G.R. No. 120082 September 11, 1996 established in the Province of Cebu . . . (Sec.
f Cebu . . . (Sec. 3, exempt it from payment of realty taxes. It was
MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as
the Presiding Judge of the Regional Trial Court,
Branch 20, Cebu City, THE CITY OF CEBU,
represented by its Mayor HON. TOMAS R.
OSMEÑA, and EUSTAQUIO B.
CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court
on a pure question of law are the decision of 22
March 19951 of the Regional Trial Court (RTC) of
Cebu City, Branch 20, dismissing the petition for
declaratory relief in Civil Case No. CEB-16900
entitled "Mactan Cebu International Airport
Authority vs. City of Cebu", and its order of 4,
May 19952 denying the motion to reconsider the
decision.
We resolved to give due course to this petition
for its raises issues dwelling on the scope of the
taxing power of local government-owned and
controlled corporations.
The uncontradicted factual antecedents are
summarized in the instant petition as follows:
Petitioner Mactan Cebu International Airport
Authority (MCIAA) was created by virtue of
Republic Act No. 6958, mandated to "principally
undertake the economical, efficient and
effective control, management and supervision
of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu
City, . . . and such other Airports as may be
RA 6958). It is also mandated to:
a) encourage, promote and develop
international and domestic air traffic in the
Central Visayas and Mindanao regions as a
means of making the regions centers of
international trade and tourism, and
accelerating the development of the means of
transportation and communication in the
country; and
b) upgrade the services and facilities of the
airports and to formulate internationally
acceptable standards of airport accommodation
and service.
Since the time of its creation, petitioner MCIAA
enjoyed the privilege of exemption from
payment of realty taxes in accordance with
Section 14 of its Charter.
Sec. 14. Tax Exemptions. — The authority shall
be exempt from realty taxes imposed by the
National Government or any of its political
subdivisions, agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B.
Cesa, Officer-in-Charge, Office of the Treasurer
of the City of Cebu, demanded payment for
realty taxes on several parcels of land belonging
to the petitioner (Lot Nos. 913-G, 743, 88 SWO,
948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-
F, 941, 942, 947, 77 Psd., 746 and 991-A), located
at Barrio Apas and Barrio Kasambagan, Lahug,
Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment
as baseless and unjustified, claiming in its favor
the aforecited Section 14 of RA 6958 which
also asserted that it is an instrumentality of the
government performing governmental
functions, citing section 133 of the Local
Government Code of 1991 which puts limitations
on the taxing powers of local government units:
Sec. 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 barangay shall not extend to the levy of the
following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities, and local government units.
(Emphasis supplied)
Respondent City refused to cancel and set aside
petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation
whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of
the Local Governmental Code that took effect on
January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege.
— 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 RA
No. 6938, non-stock, and non-profit hospitals
and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
(Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes.
—...
(a) . . .
xxx xxx xxx
(c) . . .
Except as provided herein, any exemption from
payment of real property tax previously granted
to, or presently enjoyed by all persons, whether
natural or juridical, including government-
owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant
of levy against the properties of petitioner, the
latter was compelled to pay its tax account
"under protest" and thereafter filed a Petition
for Declaratory Relief with the Regional Trial
Court of Cebu, Branch 20, on December 29,
1994. MCIAA basically contended that the taxing
powers of local government units do not extend
to the levy of taxes or fees of any kind on
an instrumentality of the national government.
Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless
stands on the same footing as an agency or
instrumentality of the national government.
Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless
stands on the same footing as an agency or
instrumentality of the national government by
the very nature of its powers and functions.
Respondent City, however, asserted that
MACIAA is not an instrumentality of the
government but merely a government-owned
corporation performing proprietary functions As
such, all exemptions previously granted to it
were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the
Local Government Code when it took effect on
January 1, 1992.3
The petition for declaratory relief was docketed
as Civil Case No. CEB-16900.
In its decision of 22 March 1995,4 the trial court
dismissed the petition in light of its findings, to
wit:
A close reading of the New Local Government
Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of
taxes by government owned and controlled
corporation per Sections after the effectivity of
said Code on January 1, 1992, to wit: [proceeds
to quote Sections 193 and 234]
Petitioners claimed that its real properties
assessed by respondent City Government of
Cebu are exempted from paying realty taxes in
view of the exemption granted under RA 6958 to
pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All
general and special laws, acts, city charters,
decress [sic], executive orders, proclamations
and administrative regulations, or part or parts
thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or
modified accordingly." ([f], Section 534, RA
7160).
With that repealing clause in RA 7160, it is safe
to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had
been expressly repealed by the provisions of the
New Local Government Code of 1991.
So that petitioner in this case has to pay the
assessed realty tax of its properties effective
after January 1, 1992 until the present.
This Court's ruling finds expression to give
impetus and meaning to the overall objectives of
the New Local Government Code of 1991, RA
7160. "It is hereby declared the policy of the
State that the territorial and political
subdivisions of the State shall enjoy genuine and
meaningful local autonomy to enable them to
attain their fullest development as self-reliant
communities and make them more effective
partners in the attainment of national goals.
Towards this end, the State shall provide for a
more responsive and accountable local
government structure instituted through a
system of decentralization whereby local
government units shall be given more powers,
authority, responsibilities, and resources. The
process of decentralization shall proceed from
the national government to the local
government units. . . .5
Its motion for reconsideration having been
denied by the trial court in its 4 May 1995 order,
the petitioner filed the instant petition based on
the following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO
RULE THAT THE PETITIONER IS VESTED WITH
GOVERNMENT POWERS AND FUNCTIONS
WHICH PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY
TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner
asserts that although it is a government-owned
or controlled corporation it is mandated to
perform functions in the same category as an
instrumentality of Government. An
instrumentality of Government is one created to
perform governmental functions primarily to
promote certain aspects of the economic life of
the people.6 Considering its task "not merely to
efficiently operate and manage the Mactan-
Cebu International Airport, but more
importantly, to carry out the Government
policies of promoting and developing the Central
Visayas and Mindanao regions as centers of
international trade and tourism, and
accelerating the development of the means of
transportation and communication in the
country,"7 and that it is an attached agency of
the Department of Transportation and
Communication (DOTC),8 the petitioner "may
stand in [sic] the same footing as an agency or
instrumentality of the national government."
Hence, its tax exemption privilege under Section
14 of its Charter "cannot be considered
withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC)
because Section 133 thereof specifically states
that the taxing powers of local government units
shall not extend to the levy of taxes of fees or
charges of any kind on the national government
its agencies and instrumentalities."
As to the second assigned error, the petitioner
contends that being an instrumentality of the
National Government, respondent City of Cebu
has no power nor authority to impose realty
taxes upon it in accordance with the aforesaid
Section 133 of the LGC, as explained in Basco
vs. Philippine Amusement and Gaming
Corporation;9
Local governments have no power to tax
instrumentalities of the National Government.
PAGCOR is a government owned or controlled
corporation with an original character, PD 1869.
All its shares of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and regulate
gambling casinos. The latter joke 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.
The states have no power by taxation or
otherwise, to retard, impede, burden or in any
manner control the operation of constitutional
laws enacted by Congress to carry into execution
the powers vested in the federal government.
(McCulloch v. Maryland, 4 Wheat 316, 4 L Ed.
579).
This doctrine emanates from the "supremacy" of
the National Government over local government.
Justice Holmes, speaking for the Supreme Court,
make references 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 to seriously burden it in the
accomplishment of them. (Antieau Modern
Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat
National policies thru extermination of what
local authorities may perceive to be undesirable
activities or enterprise using the power to tax as
"a toll for regulation" (U.S. v. Sanchez, 340 US
42). The power to tax which was called by Justice
Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity
which has the inherent power to wield it.
(Emphasis supplied)
It then concludes that the respondent Judge
"cannot therefore correctly say that the
questioned provisions of the Code do not
contain any distinction between a governmental
function as against one performing merely
proprietary ones such that the exemption
privilege withdrawn under the said Code would
apply to all government corporations." For it is
clear from Section 133, in relation to Section
234, of the LGC that the legislature meant to
exclude instrumentalities of the national
government from the taxing power of the local
government units.
In its comment respondent City of Cebu alleges
that as local a government unit and a political
subdivision, it has the power to impose, levy,
assess, and collect taxes within its jurisdiction.
Such power is guaranteed by the
Constitution10 and enhanced further by the LGC.
While it may be true that under its Charter the
petitioner was exempt from the payment of
realty taxes,11 this exemption was withdrawn by
Section 234 of the LGC. In response to the
petitioner's claim that such exemption was not
repealed because being an instrumentality of
the National Government, Section 133 of the
LGC prohibits local government units from
imposing taxes, fees, or charges of any kind on it,
respondent City of Cebu points out that the
petitioner is likewise a government-owned
corporation, and Section 234 thereof does not
distinguish between government-owned
corporation, and Section 234 thereof does not
distinguish between government-owned
corporation, and Section 234 thereof does not
distinguish between government-owned or
controlled corporations performing
governmental and purely proprietary functions.
Respondent city of Cebu urges this the Manila
International Airport Authority is a exemption
12
governmental-owned corporation, and to
reject the application of Basco because it was
"promulgated . . . before the enactment and the
singing into law of R.A. No. 7160," and was not,
therefore, decided "in the light of the spirit and
intention of the framers of the said law.
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 are to
pay it. Nevertheless, effective limitations
thereon may be imposed by the people through
their Constitutions.13 Our Constitution, for
instance, provides that the rule of taxation shall
be uniform and equitable and Congress shall
evolve a progressive system of taxation.14 So
potent indeed is the power that it was once
opined that "the power to tax involves the power
to destroy."15 Verily, taxation is a destructive
power which interferes with the personal and
property for the support of the government.
Accordingly, tax statutes must be construed
strictly against the government and liberally in
favor of the taxpayer.16 But since taxes are what
we pay for civilized society,17 or are the lifeblood
of the nation, the law frowns against exemptions
from taxation and statutes granting tax
exemptions are thus construed strictissimi
juris against the taxpayers and liberally in favor
of the taxing authority.18 A claim of exemption
from tax payment must be clearly shown and
based on language in the law too plain to be
mistaken.19 Elsewise stated, taxation is the rule,
therefrom is the
20
exception. However, if the grantee of the
exemption is a political subdivision or
instrumentality, the rigid rule of construction
does not apply because the practical effect of the
exemption is merely to reduce the amount of
money that has to be handled by the
government in the course of its operations.21
The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by
Section 5, Article X of the Constitution.22 Under
the latter, the exercise of the power may be
subject to such guidelines and limitations as the
Congress may provide which, however, must be
consistent with the basic policy of local
autonomy.
