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CHAPTER 1

THE PROBLEM AND ITS BACKGROUND

Introduction

Local taxes are important elements of the modern taxation system. This is
common where the organization system of a government has its levels of
government: central or national, cities, and municipalities or counties. This
system requires allocation of function to each level of government with specific
role and responsibilities to follow. The subordinate levels of government are now
given the right to independent taxation to finance and settle its operation.

In some countries collection of local taxes is by way of a local tax itself or

disguise in a form of fee for purposes of regulation. Nowadays, a business is
subject not only to national taxes but also of local taxes. A collection of national
taxes or local taxes should comply with the fundamental principles of taxation,
such as uniformity, not unjust, excessive, oppressive or confiscatory.
Businesses affected by these local taxes are those kinds of businesses that
offered goods or services or both, and one of these businesses is the cable
television, which by its nature falls to services.

Cable television business is one of the pay television technologies. A

television that you can watch only if you pay a fee by entering into a subscription
or prepayment to a satellite or cable television company. Cable Television, also
known as Community Antennae Television (CATV) is primarily offering cable
television service. Usually, a CATV offers it service by providing different
packages. Each package contained a grouping of channels or combination
regular and exclusive channels, and subject to different charges. The three (3)
common types of cable television service and key sources of its revenue or
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income are the basic cable television service which packages of channels are
offered with different rates, and normally collected by way of subscription, the
lease of its channel, and pay-per-view service the fee of which is on a case-by-
case basis because of the demand of the show –either live or not-, movie or a
particular film.

Cable Television has more channels than the traditional television, such
as but not limited to news, business information, movies and special
entertainment, and these channels have superior signals, either a High Definition
(HD) or Standard Definition (SD). Pay-Per-View (PPV) channel is also available
in some special events like in the field of sports, i.e. boxing. Nowadays, cable
television is also offering Value Added Services (VAS), enhanced services, such
as but not limited web browsing, internet protocol, voice internet protocol (VoIP)
and similar services that are bundled with its basic cable television service.

The normal operation of cable television starts at its head-end -control

center processes satellite signals- where big satellite dishes and broadcast
equipment and other devices are found. These dishes received signals -radio
frequency or light impulses- across the country program providers e.g. HBO,
Walt Disney etc., or from a local broadcasting e.g. in the Philippines, ABS-CBN,
GMA7, ABC5 etc., and then signals traverse and process to the broadcast
equipment (e.g.decoder) and device inside the head-end for a clearer output of
signals. Afterward, signals transmit/distribute through coaxial or fiber-optic cables
going to households and commercial buildings. Signals are either unencrypted
or free-to-air or direct broadcast (Michell, Hendricks, & Sterry, 1993).

The operation of cable television requires license or authorization from the

government of a particular country. Procedures and practices in granting license
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or authorization to operate cable television vary on the country where a cable

operator wishes to offer the service.

Background of the Study

In Philippines setting, like in other countries, operations of cable television

require franchise -a license or authorization- from the government. The National
Telecommunications Commission (NTC) an agency under the Executive Branch
was primarily tasked to regulate cable television businesses. Hence, existing
policy requires that application for cable television franchise should be done with
NTC office. This office holds public hearings before granting a franchise to give
the existing cable television companies the opportunity to oppose the application.
Ordinarily, a franchise i.e. Provisional Authority, Certificate of Authority, granted
by NTC is on per city or municipality basis. While there is some cable television
that applied for a “Congressional Franchise” or “Legislative Franchise” before
Congress the practice is not obligatory under the law (NTC Office Order No. 106-
10-2007). But, a grantee of legislative franchise has its benefit to some taxes and
other privileges.

Nowadays, cable television also offers broadband or internet services,

another source of its revenue or income, that require another license in a form of
registration as Value Added Service (VAS) pursuant to NTC Memorandum
Circular No. 02-05-2008.

The business models or at heart stories that explain how enterprises work
(Joan Magretta, 2002) of cable television businesses allowed it to operate in an
area or locality without physical presence through office or establishment of the
local government units not to mention the fact that their installations or
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constructions i.e. cable and devices, can be contracted to a third party contractor
to do the works and even its collection works.

In the past, by practices it is not only the NTC grants franchise to operate
cable television but also the Local Government Units (LGUs) through passing a
local law or ordinance of its local council or known as “Sanggunian”. However, in
2004, the Philippine Supreme Court ruled, in Batangas CATV, Inc., vs. The Court
of Appeals, the Batangas City Sangguniang Panlunsod, and Batangas City
Mayor, that no specific law consenting the LGUs to grant franchises to cable
television operator, and whatever powers are given to LGUs to grant franchises
are withdrawn by the former President Marcos under P.D. 1512. It terminates all
previous franchises, permits or certificates given by the LGUs to cable operators.
Then in 2005, in Zoomzat, Inc. vs. People, et. al., the Supreme Court once more
reiterated its ruling and quoted in full its pronouncement in Batangas CATV case.

Although, there is no more need for cable television to obtain franchise to

operate cable television from LGUs still the latter can collect local taxes, fees,
and charges by virtue of its taxing and revenue-raising power found under
Republic Act (R.A.) No. 7160 also known as The Local Government Code (LGC)
of 1991. However, LGUs in Metro Manila collect local tax for cable television
business, which is one kind or line of business, either Franchise Tax or a Local
Business Tax (LBT).

The practice of collection of local tax or taxes for one line or kind of
business, like cable television, except when it is engaged in the other line or kind
of business, either local business tax (LBT) or franchise tax is very confusing.
The practice would result in insolence to the principles of taxation that a tax
should be uniformly applied to all of one class, and if not may result to unjust,
excessive, oppressive or confiscatory which are contrary to the law, communal
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policy including the economic policy and in restraint of trade. Also, it may
influence taxpayer’s willing to pay local taxes.

One line or kind of business should be taxed uniformly by different local

government units with a clear policy as to what specific local tax or taxes it
should be taxed or collected, a local business tax (LBT) or franchise tax or both.
Certainly, there is a need to examine the present practices of local government
units in collecting local tax or taxes to cable television.

Theoretical Framework

This research is directed by several fundamental principles of taxation

from where the researcher derived his theoretical framework. In his book, “An
Inquiry into the Nature and Causes of the Wealth of Nations” a.k.a. Wealth of the
Nations”, Sir Adam Smith theorized these fundamental principles of taxation as
equity, certainty, convenience and efficiency (Adam Smith, “Wealth of the
Nations”, 1776). He described those basic principles in the following essence:

Equity, this principle of taxation articulates that every taxpayer has to pay
its tax due in proportion to his or her income or earnings according to the existing
tax policy of the government. Generally, the practice is that there is this table or
list of rates in percentile corresponding to each bracket of income or earnings of
a taxpayer, which it should pay. Therefore, the higher the income or earnings a
particular taxpayer the higher tax rate or percentage it will be subjected.

Certainty, from the word itself means assurance or sureness. It is one of

the important qualities of a tax system. Here taxpayers are at ease about their
tax obligation because they know the kind of tax, the amount of tax, and when to
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pay, which help them to efficiently plan or budget their future actions. This
principle involves the “condition and assessment” of a tax system.

Convenience, this principle of taxation covers the timeliness and manner

taxes should be collected. It involves a good administration of tax system and
any machinery to collect taxes is properly established. It expresses suitability
both to tax collector and taxpayer. In practice, the tax authority gives ample time
when a particular tax is due and need to be paid by taxpayer. Ordinarily, the
taxing authority has its schedule to collect and taxpayer is given information in
advance to be prepared and readied itself in paying its tax i.e. Payment Annual
Income tax, both juridical and individual persons in the Philippines is due every
month of April.

Efficiency, this principle of taxation conveys the idea that the tax system is
sound and operates well that the government collected the needed money to
finance its operations and services to its taxpayer. On the other hand, a taxpayer
pays its tax due according to the requirement of the government and receives the
expected services to the latter. This includes the administration of tax system, the
set up mechanism, fair law and regulation to be implemented.

The principles are relevant to the study because they help in

understanding why should the existing practices of collecting local tax by the
LGUs in Metro Manila to cable television be studied. They influence the study by
examining the collection or levying of a local business tax and franchise tax. The
theories also discharge the issue of efficiency of local tax administration, which
affects LGUs performance in collecting local taxes.

In this study, the researcher observed the practices of local government

units in collecting the local tax to cable television are confusing and no unison.
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Cable Television as one line of business should be taxed uniformly. All taxpayers
with similar circumstances should be taxed harmoniously this exemplifies equity
and fairness in taxation (AICPA, 2001). Also, there should be clearness as to
how and when to pay taxes including the explanation of its assessment (AICPA,
2001). Both views not necessarily refer to tax rate but to lawful and valid
classification, as laid in the LGC and Local Revenue Code or Ordinances passed
by the LGUs in Metro Manila. If the collection of the local tax to one line of
business differs from one LGU to another LGU then it shows existing policy of
the state is violating the principle of equity.
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Conceptual Framework

The researcher had constructed figure 1 to represent the relationship

between the variables used in this research

Figure 1. Conceptualized relationship among variables

INPUT PROCESS OUTPUT

DATA INPUT DATA PROCESS PROPOSEDOUTPUT
ACTION
AND INFORMATION AND INFORMATION PLAN ON THE
GATHERED THRU GATHERED FOLLOWING:
SURVEY OR INTERVIEW: ASSESSED AND
ANALYZED AND
INTEPRETED USING
THE FOLLOWING:
 On provisions of
 Passed Revenue/Tax  Applicable Provisions Local Government
Ordinance or Owned of Local Government Code of 1991
Revenue/Tax Code of Code of 1991, affecting Local
17 Local Government particularly sections Business Tax
Units (LGUs) in Metro 142, 143(e), 143(h), particularly
Manila. 144, 146, 150 and “Contractors”
151 on Local applied to cable
 Pro-forma Application Business Tax; and television
Form for Business sections 131(m) and
Permit of 17 Local 137 on Franchise  On provisions of
Government Units Tax. Local Government
(LGUs) in Metro Code of 1991
Manila.  Other laws and their affecting Franchise
rules and Tax applied to Cable
 Assessment/Order of regulations. Television or similar
Payment of 17 Local businesses that hold
Government Units  Latest Supreme or grantee of
(LGUs) in Metro Court Decisions legislative franchise
Manila. Affecting Local from Congress.
Taxation on Cable
 Legislative Franchise Television and
granted to Cable similar business.
Television
 9

The framework is composed of three boxes, namely: Input, Process, and

Output. The interaction of variables inside these boxes is explained as follows:

The first box, Input, contains data and information gathered through
survey or interview concerning to the current cable television practices of LGUs
in Metro Manila that include: i) Passed Revenue/Tax Ordinance or Owned
Revenue/Tax Code; ii) Pro-forma Application Form for Business Permit; iii)
Actual Assessment/Order of Payment of business tax or franchise tax; and iv)
Legislative Franchise granted to Cable Television. These variables are the
sources of data and information that researcher used in getting current cable tax
collection practices.

The second box, Process, contains the: i) Applicable Provisions of Local

Government Code of 1991, particularly sections 142, 143(e), 143(h), 144, 146,
150 and 151 on Local Business Tax; and sections 131(m) and 137 on Franchise
Tax; iii) Other laws and their implementing rules and regulations; and iv) Latest
Supreme Court Decisions affecting Local Taxation on Cable Television and
similar businesses. These variables served as an instrument that researcher
used in assessing and analyzing the current tax collection practices on cable
television.

The third box, Output, contains the proposed action plan on the provisions
of LGC about local business tax and franchise tax. The proposed action plan was
based on the results of matching the variables of first and second boxes. Results
equipped the researcher to make a conclusion on the current tax collection
practices to cable television.
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Statement of the Problem

This research seeks to study the collection practices of the local tax to
Cable Television in Metro Manila.

In particular, this study seeks answers to the following questions:

1. What are the current cable television tax collection practices

in each city/municipality in Metro Manila in terms of:

1.1. Legal and Other Bases

1.2. Local Tax Collected/Levied

2. What are the problems encountered in the tax collection

practices on cable television in Metro Manila in terms?

