Smart Communications vs. City of Davao – GR No.

155491, September 16, 2008 (Also read

decision on Motion for Reconsideration dated July 21, 2009)

Tax exemptions in franchises are always subject to withdrawal. Moreover, Smart’s franchise was granted
with the express condition that it is subject to amendment, alteration, or repeal. (1987 CONSTITUTION,
Art. XII, Sec. 11)

It is enough to say that the parties to a contract cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which retains adequate
authority to secure the peace and good order of society.

In truth, the Contract Clause has never been thought as a limitation on the exercise of the State’s
power of taxation save only where a tax exemption has been granted for a valid consideration. Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491, September 16, 2008 citing
Tolentino v. Secretary of Finance, G. R. No. 115455, August 25, 1994, 235 SCRA 630, 685. The author
opines that since practically all franchises granted to telecommunications companies are similarly worded
that the above doctrine finds application to the others)

iv. Tax on Sand, Gravel and Quarry Resources (Sec. 138)

EC. 138. Tax on Sand, Gravel and Other Quarry Resources. - The province may levy and collect not
more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as
amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction. Thempermit to extract sand, gravel and other quarry
resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the
sangguniang panlalawigan. The proceeds of the tax on sand, gravel and other quarry resources shall be
distributed as follows:
(1) Province - Thirty percent (30%); (2) Component city or municipality where the sand, gravel, and
other quarry resources are extracted - Thirty percent (30%); and (3) barangay where the sand, gravel,
and other quarry resources are extracted - Forty percent (40%).