There can be no question that under Section 14
of R.A. No. 6958 the petitioner is exempt from
the payment of realty taxes imposed by the
National Government or any of its political
subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and
exemption therefrom the exception, the
exemption may thus be withdrawn at the
pleasure of the taxing authority. The only
exception to this rule is where the exemption
was granted to private parties based on material
consideration of a mutual nature, which then
becomes contractual and is thus covered by the
non-impairment clause of the Constitution.23
The LGC, enacted pursuant to Section 3, Article X
of the constitution provides for the exercise by
local government units of their power to tax, the
scope thereof or its limitations, and the
exemption from taxation.
Section 133 of the LGC prescribes the common
limitations on the taxing powers of local
government units as follows:
Sec. 133. Common Limitations on the Taxing
Power 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 vessels
and wharfage 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 imposition
upon goods carried into or out of, or passing
through, the territorial jurisdictions of local
government units in the guise or charges for
wharfages, 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 enterprise certified to be
the Board of Investment 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
contractor and person engage in the
transportation of passengers of freight by hire
and common carriers by air, land, or water,
except as provided in this code;
(k) Taxes on premiums paid by ways 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 of thereof,
except, tricycles;
(m) Taxes, fees, or other charges on Philippine
product actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprise 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; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON
THE NATIONAL GOVERNMENT, ITS AGENCIES
AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent
in this case. The "taxes, fees or charges" referred
to are "of any kind", hence they include all of
these, unless otherwise provided by the LGC. The
term "taxes" is well understood so as to need no
further elaboration, especially in the light of the
above enumeration. The term "fees" means
charges fixed by law or Ordinance for the
regulation or inspection of business
24
activity, while "charges" are pecuniary
liabilities such as rents or fees against person or
property.25
Among the "taxes" enumerated in the LGC is real
property tax, which is governed by Section 232.
It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A
province or city or a municipality within the
Metropolitan Manila Area may levy on an
annual ad valorem tax on real property such as
land, building, machinery and other
improvements not hereafter specifically
exempted.
Section 234 of LGC provides for the exemptions
from payment of real property taxes and
withdraws previous exemptions therefrom
granted to natural and juridical persons,
including government owned and controlled
corporations, except as provided therein. It
provides:
Sec. 234. Exemptions from Real Property Tax. —
The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof had been
granted, for reconsideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages
or convents appurtenants thereto, mosques
nonprofits or religious cemeteries and all lands,
building and improvements actually, directly,
and exclusively used for religious charitable or
educational purposes;
(c) All machineries and equipment that are
actually, directly and exclusively used by local
water districts and government-owned or
controlled corporations engaged in the supply
and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No.
6938; and;
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemptions from
payment of real property tax previously granted
to or presently enjoyed by, all persons whether
natural or juridical, including all government
owned or controlled corporations are hereby
withdrawn upon the effectivity of his Code.
These exemptions are based on the ownership,
character, and use of the property. Thus;
(a) Ownership Exemptions. Exemptions from real
property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a
barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real
property taxes on the basis of their character
are: (i) charitable institutions, (ii) houses and
temples of prayer like churches, parsonages or
convents appurtenant thereto, mosques, and
(iii) non profit or religious cemeteries.
(c) Usage exemptions. Exempted from real
property taxes on the basis of the actual, direct
and exclusive use to which they are devoted are:
(i) all lands buildings and improvements which
are actually, directed and exclusively used for
religious, charitable or educational purpose; (ii)
all machineries and equipment actually, directly
and exclusively used or by local water districts or
by government-owned or controlled
corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power; and (iii) all
machinery and equipment used for pollution
control and environmental protection.
To help provide a healthy environment in the
midst of the modernization of the country, all
machinery and equipment for pollution control
and environmental protection may not be taxed
by local governments.
2. Other Exemptions Withdrawn. All other
exemptions previously granted to natural or
juridical persons including government-owned
or controlled corporations are withdrawn upon
the effectivity of the Code.26
Section 193 of the LGC is the general provision
on withdrawal of tax exemption privileges. It
provides:
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. 6938, non stock and non profit
hospitals and educational constitutions, are
hereby withdrawn upon the effectivity of this
Code.
On the other hand, the LGC authorizes local
government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption
Privileges. — Local government units may,
through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such
terms and conditions as they may deem
necessary.
The foregoing sections of the LGC speaks of: (a)
the limitations on the taxing powers of local
government units and the exceptions to such
limitations; and (b) the rule on tax exemptions
and the exceptions thereto. The use
of exceptions of provisos in these section, as
shown by the following clauses:
(1) "unless otherwise provided herein" in the
opening paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in
section 193;
(3) "not hereafter specifically exempted" in
Section 232; and
(4) "Except as provided herein" in the last
paragraph of Section 234
initially hampers a ready understanding of the
sections. Note, too, that the aforementioned
clause in section 133 seems to be inaccurately
worded. Instead of the clause "unless otherwise
provided herein," with the "herein" to mean, of
course, the section, it should have used the
clause "unless otherwise provided in this Code."
The former results in absurdity since the section
itself enumerates what are beyond the taxing
powers of local government units and, where
exceptions were intended, the exceptions were
explicitly indicated in the text. For instance, in
item (a) which excepts the income taxes "when
livied on banks and other financial institutions",
item (d) which excepts "wharfage on wharves
constructed and maintained by the local
government until concerned"; and item (1)
which excepts taxes, fees, and charges for the
registration and issuance of license or permits
for the driving of "tricycles". It may also be
observed that within the body itself of the
section, there are exceptions which can be found
only in other parts of the LGC, but the section
interchangeably uses therein the clause "except
as otherwise provided herein" as in items (c) and
(i), or the clause "except as otherwise provided
herein" as in items (c) and (i), or the clause
"excepts as provided in this Code" in item (j).
These clauses would be obviously unnecessary
or mere surplus-ages if the opening clause of the
section were" "Unless otherwise provided in this
Code" instead of "Unless otherwise provided
herein". In any event, even if the latter is used,
since under Section 232 local government units
have the power to levy real property tax, except
those exempted therefrom under Section 234,
then Section 232 must be deemed to qualify
Section 133.
Thus, reading together Section 133, 232 and 234
of the LGC, we conclude that as a general rule, as
laid down in Section 133 the taxing powers of
local government units cannot extend to the levy
of inter alia, "taxes, fees, and charges of any kind
of the National Government, its agencies and
instrumentalties, and local government units";
however, pursuant to Section 232, provinces,
cities, 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 used
thereof has been granted, for consideration or
otherwise, to a taxable person", as provided in
item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons,
including government-owned and controlled
corporations, Section 193 of the LGC prescribes
the general rule, viz., they are withdrawn upon
the effectivity of the LGC, except upon the
effectivity of the LGC, except those granted to
local water districts, cooperatives duly
registered under R.A. No. 6938, non stock and
non-profit hospitals and educational institutions,
and unless otherwise provided in the LGC. The
latter proviso could refer to Section 234, which
enumerates the properties exempt from real
property tax. But the last paragraph of Section
234 further qualifies the retention of the
exemption in so far as the real property taxes are
concerned by limiting the retention only to those
enumerated there-in; all others not included in
the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as the real
property is owned by the Republic of the
Philippines, or any of its political subdivisions
covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the
beneficial use of such property has been granted
to taxable person for consideration or otherwise.
Since the last paragraph of Section 234
unequivocally withdrew, upon the effectivity of
the LGC, exemptions from real property taxes
granted to natural or juridical persons, including
government-owned or controlled corporations,
except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its
exemption from such tax granted it in Section 14
of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be
justified if the petitioner can seek refuge under
any of the exceptions provided in Section 234,
but not under Section 133, as it now asserts,
since, as shown above, the said section is
qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the
general rule in Section 133 that the taxing
powers of the local government units cannot
extend to the levy of:
(o) taxes, fees, or charges of any kind on the
National Government, its agencies, or
instrumentalities, and local government units.
I must show that the parcels of land in question,
which are real property, are any one of those
enumerated in Section 234, either by virtue of
ownership, character, or use of the property.
Most likely, it could only be the first, but not
under any explicit provision of the said section,
for one exists. In light of the petitioner's theory
that it is an "instrumentality of the
Government", it could only be within be first
item of the first paragraph of the section by
expanding the scope of the terms Republic of the
Philippines" to embrace . . . . .
. "instrumentalities" and "agencies" or
expediency we quote:
(a) real property owned by the Republic of the
Philippines, or any 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.
This view does not persuade us. In the first place,
the petitioner's claim that it is an instrumentality
of the Government is based on Section 133(o),
which expressly mentions the word
"instrumentalities"; and in the second place it
fails to consider the fact that the legislature used
the phrase "National Government, its agencies
and instrumentalities" "in Section 133(o),but
only the phrase "Republic of the Philippines or
any of its political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and
"National Government" are not interchangeable.
The former is boarder and synonymous with
"Government of the Republic of the Philippines"
which the Administrative Code of the 1987
defines as the "corporate governmental entity
though which the functions of the government
are exercised through at the Philippines,
including, saves as the contrary appears from the
context, the various arms through which political
authority is made effective in the Philippines,
whether pertaining to the autonomous reason,
the provincial, city, municipal or barangay
subdivision or other forms of local
government."27 These autonomous regions,
provincial, city, municipal or barangay
subdivisions" are the political subdivision.28
On the other hand, "National Government"
refers "to the entire machinery of the central
government, as distinguished from the different
forms of local Governments."29 The National
Government then is composed of the three great
departments the executive, the legislative and
the judicial.30
An "agency" of the Government refers to "any of
the various units of the Government, including a
department, bureau, office instrumentality, or
government-owned or controlled corporation,
or a local government or a distinct unit
therein;"31 while an "instrumentality" refers to
"any agency of the National Government, not
integrated within the department framework,
vested with special functions or jurisdiction by
law, endowed with some if not all corporate
powers, administering special funds, and
enjoying operational autonomy; usually through
a charter. This term includes regulatory
agencies, chartered institutions and
government-owned and controlled
corporations".32
If Section 234(a) intended to extend the
exception therein to the withdrawal of the
exemption from payment of real property taxes
under the last sentence of the said section to the
agencies and instrumentalities of the National
Government mentioned in Section 133(o), then
it should have restated the wording of the latter.
Yet, it did not Moreover, that Congress did not
wish to expand the scope of the exemption in
Section 234(a) to include real property owned by
other instrumentalities or agencies of the
government including government-owned and
controlled corporations is further borne out by
the fact that the source of this exemption is
Section 40(a) of P.D. No. 646, otherwise known
as the Real Property Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. —
The exemption shall be as follows:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions and
any government-owned or controlled
corporations so exempt by is charter: Provided,
however, that this exemption shall not apply to
real property of the above mentioned entities
the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the
phrase "and any government-owned or
controlled corporation so exempt by its charter"
was excluded. The justification for this restricted
exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, specially
in light of the general provision on withdrawal of
exemption from payment of real property taxes
in the last paragraph of property taxes in the last
paragraph of Section 234. These policy
considerations are consistent with the State
policy to ensure autonomy to local
governments33 and the objective of the LGC that
they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest
development as self-reliant communities and
make them effective partners in the attainment
of national goals.34 The power to tax is the most
effective instrument to raise needed revenues to
finance and support myriad activities of 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. It may
also be relevant to recall that the original
reasons for the withdrawal of tax exemption
privileges granted to government-owned and
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,
and there was a need for this entities to share in
the requirements of the development, fiscal or
otherwise, by paying the taxes and other charges
due from them.35
The crucial issues then to be addressed are: (a)
whether the parcels of land in question belong
to the Republic of the Philippines whose
beneficial use has been granted to the
petitioner, and (b) whether the petitioner is a
"taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and
Intangible Assets. — All existing public airport
facilities, runways, lands, buildings and other
properties, movable or immovable, belonging to
or presently administered by the airports, and all
assets, powers, rights, interests and privileges
relating on airport works, or air operations,
including all equipment which are necessary for
the operations of air navigation, acrodrome
control towers, crash, fire, and rescue facilities question and the exception in Section 234(c) of
are hereby transferred to the the LGC is inapplicable.
