Philippine Health Care Providers vs.
CIR THE POWER TO TAX IS NOT
G.R. No. 167330 June 12, 2008
RESOLUTION
CORONA, J.:
FACTS
Petitioner is a domestic corporation whose primary
purpose is to establish, maintain, conduct and operate a
prepaid group practice health care delivery system or a
health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial
responsibilities of the organization. Individuals enrolled in
its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff
participating in the group practice health delivery system
at a hospital or clinic owned, operated or accredited by it.
On January 27, 2000, respondent CIR sent
petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable
years 1996 and 1997 in the total amount
of P224,702,641.18.
The deficiency [documentary stamp tax (DST)]
assessment was imposed on petitioners health care agreement
with the members of its health care program pursuant to
Section 185 of the 1997 Tax Code.
Petitioner protested the assessment in a letter. As
respondent did not act on the protest, petitioner filed a
petition for review in the CTA seeking the cancellation of
the deficiency VAT and DST assessments.
SC’s DECISION
In a decision dated June 12, 2008, We held that
petitioners health care agreement during the pertinent period
was in the nature of non-life insurance which is a contract of
indemnity, citing Blue Cross Healthcare, Inc. v.
Olivaresand Philamcare Health Systems, Inc. v. CA. We also
ruled that petitioners contention that it is a health maintenance
organization (HMO) and not an insurance company is
irrelevant because contracts between companies like petitioner
and the beneficiaries under their plans are treated as insurance
contracts. Moreover, DST is not a tax on the business
transacted but an excise on the privilege, opportunity or
facility offered at exchanges for the transaction of the
business.
Unable to accept our verdict, petitioner filed the
present motion for reconsideration.
ISSUE
Is the Power to Tax the Power to Destroy?
RULING
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the
Securities and Exchange Commission on June 30, 1987. It is
engaged in the dispensation of the following medical services
to individuals who enter into health care agreements with it:
1. Preventive medical services such as periodic
monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise
and other healthy habits, and immunization;
2. Diagnostic medical services such as routine physical
examinations, x-rays, urinalysis, fecalysis, complete
blood count, and the like and
3. Curative medical services which pertain to the
performing of other remedial and therapeutic
processes in the event of an injury or sickness on the
part of the enrolled member.
THE POWER TO DESTROY
As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which
imposes the tax on the constituency who is to pay it. So potent
indeed is the power that it was once opined that the power to
tax involves the power to destroy.
Petitioner claims that the assessed DST to date which
amounts to P376 million is way beyond its net worth
of P259 million. Respondent never disputed these assertions.
Given the realities on the ground, imposing the DST on
petitioner would be highly oppressive. It is not the purpose of
the government to throttle private business. On the contrary,
the government ought to encourage private enterprise.
Petitioner, just like any concern organized for a lawful
economic activity, has a right to maintain a legitimate
business. As aptly held in Roxas, et al. v. CTA, et al.:
The power of taxation is sometimes called also the
power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the
hen that lays the golden egg.
Legitimate enterprises enjoy the constitutional protection
not to be taxed out of existence. Incurring losses because of
a tax imposition may be an acceptable consequence but
killing the business of an entity is another matter and
should not be allowed. It is counter-productive and
ultimately subversive of the nation’s thrust towards a
better economy which will ultimately benefit the majority
of our people.
Petitioner asserts that, regardless of the arguments, the DST
assessment for taxable years 1996 and 1997 became moot and
academic when it availed of the tax amnesty under RA 9480
on December 10, 2007. It paid P5,127,149.08 representing 5%
of its net worth as of the year ended December 31, 2005 and
complied with all requirements of the tax amnesty. Under
Section 6(a) of RA 9480, it is entitled to immunity from
payment of taxes as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under
the 1997 NIRC, as amended, arising from the failure to pay
any and all internal revenue taxes for taxable year 2005 and
prior years.
SO ORDERED.
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
FACTS
Petitioner (NAPOCOR) is a government-owned and
controlled corporation created under Commonwealth Act
No. 120, as amended. It is tasked to undertake the
"development of hydroelectric generations of power and the
production of electricity from nuclear, geothermal and other
sources, as well as, the transmission of electric power on a
nationwide basis." Concomitant to its mandated duty,
petitioner has, among others, the power to construct, operate
and maintain power plants, auxiliary plants, power stations
and substations for the purpose of developing hydraulic power
and supplying such power to the inhabitants.
For many years now, petitioner sells electric power to the
residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. Pursuant to section 37 of
Ordinance No. 165-92, the respondent assessed the
petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the
preceding year.
Petitioner, whose capital stock was subscribed and paid
wholly by the Philippine Government, refused to pay the
tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner
also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges,
duties or fees in accordance with sec. 13 of Rep. Act No.
6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation;
Exemption from all Taxes, Duties, Fees, Imposts and
Other Charges by Government and Governmental
Instrumentalities.- The Corporation shall be non-
profit and shall devote all its return from its capital
investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation
to pay its indebtedness and obligations and in
furtherance and effective implementation of the
policy enunciated in Section one of this Act, the
Corporation is hereby exempt:
a. From the payment of all taxes, duties, fees,
imposts, charges, costs and service fees in any
court or administrative proceedings in which it
may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities,
municipalities and other government agencies
and instrumentalities;
b. From all income taxes, franchise taxes and realty
taxes to be paid to the National Government, its
provinces, cities, municipalities and other
government agencies and instrumentalities;
c. From all import duties, compensating taxes and
advanced sales tax, and wharfage fees on import
of foreign goods required for its operations and
projects; and
d. From all taxes, duties, fees, imposts, and all
other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities
and other government agencies and
instrumentalities, on all petroleum products used
by the Corporation in the generation,
transmission, utilization, and sale of electric
power."
The respondent filed a collection suit in RTC, demanding
that petitioner pay the assessed tax due, plus a surcharge
equivalent to 25% of the amount of tax, and 2% monthly
interest. Respondent alleged that petitioner's exemption
from local taxes has been repealed by section 193 of Rep.
Act No. 7160, which reads as follows:
"Sec. 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. No. 6938,
non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn
upon the effectivity of this Code."
The RTC dismissed the case.It ruled that the tax exemption
privileges granted to petitioner subsist despite the passage of
Rep. Act No. 7160 for the following reasons:
1. Rep. Act No. 6395 is a particular law and it may not
be repealed by Rep. Act No. 7160 which is a general
law;
2. section 193 of Rep. Act No. 7160 is in the nature of
an implied repeal which is not favored; and
3. local governments have no power to tax
instrumentalities of the national government.
Court of Appeals reversed the trial court's Order on the
ground that section 193, in relation to sections 137 and 151
of the LGC, expressly withdrew the exemptions granted to
the petitioner. It ordered the petitioner to pay the
respondent city government. NAPOCOR’s motion for
reconsideration was denied.
ISSUE
Should NAPOCOR pay franchise tax to the local government
of Cabanatuan
ARGUMENTS
It is beyond dispute that the respondent city government has
the authority to issue Ordinance No. 165-92 and impose an
annual tax on "businesses enjoying a franchise," pursuant to
section 151 in relation to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption
granted by any law or other special law, the province may
impose a tax on businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of
the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its
territorial jurisdiction.
In the case of a newly started business, the tax shall not
exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein."
(emphasis supplied)
x x x
Sec. 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 fifty percent (50%) except the rates of
professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an
annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to
section 131, limit the taxing power of the respondent city
government to private entities that are engaged in trade or
occupation for profit.
Section 131 (m) of the LGC defines a "franchise" as "a
right or privilege, affected with public interest which is
conferred upon private persons or corporations, under such
terms and conditions as the government and its political
subdivisions may impose in the interest of the public
welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private"
modifies the terms "persons" and "corporations." Hence, when
the LGC uses the term "franchise," petitioner submits that it
should refer specifically to franchises granted to private
natural persons and to private corporations. Ergo, its charter
should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines
"business" as "trade or commercial activity regularly
engaged in as means of livelihood or with a view to profit."
Petitioner claims that it is not engaged in an activity for profit,
in as much as its charter specifically provides that it is a "non-
profit organization." In any case, petitioner argues that the
accumulation of profit is merely incidental to its operation; all
these profits are required by law to be channeled for expansion
and improvement of its facilities and services.
Petitioner also alleges that it is an instrumentality of the
National Government, and as such, may not be taxed by
the respondent city government. It cites the doctrine
in Basco vs. Philippine Amusement and Gaming Corporation
where this Court held that local governments have no power to
tax instrumentalities of the National Government, viz:
"Local governments have no power to tax
instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate
gambling casinos. The latter role is governmental,
which places it in the category of an agency or
instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded
or subjected to control by a mere local government.
This doctrine emanates from the 'supremacy' of the
National Government over local governments.
'Justice Holmes, speaking for the Supreme Court,
made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at
least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can
regulate a federal instrumentality in such a way as to
prevent it from consummating its federal
responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, italics supplied)
The power to tax which was called by Justice
Marshall as the 'power to destroy' (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which
has the inherent power to wield it."
RULING
Yes. NAPOCOR should pay franchise tax to the local
government of Cabanatuan.
Taxes are the lifeblood of the government, for without taxes,
the government can neither exist nor endure. A principal
attribute of sovereignty, the exercise of taxing power derives
its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
In recent years, the increasing social challenges of the times
expanded the scope of state activity, and taxation has become
a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local
industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to
levy taxes, fees and other charges pursuant to Article X,
section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the
power to create its own sources of revenue, 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."
This paradigm shift results from the realization that genuine
development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For
a long time, the country's highly centralized government
structure has bred a culture of dependence among local
government leaders upon the national leadership. It has
also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the
part of local government leaders." The only way to shatter
this culture of dependence is to give the LGUs a wider role
in the delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose. To
achieve this goal, section 3 of Article X of the 1987
Constitution mandates Congress to enact a local government
code that will, consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of
taxing powers.
To recall, prior to the enactment of the Rep. Act No. 7160,
also known as the Local Government Code of 1991 (LGC),
various measures have been enacted to promote local
autonomy. These include the Barrio Charter of 1959, the Local
Autonomy Act of 1959, the Decentralization Act of 1967 and
the Local Government Code of 1983. Despite these initiatives,
however, the shackles of dependence on the national
government remained. Local government units were faced
with the same problems that hamper their capabilities to
participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal
control over external sources of income, (c) limited authority
to prioritize and approve development projects, (d) heavy
dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation
on local autonomy, the LGC effectively deals with the
fiscal constraints faced by LGUs. It widens the tax base of
LGUs to include taxes which were prohibited by previous
laws such as the imposition of taxes on forest products,
forest concessionaires, mineral products, mining
operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with
their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum
and maximum tax rates and leaves the determination of
the actual rates to the respective sanggunian.
One of the most significant provisions of the LGC is the
removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage of
local taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule
now admits an exception, i.e., when specific provisions of
the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing
Powers of the Local Government Units.- Unless
otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the
following:
xxx
o. Taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, and
local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine
in Basco vs. Philippine Amusement and Gaming Corporation
relied upon by the petitioner to support its claim no longer
applies. To emphasize, the Basco case was decided prior to
the effectivity of the LGC, when no law empowering the
local government units to tax instrumentalities of the
National Government was in effect. However, as this Court
ruled in the case of Mactan Cebu International Airport
Authority (MCIAA) vs. Marcos, nothing prevents Congress
from decreeing that even instrumentalities or agencies of
the government performing governmental functions may
be subject to tax. In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of
government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although
an instrumentality of the national government, was subject to
real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of
the LGC, we conclude that as a general rule, as laid
down in section 133, the taxing power of local
governments cannot extend to the levy of inter alia,
'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and
local government units'; however, pursuant to section
232, provinces, cities and municipalities in the
Metropolitan Manila Area may impose the real
property tax except on, inter alia, 'real property
owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use
thereof has been granted for consideration or
otherwise, to a taxable person as provided in the item
(a) of the first paragraph of section 12.'"
In the case at bar, section 151 in relation to section 137 of the
LGC clearly authorizes the respondent city government to
impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege
conferred by government authority, which does not belong
to citizens of the country generally as a matter of common
right. In its specific sense, a franchise may refer to a
general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a
corporation, by virtue of duly approved articles of
incorporation, or a charter pursuant to a special law
creating the corporation. The right under a primary or
general franchise is vested in the individuals who compose
the corporation and not in the corporation itself. On the
other hand, the latter refers to the right or privileges
conferred upon an existing corporation such as the right to
use the streets of a municipality to lay pipes of tracks, erect
poles or string wires. The rights under a secondary or
special franchise are vested in the corporation and may
ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property,
except such special or secondary franchises as are charged
with a public use.
In section 131 (m) of the LGC, Congress unmistakably
defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word
franchise is used in the context of taxation. As commonly
used, a franchise tax is "a tax on the privilege of
transacting business in the state and exercising corporate
franchises granted by the state." It is not levied on the
corporation simply for existing as a corporation, upon its
property or its income, but on its exercise of the rights or
privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased
to do business and exercise its franchise. It is within this
context that the phrase "tax on businesses enjoying a
franchise" in section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following
requisites should concur:
1. that petitioner has a "franchise" in the sense of a
secondary or special franchise; and
2. that it is exercising its rights or privileges under
this franchise within the territory of the
respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No.
120, as amended by Rep. Act No. 7395, constitutes petitioner's
primary and secondary franchises. It serves as the petitioner's
charter, defining its composition, capitalization, the
appointment and the specific duties of its corporate officers,
and its corporate life span. As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the
petitioner the following powers which are not available to
ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the
development of water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake,
spring or waterfall in the Philippines, for the purposes specified in
this Act; to intercept and divert the flow of waters from lands of
riparian owners and from persons owning or interested in waters
which are or may be necessary for said purposes, upon payment of
just compensation therefor; to alter, straighten, obstruct or increase
the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof:
Provided, That just compensation shall be paid to any person or
persons whose property is, directly or indirectly, adversely affected
or damaged thereby;
(g) To construct, operate and maintain power plants,
auxiliary plants, dams, reservoirs, pipes, mains, transmission lines,
power stations and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring and
waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate,
and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the
production of electric power; to establish, develop, operate, maintain
and administer power and lighting systems for the transmission and
utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and
other government institutions, (3) electric cooperatives, (4) franchise
holders, and (5) real estate subdivisions …
(h) To acquire, promote, hold, transfer, sell, lease, rent,
mortgage, encumber and otherwise dispose of property incident to, or
necessary, convenient or proper to carry out the purposes for which
the Corporation was created: Provided, That in case a right of way is
necessary for its transmission lines, easement of right of way shall
only be sought: Provided, however, That in case the property itself
shall be acquired by purchase, the cost thereof shall be the fair market
value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream,
watercourse, canal, ditch, flume, street, avenue, highway or railway
of private and public ownership, as the location of said works may
require xxx;
(j) To exercise the right of eminent domain for the purpose
of this Act in the manner provided by law for instituting
condemnation proceedings by the national, provincial and municipal
governments;…
(m) To cooperate with, and to coordinate its operations
with those of the National Electrification Administration and public
service entities;
(n) To exercise complete jurisdiction and control over
watersheds surrounding the reservoirs of plants and/or projects
constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds
for a specific project, the Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon written advice by
the Corporation, forthwith surrender jurisdiction to the Corporation
of all areas embraced within the watersheds, subject to existing
private rights, the needs of waterworks systems, and the requirements
of domestic water supply;
(o) In the prosecution and maintenance of its projects, the
Corporation shall adopt measures to prevent environmental pollution
and promote the conservation, development and maximum utilization
of natural resources"
With these powers, petitioner eventually had the monopoly
in the generation and distribution of electricity. This
monopoly was strengthened with the issuance of Pres. Decree
No. 40, nationalizing the electric power industry. Although
Exec. Order No. 215 thereafter allowed private sector
participation in the generation of electricity, the transmission
of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating
within the respondent city government's territorial
jurisdiction pursuant to the powers granted to it by
Commonwealth Act No. 120, as amended. From its
operations in the City of Cabanatuan, petitioner realized a
gross income of P107,814,187.96 in 1992. Fulfilling both
requisites, petitioner is, and ought to be, subject of the
franchise tax in question.
Petitioner, however, insists that it is excluded from the
coverage of the franchise tax simply because its stocks are
wholly owned by the National Government, and its charter
characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity from the
National Government. It can sue and be sued under its
own name, and can exercise all the powers of a corporation
under the Corporation Code.
To be sure, the ownership by the National Government of
its entire capital stock does not necessarily imply that
petitioner is not engaged in business. Section 2 of Pres.
Decree No. 202963 classifies government-owned or controlled
corporations (GOCCs) into those performing governmental
functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a
stock or a non-stock corporation, whether performing
governmental or proprietary functions, which
is directly chartered by special law or if organized
under the general corporation law is owned or
controlled by the government directly, or indirectly
through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its
outstanding voting capital stock x x x." (emphases
supplied)
Governmental functions are those pertaining to the
administration of government, and as such, are treated as
absolute obligation on the part of the state to perform while
proprietary functions are those that are undertaken only by
way of advancing the general interest of society, and are
merely optional on the government.64 Included in the class of
GOCCs performing proprietary functions are "business-like"
entities such as the National Steel Corporation (NSC), the
National Development Corporation (NDC), the Social
Security System (SSS), the Government Service Insurance
System (GSIS), and the National Water Sewerage Authority
(NAWASA),65 among others.
