sales outlet, and two, book to record its sale or receipts in
LGU’s locality. Otherwise, LGU cannot collect the local business tax.
50
Table 3
Table 3 shows that the seventeen (17) or 100% of LGUs in Metro Manila
requires a declaration from taxpayer whether it has an operating branch or sales
outlet in the locality of the concerned LGU. The declaration whether a taxpayer
has its operating branch or sales outlet (physical presence) shows a sound
practice of 17 LGUs in Metro Manila because section 150 of LGC is very clear
about the requirement. This may also shows that the filled-up pro-forma
application is not properly executed and examined whether the collection or levy
of business tax is potential to concerned taxpayer as shown in table 5 and 10 of
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this study because of cable television’s nature that it can operate in one locality
even without its presence through operating branch or sales outlet.
Table 4
Table 4 shows that the seventeen (17) or 100% of LGUs in Metro Manila
requires a declaration from taxpayer whether it is engaged in other business
activity or line of business other than cable television. The presence of requiring
52
Table 4 also shows that LGUs in Metro Manila are aware the importance
of declaring the same for purposes of collecting the local business tax.
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Table 5
Source: Structured questionnaire, Personal interview or phone interview with Cable Television
Business and LGUs
Table 5 shows that there are three (3) out of six (6) cable television
operators that offered other services i.e. broadband/internet services. This also
54
shows that the three (3) cable television operators are engaged in other business
line or kind of business other than cable television service, and their situation
falls to sub-sections 143 of LGC, and subject to another tax rate of local business
tax.
Per interview with Ms. Theresa Hernandez, one of the Heads of Business
Permit and Licensing Office (BPLO) of Pasig, it solely collected under franchise
tax to one major cable operator in the locality because it presented a legislative
franchise from Congress. Also, during the interview with Ms. Hernandez
researcher was given a printed list of cable television operating in Pasig, which
the researcher found out the practice of another cable television operator with a
congressional franchise that it registered another separate legal entity to cater its
other line of business, broadband internet service in the locality.
It worth mentioning also that subject cable television operators have their
presence, operating branch or sales outlet in the locality of Pasig City.
Table 6
FRANCHISE TAX
Table 6 shows that under section 137 the collection or levy of franchise
tax requires only that taxpayer’s business is enjoying a franchise and no other
requirements like in the collection of local business tax. Otherwise, no collection
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Table 7
OTHER PROVISIONS
Table 8
List of Cable Television with regard to Legislative Franchise
Cable Link and Holdings, Republic Act No.9382: “An Act Granting the
Corporation. Cable Link & Holdings Corporation a Franchise to
Construct, Install, Establish, Operate and Maintain
Cable/Community Antennae Television Systems
in the Philippines”.
Sky Cable Corporation Republic Act No.7969: “An Act Granting the
(Formerly: Central CATV, Inc.) Central CATV, Inc. a Franchise to Establish,
Construct, Maintain and Operate for Commercial
Purposes Cable/Community Antennae Television
Systems in the Philippines”
Destiny Cable Inc. Republic Act No.8195: “An Act Granting the
Destiny Cable, Inc., a Franchise to Establish,
[Note: Sometimes in 2012 the Construct, Install, Maintain and Operate for
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Table 8 also explains that two (2) of the subsisting cable television
operators; namely: Sun Cable Systems Caloocan, Inc. and Sun Cable Systems
Valenzuela, Inc., are merged with Pilipino Cable Corporation. Technically, the
three of them refers to one entity, which Pilipino Cable Corporation.
60
Table 9
List of Practices on the declaration whether a cable television is a grantee
or holder of a legislative franchise from Congress.
Table 9 shows that out of seventeen (17) LGUs in Metro Manila only one
(1) LGU, the City of Makati, requires a declaration from taxpayer whether it is a
grantee of a legislative franchise.
Table 10
List of Local Government Units, Cable Television Operators, Whether
or not it has physical establishment in locality, Local Tax Collected
Local Government Unit (LGU) Physical Establishment Kind of Collected Local Tax
(Yes or No) (Local Business Tax or Franchise Tax)
SKY CABLE CORPORATION
1 CALOOCAN CITY Yes Business Tax
2 LAS PINAS CITY No Business Tax
3 MAKATI CITY Yes Franchise Tax
4 MALABON CITY No Business Tax
5 MANDALUYONG CITY Yes Business Tax
6 MANILA CITY Yes Business Tax
7 MARIKINA CITY No Business Tax
8 MUNTINLUPA CITY Yes Business Tax
9 NAVOTAS CITY Yes Business Tax
10 PARANAQUE CITY Yes Business Tax
11 PASAY CITY No Franchise Tax
12 PASIG CITY Yes Franchise Tax
13 QUEZON CITY Yes Business Tax
14 SAN JUAN CITY Yes Business Tax
15 TAGUIG CITY No Franchise Tax
16 VALENZUELA CITY No Business Tax
17 PATEROS MUNICIPALITY No Business Tax
CABLE LINK AND HOLDINGS, INC.