Authority: Provided however, that the
Moreover, the petitioner cannot claim that it
operations control of all equipment necessary
was never a "taxable person" under its Charter.
for the operation of radio aids to air navigation,
It was only exempted from the payment of real
airways communication, the approach control
property taxes. The grant of the privilege only in
office, and the area control center shall be
respect of this tax is conclusive proof of the
retained by the Air Transportation Office. No
legislative intent to make it a taxable person
equipment, however, shall be removed by the
subject to all taxes, except real property tax.
Air Transportation Office from Mactan without
the concurrence of the authority. The authority Finally, even if the petitioner was originally not a
may assist in the maintenance of the Air taxable person for purposes of real property tax,
Transportation Office equipment. in light of the forgoing disquisitions, it had
already become even if it be conceded to be an
The "airports" referred to are the "Lahug Air
"agency" or "instrumentality" of the
Port" in Cebu City and the "Mactan International
Government, a taxable person for such purpose
AirPort in the Province of Cebu",36 which
in view of the withdrawal in the last paragraph of
belonged to the Republic of the Philippines, then
Section 234 of exemptions from the payment of
under the Air Transportation Office (ATO).37
real property taxes, which, as earlier adverted to,
It may be reasonable to assume that the term applies to the petitioner.
"lands" refer to "lands" in Cebu City then
Accordingly, the position taken by the petitioner
administered by the Lahug Air Port and includes
is untenable. Reliance on Basco vs. Philippine
the parcels of land the respondent City of Cebu
Amusement and Gaming Corporation39 is
seeks to levy on for real property taxes. This
unavailing since it was decided before the
section involves a "transfer" of the "lands"
effectivity of the LGC. Besides, nothing can
among other things, to the petitioner and not
prevent Congress from decreeing that even
just the transfer of the beneficial use thereof,
instrumentalities or agencies of the government
with the ownership being retained by the
performing governmental functions may be
Republic of the Philippines.
subject to tax. Where it is done precisely to fulfill
This "transfer" is actually an absolute a constitutional mandate and national policy, no
conveyance of the ownership thereof because one can doubt its wisdom.
the petitioner's authorized capital stock consists
WHEREFORE, the instant petition is DENIED. The
of, inter alia "the value of such real estate owned
challenged decision and order of the Regional
and/or administered by the airports."38 Hence,
Trial Court of Cebu, Branch 20, in Civil Case No.
the petitioner is now the owner of the land in
CEB-16900 are AFFIRMED.
No pronouncement as to costs.

SO ORDERED.
[Nos. L-12100 and L-11812. May 29, 1959]
BISAYA LAND TRANSPORTATION Co., INC.,
petitioner, vs. COLLECTOR OF INTERNAL
REVENUE, respondent. COLLECTOR OF
INTERNAL REVENUE, petitioner, vs. BlSAYA LAND
TRANSPORTATION Co., INC., respondent.
Petitions for review of a decision of the Court of
Tax Appeals. The facts of this case as found by
the court a quo are as follows: Between June
1945 and January 15, 1957, petitioner Bisaya
Land Transportation Co. acquired equipment
from the United States Commercial Co. which it
used in the operation of its buses, without
paying the corresponding compensating and
specific taxes. On investigation of its books by
revenue agents, it was discovered that its gross
receipts of the transportation business from
1946 to 1951 were not declared for taxation. It
was also found that from 1945 to 1952, the
petitioner issued freight receipts but the
corresponding documentary stamps were not
affixed thereto. A deficiency additional
residence tax was also determined. After a series
of exchange of communications between the
petitioner and the respondent Collector of
Internal Revenue, the latter assessed the
petitioner and demanded the total amount of
P4,949.91, consisting of (1) compensating tax;
(2) common carrier's percentage tax; (3)
documentary stamp tax; and (4) additional
residence tax. On January 11, 1955, the present
petition for review was filed with the Court of
Tax Appeals, which rendered a decision
upholding the assessment, as to the deficiency
common carrier's percentage tax for 1946 and between June, 1945 and January, 1947 while the
the first quarter of 1947 and the additional hostilities in Japan and Europe ended in 1945.
residence tax for 1947, the collection of which
Besides, the company was engaged in business
was held to be barred by the statute of
as a public utility operation and such services as
limitations. In its brief, the petitioner company
it may have rendered to the armed forces were
alleged that the Court of Tax Appeals erred (1) in
merely incidental to said business. Neither is it
not holding that the claim for compensating tax
exempt from common carrier's percentage tax
and residence tax has already prescribed and (2)
by reason of such service to the armed forces,
that the Compensating tax, documentary stamp
because the party being taxed is not said
tax and common carrier's percentage tax are not
organization, but the company. This tax is based
chargeable. The Government has also appealed.
upon the gross receipts of carriers,
Held: Petitioner's pretense that the period of independently of the source of such receipts.
prescription, in relation to the first assignment of
error, should be computed from the filing of its
income tax returns, is without merit. To begin Decision affirmed. Concepcion, J., ponente.
with, said income tax returns have not been Bisaya Land Transportaton Co., Inc. vs. Collector
introduced in evidence and therefore, there was of Internal Revenue, 105 Phil. 1338, Nos. L-12100
no means to determine what data were included and L-11812 May 29, 1959
in said return to apprise the Bureau of Internal
Revenue that the company should pay the
compensating tax. Secondly, income tax returns
contain a statement of the taxpayer's income for
a given year. The taxpayer is not supposed to
declare in said returns that he has purchased or
received "from without the Philippines",
commodities or merchandise that are subject to
the compensating tax. Generally, such purchases
are not "income," and, hence, have no place in
income tax returns. (2) Under its second
assignment of error, the company maintains that
the equipment and materials it purchased from
agencies of the U. S. Government are not subject
to compensating tax because they were
acquired, not for business purposes but "in
furtherance of the war efforts". Suffice it to note
that the acquisition of said effects took place
G.R. No. 155650 July 20, 2006 On 21 March 1997, the Office of the Government *E-016-01396 1998-2001 75,240.00
Corporate Counsel (OGCC) issued Opinion No.
MANILA INTERNATIONAL AIRPORT
061. The OGCC opined that the Local GRAND TOTAL P392,435,
AUTHORITY, petitioner,
Government Code of 1991 withdrew the
vs. 1992-1997 RPT was paid on Dec. 24, 1997 as per
exemption from real estate tax granted to MIAA
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY O.R.#9476102 for P4,207,028.75
under Section 21 of the MIAA Charter. Thus,
MAYOR OF PARAÑAQUE, SANGGUNIANG
MIAA negotiated with respondent City of #9476101 for P28,676,480.00
PANGLUNGSOD NG PARAÑAQUE, CITY
Parañaque to pay the real estate tax imposed by
ASSESSOR OF PARAÑAQUE, and CITY #9476103 for P49,115.006
the City. MIAA then paid some of the real estate
TREASURER OF PARAÑAQUE, respondents.
tax already due. On 17 July 2001, the City of Parañaque, through
DECISION its City Treasurer, issued notices of levy and
On 28 June 2001, MIAA received Final Notices of
CARPIO, J.: Real Estate Tax Delinquency from the City of warrants of levy on the Airport Lands and
Parañaque for the taxable years 1992 to 2001. Buildings. The Mayor of the City of Parañaque
The Antecedents MIAA's real estate tax delinquency is broken threatened to sell at public auction the Airport
down as follows: Lands and Buildings should MIAA fail to pay the
Petitioner Manila International Airport Authority
real estate tax delinquency. MIAA thus sought a
(MIAA) operates the Ninoy Aquino International
TAX DECLARATION TAXABLE YEAR TAX DUE clarification
PENALTY
of OGCC OpinionTOTAL
No. 061.
Airport (NAIA) Complex in Parañaque City under
Executive Order No. 903, otherwise known as E-016-01370 1992-2001 On 9 August
19,558,160.00 2001, the OGCC 30,789,243.20
11,201,083.20 issued Opinion No.
the Revised Charter of the Manila International 147 clarifying OGCC Opinion No. 061. The OGCC
Airport Authority ("MIAA Charter"). Executive E-016-01374 1992-2001 pointed out
111,689,424.90 that Section 179,838,904.49
68,149,479.59 206 of the Local
Order No. 903 was issued on 21 July 1983 by Government Code requires persons exempt
then President Ferdinand E. Marcos. E-016-01375 1992-2001 20,276,058.00
from real 12,371,832.00 32,647,890.00
estate tax to show proof of exemption.
Subsequently, Executive Order Nos. 9091 and The OGCC opined that Section 21 of the MIAA
2982 amended the MIAA Charter. E-016-01376 1992-2001 58,144,028.00
Charter is35,477,712.00
the proof that MIAA 93,621,740.00
is exempt from
real estate tax.
As operator of the international airport, MIAA E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
administers the land, improvements and On 1 October 2001, MIAA filed with the Court of
equipment within the NAIA Complex. The MIAA E-016-01378 1992-2001 111,107,950.40
Appeals an67,794,681.59 178,902,631.99
original petition for prohibition and
Charter transferred to MIAA approximately 600 injunction, with prayer for preliminary injunction
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
hectares of land,3 including the runways and or temporary restraining order. The petition
buildings ("Airport Lands and Buildings") then sought to4,744,944.00
restrain the City of Parañaque from
E-016-01380 1992-2001 7,776,436.00 12,521,380.00
under the Bureau of Air Transportation.4 The imposing real estate tax on, levying against, and
MIAA Charter further provides that no portion of *E-016-013-85 1998-2001 auctioning2,900,164.50
6,444,810.00 for public sale the9,344,974.50
Airport Lands and
the land transferred to MIAA shall be disposed of Buildings. The petition was docketed as CA-G.R.
through sale or any other mode unless *E-016-01387 1998-2001 34,876,800.00 5,694,560.00
SP No. 66878. 50,571,360.00
specifically approved by the President of the
Philippines.5
On 5 October 2001, the Court of Appeals
dismissed the petition because MIAA filed it
beyond the 60-day reglementary period. The
Court of Appeals also denied on 27 September
2002 MIAA's motion for reconsideration and
supplemental motion for reconsideration.
