Davao: 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 PHP2.5 million franchise tax assessment on the National Transmission Corp. (TransCo).

According to Philippines News Agency, in a decision dated Oct. 31, the CTA Second Division declared that “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.” The court also noted that the RTC had effectively nullified the local franchise tax assessments issued by the province against TransCo for the years 2002 and 2003 due to the issue of prescription.

In August 2009, the provincial government had sent a tax assessment notice to TransCo for franchise tax liabilities for the years 2002 to 2008 totaling PHP4.07 million. This amount was based on the summary of power bill payments made by Davao del Sur Electric Cooperative (Dasureco) to TransCo during that period.

TransCo, in
a letter dated Sept. 3, 2009, protested against the assessment, arguing that its Matanao Substation is located in Davao del Sur, but its customer, Dasureco, is within Digos City, outside the province’s territorial jurisdiction. Subsequently, the provincial government issued a reduced tax assessment of PHP2.57 million to TransCo on Nov. 10, 2009.

The Local Government Code of 1991 allows provinces to impose a franchise tax on businesses with a franchise. However, it specifies that “a province shall not impose the tax on business enjoying a franchise within the territorial jurisdiction of any city located within the province.”

TransCo, a government agency established under Republic Act 9136, or the Electric Power Industry Reform Act (EPIRA) of 2001, has been operating and managing the power transmission system linking power plants to electric distribution utilities across the nation since March 1, 2003. The same law mandated the privatization of TransCo through either an outright sale or a management concessio
n agreement.

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