THIRD DIVISION

[G.R. No. 127708. March 25, 1999.]

CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF

SAN PABLO, LAGUNA, and THE SANGUNIANG PANGLUNSOD OF
SAN PABLO, LAGUNA , petitioners, vs . HONORABLE BIENVENIDO V.
REYES, in his capacity as Presiding Judge, Regional Trial Court,
Branch 29, San Pablo City and the MANILA ELECTRIC COMPANY ,
respondents.

Eleno M. Mendoza, Jr. for petitioners.

Quiason Makalintal Barot Torres & Ibarra for private respondent.

SYNOPSIS

This is a petition for review under Rule 45 of the Revised Rules of Court assailing the
decision of the Regional Trial Court of San Pablo City declaring the imposition of franchise
tax under Section 2.09 Article D of Ordinance No. 56, otherwise known as the Revenue
Code of the City of San Pablo as ineffective and void insofar as private respondent is
concerned for being violative of Act No. 3648, Republic Act No. 2340 and PD 551. The RTC
also granted private respondent's claim for refund of franchise taxes paid under protest.
Petitioners' position was that RA 7160, The Local Government Code of 1991 (LGC),
expressly repealed Act No. 3648; RA No. 2340 and PD 551, and that pursuant to the
provisions of Sections 137 and 193 of the Local Government Code, the province or city
now has the power to impose a franchise tax on a business enjoying a franchise. On the
other hand, private respondent invoked the non-impairment clause of the Constitution to
justify its exemption from local tax.
The Supreme Court reversed and set aside the decision of the trial court. Petitioners
correctly relied on the provisions of Sections 137 and 193 of the LGC to support their
position that private respondent's exemption has been withdrawn. The explicit language of
Section 137 which authorizes the province to impose franchise tax "notwithstanding any
exemption granted by any law or other special law" is all encompassing and clear. The
franchise tax is imposable despite any exemption enjoyed under special laws. Moreover,
Section 193 buttresses the withdrawal of extant tax exemption privileges. Thus, in the
absence of any provision of the Code to the contrary, and which the Court found no other
provision in point, private respondent's tax exemption privileges under existing law was
clearly intended to be withdrawn. Reading together Sections 137 and 193 of the LGC, the
Court concluded that under the LGC, the local government unit may now impose a local tax
at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
year based on the incoming receipts realized within its territorial jurisdiction.
Private respondent's invocation of the non-impairment clause of the Constitution
was unavailing. Under the 1935, the 1973 and the 1987 Constitutions, no franchise or right
shall be granted except under the condition that it shall be subject to amendment,
alteration or repeal by the National Assembly when the public interest so requires. With or
without the reservation clause, franchises are subject to alterations through a reasonable
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 exercise of the police power. They are also subject to alteration by the power to tax, which
like police power cannot be contracted away.

SYLLABUS

1. POLITICAL LAW; LOCAL GOVERNMENT; LOCAL GOVERNMENT CODE;

SECTION 534(f) THEREOF; PARTAKES OF THE NATURE OF GENERAL REPEALING
CLAUSE. — Section 534(f), the repealing clause of the LGC, provides that all general and
special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations or parts thereof which are inconsistent with any of the
provisions of the Code are hereby repealed or modi ed accordingly. This clause partakes
of the nature of a general repealing clause. It is certainly not an express repealing clause
because it fails to designate the speci c act or acts identi ed by number or title, that are
intended to be repealed. TDESCa