2.1 Collection of Business Tax.

2.2 Collection of Franchise Tax

3. What action could be proposed as a result of the study on:

3.1 Specific and related provisions of Local Government

Code that authorize the collection of local business
taxes.
3.2 Specific and related provisions of Local Government
Code that authorize the collection of the franchise tax.
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3.3 Form and execution of Pro-forma Application

for a business permit of Local Government Units.
Scope and Limitations of the Study

The scope and limitation of this research are explained as follows:

Primarily the purpose of this research is to study the collection practices of

local tax on local business tax and franchise tax of local government units to
cable television. This research covered local taxes practices for taxable years
2016 and 2017. Any changes in the local tax or taxes beyond the said years are
not covered by this research.

This research covered local taxes practices of all LGUs in Metro Manila,
the sixteen (16) cities and one (1) municipality, except barangays.

The researcher chose only cable television businesses (exclusion of

direct-to-home or direct broadcast satellite) found in Metro Manila.

It should also be noted that due to resource limitation, time and money,
the first-hand study does not include other cities and municipalities outside Metro
Manila and also all the provinces and barangays, where other cable televisions
are operating. This does not include other local tax collection like real property
tax, regulatory and other charges.
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Figure 2 below shows the cities and/or municipalities that composed metro
manila.

Figure 2

https://en.wikipedia.org/wiki/Administrative_divisions_of_Metro_Manila
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Significance of the Study

The purpose of this research is to study the practices of a collection of

local taxes to cable television in Metro Manila. By analyzing the facts and
applying the rules and standards in the collection of local tax on cable television:

 The collection of local business tax depends on the line or kind

of business a local taxpayer is engaged, operating branch and
books to record sales/receipts.

 Franchise tax is a tax collected on business enjoying franchise.

 The national government requires registration of each line or

kind business, and in the same token, local government units
require a declaration for each line or kind of business.

This will help the local government units in the collection of local taxes to
cable television in a way that the fundamental principles of local taxation were
observed.

The Local Government Units (LGUs), being the taxing authority and Cable
Television, being a local taxpayer, both, will be benefited from this study.

To LGUs, the results of this study would supplement their insights and
assessment skill in collecting the local tax appropriate to cable television while
effectively observing the provisions of the LGC and their existing Local Tax Code
or tax ordinance on cable television.
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For Cable Television, this study would be beneficial to them in as much as

they will the recipients of whatever modifications and improvements on collecting
the local tax applicable to their business.

Further, this study will do the following:

1. Determine the local tax applicable to cable television.

2. Determine when to collect Local Busines Tax (LBT) or Franchise

Tax (FT) or both to cable television.

3. Determine the familiarity of local taxing authority about cable

television.

4. Identify and examine the factors or determinants that lead to

different practices in collecting local taxes to cable television.

Definition of Terms

The listed terms below are conceptually and operationally defined for
perceptive reading this research.

Assessment (Order of Payment) - Assessment made by an LGU to its local

taxpayer that contained the charges for local tax and different regulatory fees i.e.
garbage fee, fire fee sanitary fee etc.

Cable Television - refers to cable television operator or cable television

business or the service itself.
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Collection - Refers to practice or act of levying or imposing of local tax pursuant

to revenue or tax ordinance or local revenue code passed by the local
sanggunian of the LGUs that includes the matter of its execution particularly the
pro-forma application form for business permit used in collection local tax with
cable television.

Congress - the branch of the Government that makes law or laws; or the body
of lawmakers.

Court - refers to Philippine Supreme Court.

Fee - means a charge imposed for the regulation of businesses including its
activity or activities in conformity with the local law or ordinance passed by the
LGUs.

Franchise Tax – is a local tax levied by the LGU to those businesses enjoying a
franchise.

Franchise – it refers to authorization given by the government to a private

person or corporations to exercise a right or privilege. It either a license granted
by the Congress in a form of a law or provisional authority or certificate of
authority granted by the National Telecommunications Commission (NTC)
through an order or by a Local Government Units (LGUs) through its Local
Sangguniang in passing an ordinance.

Gross Sales or Receipt – It refers to entire amount of money that had been
actually or constructively received in rendering a service or services. It covers the
whole consideration of a particular contract including advance or deposits
payments, which represents compensation or payment to the service rendered. It
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also includes the price charged to the materials or supplies with the said services
within a taxable year but not include discounts -if can be identified at the time of
sales-, sales return, excise tax, and value-added tax (VAT).

Local Business Tax – local taxes levied by the LGU to businesses as

enumerated in section 143 of the LGC.

Local Tax - refers both to local business tax and local franchise tax

Local Government Code (LGC) of 1991 - the governing law affecting all local
government units.

Local Government Units (LGUs) - refers to city or municipality or the taxing

authority of local taxes i.e. City of Manila, Quezon City, Makati City, Pasig City,
Municipality of Pateros

Metro Manila - refers to the total urban area which is composed of 17

independent local government units (16 different cities and 1 municipality) or also
known as National Capital Region.

National Telecommunications Commission (NTC) - refers to a key regulatory

body that regulates cable television.

Pay Television - refers to pay television services, it includes cable television,

satellite television, pay-per-view television.

Republic Act – it refers to a written policy in a form of a law, and conforms in the
principles of the State’s Constitution. It is the Congress that crafted and passed it
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during the deliberation, and either approve or veto by the President. It can only
be abolished by another law passed by the Congress.

Revenue Ordinance – a local law passed or enacted by a city or municipal

sanggunian to levy local tax or taxes.

Local Revenue Code – a list of local tax laws, regulatory fees, and other
charges passed or enacted by the city or municipal sanggunian to levy local tax
or taxes including regulatory fees, and other charges.
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CHAPTER 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter presents the foreign and local literature as well foreign and
local studies to gather insights for the researcher strengthening the framework of
the study.

Foreign Literature

This chapter of foreign literature shows the nature of cable television, as a

new technology, as a business model, and other issues concerning its taxation.

Sir Gerald K. Clode, in his article entitled, The History of Rediffusion,

focusing on the technology of cable television business, hypothesized the
technicality how cable works. He showed that cable television has to do with the
rebroadcasting of television programs through “wired”.

Moss, Mitchell L.; Payne, and Frances, entitled "Can Cable Keep Its
Promise?", New York Affairs, Volume 6, Number 4. New York University. 1981,
postulated that the attraction of cable television technology lies not only on
providing better reception but the features that its coaxial cable has a carrying
capacity of more than channels the an ordinary television can offer and options
are given to subscribers to choose channels what it likes to view. Also, the same
coaxial cable can provide services other than cable television and its low cost
access.

Eisenmann, Thomas R., "Cable TV: From Community Antennas to Wired

Cities", Harvard Business School Weekly Newsletter, July 10, 2000, discussed
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about how the media functions today because of wired cities. He described cable
television as emerging telecommunications infrastructure, from its genesis as
community antennae to wired community. He also described that cable television
is the source of better television reception. Same with the article written by Sir
Gerald K. Clode, Sir Eisenmann’ article validates how cable television works from
community antennas to a wired one.

“The Wired Nation; Cable TV: the electronic communications highway”,

Ralph Lee Smith advanced the connection between cable television and
telephone industry because of the former technological basis. He posited the
potential of cable technology to serve as an “electronic highway” that would move
the economic and social structure of the country.

As shown in the preceding paragraphs of this chapter, the complexity of

nature of cable television technology brought more concerns to many. During the
legislation on the national policy to be adopted for cable television in the United
States, the topic on the nature of cable expended more time of the U.S. Senate.
One of the fascinating issues during the deliberation exchanges about the
solutions to the query: What is cable?, and whether it can be classified as an
entertainment medium or information utility; or one similar to the print media or
that of the common carrier (William Dutton, Herbert Dordick and Amy Philips).

Indeed, the very nature of a cable television nurtured many issues, and
another question that came to the minds of lawmakers is the impact of cable
television in the taxation systems.

The following foreign literatures deal to the nature of cable television as a

new business model and how it addles tax system. As mentioned in the earlier
paragraphs, a cable television business can serve other areas that are within the
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territories of other state or local government, using only a single network and
head-end in one location, which ripens issues in taxation.

As early as 1975, Sir David W. Smith advanced that as the cable

television industry develops, so do its problems. He did mention it because the
issue of taxing cable television business is already raising-up at that time. One of
the most important concerns involves the ever-increasing tax business burden
laid on cable by the state and local governments, and whether or not such
taxation violates the United States Constitution.

According to Taxation of Cable Television: First Amendment Limitations

(December 1995) 109 Harvard Law Review 440, Cable television is a rich source
of information, offering a wide array of local, national, and international
programming, however access to cable television is repeatedly weakened by
state and local taxes that impose a significantly greater burden on cable
television than on other media.

In his article, Michael J. Santorelli illustrated the technical advancement of

cable television technology. He said that Cable companies offered others
services, and it began to offer broadband services because its technology
permits the use of same cables or lines to cater both cable television and
broadband services.

It is apparent from above discussion that the situation of cable television

technology is akin to that of internet technology. Both technologies nurture the
location factor or location issue for purposes of taxation. In this 20th century
almost all tax systems are planned to fix tax consequences based on the
physical location of the taxpayer. Today, the “e-commerce models” like cable
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television allows businesses to operate without its physical locations or presence

(Annette Nellen, CPA, Esq.)

Another factor to the cable television technology is the nature of its

product or products, the law is outdated where the transfer of services and
intangibles items is a significant business activity (Annette Nellen, CPA, Esq.).
Nowadays, cable television is offering other services other than cable. It leases
its channels, it renders internet or broadband services and it sells its tangible
products which fall to another line or kind business that are subject to different
taxes and rates.

In their work Pieger and Nellen (October 2009) commented that the
existing laws seriously compromising equity, the principle of equal treatment the
providers and their services. In their article, they cited that both the local
exchange carrier provider and cable television provider, can now offer similar
communications services, but are not equally treated when it comes to tax, like
the number or types of taxes and their rates on the same nature of services they
do. They also posited that it is important that tax policies are well crafted
otherwise they have poor impact in the growth and development of one business
or industry.

On another topic, “what a tax system should be and not to be”, the works
of Abiola James and Moses Asiweh (2012) posited that the qualities of a good
tax are equitability, efficiency, neutrality, flexibility, and simplicity.

It should also be noted that uniformity is closely related to equality

because similar type of business should be taxed equally (Reid, John Phillip,
2003).
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In his book of Wealth of the Nation, Sir Adam Smith opined that stability in
tax should be incidence in a government policy. If for an instance, the
government wants to help its citizens on inflation then it should not pursue the
policy of taxation that would increase its rate and burden the economy.

The well-known quote of Chief Justice John Marshall states that power to
tax is the power to destroy is another factor to consider in taxing a line of
business. The principle of this well-known quote may apply to many situations in
taxation. According to an article of Clarence B. Carson (October 01, 1976) the
axioms and principles set forth in support the decision (referring to McCulloch vs.
Maryland), if correct, apply to all taxation.

Above foreign literature taught that there are some instances known or not
known to the taxing authorities that the tax policy they made compromises the
principles of taxation when a new business comes in. Hence existing tax policies
require reform to settle problems and issues but the principles of taxation should
always be observed otherwise there is a violation. It also impresses that
knowledge in taxation is important both to the taxing authority and taxpayer.
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Foreign Studies

While there are limited studies relating to cable television and taxation the
following foreign studies show the taxation on cable television:

The study conducted by David Tuerck, Paul Bachman, Steven Titch, and
John Rutledge (2007) assessed that it cost the average household nearly $250 a
year in paying taxes and fees for cable television and phone services in 59 cities
found in the United States (U.S.) .

The study also showed that taxes vary from each of same level of
government, transaction to transaction and the technology used to deliver related
services. It recommended the local and national government to take action to
lower and uniform cable television, phone and related communication services.

The same study concluded that taxes and fees on cable television and
telephone services in US are double which is equal or as high as general sales
taxes imposed on other goods. It also concluded that the policymakers should
update their public policy to adopt the technological advancement and changes.
A public policy on taxes that would slash, simplify and uniform to the different
technology platforms. The study also shows that the technology offered by cable
television is very appealing to the taxing authority for them to concentrate on
communication services such as phone and other related services including
cable television. Also, remarkable, the report that some states in the U.S. took
the initiative to enact policy for the needed reforms which the other states
followed.

.
 24

The study entitled, Local Taxation: Principles and Scope, Sir Paul Berd
pointed out the significance of evaluating the existing tax rules, preferences and
exemption relating to local tax to test whether it passed the gauge of uniformity.
He stressed that uniformity is necessary through the whole nation with regard to
tax rules, preferences and exemption in order to avoid discrimination.

