CTA junks Davao Sur's franchise tax claim on TransCo

MANILA – The Court of Tax Appeals reversed a 2019 ruling by the Digos, Davao del Sur Regional Trial Court (RTC) Branch 19 that allowed the provincial government's P2.5 million franchise tax assessment on the National Transmission Corp. (TransCo).

In a decision dated Oct. 31, the CTA Second Division said "respondent's (Davao del Sur) local franchise tax assessments (on TransCo) for the years 2002 to 2008 have no legal bases and as such, are void."

"In addition, it is also noteworthy that the court a quo (RTC) nullified, in effect, the local franchise tax assessments issued by the respondent province against petitioner for the years 2002 and 2003, albeit on the ground of prescription," the court said.

In August 2009, the provincial government sent a tax assessment notice to TransCo for franchise tax liabilities for the years 2002 to 2008 amounting to P4.07 million, based on the summary of power bill payments of Davao del Sur Electric Cooperative (Dasureco) to Transco during the period.

In a letter dated Sept. 3, 2009, TransCo protested the assessment and demanded for it to be set aside, explaining that although its Matanao Substation is located in the province of Davao del Sur, its customer (Dasureco) is within Digos City, which is outside the territorial jurisdiction of the province.

TransCo received a reduced tax assessment of P2.57 million from the provincial government on Nov. 10, 2009.

Under the Local Government Code of 1991, a province may impose a franchise tax on businesses enjoying a franchise but it "shall not impose the tax on business enjoying a franchise within the territorial jurisdiction of any city located within the province."

TransCo is a government agency created under Republic Act 9136, or the Electric Power Industry Reform Act (EPIRA) of 2001.

Since March 1, 2003, TransCo has been operating and managing the power transmission system that links power plants to electric distribution utilities nationwide.

The same law mandated the privatization of TransCo through an outright sale or management concession agreement.

On Jan. 15, 2009, TransCo turned over the management and operation of its nationwide transmission system to the National Grid Corporation of the Philippines but retained ownership of all transmission assets. (PNA)