Petitioner was created to "undertake the development of
hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well
as the transmission of electric power on a nationwide basis."
Pursuant to this mandate, petitioner generates power and
sells electricity in bulk. Certainly, these activities do not
partake of the sovereign functions of the government. They
are purely private and commercial undertakings, albeit
imbued with public interest. The public interest involved
in its activities, however, does not distract from the true
nature of the petitioner as a commercial enterprise, in the
same league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply
and irrigation companies, gas, coal or light companies,
power plants, ice plant among others; all of which are
declared by this Court as ministrant or proprietary
functions of government aimed at advancing the general
interest of society.
A closer reading of its charter reveals that even the legislature
treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve
percent (12%), viz:
"(n) When essential to the proper administration of its
corporate affairs or necessary for the proper
transaction of its business or to carry out the purposes
for which it was organized, to contract indebtedness
and issue bonds subject to approval of the President
upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as
may be reasonably necessary to carry out
the business and purposes for which it was
organized, or which, from time to time, may be
declared by the Board to be necessary, useful,
incidental or auxiliary to accomplish the said purpose
xxx."(emphases supplied)
It is worthy to note that all other private franchise holders
receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap
of twelve percent (12%) on profits. The main difference is that
the petitioner is mandated to devote "all its returns from its
capital investment, as well as excess revenues from its
operation, for expansion" while other franchise holders have
the option to distribute their profits to its stockholders by
declaring dividends. We do not see why this fact can be a
source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise,
and not the individual stockholders.
We also do not find merit in the petitioner's contention that its
tax exemptions under its charter subsist despite the passage of
the LGC.
As a rule, tax exemptions are construed strongly against
the claimant. Exemptions must be shown to exist clearly
and categorically, and supported by clear legal provisions.
In the case at bar, the petitioner's sole refuge is section 13 of
Rep. Act No. 6395 exempting from, among others, "all
income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and
other government agencies and instrumentalities." However,
section 193 of the LGC withdrew, subject to limited
exceptions, the sweeping tax privileges previously enjoyed
by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express,
albeit general, repeal of all statutes granting tax exemptions
from local taxes.72 It reads:
"Sec. 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. No. 6938,
non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn
upon the effectivity of this Code."
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. Not being a local water district, a
cooperative registered under R.A. No. 6938, or a non-stock
and non-profit hospital or educational institution,
petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption
from local taxes.
But this would be an exercise in futility. Section 137 of the
LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or other
special law." This particular provision of the LGC does not
admit any exception. In City Government of San Pablo,
Laguna v. Reyes,74 MERALCO's exemption from the payment
of franchise taxes was brought as an issue before this Court.
The same issue was involved in the subsequent case of Manila
Electric Company v. Province of Laguna. Ruling in favor of
the local government in both instances, we ruled that the
franchise tax in question is imposable despite any exemption
enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on
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-profit 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. In the absence of any provision of the
Code to the contrary, and we find no other provision in point,
any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be
withdrawn.
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 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 on (sic) 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 worth mentioning that section 192 of the LGC empowers
the LGUs, through ordinances duly approved, to grant tax
exemptions, initiatives or reliefs. But in enacting section 37
of Ordinance No. 165-92 which imposes an annual
franchise tax "notwithstanding any exemption granted by
law or other special law," the respondent city government
clearly did not intend to exempt the petitioner from the
coverage thereof.
Doubtless, the power to tax is the most effective instrument
to raise needed revenues to finance and support myriad
activities of the 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. As this Court observed in
the Mactan case, "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." With the added burden of devolution, it is
even more imperative for government entities to share in
the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the
assailed Decision and Resolution of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, are
hereby AFFIRMED.
SO ORDERED.
G.R. No. 210551 June 30, 2015
JOSE J. FERRER, JR., Petitioner,
vs.
CITY MAYOR HERBERT BAUTISTA, CITY COUNCIL
OF QUEZON CITY, CITY TREASURER OF QUEZON
CITY, and CITY ASSESSOR OF QUEZON CITY,
Respondents.
DECISION
PERALTA, J.:
Before this Court is a petition for certiorari under Rule 65 of
the Rules of Court with prayer for the issuance of a temporary
restraining order (TRO) seeking to declare unconstitutional
and illegal Ordinance Nos. SP-2095, S-2011 and SP-2235, S-
2013 on the Socialized Housing Tax and Garbage Fee,
respectively, which are being imposed by the respondents.
The Case
On October 17, 2011,1 respondent Quezon City Council
enacted Ordinance No. SP-2095, S-2011,2 or the Socialized
Housing Tax of Quezon City, Section 3 of which provides:
SECTION 3. IMPOSITION. A special assessment equivalent
to one-half percent (0.5%) on the assessed value of land in
excess of One Hundred Thousand Pesos (Php100,000.00) shall
be collected by the City Treasurer which shall accrue to the
Socialized Housing Programs of the Quezon City
Government. The special assessment shall accrue to the
General Fund under a special account to be established for the
purpose.
Effective for five (5) years, the Socialized Housing Tax ( SHT
) shall be utilized by the Quezon City Government for the
following projects: (a) land purchase/land banking; (b)
improvement of current/existing socialized housing facilities;
(c) land development; (d) construction of core houses, sanitary
cores, medium-rise buildings and other similar structures; and
(e) financing of public-private partners hip agreement of the
Quezon City Government and National Housing Authority (
NHA ) with the private sector.3
Under certain conditions, a tax credit shall be enjoyed by
taxpayers regularly paying the special assessment:
SECTION 7. TAX CREDIT. Taxpayers dutifully paying the
special assessment tax as imposed by this ordinance shall
enjoy a tax credit. The tax credit may be availed of only after
five (5) years of continue[d] payment. Further, the taxpayer
availing this tax credit must be a taxpayer in good standing as
certified by the City Treasurer and City Assessor.
The tax credit to be granted shall be equivalent to the total
amount of the special assessment paid by the property owner,
which shall be given as follows:
1. 6th year - 20%
2. 7th year - 20%
3. 8th year - 20%
4. 9th year - 20%
5. 10th year - 20%
Furthermore, only the registered owners may avail of the tax
credit and may not be continued by the subsequent property
owners even if they are buyers in good faith, heirs or
possessor of a right in whatever legal capacity over the subject
property.4
On the other hand, Ordinance No. SP-2235, S-20135 was
enacted on December 16, 2013 and took effect ten days after
when it was approved by respondent City Mayor.6 The
proceeds collected from the garbage fees on residential
properties shall be deposited solely and exclusively in an
earmarked special account under the general fund to be
utilized for garbage collections.7 Section 1 of the Ordinance
se t forth the schedule and manner for the collection of
garbage fees:
SECTION 1. The City Government of Quezon City in
conformity with and in relation to Republic Act No. 7160,
otherwise known as the Local Government Code of 1991
HEREBY IMPOSES THE FOLLOWING SCHEDULE AND
MANNER FOR THE ANNUAL COLLECTION OF
GARBAGE FEES, AS FOLLOWS: On all domestic
households in Quezon City;
LAND AREA
IMPOSABLE FEE
Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
On all condominium unit and socialized housing projects/units
in Quezon City;
FLOOR AREA
IMPOSABLE FEE
Less than 40 sq. m. PHP 25.00
41 sq. m. – 60 sq. m. PHP 50.00
61 sq. m. – 100 sq. m. PHP 75.00
101 sq. m. – 150 sq. m. PHP 100.00
151 sq. m. – 200 sq. [m.] or more PHP 200.00
On high-rise Condominium Units
a) High-rise Condominium – The Homeowners Association of
high- rise condominiums shall pay the annual garbage fee on
the total size of the entire condominium and socialized
Housing Unit and an additional garbage fee shall be collected
based on area occupied for every unit already so ld or being
amortized.
b) High-rise apartment units – Owners of high-rise apartment
units shall pay the annual garbage fee on the total lot size of
the entire apartment and an additional garbage fee based on
the schedule prescribed herein for every unit occupied.
The collection of the garbage fee shall accrue on the first day
of January and shall be paid simultaneously with the payment
of the real property tax, but not later than the first quarter
installment.8 In case a household owner refuses to pay, a
penalty of 25% of the garbage fee due, plus an interest of 2%
per month or a fraction thereof, shall be charged.9
Petitioner alleges that he is a registered co-owner of a 371-
square-meter residential property in Quezon City which is
covered by Transfer Certificate of Title (TCT ) No. 216288,
and that, on January 7, 2014, he paid his realty tax which
already included the garbage fee in the sum of
Php100.00.10
The instant petition was filed on January 17, 2014. We issued
a TRO on February 5, 2014, which enjoined the enforcement
of Ordinance Nos. SP-2095 and SP-2235 and required
respondents to comment on the petition without necessarily
giving due course thereto.11
Respondents filed their Comment12 with urgent motion to
dissolve the TRO on February 17, 2014. Thereafter, petitioner
filed a Reply and a Memorandum on March 3, 2014 and
September 8, 2014, respectively.
Procedural Matters
A. Propriety of a Petition for Certiorari
Respondents are of the view that this petition for certiorari is
improper since they are not tribunals, boards or officers
exercising judicial or quasi-judicial functions. Petitioner,
however, counters that in enacting Ordinance Nos. SP-2095
and SP-2235, the Quezon City Council exercised quasi-
judicial function because the ordinances ruled against the
property owners who must pay the SHT and the garbage fee,
exacting from them funds for basic essential public services
that they should not be held liable. Even if a Rule 65 petition
is improper, petitioner still asserts that this Court, in a number
of cases like in Rosario v. Court of Appeals,13 has taken
cognizance of an improper remedy in the interest of justice.
We agree that respondents neither acted in any judicial or
quasi-judicial capacity nor arrogated unto themselves any
judicial or quasi-judicial prerogatives.
A respondent is said to be exercising judicial function where
he has the power to determine what the law is and what the
legal rights of the parties are, and then undertakes to determine
these questions and adjudicate upon the rights of the parties.
Quasi-judicial function, on the other hand, is "a term which
applies to the actions, discretion, etc., of public administrative
officers or bodies … required to investigate facts or ascertain
the existence of facts, hold hearings, and draw conclusions
from them as a basis for their official action and to exercise
discretion of a judicial nature."
Before a tribunal, board, or officer may exercise judicial or
quasi-judicial acts, it is necessary that there be a law that gives
rise to some specific rights of person s or property under
which adverse claims to such rights are made, and the
controversy en suing therefrom is brought before a tribunal,
board, or officer clothed with power and authority to
determine the law and adjudicate the respective rights of the
contending parties.14
For a writ of certiorari to issue, the following requisites must
concur: (1) it must be directed against a tribunal, board, or
officer exercising judicial or quasi-judicial functions; (2) the
tribunal, board, or officer must have acted without or in excess
of jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction; and (3) there is no appeal or any
plain, speedy, and adequate remedy in the ordinary course of
law. The enactment by the Quezon City Council of the
assailed ordinances was done in the exercise of its legislative,
not judicial or quasi-judicial, function. Under Republic Act
(R.A.) No.7160, or the Local Government Code of 1991
(LGC), local legislative power shall be exercised by the
Sangguniang Panlungsod for the city.15Said law likewise is
specific in providing that the power to impose a tax, fee, or
charge , or to generate revenue shall be exercised by the
sanggunian of the local government unit concerned through an
appropriate ordinance.16
Also, although the instant petition is styled as a petition for
certiorari, it essentially seeks to declare the unconstitutionality
and illegality of the questioned ordinances. It, thus, partakes of
the nature of a petition for declaratory relief, over which this
Court has only appellate, not original, jurisdiction.17
Despite these, a petition for declaratory relief may be treated
as one for prohibition or mandamus, over which we exercise
original jurisdiction, in cases with far-reaching implications or
one which raises transcendental issues or questions that need
to be resolved for the public good.18The judicial policy is that
this Court will entertain direct resort to it when the redress
sought cannot be obtained in the proper courts or when
exceptional and compelling circumstances warrant availment
of a remedy within and calling for the exercise of Our primary
jurisdiction.19
Section 2, Rule 65 of the Rules of Court lay down under what
circumstances a petition for prohibition may be filed:
SEC. 2. Petition for prohibition. - When the proceedings of
any tribunal, corporation, board, officer or person, whether
exercising judicial, quasi-judicial or ministerial functions, are
without or in excess of its or his jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal or any other plain, speedy, and adequate
remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be
rendered commanding the respondent to desist from further
proceeding in the action or matter specified therein, or
otherwise granting such incidental reliefs as law and justice
may require.
In a petition for prohibition against any tribunal, corporation,
board, or person – whether exercising judicial, quasi-judicial,
or ministerial functions – who has acted without or in excess
of jurisdiction or with grave abuse of discretion, the petitioner
prays that judgment be rendered, commanding the respondents
to desist from further proceeding in the action or matter
specified in the petition. In this case, petitioner's primary
intention is to prevent respondents from implementing
Ordinance Nos. SP-2095 and SP-2235. Obviously, the writ
being sought is in the nature of a prohibition, commanding
desistance.
We consider that respondents City Mayor, City Treasurer, and
City Assessor are performing ministerial functions. A
ministerial function is one that an officer or tribunal performs
in the context of a given set of facts, in a prescribed manner
and without regard for the exercise of his or its own judgment,
upon the propriety or impropriety of the act done.20
Respondent Mayor, as chief executive of the city government,
exercises such powers and performs such duties and functions
as provided for by the LGC and other laws.21 Particularly, he
has the duty to ensure that all taxes and other revenues of the
city are collected, and that city funds are applied to the
payment of expenses and settlement of obligations of the city,
in accordance with law or ordinance.22 On the other hand,
under the LGC, all local taxes, fees, and charges shall be
collected by the provincial, city, municipal, or barangay
treasurer, or their duly-authorized deputies, while the assessor
shall take charge, among others, of ensuring that all laws and
policies governing the appraisal and assessment of real
properties for taxation purposes are properly executed.23
Anent the SHT, the Department of Finance (DOF) Local
Finance Circular No. 1-97, dated April 16, 1997, is more
specific:
6.3 The Assessor’s office of the Identified LGU shall:
a. immediately undertake an inventory of lands within its
jurisdiction which shall be subject to the levy of the Social
Housing Tax (SHT) by the local sanggunian concerned;
b. inform the affected registered owners of the effectivity of
the SHT; a list of the lands and registered owners shall also be
posted in 3 conspicuous places in the city/municipality;
c. furnish the Treasurer’s office and the local sanggunian
concerned of the list of lands affected;
6.4 The Treasurer’s office shall:
a. collect the Social Housing Tax on top of the Real Property
Tax, SEF Tax and other special assessments;
b. report to the DOF, thru the Bureau of Local Government
Finance, and the Mayor’s office the monthly collections on
Social Housing Tax (SHT). An annual report should likewise
be submitted to the HUDCC on the total revenues raised
during the year pursuant to Sec. 43, R.A. 7279 and the manner
in which the same was disbursed.
Petitioner has adduced special and important reasons as to
why direct recourse to us should be allowed. Aside from
presenting a novel question of law, this case calls for
immediate resolution since the challenged ordinances
adversely affect the property interests of all paying
constituents of Quezon City. As well, this petition serves as a
test case for the guidance of other local government units
(LGUs).Indeed, the petition at bar is of transcendental
importance warranting a relaxation of the doctrine of
hierarchy of courts. In Social Justice Society (SJS) Officers, et
al. v. Lim ,24the Court cited the case of Senator Jaworski v.
Phil. Amusement & Gaming Corp.,25 where We ratiocinated:
Granting arguendo that the present action cannot be properly
treated as a petition for prohibition, the transcendental
importance of the issues involved in this case warrants that we
set aside the technical defects and take primary jurisdiction
over the petition at bar . x x x This is in accordance with the
well entrenched principle that rules of procedure are not
inflexible tools designed to hinder or delay, but to facilitate
and promote the administration of justice. Their strict and
rigid application, which would result in technicalities that tend
to frustrate, rather than promote substantial justice, must
always be eschewed.26
B. Locus Standi of Petitioner
Respondents challenge petitioner’s legal standing to file this
case on the ground that, in relation to Section 3 of Ordinance
No. SP-2095, petitioner failed to allege his ownership of a
property that has an assessed value of more than
Php100,000.00 and, with respect to Ordinance No. SP-2335,
by what standing or personality he filed the case to nullify the
same. According to respondents, the petition is not a class suit,
and that, for not having specifically alleged that petitioner
filed the case as a taxpayer, it could only be surmised whether
he is a party-in-interest who stands to be directly benefited or
injured by the judgment in this case.
It is a general rule that every action must be prosecuted or
defended in the name of the real party-in-interest, who stands
to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit.