On the other hand, the following foreign studies narrated the importance of
tax knowledge.

The research done by Eriksen and Fallan about the Self-Assessment-

Systems (SAS) suggested the importance of education and tax knowledge in a
tax system. The research demonstrated the bearing if one has a fiscal knowledge
because it affects one’s attitude on tax. The tax comportment of one individual
can be improved if he or she has a better understanding of the tax laws. The
research further suggested that the tax education can be done through formal or
even a non-formal program organized by the taxing authority or an independent
agency which would help a taxpayer in completing its tax returns correctly under
the SAS. Both formal and informal programs cultivate awareness of taxpayers
about their responsibilities in a tax system (see
http://www.irs.gov/individuals/students/index.html).

A study by Kirchler et. al. (2008), maintained the idea that tax knowledge
boosts tax compliance and supported the previous studies of Wahlund, 1992;
Eriksen and Fallan, 1996; Park and Hyun, 2003.

Lymer and Oats (2009) in their study, posited that every tax system should
comply with the fundamental principles of taxation: equity, certainty, simplicity,
and convenience are necessary every tax system.
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Local Literature

The following local literature will give insights on the elementary things of
existing tax system in the Philippines, and it will help the taxing authority to
balance the imposition of tax to a certain business or businesses.

The 1987 Philippine Constitution authorized individual local government unit

to generate its own sources of profits by collecting taxes, fees and charges, which
are exclusively due to it; and the only limitation is the policy that the lawmakers will
provide (1987 Constitution, Article X, Section 5).

By the same token, the LGC provided that individual local government unit is
empowered to make income that are solely due to it, through passing of local
ordinance on taxes, fees and charges with the limitations provided in the code itself
that are consistent to the basic policy of local autonomy (LGC 1991, Section 129).

Further, the LGC of 1991 provides that taxation: i) Shall be uniform in each
local government unit (LGC, 130[a]); ii) Shall not be unjust, excessive, oppressive,
or confiscatory (LGC, 130[b][3]); and iii) Shall not be contrary to law, public, policy,
national economic policy, or in restraint of trade (LGC, 130[b][4]).

In his book, Atty. Francis J. Sababan (2000), a well-known professors in

taxation law review, explained the idea that the 1987 Constitution is the source of
the taxing power of LGUs (except the autonomous regions) while, the LGC
serves only a guideline and source of limitations provided for by Congress.

In 2012, the Philippine Supreme Court of the Philippine reiterated its

pronouncement in the case of Iriga City vs. Camarines Sur III Electric Cooperative,
Inc. (CASURECO III), that the power of the LGUs to impose and collect taxes is
 26

derived from the Constitution itself that grants them the power, and subject to
guidelines and limitation that the Congress may come up. It further held that the
explicit power is in agreement with the basic policy of governance on local
autonomy and decentralization. In the same case, it also held that a franchise tax
is a tax on the exercise of a privilege, and shall be based on gross receipts
precisely being a tax on business.

In summary, the LGC, being a law passed by the Congress serves as a

limitation to the taxing power of the LGUs. So, all LGUs including those in Metro
Manila, in crafting their tax or revenue code or ordinance should be guided by the
LGC of 1991. Consequently, in the collection of the local tax to Cable Television,
LGUs should comply with LGC’s provisions. Otherwise, the collection of taxes
violates the fundamental principles of taxation.

According to well-known, Author, Professor and Constitutional Expert,

Joaquin G. Bernas, S.J., (2010) that the local taxes collected by a LGU should be
primarily for public purpose, and uniform to a locality. He also stressed that it must
not be confiscatory, and within the authority given to the local government unit.

According to Atty. Fulvio D. Dawilan (2012), the collection of local business

tax is only to those individual persons engaged in business because the word
“business” as defined in the LGC, refers to a trade or commercial activity regularly
engaged in as a means of livelihood or with intend to gain profit.

According to August 28, 2007 article of Arnel D. Mateo, that there are
instances the power to tax is treated as power to destroy.

Another article in Philippine law literature expressed that the power to tax is
correctly implemented if it is not against the limitations given by the Constitution and
 27

related laws, and the happening of which may occur when tax authority steps over
the fundamental principles of taxation.

It is a fact that Cable Television is a contributor to the economic growth of

the Philippines, particularly in communication and information in nation-building.
This was affirmed by E.O. No. 436, "Prescribing Policy Guidelines to Govern the
Operations of Cable Television in the Philippines". The whereas clauses of said
Order demanded to give all Filipinos a wider access on any information, news,
education, sports and alike, other than those already provided by the mass media
and free television channels. By doing it, we will have communities of people that
are well-informed and versed that would enhance their socio-economic growth,
which the cable television industry can complement to the existing services of
television broadcast industry, both on local and overseas, as an information avenue
to other countries [Official Gazette Volume 95, No.44, page 7737, Manila,
Philippines, November 1, 1999].

The following related literature explained how the legal system in the
Philippines works. It helped the researcher in assessing, analyzing and
interpreting his data and information to his research.

Primarily, in Philippines there are two source of law. One is the statutes or
statutory law, and two, jurisprudence or case law. Statutory law refers to those
laws that are originated to the legislative branch of the government, particularly
the Senate and the House of Representatives i.e. Act, Commonwealth Act,
Republic Acts (R.A.), Batas Pambansa (B.P.) and Constitution itself.
[http://www.tradechakra.com/economy/philippines/legal-system-in-philippines-235.php].

On the other hand, jurisprudence or case law refers to decisions rendered

by the Supreme Court while performing its judicial functions. These laws are
decisions rendered by the Supreme Court sitting in as en banc or by division.
 28

(January 28, 1988-October 3, 1990). Those decisions available electronically at

the Supreme Court official website: www.sc.judiciary.gov.ph.
[http://www.tradechakra.com/economy/philippines/legal-system-in-philippines-235.php].

As to presidential issuances like Presidential Decrees or Executive

Orders, they are also considered laws because of the existing Constitution
operating at that times, particularly during the terms of the ex-Presidents
Ferdinand Marcos and Corazon Aquino, and the fact that Executive Branch like
other branches are authorized to propagate laws at their own yard.

Since the methodology used in this study is qualitative and documentary,

classification by source is necessary to discuss. As mentioned in some other
similar research it is indispensable for the researcher to point out his or her
source of materials are originated, whether they come from official or unofficial
origination.

Official Sources ordinarily comes from those publications by the source

itself or the official repository or particular agency of the government. Like in
cases of Republic Acts a.k.a R.A., and other "laws" or statutes, they were
originated from the Official Gazette published by the National Printing Office
(NPO). As to statutory laws and resolutions they were originated in the official
website of the Philippine Congress. As to the decisions rendered by the High
Court, their primary sources are the Philippines Reports, and Court own official
website the www.sc.judiciary.gov.ph.

Equally, Secondary Sources are those that came from unofficial sources
and commonly known as commercial publications i.e. the publication of SCRA or
compilation of Supreme Court decisions published by the Central Book Supply or
publications not directly originated to the government itself or its agencies or
instrumentalities.
 29

[http://www.tradechakra.com/economy/philippines/legal-system-in-philippines-235.php].

Also, it is important to note that laws in the Philippine legal system have
had various nomenclature designations at different periods in the history of the
Philippines, as shown in below:

Nomenclature
Abbreviation Form of government Dates
designation
Philippine government
Act Act under United States 1900-1935
sovereignty
Commonwealth Act CA Philippine Commonwealth 1935-1946
1946-72, 1987-
Republic Act RA Republic
present
Republic under Martial
Presidential Decree PD 1972-1986
Law/Fourth Republic
Presidential Republic under Martial
PP 1972-1986
Proclamation Law
Modified parliamentary
Batas Pambansa BP 1978-1985
republic
Republic under Provisional
Executive Order EO 1986-1987
Constitution
[https://en.wikipedia.org/wiki/List_of_Philippine_laws]
 30

Local Studies

The succeeding local studies on Cable television discussed the taxation

impact to the business as business models and as new technology in the field of
communication.

In her study, entitled, “Rationalizing the Policy on the Cable Television

Industry-Philippine”, Armie Jane Roa Borje (2005), who had been a
Commissioner of National Telecommunications Commission (NTC) for almost
three years, emphasized the importance of rationalizing the policy on cable
television being a unique industry. She also commented that cable television
industry has its participation in the growth of the economy in the Philippines. The
Cable television businesses or cable industry helps on employment, education
and bringing in money to the national and local coffers.

Consequently, cable television uniqueness needs to be studied

particularly in the field of taxation which involved knowledge. In her thesis,
Lalaine Aniceta Gatumbato-Garganian (2001), “An Assessment on the
implementation of withholding tax on compensation in the private sector of
revenue District 107, Cotabato City”, particularly in the background chapter, she
pointed out the importance of knowledge both of the taxing authority and
taxpayer, and she also suggested the importance of continuing study through
conducting seminars as a big help.

While the following studies highlighted the importance of knowledge, local

laws and jurisprudence, policies of other countries, implementation and the
channeling of information in taxation:
 31

In his thesis entitled, “Barriers to tax collection effectiveness in the Bureau

of Internal Revenue, Negros Region: a perceptual study”, Gil G. Tabanda (2004),
posited that knowledge is an important variable in taxation. He also stressed the
connection between knowledge and other demographic variables that have an
influence to the effectiveness of tax collection.

Another thesis on “Extent of implementation on taxation and other

revenue-raising provisions of the Local Government Code of 1991 (RA 7160) in
the barangays of Panglao: its problem encountered”, the author, Mr. Aurelio C.
Luzon (1997) pointed out that knowledge has a causal effect on the
implementation of tax system.

While, in their thesis entitled, “Assessment of Tax Liability: A Necessity or

Accessory? Carmina Limuaco and Carmel Tindog (December 2002)
recommended the important to analyze if the current laws and jurisprudence are
efficient

Abeng, Jean A P Chua, Janessa Faye (December 2011) in their thesis

entitled, “The Local Government Units’ Authority In Exercising Police Power In
Line With Regulating The Number of Employees”, recommended that broadening
the scope of our topic. Instead of focusing solely on the Constitution with related
jurisprudence, we recommend on looking for state policies in other countries as
well. Comparing gathered data from different countries would make the study
more feasible and have more accurate results.

The special research project, “Assessment of the Capability of the

Municipality of Infanta, Quezon, in absorbing Devolved Functions”, authored by
Amor E. Alanes (March 2000), anticipated the role of Local Government Code of
1991, to effect the decentralization, which he discussed that “Decentralization
 32

has become the watchword of many theorists and practitioners involved in public
administration. This strategy of Decentralization provides the systematic and
rational dispersal of rights and calling from national to local level of government.
This strategy took effect with the passage of the LGC. The power and authority of
the National Government have been decentralized to the local government
through the devolution of the national government services such as health,
agriculture, social services, public works, and others. The success of the
implementation of devolution can be gauged on how the local government units
absorb these functions. It can be on the positive or negative on the financial and
managerial capabilities of the LGU.” (Page 13).

In the same project research study, he concluded that the passage of the
Revised Tax Code of the Municipality by virtue of a tax ordinance pursuant to the
provisions of the LGC was one positive step towards the attainment of their goal
of increase in the local revenues (p.88). He further recommended the
implementation of an intensive tax campaign and No non-sense implementation
of the Revised Tax Ordinance (p.89).

Another project research study, entitled, “Assessment of the Capability of

the Municipality of Taytay, Rizal in absorbing Devolved Functions”, by Marcela
Hillares Doza (April 5, 2000), recommended that the proper channeling of
information is also needed, from the lowest rank to the top level or executives,
remember when communication breaks, misunderstanding will eventually occur.
She further recommended that to enhance financial capability –referring to LGU-
an improvement of local tax collection performance by defining criterion on
collection efficiency. As well as determining possible sources of additional
revenues and funds. Although the LGC provides provisions on funds and
revenue rising, the need to defining possible sources of revenue and funds are
needed to further enhance local collection.”
 33

Melchor S. Julianes (October 2008) in his Dissertation “Economic And

Social Development For Caloocan City: Analysis Towards New Policy
Directions”, he recommended the empowerment of the different sectors in the
locality, whether public or private entities, to have a voice in the formulation of
economic and social development programs through public hearing, purposely to
express their opinions on the transactions of the concerned local government
affecting their interest (Page 341).

