Batangas Power Corporation vs. Batangas City
April 28, 2004
In the early 1990’s, the country suffered from a crippling power crisis. The government, through the National Power Corporation (NPC), sought to attract investors in power plant operations by providing them with incentives, one of which was the NPC’s assumption of their tax payments in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1993, Enron Power Development Corporation (Enron) and NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC & transfer its plant to the latter after 10 years of operation. The BOT Agreement provided that NPC shall be responsible for the payment of all taxes imposed on the power station except income & permit fees. Subsequently, Enron assigned its obligation under the BOT Agreement to Batangas Power Corporation (BPC).
On September 23, 1992, the BOI issued a certificate of registration to BPC as a pioneer enterprise entitled to a tax holiday of 6 years. On October 12, 1998, Batangas City sent a letter to BPC demanding payment of business taxes & penalties. BPC refused to pay citing its tax exemption as a pioneer enterprise for 6 years under Sec.133(g) of the LGC. The city’s tax claim was modified and it demanded payment of business taxes for the years 1998-1999. BPC still refused to pay the tax, insisting that the 6-year tax holiday commenced from the date of its commercial operation on July 16, 1993, not from the date of its BOI registration in September 1992.
In the alternative, BPC asserted that the city should collect the taxes from NPC since the latter assumed responsibility for their payment under the BOT Agreement. The NPC intervened that while it admitted assumption of the BPC’s tax obligations under the BOT Agreement, it refused to pay BPC’s business tax as it allegedly constituted an indirect tax on NPC which is a tax-exempt corporation under its Charter.
BPC filed a petition for declaratory relief with the Makati RTC against Batangas City & NPC alleging that under the BOT Agreement, NPC is responsible for the payment of such taxes but since it is exempt from such, both the BPC and NPC aren’t liable for its payment.
1. Whether BPC’s 6-year tax holiday commenced on the day of its registration or on the date of its actual commercial operation as certified by the BOI.
2. Whether NPC’s tax exemption privileges under its Charter were withdrawn by Sec.193 of the LGC.
1. Sec.133(g) of the LGC applies specifically to taxes imposed by the local government. The provision of the LGC should apply on the tax claim of Batangas City against the BPC. The 6-years tax claim should thus commence from the date of BPC’s registration with the BOI on July 16, 1993 and end on July 15, 1999.
2. In the case of NPC vs. City of Cabanatuan, the removal of the blanket exclusion of government instrumentalities from local taxation is recognized as one of the most significant provisions of the 1991 LGC. Sec.193 of the LGC withdrew the sweeping tax privileges previously enjoined by the NPC under its Charter.
The power to tax is no longer exclusively vested on Congress; local legislative bodies are now given authority to levy taxes, fees and other charges pursuant to Art.X, Sec.5 of the 1987 Constitution. The LGC effectively deals with the fiscal constraints faced by the LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws.
When NPC assumed tax liabilities of the BPC under their 1992 BOT Agreement, the LGC which removed NPC’s tax exemption privileges had already been in effect for 6 months. Thus, while the BPC remains to be the entity doing business in the city, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOT Agreement & the 1991 LGC.