Jurisprudence defines interest as "material interest, an interest
in issue and to be affected by the decree, as distinguished from
mere interest in the question involved, or a mere incidental
interest. By real interest is meant a present substantial interest,
as distinguished from a mere expectancy or a future,
contingent, subordinate, or consequential interest." "To qualify
a person to be a real party-in-interest in whose name an action
must be prosecuted, he must appear to be the present real
owner of the right sought to be enforced."27
"Legal standing" or locus standi calls for more than just a
generalized grievance.28 The concept has been define d as a
personal and substantial interest in the case such that the party
has sustained or will sustain direct injury as a result of the
government al act that is being challenged.29 The gist of the
question of standing is whether a party alleges such personal
stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues
upon which the court depends for illumination of difficult
constitutional questions.30
A party challenging the constitutionality of a law, act, or
statute must show "not only that the law is invalid, but also
that he has sustained or is in immediate, or imminent danger
of sustaining some direct injury as a result of its enforcement,
and not merely that he suffers thereby in some indefinite
way." It must be shown that he has been, or is about to be,
denied some right or privilege to which he is lawfully entitled,
or that he is about to be subjected to some burdens or penalties
by reason of the statute complained of.31
Tested by the foregoing, petitioner in this case clearly has
legal standing to file the petition. He is a real party-in-interest
to assail the constitutionality and legality of Ordinance Nos.
SP-2095 and SP-2235 because respondents did not dispute
that he is a registered co-owner of a residential property in
Quezon City an d that he paid property tax which already
included the SHT and the garbage fee. He has substantial right
to seek a refund of the payments he made and to stop future
imposition. While he is a lone petitioner, his cause of action to
declare the validity of the subject ordinances is substantial and
of paramount interest to similarly situated property owners in
Quezon City.
C. Litis Pendentia
Respondents move for the dismissal of this petition on the
ground of litis pendentia. They claim that, as early as February
22, 2012, a case entitled Alliance of Quezon City
Homeowners, Inc., et al., v. Hon. Herbert Bautista, et al. ,
docketed as Civil Case No. Q-12- 7-820, has been pending in
the Quezon City Regional Trial Court, Branch 104, which
assails the legality of Ordinance No. SP-2095. Relying on City
of Makati, et al. v. Municipality (now City) of Taguig, et
al.,32 respondents assert that there is substantial identity of
parties between the two cases because petitioner herein and
plaintiffs in the civil case filed their respective cases as
taxpayers of Quezon City.
For petitioner, however, respondents’ contention is untenable
since he is not a party in Alliance and does not even have the
remotest identity or association with the plaintiffs in said civil
case. Moreover, respondents’ arguments would deprive this
Court of its jurisdiction to determine the constitutionality of
laws under Section 5, Article VIII of the 1987 Constitution.33
Litis pendentia is a Latin term which literally means "a
pending suit" and is variously referred to in some decisions as
lis pendens and auter action pendant.34 While it is normally
connected with the control which the court has on a property
involved in a suit during the continuance proceedings, it is
more interposed as a ground for the dismissal of a civil action
pending in court.35 In Film Development Council of the
Philippines v. SM Prime Holdings, Inc.,36 We elucidated:
Litis pendentia, as a ground for the dismissal of a civil action,
refers to a situation where two actions are pending between
the same parties for the same cause of action, so that one of
them becomes unnecessary and vexatious. It is based on the
policy against multiplicity of suit and authorizes a court to
dismiss a case motu proprio.
xxxx
The requisites in order that an action may be dismissed on the
ground of litis pendentia are: (a) the identity of parties, or at
least such as representing the same interest in both actions; (b)
the identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and (c) the identity of the
two cases such that judgment in one, regardless of which party
is successful, would amount to res judicata in the other.
The underlying principle of litis pendentia is the theory that a
party is not allowed to vex another more than once regarding
the same subject matter and for the same cause of action. This
theory is founded on the public policy that the same subject
matter should not be the subject of controversy in courts more
than once, in order that possible conflicting judgments may be
avoided for the sake of the stability of the rights and status of
persons, and also to avoid the costs and expenses incident to
numerous suits.
Among the several tests resorted to in ascertaining whether
two suits relate to a single or common cause of action are: (1)
whether the same evidence would support and sustain both the
first and second causes of action; and (2) whether the defenses
in one case may be used to substantiate the complaint in the
other.
The determination of whether there is an identity of causes of
action for purposes of litis pendentia is inextricably linked
with that of res judicata , each constituting an element of the
other. In either case, both relate to the sound practice of
including, in a single litigation, the disposition of all issues
relating to a cause of action that is before a court.37
There is substantial identity of the parties when there is a
community of interest between a party in the first case and a
party in the second case albeit the latter was not impleaded in
the first case.38 Moreover, the fact that the positions of the
parties are reversed, i.e., the plaintiffs in the first case are the
defendants in the second case or vice-versa, does not negate
the identity of parties for purposes of determining whether the
case is dismissible on the ground of litis pendentia .39
In this case, it is notable that respondents failed to attach any
pleading connected with the alleged civil case pending before
the Quezon City trial court.1âwphi1 Granting that there is
substantial identity of parties between said case and this
petition, dismissal on the ground of litis pendentia still cannot
be had in view of the absence of the second and third
requisites. There is no way for us to determine whether both
cases are based on the same set of facts that require the
presentation of the same evidence. Even if founded on the
same set of facts, the rights asserted and reliefs prayed for
could be different. Moreover, there is no basis to rule that the
two cases are intimately related and/or intertwined with one
another such that the judgment that may be rendered in one,
regardless of which party would be successful, would amount
to res judicata in the other.
D. Failure to Exhaust Administrative Remedies
Respondents contend that petitioner failed to exhaust
administrative remedies for his non-compliance with Section
187 of the LGC, which mandates:
Section 187. Procedure for Approval and Effectivity of Tax
Ordinances and Revenue Measures; Mandatory Public
Hearings. – The procedure for approval of local tax ordinances
and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall
be conducted for the purpose prior to the enactment thereof:
Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised
on appeal within thirty (30) days from the effectivity thereof
to the Secretary of Justice who shall render a decision within
sixty (60) days from the date of receipt of the appeal:
Provided, however, That such appeal shall not have the effect
of suspending the effectivity of the ordinance and the accrual
and payment of the tax, fee, or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of
the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved
party may file appropriate proceedings with a court of
competent jurisdiction.
The provision, the constitutionality of which was sustained in
Drilon v. Lim ,40 has been construed as mandatory41
considering that –
A municipal tax ordinance empowers a local government unit
to impose taxes. The power to tax is the most effective
instrument to raise needed revenues to finance and support the
myriad activities of local government units for the delivery of
basic services essential to the promotion of the general welfare
and enhancement of peace, progress, and prosperity of the
people. Consequently, any delay in implementing tax
measures would be to the detriment of the public. It is for this
reason that protests over tax ordinances are required to be
done within certain time frames. x x x.42
The obligatory nature of Section 187 was underscored in
Hagonoy Market Vendor Asso. v. Municipality of
Hagonoy:43
x x x [T]he timeframe fixed by law fo r parties to avail of their
legal remedies before competent courts is not a "mere
technicality" that can be easily brushed aside. The periods
stated in Section 187 of the Local Government Code are
mandatory. x x x Being its lifeblood, collection of revenues by
the government is of paramount importance. The funds for the
operation of its agencies and provision of basic services to its
inhabitants are largely derived from its revenues and
collections. Thus, it is essential that the validity of revenue
measures is not left uncertain for a considerable length of
time. Hence, the law provided a time limit for an aggrieved
party to assail the legality of revenue measures and tax
ordinances."44
Despite these cases, the Court, in Ongsuco, et al. v. Hon.
Malones,45held that there was no need for petitioners therein
to exhaust administrative remedies before resorting to the
courts, considering that there was only a pure question of law,
the parties did not dispute any factual matter on which they
had to present evidence. Likewise, in Cagayan Electric Power
and Light Co., Inc. v. City of Cagayan de Oro,46 We relaxed
the application of the rules in view of the more substantive
matters. For the same reasons, this petition is an exception to
the general rule.
Substantive Issues
Petitioner asserts that the protection of real properties from
informal settlers and the collection of garbage are basic and
essential duties and functions of the Quezon City Government.
By imposing the SHT and the garbage fee, the latter has
shown a penchant and pattern to collect taxes to pay for public
services that could be covered by its revenues from taxes
imposed on property, idle land, business, transfer, amusement,
etc., as well as the Internal Revenue Allotment (IRA ) from
the National Government. For petitioner, it is noteworthy that
respondents did not raise the issue that the Quezon City
Government is in dire financial state and desperately needs
money to fund housing for informal settlers and to pay for
garbage collection. In fact, it has not denied that its revenue
collection in 2012 is in the sum of ₱13.69 billion.
Moreover, the imposition of the SHT and the garbage fee
cannot be justified by the Quezon City Government as an
exercise of its power to create sources of income under
Section 5, Article X of the 1987 Constitution.47 According to
petitioner, the constitutional provision is not a carte blanche
for the LGU to tax everything under its territorial and political
jurisdiction as the provision itself admits of guidelines and
limitations.
Petitioner further claims that the annual property tax is an ad
valorem tax, a percentage of the assessed value of the
property, which is subject to revision every three (3) years in
order to reflect an increase in the market value of the property.
The SHT and the garbage fee are actually increases in the
property tax which are not based on the assessed value of the
property or its reassessment every three years; hence, in
violation of Sections 232 and 233 of the LGC.48
For their part, respondents relied on the presumption in favor
of the constitutionality of Ordinance Nos. SP-2095 and SP-
2235, invoking Victorias Milling Co., Inc. v. Municipality of
Victorias, etc.,49 People v. Siton, et al.,50 and Hon. Ermita v.
Hon. Aldecoa-Delorino .51 They argue that the burden of
establishing the invalidity of an ordinance rests heavily upon
the party challenging its constitutionality. They insist that the
questioned ordinances are proper exercises of police power
similar to Telecom. & Broadcast Attys. of the Phils., Inc. v.
COMELEC52 and Social Justice Society (SJS), et al. v. Hon.
Atienza, Jr.53 and that their enactment finds basis in the social
justice principle enshrined in Section 9,54 Article II of the
1987 Constitution.
As to the issue of publication, respondents argue that where
the law provides for its own effectivity, publication in the
Official Gazette is not necessary so long as it is not punitive in
character, citing Balbuna, et al. v. Hon. Secretary of
Education, et al.55 and Askay v. Cosalan .[56]] Thus,
Ordinance No. SP-2095 took effect after its publication, while
Ordinance No. SP-2235 became effective after its approval on
December 26, 2013.
Additionally, the parties articulate the following positions:
On the Socialized Housing Tax
Respondents emphasize that the SHT is pursuant to the social
justice principle found in Sections 1 and 2, Article XIII57 of
the 1987 Constitution and Sections 2 (a)58 and 4359 of R.A.
No. 7279, or the "Urban Development and Housing Act of
1992 ( UDHA ).
Relying on Manila Race Horse Trainers Assn., Inc. v. De La
Fuente,60and Victorias Milling Co., Inc. v. Municipality of
Victorias, etc.,61respondents assert that Ordinance No. SP-
2095 applies equally to all real property owners without
discrimination. There is no way that the ordinance could
violate the equal protection clause because real property
owners and informal settlers do not belong to the same class.
Ordinance No. SP-2095 is also not oppressive since the tax
rate being imposed is consistent with the UDHA. While the
law authorizes LGUs to collect SHT on properties with an
assessed value of more than ₱50,000.00, the questioned
ordinance only covers properties with an assessed value
exceeding ₱100,000.00. As well, the ordinance provides for a
tax credit equivalent to the total amount of the special
assessment paid by the property owner beginning in the sixth
(6th) year of the effectivity of the ordinance.
On the contrary, petitioner claims that the collection of the
SHT is tantamount to a penalty imposed on real property
owners due to the failure of respondent Quezon City Mayor
and Council to perform their duty to secure and protect real
property owners from informal settlers, thereby burdening
them with the expenses to provide funds for housing. For
petitioner, the SHT cannot be viewed as a "charity" from real
property owners since it is forced, not voluntary.
Also, petitioner argues that the collection of the SHT is a kind
of class legislation that violates the right of property owners to
equal protection of the laws since it favors informal settlers
who occupy property not their own and pay no taxes over law-
abiding real property owners w ho pay income and realty
taxes.
Petitioner further contends that respondents’ characterization
of the SHT as "nothing more than an advance payment on the
real property tax" has no statutory basis. Allegedly, property
tax cannot be collected before it is due because, under the
LGC, chartered cities are authorized to impose property tax
based on the assessed value and the general revision of
assessment that is made every three (3) years.
As to the rationale of SHT stated in Ordinance No. SP-2095,
which, in turn, was based on Section 43 of the UDHA,
petitioner asserts that there is no specific provision in the 1987
Constitution stating that the ownership and enjoyment of
property bear a social function. And even if there is, it is
seriously doubtful and far-fetched that the principle means that
property owners should provide funds for the housing of
informal settlers and for home site development. Social justice
and police power, petitioner believes, does not mean imposing
a tax on one, or that one has to give up something, for the
benefit of another. At best, the principle that property
ownership and enjoyment bear a social function is but a
reiteration of the Civil Law principle that property should not
be enjoyed and abused to the injury of other properties and the
community, and that the use of the property may be restricted
by police power, the exercise of which is not involved in this
case.
Finally, petitioner alleges that 6 Bistekvilles will be
constructed out of the SHT collected. Bistek is the monicker
of respondent City Mayor. The Bistekvilles makes it clear,
therefore, that politicians will take the credit for the tax
imposed on real property owners.
On the Garbage Fee
Respondents claim that Ordinance No. S-2235, which is an
exercise of police power, collects on the average from every
household a garbage fee in the meager amount of thirty-three
(33) centavos per day compared with the sum of ₱1,659.83
that the Quezon City Government annually spends for every
household for garbage collection and waste management.62
In addition, there is no double taxation because the ordinance
involves a fee. Even assuming that the garbage fee is a tax, the
same cannot be a direct duplicate tax as it is imposed on a
different subject matter and is of a different kind or character.
Based on Villanueva, et al. v. City of Iloilo63 and Victorias
Milling Co., Inc. v. Municipality of Victorias, etc.,64 there is
no "taxing twice" because the real property tax is imposed on
ownership based on its assessed value, while the garbage fee is
required on the domestic household. The only reference to the
property is the determination of the applicable rate and the
facility of collection.
Petitioner argues, however, that Ordinance No. S-2235 cannot
be justified as an exercise of police power. The cases of
Calalang v. Williams,65 Patalinghug v. Court of Appeals,66
and Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.,67
which were cited by respondents, are inapplicable since the
assailed ordinance is a revenue measure and does not regulate
the disposal or other aspect of garbage.
The subject ordinance, for petitioner, is discriminatory as it
collects garbage fee only from domestic households and not
from restaurants, food courts, fast food chains, and other
commercial dining places that spew garbage much more than
residential property owners.
Petitioner likewise contends that the imposition of garbage fee
is tantamount to double taxation because garbage collection is
a basic and essential public service that should be paid out
from property tax, business tax, transfer tax, amusement tax,
community tax certificate, other taxes, and the IRA of the
Quezon City Government. To bolster the claim, he states that
the revenue collection of the Quezon City Government
reached Php13.69 billion in 2012. A small portion of said
amount could be spent for garbage collection and other
essential services.
It is further noted that the Quezon City Government already
collects garbage fee under Section 4768 of R.A. No. 9003, or
the Ecological Solid Waste Management Act of 2000, which
authorizes LGUs to impose fees in amounts sufficient to pay
the costs of preparing, adopting, and implementing a solid
waste management plan, and that LGUs have access to the
Solid Waste Management (SWM) Fund created under Section
4669 of the same law. Also, according to petitioner, it is
evident that Ordinance No. S2235 is inconsistent with R.A.
No. 9003 for whil e the law encourages segregation,
composting, and recycling of waste, the ordinance only
emphasizes the collection and payment of garbage fee; while
the law calls for an active involvement of the barangay in the
collection, segregation, and recycling of garbage, the
ordinance skips such mandate. Lastly, in challenging the
ordinance, petitioner avers that the garbage fee was collected
even if the required publication of its approval had not yet
elapsed. He notes that on January 7, 2014, he paid his realty
tax which already included the garbage fee.
The Court's Ruling
Respondents correctly argued that an ordinance, as in every
law, is presumed valid.
An ordinance carries with it the presumption of validity. The
question of reasonableness though is open to judicial inquiry.