Maximo T. Alberto Jr., (December 2011), in his thesis, “Assessment of the

Tax and Duty Exemption Assistance Program of the Technology Application and
Promotion Institute” pointed out that in the implementation of tax program one
problem being encountered is the non-submission of required documents by
applicants. He also emphasized that in studying programs in taxation
consideration should be made to the number of years covered (At present 10
years) by the program as part of the extensive study (Page 28).

Rosario D. Balde (2011), in her study, “A Policy Analysis on The

Implementation of Revenue Regulations No. 10-2008 in the DOST Central
Office”, concluded that a clear policy helps the payment of correct taxes which
fuelled the economy to achieve the goals of government (Page 35).

Finally, Melgar (2010) pointed out that reforms on tax played a

fundamental role in addressing the municipals government’s financial problems.
 34

Synthesis of the Reviewed Literature and Studies

The review of the foreign and local literature and related studies shows
that a reform of taxation is maybe necessary when a new circumstance comes in
like a particular nature of business e.g. cable television. Otherwise, the existing
tax system may either compromise or if maintain will violate the fundamental
principles of taxation. .The review also manifested the while the taxing authority
has its power to tax but it should be with limitations.

The review also shows that on some occasions the tax and the way of
taxing cable television businesses cross to the line where it should only stand. As
cited in the review, cable and other similar technologies e.g. telephone and
internet services were taxed high by the taxing authority which crosses to the
borderline in the sense that it violates the principles of taxation. As mentioned in
some literature, cable television businesses are among the contributors to the
growth of one’s country, treating with fairness and equity will create a
harmonious working relation -between the local government units and cable
television businesses- to the development and enhancement of the nation.

It is worth mentioning as expresses in reading the related literature and

studies for us to think and remind the taxing authority and taxpayers should know
that most of the countries’ laws mandate that taxes must be reasonable, fair, just
and conscionable.
 35

CHAPTER 3

RESEARCH METHODOLOGY

In this chapter, the selected research methodology will be presented. First,

it will start with introducing the purpose of the research, the research approach,
the research strategy then it will continue with details about sources of
documents.

Research Method Used

Generally, there are two approaches which can be adopted in conducting

a research, one is: qualitative and the other one is quantitative. This research
selected the qualitative approach, and under this qualitative approach researcher
used document analysis as the main data source. The researcher also utilized
the surveys, in-depth interviews, and participant observation to support the
documents.

Bailey (1994) explained that documentary method is useful in analyzing a

particular document or documents that contained information on the
phenomenon the researcher wants to study. Bailey also explained that a
documentary method same with other analytical methods, requires the
examination and interpretation of information to bring or achieve a more meaning
of the research or study for better understanding (Corbin & Strauss, 2008; see
also Rapley, 2007).

Payne and Payne (2004) described documentary method as techniques

that can be used to classify, examine, interpret and identify the limitations of
written physical documents whether they came from a private or public domain.
 36

The researcher collected and used for this research was predominantly
sourced from:

a. Philippine Supreme Court on its recent decisions touching

the local taxation through its official website: sc.gov.ph.

b. Local Government Unit on Local Tax Ordinance or Owned

Local Tax Code through its Business License and Permits
Office (BLPO) or local council either known as Sanggunian
Panlunsod o Sangunian Panbayan.

c. Congress on legislative franchise in a form of law, republic

act of a particular cable television operator through its official
website of Congress: www.congress.gov.ph

d. Cable Television Businesses on Assessment (order of

payment) made by the LGUs in Metro Manila.

This research also considered the: i) The LGC and its implementing rules
and regulations; Issuances of ii) Department of Finance (DOF), iii) Bureau of
Local Government Finance (BLGF), and iv) National Telecommunications
Commission (NTC).

The abovementioned sources were analyzed coherently and compared

with the practices of local government units, namely: the cities or municipalities in
Metro Manila, using their enacted tax ordinance, if not available their owned local
tax code, and also the available assessment 2016 and 2017 provided by some
cable television.
 37

In handling documentary sources, researcher has applied Scott's criteria

of quality control; namely: i) Authenticity, it is genuine and no contestable source;
ii) Credibility, it is free from distortion; iii) Representativeness, it is typical of its
kind, and iv) Meaning, that it is clear and comprehensible to arrive at
understanding and get it significance. The researcher satisfied himself that all
documents abide the criteria (Scott 1990). As mentioned researcher got most of
these documents directly to the concerned government department or agency,
either through personal request or through online access with their official
website and the fact of the nature of my works, as Administrative Legal Assistant
for Tax and Regulatory Compliance, which requires me to be abreast and
participate personally.

Most of these documents the researcher has used were of two types:
state documents through personal request, internet access, and at times, like in
San Juan and Pasig Cities, researcher bought copies of their revenue code.
While other documents often emanate from the private sector, cable television
businesses, as well of course from private individuals.

Population, Sample and Sampling Technique

This study used the purposive sampling (Seaberg 1985), which generally
goes through the five steps; designation of: i) target population; ii)sampling
frame; iii) sampling method; iv) sample size; and v) sampling plan (Hair et al,
2008). To start with, the populations of this research are the local government
units and cable television operators in Metro Manila.

For local government units in Metro Manila, they are composed of sixteen
(16) cities and one (1) municipality; namely:
 38

1. Caloocan (City of Caloocan)

2. Las Pinas City
3. Makati (City of Makati)
4. Malabon (City of Malabon)
5. Mandaluyong (City of Mandaluyong)
6. Manila (City of Manila)
7. Muntinlupa (City of Muntinlupa)
8. Marikina (City of Marikina)
9. Navotas City
10. Quezon City
11. Parañaque City
12. Pasay City
13. Pasig City
14. Pateros
15. San Juan (City of San Juan)
16. Taguig City
17. Valenzuela City

For cable television operators in Metro Manila, they are composed of sixteen (6)
namely:

1. Sky Cable Corporation (Formerly: Central CATV, Inc.) also known as Sky
Cable

2. Cable Link & Holdings Corporation (Formerly: Conception Pay TV

Network) also known Cablelink.

3. Pilipino Cable Corporation (formerly: Sun Cable Caloocan, Inc.; Sun Cable
Systems Valenzuela, Inc.)
 39

4. Sunvision Cable Inc.

5. Dakila Cable, Inc.

The well-known cable operators in Metro Manila are Destiny Cable,

SkyCable, and Cablelink. However, it should be noted that SkyCable bought
Destiny Cable pursuant to Asset Purchase Agreement (APA) on May 2012,
which resulted to the merged operation, and if ever Destiny Cable is seen, its
existence only as a brand product of Sky Cable Corporation. Consequently, it
only refers to one entity or cable operator.

SkyCable brand and Destiny Cable brand now owned by Sky Cable
Corporation are available all throughout Metro Manila. Cablelink is only available
in selected areas in Metro Manila. There are also other cable television
operators, Pilipino Cable, Sunvision Cable and Dakila Cable, whose operation
are limited in some or one area in Metro Manila.

Per survey conducted by the researcher on an average, there are only two
to three operators in one local government unit. While there is a small variance
between the lists of provided by the LGUs and the National Telecommunications
Commission (NTC), but the matter can be best explained that the list given by
LGUs pertains to definite cable television business actually operating in their
locality. On other hand, the list given by the NTC to the researcher pertains only
to those cable television that had been granted an NTC franchise to operate a
cable television businesses but may or may not actually operating.
 40

Data Gathering Procedure

In gathering the data, the researcher first collected the LGUs’ revenue
ordinances or revenue codes and pro-forma application for a business permit.
The researcher personally –either- visited and requested or buy it, or through on-
line using the official website of concerned LGU.

The researcher collected the other data and information through the use of
the letter of request with a structured questionnaire. The structured questionnaire
aims to answer the tax actually collected/levied by the seventeen LGUs to cable
television operating in their locality for years 2016 and 2017. The researcher if
also conducted an in-depth interview with a representative of LGU to support the
data found in the documents.

The researcher collected the actual assessment or order of payment to

some cable television operators. As some of the available assessments
contained some confidential information i.e. declared gross receipts, the
researcher did not disclose the real identity of taxpayers-cable television
operators by deleting the information.

The researcher also collected through online the latest decisions of the
Supreme Court affecting the local taxation and including other issuances from
related government agencies such as but not limited DOF, BLGF) and NTC using
their official websites.
 41

CHAPTER 4

PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA

This chapter deals with the presentation of the data. Each table gives
analysis, interpretation, and answer to the specific research problems.

1. What are the current cable television tax collection practices in each
city/municipality in Metro Manila in terms of:

1. Legal and Other Bases

2. Local Tax Collected/Levied

Table 1

The list of LGUs (Cities and Municipalities) and their Legal basis to
Business Tax and Franchise Tax.

Legal Business Franchise

City/Municipality
Basis Tax Rate Tax Rate

Caloocan -City of
Caloocan-
3% of Gross Receipts
The Caloocan City
Section 66(22) Section 82% of 1% of Gross
Updated Revenue
143(e) as Contractors Receipts
Code of 2004

Las Pinas City

City Ordinance 104-92 Article VIII Business 55% of 1% of Gross

An Ordinance Taxes, Section 32 (e) Receipts
Approving The
Revenue Code of the Business Tax: Graduated (Article III Franchise Tax
Municipality of Las Taxes Section 13)
Pinas, Metro Manila
For business tax e) On Contractors and City Ordinance No. 1373-
other independent 16, Series 2016
contractors, in
accordance with the
City Ordinance No. following schedule:
1373-16, Series 2016
Las Pinas, Metro
 42

Manila In excess of
For Franchise Tax 2,000,000.00 at the rate
Fifty Five percent (55%)
of one percent (1%) plus
P12650.00

City Ordinance No. 1373-

16, Series 2016

Makati (City of
Makati)

The Revised Makati Section 143(e) as 50% of 1% of Gross

Revenue Code City Contractors Receipts
Ordinance No. 2004-A- (see Makati Citizen’s
025 Guide Book on page
186)

Malabon -City of
Malabon-

City Ordinance No. 75% of Gross Receipts 75% of 1%

A10-2016 [Section 2J.02(c)]
An Ordinance Secion 143(e) as
Adopting The New Contractors
Revenue Code For
Malabon City, 2016
Mandaluyong (City
of Mandaluyong)

Ordinance No. 484, S- 17,596.00 +82% of 1% of 50% of 1% of Gross

2011 Gross Receipts Receipts
An Ordinance
Providing for a [Section 32(E)]
Revenue Code of 2011 Business Tax
for the City of (Cable Co.)
Mandaluyong.
Manila (City of
Manila)

P18,975.00+82.5% of 50% of 1% of Gross

2013 Omnibus 1% of Gross Receipts Receipts
Revenue Code of the (Sec.105)
City of Manila Business Tax
(Cable Co.)

Muntinlupa (City of
Muntinlupa)

Ordinance No.13-032, 2% Business Tax (Cable 75% of 1% of Gross

An Ordinance Comm.co/Br) Receipts
Amending Ordinance Secion 143(e) as
No. 93-35, Otherwise Contractors
Known as The
Revenue Code of the
Municipality of
Muntinlupa, and
adopting the New
 43

Rates Prescribed
under this Ordinance

Marikina (City of
Marikina)

Ordinance No. 27, 2.20% of Gross Receipts 75% of 1% of Gross

Series of 2013. (Chapter 4-Tax on Receipts
Business, Section 25(h)
Page 27 of 121)

Navotas City

Ordinance 92-03 or the 75% of 1% of Gross 75% of 1% of Gross

New Navotas Revenue Receipts Receipts
Code Sec 133(d)

Business Tax
(Service/
Contractor)

Parañaque City

City Ordinance 99% of Gross Receipts Section 143(e) as

Business Tax Contractors
(Cable Installation other

Section 143(e) as
Contractors

Pasay City

Pasay City Revenue Section 143(e) as 75% of 1% of Gross

Code Contractors Receipts.
Ordinance No. 1614,
Series of 1999
amending certain
chapters and sections
of Ordinance No. 241,
Series of 1993
Pasig City

Pasig Handbook on In excess of 2,000,000 50% of 1% of Gross

Taxation 60% of 1% of Gross Receipts.
Receipts Franchise Tax (Chapter
(Section 22(E) III Other Taxes, Section
Contractors and other 32
independent contractors

Pateros

Municipal Ordinance 78% of Gross Receipts None

No. 2004-020

Quezon City
 44

Quezon City Revenue In excess of 2,000,000 Article 13, Section 31 of

Code 75% of 1% of Gross the same code provides
As Amended Pilipinas Receipts for Franchise Tax 57% of
2009 Section 19(E) 1% of Gross Receipts
Contractors and other
independent contractors

San Juan (City of

San Juan)

City of San Juan In excess of 2,000,000 Article E, Section 2E.01

Revenue Code of 2013 75% of 1% of Gross of the same code
Receipts provides for Franchise
Tax 67%of 1% of Gross
Service-Cable Program Receipts
Provider
(Article J, Section
2J.02(G)

Taguig City
Ordinance 24: 1993
Taguig Revenue Code 2,000,000 or more at the Franchise Tax at the rate
rate of 65% of 1% of of ½ of 1% (Chapter 19,
NOTE: Ordinance Gross Receipts Section 93, page 102)
24:1993 above was Section 75(e)
amended by Note: The nomenclature
Ordinance 85:2005 it used for franchise tax
Which is the one is also service
existing? However, the
same rate is applied to
“service”

Valenzuela City
Tax Ordinance No.
092-012, Series of 75% of Gross Receipts 75% of 1% of Gross
1992 Section 143(e) as Receipts
“An Ordinance Contractors
Providing for Revenue
Code of the TV Station/Cable TV
Municipality [now City] Stations
of Valenzuela”.