Hence, MIAA filed on 5 December 2002 the
present petition for review.7
Meanwhile, in January 2003, the City of
Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño,
and Tambo, Parañaque City; in the public market
of Barangay La Huerta; and in the main lobby of
the Parañaque City Hall. The City of Parañaque
published the notices in the 3 and 10 January
2003 issues of the Philippine Daily Inquirer, a
newspaper of general circulation in the
Philippines. The notices announced the public
auction sale of the Airport Lands and Buildings to
the highest bidder on 7 February 2003, 10:00
a.m., at the Legislative Session Hall Building of
Parañaque City.
A day before the public auction, or on 6 February
2003, at 5:10 p.m., MIAA filed before this Court
an Urgent Ex-Parte and Reiteratory Motion for
the Issuance of a Temporary Restraining Order.
The motion sought to restrain respondents —
the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng
Parañaque, City Treasurer of Parañaque, and the
City Assessor of Parañaque ("respondents") —
from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a
temporary restraining order (TRO) effective
immediately. The Court ordered respondents to
cease and desist from selling at public auction
the Airport Lands and Buildings. Respondents
received the TRO on the same day that the Court
issued it. However, respondents received the
TRO only at 1:25 p.m. or three hours after the
conclusion of the public auction.
On 10 February 2003, this Court issued a
Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties
in oral arguments. In compliance with the
directive issued during the hearing, MIAA,
respondent City of Parañaque, and the Solicitor
General subsequently submitted their respective
Memoranda.
MIAA admits that the MIAA Charter has placed
the title to the Airport Lands and Buildings in the
name of MIAA. However, MIAA points out that it
cannot claim ownership over these properties
since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The
MIAA Charter mandates MIAA to devote the
Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and
Buildings are devoted to public use and public
service, the ownership of these properties
remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject
to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA
Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is
also exempt from real estate tax under Section
234 of the Local Government Code because the
Airport Lands and Buildings are owned by the
Republic. To justify the exemption, MIAA invokes
the principle that the government cannot tax
itself. MIAA points out that the reason for tax
exemption of public property is that its taxation
would not inure to any public advantage, since in
such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local
Government Code, which expressly
withdrew the tax exemption privileges of
"government-owned and-controlled
corporations" upon the effectivity of the Local
Government Code. Respondents also argue that
a basic rule of statutory construction is that the
express mention of one person, thing, or act
excludes all others. An international airport is
not among the exceptions mentioned in Section
193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that
the Airport Lands and Buildings are exempt from
real estate tax.
Respondents also cite the ruling of this Court
in Mactan International Airport v.
Marcos8 where we held that the Local
Government Code has withdrawn the exemption
from real estate tax granted to international
airports. Respondents further argue that since
MIAA has already paid some of the real estate
tax assessments, it is now estopped from
claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of
whether the Airport Lands and Buildings of MIAA
are exempt from real estate tax under existing
laws. If so exempt, then the real estate tax
assessments issued by the City of Parañaque,
and all proceedings taken pursuant to such
assessments, are void. In such event, the other
issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings
are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or
controlled corporation but an instrumentality of
the National Government and thus exempt from
local taxation. Second, the real properties of
MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or
Controlled Corporation
Respondents argue that MIAA, being a
government-owned or controlled corporation, is
not exempt from real estate tax. Respondents
claim that the deletion of the phrase "any
government-owned or controlled so exempt by
its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax
exemption of government-owned or controlled
corporations. The deleted phrase appeared in
Section 40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real
estate tax.
There is no dispute that a government-owned or
controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-
owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the
Administrative Code of 1987 defines a
government-owned or controlled corporation as Budget and Management and the Commission
follows: on Audit on the date of such contribution or
transfer after making due allowances for
SEC. 2. General Terms Defined. – x x x x
depreciation and other deductions taking into
(13) Government-owned or controlled account the loans and other liabilities of the
corporation refers to any agency organized as a Authority at the time of the takeover of the
stock or non-stock corporation, vested with assets and other properties;
functions relating to public needs whether
(b) That the amount of P605 million as of
governmental or proprietary in nature, and
December 31, 1986 representing about seventy
owned by the Government directly or through its
percentum (70%) of the unremitted share of the
instrumentalities either wholly, or, where
National Government from 1983 to 1986 to be
applicable as in the case of stock corporations, to
remitted to the National Treasury as provided
the extent of at least fifty-one (51) percent of its
for in Section 11 of E. O. No. 903 as amended,
capital stock: x x x. (Emphasis supplied)
shall be converted into the equity of the National
A government-owned or controlled corporation Government in the Authority. Thereafter, the
Government contribution to the capital of the
must be "organized as a stock or non-stock
Authority shall be provided in the General
corporation." MIAA is not organized as a stock or
non-stock corporation. MIAA is not a stock Appropriations Act.
corporation because it has no capital stock
Clearly, under its Charter, MIAA does not have
divided into shares. MIAA has no stockholders or
capital stock that is divided into shares.
voting shares. Section 10 of the MIAA
Charter9 provides: Section 3 of the Corporation Code10 defines a
stock corporation as one whose "capital stock is
SECTION 10. Capital. — The capital of the
divided into shares and x x x authorized to
Authority to be contributed by the National
distribute to the holders of such shares
Government shall be increased from Two and
dividends x x x." MIAA has capital but it is not
One-half Billion (P2,500,000,000.00) Pesos to
divided into shares of stock. MIAA has no
Ten Billion (P10,000,000,000.00) Pesos to consist
stockholders or voting shares. Hence, MIAA is
of:
not a stock corporation.
(a) The value of fixed assets including airport
MIAA is also not a non-stock corporation
facilities, runways and equipment and such
because it has no members. Section 87 of the
other properties, movable and immovable[,]
Corporation Code defines a non-stock
which may be contributed by the National
corporation as "one where no part of its income
Government or transferred by it from any of its
is distributable as dividends to its members,
agencies, the valuation of which shall be
trustees or officers." A non-stock corporation
determined jointly with the Department of
must have members. Even if we assume that the
Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot
distribute any part of their income to their
members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross
operating income to the National
Treasury.11 This prevents MIAA from qualifying
as a non-stock corporation.
Section 88 of the Corporation Code provides that
non-stock corporations are "organized for
charitable, religious, educational, professional,
cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like
chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is
organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock
corporation, MIAA does not qualify as a
government-owned or controlled corporation.
What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested
with corporate powers to perform efficiently its
governmental functions. MIAA is like any other
government instrumentality, the only difference
is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of
the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the
National Government, not integrated within the
department framework, vested with special
functions or jurisdiction by law, endowed with
some if not all corporate powers, administering
special funds, and enjoying operational
autonomy, usually through a charter. x x x
(Emphasis supplied)
When the law vests in a government
instrumentality corporate powers, the
instrumentality does not become a corporation.
Unless the government instrumentality is
organized as a stock or non-stock corporation, it
remains a government instrumentality
exercising not only governmental but also
corporate powers. Thus, MIAA exercises the
governmental powers of eminent
12 13
domain, police authority and the levying of
fees and charges.14 At the same time, MIAA
exercises "all the powers of a corporation under
the Corporation Law, insofar as these powers are
not inconsistent with the provisions of this
Executive Order."15
Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National
Government machinery although not integrated
with the department framework. The MIAA
Charter expressly states that transforming MIAA
into a "separate and autonomous body"16 will
make its operation more "financially viable."17
Many government instrumentalities are vested
with corporate powers but they do not become
stock or non-stock corporations, which is a
necessary condition before an agency or
instrumentality is deemed a government-owned
or controlled corporation. Examples are the
Mactan International Airport Authority, the
Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise
corporate powers but they are not organized as
stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of
the Administrative Code. These government
instrumentalities are sometimes loosely called
government corporate entities. However, they
are not government-owned or controlled
corporations in the strict sense as understood
under the Administrative Code, which is the
governing law defining the legal relationship and
status of government entities.
A government instrumentality like MIAA falls
under Section 133(o) of the Local Government
Code, which states:
SEC. 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:
xxxx
(o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities and local government
units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that
local governments cannot tax the national
government, which historically merely delegated
to local governments the power to tax. While the
1987 Constitution now includes taxation as one
of the powers of local governments, local
governments may only exercise such power
"subject to such guidelines and limitations as the
Congress may provide."18
When local governments invoke the power to
tax on national government instrumentalities,
such power is construed strictly against local
governments. The rule is that a tax is never
presumed and there must be clear language in
the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved
against taxation. This rule applies with greater
force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly
construed against the taxpayer claiming the
exemption. However, when Congress grants an
exemption to a national government
instrumentality from local taxation, such
exemption is construed liberally in favor of the
national government instrumentality. As this
Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case
of exemptions running to the benefit of the
government itself or its agencies. In such case
the practical effect of an exemption is merely to
reduce the amount of money that has to be
handled by government in the course of its
operations. For these reasons, provisions
granting exemptions to government agencies
may be construed liberally, in favor of non tax-
liability of such agencies.19
There is, moreover, no point in national and local
governments taxing each other, unless a sound
and compelling policy requires such transfer of
public funds from one government pocket to
another.
There is also no reason for local governments to
tax national government instrumentalities for
rendering essential public services to inhabitants
of local governments. The only exception is
when the legislature clearly intended to tax
government instrumentalities for the delivery
of essential public services for sound and
compelling policy considerations. There must be
express language in the law empowering local
governments to tax national government
instrumentalities. Any doubt whether such
power exists is resolved against local
governments.
Thus, Section 133 of the Local Government Code
states that "unless otherwise provided" in the
Code, local governments cannot tax national
government instrumentalities. As this Court held
in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or
otherwise, to retard, impede, burden or in any
manner control the operation of constitutional
laws enacted by Congress to carry into execution
the powers vested in the federal government.
(MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)
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 to seriously burden it in the
accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis
supplied)
Otherwise, mere creatures of the State can
defeat National policies thru extermination of
what local authorities may perceive to be
undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).
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. 20
2. Airport Lands and Buildings of MIAA are
Owned by the Republic
a. Airport Lands and Buildings are of Public
Dominion
The Airport Lands and Buildings of MIAA are
property of public dominion and therefore
owned by the State or the Republic of the
Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public
dominion or of private ownership.
ARTICLE 420. The following things are property
of public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without
being for public use, and are intended for some
public service or for the development of the
national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State,
which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when
no longer intended for public use or for public
service, shall form part of the patrimonial
property of the State.
No one can dispute that properties of public
dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports
and bridges constructed by the State," are
owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties
of public dominion and thus owned by the State
or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to
public use because they are used by the public
for international and domestic travel and
transportation. The fact that the MIAA collects
terminal fees and other charges from the public
does not remove the character of the Airport
Lands and Buildings as properties for public use.