2. ID.; ID.; ID.; SECTIONS 137 AND 193 THEREOF; TAX EXEMPTION PRIVILEGES
CONSIDERED WITHDRAWN UPON EFFECTIVITY THEREOF; EXCEPTIONS; TAX
EXEMPTIONS ENJOYED BY MERALCO CONSIDERED WITHDRAWN; CASE AT BAR. — It is
our view that petitioners correctly rely on the provisions of Sections 137 and 193 of the
LGC to support their position that MERALCO's tax exemption has been withdrawn. The
explicit language of Section 137 which authorizes the province to impose franchise tax
"notwithstanding any exemption granted by any law or other special law" is well-
encompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws. Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons whether natural or juridical,
including government-owned or controlled corporations except 1) local water districts, 2)
cooperatives duly registered under R.A. 6938, 3) non-stock and non-pro t hospitals and
educational institutions, are withdrawn upon the effectivity of this code, the obvious import
is to limit the exemptions to the three enumerated entities. It is a basic precept of
statutory construction that the express mention of one person, thing, act or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius. In the absence of any provision of the Code to the contrary, and we nd no other
provision in point, any existing tax exemption or incentive enjoyed by MERALCO under
existing law was clearly intended to be withdrawn.
3. ID.; ID.; ID.; ID.; LOCAL GOVERNMENT UNIT ALLOWED TO IMPOSE A LOCAL
TAX AT A RATE NOT EXCEEDING 50% OF 1% OF THE GROSS ANNUAL RECEIPTS. —
Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar year based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the language used in
Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such exemptions or privileges.
No more unequivocal language could have been used.
4. ID.; ID.; ID.; ID.; PHRASE "SHALL BE IN LIEU OF ALL TAXES" FOUND IN
SPECIAL FRANCHISES HAVE TO GIVE WAY TO THE PEREMPTORY LANGUAGE THEREOF
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 WITHDRAWING TAX EXEMPTION PRIVILEGES. — It is true that the phrase "in lieu of all
taxes" found in special franchises has been held in several cases to exempt the franchise
holder from payment of tax on its corporate franchise imposed by the Internal Revenue
Code, as the charter is in the nature of a private contract and the exemption is part of the
inducement for the acceptance of the franchise, and that the imposition of another
franchise tax by the local authority would constitute an impairment of contract between
the government and the corporation. But these "magic words" contained in the phrase
"shall be in lieu of all taxes" have to give way to the peremptory language of the LGC
speci cally providing for the withdrawal of such exemption privileges. Accordingly in
Mactan Cebu International Airport Authority vs. Marcos, this Court held that Section 193 of
the LGC prescribes the general rule, viz., the tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the
LGC except with respect to those entities expressly enumerated. In the same vein, We
must hold that the express withdrawal upon effectivity of the LGC of all exemptions only
as provided therein, can no longer be invoked by Meralco to disclaim liability for the local
tax.
5. CONSTITUTIONAL LAW; BILL OF RIGHTS; NON-IMPAIRMENT CLAUSE;
CANNOT BE INVOKED TO UPHOLD MERALCO'S EXEMPTION FROM LOCAL TAX;
FRANCHISES SUBJECT TO ALTERATION THROUGH REASONABLE EXERCISE OF THE
POLICE POWER AND THE POWER TO TAX. — Private respondent's invocation of the non-
impairment clause of the Constitution is accordingly unavailing. The LGC was enacted in
pursuance of the constitutional policy to ensure autonomy to local governments and to
enable them to attain fullest development as self-reliant communities. There is further
basis for the conclusion that the non-impairment of contract clause cannot be invoked to
uphold Meralco's exemption from the local tax. Escudero Electric Co. was originally given
the legislative franchise under Act 3648 to operate an electric light and power system in
the City of San Pablo and nearby municipalities. The term of the franchise under Act No.
3648 is a period of fty years from the Act's approval in 1929. The said law provided that
the franchise is granted upon the condition that it shall be subject to amendment, or repeal
by the Congress of the United States. Under the 1935, the 1973 and the 1987
Constitutions, no franchise or right shall be granted except under the condition that it shall
be subject to amendment, alteration or repeal by the National Assembly when the public
interest so requires. With or without the reservation clause, franchises are subject to
alterations through a reasonable exercise of the police power; they are also subject to
alteration by the power to tax, which like police power cannot be contracted away. TaDAIS

6. STATUTORY CONSTRUCTION; IN INTERPRETING STATUTORY PROVISIONS

ON MUNICIPAL FISCAL POWERS, DOUBTS SHOULD BE RESOLVED IN FAVOR OF
MUNICIPAL CORPORATIONS. — The power to tax is primarily vested in Congress.
However, in our jurisdiction, it may be exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution. The important legal effect of Section 5 is that
henceforth, in interpreting statutory provisions on municipal scal powers, doubts will
have to be resolved in favor of municipal corporations.
7. ID.; GENERAL LAW; CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW BY MERE IMPLICATION UNLESS INTENT TO REPEAL IS MANIFEST. — We
are mindful of the established rule that repeals by implication are not favored as laws are
presumed to be passed with deliberation and full knowledge of all laws existing on the
subject. A general law cannot be construed to have repealed a special law by mere
implication unless the intent to repeal or alter is manifest and it must be convincingly
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 demonstrated that the two laws are so clearly repugnant and patently inconsistent that
they cannot co-exist. ITADaE