Source: Local Tax Code or Ordinance of concerned LGU and Assessment and/or Order payment
to cable television, and structured questionnaires

Table 1 shows that the legal basis/es used of each LGU are either the
revenue ordinance or owned local revenue code to collect Business Tax and/or
Franchise Tax. The revenue ordinance or local tax code is passed by the
Sangguniang Panglunsod for cities and Sangguniang Bayan for municipalities.
 45

Table 1 shows that the tax rate of local business tax is usually directly
multiplied by gross receipts e.g. 78% of gross receipts, 99% of gross receipts. On
the other hand, the rate of franchise tax is usually first multiplied to another
percentage before it multiplied to gross receipts itself e.g. 50% of 1% of gross
receipts, 57% of 1% of gross receipts, 75% of 1% of gross receipts.

Table 1 shows that in general, all LGUs in Metro Manila used section
143(e) on contractors and other independent contractors of the LGC as a basis in
collecting Local Business Tax (LBT) to cable television businesses. As to
franchise tax the regular sections 131(m) and 137.

Table 1 also shows that most of LGUs in Metro Manila have used different
nomenclature or categorization in their local revenue code section 143 (e) of
LGC as Service, Tax on Other Services, Cable Communication Co, Business
Tax, Cable Co., City Tax, Service-Cable Program Provider, TV Station/Cable TV
Stations etc.

2. What are the problems encountered in the tax collection practices on

cable television in Metro Manila?

2.1 Collection of Business Tax.

2.2 Collection of Franchise Tax

 46

Table 2

List of Local specific and related provisions of Local Government Code

that authorize collection of Local Business Tax

BUSINESS TAX

Section 142 Except as otherwise provided in this Code,

Scope of Taxation Powers municipalities may levy taxes, fees, and
charges not otherwise levied by provinces.

Article Two, Section 143 (e) (e) On contractors and other independent
Scope of Taxation Powers contractors

Gross sales or receipts for the preceding

calendar year.

At a rate not exceeding 50% of 1% of the

amount in excess of P2,000.00 (plus
P10,000..00 for the P2,000.00 gross sales
or receipts

Article Two, Section 143(h) (h) On any business, not otherwise

Scope of Taxation Powers
specified in the preceding paragraphs,
which the Sanggunian concerned may
deem proper to tax: Provided, That on any
business subject to the excise, value-
added or percentage tax under the
National Internal Revenue Code, as
amended, the rate of tax shall not exceed
two percent (2%) of gross sales or receipts
of the preceding calendar year. The
Sanggunian concerned may prescribe a
schedule of graduated tax rates but in no
case to exceed the rates prescribed
herein.

Gross sales or receipts for the preceding

calendar year.

At a rate not exceeding 2%.


Article Two, Section 144.
Rates of Tax within the Metropolitan
Manila Area.
Article Two, Section 146.
Payment of Business Taxes.
Article Two, Section 150. Situs of the
Tax
47
The municipalities within the Metropolitan
Manila Area may levy taxes at rates which
shall not exceed by fifty percent (50%) the
maximum rates prescribed in the
preceding Section.
(a) The taxes imposed under Section 143
shall be payable for every separate or
distinct establishment or place where
business subject to the tax is conducted
and one line of business does not become
exempt by being conducted with some
other business for which such tax has
been paid. The tax on a business must be
paid by the person conducting the same.
(b) In cases where a person conducts or
operates two (2) or more of the businesses
mentioned in Section 143 of this Code
which are subject to the same rate of tax,
the tax shall be computed on the combined
total gross sales or receipts of the said two
(2) or more related businesses.
(c) In cases where a person conducts or
operates two (2) or more businesses
mentioned in Section 143 of this Code
which are subject to different rates of tax,
the gross sales or receipts of each
business shall be separately reported for
the purpose of computing the tax due from
each business.
(a) For purposes of collection of the taxes
under Section 143 of this Code,
manufacturers, assemblers, repackers,
brewers, distillers, rectifiers and
compounders of liquor, distilled spirits and
wines, millers, producers, exporters,
wholesalers, distributors, dealers,
contractors, banks and other financial
institutions, and other businesses,
maintaining or operating branch or sales
outlet elsewhere shall record the sale in
the branch or sales outlet making the sale
 48

or transaction, and the tax thereon shall

accrue and shall be paid to the municipality
where such branch or sales outlet is
located. In cases where there is no such
branch or sales outlet in the city or
municipality where the sale or transaction
is made, the sale shall be duly recorded in
the principal office and the taxes due shall
accrue and shall be paid to such city or
municipality.

(b) The following sales allocation shall

apply to manufacturers, assemblers,
contractors, producers, and exporters with
factories, project offices, plants, and
plantations in the pursuit of their business:

(1) Thirty percent (30%) of all sales

recorded in the principal office shall be
taxable by the city or municipality where
the principal office is located; and

(2) Seventy percent (70%) of all sales

recorded in the principal office shall be
taxable by the city or city or municipality
where the factory is located; and

(2) Forty percent (40%) to the city or

municipality where the plantation is
located.

(d) In cases where a manufacturer,

assembler, producer, exporter or
contractor has two (2) or more factories,
project offices, plants, or plantations
located in different localities, the seventy
percent (70%) sales allocation mentioned
in subparagraph (b) of subsection (2)
above shall be prorated among the
localities where the factories, project
offices, plants, and plantations are located
in proportion to their respective volumes of
production during the period for which the
tax is due.

(e) The foregoing sales allocation shall be

applied irrespective of whether or not sales
are made in the locality where the factory,
 49

project office, plant, or plan is located.

Except as otherwise provided in this Code,

Article Three, Cities
Section 151. Scope of Taxing Powers
the city, may levy the taxes, fees, and
charges which the province or municipality
may impose: Provided, however, That the
taxes, fees and charges levied and
collected by highly urbanized and
independent component cities shall accrue
to them and distributed in accordance with
the provisions of this Code.

The rates of taxes that the city may levy

may exceed the maximum rates allowed
for the province or municipality by not more
than fifty percent (50%) except the rates of
professional and amusement taxes.

Table 2 shows the specific provisions of the local government code of

1991, sections 142, 143(e) to (h), 144, 146, and 150 that are applicable to local
business tax.

Table 2 shows that only Provinces, Cities, and Municipalities are

authorized by the LGC to collect or levy the local business tax.

Table 2 also shows that under section 150 of LGC, collection of local
business tax requires meeting the two requirements, one, a taxpayer has its
operating branch or sales outlet, and two, book to record its sale or receipts in
LGU’s locality. Otherwise, LGU cannot collect the local business tax.
 50

Table 3

The list of Cities and Municipalities, Declaration on Pro-forma Application

for Business Permit on a declaration on operating branch or sales outlet,
and recording of its sales in the locality.

Does the Pro-forma require

City/Municipality declaration from applicant/
taxpayer that it has operating
branch or sales outlet
Caloocan -City of Caloocan- √
Las Pinas City √
Makati (City of Makati) √
Malabon -City of Malabon- √
Mandaluyong (City of Mandaluyong) √
Manila (City of Manila) √
Muntinlupa (City of Muntinlupa) √
Marikina (City of Marikina) √
Navotas City √
Parañaque City √
Pasay City √
Pasig City √
Quezon City √
San Juan City √
Taguig City √
Valenzuela City √
Pateros Municipal √
Source: Pro-forma Application for business permit of each LGU.

Table 3 shows that the seventeen (17) or 100% of LGUs in Metro Manila
requires a declaration from taxpayer whether it has an operating branch or sales
outlet in the locality of the concerned LGU. The declaration whether a taxpayer
has its operating branch or sales outlet (physical presence) shows a sound
practice of 17 LGUs in Metro Manila because section 150 of LGC is very clear
about the requirement. This may also shows that the filled-up pro-forma
application is not properly executed and examined whether the collection or levy
of business tax is potential to concerned taxpayer as shown in table 5 and 10 of
 51

this study because of cable television’s nature that it can operate in one locality
even without its presence through operating branch or sales outlet.

Table 4

The list of Cities and Municipalities, Declaration on Pro-forma Application

for Business Permit on a declaration on engaging in other business
activity.

Does the Pro-forma require

City/Municipality declaration from applicant/
taxpayer that it has engaged in
other business activity or line of
business
Caloocan -City of Caloocan- √
Las Pinas City √
Makati (City of Makati) √
Malabon -City of Malabon- √
Mandaluyong (City of Mandaluyong) √
Manila (City of Manila) √
Muntinlupa (City of Muntinlupa) √
Marikina (City of Marikina) √
Navotas City √
Parañaque City √
Pasay City √
Pasig City √
Quezon City √
San Juan City √
Taguig City √
Valenzuela City √
Pateros Municipal √
Source: Pro-forma Application for business permit of each LGU.

Table 4 shows that the seventeen (17) or 100% of LGUs in Metro Manila
requires a declaration from taxpayer whether it is engaged in other business
activity or line of business other than cable television. The presence of requiring
 52

declaration whether a taxpayer is engaged in other activity or line of business

other than to its principal business (cable television) is a sound practice of 17
LGUs in Metro Manila. It also shows that the pro-forma application for a business
permit between LGU and taxpayer is not properly executed or examined because
most of cable television operators in Metro Manila as seen in table 5 are
engaged in other activity or a line of business like broadband, internet or other
VAS services.

Table 4 also shows that LGUs in Metro Manila are aware the importance
of declaring the same for purposes of collecting the local business tax.
 53

Table 5

List of Local Government Units, Cable Television Operators, Whether

or not it engaged to other line or kind of business in locality

SKY CABLE CORPORATION

1 CALOOCAN CITY Yes Broadband Internet
2 LAS PINAS CITY Yes Broadband Internet
3 MAKATI CITY Yes Broadband Internet
4 MALABON CITY Yes Broadband Internet
5 MANDALUYONG CITY Yes Broadband Internet
6 MANILA CITY Yes Broadband Internet
7 MARIKINA CITY Yes Broadband Internet
8 MUNTINLUPA CITY Yes Broadband Internet
9 NAVOTAS CITY Yes Broadband Internet
10 PARANAQUE CITY Yes Broadband Internet
11 PASAY CITY Yes Broadband Internet
12 PASIG CITY Yes Broadband Internet
13 QUEZON CITY Yes Broadband Internet
14 SAN JUAN CITY Yes Broadband Internet
15 TAGUIG CITY Yes Broadband Internet
16 VALENZUELA CITY Yes Broadband Internet
17 PATEROS MUNICIPALITY Yes Broadband Internet
CABLE LINK AND HOLDINGS, INC.
1 LAS PINAS CITY Yes Broadband/Internet
2 MANDALUYONG CITY No None
3 MANILA CITY No Broadband/Internet
4 MARIKINA CITY No None
5 MUNTINLUPA CITY Yes Broadband/Internet
6 PARANAQUE CITY Yes Broadband/Internet
7 PASAY CITY No Broadband/Internet
8 PASIG CITY Yes Broadband/Internet*
9 QUEZON CITY Yes Broadband/Internet
10 SAN JUAN CITY Np None
11 TAGUIG CITY Yes Broadband/Internet
12 PATEROS MUNICIPALITY Yes Broadband/Internet
PILIPINO CABLE CORPORATION
1 CALOOCAN CITY No None
2 MALABON CITY No None
3 NAVOTAS CITY No None
4 VALENZUELA CITY No None
SUNVISION CABLE INC.
1 TAGUIG CITY Yes Broadband/Internet
PLANET CABLE INC.
1 MUNTINLUPA CITY No information No information
DAKILA CABLE TV CORPORATION
1 MANILA CITY No information No information

Source: Structured questionnaire, Personal interview or phone interview with Cable Television
Business and LGUs

Table 5 shows that there are three (3) out of six (6) cable television
operators that offered other services i.e. broadband/internet services. This also
 54

shows that the three (3) cable television operators are engaged in other business
line or kind of business other than cable television service, and their situation
falls to sub-sections 143 of LGC, and subject to another tax rate of local business
tax.