Much should be left thus to the discretion of municipal
authorities. Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be
prohibitive, arbitrary, unreasonable, oppressive, or
confiscatory. A rule which has gained acceptance is that
factors relevant to such an inquiry are the municipal
conditions as a whole and the nature of the business made
subject to imposition.70
For an ordinance to be valid though, it must not only be within
the corporate powers of the LGU to enact and must be passed
according to the procedure prescribed by law, it should also
conform to the following requirements: (1) not contrary to the
Constitution or any statute; (2) not unfair or oppressive; (3)
not partial or discriminatory; (4) not prohibit but may regulate
trade; (5) general and consistent with public policy; and (6)
not unreasonable.71 As jurisprudence indicates, the tests are
divided into the formal (i.e., whether the ordinance was
enacted within the corporate powers of the LGU and whether
it was passed in accordance with the procedure prescribed by
law), and the substantive ( i.e., involving inherent merit, like
the conformity of the ordinance with the limitations under the
Constitution and the statutes, as well as with the requirements
of fairness and reason, and its consistency with public
policy).72
An ordinance must pass muster under the test of
constitutionality and the test of consistency with the prevailing
laws.73 If not, it is void.74
Ordinance should uphold the principle of the supremacy of the
Constitution.75 As to conformity with existing statutes,
Batangas CATV, Inc. v. Court of Appeals76 has this to say:
It is a fundamental principle that municipal ordinances are
inferior in status and subordinate to the laws of the state. An
ordinance in conflict with a state law of general character and
statewide application is universally held to be invalid. The
principle is frequently expressed in the declaration that
municipal authorities, under a general grant of power, cannot
adopt ordinances which infringe the spirit of a state law or
repugnant to the general policy of the state. In every power to
pass ordinances given to a municipality, there is an implied
restriction that the ordinances shall be consistent with the
general law. In the language of Justice Isagani Cruz (ret.), this
Court, in Magtajas vs. Pryce Properties Corp., Inc., ruled that:
The rationale of the requirement that the ordinances should not
contravene a statute is obvious. Municipal governments are
only agents of the national government. Local councils
exercise only delegated legislative powers conferred on them
by Congress as the national lawmaking body. The delegate
cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local
government units can undo the acts of Congress, from which
they have derived their power in the first place, and negate by
mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their
powers and rights wholly from the legislature. It breathes into
them the breath of life, without which they cannot exist. As it
creates, so it may destroy. As it may destroy, it may abridge
and control. Unless there is some constitutional limitation on
the right, the legislature might, by a single act, and if we can
suppose it capable of so great a folly and so great a wrong,
sweep from existence all of the municipal corporations in the
State, and the corporation could not prevent it. We know of no
limitation on the right so far as to the corporation themselves
are concerned. They are so to phrase it, the mere tenants at
will of the legislature.
This basic relationship between the national legislature and the
local government units has not been enfeebled by the new
provisions in the Constitution strengthening the policy of local
autonomy. Without meaning to detract from that policy, we
here confirm that Congress retains control of the local
government units although in significantly reduced degree
now than under our previous Constitutions. The power to
create still includes the power to destroy. The power to grant
still includes the power to withhold or recall. True, there are
certain notable innovations in the Constitution, like the direct
conferment on the local government units of the power to tax,
which cannot now be withdrawn by mere statute. By and
large, however, the national legislature is still the principal of
the local government units, which cannot defy its will or
modify or violate it.77
LGUs must be reminded that they merely form part of the
whole; that the policy of ensuring the autonomy of local
governments was never intended by the drafters of the 1987
Constitution to create an imperium in imperio and install an
intra-sovereign political subdivision independent of a single
sovereign state.78
"[M]unicipal corporations are bodies politic and corporate,
created not only as local units of local self-government, but as
governmental agencies of the state. The legislature, by
establishing a municipal corporation, does not divest the State
of any of its sovereignty; absolve itself from its right and duty
to administer the public affairs of the entire state; or divest
itself of any power over the inhabitants of the district which it
possesses before the charter was granted."79
LGUs are able to legislate only by virtue of a valid delegation
of legislative power from the national legislature; they are
mere agents vested with what is called the power of
subordinate legislation.80 "Congress enacted the LGC as the
implementing law for the delegation to the various LGUs of
the State’s great powers, namely: the police power, the power
of eminent domain, and the power of taxation. The LGC was
fashioned to delineate the specific parameters and limitations
to be complied with by each LGU in the exercise of these
delegated powers with the view of making each LGU a fully
functioning subdivision of the State subject to the
constitutional and statutory limitations."81
Specifically, with regard to the power of taxation, it is
indubitably the most effective instrument to raise needed
revenues in financing and supporting myriad activities of the
LGUs 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.82 As this Court
opined in National Power Corp. v. City of Cabanatuan:83
In recent years, the increasing social challenges of the times
expanded the scope of state activity, and taxation has become
a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local
industries as well as public welfare and similar objectives.
Taxation assume s even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power
to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes,
fees and other charges pursuant to Article X, Section 5 of the
1987 Constitution, viz: "Section 5. Each Local Government
unit shall have the power to create its own sources of revenue,
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."
This paradigm shift results from the realization that genuine
development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For
a long time, the country’s highly centralized government
structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative
resilience in matters of local development on the part of local
government leaders." The only way to shatter this culture of
dependence is to give the LGUs a wider role in the delivery of
basic services, and confer them sufficient powers to generate
their own sources for the purpose. To achieve this goal,
Section 3 of Article X of the 1987 Constitution mandates
Congress to enact a local government code that will,
consistent with the basic policy of local autonomy , set the
guidelines and limitations to this grant of taxing powers x x
x84
Fairly recently, We also stated in Pelizloy Realty Corporation
v. Province of Benguet85 that:
The rule governing the taxing power of provinces, cities,
municipalities and barangays is summarized in Icard v. City
Council of Baguio :
It is settled that a municipal corporation unlike a sovereign
state is clothed with no inherent power of taxation. The charter
or statute must plainly show an intent to confer that power or
the municipality, cannot assume it. And the power when
granted is to be construed in strictissimi juris . Any doubt or
ambiguity arising out of the term used in granting that power
must be resolved against the municipality. Inferences,
implications, deductions – all these – have no place in the
interpretation of the taxing power of a municipal corporation.
[Underscoring supplied]
xxxx
Per Section 5, Article X of the 1987 Constitution, "the power
to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes,
fees and other charges." Nevertheless, such authority is
"subject to such guidelines and limitations as the Congress
may provide."
In conformity with Section 3, Article X of the 1987
Constitution, Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991.
Book II of the LGC governs local taxation and fiscal
matters.86
Indeed, LGUs have no inherent power to tax except to the
extent that such power might be delegated to them either by
the basic law or by the statute.87 "Under the now prevailing
Constitution , where there is neither a grant nor a prohibition
by statute , the tax power must be deemed to exist although
Congress may provide statutory limitations and guidelines.
The basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units by
directly granting them general and broad tax powers.
Nevertheless, the fundamental law did not intend the
delegation to be absolute and unconditional; the constitutional
objective obviously is to ensure that, while the local
government units are being strengthened and made more
autonomous , the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple
and unreasonable impositions; (b) each local government unit
will have its fair share of available resources; (c) the resources
of the national government will not be unduly disturbed; and
(d) local taxation will be fair, uniform, and just."88
Subject to the provisions of the LGC and consistent with the
basic policy of local autonomy, every LGU is now empowered
and authorized to create its own sources of revenue and to levy
taxes, fees, and charges which shall accrue exclusively to the
local government unit as well as to apply its resources and
assets for productive, developmental, or welfare purposes, in
the exercise or furtherance of their governmental or
proprietary powers and functions.89 The relevant provisions
of the LGC which establish the parameters of the taxing power
of the LGUs are as follows:
SECTION 130. Fundamental Principles. – The following
fundamental principles shall govern th e exercise of the taxing
and other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the
taxpayer’s ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic
policy, or in restraint of trade;
(c) The collection of local taxes, fees, charges and other
impositions shall in no case be left to any private person;
(d) The revenue collected pursuant to the provisions of this
Code shall inure solely to the benefit of, and be subject to the
disposition by, the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically
provided herein; and,
(e) Each local government unit shall, as far as practicable,
evolve a progressive system of taxation.
SECTION 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
(a) Income tax, except when levied on banks and other
financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
herein;
(d) Customs duties, registration fees of vessel and wharage on
wharves, tonnage dues, and all other kinds of customs fees,
charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods
carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of charges
for wharfage, tolls for bridges or otherwise, or other taxes,
fees, or charges in any form whatsoever upon such goods or
merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or charges
on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except
as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors
and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water,
except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles
and for the issuance of all kinds of licenses or permits for the
driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
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 fifty percent (50%) except the rates of
professional and amusement taxes.
SECTION 186. Power to Levy Other Taxes, Fees or Charges.
– Local government units may exercise the power to levy
taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions
of the National Internal Revenue Code, as amended, or other
applicable laws: Provided, That the taxes, fees, or charges
shall not be unjust, excessive, oppressive, confiscatory or
contrary to declared national policy: Provided, further, That
the ordinance levying such taxes, fees or charges shall not be
enacted without any prior public hearing conducted for the
purpose.
On the Socialized Housing Tax
Contrary to petitioner’s submission, the 1987 Constitution
explicitly espouses the view that the use of property bears a
social function and that all economic agents shall contribute to
the common good.90 The Court already recognized this in
Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.:91
Property has not only an individual function, insofar as it has
to provide for the needs of the owner, but also a social
function insofar as it has to provide for the needs of the other
members of society. The principle is this:
Police power proceeds from the principle that every holder of
property, however absolute and unqualified may be his title,
holds it under the implied liability that his use of it shall not be
injurious to the equal enjoyment of others having an equal
right to the enjoyment of their property, no r injurious to the
right of the community. Rights of property, like all other
social and conventional rights, are subject to reasonable
limitations in their enjoyment as shall prevent them from
being injurious, and to such reasonable restraints and
regulations established by law as the legislature, under the
governing an d controlling power vested in them by the
constitution, may think necessary and expedient.92
Police power, which flows from the recognition that salus
populi est suprema lex (the welfare of the people is the
supreme law), is the plenary power vested in the legislature to
make statutes and ordinances to promote the health, morals,
peace, education, good order or safety and general welfare of
the people.93 Property rights of individuals may be subjected
to restraints and burdens in order to fulfill the objectives of the
government in the exercise of police power. 94 In this
jurisdiction, it is well-entrenched that taxation may be made
the implement of the state’s police power.95
Ordinance No. SP-2095 imposes a Socialized Housing Tax
equivalent to 0.5% on the assessed value of land in excess of
Php100,000.00. This special assessment is the same tax
referred to in R.A. No. 7279 or the UDHA.96 The SHT is one
of the sources of funds for urban development and housing
program.97 Section 43 of the law provides:
Sec. 43. Socialized Housing Tax . – Consistent with the
constitutional principle that the ownership and enjoyment of
property bear a social function and to raise funds for the
Program, all local government units are hereby authorized to
impose an additional one-half percent (0.5%) tax on the
assessed value of all lands in urban areas in excess of Fifty
thousand pesos (₱50,000.00).
The rationale of the SHT is found in the preambular clauses of
the subject ordinance, to wit:
WHEREAS, the imposition of additional tax is intended to
provide the City Government with sufficient funds to initiate,
implement and undertake Socialized Housing Projects and
other related preliminary activities;
WHEREAS, the imposition of 0.5% tax will benefit the
Socialized Housing Programs and Projects of the City
Government, specifically the marginalized sector through the
acquisition of properties for human settlements;
WHEREAS, the removal of the urban blight will definitely
increase fair market value of properties in the city[.]
The above-quoted are consistent with the UDHA, which the
LGUs are charged to implement in their respective localities in
coordination with the Housing and Urban Development
Coordinating Council, the national housing agencies, the
Presidential Commission for the Urban Poor, the private
sector, and other non-government organizations.98 It is the
declared policy of the State to undertake a comprehensive and
continuing urban development and housing program that shall,
among others, uplift the conditions of the underprivileged and
homeless citizens in urban areas and in resettlement areas, and
provide for the rational use and development of urban land in
order to bring a bout, among others, reduction in urban
dysfunctions, particularly those that adversely affect public
health, safety and ecology, and access to land and housing by
the underprivileged and homeless citizens.99 Urban renewal
and resettlement shall include the rehabilitation and
development of blighted and slum areas100 and the
resettlement of program beneficiaries in accordance with the
provisions of the UDHA.101 Under the UDHA, socialized
housing102 shall be the primary strategy in providing shelter
for the underprivileged and homeless.103 The LGU or the
NHA, in cooperation with the private developers and
concerned agencies, shall provide socialized housing or re
settlement areas with basic services and facilities such as
potable water, power and electricity, and an adequate power
distribution system, sewerage facilities, and an efficient and
adequate solid waste disposal system; and access to primary
roads and transportation facilities.104 The provisions for
health, education, communications, security, recreation, relief
and welfare shall also be planned and be given priority for
implementation by the LGU and concerned agencies in
cooperation with the private sector and the beneficiaries
themselves.105
Moreover, within two years from the effectivity of the UDHA,
the LGUs, in coordination with the NHA, are directed to
implement the relocation and resettlement of persons living in
danger areas such as esteros , railroad tracks, garbage dumps,
riverbanks, shorelines, waterways, and other public places like
sidewalks, roads, parks, and playgrounds.106 In coordination
with the NHA, the LG Us shall provide relocation or
resettlement sites with basic services and facilities and access
to employment and livelihood opportunities sufficient to meet
the basic needs of the affected families.107
Clearly, the SHT charged by the Quezon City Government is a
tax which is within its power to impose. Aside from the
specific authority vested by Section 43 of the UDHA, cities
are allowed to exercise such other powers and discharge such
other functions and responsibilities as are necessary,
appropriate, or incidental to efficient and effective provision
of the basic services and facilities which include, among
others, programs and projects for low-cost housing and other
mass dwellings.108 The collections made accrue to its
socialized housing programs and projects.
The tax is not a pure exercise of taxing power or merely to
raise revenue; it is levied with a regulatory purpose. The levy
is primarily in the exercise of the police power for the general
welfare of the entire city. It is greatly imbued with public
interest. Removing slum areas in Quezon City is not only
beneficial to the underprivileged and homeless constituents
but advantageous to the real property owners as well. The
situation will improve the value of the their property
investments, fully enjoying the same in view of an orderly,
secure, and safe community, and will enhance the quality of
life of the poor, making them law-abiding constituents and
better consumers of business products.
Though broad and far-reaching, police power is subordinate to
constitutional limitations and is subject to the requirement that
its exercise must be reasonable and for the public good.109 In
the words of City of Manila v. Hon. Laguio, Jr.:110
The police power granted to local government units must
always be exercised with utmost observance of the rights of
the people to due process and equal protection of the law.
Such power cannot be exercised whimsically, arbitrarily or
despotically as its exercise is subject to a qualification,
limitation or restriction demanded by the respect and regard
due to the prescription of the fundamental law, particularly
those forming part of the Bill of Rights. Individual rights, it
bears emphasis, may be adversely affected only to the extent
that may fairly be required by the legitimate demands of
public interest or public welfare. Due process requires the
intrinsic validity of the law in interfering with the rights of the
person to his life, liberty and property.
xxxx

To successfully invoke the exercise of police power as the
rationale for the enactment of the Ordinance, and to free it
from the imputation of constitutional infirmity, not only must
it appear that the interests of the public generally, as
distinguished from those of a particular class, require an
interference with private rights, but the means adopted must
be reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals. It must
be evident that no other alternative for the accomplishment of
the purpose less intrusive of private rights can work. A
reasonable relation must exist between the purposes of the
police measure and the means employed for its
accomplishment, for even under the guise of protecting the
public interest, personal rights and those pertaining to private
property will not be permitted to be arbitrarily invaded.
Lacking a concurrence of these two requisites, the police
measure shall be struck down as an arbitrary intrusion into
private rights – a violation of the due process clause.111
As with the State, LGUs may be considered as having
properly exercised their police power only if there is a lawful
subject and a lawful method or, to be precise, if the following
requisites are met: (1) the interests of the public generally, as
distinguished from those of a particular class, require its
exercise and (2) the mean s employed are reasonably
necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals.112
In this case, petitioner argues that the SHT is a penalty
imposed on real property owners because it burdens them with
expenses to provide funds for the housing of informal settlers,
and that it is a class legislation since it favors the latter who
occupy properties which is not their own and pay no taxes.
We disagree.
Equal protection requires that all persons or things similarly
situated should be treated alike, both as to rights conferred and
responsibilities imposed.113 The guarantee means that no
person or class of persons shall be denied the same protection
of laws which is enjoyed by other persons or other classes in
like circumstances.114 Similar subjects should not be treated
differently so as to give undue favor to some and unjustly
discriminate against others.115 The law may, therefore, treat
and regulate one class differently from another class provided
there are real and substantial differences to distinguish one
class from another.116
An ordinance based on reasonable classification does not
violate the constitutional guaranty of the equal protection of
the law. The requirements for a valid and reasonable
classification are: (1) it must rest on substantial distinctions;
(2) it must be germane to the purpose of the law; (3) it must
not be limited to existing conditions only; and (4) it must
apply equally to all members of the same class.117For the
purpose of undertaking a comprehensive and continuing urban
development and housing program, the disparities between a
real property owner and an informal settler as two distinct
classes are too obvious and need not be discussed at length.
The differentiation conforms to the practical dictates of justice
and equity and is not discriminatory within the meaning of the
Constitution. Notably, the public purpose of a tax may legally
exist even if the motive which impelled the legislature to
impose the tax was to favor one over another.118 It is inherent
in the power to tax that a State is free to select the subjects of
taxation.119 Inequities which result from a singling out of one
particular class for taxation or exemption infringe no
constitutional limitation.120
Further, the reasonableness of Ordinance No. SP-2095 cannot
be disputed. It is not confiscatory or oppressive since the tax
being imposed therein is below what the UDHA actually
allows. As pointed out by respondents, while the law
authorizes LGUs to collect SHT on lands with an assessed
value of more than ₱50,000.00, the questioned ordinance only
covers lands with an assessed value exceeding ₱100,000.00.
Even better, on certain conditions, the ordinance grants a tax
credit equivalent to the total amount of the special assessment
paid beginning in the sixth (6th) year of its effectivity. Far
from being obnoxious, the provisions of the subject ordinance
are fair and just.