DECISION

GONZAGA-REYES , J : p

This is a petition under Rule 45 of the Rules of Court to review on a pure question of
law the decision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in Civil Case
No. SP-4459(96), entitled "Manila Electric Company vs. City of San Pablo, Laguna, City
Treasurer of San Pablo Laguna, and the Sanguniang Panglunsod of San Pablo City,
Laguna." The RTC declared the imposition of a franchise tax under Section 2.09, Article D
of Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo as
ineffective and void insofar as the respondent MERALCO is concerned for being violative
of Act No. 3648, Republic Act No. 2340 and PD 551. The RTC also granted MERALCO'S
claim for refund of franchise taxes paid under protest.
The following antecedent facts are undisputed:
Act No. 3648 granted the Escudero Electric Service Company a legislative franchise
to maintain and operate an electric light and power system in the City of San Pablo and
nearby municipalities. Section 10 of Act No. 3648 provides:
". . . In consideration of the franchise and rights hereby granted, the grantee
shall pay unto the municipal treasury of each municipality in which it is supplying
electric current to the public under this franchise, a tax equal to two percentum of
the gross earnings from electric current sold or supplied under this franchise in
each said municipality. Said tax shall be due and payable quarterly and shall be
in lieu of any and all taxes of any kind, nature or description levied, established or
collected by any authority whatsoever, municipal, provincial or insular, now or in
the future, on its poles, wires, insulators, switches, transformers, and structures,
installations, conductors, and accessories placed in and over and under all public
property, including public streets and highways, provincial roads, bridges and
public squares, and on its franchise, rights, privileges, receipts, revenues and
profits from which taxes the grantee is hereby expressly exempted."

Escudero's franchise was transferred to the plaintiff (herein respondent) MERALCO

under Republic Act No. 2340.
Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof
provides the following:
"SECTION 1. Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of franchise to
generate, distribute and sell electric current for light, heat and power shall be two
percent (2%) of their gross receipts received from the sale of electric current and
from transactions incident to the generation, distribution and sale of electric
current.
Such franchise tax shall be payable to the Commissioner of Internal
Revenue or his duly authorized representative on or before the twentieth day of
the month following the end of each calendar quarter or month as may be
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 provided in the respective franchise or pertinent municipal regulation and shall,
any provision of the Local Tax Code or any other law to the contrary
notwithstanding, be in lieu of all taxes and assessments of whatever nature
imposed by any national or local authority on earnings, receipts, income and
privilege of generation, distribution and sale of electric current."

Republic Act No. 7160, otherwise known as the "Local Government Code of 1991"
(hereinafter referred to as LGC) took effect on January 1, 1992. The said Code authorizes
the province/city to impose a tax on business enjoying a franchise at a rate not exceeding
fty percent (50%) of one percent (1%) of the gross annual receipts for the preceding
calendar year realized within its jurisdiction.
On October 5, 1992, the Sanguniang Panglunsod of San Pablo City enacted
Ordinance No. 56, otherwise known as the Revenue Code of the City of San Pablo. The said
Ordinance took effect on October 30, 1992. 1
Section 2.09, Article D of said Ordinance provides:
"SECTION 2.09. Franchise Tax . — There is hereby imposed a tax on
business enjoying a franchise, at a rate of fty percent (50%) of one percent (1%)
of the gross annual receipts, which shall include both cash sales and sales on
account realized during the preceding calendar year within the city."

Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to
private respondent a letter demanding payment of the aforesaid franchise tax. From 1994
to 1996, private respondent paid "under protest" a total amount of P1,857,711.67. 2
The private respondent subsequently led this action before the Regional Trial Court
to declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon
private respondent MERALCO 3 and to claim for a refund of the taxes paid.
The Court ruled in favor of MERALCO and upheld its argument that the LGC did not
expressly or impliedly repeal the tax exemption/incentive enjoyed by it under its charter.
The dispositive portion of the decision reads:
"WHEREFORE, the imposition of a franchise tax under Sec. 2.09, Article D
of Ordinance No. 56 otherwise known as the Revenue Code of the City of San
Pablo, is declared ineffective and null and void insofar as the plaintiff MERALCO
is concerned for being violative of Republic Act No. 2340, PD 551, and Republic
Act No. 7160 and the defendants are ordered to refund to the plaintiff the amount
of ONE MILLION EIGHT HUNDRED FIFTY SEVEN THOUSAND SEVEN HUNDRED
ELEVEN & 67/100 (P1,857,711.67) and such other amounts as may have been
paid by the plaintiff under said Revenue Ordinance No. 56 after the ling of the
complaint. 4

SO ORDERED."