The operation by the government of a tollway
does not change the character of the road as one
for public use. Someone must pay for the
maintenance of the road, either the public
indirectly through the taxes they pay the
government, or only those among the public
who actually use the road through the toll fees
they pay upon using the road. The tollway
system is even a more efficient and equitable
manner of taxing the public for the maintenance
of public roads.
The charging of fees to the public does not
determine the character of the property
whether it is of public dominion or not. Article
420 of the Civil Code defines property of public
dominion as one "intended for public use." Even
if the government collects toll fees, the road is
still "intended for public use" if anyone can use
the road under the same terms and conditions as
the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the
road, the speed restrictions and other conditions
for the use of the road do not affect the public
character of the road.
The terminal fees MIAA charges to passengers,
as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection
of such fees does not change the character of
MIAA as an airport for public use. Such fees are
often termed user's tax. This means taxing those
among the public who actually use a public
facility instead of taxing all the public including
those who never use the particular public
facility. A user's tax is more equitable — a
principle of taxation mandated in the 1987
Constitution.21
The Airport Lands and Buildings of MIAA, which
its Charter calls the "principal airport of the
Philippines for both international and domestic
air traffic,"22 are properties of public dominion
because they are intended for public use. As
properties of public dominion, they
indisputably belong to the State or the Republic
of the Philippines.
b. Airport Lands and Buildings are Outside the
Commerce of Man
The Airport Lands and Buildings of MIAA are
devoted to public use and thus are properties of
public dominion. As properties of public
dominion, the Airport Lands and Buildings are
outside the commerce of man. The Court has
ruled repeatedly that properties of public
dominion are outside the commerce of man. As
early as 1915, this Court already ruled
in Municipality of Cavite v. Rojas that properties
devoted to public use are outside the commerce
of man, thus:
According to article 344 of the Civil Code:
"Property for public use in provinces and in
towns comprises the provincial and town roads,
the squares, streets, fountains, and public
waters, the promenades, and public works of
general service supported by said towns or
provinces."
The said Plaza Soledad being a promenade for
public use, the municipal council of Cavite could
not in 1907 withdraw or exclude from public use
a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing
a portion of said plaza or public place to the
defendant for private use the plaintiff
municipality exceeded its authority in the
exercise of its powers by executing a contract
over a thing of which it could not dispose, nor is
it empowered so to do.
The Civil Code, article 1271, prescribes that
everything which is not outside the commerce of
man may be the object of a contract, and plazas
and streets are outside of this commerce, as was
decided by the supreme court of Spain in its
decision of February 12, 1895, which says:
"Communal things that cannot be sold because
they are by their very nature outside of
commerce are those for public use, such as the
plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court
declared that properties of public dominion are
outside the commerce of man:
xxx Town plazas are properties of public
dominion, to be devoted to public use and to be
made available to the public in general. They
are outside the commerce of man and cannot
be disposed of or even leased by the municipality
to private parties. While in case of war or during
an emergency, town plazas may be occupied
temporarily by private individuals, as was done
and as was tolerated by the Municipality of
Pozorrubio, when the emergency has ceased,
said temporary occupation or use must also
cease, and the town officials should see to it that
the town plazas should ever be kept open to the
public and free from encumbrances or illegal interest requires it, including reservations for
private constructions.24 (Emphasis supplied) highways, rights of way for railroads, hydraulic
power sites, irrigation systems, communal
The Court has also ruled that property of public
pastures or lequas communales, public parks,
dominion, being outside the commerce of man,
public quarries, public fishponds, working men's
cannot be the subject of an auction sale.25
village and other improvements for the public
Properties of public dominion, being for public benefit.
use, are not subject to levy, encumbrance or
SECTION 88. The tract or tracts of land reserved
disposition through public or private sale. Any
under the provisions of Section eighty-three
encumbrance, levy on execution or auction sale
shall be non-alienable and shall not be subject
of any property of public dominion is void for
to occupation, entry, sale, lease, or other
being contrary to public policy. Essential public
disposition until again declared alienable under
services will stop if properties of public dominion
the provisions of this Act or by proclamation of
are subject to encumbrances, foreclosures and
the President. (Emphasis and underscoring
auction sale. This will happen if the City of
supplied)
Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for Thus, unless the President issues a proclamation
non-payment of real estate tax. withdrawing the Airport Lands and Buildings
from public use, these properties remain
Before MIAA can encumber26 the Airport Lands
properties of public dominion and
and Buildings, the President must first withdraw
are inalienable. Since the Airport Lands and
from public use the Airport Lands and Buildings.
Buildings are inalienable in their present status
Sections 83 and 88 of the Public Land Law or
as properties of public dominion, they are not
Commonwealth Act No. 141, which "remains to
subject to levy on execution or foreclosure sale.
this day the existing general law governing the
As long as the Airport Lands and Buildings are
classification and disposition of lands of the
reserved for public use, their ownership remains
public domain other than timber and mineral
with the State or the Republic of the Philippines.
lands,"27 provide:
The authority of the President to reserve lands of
SECTION 83. Upon the recommendation of the
the public domain for public use, and to
Secretary of Agriculture and Natural Resources,
withdraw such public use, is reiterated in Section
the President may designate by proclamation
14, Chapter 4, Title I, Book III of the
any tract or tracts of land of the public domain as
Administrative Code of 1987, which states:
reservations for the use of the Republic of the
Philippines or of any of its branches, or of the SEC. 14. Power to Reserve Lands of the Public and
inhabitants thereof, in accordance with Private Domain of the Government. — (1) The
regulations prescribed for this purposes, or for President shall have the power to reserve for
quasi-public uses or purposes when the public settlement or public use, and for specific public
purposes, any of the lands of the public domain,
the use of which is not otherwise directed by
law. The reserved land shall thereafter remain
subject to the specific public purpose indicated
until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the
Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public
use, they are properties of public dominion,
owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands
and Buildings in trust for the Republic. Section
48, Chapter 12, Book I of the Administrative
Code allows instrumentalities like MIAA to hold
title to real properties owned by the Republic,
thus:
SEC. 48. Official Authorized to Convey Real
Property. — Whenever real property of the
Government is authorized by law to be
conveyed, the deed of conveyance shall be
executed in behalf of the government by the
following:
(1) For property belonging to and titled in the
name of the Republic of the Philippines, by the
President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of
the Philippines but titled in the name of any
political subdivision or of any corporate agency
or instrumentality, by the executive head of the
agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the
Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of
conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a
Reorganization
The MIAA Charter, which is a law, transferred to
MIAA the title to the Airport Lands and Buildings
from the Bureau of Air Transportation of the
Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International
Airport Authority. — x x x x
The land where the Airport is presently located
as well as the surrounding land area of
approximately six hundred hectares, are hereby
transferred, conveyed and assigned to the
ownership and administration of the Authority,
subject to existing rights, if any. The Bureau of
Lands and other appropriate government
agencies shall undertake an actual survey of the
area transferred within one year from the
promulgation of this Executive Order and the
corresponding title to be issued in the name of
the Authority. Any portion thereof shall not be
disposed through sale or through any other
mode unless specifically approved by the
President of the Philippines. (Emphasis
supplied)
SECTION 22. Transfer of Existing Facilities and
Intangible Assets. — All existing public airport
facilities, runways, lands, buildings and other
property, movable or immovable, belonging to
the Airport, and all assets, powers, rights,
interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or
air operations, including all equipment which are
necessary for the operation of crash fire and
rescue facilities, are hereby transferred to the
Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila
International Airport as a Division in the Bureau
of Air Transportation and Transitory Provisions.
— The Manila International Airport including the
Manila Domestic Airport as a division under the
Bureau of Air Transportation is hereby
abolished.
x x x x.
The MIAA Charter transferred the Airport Lands
and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock
since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain
the rationale for the transfer of the Airport Lands
and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as
the principal airport of the Philippines for both
international and domestic air traffic, is required
to provide standards of airport accommodation
and service comparable with the best airports in
the world;
WHEREAS, domestic and other terminals,
general aviation and other facilities, have to be
upgraded to meet the current and future air
traffic and other demands of aviation in Metro
Manila;
WHEREAS, a management and organization
study has indicated that the objectives of
providing high standards of accommodation
and service within the context of a financially
viable operation, will best be achieved by a
separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416,
as amended by Presidential Decree No. 1772, the
President of the Philippines is given continuing
authority to reorganize the National
Government, which authority includes the
creation of new entities, agencies and
instrumentalities of the Government[.]
(Emphasis supplied)
The transfer of the Airport Lands and Buildings
from the Bureau of Air Transportation to MIAA
was not meant to transfer beneficial ownership
of these assets from the Republic to MIAA. The
purpose was merely to reorganize a division in
the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains
the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the
Republic. No party claims any ownership rights
over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the
Airport Lands and Buildings "shall not be
disposed through sale or through any other
mode unless specifically approved by the
President of the Philippines." This only means
that the Republic retained the beneficial
ownership of the Airport Lands and Buildings
because under Article 428 of the Civil Code, only
the "owner has the right to x x x dispose of a
thing." Since MIAA cannot dispose of the Airport
Lands and Buildings, MIAA does not own the
Airport Lands and Buildings.
At any time, the President can transfer back to
the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA
Charter, the President is the only one who can
authorize the sale or disposition of the Airport
Lands and Buildings. This only confirms that the
Airport Lands and Buildings belong to the
Republic.
e. Real Property Owned by the Republic is Not
Taxable
Section 234(a) of the Local Government Code
exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines."
Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax.
— The following are exempted from payment
of the real property tax:
(a) 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;
x x x. (Emphasis supplied)
This exemption should be read in relation with
Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees
or charges of any kind on the National
Government, its agencies
and instrumentalities x x x." The real properties
owned by the Republic are titled either in the
name of the Republic itself or in the name of
agencies or instrumentalities of the National
Government. The Administrative Code allows
real property owned by the Republic to be titled
in the name of agencies or instrumentalities of
the national government. Such real properties
remain owned by the Republic and continue to
be exempt from real estate tax.
The Republic may grant the beneficial use of its
real property to an agency or instrumentality of
the national government. This happens when
title of the real property is transferred to an
agency or instrumentality even as the Republic
remains the owner of the real property. Such
arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local
Government Code states that real property
owned by the Republic loses its tax exemption
only if the "beneficial use thereof has been
granted, for consideration or otherwise, to
a taxable person." MIAA, as a government
instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code.
Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make
these real properties subject to real estate tax.
However, portions of the Airport Lands and
Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example,
the land area occupied by hangars that MIAA
leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a
consideration to a taxable person and therefore
such land area is subject to real estate tax.
In Lung Center of the Philippines v. Quezon City,
the Court ruled:
Accordingly, we hold that the portions of the
land leased to private entities as well as those
parts of the hospital leased to private individuals
are not exempt from such taxes. On the other
hand, the portions of the land occupied by the
hospital and portions of the hospital used for its
patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt
from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the
tax exemption of "all persons, whether natural
or juridical" upon the effectivity of the Code.