On the Garbage Fee
In the United States of America, it has been held that the
authority of a municipality to regulate garbage falls within its
police power to protect public health, safety, and welfare.121
As opined, the purposes and policy underpinnings of the
police power to regulate the collection and disposal of solid
waste are: (1) to preserve and protect the public health and
welfare as well as the environment by minimizing or
eliminating a source of disease and preventing and abating
nuisances; and (2) to defray costs and ensure financial stability
of the system for the benefit of the entire community, with the
sum of all charges marshalled and designed to pay for the
expense of a systemic refuse disposal scheme.122
Ordinances regulating waste removal carry a strong
presumption of
validity.123 Not surprisingly, the overwhelming majority of
U.S. cases addressing a city's authority to impose mandatory
garbage service and fees have upheld the ordinances against
constitutional and statutory challenges.124
A municipality has an affirmative duty to supervise and
control the collection of garbage within its corporate
limits.125 The LGC specifically assigns the responsibility of
regulation and oversight of solid waste to local governing
bodies because the Legislature determined that such bodies
were in the best position to develop efficient waste
management programs.126 To impose on local governments
the responsibility to regulate solid waste but not grant them
the authority necessary to fulfill the same would lead to an
absurd result."127 As held in one U.S. case:
x x x When a municipality has general authority to regulate a
particular subject matter, the manner and means of exercising
those powers, where not specifically prescribed by the
legislature, are left to the discretion of the municipal
authorities. x x x Leaving the manner of exercising municipal
powers to the discretion of municipal authorities "implies a
range of reasonableness within which a municipality's exercise
of discretion will not be interfered with or upset by the
judiciary."128
In this jurisdiction, pursuant to Section 16 of the LGC and in
the proper exercise of its corporate powers under Section 22 of
the same, the Sangguniang Panlungsod of Quezon City, like
other local legislative bodies, is empowered to enact
ordinances, approve resolutions, and appropriate funds for the
genera l welfare of the city and its inhabitants.129Section 16
of the LGC provides:
SECTION 16. General Welfare . – Every local government
unit shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective
governance, and those which are essential to the promotion of
the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support,
among other things, the preservation and enrichment of
culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the
development of appropriate and self-reliant scientific and
technological capabilities, improve public morals, enhance
economic prosperity and social justice, promote full
employment among their residents, maintain peace and order,
and preserve the comfort and convenience of their inhabitants.
The general welfare clause is the delegation in statutory form
of the police power of the State to LGUs.130 The provisions
related thereto are liberally interpreted to give more powers to
LGUs in accelerating economic development and upgrading
the quality of life for the people in the community.131 Wide
discretion is vested on the legislative authority to determine
not only what the interests of the public require but also what
measures are necessary for the protection of such interests
since the Sanggunian is in the best position to determine the
needs of its constituents.132
One of the operative principles of decentralization is that,
subject to the provisions of the LGC and national policies, the
LGUs shall share with the national government the
responsibility in the management and maintenance of
ecological balance within their territorial jurisdiction.133 In
this regard, cities are allowed to exercise such other powers
and discharge such other functions and responsibilities as are
necessary, appropriate, or incidental to efficient and effective
provision of the basic services and facilities which include,
among others, solid waste disposal system or environmental
management system and services or facilities related to
general hygiene and sanitation.134 R.A. No. 9003, or the
Ecological Solid Waste Management Act of 2000,135 affirms
this authority as it expresses that the LGUs shall be primarily
responsible for the implementation and enforcement of its
provisions within their respective jurisdictions while
establishing a cooperative effort among the national
government, other local government units, non-government
organizations, and the private sector.136
Necessarily, LGUs are statutorily sanctioned to impose and
collect such reasonable fees and charges for services
rendered.137 "Charges" refer to pecuniary liability, as rents or
fees against persons or property, while "Fee" means a charge
fixed by law or ordinance for the regulation or inspection of a
business or activity.138
The fee imposed for garbage collections under Ordinance No.
SP-2235 is a charge fixed for the regulation of an activity. The
basis for this could be discerned from the foreword of said
Ordinance, to wit:
WHEREAS, Quezon City being the largest and premiere city
in the Philippines in terms of population and urban
geographical areas, apart from being competent and efficient
in the delivery of public service, apparently requires a big
budgetary allocation in order to address the problems relative
and connected to the prompt and efficient delivery of basic
services such as the effective system of waste management,
public information programs on proper garb age and proper
waste disposal, including the imposition of waste regulatory
measures;
WHEREAS, to help augment the funds to be spent for the
city’s waste management system, the City Government
through the Sangguniang Panlungsod deems it necessary to
impose a schedule of reasonable fees or charges for the
garbage collection services for residential (domestic
household) that it renders to the public.
Certainly, as opposed to petitioner’s opinion, the garbage fee
is not a tax. In Smart Communications, Inc. v. Municipality of
Malvar, Batangas ,139the Court had the occasion to
distinguish these two concepts:
In Progressive Development Corporation v. Quezon City, the
Court declared that "if the generating of revenue is the primary
purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that
incidentally revenue is also obtained does not make the
imposition a tax."
In Victorias Milling Co., Inc. v. Municipality of Victorias, the
Court reiterated that the purpose and effect of the imposition
determine whether it is a tax or a fee, and that the lack of any
standards for such imposition gives the presumption that the
same is a tax.
We accordingly say that the designation given by the
municipal authorities does not decide whether the imposition
is properly a license tax or a license fee.1awp++i1 The
determining factors are the purpose and effect of the
imposition as may be apparent from the provisions of the
ordinance. Thus, "[w]hen no police inspection, supervision, or
regulation is provided, nor any standard set for the applicant to
establish, or that he agrees to attain or maintain, but any and
all persons engaged in the business designated, without
qualification or hindrance, may come, and a license on
payment of the stipulated sum will issue, to do business,
subject to no prescribed rule of conduct and under no guardian
eye, but according to the unrestrained judgment or fancy of the
applicant and licensee, the presumption is strong that the
power of taxation, and not the police power, is being
exercised."
In Georgia, U.S.A., assessments for garbage collection
services have been consistently treated as a fee and not a
tax.140
In another U.S. case,141 the garbage fee was considered as a
"service charge" rather than a tax as it was actually a fee for a
service given by the city which had previously been provided
at no cost to its citizens.
Hence, not being a tax, the contention that the garbage fee
under Ordinance No. SP-2235 violates the rule on double
taxation142 must necessarily fail.
Nonetheless, although a special charge, tax, or assessment
may be imposed by a municipal corporation, it must be
reasonably commensurate to the cost of providing the garbage
service.143 To pass judicial scrutiny, a regulatory fee must not
produce revenue in excess of the cost of the regulation
because such fee will be construed as an illegal tax when the
revenue generated by the regulation exceeds the cost of the
regulation.144
Petitioner argues that the Quezon City Government already
collects garbage fee under Section 47 of R.A. No. 9003, which
authorizes LGUs to impose fees in amounts sufficient to pay
the costs of preparing, adopting, and implementing a solid
waste management plan, and that it has access to the SWM
Fund under Section 46 of the same law. Moreover, Ordinance
No. S-2235 is inconsistent with R.A. No. 9003, because the
ordinance emphasizes the collection and payment of garbage
fee with no concern for segregation, composting and recycling
of wastes. It also skips the mandate of the law calling for the
active involvement of the barangay in the collection,
segregation, and recycling of garbage.
We now turn to the pertinent provisions of R.A. No. 9003.
Under R.A. No. 9003, it is the declared policy of the State to
adopt a systematic, comprehensive and ecological solid waste
management program which shall, among others, ensure the
proper segregation, collection, transport, storage, treatment
and disposal of solid waste through the formulation and
adoption of the best environmental practices in ecological
waste management.145 The law provides that segregation and
collection of solid waste shall be conducted at the barangay
level, specifically for biodegradable, compostable and
reusable wastes, while the collection of non-recyclable
materials and special wastes shall be the responsibility of the
municipality or city.146 Mandatory segregation of solid
wastes shall primarily be conducted at the source, to include
household, institutional, industrial, commercial and
agricultural sources.147 Segregation at source refers to a solid
waste management practice of separating, at the point of
origin, different materials found in soli d waste in order to
promote recycling and re-use of resources and to reduce the
volume of waste for collection and disposal.148 Based on
Rule XVII of the Department of Environment and Natural
Resources (DENR) Administrative Order No. 2001-34, Series
of 2001,149 which is the Implementing Rules and Regulations
( IRR ) of R.A. No. 9003, barangays shall be responsible for
the collection, segregation, and recycling of biodegradable,
recyclable , compostable and reusable wastes.150
For the purpose, a Materials Recovery Facility (MRF), which
shall receive biodegradable wastes for composting and mixed
non-biodegradable wastes for final segregation, re-use and
recycling, is to be established in every barangay or cluster of
barangays.151
According to R.A. 9003, an LGU, through its local solid waste
management board, is mandated by law to prepare a 10-year
solid waste management plan consistent with the National
Solid Waste Management Framework.152 The plan shall be
for the re-use, recycling and composting of wastes generated
in its jurisdiction; ensure the efficient management of solid
waste generated within its jurisdiction; and place primary
emphasis on implementation of all feasible re-use, recycling,
and composting programs while identifying the amount of
landfill and transformation capacity that will be needed for
solid waste which cannot be re-used, recycled, or
composted.153 One of the components of the so lid waste
management plan is source reduction:
(e) Source reduction – The source reduction component shall
include a program and implementation schedule which shows
the methods by which the LGU will, in combination with the
recycling and composting components, reduce a sufficient
amount of solid waste disposed of in accordance with the
diversion requirements of Section 20.
The source reduction component shall describe the following:
(1) strategies in reducing the volume of solid waste generated
at source;
(2) measures for implementing such strategies and the
resources necessary to carry out such activities;
(3) other appropriate waste reduction technologies that may
also be considered, provide d that such technologies conform
with the standards set pursuant to this Act;
(4) the types of wastes to be reduced pursuant to Section 15 of
this Act;
(5) the methods that the LGU will use to determine the
categories of solid wastes to be diverted from disposal at a
disposal facility through re-use , recycling and composting;
and
(6) new facilities and of expansion of existing facilities which
will be needed to implement re-use, recycling and composting.
The LGU source reduction component shall include the
evaluation and identification of rate structures and fees for the
purpose of reducing the amount of waste generated, and other
source reduction strategies, including but not limited to,
program s and economic incentives provided under Sec. 45 of
this Act to reduce the use of non-recyclable materials, replace
disposable materials and products with reusable materials and
products, reduce packaging, and increase the efficiency of the
use of paper, cardboard, glass, metal, and other materials. The
waste reduction activities of the community shall al so take
into account, among others, local capability, economic
viability, technical requirements, social concerns, disposition
of residual waste and environmental impact: Provided , That,
projection of future facilities needed and estimated cost shall
be incorporated in the plan. x x x154
The solid waste management pl an shall also include an
implementation schedule for solid waste diversion:
SEC. 20. Establishing Mandatory Solid Waste Diversion. –
Each LGU plan shall include an implementation schedule
which shows that within five (5) years after the effectivity of
this Act, the LGU shall divert at least 25% of all solid waste
from waste disposal facilities through re-use, recycling, and
composting activities and other resource recovery activities:
Provided , That the waste diversion goals shall be increased
every three (3) years thereafter: Provided , further, That
nothing in this Section prohibits a local government unit from
implementing re-use, recycling, and composting activities
designed to exceed the goal.
The baseline for the twenty-five percent (25%) shall be
derived from the waste characterization result155 that each
LGU is mandated to undertake.156In accordance with Section
46 of R.A. No. 9003, the LGUs are entitled to avail of the
SWM Fund on the basis of their approved solid waste
management plan. Aside from this, they may also impose
SWM Fees under Section 47 of the law, which states:
SEC. 47. Authority to Collect Solid Waste Management Fees
– The local government unit shall impose fees in amounts
sufficient to pay the costs of preparing, adopting, and
implementing a solid waste management plan prepared
pursuant to this Act. The fees shall be based on the following
minimum factors:
(a) types of solid waste;
(b) amount/volume of waste; and
(c) distance of the transfer station to the waste management
facility.
The fees shall be used to pay the actual costs incurred by the
LGU in collecting the local fees. In determining the amounts
of the fees, an LGU shall include only those costs directly
related to the adoption and implementation of the plan and the
setting and collection of the local fees.
Rule XVII of the IRR of R.A. No. 9003 sets forth the details:
Section 1. Power to Collect Solid Waste Management Fees . –
The Local SWM Board/Local SWM Cluster Board shall
impose fees on the SWM services provided for by the LGU
and/or any authorized organization or unit. In determining the
amounts of the fees, a Local SWM Board/Local SWM Cluster
Board shall include only those costs directly related to the
adoption and implementation of the SWM Plan and the setting
and collection of the local fees. This power to impose fees
may be ceded to the private sector and civil society groups
which have been duly accredited by the Local SWM Boar
d/Local SWM Cluster Board; provided, the SWM fees shall be
covered by a Contract or Memorandum of Agreement between
the respective boa rd and the private sector or civil society
group.
The fees shall pay for the costs of preparing, adopting and
implementing a SWM Plan prepared pursuant to the Act.
Further, the fees shall also be used to pay the actual costs
incurred in collecting the local fees and for project
sustainability.
Section 2. Basis of SWM Service Fees
Reasonable SWM service fees shall be computed based on but
not limited to the following minimum factors:
a) Types of solid waste to include special waste

b) amount/volume of waste
c) distance of the transfer station to the waste management
facility
d) capacity or type of LGU constituency
e) cost of construction
f) cost of management
g) type of technology
Section 3. Collection of Fees. – Fees may be collected
corresponding to the following levels:
a) Barangay – The Barangay may impose fees for collection
and segregation of biodegradable, compostable and reusable
wastes from households, commerce, other sources of domestic
wastes, and for the use of Barangay MRFs. The computation
of the fees shall be established by the respective SWM boards.
The manner of collection of the fees shall be dependent on the
style of administration of respective Barangay Councils.
However, all transactions shall follow the Commission on
Audit rules on collection of fees.
b) Municipality – The municipal and city councils may impose
fees on the barangay MRFs for the collection and transport of
non-recyclable and special wastes and for the disposal of these
into the sanitary landfill. The level and procedure for exacting
fees shall be defined by the Local SWM Board/Local SWM
Cluster Board and supported by LGU ordinances; however,
payments shall be consistent with the accounting system of
government.
c) Private Sector/Civil Society Group – On the basis of the
stipulations of contract or Memorandum of Agreement, the
private sector or civil society group shall impose fees for
collection, transport and tipping in their SLFs. Receipts and
invoices shall be issued to the paying public or to the
government.
From the afore-quoted provisions, it is clear that the authority
of a municipality or city to impose fees is limited to the
collection and transport of non-recyclable and special wastes
and for the disposal of these into the sanitary landfill.
Barangays, on the other hand, have the authority to impose
fees for the collection and segregation of biodegradable,
compostable and reusable wastes from households, commerce,
other sources of domestic wastes, and for the use of barangay
MRFs. This is but consistent with
Section 10 of R.A. No. 9003 directing that segregation and
collection of biodegradable, compostable and reusable wastes
shall be conducted at the barangay level, while the collection
of non-recyclable materials and special wastes shall be the
responsibility of the municipality or city.
In this case, the alleged bases of Ordinance No. S-2235 in
imposing the garbage fee is the volume of waste currently
generated by each person in Quezon City, which purportedly
stands at 0.66 kilogram per day, and the increasing trend of
waste generation for the past three years.157 Respondents
did not elaborate any further. The figure presented does not
reflect the specific types of wastes generated – whether
residential, market, commercial, industrial,
construction/demolition, street waste, agricultural, agro-
industrial, institutional, etc. It is reasonable, therefore, for the
Court to presume that such amount pertains to the totality of
wastes, without any distinction, generated by Quezon City
constituents. To reiterate, however, the authority of a
municipality or city to impose fees extends only to those
related to the collection and transport of non-recyclable and
special wastes.
Granting, for the sake of argument, that the 0.66 kilogram of
solid waste per day refers only to non-recyclable and special
wastes, still, We cannot sustain the validity of Ordinance No.
S-2235. It violates the equal protection clause of the
Constitution and the provisions of the LGC that an ordinance
must be equitable and based as far as practicable on the
taxpayer’s ability to pay, and not unjust, excessive,
oppressive, confiscatory.158
In the subject ordinance, the rates of the imposable fee depend
on land or floor area and whether the payee is an occupant of a
lot, condominium, social housing project or apartment. For
easy reference, the relevant provision is again quoted below:
On all domestic households in Quezon City;
LAND AREA IMPOSABLE FEE
Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
On all condominium unit and socialized housing projects/units
in Quezon City;
FLOOR AREA
IMPOSABLE FEE
Less than 40 sq. m. PHP 25.00
41 sq. m. – 60 sq. m. PHP 50.00
61 sq. m. – 100 sq. m. PHP 75.00
101 sq. m. – 150 sq. m. PH₱100.00
151 sq. m. – 200 sq. [m.] or more PHP 200.00
On high-rise Condominium Units
a) High-rise Condominium – The Homeowners Association of
high rise condominiums shall pay the annual garbage fee on
the total size of the entire condominium and socialized
Housing Unit and an additional garbage fee shall be collected
based on area occupied for every unit already so ld or being
amortized.
b) High-rise apartment units – Owners of high-rise apartment
units shall pay the annual garbage fee on the total lot size of
the entire apartment and an additional garbage fee based on
the schedule prescribed herein for every unit occupied.
