LEGAL TROUBLE | Smart Communications Inc. has assured its subscribers and the Makati City government that it is addressing legal issues concerning its local taxes. The Makati government on Monday shut down the telco’s main office on Ayala Avenue due to unpaid taxes and the lack of a business permit. (Photo by LYN RILLON / Philippine Daily Inquirer)
MANILA, Philippines — The Makati City government on Monday shut down the head office of telecommunications giant Smart Communications Inc. for its alleged unpaid taxes amounting to some P3.2 billion and for operating without a business permit over the last four years.
Smart, the wireless unit of telco giant PLDT Inc., said in a statement issued on the same day that it was addressing the unpaid taxes and “has filed the appropriate cases to resolve outstanding legal issues [and] these cases remain pending.”
The company added that its legal and tax teams were coordinating with city authorities as well to settle the issue.
“Smart remains committed to complying with Makati City’s local tax ordinances and with applicable national laws, in respect of local taxation,” it noted.
The PLDT subsidiary also assured the public that its services would “remain available and accessible to our subscribers.”
The closure order was prompted by a 2016 probe by the Office of the City Treasurer which found the company liable to pay franchise taxes from January 2012 to December 2015.
Legal challenge
In 2018, Smart filed a petition for review before a Makati regional trial court (RTC) seeking to nullify the city treasurer’s tax assessment.
During the trial, Makati City filed a motion for the production and inspection of Smart’s documents, which the court granted.
In 2019, however, Smart filed an opposition against Makati’s motion and challenged the court’s decision before the Court of Tax Appeals (CTA).
In 2022, the CTA denied Smart’s petition and affirmed the decision of the Makati RTC.
Smart had argued that the city has no jurisdiction to audit the company’s financial statements and operations in other branches nationwide, adding that it had submitted all records related to its operations within the city and paid the necessary taxes.
The CTA, however, said Makati had the authority to investigate Smart’s entire operations under the Local Government Code.
“When businesses in Makati choose to operate without a valid business permit, they are essentially operating outside the law,” City Administrator Claro Certeza said. “This is unacceptable, and I want to make it clear that we will not tolerate this kind of behavior, whether you are a big or small company.”
“You are hereby commanded to cease and desist from further operating your business establishment until such time compliance with the said ordinance is made,” read the closure order posted on Monday morning at the entrance of Smart’s Ayala Avenue headquarters.
Mayor’s appeal
Makati City Mayor Abby Binay urged businesses in the city to comply with the laws and obtain the necessary permits for their operations.
“I am committed to making sure all businesses are operating legally. It is important for businesses to know that we take these matters seriously and will take action when necessary,” Binay pointed out.
Last year, the city’s Business Permits and Licensing Office closed 191 business establishments due to their lack of business permits.
Makati is considered the country’s premier central business district, with the country’s biggest corporations headquartered in the city.
In 2022, its local government reported 4,439 new business registrants and 34,590 business permit renewals, with the new enterprises chalking up a total of P29.02 billion in capital investments. Registered businesses in the city also reported total sales of P1.42 trillion last year.
As the financial hub of the metropolis, Makati is one of the most profitable local government units, with revenues in 2022 rising by 9 percent to more than P20 billion.
The bulk of the city’s revenues last year came from business tax collections, which increased by 10 percent to P9.13 billion from the level in 2021.
Real property taxes contributed P8.15 billion, which was 7 percent higher than the previous year’s record.
Earnings from other local sources also increased, including fees and charges by 3 percent to P744.2 million, and economic enterprises by 66 percent to P340.7 million.