Its motion for reconsideration having been denied by the trial court, 5 the petitioners
led the instant petition with this Court raising pure questions of law based on the
following grounds:
I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO.
3648, REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551,
AS AMENDED, INSOFAR AS THEY GRANT TAX INCENTIVES,
PRIVILEGES AND IMMUNITIES TO PRIVATE RESPONDENT, HAVE
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 NOT BEEN REPEALED BY REPUBLIC ACT NO. 7160.
II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION
193 OF REPUBLIC ACT NO. 7160 HAS NOT WITHDRAWN THE TAX
INCENTIVES, PRIVILEGES AND IMMUNITIES BEING ENJOYED BY
THE PRIVATE RESPONDENT UNDER ACT NO. 3648. REPUBLIC ACT
NO. 2340 AND PRESIDENTIAL DECREE NO. 551, AS AMENDED.
III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE
FRANCHISE TAX IN QUESTION CONSTITUTES AN IMPAIRMENT OF
THE CONTRACT BETWEEN THE GOVERNMENT AND THE PRIVATE
RESPONDENT.
Petitioners' position is that RA 7160 (LGC) expressly repealed Act No. 3648,
Republic Act No. 2340 and Presidential Decree 551 and that pursuant to the provisions of
Sections 137 and 193 of the LGC, the province or city now has the power to impose a
franchise tax on a business enjoying a franchise. Petitioners rely on the ruling in the case of
Mactan Cebu International Airport Authority vs. Marcos 6 where the Supreme Court held
that the exemption from real property tax granted to Mactan Cebu International Airport
Authority under its charter has been withdrawn upon the effectivity of the LGC.
In addition, the petitioners cite in their Memorandum dated December 8, 1997 an
administrative interpretation made by the Bureau of Local Government Finance of the
Department of Finance in its 3rd indorsement dated February 15, 1994 to the effect that
the earlier ruling of the Department of Finance that holders of franchise which contain the
phrase "in lieu of all taxes" proviso are exempt from the payment of any kind of tax is no
longer applicable upon the effectivity of the LGC in view of the withdrawal of tax exemption
privileges as provided in Sections 193 and 234 thereof.
We resolve to reverse the court a quo.
The pivotal issue is whether the City of San Pablo may impose a local franchise tax
pursuant to the LGC upon the Manila Electric Company which pays a tax equal to two
percent of its gross receipts in lieu of all taxes and assessments of whatever nature
imposed by any national or local authority on savings or income.
It is necessary to reproduce the pertinent provisions of the LGC.
SECTION 137. Franchise Tax . — Notwithstanding any exemption
granted by any law or other special law, the province may impose a tax on
business enjoying a franchise, at a rate not exceeding fty percent 50% of one
percent 1% of the gross annual receipts for the preceding calendar year based on
the incoming receipts, or realized, within its territorial jurisdiction. . . ."
SECTION 151. Scope of Taxing Powers . — Except as otherwise
provided in this Code, 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 fty percent (50%)
except the rates of professional and amusement taxes.

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 SECTION 193. Withdrawal of Tax Exemption Privileges . — Unless
otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-stock and non-pro t hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this
Code.
SECTION 534(f). Repealing Clause. — All general and special laws,
acts, city charters, decrees, executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the
provisions of this code are hereby repealed or modified accordingly.