For the purpose of garbage collection, there is, in fact, no
substantial distinction between an occupant of a lot, on one
hand, and an occupant of a unit in a condominium, socialized
housing project or apartment, on the other hand. Most likely,
garbage output produced by these types of occupants is
uniform and does not vary to a large degree; thus, a similar
schedule of fee is both just and equitable.159
The rates being charged by the ordinance are unjust and
inequitable: a resident of a 200 sq. m. unit in a condominium
or socialized housing project has to pay twice the amount than
a resident of a lot similar in size; unlike unit occupants, all
occupants of a lot with an area of 200 sq. m. and less have to
pay a fixed rate of Php100.00; and the same amount of
garbage fee is imposed regardless of whether the resident is
from a condominium or from a socialized housing project.
Indeed, the classifications under Ordinance No. S-2235 are not
germane to its declared purpose of "promoting shared
responsibility with the residents to attack their common
mindless attitude in over-consuming the present resources and
in generating waste."160 Instead of simplistically categorizing
the payee into land or floor occupant of a lot or unit of a
condominium, socialized housing project or apartment,
respondent City Council should have considered factors that
could truly measure the amount of wastes generated and the
appropriate fee for its collection. Factors include, among
others, household age and size, accessibility to waste
collection, population density of the barangay or district,
capacity to pay, and actual occupancy of the property. R.A.
No. 9003 may also be looked into for guidance. Under said
law, WM service fees may be computed based on minimum
factors such as type s of solid waste to include special waste,
amount/volume of waste, distance of the transfer station to the
waste management facility, capacity or type of LGU
constituency, cost of construction, cost of management, and
type of technology. With respect to utility rates set by
municipalities, a municipality has the right to classify
consumers under reasonable classifications based upon factors
such as the cost of service, the purpose for which the service
or the product is received, the quantity or the amount received,
the different character of the service furnished, the time of its
use or any other matter which presents a substantial difference
as a ground of distinction.161[A] lack of uniformity in the rate
charged is not necessarily unlawful discrimination. The
establishment of classifications and the charging of different
rates for the several classes is not unreasonable and does not
violate the requirements of equality and uniformity.
Discrimination to be unlawful must draw an unfair line or
strike an unfair balance between those in like circumstances
having equal rights and privileges. Discrimination with respect
to rates charged does not vitiate unless it is arbitrary and
without a reasonable fact basis or justification.162
On top of an unreasonable classification, the penalty clause of
Ordinance No. SP-2235, which states:
SECTION 3. Penalty Clause – A penalty of 25% of the
garbage fee due plus an interest of 2% per month or a fraction
thereof (interest) shall be charged against a household owner
who refuses to pay the garbage fee herein imposed. lacks the
limitation required by Section 168 of the LGC, which
provides:
SECTION 168. Surcharges and Penalties on Unpaid Taxes,
Fees, or Charges. – The sanggunian may impose a surcharge
not exceeding twenty-five (25%) of the amount of taxes, fees
or charges not paid on time and an interest at the rate not
exceeding two percent (2%) per month of the unpaid taxes,
fees or charges including surcharges, until such amount is
fully paid but in no case shall the total interest on the unpaid
amount or portion thereof exceed thirty-six (36) months.
(Emphasis supplied)
Finally, on the issue of publication of the two challenged
ordinances.
Petitioner argues that the garbage fee was collected even if the
required publication of its approval had not yet elapsed. He
notes that he paid his realty tax on January 7, 2014 which
already included the garbage fee. Respondents counter that if
the law provides for its own effectivity, publication in the
Official Gazette is not necessary so long as it is not penal in
nature. Allegedly, Ordinance No. SP-2095 took effect after its
publication while Ordinance No. SP-2235 became effective
after its approval on December 26, 2013.
The pertinent provisions of the LGC state:
SECTION 59. Effectivity of Ordinances or Resolutions. – (a)
Unless otherwise stated in the ordinance or the resolution
approving the local development plan and public investment
program, the same shall take effect after ten (10) days from
the date a copy thereof is posted in a bulletin board at the
entrance of the provincial capital or city, municipal, or
barangay hall, as the case may be, and in at least two (2) other
conspicuous places in the local government unit concerned.
(b) The secretary to the sanggunian concerned shall cause the
posting of an ordinance or resolution in the bulletin board at
the entrance of the provincial capital and the city, municipal,
or barangay hall in at least two
(2) conspicuous places in the local government unit concerned
not later than five (5) days after approval thereof.
The text of the ordinance or resolution shall be disseminated
and posted in Filipino or English and in the language or dialect
understood by the majority of the people in the local
government unit concerned, and the secretary to the
sanggunian shall record such fact in a book kept for the
purpose, stating the dates of approval and posting.
(c) The gist of all ordinances with penal sanctions shall be
published in a newspaper of general circulation within the
province where the local legislative body concerned belongs.
In the absence of any newspaper of general circulation within
the province, posting of such ordinances shall be made in all
municipalities and cities of the province where the sanggunian
of origin is situated.
(d) In the case of highly urbanized and independent
component cities, the main features of the ordinance or
resolution duly enacted or adopted shall, in addition to being
posted, be published once in a local newspaper of general
circulation within the city: Provided, That in the absence
thereof the ordinance or resolution shall be published in any
newspaper of general circulation.
SECTION 188. Publication of Tax Ordinances and Revenue
Measures. – Within ten (10) days after their approval, certified
true copies of all provincial, city, and municipal tax
ordinances or revenue measures shall be published in full for
three (3) consecutive days in a newspaper of local circulation:
Provided, however, That in provinces, cities and
municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places. (Emphasis
supplied)
On October 17, 2011, respondent Quezon City Council
enacted Ordinance No. SP-2095, which provides that it would
take effect after its publication in a newspaper of general
circulation.163 On the other hand, Ordinance No. SP-2235,
which was passed by the City Council on December 16, 2013,
provides that it would be effective upon its approval.164
Ten (10) days after its enactment, or on December 26, 2013,
respondent City Mayor approved the same.165
The case records are bereft of any evidence to prove
petitioner’s negative allegation that respondents did not
comply with the posting and publication requirements of the
law. Thus, We are constrained not to give credit to his
unsupported claim.
WHEREFORE, the petition is PARTIALLY GRANTED. The
constitutionality and legality of Ordinance No. SP-2095, S-
2011, or the "Socialized Housing Tax of Quezon City," is·
SUSTAINED for being consistent ·with Section·43 of
Republic Act No. ·7279. On the other hand, Ordinance No.
SP-2235, S-2013, which collects an annual garbage fee on all
domestic households in Quezon City, is hereby declared as
UNCONSTITUTIONAL AND ILLEGAL. Respondents are
DIRECTED to REFUND with reasonable dispatch the sums
of money collected relative to its enforcement. The temporary
restraining order issued by the Court on February 5, 2014 is
LIFTED with respect to Ordinance No. SP-2095. In contrast,
respondents are PERMANENTLY ENJOINED from taking
any further action to enforce Ordinance No. SP. 2235.
SO ORDERED.
G.R. No. 194561, September 14, 2016
DRUGSTORES ASSOCIATION OF THE PHILIPPINES, INC. AND
NORTHERN LUZON DRUG CORPORATION, Petitioners, v. NATIONAL
COUNCIL ON DISABILITY AFFAIRS; DEPARTMENT OF HEALTH;
DEPARTMENT OF FINANCE; BUREAU OF INTERNAL REVENUE;
DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT; AND
DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT,
Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari1 with a Prayer for a
Temporary Restraining Order and/or Writ of Preliminary Injunction
which seeks to annul and set aside the Decision2 dated July 26,
2010, and the Resolution3 dated November 19, 2010 of the Court of
Appeals (CA) in CA-G.R. SP No. 109903. The CA dismissed
petitioners' Petition for Prohibition4 and upheld the constitutionality
of the mandatory twenty percent (20%) discount on the purchase of
medicine by persons with disability (PWD).
The antecedents are as follows:
chanRoblesvirtualLawlibraryOn March 24, 1992, Republic Act (R.A.)
No. 7277, entitled "An Act Providing for the Rehabilitation, Self-
Development and Self-Reliance of Disabled Persons and their
Integration into the Mainstream of Society and for Other Purposes,"
otherwise known as the "Magna Carta for Disabled Persons," was
passed into law.5 The law defines "disabled persons", "impairment"
and "disability" as follows:ChanRoblesVirtualawlibrary
SECTION 4. Definition of Terms. - For purposes of this Act, these
terms are defined as follows:
chanRoblesvirtualLawlibrary(a) Disabled Persons are those suffering
from restriction of different abilities, as a result of a mental, physical
or sensory impairment, to perform an activity in the manner or
within the range considered normal for a human being;
(b) Impairment is any loss, diminution or aberration of psychological,
physiological, or anatomical structure of function;
(c) Disability shall mean (1) a physical or mental impairment that
substantially limits one or more psychological, physiological or
anatomical function of an individual or activities of such individual;
(2) a record of such an impairment; or (3) being regarded as having
such an impairment.6chanroblesvirtuallawlibrary
On April 30, 2007, Republic Act No. 94427 was enacted amending
R.A. No. 7277. The Title of R.A. No. 7277 was amended to read as
"Magna Carta for Persons with Disability" and all references on the
law to "disabled persons" were amended to read as "persons with
disability" (PWD).8 Specifically, R.A. No. 9442 granted the PWDs a
twenty (20) percent discount on the purchase of medicine, and a tax
deduction scheme was adopted wherein covered establishments
may deduct the discount granted from gross income based on the
net cost of goods sold or services
rendered:ChanRoblesVirtualawlibrary
CHAPTER 8. Other Privileges and Incentives. SEC. 32. Persons with
disability shall be entitled to the following:
chanRoblesvirtualLawlibraryx x x x
(d)
At least twenty percent (20%) discount for the purchase of
medicines in all drugstores for the exclusive use or enjoyment of
persons with disability;
xxxx
The abovementioned privileges are available only to persons with
disability who are Filipino citizens upon submission of any of the
following as proof of his/her entitlement thereto:
chanRoblesvirtualLawlibrary
(i)
An identification card issued by the city or municipal mayor or the
barangay captain of the place where the person with disability
resides;
(ii)
The passport of the person with disability concerned; or
(ii)
Transportation discount fare Identification Card (ID) issued by the
National Council for the Welfare of Disabled Persons (NCWDP).
xxxx
The establishments may claim the discounts granted in sub-sections
(a), (b), (c), (f) and (g) as tax deductions based on the net cost of the
goods sold or services rendered: Provided, however, That the cost of
the discount shall be allowed as deduction from gross income for
the same taxable year that the discount is granted: Provided,
further, That the total amount of the claimed tax deduction net of
value-added tax if applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal
Revenue Code (NIRC), as amended.9chanroblesvirtuallawlibrary
The Implementing Rules and Regulations (IRR) of R.A. No. 944210
was jointly promulgated by the Department of Social Welfare and
Development (DSWD), Department of Education, Department of
Finance (DOF), Department of Tourism, Department of
Transportation and Communication, Department of the Interior and
Local Government (DILG) and Department of Agriculture. Insofar as
pertinent to this petition, the salient portions of the IRR are
hereunder quoted:11
RULE III. DEFINITION OF TERMS
Section 5. Definition of Terms. For purposes of these Rules and
Regulations, these terms are defined as follows:
chanRoblesvirtualLawlibrary5.1. Persons with Disability - are those
individuals defined under Section 4 of RA 7277 "An Act Providing for
the Rehabilitation, Self-Development and Self-Reliance of Persons
with Disability as amended and their integration into the
Mainstream of Society and for Other Purposes". This is defined as a
person suffering from restriction or different abilities, as a result of a
mental, physical or sensory impairment, to perform an activity in a
manner or within the range considered normal for human being.
Disability shall mean (1) a physical or mental impairment that
substantially limits one or more psychological, physiological or
anatomical function of an individual or activities of such individual;
(2) a record of such an impairment; or (3) being regarded as having
such an impairment.
xxxx
RULE IV. PRIVILEGES AND INCENTIVES FOR THE PERSONS WITH
DISABILITY
Section 6. Other Privileges and Incentives. Persons with disability
shall be entitled to the following:
chanRoblesvirtualLawlibraryx x x x
6.1.d. Purchase of Medicine - at least twenty percent (20%) discount
on the purchase of medicine for the exclusive use and enjoyment of
persons with disability. All drugstores, hospital, pharmacies, clinics
and other similar establishments selling medicines are required to
provide at least twenty percent (20%) discount subject to the
guidelines issued by DOH and PHILHEALTH.12chanrobleslaw
xxxx
6.11 The abovementioned privileges are available only to persons
with disability who are Filipino citizens upon submission of any of
the following as proof of his/her entitlement thereto subject to the
guidelines issued by the NCWDP in coordination with DSWD, DOH
and DILG.
6.11.1 An identification card issued by the city or municipal mayor or
the barangay captain of the place where the person with disability
resides;
6.11.2 The passport of the persons with disability concerned; or
6.11.3 Transportation discount fare Identification Card (ID) issued by
the National Council for the Welfare of Disabled Persons (NCWDP).
However, upon effectivity of this Implementing Rules and
Regulations, NCWDP will already adopt the Identification Card
issued by the Local Government Unit for purposes of uniformity in
the implementation. NCWDP will provide the design and
specification of the identification card that will be issued by the
Local Government Units.13chanroblesvirtuallawlibrary
6.14. Availmenl of Tax Deductions by Establishment Granting Twenty
Percent. 20% Discount - The establishments may claim the discounts
granted in sub-sections (6.1), (6.2), (6.4), (6.5) and (6.6) as tax
deductions based on the net cost of the goods sold or services
rendered: Provided, however, that the cost of the discount shall be
allowed as deduction from gross income for the same taxable year
that the discount is granted: Provided, further, That the total
amount of the claimed tax deduction net of value-added tax if
applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended.
On April 23, 2008, the National Council on Disability Affairs
(NCDA)14 issued Administrative Order (A.O.) No. 1, Series of
2008,15 prescribing guidelines which should serve as a mechanism
for the issuance of a PWD Identification Card (IDC) which shall be
the basis for providing privileges and discounts to bona fide PWDs in
accordance with R.A. 9442:ChanRoblesVirtualawlibrary
IV. INSTITUTIONAL ARRANGEMENTS
The Local Government Unit of the City or Municipal Office shall
implement these guidelines in the issuance of the PWD-IDC
xxxx
D. Issuance of the appropriate document to confirm the medical
condition of the applicant is as follows:ChanRoblesVirtualawlibrary
Disability Document Issuing Entity
Apparent Disability Medical Certificate Licensed Private or
Government Physician
School Assessment Licensed Teacher duly signed by the
School Principal
Certificate of Disability Head of the Business
Establishment or Head of Non-Government Organization
Non-Apparent Disability Medical Certificate Licensed Private or
Government Physician
E. PWD Registration Forms and ID Cards shall be issued and signed
by the City or Municipal Mayor, or Barangay Captain.
xxxx
V. IMPLEMENTING GUIDELINES AND PROCEDURES
Any bonafide person with permanent disability can apply for the
issuance of the PWD-IDC. His/her caregiver can assist in the
application process. Procedures for the issuance of the ID Cards are
as follows:
chanRoblesvirtualLawlibraryA. Completion of the Requirements.
Complete and/or make available the following
requirements:ChanRoblesVirtualawlibrary
Two "1x1" recent ID pictures with the names, and signatures or
thumbmarks at the back of the picture
One (1) Valid ID
Document to confirm the medical or disability condition (See Section
IV, D for the required document).
On December 9, 2008, the DOF issued Revenue Regulations No. 1-
200916 prescribing rules and regulations to implement R.A. 9442
relative to the tax privileges of PWDs and tax incentives for
establishments granting the discount. Section 4 of Revenue
Regulations No. 001-09 states that drugstores can only deduct the
20% discount from their gross income subject to some
conditions.17chanrobleslaw
On May 20, 2009, the DOH issued A.O. No. 2009-001118 specifically
stating that the grant of 20% discount shall be provided in the
purchase of branded medicines and unbranded generic medicines
from all establishments dispensing medicines for the exclusive use of
the PWDs.19 It also detailed the guidelines for the provision of
medical and related discounts and special privileges to PWDs
pursuant to R.A. 9442.20chanrobleslaw
On July 28, 2009, petitioners filed a Petition for Prohibition with
application for a Temporary Restraining Order and/or a Writ of
Preliminary Injunction21 before the Court of Appeals to annul and
enjoin the implementation of the following
laws:ChanRoblesVirtualawlibrary
1) Section 32 of R.A. No. 7277 as amended by R.A. No. 9442;
2) Section 6, Rule IV of the Implementing Rules and Regulations of
R.A. No. 9442;
3) NCDA A.O. No. 1;
4) DOF Revenue Regulation No. 1-2009;
5) DOH A.O. No. 2009-0011.
On July 26, 2010, the CA rendered a Decision upholding the
constitutionality of R.A. 7277 as amended, as well as the assailed
administrative issuances. However, the CA suspended the effectivity
of NCDA A.O. No. 1 pending proof of respondent NCDA's compliance
with filing of said administrative order with the Office of the
National Administrative Register (ONAR) and its publication in a
newspaper of general circulation. The dispositive portion of the
Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, the petition is PARTLY GRANTED. The effectivity of
NCDA Administrative Order No. 1 is hereby SUSPENDED pending
Respondent's compliance with the proof of filing of NCDA
Administrative Order No. 1 with the Office of the National
Administrative Register and its publication in a newspaper of general
circulation.
