Philippines Operators to Seek Reversal of Court Ruling on Local Tax
MANILA -(Dow Jones)- Philippine Long Distance Telephone said Friday it will exhaust all legal means to reverse a court decision requiring its cellular unit, Smart Communications to pay local government taxes.
The Supreme Court earlier this week upheld the decision in 2002 of the southern city of Davao to impose on companies like Smart, which enjoy a franchise granted by Congress, a local tax on annual sales within the city. The court, however, lowered the tax rate to 0.5% from 0.75%.
"Smart believes that the relevant provisions of its legislative franchise and applicable law solidly support its position that it is exempt from local government taxes," said Lourdes Rausa-Chan, PLDT corporate secretary.
A legislative franchise is a special privilege granted to a corporation for a certain period to provide a service that normally should be controlled and administered by the government, such as communications and utilities.
If the ruling stays, analysts said it could be a legal precedent for other cities, towns and provinces to impose a similar tax on Smart and other companies with a legislative franchise, putting an additional strain on earnings.
Even so, ATR-Kim Eng Securities analyst Ricardo Puig said such local tax shouldn't put a big dent in Smart's earnings, especially with the impending reduction next year of the corporate income tax rate to 30% from 35%.
"In the overall scheme of things, the local tax is negligible," said Puig.
Last year, Smart posted gross revenue of PHP70.1 billion ($1.49 billion), which means it would have to pay a maximum PHP350 million in local taxes if all local government units were allowed to impose a similar tax, Puig noted.
Smart and its unit, Pilipino Telephone Corp., contribute around two-thirds to PLDT's revenue. Smart last year paid PHP11.1 billion in corporate income taxes.
-By Cris Larano, Dow Jones Newswires; 632-848-5051; cris.larano@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 19th September 2008