Section 534(f), the repealing clause of the LGC, provides that all general and special
laws, acts, city charters, decrees, executive orders, proclamations and administrative
regulations or parts thereof which are inconsistent with any of the provisions of the Code
are hereby repealed or modified accordingly.
This clause partakes of the nature of a general repealing clause 7 . It is certainly not
an express repealing clause because it fails to designate the speci c act or acts identi ed
by number or title, that are intended to be repealed. 8
Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise
insofar as the latter imposes a 2% tax "in lieu of all taxes and assessments of whatever
nature"?
We rule affirmatively.
We are mindful of the established rule that repeals by implication are not favored as
laws are presumed to be passed with deliberation and full knowledge of all laws existing
on the subject. A general law cannot be construed to have repealed a special law by mere
implication unless the intent to repeal or alter is manifest 9 and it must be convincingly
demonstrated that the two laws are so clearly repugnant and patently inconsistent that
they cannot co-exist. 1 0
It is our view that petitioners correctly rely on the provisions of Sections 137 and
193 of the LGC to support their position that MERALCO's tax exemption has been
withdrawn. The explicit language of Section 137 which authorizes the province to impose
franchise tax "notwithstanding any exemption granted by any law or other special law" is
all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating
that unless otherwise provided in this Code, tax exemptions or incentives granted to or
presently enjoyed by all persons whether natural or juridical, including government-owned
or controlled corporations except 1) local water districts, 2) cooperatives duly registered
under R.A. 6938, (3) non-stock and non-pro t hospitals and educational institutions, are
withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions
to the three enumerated entities. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius. 1 1 In the absence of
any provision of the Code to the contrary, and we nd no other provision in point, any
existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly
intended to be withdrawn.
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 Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC
the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of
the gross annual receipts for the preceding calendar year based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the language used in
Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such exemptions or privileges.
No more unequivocal language could have been used.
It is true that the phrase "in lieu of all taxes" found in special franchises has been
held in several cases to exempt the franchise holder from payment of tax on its corporate
franchise imposed by the Internal Revenue Code, as the charter is in the nature of a private
contract and the exemption is part of the inducement for the acceptance of the franchise,
and that the imposition of another franchise tax by the local authority would constitute an
impairment of contract between the government and the corporation. 1 2 But these "magic
words" contained in the phrase "shall be in lieu of all taxes" 1 3 have to give way to the
peremptory language of the LGC speci cally providing for the withdrawal of such
exemption privileges.
Accordingly in Mactan Cebu International Airport Authority vs. Marcos, 1 4 this Court
held that Section 193 of the LGC prescribes the general rule, viz., the tax exemptions or
incentives granted to or presently enjoyed by natural or juridical persons are withdrawn
upon the effectivity of the LGC except with respect to those entities expressly enumerated.
In the same vein, We must hold that the express withdrawal upon effectivity of the LGC of
all exemptions except only as provided therein, can no longer be invoked by Meralco to
disclaim liability for the local tax.
Private respondents further argue that the "in lieu of" provision contained in PD 551,
Act No. 3648 and RA 2340 does not partake of the nature of an exemption, but is a
"commutative tax". This contention was raised but was not upheld in Cagayan Electric
Power and Light Co. Inc. vs. Commissioner of Internal Revenue 1 5 wherein the Supreme
Court stated:
". . . Congress could impair petitioner's legislative franchise by making it
liable for income tax from which heretofore it was exempted by virtue of the
exemption provided for in section 3 of its franchise . . .
. . . Republic Act No. 5431, in amending section 24 of the Tax Code by
subjecting to income tax all corporate taxpayers not expressly exempted therein
and in section 27 of the Code, had the effect of withdrawing petitioner's
exemption from income tax . . .".
Private respondent's invocation of the non-impairment clause of the Constitution is
accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governments 1 6 and to enable them to attain fullest
development as self-reliant communities. 1 7 Thus in Mactan Cebu International Airport
Authority vs. Marcos, supra, this Court pointed out, in upholding the withdrawal of the real
estate tax exemption previously enjoyed by the Mactan Cebu International Airport
Authority, as follows:
"Note that as reproduced in Section 234(a) the phrase "and any
government-owned or controlled corporation so exempt by its charter" was
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 excluded. The justi cation for this restricted exemption in Section 234(a) seems
obvious: to limit further tax exemption privileges, especially in light of the general
provision on withdrawal of tax exemption privileges in Section 193 and the
special provision on withdrawal of exemption from payment of real property
taxes in the last paragraph of Section 234. These policy considerations are
consistent with the State policy to ensure autonomy to local governments and the
objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals. The power to
tax is the most effective instrument to raise needed revenues to nance and
support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement
of peace, progress, and prosperity of the people. It may also be relevant to recall
that the original reasons for the withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises, and there was a need for these
entities to share in the requirements of development, scal or otherwise, by
paying the taxes and other charges due from them." 1 8

The Court therein concluded that:

"nothing can prevent Congress from decreeing that even instrumentalities
or agencies of the Government performing governmental functions may be
subject to tax. Where it is done precisely to ful ll a constitutional mandate and
national policy, no one can doubt its wisdom" 1 9

The power to tax is primarily vested in Congress. However, in our jurisdiction, it may
be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. 2 0 Thus Article X, Section 5 of the Constitution reads:
"SECTION 5. Each Local Government unit shall have the power to
create its own sources of revenue and to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."

