SC: Napocor not exempted from paying taxes

The Supreme Court declared yesterday that the National Power Corp. (Napocor) is not exempted from paying franchise tax.

In a 13-page decision penned by Associate Justice Romeo Callejo Sr., the tribunal’s first division junked a Napocor petition for review seeking the reversal of an Oct. 21, 2004 ruling of the Court of Appeals (CA) ordering Napocor to deposit P7.1 million in the Land Bank of the Philippines.

The money is to be held in escrow until it is determined if it should go to Isabela or Ifugao provinces, both of which are claiming the money.

The Supreme Court said the Court of Appeals has rightfully declared that Napocor is liable for the payment of franchise tax under the Local Government Code.

The court cited that the same issue had already been decided in a similar case, Napocor vs Cabanatuan City, wherein Napocor also refused to pay franchise tax, claiming it was exempt under its charter.

Citing a provision in the Local Government Code, Napocor said the franchise tax does not apply to the power company because its stocks are wholly-owned by the government and its charter characterizes it as a non-profit organization.

Section 137 of the Local Government Code authorizes the province to impose a tax on businesses enjoying a franchise.

The Supreme Court, however, disagreed with Napocor and ruled that it is not exempted from paying franchise tax.

However, the provincial governments of Isabela and Ifugao are both claiming that Napocor owes them.

Isabela said Napocor should pay a franchise tax for its Magat river hydroelectric plant.

It said Napocor paid the franchise tax for the years 1992 and 1993, totaling P9.5 million, but refused to pay the tax for 1994 amounting to P7.1 million.

Napocor argued that the plant was built on land owned by the National Irrigation Administration, which is situated in Potia, Ifugao.

Napocor said it paid a franchise tax to Isabela province based on its representation that the plant is within its borders.

Ifugao’s provincial government intervened and filed a complaint, claiming that the plant is within its borders and the Isabela provincial government was guilty of misrepresentation.

Napocor is now in a quandary because of the border dispute. In its reply to Ifugao’s petition, Napocor also argued that it is exempted from paying a franchise tax.

On July 30, 1997, the Isabela Regional Trial Court ruled in favor of the Ifugao provincial government and ordered Napocor to deposit P7.1 million but hold it in escrow until the border dispute with Isabela was cleared up.

The Court of Appeals affirmed the court ruling in October 2004, saying the Local Government Code withdrew the tax exemption provided under the Napocor’s charter.