Per interview with Ms. Theresa Hernandez, one of the Heads of Business
Permit and Licensing Office (BPLO) of Pasig, it solely collected under franchise
tax to one major cable operator in the locality because it presented a legislative
franchise from Congress. Also, during the interview with Ms. Hernandez
researcher was given a printed list of cable television operating in Pasig, which
the researcher found out the practice of another cable television operator with a
congressional franchise that it registered another separate legal entity to cater its
other line of business, broadband internet service in the locality.

It worth mentioning also that subject cable television operators have their
presence, operating branch or sales outlet in the locality of Pasig City.

Per interview with Mr. Phidias L. Amaranto, Administrative Officer of

Miscellaneous, Taxes, Fees & Charges Division of Makati City, he did mention
that Makati solely collected franchise tax to cable television business with the
congressional franchise.
 55

Table 6

List of on specific and related provisions of Local Government Code that

authorize the collection of Franchise Tax.

FRANCHISE TAX

Franchise is a right or privilege affected

Section 131(m)
Definition of Terms
with public interest which is conferred upon
private persons or corporations under such
terms and conditions as the government
and its political subdivisions may impose in
the interest of public welfare security and
safety

Notwithstanding any exemption granted by

any law or any other special law, the
Section 137 province may impose a tax on businesses
Franchise Tax enjoying a franchise, at the rate not
exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts
for the preceding calendar year based on
the incoming receipt, or realized, within its
territorial jurisdiction. In the case of a newly
started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding
calendar year, regardless of when the
business started to operate, the tax shall
be based on the gross receipts for the
preceding calendar year, or any fraction
thereof, as provided hereto prescribed
herein.

Table 6 shows the specific provisions of the local government code of

1991, particularly sections 131(m) and 137 for Franchise Tax.

Table 6 shows that under section 137 the collection or levy of franchise
tax requires only that taxpayer’s business is enjoying a franchise and no other
requirements like in the collection of local business tax. Otherwise, no collection
 56

of franchise tax is allowed if the taxpayer is not enjoying a franchise. Also,

correlating section 137 to section 142 as cited in Table 2 only Cities and
Provinces are authorized to collect or levy franchise tax, and not included the
Municipalities.

Table 7

List of other provisions of Local Government Code that authorize collection

of Local Business Tax and Franchise Tax

OTHER PROVISIONS

The authorization of Local government

Section 191 units to adjust the tax rates is subject to
Authority of Local Government Units to five (5) years prescription period and the
Adjust Rates of Tax Ordinances. rate not to exceed ten percent (10%) of the
rates fixed of the Code.

The municipalities are allowed to collect

Section 142 taxes, fees, and charges that are not
Scope of Taxation Powers collected by provinces.

Table 7 shows section 191 the specific provision in cases of amendment

or increase of tax rates. It provides that LGUs have the authorization to adjust tax
rates as prescribed by the code but not oftener than once every five (5) years,
and in no case the adjustment exceeds ten percent (10%) of the rates fixed by
the Code. It noteworthy that the phrase “prescribed herein” refers to tax rates of
Title One, Book II of the LGC and not existing rates of taxes in the local tax code
of the particular LGU.

Table 7 also shows section 142 on the scope of taxation powers of

municipalities. It understood that tax collected by Provinces cannot anymore
collect by Municipalities.
 57

Table 8
List of Cable Television with regard to Legislative Franchise

Name Legislative Franchise

of (Term of franchise)
Cable Television/Operator

Cable Link and Holdings, Republic Act No.9382: “An Act Granting the
Corporation. Cable Link & Holdings Corporation a Franchise to
Construct, Install, Establish, Operate and Maintain
Cable/Community Antennae Television Systems
in the Philippines”.

Sec. 7. Term of Franchise. – This franchise shall

be for a term of twenty-five (25) years from the
date of effectivity of this Act, unless sooner
revoked or canceled. This franchise shall be
deemed ipso facto revoked, in the event the
grantee fails to comply with any of the following
conditions:
-See Destiny Cable, Inc.-

Sky Cable Corporation Republic Act No.7969: “An Act Granting the
(Formerly: Central CATV, Inc.) Central CATV, Inc. a Franchise to Establish,
Construct, Maintain and Operate for Commercial
Purposes Cable/Community Antennae Television
Systems in the Philippines”

Destiny Cable Inc. Republic Act No.8195: “An Act Granting the
Destiny Cable, Inc., a Franchise to Establish,
[Note: Sometimes in 2012 the Construct, Install, Maintain and Operate for
 58

operation of this Destiny Cable Commercial Purposes Cable/Community

Inc. was acquired by Sky Cable Antennae Television Systems in the Philippines”
Corporation by virtue of sale of
assets including its license and Sec. 7. Term of Franchise. – see Cable Link and
permits for cable television] Holdings Corporation-

(a) Commence operations within one (1) year

from the approval of its permit by the National
Telecommunications Commission;
(b) Operate continuously for two (2) years; and
(c) Commence operations within three (3) years
from the effectivity of this Act.

(Lapsed into law on June 15, 1996, without the

signature of the President, in accordance with
Article VI, Sec. 27 (1) of the Constitution)

Pilipino Cable Corporation No existing congressional or legislative Franchise.

(Formerly: Sun Cable Caloocan, Per records of the Securities and Exchange
Inc.) Commission (SEC), Sun Cable Systems, Inc. is
one of the absorbed corporations of Pilipino Cable
Corporation as Surviving Corporation.

Pilipino Cable Corporation No existing congressional or legislative Franchise.

(Formerly: Sun Cable Systems Per records of the Securities and Exchange
Valenzuela, Inc.) Commission (SEC), Sun Cable Systems, Inc. is
one of the absorbed corporations of Pilipino Cable
Corporation as Surviving Corporation.
 59

Sunvision Cable Inc. No existing congressional or legislative Franchise.

Per records of the Securities and Exchange
Commission (SEC), Sunvision Cable Inc. is 100%
owned by Sky Cable Corporation.

No existing congressional or legislative Franchise.

Planet Cable Inc Per records of the Securities and Exchange
Commission (SEC), Sunvision Cable Inc. is 100%
owned by Sky Cable Corporation.

No existing congressional or legislative Franchise.

Sunvision Cable Inc. Per records of the Securities and Exchange
Commission (SEC), Sunvision Cable Inc. is 100%
owned by Sky Cable Corporation.

Table 8 shows that among the cable television businesses operating in

Metro Manila only two (2) cable television businesses, namely Sky Cable
Corporation and Cable Link and Holdings, Inc. are grantees of the legislative
franchise of the Congress. While the other cable television businesses/operators
are not.

Table 8 also explains that two (2) of the subsisting cable television
operators; namely: Sun Cable Systems Caloocan, Inc. and Sun Cable Systems
Valenzuela, Inc., are merged with Pilipino Cable Corporation. Technically, the
three of them refers to one entity, which Pilipino Cable Corporation.
 60

Table 9
List of Practices on the declaration whether a cable television is a grantee
or holder of a legislative franchise from Congress.

Does the Pro-forma require declaration

City/Municipality from applicant/
taxpayer if it is a holder of a
congressional or legislative franchise.
Caloocan -City of Caloocan- ×
Las Pinas City ×
Makati (City of Makati) √
Malabon -City of Malabon- ×
Mandaluyong (City of Mandaluyong) ×
Manila (City of Manila) ×
Muntinlupa (City of Muntinlupa) ×
Marikina (City of Marikina) ×
Navotas City ×
Quezon City ×
Paranaque City ×
Pasay City ×
Pasig City ×
Pateros x
San Juan City x
Taguig City ×
Valenzuela City ×
Source: Pro-forma Application for business permit of each LGU.

Table 9 shows that out of seventeen (17) LGUs in Metro Manila only one
(1) LGU, the City of Makati, requires a declaration from taxpayer whether it is a
grantee of a legislative franchise.

Table 9 shows that 16 LGUs give no requirement on declaration whether

applicant-taxpayer is a holder or not of the legislative franchise.
 61

Table 10
List of Local Government Units, Cable Television Operators, Whether
or not it has physical establishment in locality, Local Tax Collected

Local Government Unit (LGU) Physical Establishment Kind of Collected Local Tax
(Yes or No) (Local Business Tax or Franchise Tax)
SKY CABLE CORPORATION
1 CALOOCAN CITY Yes Business Tax
2 LAS PINAS CITY No Business Tax
3 MAKATI CITY Yes Franchise Tax
4 MALABON CITY No Business Tax
5 MANDALUYONG CITY Yes Business Tax
6 MANILA CITY Yes Business Tax
7 MARIKINA CITY No Business Tax
8 MUNTINLUPA CITY Yes Business Tax
9 NAVOTAS CITY Yes Business Tax
10 PARANAQUE CITY Yes Business Tax
11 PASAY CITY No Franchise Tax
12 PASIG CITY Yes Franchise Tax
13 QUEZON CITY Yes Business Tax
14 SAN JUAN CITY Yes Business Tax
15 TAGUIG CITY No Franchise Tax
16 VALENZUELA CITY No Business Tax
17 PATEROS MUNICIPALITY No Business Tax
CABLE LINK AND HOLDINGS, INC.
1 LAS PINAS CITY Yes Business Tax
2 MANDALUYONG CITY No Business Tax
3 MANILA CITY No Business Tax
4 MARIKINA CITY No Business Tax
5 MUNTINLUPA CITY Yes Business Tax
6 PARANAQUE CITY Yes Business Tax
7 PASAY CITY No Business Tax
8 PASIG CITY Yes Business Tax
9 QUEZON CITY Yes Business Tax
10 SAN JUAN CITY Np Business Tax
11 TAGUIG CITY Yes Business Tax
12 PATEROS MUNICIPALITY Yes Business Tax
PILIPINO CABLE CORPORATION
1 CALOOCAN CITY Yes Business Tax
2 MALABON CITY No Business Tax
3 NAVOTAS CITY No Business Tax
4 VALENZUELA CITY No Business Tax
SUNVISION CABLE INC.
1 TAGUIG CITY Yes Business Tax
PLANET CABLE INC.
1 MUNTINLUPA CITY No Business Tax
DAKILA CABLE TV CORPORATION
1 MANILA CITY No Business Tax
Source: Assessment and/or Order payment to cable television, and structured questionnaires

Table 10 shows that cable television operators in Metro Manila

collected/levied tax differently to cable television businesses either business tax
or franchise tax. The table also shows that out of seventeen (17) there are seven
 62

(7) LGUs collected business tax even cable television business have no
operating branch or sales outlet in their locality.

The data are supported by the interview conducted by the researcher to

some cable television operators. One of the cable operators in Caloocan City,
Las Pinas, and Pateros, confirmed that even it has no operating branch or sales
outlet in the locality LGU insists that they should have one for the reason that
how it can operate absence or without the presence of its operating branch or
sales outlet. This fact is without regard to that other requirement that it has
recorded its sales or kept a book in the same locality.