Section 193 provides:
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 effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably
a juridical person. The minority argues that since
the Local Government Code withdrew the tax
exemption of all juridical persons, then MIAA is
not exempt from real estate tax. Thus, the
minority declares:
It is evident from the quoted provisions of the
Local Government Code that the withdrawn
exemptions from realty tax cover not just
GOCCs, but all persons. To repeat, the provisions
lay down the explicit proposition that the
withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of
GOCCs is only clarificatory or illustrative of the
explicit provision.
The term "All persons" encompasses the two
classes of persons recognized under our laws,
natural and juridical persons. Obviously, MIAA
is not a natural person. Thus, the determinative
test is not just whether MIAA is a GOCC, but
whether MIAA is a juridical person at all.
(Emphasis and underscoring in the original)
The minority posits that the "determinative test"
whether MIAA is exempt from local taxation is its
status — whether MIAA is a juridical person or
not. The minority also insists that "Sections 193
and 234 may be examined in isolation from
Section 133(o) to ascertain MIAA's claim of
exemption."
The argument of the minority is fatally flawed.
Section 193 of the Local Government Code
expressly withdrew the tax exemption of all
juridical persons "[u]nless otherwise provided in
this Code." Now, Section 133(o) of the Local
Government Code expressly provides
otherwise, specifically prohibiting local
governments from imposing any kind of tax on
national government instrumentalities. Section
133(o) states:
SEC. 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:
xxxx
(o) Taxes, fees or charges of any kinds on the
National Government, its agencies and
instrumentalities, and local government units.
(Emphasis and underscoring supplied)
By express mandate of the Local Government
Code, local governments cannot impose any kind
of tax on national government instrumentalities
like the MIAA. Local governments are devoid of
power to tax the national government, its
agencies and instrumentalities. The taxing
powers of local governments do not extend to
the national government, its agencies and
instrumentalities, "[u]nless otherwise provided
in this Code" as stated in the saving clause of
Section 133. The saving clause refers to Section
234(a) on the exception to the exemption from
real estate tax of real property owned by the
Republic.
The minority, however, theorizes that unless
exempted in Section 193 itself, all juridical
persons are subject to tax by local governments.
The minority insists that the juridical persons
exempt from local taxation are limited to the
three classes of entities specifically enumerated
as exempt in Section 193. Thus, the minority
states:
x x x Under Section 193, the exemption is limited
to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c)
non-stock and non-profit hospitals and
educational institutions. It would be belaboring
the obvious why the MIAA does not fall within
any of the exempt entities under Section 193.
(Emphasis supplied)
The minority's theory directly contradicts and
completely negates Section 133(o) of the Local
Government Code. This theory will result in gross
absurdities. It will make the national
government, which itself is a juridical person,
subject to tax by local governments since the
national government is not included in the
enumeration of exempt entities in Section 193.
Under this theory, local governments can impose
any kind of local tax, and not only real estate tax,
on the national government.
Under the minority's theory, many national
government instrumentalities with juridical
personalities will also be subject to any kind of
local tax, and not only real estate tax. Some of
the national government instrumentalities
vested by law with juridical personalities are:
Bangko Sentral ng Pilipinas,30 Philippine Rice
Research Institute,31 Laguna Lake
Development Authority,32 Fisheries
Development Authority,33 Bases Conversion
Development Authority,34 Philippine Ports
Authority,35 Cagayan de Oro Port
36 37
Authority, San Fernando Port Authority, Cebu
Port Authority,38 and Philippine National The saving clause in Section 133 refers to the
Railways.39 exception to the exemption in Section 234(a) of
the Code, which makes the national government
The minority's theory violates Section 133(o) of
subject to real estate tax when it gives the
the Local Government Code which expressly
beneficial use of its real properties to a taxable
prohibits local governments from imposing any
entity. Section 234(a) of the Local Government
kind of tax on national government
Code provides:
instrumentalities. Section 133(o) does not
distinguish between national government SEC. 234. Exemptions from Real Property Tax –
instrumentalities with or without juridical The following are exempted from payment of
personalities. Where the law does not the real property tax:
distinguish, courts should not distinguish. Thus,
(a) Real property owned by the Republic of the
Section 133(o) applies to all national
Philippines or any of its political subdivisions
government instrumentalities, with or without
except when the beneficial use thereof has been
juridical personalities. The determinative test
granted, for consideration or otherwise, to a
whether MIAA is exempt from local taxation is
taxable person.
not whether MIAA is a juridical person, but
whether it is a national government x x x. (Emphasis supplied)
instrumentality under Section 133(o) of the Local
Under Section 234(a), real property owned by
Government Code. Section 133(o) is the specific
the Republic is exempt from real estate tax. The
provision of law prohibiting local governments
exception to this exemption is when the
from imposing any kind of tax on the national
government gives the beneficial use of the real
government, its agencies and instrumentalities.
property to a taxable entity.
Section 133 of the Local Government Code starts
The exception to the exemption in Section
with the saving clause "[u]nless otherwise
234(a) is the only instance when the national
provided in this Code." This means that unless
government, its agencies and instrumentalities
the Local Government Code grants an express
are subject to any kind of tax by local
authorization, local governments have no power
governments. The exception to the exemption
to tax the national government, its agencies and
applies only to real estate tax and not to any
instrumentalities. Clearly, the rule is local
other tax. The justification for the exception to
governments have no power to tax the national
government, its agencies and instrumentalities. the exemption is that the real property, although
As an exception to this rule, local governments owned by the Republic, is not devoted to public
may tax the national government, its agencies use or public service but devoted to the private
and instrumentalities only if the Local gain of a taxable person.
Government Code expressly so provides. The minority also argues that since Section 133
precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail
over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133
antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict
the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject
to real property taxes, the general exemptions
attaching to instrumentalities under Section
133(o) of the Local Government Code being
qualified by Sections 193 and 234 of the same
law. (Emphasis supplied)
The minority assumes that there is an
irreconcilable conflict between Section 133 on
one hand, and Sections 193 and 234 on the
other. No one has urged that there is such a
conflict, much less has any one presenteda
persuasive argument that there is such a conflict.
The minority's assumption of an irreconcilable
conflict in the statutory provisions is an
egregious error for two reasons.
First, there is no conflict whatsoever between
Sections 133 and 193 because Section 193
expressly admits its subordination to other
provisions of the Code when Section 193 states
"[u]nless otherwise provided in this Code." By its
own words, Section 193 admits the superiority of
other provisions of the Local Government Code
that limit the exercise of the taxing power in
Section 193. When a provision of law grants a
power but withholds such power on certain
matters, there is no conflict between the grant
of power and the withholding of power. The
grantee of the power simply cannot exercise the
power on matters withheld from its power.
Second, Section 133 is entitled "Common instrumentalities, to real estate tax if the
Limitations on the Taxing Powers of Local beneficial use of such property is given to a
Government Units." Section 133 limits the grant taxable entity.
to local governments of the power to tax, and
The minority also claims that the definition in the
not merely the exercise of a delegated power to
Administrative Code of the phrase "government-
tax. Section 133 states that the taxing powers of
owned or controlled corporation" is not
local governments "shall not extend to the levy"
controlling. The minority points out that Section
of any kind of tax on the national government,
2 of the Introductory Provisions of the
its agencies and instrumentalities. There is no
Administrative Code admits that its definitions
clearer limitation on the taxing power than this.
are not controlling when it provides:
Since Section 133 prescribes the "common
SEC. 2. General Terms Defined. — Unless the
limitations" on the taxing powers of local
specific words of the text, or the context as a
governments, Section 133 logically prevails over
whole, or a particular statute, shall require a
Section 193 which grants local governments such
different meaning:
taxing powers. By their very meaning and
purpose, the "common limitations" on the taxing xxxx
power prevail over the grant or exercise of the
The minority then concludes that reliance on the
taxing power. If the taxing power of local
Administrative Code definition is "flawed."
governments in Section 193 prevails over the
limitations on such taxing power in Section 133, The minority's argument is a non sequitur. True,
then local governments can impose any kind of Section 2 of the Administrative Code recognizes
tax on the national government, its agencies and that a statute may require a different meaning
instrumentalities — a gross absurdity. than that defined in the Administrative Code.
However, this does not automatically mean that
Local governments have no power to tax the
the definition in the Administrative Code does
national government, its agencies and
not apply to the Local Government Code. Section
instrumentalities, except as otherwise provided
2 of the Administrative Code clearly states that
in the Local Government Code pursuant to the
"unless the specific words x x x of a particular
saving clause in Section 133 stating "[u]nless
statute shall require a different meaning," the
otherwise provided in this Code." This exception
definition in Section 2 of the Administrative Code
— which is an exception to the exemption of the
shall apply. Thus, unless there is specific
Republic from real estate tax imposed by local
language in the Local Government Code defining
governments — refers to Section 234(a) of the
the phrase "government-owned or controlled
Code. The exception to the exemption in Section
corporation" differently from the definition in
234(a) subjects real property owned by the
the Administrative Code, the definition in the
Republic, whether titled in the name of the
Administrative Code prevails.
national government, its agencies or
The minority does not point to any provision in
the Local Government Code defining the phrase
"government-owned or controlled corporation"
differently from the definition in the
Administrative Code. Indeed, there is none. The
Local Government Code is silent on the
definition of the phrase "government-owned or
controlled corporation." The Administrative
Code, however, expressly defines the phrase
"government-owned or controlled corporation."
The inescapable conclusion is that the
Administrative Code definition of the phrase
"government-owned or controlled corporation"
applies to the Local Government Code.
The third whereas clause of the Administrative
Code states that the Code "incorporates in a
unified document the major structural,
functional and procedural principles and rules of
governance." Thus, the Administrative Code is
the governing law defining the status and
relationship of government departments,
bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a
different status and relationship for a specific
government unit or entity, the provisions of the
Administrative Code prevail.
The minority also contends that the phrase
"government-owned or controlled corporation"
should apply only to corporations organized
under the Corporation Code, the general
incorporation law, and not to corporations
created by special charters. The minority sees no
reason why government corporations with
special charters should have a capital stock.
Thus, the minority declares:
I submit that the definition of "government-
owned or controlled corporations" under the
Administrative Code refer to those corporations
owned by the government or its
instrumentalities which are created not by
legislative enactment, but formed and organized
under the Corporation Code through registration
with the Securities and Exchange Commission. In
short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there
is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its
charter to the State or Republic. Such GOCCs are
not empowered to declare dividends or alienate
their capital shares.
The contention of the minority is seriously
flawed. It is not in accord with the Constitution
and existing legislations. It will also result in gross
absurdities.
First, the Administrative Code definition of the
phrase "government-owned or controlled
corporation" does not distinguish between one
incorporated under the Corporation Code or
under a special charter. Where the law does not
distinguish, courts should not distinguish.
Second, Congress has created through special
charters several government-owned
corporations organized as stock corporations.