1 LAS PINAS CITY Yes Business Tax
2 MANDALUYONG CITY No Business Tax
3 MANILA CITY No Business Tax
4 MARIKINA CITY No Business Tax
5 MUNTINLUPA CITY Yes Business Tax
6 PARANAQUE CITY Yes Business Tax
7 PASAY CITY No Business Tax
8 PASIG CITY Yes Business Tax
9 QUEZON CITY Yes Business Tax
10 SAN JUAN CITY Np Business Tax
11 TAGUIG CITY Yes Business Tax
12 PATEROS MUNICIPALITY Yes Business Tax
PILIPINO CABLE CORPORATION
1 CALOOCAN CITY Yes Business Tax
2 MALABON CITY No Business Tax
3 NAVOTAS CITY No Business Tax
4 VALENZUELA CITY No Business Tax
SUNVISION CABLE INC.
1 TAGUIG CITY Yes Business Tax
PLANET CABLE INC.
1 MUNTINLUPA CITY No Business Tax
DAKILA CABLE TV CORPORATION
1 MANILA CITY No Business Tax
Source: Assessment and/or Order payment to cable television, and structured questionnaires
(7) LGUs collected business tax even cable television business have no
operating branch or sales outlet in their locality.
The practice clearly violates the provisions on business tax of section 150
of the LGC. The researcher also observed that even in the absence of operating
branch or sales outlet of cable television operators still, it can provide services.
The situation is supported by the fact that cable television nowadays, like other
similar businesses, contracted the third party to do the installations or
constructions and same with the collection of payment from its subscribers or
clients to the collection i.e. bayad centers, banks etc.
63
Table 11
The list of latest decisions of the Supreme Court affecting local taxation in
the Philippines
Remarks
Case Title/Date of Promulgation Year of
Promulgation
NATIONAL POWER CORPORATION, Here the High Court explained what types of
petitioner, vs. CITY OF CABANATUAN, privileges Section 137 –Franchise Tax- of the LGC
respondent, G.R. No. 149110. April 9, embraces. The High Court held that the subject of
2003
2003. imposition of franchise tax is the privilege of one
individual i.e. juridical person to transact business
with the state and the exercise of such privilege. It
also held that the imposition franchise tax is not on
the existence of one as corporation or its income or
property but the exercise of the special privileges
or rights granted to it by the government. The High
Court went on to further distinguish a general or
primary franchise from a special or secondary one,
in order to emphasize the franchise tax of Section
137 in correlation to Section 131. In other words,
special franchises are charged with a public use
and subject to franchise tax. But those holder or
grantee of general franchise is not subject to
franchise tax being not given special privileges to
use government facilities.
DIGITAL TELECOMMUNICATIONS Here the High Court affirmed the ruling of the lower
PHIL., INC. vs. PROVINCE OF 2007 court that telecom company is answerable for
PANGASINAN, G.R. No. 152534, 23 provincial franchise tax, which distinct and separate
February 2007 to local business tax.
64
QUEZON CITY and THE CITY Here The High Court upheld that the clause in lieu
TREASURER OF QUEZON CITY vs. 2008 of all taxes laid in ABS-CBN’ franchise does not
ABS-CBN BROADCASTING exempt it in paying of local franchise tax because
CORPORATION, G.R. No. 166408, 06 the clause is not clear as to what kind of taxes,
October 2008.. national or local, it is exempted from.
SMART COMMUNICATIONS, INC. vs. This case of Smart has its similarity with ABS-CBN
THE CITY OF DAVAO, et. al., G.R. No. case on 2008. Here the High Court upheld that the
155491, G.R. No. 155491, 21 July 2009. (legislative) franchise of Smart does not specifically
2009
mention whether the given exemption refers to
national or local taxes. The absence of naming the
specific tax, the High Court inhibited to grant the
exemption to Smart in favor of City of Davao.
(Emphasis supplied).
THE CITY OF ILOILO, MR. ROMEO V. The Court upheld that Smart is accountable to pay
MANIKAN, IN HIS CAPACITY AS THE the local franchise and business taxes.