The practice clearly violates the provisions on business tax of section 150
of the LGC. The researcher also observed that even in the absence of operating
branch or sales outlet of cable television operators still, it can provide services.
The situation is supported by the fact that cable television nowadays, like other
similar businesses, contracted the third party to do the installations or
constructions and same with the collection of payment from its subscribers or
clients to the collection i.e. bayad centers, banks etc.
 63

Table 11

The list of latest decisions of the Supreme Court affecting local taxation in
the Philippines

Remarks
Case Title/Date of Promulgation Year of
Promulgation

NATIONAL POWER CORPORATION, Here the High Court explained what types of
petitioner, vs. CITY OF CABANATUAN, privileges Section 137 –Franchise Tax- of the LGC
respondent, G.R. No. 149110. April 9, embraces. The High Court held that the subject of
2003
2003. imposition of franchise tax is the privilege of one
individual i.e. juridical person to transact business
with the state and the exercise of such privilege. It
also held that the imposition franchise tax is not on
the existence of one as corporation or its income or
property but the exercise of the special privileges
or rights granted to it by the government. The High
Court went on to further distinguish a general or
primary franchise from a special or secondary one,
in order to emphasize the franchise tax of Section
137 in correlation to Section 131. In other words,
special franchises are charged with a public use
and subject to franchise tax. But those holder or
grantee of general franchise is not subject to
franchise tax being not given special privileges to
use government facilities.

COMMISSIONER OF INTERNAL Here the High Court categorically stated that a

REVENUE, Petitioner, vs. PHILIPPINE franchise is a legislative grant to operate a public
AIRLINES, INC. Respondent, G.R. No. 2006 utility, and the activity conducted because of the
160528, October 9, 2006, said franchise must essentially be one of public
use.

DIGITAL TELECOMMUNICATIONS Here the High Court affirmed the ruling of the lower
PHIL., INC. vs. PROVINCE OF 2007 court that telecom company is answerable for
PANGASINAN, G.R. No. 152534, 23 provincial franchise tax, which distinct and separate
February 2007 to local business tax.
 64

QUEZON CITY and THE CITY Here The High Court upheld that the clause in lieu
TREASURER OF QUEZON CITY vs. 2008 of all taxes laid in ABS-CBN’ franchise does not
ABS-CBN BROADCASTING exempt it in paying of local franchise tax because
CORPORATION, G.R. No. 166408, 06 the clause is not clear as to what kind of taxes,
October 2008.. national or local, it is exempted from.

SMART COMMUNICATIONS, INC. vs.
THE CITY OF DAVAO, et. al., G.R. No.
155491, G.R. No. 155491, 21 July 2009.
2009
This case of Smart has its similarity with ABS-CBN
case on 2008. Here the High Court upheld that the
(legislative) franchise of Smart does not specifically
mention whether the given exemption refers to
national or local taxes. The absence of naming the
specific tax, the High Court inhibited to grant the
exemption to Smart in favor of City of Davao.
(Emphasis supplied).

THE CITY OF ILOILO, MR. ROMEO V. The Court upheld that Smart is accountable to pay
MANIKAN, IN HIS CAPACITY AS THE the local franchise and business taxes.
TREASURER OF ILOILO CITY, 2009
Petitioners, vs. SMART
COMMUNICATIONS, INC. (SMART),
Respondents, G.R. No. 167260, 27
February 2009.

CITY OF IRIIGA v. CAMARINES SUR III The Court held that the power of the LGUs to
ELECTRIC COOPERATIVE, INC. 2012 impose and collect taxes is derived from the
(CASURECO III), G.R. No. 192945, 05 Constitution which grants them the power to tax. It
September 2012. further states that the power to tax is consistent to
the policy of local autonomy or decentralization of
governance. In the same case, the Supreme Court
also pronounced that a franchise tax is a tax on the
exercise of a privilege, and shall be based on gross
receipts precisely because it is a tax on business.

CAGAYAN ELECTRIC POWER AND The Court touched on and explained that Section
LIGHT CO., INC. v. CITY OF CAGAYAN 143 of the LGC distinguishes the varied lines of
DE ORO, G.R. No. 191761, 14 business, and each line of business is subject to
2012
November 2012 different tax rates. The Court also explained that a
separate line of business not named or covered by
Section 143(a) to (g) falls to Section 143(h).
 65

SKY CABLE CORPORATION v. CITY
TREASURER OF QUEZON CITY, and
Office of the City Treasurer of Quezon
2012
City, G.R. No. 212295, 26 November
2014
Here the High Court upheld the ruling of CTA that
while the business tax and the franchise tax are
both based on gross receipts and sales, they are
different in nature or character. The franchise tax is
imposed on the exercise of enjoying a franchise,
while the business tax is imposed on the privilege
of engaging in one’s line of business.

Table 11 shows the decisions of Philippine Supreme Court affecting local

taxation in the Philippines:

In 2003, the Philippine Supreme Court explained the type of privilege

covered by Section 137 on franchise tax while linking it to Section 131 of the
LGC. It says that it applies only to a special or secondary franchise not to primary
franchise that is given to a corporation to be a legal juridical person or entity.

In 2006, it categorically stated that a franchise is a legislative grant to

operate a public utility. In many cases decided by the High Court, it consistently
ruled that to be considered a public utility, the related activity must essentially be
one of public use.

In 2007, the High Court affirmed the ruling of the lower court that a
telecommunication corporation is liable to pay the franchise tax to the province,
which is other than local business tax.

In 2008, it held that the phrase in lieu of all taxes found in the franchise of
a broadcasting corporation is not a basis to exempt it from paying local franchise
tax because the phrase is not clear as to what kind of taxes it is exempt.

In 2009, it upheld that the franchise (referring to Legislative Franchise) of

telecommunication corporation is not clear as to the exemption it is allowed to
 66

avail. The High Court told the telecommunication corporation that it is not exempt
from local taxes. In the same year of 2009, it upheld that telecommunication
corporations are liable to pay the local franchise and business taxes.

In 2012, in a case of an electric/energy corporation it touched on and

explained that Section 143 of LGC recognizes separate lines of business and
imposes different tax rates for each line of business, and further explained that a
separate line of business which is not covered by Section 143(a) to (g) falls to
Section 143(h).

Noteworthy, in the same year of 2012, it upheld the ruling of lower court
involving a cable television corporation that while the business tax and the
franchise tax are both based on gross receipts or sales they are two different
local taxes. The franchise tax is collected on the exercise of enjoying a franchise,
while the business tax is on the privilege of engaging in one’s line of business,
and collection of which at the same time is not double taxation.

Summing it up shows that the local business tax and franchise tax are two
different taxes, a collection of franchise tax is allowed only when a taxpayer is a
grantee of the legislative franchise granted by the Congress, not by the other
branch or the Executive i.e.. ERB, NTC etc. and that a line or kind business
should be taxed separately but uniformly according to its class.

The only thing bothering to the mind of the researcher is the October 9,
2006 ruling in CIR vs. Philippine Airlines, Inc., where Supreme Court says a
franchise is a legislative grant to operate a public utility, and to date there is yet
legal pronouncement or policy or law saying that cable television is a public
utility.
 67

3. What action could be proposed as a result of the study on:

3.1 Specific and related provisions of Local Government Code

that authorize the collection of local business tax.

3.2 Specific and related provisions of Local Government Code

that authorize the collection of franchise tax.

3.3 Form and execution of Pro-forma Application for business

permit of Local Government Units.

Table 12

Proposed Action Plan on specific and related provisions of Local

Government Code that authorize collection of Local Business Tax

LOCAL BUSINESS TAX

What Why How

While the Department of Address the LGU

Seminars on Finance (DOF) released a lot through its Treasurer
Section 143 of issuances explaining the or Business Permit
Tax on Business matter still, both taxing and Licensing Office
authority and taxpayer are not (BLPO)
well-versed in its implication,
particularly the
interrelationship between its
subsections, section 143(a) to
(g) to Section 143(h) as
discussed and explained by
the Supreme Court on 2012.
What the phrase “separate
lines of business” suggests to
those taxpayers that engaged
in other business activities
 68

Amendment to The rates of LGC of 1991 are Address the Congress

Section 144. not updated. To date, a lot of
Rates of Tax within the cases pending with the Court
Metropolitan Manila Area. of Tax Appeals regarding the
application of section 144,
which usually the LGUs have
offensively apply to taxpayer
for being not fair to
businesses.

Issuance of a more clear Address the

Implement Rules and To explain more in detail the Department of
Regulations (IRR) on relationship of section 146 to Finance (DOF)
Section 146. section 143 with regard to
Payment of Business Taxes local business taxes. Address the LGU
through its Treasurer
Seminars on or Business Permit
Section 146 and Licensing Office
Tax on Business (BLPO)

To explain well the relation of

Seminars to Section 150. this section to sections 142,
Situs of the Tax 143

Amendment to The statement is not direct to Address the Congress

Section 151. Scope of what it wants to express.
Taxing Powers

Table 12 shows the proposed action plan in some provisions of LGC

pertaining to local business tax. The proposed action plan answers the what, why
and how of a particular provision of the LGC. Like the column “What” it answers
the particular section of LGC. The column “Why” answers the reason behind the
what and column “How” answers to whom it should be addressed.
 69

Table 13

Proposed Action Plan on specific and related provisions of Local

Government Code that authorize collection of Franchise Tax

FRANCHISE TAX

What Why How

Seminars The existing definition of a Address the LGU

on “franchise” is outdated because through its Treasurer
Section 131(m) of the 2006 decision of Supreme or Business Permit
Definition of Terms Court in CIR, Petitioner, vs. and Licensing Office
Philippine Airlines, Inc., on what (BLPO) or Address
a legislative franchise refers to the Congress to
as a legislative grant to operate amend the provision
a public utility. that would explain

Seminars To abreast taxing authority Address the LGU

on representatives and taxpayers through its Treasurer
Section 137 on the new decisions of the or Business Permit
Franchise Tax Supreme Court regarding the and Licensing Office
franchise. (BLPO)

Table 13 shows the proposed action plan in some provisions of LGC

pertaining to the franchise tax. The proposed action plan answers the what, why
and how of a particular provision of the LGC. Like the column “What” it answers
the particular section of LGC. The column “Why” answers the reason behind the
column what and column “How” answers to whom it should be addressed.

The existing definition of a “franchise” is outdated because of the decision

of Supreme Court on 2006, RE: CIR, Petitioner, vs. PHILIPPINE AIRLINES,
INC., what legislative franchise refers to is a legislative grant to operate a public
utility.
 70

Table 14

Proposed Action Plan on other provisions of Local Government Code

affecting Local Business Tax and Franchise Tax.

Other Provisions

What Why How

Amendment to This section of the Code Address the Congress

Section 142 should be clarified more. The
Scope of Taxation Powers provision is not direct to what
it wants to express. There is a
need to refer or association to
other provisions of LGC, which
is not easy for an ordinary
layman unlike to those who
have knowledge of the law.

Amendment to Section 91 provides the Address the Congress

Section 191 authorization given to LGUs to
make adjustment in the tax
rates of their tax ordinances
but this section of the Code
should clarified more the
prescription period of five (5)
years because different
interpretations are lobbied by
different LGUs and related
agency of the Government,
and same with the
implementation 10% rate
bracket.

Table 14 shows the proposed action plan in some provisions of LGC

pertaining to local business tax and franchise tax. The proposed action plan
answers the what, why and how there is a need to amend the particular provision
of the LGC. Like the column “What” it answers the particular section of LGC. The
column “Why” answers the reason behind the column what and column “How”
answers to whom it should be addressed.
 71

Table 15

Proposed Action Plan on Local Government Unit’s Pro-forma Application

for business permit and its execution

Form and execution of Pro-forma Application for business

permit of Local Government Units.

What Why How

Revision While the present pro-forma Address the LGU

on application for a business permit through its Treasurer
Pro-forma Application for of LGUs requires declaration on or Business Permit
business permit operating branch or sales outlet and Licensing Office
through its business address in (BLPO)
the locality it, however, fails to
require declaration on the
record of sales and books of the
branch or sales outlet which is
another requirement on
collecting the local business tax.

There should be a separate item

that would require a declaration
of taxpayer whether it has a
record of sale or books in the
locality.

There should be a separate item

that would require a declaration
of taxpayer whether it has a
franchise, and will clearly state
the particularity of which.
Whether it grants by NTC or
Congress.

Seminars To abreast on the new decisions Address the LGU

on of the Supreme Court regarding through its Treasurer
Pro-forma Application for “franchise” that would require or Business Permit
business permit strict compliance in filling-up the and Licensing Office
 72

pro-forma application for a (BLPO)

business permit to best assess
what local tax is applicable to
the applicant.

