SP Highlights: CASURECO II’s Franchise Taxes


“Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.” - CIR vs. Algue Inc. and CTA, GR No. L-28896, February 17, 1988- This representation rendered a privilege speech on 4 July 2017 where the matter of franchise taxes being paid by Camarines Sur Electric Cooperative II (CASURECO II) was brought out. It was contended that CASURECO II was not paying the correct franchise tax to the city considering that the basis in the computation thereof was only gross receipts from its operations within Naga City and excludes those from CASURECO’s other coverage areas. Hence, in 2017 alone, the city government’s collection is lacking by about P2.7M. If we will go back as far as five year or 10 years, our city stands to gain as much as P13.9M or P27.8M, respectively, from uncollected franchise taxes. What is the legal basis of my argument? The Supreme Court, in the case of City of Iriga v CASURECO III (GR No. 192945, September 15, 2012), in interpreting Section 137 of the Local Government Code of 1991 (RA 7160) categorically stated: “As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely because it is a tax on business, rather than on persons or property. Since it partakes of the nature of an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal office and from where it operates, regardless of the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from Iriga City and the Rinconada area. (Emphasis supplied).” Applying by analogy the aforesaid ruling, CASURECO II should be paying its franchise taxes to the City of Naga, because it is where its principal office is located and from where it operates, regardless of the place where its services or products are delivered. Its franchise taxes should cover all gross receipts from Naga City and the other nine (9) municipalities included in its coverage area. Will Naga City consumers be adversely affected by this correction in CASURECO II’s payment of franchise taxes? Absolutely NO. Naga City consumers will not be affected by the correction referred to. There should be no new additional charges on account of this correction. Moreover, for consumers outside Naga City, it should be noted that CASURECO II has been or should have been paying its franchise taxes, albeit to the wrong recipient – that is, the Province of Camarines Sur. Since under the law, only cities and provinces are authorized to impose franchise taxes, the nine municipalities under the electric cooperative’s coverage area are not empowered to levy the same and, thus, in their instead, the Provincial Government is or should be the one collecting franchise tax. What will the people gain from correcting CASURECO II’s payment of franchise taxes? The additional revenues can finance the various pro-poor and developmental programs of the City Government of Naga. It can also provide additional funding support to enhance the city’s participatory governance. But on the part of this representation, it is his proposal to use the subject funds or part thereof for the development of a solar-powered City Hall. This way, we can begin our shift towards renewable energy. It will also lessen the electric consumption of the city government, which can translate to savings that will finance more responsive social programs that directly help the people and uplift their quality of life.