The important legal effect of Section 5 is that henceforth, in interpreting statutory

provisions on municipal fiscal powers, doubts will have to resolved in favor of municipal
corporations. 2 1 cdasia

There is further basis for the conclusion that the non-impairment of contract clause
cannot be invoked to uphold Meralco's exemption from the local tax. Escudero Electric Co.
was originally given the legislative franchise under Act 3648 to operate an electric light and
power system in the City of San Pablo and nearby municipalities. The term of the franchise
under Act No. 3648 is a period of fty years from the Act's approval in 1929. The said law
provided that the franchise is granted upon the condition that it shall be subject to
amendment, or repeal by the Congress of the United States. 2 2 Under the 1935, 2 3 the
1973 2 4 and the 1987 2 5 Constitutions, no franchise or right shall be granted except under
the condition that it shall be subject to amendment, alteration or repeal by the National
Assembly when the public interest so requires. With or without the reservation clause,
franchises are subject to alterations through a reasonable exercise of the police power;
they are also subject to alteration by the power to tax, which like police power cannot be
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 contracted away. 2 6
Finally, while the matter is not of controlling signi cance, the Court notes that
whereas the original Escudero franchise exempted the franchise holder from all taxes
levied or collected "now or in the future" 2 7 this phrase is noticeably omitted in the
counterpart provision of P.D. 551; that said omission is intended not to foreclose future
taxes may reasonably be deduced by statutory construction.
WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial
Court of San Pablo City, appealed from is hereby reversed and set aside, and the complaint
of MERALCO is hereby DISMISSED.
No pronouncement as to costs. cdt

SO ORDERED.
Romero, Vitug, Panganiban and Purisima, JJ., concur.

Footnotes
1. Petition for Review, p. 3.
2. Ibid., p. 4 and Respondent's Memorandum, p. 3.
3. Petition for Review, p. 4 and Respondent's Memorandum, p. 4.
4. Ibid.
5. Order of January 10, 1996, p. 41, Rollo.
6. 261 SCRA 667, [1996].
7. Ty vs. Trampe, 250 SCRA 500 at 512 [1995].
8. Mecano vs. Commission on Audit, 216 SCRA 500 at 504 [1992]; Berces, Sr. vs. Guingona,
Jr., 241 SCRA 539 at 544 [1995].

9. Laguna Lake Development Authority vs. Court of Appeals, 251 SCRA 42 at 56 [1995].
10. Villegas vs. Subido, 41 SCRA 190 at 197 [1971], Mecano vs. Commission on Audit,
Supra.
11. Commissioner of Customs vs. Court of Tax Appeals, 224 SCRA 665 at pp. 669-670,
[1993].

12. Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231; Commissioner of
Internal Revenue vs. Lingayen Gulf Electric Power Co., 164 SCRA 27 at 34 [1988];
Province of Misamis Oriental vs. Cagayan Electric Power and Light Co., Inc., 181 SCRA
38 at 43 [1990].
13. Province of Misamis Oriental vs. Cagayan Electric Power and Light Co., Inc., Supra, at p.
42.
14. Supra.
15. 138 SCRA 629 at p. 631.
16. Section 25, Art. II and § 2, Art. X Constitution.
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 17. § 2(a) Local Government Code of 1991.
18. Mactan Cebu International Airport Authority vs. Marcos, p. 690.
19. Ibid., p. 692.
20. Isagani A. Cruz, Constitutional Law, (1991) at p. 84.
21. Bernas, The Constitution of the Philippines, 1st ed. p. 381.

22. Act No. 3648, § 12.

23. Article XIV, § 8.
24. Article XIV, § 5.
25. Article XII, § 11.
26. Bernas, Supra, p. 341.

27. § 10, Act No. 3648.

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