Table 15 shows the proposed action plan on the existing pro-forma

application for business permits of LGUs. The proposed action plan answers the
what, why and how. Like the column what on seminars on Pro-forma

The proposed plan would help in the execution of a pro-forma application

for a business permit and the channeling the new information about local
taxation.
 73

CHAPTER 5

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

This chapter recapitulates the findings, conclusions and recommendations

on the Collection of Local Tax on Cable Television in Metro Manila particularly
their issues of practices and reform.

Summary of Findings

The significant findings of this research are as follows:

1. The current cable television tax collection practices in each

city/municipality in Metro Manila revealed that:

a. LGUs in Metro Manila collected local tax either local business tax or
franchise tax and used their owned local revenue or tax code or the
ordinance as the legal basis in collecting/levying a local tax to cable
television businesses.

b. There are thirteen (13) LGUs collected local tax business tax while
the remaining four (4) LGUs collected franchise tax to cable
television in Metro Manila.

c. There are seven (7) out of thirteen (13) LGUs collected local
business tax even cable television businesses have no physical
presence (operating branch or sales outlets) in their locality.
 74

d. Cable Television operators, particularly Sky Cable Corporation and

Cable Link and Holdings Inc. who are both grantees of the
congressional legislative franchise, were taxed differently in four (4)
LGUs, namely: Makati City, Pasay City, Pasig City and Taguig City.
Sky Cable Corporation is taxed under franchise tax while Cable
Link and Holdings, Inc. is taxed under the local business tax.

2. The problems encountered in the tax collection practices on cable

television in Metro Manila are:

a. The requirements of section 150(a) of the Local Government Code

that a taxpayer maintains an operating branch or sales outlet; and it
records its sales or keeps a book in the locality of the said
operating branch or sales outlet is given of no importance. It was
observed that out of seventeen (17) LGUs in Metro Manila, seven
(7) LGUs collected local business without compliance with the
requirement of sections 150(a). The practice is happening both in
different LGUs and even in one locality of one LGU. In the cities of
Pasig and Taguig, it can be observed that two (2) or more cable.

b. The requirement to declare whether a taxpayer is engaged in other

business activity or line of business -other than cable television- is
also given of no importance. Table 4 shows that the pro-forma
application for business permit of seventeen (17) LGUs in Metro
Manila required declaration on whether a taxpayer is engaged in
other business activity or line of business. Table 5 shows that out of
six (6) three (3) of cable television operators are engaged in other
line or kind of business e.g. broadband/internet in seventeen (17)
 75

LGUs. While the pro-forma required the declaration no cable

television reported that it engaged in other business activity or line
of business e.g. broadband/internet. The fact was confirmed during
the interview with one (1) cable television operator, Sky Cable
Corporation,

c. The requirement to declare whether a taxpayer is a grantee or

holder of a legislative franchise from Congress is also given of no
importance. Table 8 shows that out of six (6) only two (2) cable
television operators are holders or grantees of the legislative
franchise granted by the Congress. Table 9 shows that out of
seventeen (17) only one (1) LGU that required to its pro-forma
application for business permit declaration whether the taxpayer is
a grantee or holder of a legislative franchise.

Conclusions

Based on the above findings of this research, the following conclusions

are drawn:

1. The practices of the seventeen (17) Local Government Units (LGUs) in

Metro Manila to collect local taxes using as basis/bases their passed tax or
revenue ordinance or owned tax or revenue code raised no issues. The practices
are acquiescence to Section 5, Article X of the 1987 Philippine Constitution
because the Constitution itself grants the LGUs the power to create its own
sources of revenues by collecting taxes, fees and charges, and it only subject to
the guidelines and limitation by the Congress e.g. when Congress passed into
law the LGC it serves as guidelines and limitation of LGU’s power to levy taxes.
However, some facets of the practices of a collection of local taxes raised issues,
 76

in particular, there is no uniformity in the collection of the tax to one line or kind of
business, which violates the requirements of LGC. The situations of which are as
follows:

2. LGUs in Metro Manila collected local business tax even a cable television
taxpayer has no operating branch or sales outlet and/or keep books to record its
sales in the locality. The researcher concludes the practice violates section
150(a) of LGC. The happening of which may have to do on the non-observance
and strict compliance in the execution of the pro-forma application for business
permit particularly without examination or getting confirmation on the address of
establishment of the area that is an operating branch or sales outlet and it keeps
book to record receipts or income when in fact it is only an office space. Another
contributory factor is that the front delivery representative of taxing authority is
doing a ministerial function with the aim of only bringing revenue or income to the
locality of LGU. Actually, in one interview with a cable television representative
even it already informed the LGU representative regarding its situation that it is
operating in the area but no physical establishment in the locality the latter insists
to get one knowing that the only way for them to collect tax is under the local
business tax.

3. LGUs in Metro Manila collected local business tax even a cable television
taxpayer has its legislative franchise granted by the Congress and has no
operating branch or sales outlet, and books to record its sales in the locality. The
researcher concludes the practice violates sections 150(a) and 137 of the LGC.
The happening of which may have to do, either or both on: i) The pro-forma
application for business permit of LGU does not require a declaration on whether
an applicant is a legislative franchise holder or not, and it has no knowledge –
same with the taxing authority- that it would affect the collection of local tax to the
business; ii) The pro-forma application for business permit requires declaration
 77

on whether applicant is a holder of legislative or not, but the applicant did not
write the information and submit no proof of the circumstance knowing that it
would not affect the collection of tax on the business; and iii) The pro-forma
application for business permit is filled-up but no further examination or
confirmation on information particularly the address of establishment whether it
an operating branch or sales outlet and it keeps book to record receipts or
income or just an office space.

4. LGUs in Metro Manila collected local business tax under section 143(e) of
LGC even a cable television is engaged to other line or kind of business in the
locality. The researcher concludes the practices violate sections 143(a) to (h), on
local business tax and sections 131(m) and correlation to 137 of the LGC.
Sections 143(a) to (g) clearly enumerated the lines or kinds of businesses and
their corresponding rates, and those not among the enumeration will fall to
Section 143 (h). The happening of which may have to do with the operating fact,
nature, and background of a business. As mentioned in the introduction and
background this research in correlation to its related literature and studies, cable
television businesses these days offer services not only its principal line or kind
of business, cable television service. It can also offer broadband or internet
services (that partakes the nature of telecommunications service, specifically
telephone service) lease or sale its equipment which fall to other line or kind of
business that is subject to other local business tax under sections 143 (a) to (h)
of the LGC.
 78

Recommendations

Based on the above findings and conclusions, the following

recommendations are suggested:

Collection of Local Business Tax

1. The collection of the local business tax to cable television, LGU’s front line
delivery or representative in accepting application for new or renewal of
business permits should be guided in checking the content of the filed pro-
forma application for a business permit. It should ensure that the required
information is properly filled-up such as the information on the business
address, whether it refers to applicant-taxpayer’s operating branch or
sales outlet and it has a book to record the receipts/sales transaction or
not in the locality. Also, it should ensure that the kind or line business
supplied in the application is the only business activity the applicant-
taxpayer is engaged. One way to confirm the existence of applicant-
taxpayer’s establishment is to provide LGU a copy of its Bureau of Internal
Revenue’s Certificate of Registration (COR). COR has information on the
nature of business and whether the establishment is operating as a
branch or sales outlet or only facility or storage. Absence of the branch or
sales outlet that accepts or collects payment does not necessarily mean
that LGU cannot collect other kind of local tax particularly in a situation
where the applicant-taxpayer is a cable television and a grantee of
legislative franchise -from Congress-, without violating the LGC provisions
sections 143(a) to (h), which the researcher will discuss more on the
collection of franchise tax.
 79

2. The use of different nomenclature or categorization should be avoided by

the LGUs in the collection of local business tax. Instead of using Service,
Tax on Other Services, Cable Communication Co, Business Tax, Cable
Co., City Tax, Service-Cable Program Provider, TV Station/Cable TV
Stations etc.; use of very nomenclature or categorization found under
Section 143 (e), “contractors and other independent contractors” of the
LGC eliminates confusion. It is more direct and referencing can be made
quickly, especially in correlating LGC’s provisions to local revenue code’s
provision of an LGU is necessary, and both the taxing authority and
taxpayers will benefit.

3. Both LGUs and cable television businesses must be cautiously scrutinized

and accomplished the application for business permit. The application
involved the declaration of factors or elements that are necessary in
arriving the correct tax assessment or payment order e.g. whether the
business address supplied by the taxpayer pertains to operating branch or
sales outlet, whether the operator has congressional franchise, whether it
has engaged in other line or kind business other than its principal
business. The recommendation would help both the collection of local
business tax and franchise tax.
 80

Collection of Franchise Tax

4. The collection of franchise tax, LGUs particularly the cities in Metro

Manila, should collect franchise tax whenever a cable television business
operating in their locality is a grantee of legislative franchise or a holder of
congressional franchise, regardless of its physical presence or
establishment, whether or not it has an operating a branch or sales outlet
because the only requirement of section 137 in collecting franchise tax is
that a business (or cable television) is enjoying franchise, and the subject
to the common rate of 50% of 1% of its gross annual receipts within the
area of concerned LGU. Save in cases of a new started business that are
normally subject to the tax rate of not exceeding 1/20 of 1% of the capital
investment, and the law imposed no other requirements.

Further, section 131(m) of the LGC clearly defined what a franchise is. It
refers to a right or exercise of privilege which public interest is intricate,
and the grant of which is subject to the terms and conditions the
government or its political subdivisions may impose in consideration to the
public welfare, security and safety.

5. There should be delineation lines -to be drawn- between gross receipts

from business activities directly related to the franchise (or cable television
business) and business activities from other line or kind of business of a
cable television operator. Only those gross receipts from cable television
business should be subjected to franchise tax or local franchise tax. While
other gross receipts from other line or kind of business be subjected to
local business tax provided to other requirements are present.
 81

This in harmony with the fact that a legislative (congressional) franchise is

granted only to specific privilege. Like in the situation of a cable television
business its franchise is granted specifically to do cable television service,
its principal line or kind of business. Now if cable television will engage to
other line or kind of business, e.g. broadband or internet, the sale of
equipment, which is outside the activity/ies provided in its legislative
franchise then it should not be subjected to franchise tax. Actually, when
cable television businesses want to be engaged in the broadband or
internet business the law requires no legislative franchise but only
registration or license for Value Added Services (VAS).

The above recommendations for the collection of local business tax and
franchise tax have their bases using the decisions of the Supreme Court.
As mentioned in the local literature of this research the decisions rendered
by the Supreme Court are recognized laws. The pronouncement in
National Power Corporation vs. Cabanatuan city is a part of our legal
systems and partakes the nature of law which insightful for us to
understand as to what franchise spoke by section 137 in correlation to
section 131 of the LGC. It taught us that franchise refers to secondary or
special privileges or rights granted to a corporation to do activities like the
use of streets to put poles, to lay cables or wires. In other words, the term
franchise or franchises are charged with a public use. Thus, a corporation
to be liable for franchise tax, it must have a franchise in the circumstance
of a secondary franchise which is a special privilege conferred by the
government and not ordinarily available to other corporations.
 82

Proposed Action

The proposed action plans on the result of this study are:

1. Conduct seminars on franchise, franchise tax and local business tax

namely sections 142, 143, 144 and 151 as viewed in the latest
pronouncement of Philippine Supreme Court on Cagayan Electric Power
and Light Co., Inc. vs. Cagayan city while correlating to sections 131(m)
and 173 as viewed in National Power Corporation vs. The city of
Cabanatuan, CIR vs. Philippine Airlines, Inc. and Sky Cable Corporation
vs. City Treasurer of Quezon City and Office of the City Treasurer of
Quezon City.

2. Revise the existing pro-forma application for business permit of seventeen

(17) LGUs to include a declaration on the recording of receipts or keeping
of books and declaration on the fact that a taxpayer is a grantee or holder
of a legislative franchise from Congress.

3. Ask Congress for amendment the provisions of LGC on local business tax
that would clarify sections 142, 143, 144 and 151.

4. Ask Congress to amend the provisions of LGC on franchise tax that would
clarify sections 131(m) and 173.
 83

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