Prime examples are the Land Bank of the
Philippines and the Development Bank of the
Philippines. The special charter40 of the Land
Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital
stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million
common shares with a par value of ten pesos
each, which shall be fully subscribed by the
Government, and one hundred and twenty
million preferred shares with a par value of ten
pesos each, which shall be issued in accordance
with the provisions of Sections seventy-seven
and eighty-three of this Code. (Emphasis
supplied)
Likewise, the special charter41 of the
Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value.
— The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million
common shares with par value of P100 per
share. These shares are available for subscription
by the National Government. Upon the
effectivity of this Charter, the National
Government shall subscribe to Twenty-Five
Million common shares of stock worth Two
Billion Five Hundred Million which shall be
deemed paid for by the Government with the net
asset values of the Bank remaining after the
transfer of assets and liabilities as provided in
Section 30 hereof. (Emphasis supplied)
Other government-owned corporations
organized as stock corporations under their
special charters are the Philippine Crop
Insurance Corporation,42 Philippine
International Trading Corporation,43 and the
Philippine National Bank44 before it was
reorganized as a stock corporation under the
Corporation Code. All these government-owned
corporations organized under special charters as
stock corporations are subject to real estate tax
on real properties owned by them. To rule that
they are not government-owned or controlled
corporations because they are not registered
with the Securities and Exchange Commission
would remove them from the reach of Section
234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled
corporations created through special charters
are those that meet the two conditions
prescribed in Section 16, Article XII of the
Constitution. The first condition is that the
government-owned or controlled corporation
must be established for the common good. The
second condition is that the government-owned
or controlled corporation must meet the test of
economic viability. Section 16, Article XII of the
1987 Constitution provides:
SEC. 16. The Congress shall not, except by
general law, provide for the formation,
organization, or regulation of private
corporations. Government-owned or controlled
corporations may be created or established by
special charters in the interest of the common
good and subject to the test of economic
viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the
legislature to create "government-owned or
controlled corporations" through special
charters only if these entities are required to
meet the twin conditions of common good and
economic viability. In other words, Congress has
no power to create government-owned or
controlled corporations with special charters
unless they are made to comply with the two
conditions of common good and economic
viability. The test of economic viability applies
only to government-owned or controlled
corporations that perform economic or
commercial activities and need to compete in
the market place. Being essentially economic
vehicles of the State for the common good —
meaning for economic development purposes —
these government-owned or controlled
corporations with special charters are usually
organized as stock corporations just like ordinary
private corporations.
In contrast, government instrumentalities
vested with corporate powers and performing
governmental or public functions need not meet
the test of economic viability. These
instrumentalities perform essential public
services for the common good, services that
every modern State must provide its citizens.
These instrumentalities need not be
economically viable since the government may
even subsidize their entire operations. These
instrumentalities are not the "government-
owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation
when the legislature creates government
instrumentalities vested with corporate powers
but performing essential governmental or public
functions. Congress has plenary authority to
create government instrumentalities vested
with corporate powers provided these
instrumentalities perform essential government
functions or public services. However, when the
legislature creates through special charters
corporations that perform economic or
commercial activities, such entities — known as
"government-owned or controlled corporations"
— must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the
Philippines and the Development Bank of the
Philippines and similar government-owned or
controlled corporations, which derive their
income to meet operating expenses solely from
commercial transactions in competition with the
private sector. The intent of the Constitution is
to prevent the creation of government-owned or
controlled corporations that cannot survive on
their own in the market place and thus merely
drain the public coffers.
Commissioner Blas F. Ople, proponent of the test
of economic viability, explained to the
Constitutional Commission the purpose of this
test, as follows:
MR. OPLE: Madam President, the reason for this
concern is really that when the government
creates a corporation, there is a sense in which
this corporation becomes exempt from the test
of economic performance. We know what
happened in the past. If a government
corporation loses, then it makes its claim upon
the taxpayers' money through new equity
infusions from the government and what is
always invoked is the common good. That is the
reason why this year, out of a budget of P115
billion for the entire government, about P28
billion of this will go into equity infusions to
support a few government financial institutions.
And this is all taxpayers' money which could have
been relocated to agrarian reform, to social
services like health and education, to augment
the salaries of grossly underpaid public
employees. And yet this is all going down the
drain.
Therefore, when we insert the phrase
"ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting
the market test so that they become viable. And
so, Madam President, I reiterate, for the
committee's consideration and I am glad that I
am joined in this proposal by Commissioner Foz,
the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together
with the common good.45
Father Joaquin G. Bernas, a leading member of
the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic
of the Philippines: A Commentary:
The second sentence was added by the 1986
Constitutional Commission. The significant
addition, however, is the phrase "in the interest
of the common good and subject to the test of
economic viability." The addition includes the
ideas that they must show capacity to function
efficiently in business and that they should not
go into activities which the private sector can do
better. Moreover, economic viability is more
than financial viability but also includes
capability to make profit and generate benefits
not quantifiable in financial terms.46 (Emphasis
supplied)
Clearly, the test of economic viability does not
apply to government entities vested with
corporate powers and performing essential
public services. The State is obligated to render
essential public services regardless of the
economic viability of providing such service. The
non-economic viability of rendering such
essential public service does not excuse the State
from withholding such essential services from
the public.
However, government-owned or controlled
corporations with special charters, organized
essentially for economic or commercial
objectives, must meet the test of economic
viability. These are the government-owned or
controlled corporations that are usually
organized under their special charters as stock
corporations, like the Land Bank of the
Philippines and the Development Bank of the
Philippines. These are the government-owned or
controlled corporations, along with government-
owned or controlled corporations organized
under the Corporation Code, that fall under the
definition of "government-owned or controlled
corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic
viability because the legislature did not create
MIAA to compete in the market place. MIAA
does not compete in the market place because
there is no competing international airport
operated by the private sector. MIAA performs
an essential public service as the primary
domestic and international airport of the
Philippines. The operation of an international
airport requires the presence of personnel from
the following government agencies:
1. The Bureau of Immigration and Deportation,
to document the arrival and departure of
passengers, screening out those without visas or
travel documents, or those with hold departure
orders;
2. The Bureau of Customs, to collect import
duties or enforce the ban on prohibited
importations;
3. The quarantine office of the Department of
Health, to enforce health measures against the
spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce
measures against the spread of plant and animal
diseases into the country;
5. The Aviation Security Command of the
Philippine National Police, to prevent the entry
of terrorists and the escape of criminals, as well
as to secure the airport premises from terrorist
attack or seizure;
6. The Air Traffic Office of the Department of
Transportation and Communications, to
authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from,
the airport; and
7. The MIAA, to provide the proper premises —
such as runway and buildings — for the
government personnel, passengers, and airlines,
and to manage the airport operations.
All these agencies of government perform
government functions essential to the operation
of an international airport.
MIAA performs an essential public service that
every modern State must provide its citizens.
MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that
MIAA charges every passenger are regulatory or
administrative fees47 and not income from
commercial transactions.
MIAA falls under the definition of a government
instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative
Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the
National Government, not integrated within the
department framework, vested with special
functions or jurisdiction by law, endowed with
some if not all corporate powers, administering
special funds, and enjoying operational
autonomy, usually through a charter. x x x
(Emphasis supplied)
The fact alone that MIAA is endowed with
corporate powers does not make MIAA a
government-owned or controlled corporation.
Without a change in its capital structure, MIAA
remains a government instrumentality under
Section 2(10) of the Introductory Provisions of
the Administrative Code. More importantly, as
long as MIAA renders essential public services, it
need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the
phrase "government-owned or controlled
corporations" under Section 16, Article XII of the
1987 Constitution.
The minority belittles the use in the Local
Government Code of the phrase "government-
owned or controlled corporation" as merely
"clarificatory or illustrative." This is fatal. The
1987 Constitution prescribes explicit conditions
for the creation of "government-owned or
controlled corporations." The Administrative
Code defines what constitutes a "government-
owned or controlled corporation." To belittle
this phrase as "clarificatory or illustrative" is
grave error.
To summarize, MIAA is not a government-owned
or controlled corporation under Section 2(13) of
the Introductory Provisions of the Administrative
Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a
government-owned or controlled corporation
under Section 16, Article XII of the 1987
Constitution because MIAA is not required to
meet the test of economic viability. MIAA is a
government instrumentality vested with
corporate powers and performing essential
public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative
Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local
governments under Section 133(o) of the Local
Government Code. The exception to the
exemption in Section 234(a) does not apply to
MIAA because MIAA is not a taxable entity under
the Local Government Code. Such exception
applies only if the beneficial use of real property
owned by the Republic is given to a taxable
entity.
Finally, the Airport Lands and Buildings of MIAA
are properties devoted to public use and thus are
properties of public dominion. Properties of
public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of
public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without
being for public use, and are intended for some
public service or for the development of the
national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State"
includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public
use, and at the very least intended for public
service. Whether intended for public use or
public service, the Airport Lands and Buildings
are properties of public dominion. As properties
of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a)
of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory
Provisions of the Administrative Code, which
governs the legal relation and status of
government units, agencies and offices within
the entire government machinery, MIAA is a Airport Lands and Buildings of the Manila
government instrumentality and not a International Airport Authority EXEMPT from
government-owned or controlled corporation. the real estate tax imposed by the City of
Under Section 133(o) of the Local Government Parañaque. We declare VOID all the real estate
Code, MIAA as a government instrumentality is tax assessments, including the final notices of
not a taxable person because it is not subject to real estate tax delinquencies, issued by the City
"[t]axes, fees or charges of any kind" by local of Parañaque on the Airport Lands and Buildings
governments. The only exception is when MIAA of the Manila International Airport Authority,
leases its real property to a "taxable person" as except for the portions that the Manila
provided in Section 234(a) of the Local International Airport Authority has leased to
Government Code, in which case the specific real private parties. We also declare VOID the
property leased becomes subject to real estate assailed auction sale, and all its effects, of the
tax. Thus, only portions of the Airport Lands and Airport Lands and Buildings of the Manila
Buildings leased to taxable persons like private International Airport Authority.
parties are subject to real estate tax by the City
No costs.
of Parañaque.
SO ORDERED.
Under Article 420 of the Civil Code, the Airport
Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and
thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions
"ports x x x constructed by the State," which
includes public airports and seaports, as
properties of public dominion and owned by the
Republic. As properties of public dominion
owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings
are expressly exempt from real estate tax under
Section 234(a) of the Local Government Code.
This Court has also repeatedly ruled that
properties of public dominion are not subject to
execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET

ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September
2002 in CA-G.R. SP No. 66878. We DECLARE the
G.R. No. 178030 December 15, 2010
PHILIPPINE FISHERIES DEVELOPMENT
AUTHORITY (PFDA), Petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS,
LOCAL BOARD OF ASSESSMENT APPEALS OF
LUCENA CITY, CITY OF LUCENA, LUCENA CITY
ASSESSOR AND LUCENA CITY
TREASURER, Respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 9 May 2007
Decision2 of the Court of Tax Appeals in C.T.A. EB
No. 193, affirming the 5 October 2005 Decision
of the Central Board of Assessment Appeals
(CBAA) in CBAA Case No. L-33. The CBAA
dismissed the appeal of petitioner Philippine
Fisheries Development Authority (PFDA) from
the Decision of the Local Board of Assessment
Appeals (LBAA) of Lucena City, ordering PFDA to
pay the real property taxes imposed by the City
Government of Lucena on the Lucena Fishing
Port Complex.
