CASURECO 2 must pay Franchise Tax Differential to the City
July 06, 2017

Hereunder is the privilege speech I rendered during our regular session last Tuesday, July 4, 2017:

The presiding officer, members of this august body, media practitioners, guests, Good Morning!

The subject of my privilege speech and this Honorable Body’s favorable action should immediately earn for the city the amount of Php13,000,000.00 to Php26,000,000.00 and the further sum of about Php2.7M per year on top of the usual amount being regularly paid in the form of franchise tax that the city can use for various pro-poor and developmental programs.

There is no doubt that electric cooperatives like Camarines Sur II Electric Cooperative, Inc. or CASURECO II are not exempt from local taxation. This is an issue that had long been settled under relevant provisions of the Local Government Code and based on a number of decisions of the Supreme Court. This means that CASURECO II has to pay both real property and franchise taxes. In fact, it is already paying both taxes.

The BIG QUESTION, however, which should be answered is whether or not CASURECO II is paying the correct franchise tax.

The answer is in the NEGATIVE. CASURECO II has not been paying the correct franchise tax to the city.

I asked Mrs. Gregoria Abonal, City Treasurer, and she told me that CASURECO II had since been assessed of franchise tax and therefore paid the corresponding amount on the basis of the gross receipts received by it from the supply or delivery of electricity within the territorial jurisdiction of Naga only. And our treasurer could not be blamed or faulted for limiting her assessment and collection to such gross receipts within Naga City, the same being based on Section 137 in relation to Section 151 of the Local Government Code.

However, the correct franchise tax should be computed not only on the basis of the gross receipts received within Naga City but also those from the other service areas of CASURECO II including the municipalities of Pili, Minalabac, Milaor, Canaman, Magarao, Bombon, Calabanga, Tinambac and Siruma.

The reason is simple. Franchise tax is a tax on the exercise of a privilege. It is an excise or license tax belonging to the third class of tax according to subject matter or object, the two other classifications being: (1) personal, capitation or poll taxes;  and (2) property taxes.

Franchise tax is therefore not considered as a tax on persons or property but, as rightly considered by the Local Government Code, as a tax on business.

Considering that franchise tax partakes of the nature of an excise tax, then the place of taxation should be the place where CASURECO II exercises its  privilege and that is in its principal office in Naga City from where it operates, regardless of the places where its services or electricity are delivered. Insofar as the other municipalities are concerned, they can only be considered as the places where the services or electricity of CASURECO II are delivered, but its privilege is actually exercised in Naga City.

Accordingly, in the computation of franchise tax, the gross receipts not only from Naga City but also from other municipalities will have to be considered. This is essentially the ruling of the Supreme Court in the case of Iriga City vs. CASURECO 3.

Based on the data available at the Treasurer’s Office, CASURECO II paid recently the sum of Php941,223.87 as franchise tax on the basis of the Gross Receipts of Php125,496,516.00 out of the total Gross Receipts of Php496,627,000.00 for the year 2016. In other words, the difference of Php371,130,484.00 was not subjected to franchise tax. The city therefore was not able to collect the sum of Php2,783,478.63 for 2016 alone. Thus, for a period of 5 years, the uncollected franchise tax is about Php13.9M or about Php27.8M for 10 years.

On the basis of the foregoing, I shall be asking this Honorable Body for your support in passing a resolution directing Mrs. Gregoria Abonal to assess CASURECO II of its franchise tax differential the soonest time possible in order to avoid prescription of the taxes due.

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