Respondent NCDA filed a motion for reconsideration before the CA
to lift the suspension of the implementation of NCDA A.O. No. 1
attaching thereto proof of its publication in the Philippine Star and
Daily Tribune on August 12, 2010, as well as a certification from the
ONAR showing that the same was filed with the said office on
October 22, 2009.22 Likewise, petitioners filed a motion for
reconsideration of the CA Decision.
In a Resolution dated November 19, 2010, the CA dismissed
petitioners' motion for reconsideration and lifted the suspension of
the effectivity of NCDA A.O. No. 1 considering the filing of the same
with ONAR and its publication in a newspaper of general circulation.
Hence, the instant petition raising the following
issues:ChanRoblesVirtualawlibrary
I. THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN
IT RULED THAT THE MANDATED PWD DISCOUNT IS A VALID
EXERCISE OF POLICE POWER. ON THE CONTRARY, IT IS AN INVALID
EXERCISE OF THE POWER OF EMINENT DOMAIN BECAUSE IT FAILS
TO PROVIDE JUST COMPENSATION TO PETITIONERS AND OTHER
SIMILARLY SITUATED DRUGSTORES;
II. THE CA SERIOUSLY ERRED WHEN IT RULED THAT SECTION 32 OF
RA 7277 AS AMENDED BY RA 9442, NCDA AO 1 AND THE OTHER
IMPLEMENTING REGULATIONS DID NOT VIOLATE THE DUE PROCESS
CLAUSE;
III. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE
DEFINITIONS OF DISABILITIES UNDER SECTION 4(A), SECTION 4(B)
AND SECTION 4(C) OF RA 7277 AS AMENDED BY RA 9442, RULE 1 OF
THE IMPLEMENTING RULES AND REGULATIONS23 OF RA 7277,
SECTION 5.1 OF THE IMPLEMENTING RULES AND REGULATIONS OF
RA 9442, NCDA AO 1 AND DOH AO 2009-11 ARE NOT VAGUE,
AMBIGUOUS AND UNCONSTITUTIONAL;
IV. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE MANDATED
PWD DISCOUNT DOES NOT VIOLATE THE EQUAL PROTECTION
CLAUSE.
We deny the petition.
The CA is correct when it applied by analogy the case of Carlos
Superdrug Corporation et al. v. DSWD, et al.24 wherein We
pronouced that Section 4 of R.A. No. 9257 which grants 20%
discount on the purchase of medicine of senior citizens is a
legitimate exercise of police power:ChanRoblesVirtualawlibrary
The law is a legitimate exercise of police power which, similar to the
power of eminent domain, has general welfare for its object. Police
power is not capable of an exact definition, but has been purposely
veiled in general terms to underscore its comprehensiveness to
meet all exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus assuring the
greatest benefits.25cralawred Accordingly, it has been described as
the most essential, insistent and the least limitable of powers,
extending as it does to all the great public needs.26 It is [t]he power
vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes,
and ordinances, either with penalties or without, not repugnant to
the constitution, as they shall judge to be for the good and welfare
of the commonwealth, and of the subjects of the
same.27chanrobleslaw
For this reason, when the conditions so demand as determined by
the legislature, property rights must bow to the primacy of police
power because property rights, though sheltered by due process,
must yield to general welfare.28chanrobleslaw
Police power as an attribute to promote the common good would be
diluted considerably if on the mere plea of petitioners that they will
suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating
the alleged confiscatory effect of the provision in question, there is
no basis for its nullification in view of the presumption of validity
which every law has in its favor.29chanroblesvirtuallawlibrary
Police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property. On the
other hand, the power of eminent domain is the inherent right of
the state (and of those entities to which the power has been lawfully
delegated) to condemn private property to public use upon payment
of just compensation. In the exercise of police power, property
rights of private individuals are subjected to restraints and burdens
in order to secure the general comfort, health, and prosperity of the
state.30 A legislative act based on the police power requires the
concurrence of a lawful subject and a lawful method. In more
familiar words, (a) the interests of the public generally, as
distinguished from those of a particular class, should justify the
interference of the state; and (b) the means employed are
reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals.31chanrobleslaw
R.A. No. 7277 was enacted primarily to provide full support to the
improvement of the total well-being of PWDs and their integration
into the mainstream of society. The priority given to PWDs finds its
basis in the Constitution:ChanRoblesVirtualawlibrary
ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY
xxxx
Section 6. The use of property bears a social function, and all
economic agents shall contribute to the common good. Individuals
and private groups, including corporations, cooperatives, and similar
collective organizations, shall have the right to own, establish, and
operate economic enterprises, subject to the duty of the State to
promote distributive justice and to intervene when the common
good so demands.32chanrobleslaw
ARTICLE XIII
SOCIAL JUSTICE AND HUMAN RIGHTS
xxxx
Section 11. The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make
essential goods, health and other social services available to all the
people at affordable cost. There shall be priority for the needs of the
underprivileged, sick, elderly, disabled, women, and children. The
State shall endeavor to provide free medical care to
paupers.33chanroblesvirtuallawlibrary
Thus, R.A. No. 7277 provides:ChanRoblesVirtualawlibrary
SECTION 2. Declaration of Policy. The grant of the rights and
privileges for disabled persons shall be guided by the following
principles:
chanRoblesvirtualLawlibrary(a). Disabled persons are part of the
Philippine society, thus the Senate shall give full support to the
improvement of the total well-being of disabled persons and their
integration into the mainstream of society.
Toward this end, the State shall adopt policies ensuring the
rehabilitation, self-development and self-reliance of disabled
persons.
It shall develop their skills and potentials to enable them to compete
favorably for available opportunities.
(b). Disabled persons have the same rights as other people to take
their proper place in society. They should be able to live freely and
as independently as possible. This must be the concern of everyone -
the family, community and all government and non-government
organizations.
Disabled person's rights must never be perceived as welfare services
by the Government.
xxxx
(d). The State also recognizes the role of the private sector in
promoting the welfare of disabled persons and shall encourage
partnership in programs that address their needs and
concerns.34chanroblesvirtuallawlibrary
To implement the above policies, R.A. No. 9442 which amended R.A.
No. 7277 grants incentives and benefits including a twenty percent
(20%) discount to PWDs in the purchase of medicines; fares for
domestic air, sea and land travels including public railways and
skyways; recreation and amusement centers including theaters,
food chains and restaurants.35 This is specifically stated in Section 4
of the IRR of R.A. No. 9442:ChanRoblesVirtualawlibrary
Section 4. Policies and Objectives - It is the objective of Republic Act
No. 9442 to provide persons with disability, the opportunity to
participate fully into the mainstream of society by granting them at
least twenty percent (20%) discount in all basic services. It is a
declared policy of RA 7277 that persons with disability are part of
Philippine society, and thus the State shall give full support to the
improvement of their total wellbeing and their integration into the
mainstream of society. They have the same rights as other people to
take their proper place in society. They should be able to live freely
and as independently as possible. This must be the concern of
everyone the family, community and all government and non-
government organizations. Rights of persons with disability must
never be perceived as welfare services. Prohibitions on verbal, non-
verbal ridicule and vilification against persons with disability shall
always be observed at all times.36chanroblesvirtuallawlibrary
Hence, the PWD mandatory discount on the purchase of medicine is
supported by a valid objective or purpose as aforementioned. It has
a valid subject considering that the concept of public use is no
longer confined to the traditional notion of use by the public, but
held synonymous with public interest, public benefit, public welfare,
and public convenience. As in the case of senior citizens,37 the
discount privilege to which the PWDs are entitled is actually a
benefit enjoyed by the general public to which these citizens belong.
The means employed in invoking the active participation of the
private sector, in order to achieve the purpose or objective of the
law, is reasonably and directly related.38 Also, the means employed
to provide a fair, just and quality health care to PWDs are reasonably
related to its accomplishment, and are not oppressive, considering
that as a form of reimbursement, the discount extended to PWDs in
the purchase of medicine can be claimed by the establishments as
allowable tax deductions pursuant to Section 32 of R.A. No. 9442 as
implemented in Section 4 of DOF Revenue Regulations No. 1-2009.
Otherwise stated, the discount reduces taxable income upon which
the tax liability of the establishments is computed.
Further, petitioners aver that Section 32 of R.A. No. 7277 as
amended by R.A. No. 9442 is unconstitutional and void for violating
the due process clause of the Constitution since entitlement to the
20% discount is allegedly merely based on any of the three
documents mentioned in the provision, namely: (i) an identification
card issued by the city or municipal mayor or the barangay captain
of the place where the PWD resides; (ii) the passport of the PWD; or
(iii) transportation discount fare identification card issued by NCDA.
Petitioners, thus, maintain that none of the said documents has any
relation to a medical finding of disability, and the grant of the
discount is allegedly without any process for the determination of a
PWD in accordance with law.

Section 32 of R.A. No. 7277, as amended by R.A. No. 9442, must be
read with its IRR which stated that upon its effectivity, NCWDP
(which is the government agency tasked to ensure the
implementation of RA 7277), would adopt the IDC issued by the
local government units for purposes of uniformity in the
implementation.39 Thus, NCDA A.O. No. 1 provides the reasonable
guidelines in the issuance of IDCs to PWDs as proof of their
entitlement to the privileges and incentives under the law40 and fills
the details in the implementation of the law.
As stated in NCDA A.O. No. 1, before an IDC is issued by the city or
municipal mayor or the barangay captain,41 or the Chairman of the
NCDA,42 the applicant must first secure a medical certificate issued
by a licensed private or government physician that will confirm his
medical or disability condition. If an applicant is an employee with
apparent disability, a "certificate of disability" issued by the head of
the business establishment or the head of the non-governmental
organization is needed for him to be issued a PWD-IDC. For a
student with apparent disability, the "school assessment" issued by
the teacher and signed by the school principal should be presented
to avail of a PWD-ID.
Petitioners' insistence that Part IV (D) of NCDA Administrative Order
No. 1 is void because it allows allegedly non-competent persons like
teachers, head of establishments and heads of Non-Governmental
Organizations (NGOs) to confirm the medical condition of the
applicant is misplaced. It must be stressed that only for apparent
disabilities can the teacher or head of a business establishment
validly issue the mentioned required document because, obviously,
the disability is easily seen or clearly visible. It is, therefore, not an
unqualified grant of authority for the said non-medical persons as it
is simply limited to apparent disabilities. For a non-apparent
disability or a disability condition that is not easily seen or clearly
visible, the disability can only be validated by a licensed private or
government physician, and a medical certificate has to be presented
in the procurement of an IDC. Relative to this issue, the CA validly
ruled, thus:ChanRoblesVirtualawlibrary
We agree with the Office of the Solicitor General's (OSG)
ratiocination that teachers, heads of business establishments and
heads of NGOs can validly confirm the medical condition of their
students/employees with apparent disability for obvious reasons as
compared to non-apparent disability which can only be determined
by licensed physicians. Under the Labor Code, disabled persons are
eligible as apprentices or learners provided that their handicap are
not as much as to effectively impede the performance of their job.
We find that heads of business establishments can validly issue
certificates of disability of their employees because aside from the
fact that they can obviously validate the disability, they also have
medical records of the employees as a pre-requisite in the hiring of
employees. Hence, Part IV (D) of NCDA AO No. 1 is logical and
valid.43chanroblesvirtuallawlibrary
Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines
for the 20% discount in the purchase of all medicines for the
exclusive use of PWD.44 To avail of the discount, the PWD must not
only present his I.D. but also the doctor's prescription stating,
among others, the generic name of the medicine, the physician's
address, contact number and professional license number,
professional tax receipt number and narcotic license number, if
applicable. A purchase booklet issued by the local social/health
office is also required in the purchase of over-the-counter
medicines. Likewise, any single dispensing of medicine must be in
accordance with the prescription issued by the physician and should
not exceed a one (1) month supply. Therefore, as correctly argued
by the respondents, Section 32 of R.A. No. 7277 as amended by R.A.
No. 9442 complies with the standards of substantive due process.
We are likewise not persuaded by the argument of petitioners that
the definition of "disabilities" under the subject laws is vague and
ambiguous because it is allegedly so general and broad that the
person tasked with implementing the law will undoubtedly arrive at
different interpretations and applications of the law. Aside from the
definitions of a "person with disability" or "disabled persons" under
Section 4 of R.A. No. 7277 as amended by R.A. No. 9442 and in the
IRR of RA 9442, NCDA A.O. No. 1 also
provides:ChanRoblesVirtualawlibrary
Identification Cards shall be issued to any bonafide PWD with
permanent disabilities due to any one or more of the following
conditions: psychosocial, chronic illness, learning, mental, visual,
orthopedic, speech and hearing conditions. This includes persons
suffering from disabling diseases resulting to the person's limitations
to do day to day activities as normally as possible such as but not
limited to those undergoing dialysis, heart disorders, severe cancer
cases and such other similar cases resulting to temporary or
permanent disability.45
Similarly, DOH A.O. No. 2009-0011 defines the different categories
of disability as follows:ChanRoblesVirtualawlibrary
Rule IV, Section 4, Paragraph B of the Implementing Rules and
Regulations (IRR) of this Act required the Department of Health to
address the health concerns of seven (7) different categories of
disability, which include the following: (1) Psychological and
behavioral disabilities (2) Chronic illness with disabilities
(3)Learning(cognitive or intellectual) disabilities (4) Mental
disabilities (5) Visual/seeing disabilities (6) Orthopedic/moving, and
(7) communication deficits.46chanroblesvirtuallawlibrary
Elementary is the rule that when laws or rules are clear, when the
law is unambiguous and unequivocal, application not interpretation
thereof is imperative. However, where the language of a statute is
vague and ambiguous, an interpretation thereof is resorted to. A law
is deemed ambiguous when it is capable of being understood by
reasonably well-informed persons in either of two or more senses.
The fact that a law admits of different interpretations is the best
evidence that it is vague and ambiguous.47chanrobleslaw
In the instant case, We do not find the aforestated definition of
terms as vague and ambiguous. Settled is the rule that courts will
not interfere in matters which are addressed to the sound discretion
of the government agency entrusted with the regulation of activities
coming under the special and technical training and knowledge of
such agency.48 As a matter of policy, We accord great respect to the
decisions and/or actions of administrative authorities not only
because of the doctrine of separation of powers but also for their
presumed knowledge, ability, and expertise in the enforcement of
laws and regulations entrusted to their jurisdiction. The rationale for
this rule relates not only to the emergence of the multifarious needs
of a modern or modernizing society and the establishment of
diverse administrative agencies for addressing and satisfying those
needs; it also relates to the accumulation of experience and growth
of specialized capabilities by the administrative agency charged with
implementing a particular statute.49chanrobleslaw
Lastly, petitioners contend that R.A. No. 7227, as amended by R.A.
No. 9442, violates the equal protection clause of the Constitution
because it fairly singles out drugstores to bear the burden of the
discount, and that it can hardly be said to "rationally" meet a
legitimate government objective which is the purpose of the law.
The law allegedly targets only retailers such as petitioners, and that
the other enterprises in the drug industry are not imposed with
similar burden. This same argument had been raised in the case of
Carlos Superdrug Corp., et al. v. DSWD, et al.,50 and We reaffirm
and apply the ruling therein in the case at
bar:ChanRoblesVirtualawlibrary
The Court is not oblivious of the retail side of the pharmaceutical
industry and the competitive pricing component of the business.
While the Constitution protects property rights, petitioners must
accept the realities of business and the State, in the exercise of
police power, can intervene in the operations of a business which
may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article
XIII of the Constitution provides the precept for the protection of
property, various laws and jurisprudence, particularly on agrarian
reform and the regulation of contracts and public utilities,
continuously serve as a reminder that the right to property can be
relinquished upon the command of the State for the promotion of
public good.51chanroblesvirtuallawlibrary
Under the equal protection clause, all persons or things similarly
situated must be treated alike, both in the privileges conferred and
the obligations imposed. Conversely, all persons or things differently
situated should be treated differently.52 In the case of ABAKADA
Guro Party List, et al. v. Hon. Purisima, et al.,53 We
held:ChanRoblesVirtualawlibrary
Equality guaranteed under the equal protection clause is equality
under the same conditions and among persons similarly situated; it
is equality among equals, not similarity of treatment of persons who
are classified based on substantial differences in relation to the
object to be accomplished. When things or persons are different in
fact or circumstance, they may be treated in law differently. In
Victoriano v. Elizalde Rope Workers' Union, this Court
declared:ChanRoblesVirtualawlibrary
The guaranty of equal protection of the laws is not a guaranty of
equality in the application of the laws upon all citizens of the State.
It is not, therefore, a requirement, in order to avoid the
constitutional prohibition against inequality, that every man, woman
and child should be affected alike by a statute. Equality of operation
of statutes does not mean indiscriminate operation on persons
merely as such, but on persons according to the circumstances
surrounding them. It guarantees equality, not identity of rights. The
Constitution does not require that things which are different in fact
be treated in law as though they were the same. The equal
protection clause does not forbid discrimination as to things that are
different. It does not prohibit legislation which is limited either in
the object to which it is directed or by the territory within which it is
to operate.
