(Article published in the Jan 4, 2006
issue of Manila Standard Today)
term “Solomonic wisdom”, as other once noble phrases eventually
debased by pedestrian usage, has come to mean no more than merely
splitting, roughly equally, a contested amount between two contending
parties. In this sense, the
decision in case of Commissioner of
Internal Revenue v. PLDT, G.R. No. 140230, promulgated 15 December
2005, is akin to the wisdom of Solomon.
the bottom of the judicial ladder, PLDT initially sought the refund of
the amount of P280,552,286.00, representing compensating taxes,
advance sales taxes, VAT and other internal revenue taxes alleged to have
been erroneously paid on its importations from October 1992 to May 1994.
At the top rung, the Supreme Court instead ordered the Commissioner to
issue a Tax Credit Certificate or to grant a tax refund to PLDT of only
P94,673,422.00 as advance sales tax and compensating tax erroneously
collected by the Bureau of Customs from October 1, 1992 to May 31, 1994,
less the VAT which may have been due on the importations in
question, but have otherwise remained uncollected.
Not quite 50-50, but roughly Solomonic.
on closer look, the wisdom of Solomon lay not in ordering that each of the
two contending women be awarded a part of the whole they were after.
It consisted precisely in upholding the benefit on the hapless
of Internal Revenue v. PLDT, on the other hand, simply gave the
unrepresented consumer one more tax burden that Congress, I believe, did
not intend him to bear.
legal issue that the Supreme Court was asked to resolve is whether or not
PLDT, given that its franchise requires it to pay a franchise tax
equivalent to three percent (3%) of all its gross receipts of the
telephone or other telecommunications businesses transacted under it which
percentage tax “shall be in lieu of all taxes on this franchise or
earnings thereof,” is exempt from paying VAT, compensating taxes,
advance sales taxes and internal revenue taxes on its importations from
October 1992 to May 1994.
Supreme Court started its analysis from the indubitable principle “that
taxation is the rule, exemption is the exception. Accordingly,
statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority. To him, therefore, who claims a refund or exemption from tax
payments rests the burden of justifying the exemption by words too plain
to be mistaken and too categorical to be misinterpreted.”
It is a principle crafted to strike down anyone who wishes to
escape paying his share of the tax burden.
this mind-set, it then proceeded to examine the franchise of PLDT and
noted that the so-called “in lieu of all taxes” clause was modified by
the phrase “on this franchise or earnings thereof.”
This phrase suggested, according to the Supreme Court, that the
word “all” did not really mean what is understood by you and I, but
meant only “some”. Specifically,
it meant only “direct” taxes, although the word “direct” is not in
the phrase itself compensating
taxes, advance sales taxes, VAT and other internal revenue taxes.
sum, the payment of 3% percentage tax is in lieu only of the so-called
“direct taxes.” In defense of its logic, the Supreme Court maintained
that if it were to accept that view that the “in lieu of all taxes”
clause encompasses the totality of all taxes collectible under the Revenue
Code, then, the immediately following limiting clause “on this franchise
and its earnings” would be nothing more than a pure jargon bereft of
effect and meaning whatsoever.
due respects, I beg to disagree.
the first place, PLDT, on the basis of my reading of the Supreme Court’s
own version of the said taxpayer’s allegations, never claimed to be
exempt from “the totality of all taxes collectible under the Revenue
Code.” It specifically
limited its claim for refund to compensating taxes, advance sales taxes,
VAT and other internal revenue taxes.
the said taxes were collected from PLDT by the government agencies on its
importation of equipment which were, if I am not mistaken, all related to
exercise of its franchise. Hence,
these were taxes on importations of equipment without which PLDT could not
have effectively exercised its franchise.
That aspect of the importation clearly situates it, I submit,
within the ambit of the phrase “on this franchise.”
the most important argument against the ruling in Commissioner
of Internal Revenue v. PLDT is the economic impact on the public that
PLDT serves. As recognized by
the Supreme Court itself, the taxes sought to be refunded are in the
nature of “indirect
the Supreme Court: “Indirect
taxes are those that are demanded, in the first instance, from, or are
paid by, one person in the expectation and intention that he can shift the
burden to someone else. Stated elsewise, indirect taxes are taxes wherein
the liability for the payment of the tax falls on one person but the
burden thereof can be shifted or passed on to another person, such as when
the tax is imposed upon goods before reaching the consumer who ultimately
pays for it. When the seller passes on the tax to his buyer, he, in
effect, shifts the tax burden, not the liability to pay it, to the
purchaser as part of the price of goods sold or services rendered.”
public utility performs a service which the Government itself, had it been
in a better financial and organizational shape, ought to perform.
A franchise is thus an outsourcing contract on the part of the
government. And when Congress grants a public utility a tax exemption, it
does not have in mind primarily the financial benefit of the franchisee
but instead the benefit of the public that franchisee is mandated to
denying PLDT exemption from indirect taxes related to the exercise of its
franchise, the Supreme Court in effect made it more expensive for the
public to avail itself of the services that the Government should have
provided in the first place. Indeed,
it could have unwittingly have imposed a Congressionally unintended tax on
the privilege of speech since, in the age we live, telecommunications is
an infrastructure without which we could not freely express ourselves.
In Commissioner of Internal Revenue v. PLDT our Supreme Court, alas, is no match for the splendor of Solomon’s court.