TREASURER OF ILOILO CITY, 2009
Petitioners, vs. SMART
COMMUNICATIONS, INC. (SMART),
Respondents, G.R. No. 167260, 27
February 2009.
CITY OF IRIIGA v. CAMARINES SUR III The Court held that the power of the LGUs to
ELECTRIC COOPERATIVE, INC. 2012 impose and collect taxes is derived from the
(CASURECO III), G.R. No. 192945, 05 Constitution which grants them the power to tax. It
September 2012. further states that the power to tax is consistent to
the policy of local autonomy or decentralization of
governance. In the same case, the Supreme Court
also pronounced that a franchise tax is a tax on the
exercise of a privilege, and shall be based on gross
receipts precisely because it is a tax on business.
CAGAYAN ELECTRIC POWER AND The Court touched on and explained that Section
LIGHT CO., INC. v. CITY OF CAGAYAN 143 of the LGC distinguishes the varied lines of
DE ORO, G.R. No. 191761, 14 business, and each line of business is subject to
2012
November 2012 different tax rates. The Court also explained that a
separate line of business not named or covered by
Section 143(a) to (g) falls to Section 143(h).
65
SKY CABLE CORPORATION v. CITY Here the High Court upheld the ruling of CTA that
TREASURER OF QUEZON CITY, and while the business tax and the franchise tax are
Office of the City Treasurer of Quezon both based on gross receipts and sales, they are
2012
City, G.R. No. 212295, 26 November different in nature or character. The franchise tax is
2014 imposed on the exercise of enjoying a franchise,
while the business tax is imposed on the privilege
of engaging in one’s line of business.
In 2007, the High Court affirmed the ruling of the lower court that a
telecommunication corporation is liable to pay the franchise tax to the province,
which is other than local business tax.
In 2008, it held that the phrase in lieu of all taxes found in the franchise of
a broadcasting corporation is not a basis to exempt it from paying local franchise
tax because the phrase is not clear as to what kind of taxes it is exempt.
avail. The High Court told the telecommunication corporation that it is not exempt
from local taxes. In the same year of 2009, it upheld that telecommunication
corporations are liable to pay the local franchise and business taxes.
Noteworthy, in the same year of 2012, it upheld the ruling of lower court
involving a cable television corporation that while the business tax and the
franchise tax are both based on gross receipts or sales they are two different
local taxes. The franchise tax is collected on the exercise of enjoying a franchise,
while the business tax is on the privilege of engaging in one’s line of business,
and collection of which at the same time is not double taxation.
Summing it up shows that the local business tax and franchise tax are two
different taxes, a collection of franchise tax is allowed only when a taxpayer is a
grantee of the legislative franchise granted by the Congress, not by the other
branch or the Executive i.e.. ERB, NTC etc. and that a line or kind business
should be taxed separately but uniformly according to its class.
The only thing bothering to the mind of the researcher is the October 9,
2006 ruling in CIR vs. Philippine Airlines, Inc., where Supreme Court says a
franchise is a legislative grant to operate a public utility, and to date there is yet
legal pronouncement or policy or law saying that cable television is a public
utility.
67
Table 12
Table 13
FRANCHISE TAX
Table 14
Other Provisions
Table 15
CHAPTER 5
Summary of Findings
a. LGUs in Metro Manila collected local tax either local business tax or
franchise tax and used their owned local revenue or tax code or the
ordinance as the legal basis in collecting/levying a local tax to cable
television businesses.
b. There are thirteen (13) LGUs collected local tax business tax while
the remaining four (4) LGUs collected franchise tax to cable
television in Metro Manila.
c. There are seven (7) out of thirteen (13) LGUs collected local
business tax even cable television businesses have no physical
presence (operating branch or sales outlets) in their locality.
74
Conclusions
in particular, there is no uniformity in the collection of the tax to one line or kind of
business, which violates the requirements of LGC. The situations of which are as
follows:
2. LGUs in Metro Manila collected local business tax even a cable television
taxpayer has no operating branch or sales outlet and/or keep books to record its
sales in the locality. The researcher concludes the practice violates section
150(a) of LGC. The happening of which may have to do on the non-observance
and strict compliance in the execution of the pro-forma application for business
permit particularly without examination or getting confirmation on the address of
establishment of the area that is an operating branch or sales outlet and it keeps
book to record receipts or income when in fact it is only an office space. Another
contributory factor is that the front delivery representative of taxing authority is
doing a ministerial function with the aim of only bringing revenue or income to the
locality of LGU. Actually, in one interview with a cable television representative
even it already informed the LGU representative regarding its situation that it is
operating in the area but no physical establishment in the locality the latter insists
to get one knowing that the only way for them to collect tax is under the local
business tax.