The equal protection of the laws clause of the Constitution allows
classification. Classification in law, as in the other departments of
knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain particulars.
A law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that
the mere fact of inequality in no manner determines the matter of
constitutionality. All that is required of a valid classification is that it
be reasonable, which means that the classification should be based
on substantial distinctions which make for real differences, that it
must be germane to the purpose of the law; that it must not be
limited to existing conditions only; and that it must apply equally to
each member of the class. This Court has held that the standard is
satisfied if the classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of
enacting laws over matters within its jurisdiction, the state is
recognized as enjoying a wide range of discretion. It is not necessary
that the classification be based on scientific or marked differences of
things or in their relation. Neither is it necessary that the
classification be made with mathematical nicety. Hence, legislative
classification may in many cases properly rest on narrow
distinctions, for the equal protection guaranty does not preclude the
legislature from recognizing degrees of evil or harm, and legislation
is addressed to evils as they may appear.
The equal protection clause recognizes a valid classification, that is,
a classification that has a reasonable foundation or rational basis
and not arbitrary.54 With respect to R.A. No. 9442, its expressed
public policy is the rehabilitation, self-development and self-reliance
of PWDs. Persons with disability form a class separate and distinct
from the other citizens of the country. Indubitably, such substantial
distinction is germane and intimately related to the purpose of the
law. Hence, the classification and treatment accorded to the PWDs
fully satisfy the demands of equal protection. Thus, Congress may
pass a law providing for a different treatment to persons with
disability apart from the other citizens of the country.
Subject to the determination of the courts as to what is a proper
exercise of police power using the due process clause and the equal
protection clause as yardsticks, the State may interfere wherever
the public interests demand it, and in this particular, a large
discretion is necessarily vested in the legislature to determine, not
only what interests of the public require, but what measures are
necessary for the protection of such interests.55 Thus, We are
mindful of the fundamental criteria in cases of this nature that all
reasonable doubts should be resolved in favor of the
constitutionality of a statute.56 The burden of proof is on him who
claims that a statute is unconstitutional. Petitioners failed to
discharge such burden of proof.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals dated July 26, 2010, and the Resolution dated November
19, 2010, in CA-G.R. SP No. 109903 are AFFIRMED.
SO ORDERED.
National Federation of Independent Business v. Sebelius,
567 U.S. 519 (2012)
Brief Fact Summary. The constitutionality of the Affordable Care Act
was challenged by an attack on the "individual mandate," requiring
individuals to purchase at least minimal health insurance coverage.
Synopsis of Rule of Law. The individual mandate portion of the
Affordable Care Act, requiring individuals to purchase a health
insurance policy providing a minimum level of coverage, is a tax and
therefore does not violate the Constitution.
Facts. [The procedural history is based on a series of federal lawsuits
by the State of Florida and others (including the National Federation
of Independent Business) (Collectively "Plaintiffs") (Plaintiff) against
the United States Department of Health and Human Services
(Federal Government) (Defendant) challenging the constitutionality
of the Affordable Care Act (the Act), specifically the "individual
mandate," which required that all individuals purchase a health
insurance policy providing a minimum level of coverage.] The
district court ruled the provision was unconstitutional and, because
it could not be severed from the body of the act, caused the entire
act to be invalid. The Federal Government (Defendant) then
appealed to the Eleventh Circuit, which affirmed the district court"s
ruling, but allowed that portion to be severed and upheld the
constitutionality of the remainder of the Act. The Plaintiffs and the
Federal Government (Defendant) then sought review of the
Eleventh Circuit"s decision by the United States Supreme Court.
Issue. Does the individual mandate portion of the Affordable Care
Act, requiring individuals to purchase a health insurance policy
providing a minimum level of coverage violate the Constitution?
Held. (Roberts, C.J.) No. The individual mandate portion of the
Affordable Care Act, requiring individuals to purchase a health
insurance policy providing a minimum level of coverage, is a tax and
therefore does not violate the Constitution. Today the Court
resolves a constitutional challenge to a provision of the Patient
Protection and Affordable Care Act of 2010: the individual mandate,
which requires individuals to purchase a health insurance policy
providing a minimum level of coverage. The Court does not consider
whether the Act embodies sound policies; rather, that judgment is
entrusted to the elected leaders of the nation. The Court asks only
whether Congress has the power under the Constitution to enact
the challenged provision. This case concerns two powers that the
Constitution does grant the Federal Government (Defendant), but
which must be read carefully to avoid creating a general federal
authority similar to police power. Congress is authorized by the
Constitution to "regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes." Our
precedents read that to mean that Congress may regulate the
"channels of interstate commerce," "persons or things in interstate
commerce," and "those activities that substantially affect interstate
commerce." The power can be expansive over activities that
substantially affect interstate commerce. Congress may also "lay
and collect Taxes, Duties, Imposts and Excises, to pay the Debts and
provide for the common Defense and general Welfare of the United
States." In other words, Congress may tax and spend. This grant
gives the Federal Government (Defendant) considerable influence
even in areas where it cannot directly regulate. The Federal
Government (Defendant) may enact a tax on an activity that it
cannot authorize, forbid, or otherwise control.
The reach of the Federal Government"s (Defendant) many powers
is even broader because the Constitution authorizes Congress to
"make all Laws which shall be necessary and proper for carrying into
Execution the foregoing powers." However, our respect to matters
of policy cannot become abdication in matters of law. "The powers
of the legislature are defined and limited; and that those limits may
not be mistaken, or forgotten, the constitution is written." We
cannot extend our respect for the policy judgments of Congress so
far that we disregard the restraints on federal power that were
constructed by the Constitution. And it must be clear that it is this
Court"s responsibility to enforce limits on federal power by striking
down acts of Congress that violate those limits.
The Federal Government"s (Defendant) first argument is that the
individual mandate is a legitimate exercise of Congress"s power
under the Commerce Clause and the Necessary and Proper Clause.
According to the Government, the health care market is
characterized by a significant cost-shifting problem. Eventually
everyone will need health care, the time and extent cannot be
predicted, but if they do not have insurance, they will often not be
able to pay for it. However, state and federal laws require hospitals
to provide a certain degree of care to individuals regardless of their
ability to pay, and the hospitals end up receiving compensation for
only a portion of the services they provide. In order to recover the
losses, hospitals pass on the cost to insurers through higher rates,
and insurers then pass on the cost to policyholders by charging
higher premiums. Congress estimated that the cost of
uncompensated care causes family health insurance premiums, on
average, to rise by over $1,000.00 per year.
Congress addressed the problem of those unable to obtain
insurance coverage due to preexisting conditions or other health
issues in the Affordable Care Act. It did so through the Act"s
"guaranteed-issue" and "community-rating" provisions. Together
these provisions prohibit insurance companies from denying
coverage to those with such conditions or charging higher premiums
to unhealthy individuals than healthy individuals. However, the
guaranteed-issue and community-rating reforms do not address the
issue of healthy individuals who decide not to purchase insurance to
cover potential health care needs. In fact, that problem is sharply
worsened by the reforms because they provide an incentive for
individuals to delay purchasing health insurance until they become
sick, relying on the promise of guaranteed and affordable coverage.
Also, the reforms threaten to impose massive new costs on insurers,
who are required to accept unhealthy individuals but are prohibited
from charging them the rates necessary to pay for their coverage.
This will lead insurers to increase premiums for everyone
significantly.
The individual mandate was Congress"s solution to those
problems. By requiring that individuals purchase health insurance,
the mandate prevents cost-shifting by those who would otherwise
go without it. Additionally, the mandate forces more healthy
individuals into the insurance risk pool, whose premiums on average
will be higher than their health care expenses. This allows insurers
to subsidize the costs of covering the unhealthy individuals they are
required to accept due to the reforms.
The Federal Government (Defendant) contends that the individual
mandate is within the power of Congress because failing to purchase
insurance "has a substantial and deleterious effect on interstate
commerce" by creating the cost-shifting problem. The path of our
Commerce Clause decisions has not always run, but it is now well
established that Congress has broad authority under the Clause. For
example, this Court has recognized that "[t]he power of Congress
over interstate commerce is not confined to the regulation of
commerce among the states," but extends to activities that "have a
substantial effect on interstate commerce." Moreover, the power of
Congress is not limited to regulating an activity that by itself
substantially affects interstate commerce, but also extends to
activities that do so only when combined with similar activities of
others.
Congress was granted power to "regulate Commerce" by the
Constitution. The power to regulate commerce presumes the
existence of commercial activity to be regulated. As expansive as
our cases construing the scope of the commerce power have been,
they all have one thing in common: They uniformly describe the
power as reaching "activity." However, the individual mandate does
not regulate existing commercial activity. It instead compels
individuals to become active in commerce by purchasing a product,
on the grounds that by failing to do so, they affect interstate
commerce. Construing the Commerce Clause to allow Congress to
regulate individuals precisely because they are doing nothing would
open a new and potentially vast domain to congressional authority.
Each day individuals do not do any number of things. In some cases
they decide not to do something and in other cases they simply fail
to do it. Allowing Congress to justify federal regulation by pointing
to the effect of inaction on commerce would bring limitless
decisions an individual could potentially make within the scope of
federal regulation, and—under the Federal Government"s
(Defendant) theory—give Congress power to make those decisions
for him.
The Federal Government"s (Defendant) logic would justify a
mandatory purchase to solve almost any problem. Another example
to consider in the health care market is that many Americans do not
eat a balanced diet. That group makes up a larger percentage of the
total population than those without health insurance. The failure of
that group to heave a healthy diet increases health care costs, to a
greater extent than the failure of the uninsured to purchase
insurance. Americans are the ones who must bear those increased
costs and pay more, just as the uninsured shift costs to the insured.
Congress addressed the insurance problem by ordering everyone to
purchase insurance. Under the Federal Government"s (Defendant)
theory, Congress could order everyone to buy vegetables to address
the diet problem. For reasons of their own, people often fail to do
things that would be good for them or good for society. Interstate
commerce can readily be substantially affected by those failures,
joined with the similar failures of others. Under the logic of the
Federal Government (Defendant), that authorizes Congress to use its
commerce power to compel citizens to act as the Federal
Government (Defendant) would have them act.
That is not the country envisioned by the Framers of our
Constitution. While the authority of Congress has expanded under
the Commerce Clause with the growth of the national economy, our
cases have "always recognized that the power to regulate
commerce, though broad indeed, has limits." The Federal
Government"s (Defendant) theory would erode those limits,
permitting Congress to reach beyond the natural extent of its
authority, "everywhere extending the sphere of its activity and
drawing all power into its impetuous vortex." Congress already has
vast power to regulate much of what we do. Accepting the Federal
Government"s (Defendant) theory would give Congress the same
license to regulate what we do not do, which would fundamentally
change the relationship between the Federal government and the
citizen.
There is no link between existing commercial activity and the
individual mandate"s regulation of the uninsured as a class. The
mandate primarily affects healthy, often young adults who have less
chance of needing significant health care and can spend their money
on other priorities. It is exactly because these people, as an
actuarial class, experience relatively low costs for health care, that
the mandate helps offset the effect of forcing insurance companies
to cover others who impose greater costs than their premiums are
allowed to reflect. If the individual mandate is targeted to a specific
class, it is a class whose commercial inactivity is its defining feature,
rather than its activity. The Commerce Clause is not a general
license to regulate a person from birth to death, just because he will
predictably engage in particular transactions. Only the states have
the right of police powers to regulate individuals" inactivity, rather
than their activity.
The Federal Government (Defendant) next argues that Congress
has the power under the Necessary and Proper Clause to enact the
individual mandate because the mandate is an "integral part of a
comprehensive scheme of economic regulation"—the guaranteed-
issue and community-rating insurance reforms. Under this
argument, it is not necessary to consider the effect that a person"s
inactivity may have on interstate commerce; it is sufficient that
Congress regulate commercial activity in a way that requires
regulation of inactivity to be effective.
The power to "make all Laws which shall be necessary and proper
for carrying into Execution" the powers enumerated in the
Constitution, vests Congress with authority to enact provisions
"incidental to the [enumerated] power, and conducive to its
beneficial exercise." The Clause may give Congress authority to
"legislate on that vast mass of incidental powers which must be
involved in the constitution," but it does not license the exercise of
any "great and substantive and independent power[s]" except for
those specifically enumerated. Instead, the Clause is ""merely a
declaration, for the removal of all uncertainty, that the means of
carrying into execution those [powers] otherwise granted are
included in the grant.""
The individual mandate cannot be sustained under the Necessary
and Proper Clause as an essential component of the insurance
reforms. Each of our prior cases upholding laws under that Clause
involved exercises of authority the same as, and in service to, a
granted power. For example, we have upheld provisions permitting
continued confinement of those already in federal custody when
they could not be safely released, criminalizing bribes involving
organizations receiving federal funds, and pronouncing state
statutes of limitations while cases are pending in federal court. By
contrast, the individual mandate gives to Congress the extraordinary
ability to create the necessary predicate to the exercise of an
enumerated power. Just as the individual mandate cannot be
sustained as a law regulating the significant effects of failing to
purchase health insurance, neither can it be upheld as a "necessary
and proper" component of the insurance reforms. The commerce unconstitutional under theories advanced under the Commerce
power therefore does not authorize the mandate. Clause or the Necessary and Proper Clause. The provision was a
The matter does not end there. Because the Commerce Clause proper "tax," which afforded the Federal Government (Defendant)
does not support the individual mandate, it is necessary to turn to wide latitude in assessing a financial burden for failing to engage in
the Federal Government"s (Defendant) second argument: that the an activity, such as purchasing health insurance. There was wide
mandate may be upheld as within Congress"s enumerated power to outcry that this was counter-intuitive because the government
"lay and collect Taxes." The Federal Government"s (Defendant) tax cannot generally compel people to do something they do not wish
power argument asks us to view the statute differently than this to do. The dissenting opinions concluded the mandate was invalid
Court did in considering its theory on commerce power. In making and could not be severed from the rest of the Act, causing it to fail
the Commerce Clause argument, the Federal Government totally. Commentators noted that the majority"s opinion re-
(Defendant) defended the mandate as a regulation requiring asserted the Court"s ability to review congressional acts and
individuals to purchase health insurance. The Federal Government interestingly disregarded the Federal Government"s (Defendant)
(Defendant) does not claim that the taxing power allows Congress to main arguments that the Act was proper, and instead called
issue such a command. Rather, the Federal Government attention to the fact that it was a (politically unpopular) tax.
(Defendant) asks that we read the mandate as imposing a tax on
people who do not buy insurance, rather than an order requiring
them to do so.
Under the mandate, if a person does not maintain health
insurance, the only consequence is that he must make an additional
payment to the Internal Revenue Service (IRS) when he pays his
taxes. According to the Federal Government (Defendant), that
means the mandate is not a legal command to buy insurance.
Instead, it makes going without insurance just another thing the
Federal Government (Defendant) taxes, such as buying gasoline or
earning income. And if the mandate is in effect just a tax hike on
specific taxpayers who do not have health insurance, it may be
within the constitutional power of Congress to tax.
In many respects, the fine the Affordable Care Act imposes on
individuals without health insurance looks like a tax. The "[s]hared
responsibility payment," as the statute entitles it, is paid into the
Treasury by "tax-payer[s]" when they file their tax returns. It does
not apply to those who do not pay federal income taxes because
their household income is under the filing threshold in the Internal
Revenue Code. For taxpayers who do owe the payment, the amount
is determined by such familiar factors as taxable income, number of
dependents, and joint filing status. The requirement to pay is found
in the Internal Revenue Code and is enforced by the IRS, which, as
we previously explained, must assess and collect it "in the same
manner as taxes." This process yields the essential feature of any
tax: it produces at least some revenue for the Federal Government
(Defendant).
For constitutional purposes, this analysis suggests that the shared
responsibility payment be considered a tax, not a penalty. First, for
most Americans the amount due will be much less than the price of
insurance, and, according to statute, it can never be more. It may
often be a reasonable financial decision to make the payment rather
than purchase insurance, unlike the "prohibitory" financial
punishment. Second, the individual mandate does not contain a
scienter requirement. Third, the payment is collected by the IRS
alone through the normal means of taxation—except that the IRS is
not allowed to use those means most suggestive of a punitive
sanction, such as criminal prosecution.
In distinguishing penalties from taxes, this Court has explained
that "if the concept of penalty means anything, it means punishment
for an unlawful act or omission." While the individual mandate
clearly aims to encourage the purchase of health insurance, it does
not need to be read to declare that failing to do so is unlawful.
Neither the Act nor any other law attaches negative legal
consequences to not buying health insurance, beyond requiring a
payment to the IRS. The Federal Government (Defendant) agrees
with that reading, confirming that if someone chooses to pay
instead of obtaining health insurance, they have complied fully with
the law.
The Act requires that certain people pay a financial penalty for not
purchasing health insurance and may reasonably be characterized as
a tax. Because the Constitution allows such a tax, it is not our role to
forbid it, or to judge its fairness or wisdom. The Federal
Government (Defendant) does not have the power to order people
to buy health insurance. The Federal Government (Defendant) does
have the power to impose a tax on those who do not do so.
Therefore, the Act is constitutional, because it can reasonably be
read as a tax. The decision of the Eleventh Circuit is affirmed in part
and reversed in part.

Discussion. The majority"s opinion (5-4) revealed the fact that the
"individual mandate" portion of the Affordable Care Act was