By Rey E. Requejo

Telecommunications companies are not exempt from paying franchise and business taxes imposed by local governments, according to the Supreme Court.

The Supreme Court issued the ruling as it ordered Smart Communications Inc., the mobile phone subsidiary of Philippine Long Distance Telephone Co., to pay taxes to Iloilo City in the amount of P764,545.29 covering the five-year period starting in 1997.

In a decision penned by Associate Justice Arturo Brion, the court?s Second Division said the amount was on top of surcharges and interests the city government would impose on Smart during the period.

The ruling reversed the decision of the Iloilo City regional trial court that exempted Smart from paying franchise and business taxes under Republic Act No. 7294 (the legislative franchise of Smart) and RA 7295, the Public Telecoms Act.

?Since Smart cannot validly claim any tax exemption... it follows that petitioner [Iloilo City] can impose and collect the local franchise and business taxes amounting to P764,545.29 it assessed against Smart. Aside from these, Smart should also be made to pay surcharge and interests on the taxes due,? the court ruled.

Concurring with the ruling were Senior Justice Leonardo Quisumbing and Justices Conchita Carpio Morales, Presbitero Velasco Jr. and Antonio Eduardo Nachura.

Smart, in claiming for tax exemption, cited a provision in its legislative franchise requiring it to merely pay a franchise tax equivalent to 3 percent of all gross receipts in lieu of all taxes. The telecom company added that RA 7925 allowed it to avail of tax exemptions granted by the legislature to other holders of telecommunications franchise.

?Franchise taxes on telecommunications companies have been abolished by RA 7716 [the Expanded Value-Added Tax Law].... To replace the franchise tax, the E-VAT law imposed a 10 percent value-added tax on telecommunications companies under Section 108 of the National Internal Revenue Code. The ?in lieu of all taxes? clause in the legislative franchise of Smart has thus become... inoperative,? the high court said.

It also noted that Section 23 of RA 7925 on exemption ?does not mean tax exemption? and instead refers to ?exemption from certain regulatory or reporting requirements imposed by government agencies such as the National Telecommunications Commission.?