3. LGUs in Metro Manila collected local business tax even a cable television
taxpayer has its legislative franchise granted by the Congress and has no
operating branch or sales outlet, and books to record its sales in the locality. The
researcher concludes the practice violates sections 150(a) and 137 of the LGC.
The happening of which may have to do, either or both on: i) The pro-forma
application for business permit of LGU does not require a declaration on whether
an applicant is a legislative franchise holder or not, and it has no knowledge –
same with the taxing authority- that it would affect the collection of local tax to the
business; ii) The pro-forma application for business permit requires declaration
77
on whether applicant is a holder of legislative or not, but the applicant did not
write the information and submit no proof of the circumstance knowing that it
would not affect the collection of tax on the business; and iii) The pro-forma
application for business permit is filled-up but no further examination or
confirmation on information particularly the address of establishment whether it
an operating branch or sales outlet and it keeps book to record receipts or
income or just an office space.
4. LGUs in Metro Manila collected local business tax under section 143(e) of
LGC even a cable television is engaged to other line or kind of business in the
locality. The researcher concludes the practices violate sections 143(a) to (h), on
local business tax and sections 131(m) and correlation to 137 of the LGC.
Sections 143(a) to (g) clearly enumerated the lines or kinds of businesses and
their corresponding rates, and those not among the enumeration will fall to
Section 143 (h). The happening of which may have to do with the operating fact,
nature, and background of a business. As mentioned in the introduction and
background this research in correlation to its related literature and studies, cable
television businesses these days offer services not only its principal line or kind
of business, cable television service. It can also offer broadband or internet
services (that partakes the nature of telecommunications service, specifically
telephone service) lease or sale its equipment which fall to other line or kind of
business that is subject to other local business tax under sections 143 (a) to (h)
of the LGC.
78
Recommendations
1. The collection of the local business tax to cable television, LGU’s front line
delivery or representative in accepting application for new or renewal of
business permits should be guided in checking the content of the filed pro-
forma application for a business permit. It should ensure that the required
information is properly filled-up such as the information on the business
address, whether it refers to applicant-taxpayer’s operating branch or
sales outlet and it has a book to record the receipts/sales transaction or
not in the locality. Also, it should ensure that the kind or line business
supplied in the application is the only business activity the applicant-
taxpayer is engaged. One way to confirm the existence of applicant-
taxpayer’s establishment is to provide LGU a copy of its Bureau of Internal
Revenue’s Certificate of Registration (COR). COR has information on the
nature of business and whether the establishment is operating as a
branch or sales outlet or only facility or storage. Absence of the branch or
sales outlet that accepts or collects payment does not necessarily mean
that LGU cannot collect other kind of local tax particularly in a situation
where the applicant-taxpayer is a cable television and a grantee of
legislative franchise -from Congress-, without violating the LGC provisions
sections 143(a) to (h), which the researcher will discuss more on the
collection of franchise tax.
79
Further, section 131(m) of the LGC clearly defined what a franchise is. It
refers to a right or exercise of privilege which public interest is intricate,
and the grant of which is subject to the terms and conditions the
government or its political subdivisions may impose in consideration to the
public welfare, security and safety.
The above recommendations for the collection of local business tax and
franchise tax have their bases using the decisions of the Supreme Court.
As mentioned in the local literature of this research the decisions rendered
by the Supreme Court are recognized laws. The pronouncement in
National Power Corporation vs. Cabanatuan city is a part of our legal
systems and partakes the nature of law which insightful for us to
understand as to what franchise spoke by section 137 in correlation to
section 131 of the LGC. It taught us that franchise refers to secondary or
special privileges or rights granted to a corporation to do activities like the
use of streets to put poles, to lay cables or wires. In other words, the term
franchise or franchises are charged with a public use. Thus, a corporation
to be liable for franchise tax, it must have a franchise in the circumstance
of a secondary franchise which is a special privilege conferred by the
government and not ordinarily available to other corporations.
82
Proposed Action
3. Ask Congress for amendment the provisions of LGC on local business tax
that would clarify sections 142, 143, 144 and 151.
4. Ask Congress to amend the provisions of LGC on franchise tax that would
clarify sections 131(m) and 173.
83
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84
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05 September 2012.
86
City of Iloilo vs. Smart Communications, Inc. vs. The City of Davao, G.R. No.
167260, 27 February 2009
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87
Armie Jane Roa Borje, “Rationalizing the Policy on the Cable Television Industry-
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