The Facts
The facts as found by the CBAA are as follows:
The records show that the Lucena Fishing Port
Complex (LFPC) is one of the fishery
infrastructure projects undertaken by the
National Government under the Nationwide Fish
Port-Package. Located at Barangay Dalahican,
Lucena City, the fish port was constructed on a
reclaimed land with an area of 8.7 hectares more
or less, at a total cost of PHP 296,764,618.77
financed through a loan (L/A PH-25 and 51) from
the Overseas Economic Cooperation Fund
(OECF) of Japan, dated November 9, 1978 and
May 31, 1978, respectively.
The Philippine Fisheries Development Authority
(PFDA) was created by virtue of P.D. 977 as
amended by E.O. 772, with functions and powers
to (m)anage, operate, and develop the Navotas
Fishing Port Complex and such other fishing port
complexes that may be established by the
Authority. Pursuant thereto, Petitioner-
Appellant PFDA took over the management and
operation of LFPC in February 1992.
On October 26, 1999, in a letter addressed to
PFDA, the City Government of Lucena demanded
payment of realty taxes on the LFPC property for
the period from 1993 to 1999 in the total
amount of P39,397,880.00. This was received by
PFDA on November 24, 1999.
On October 17, 2000 another demand letter was
sent by the Government of Lucena City on the
same LFPC property, this time in the amount of
P45,660,080.00 covering the period from 1993
to 2000.
On December 18, 2000 Petitioner-Appellant filed
its Appeal before the Local Board of Assessment
Appeals of Lucena City, which was dismissed for
lack of merit. On November 6, 2001 Petitioner-
Appellant filed its motion for reconsideration;
this was denied by the Appellee Local Board on
December 10, 2001.3
PFDA appealed to the CBAA. In its Decision dated
5 October 2005, the CBAA dismissed the appeal
for lack of merit. The CBAA ruled:
Ownership of LFPC however has, before hand,
been handed over to the PFDA, as provided for
under Sec. 11 of P.D. No. 977, as amended, and
declared under the MCIAA case [Mactan Cebu
International Airport Authority v. Marcos, G.R.
No. 120082, 11 September 1996, 261 SCRA 667].
The allegations therefore that PFDA is not the
beneficial user of LFPC and not a taxable person
are rendered moot and academic by such
ownership of PFDA over LFPC.
xxx
PFDA’s Charter, P.D. 977, provided for
exemption from income tax under Par. 2, Sec. 10
thereof: "(t)he Authority shall be exempted from
the payment of income tax". Nothing was said
however about PFDA’s exemption from payment
of real property tax: PFDA therefore was not to
lay claim for realty tax exemption on its Fishing
Port Complexes. Reading Sec. 40 of P.D. 464 and
Sec. 234 of R.A. 7160 however, provided such
ground: LFPC is owned by the Republic of the
Philippines, PFDA is only tasked to manage,
operate, and develop the same. Hence, LFPC is
exempted from payment of realty tax.
xxx
The ownership of LFPC as passed on by the
Republic of the Philippines to PFDA is bourne by
Direct evidence: P.D. 977, as amended (supra).
Therefore, Petitioner-Appellant’s claim for realty
tax exemption on LFPC is untenable.
WHEREFORE, for all of the foregoing, the herein
Appeal is hereby dismissed for lack of merit.
SO ORDERED.4
PFDA moved for reconsideration, which the
CBAA denied in its Resolution dated 7 June
2006.5 On appeal, the Court of Tax Appeals
denied PFDA’s petition for review and affirmed
the 5 October 2005 Decision of the CBAA.
Hence, this petition for review.
The Ruling of the Court of Tax Appeals
The Court of Tax Appeals held that PFDA is a
government-owned or controlled corporation,
and is therefore subject to the real property tax
imposed by local government units pursuant to
Section 232 in relation to Sections 193 and 234
of the Local Government Code. Furthermore, the
Court of Tax Appeals ruled that PFDA failed to
prove that it is exempt from real property tax
pursuant to Section 234 of the Local Government
Code or any of its provisions.
The Issue
The sole issue raised in this petition is whether
PFDA is liable for the real property tax assessed
on the Lucena Fishing Port Complex.
The Ruling of the Court
The petition is meritorious.
In ruling that PFDA is not exempt from paying
real property tax, the Court of Tax Appeals cited
Sections 193, 232, and 234 of the Local
Government Code which read:
Section 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.
Section 232. Power to Levy Real Property Tax. ‒
A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land,
building, machinery, and other improvement not
hereinafter specifically exempted.
Section 234. Exemptions from Real Property Tax.
‒ The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivision
except when the beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages
or convents appurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands,
buildings and improvements actually, directly,
and exclusively used for religious, charitable or
educational purposes;
(c) All machineries and equipment that are
actually, directly and exclusively used by local
water districts and government-owned or -
controlled corporations engaged in the supply
and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No.
6938; and
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemption from
payment of real property tax previously granted
to, or presently enjoyed by, all persons, whether
natural or juridical, including all government-
owned or -controlled corporations are hereby
withdrawn upon the effectivity of this Code.
The Court of Tax Appeals held that as a
government-owned or controlled corporation,
PFDA is subject to real property tax imposed by
local government units having jurisdiction over
its real properties pursuant to Section 232 of the
Local Government Code. According to the Court
of Tax Appeals, Section 193 of the Local
Government Code withdrew all tax exemptions
granted to government-owned or controlled
corporations. Furthermore, Section 234 of the
Local Government Code explicitly provides that
any exemption from payment of real property
tax granted to government-owned or controlled
corporations have already been withdrawn upon
the effectivity of the Local Government Code.
The ruling of the Court of Tax Appeals is
anchored on the wrong premise that the PFDA is
a government-owned or controlled corporation.
On the contrary, this Court has already ruled that
the PFDA is a government instrumentality and
not a government-owned or controlled
corporation.
In the 2007 case of Philippine Fisheries
Development Authority v. Court of Appeals,6 the
Court resolved the issue of whether the PFDA is
a government-owned or controlled corporation
or an instrumentality of the national
government. In that case, the City of Iloilo
assessed real property taxes on the Iloilo Fishing
Port Complex (IFPC), which was managed and
operated by PFDA. The Court held that PFDA is
an instrumentality of the government and is thus
exempt from the payment of real property tax,
thus:
The Court rules that the Authority [PFDA] is not
a GOCC but an instrumentality of the national
government which is generally exempt from
payment of real property tax. However, said
exemption does not apply to the portions of the
IFPC which the Authority leased to private
entities. With respect to these properties, the
Authority is liable to pay property tax.
Nonetheless, the IFPC, being a property of public
dominion cannot be sold at public auction to
satisfy the tax delinquency.
xxx
Indeed, the Authority is not a GOCC but an
instrumentality of the government. The
Authority has a capital stock but it is not divided
into shares of stocks. Also, it has no stockholders
or voting shares. Hence it is not a stock
corporation. Neither is it a non-stock corporation
because it has no members.
The Authority is actually a national government
instrumentality which is defined as an agency of
the national government, not integrated within
the department framework, vested with special
functions or jurisdiction by law, endowed with
some if not all corporate powers, administering
special funds, and enjoying operational
autonomy, usually through a charter. When the
law vests in a government instrumentality
corporate powers, the instrumentality does not
become a corporation. Unless the government
instrumentality is organized as a stock or non-
stock corporation, it remains a government
instrumentality exercising not only
governmental but also corporate
powers.7 (Emphasis supplied)1avvphi1
This ruling was affirmed by the Court in a
subsequent PFDA case involving the Navotas
Fishing Port Complex, which is also managed and
operated by the PFDA. In consonance with the
previous ruling, the Court held in the subsequent
PFDA case that the PFDA is a government
instrumentality not subject to real property tax
except those portions of the Navotas Fishing
Port Complex that were leased to taxable or
private persons and entities for their beneficial
use.8
Similarly, we hold that as a government
instrumentality, the PFDA is exempt from real
property tax imposed on the Lucena Fishing Port
Complex, except those portions which are leased
to private persons or entities.
The exercise of the taxing power of local
government units is subject to the limitations
enumerated in Section 133 of the Local
Government Code.9 Under Section 133(o)10 of
the Local Government Code, local government
units have no power to tax instrumentalities of
the national government like the PFDA. Thus,
PFDA is not liable to pay real property tax
assessed by the Office of the City Treasurer of
Lucena City on the Lucena Fishing Port Complex,
except those portions which are leased to
private persons or entities.
Besides, the Lucena Fishing Port Complex is a
property of public dominion intended for public
use, and is therefore exempt from real property
tax under Section 234(a)11 of the Local
Government Code. Properties of public
dominion are owned by the State or the Republic
of the Philippines.12 Thus, Article 420 of the Civil
Code provides:
Art. 420. The following things are property of
public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without
being for public use, and are intended for some
public service or for the development of the
national wealth. (Emphasis supplied)
The Lucena Fishing Port Complex, which is one of
the major infrastructure projects undertaken by
the National Government under the Nationwide
Fishing Ports Package, is devoted for public use
and falls within the term "ports." The Lucena
Fishing Port Complex "serves as PFDA’s
commitment to continuously provide post-
harvest infrastructure support to the fishing
industry, especially in areas where productivity
among the various players in the fishing industry
need to be enhanced."13 As property of public
dominion, the Lucena Fishing Port Complex is
owned by the Republic of the Philippines and
thus exempt from real estate tax.

WHEREFORE, we GRANT the petition. We SET

ASIDE the Decision dated 9 May 2007 of the
Court of Tax Appeals in C.T.A. EB No. 193.
We DECLARE the Lucena Fishing Port
Complex EXEMPT from real property tax
imposed by the City of Lucena. We
declare VOID all the real property tax
assessments issued by the City of Lucena on the
Lucena Fishing Port Complex managed by
Philippine Fisheries Development
Authority, EXCEPT for the portions that the
Philippine Fisheries Development Authority has
leased to private parties.

SO ORDERED.
G.R. No. 181756 June 15, 2015
MACTAN-CEBU INTERNATIONAL AIRPORT
AUTHORITY (MCIAA), Petitioner,
vs.
CITY OF LAPU-LAPU and ELENA T.
PACALDO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify
the effects of our two previous decisions, issued
a decade apart, on the power of local
government units to collect real property taxes
from airport authorities located within their
area, and the nature or the juridical personality
of said airport authorities.
Before us is a Petition for Review on Certiorari
under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the
October 8, 2007 Decision1 of the Court of
Appeals (Cebu City) in CA-G.R. SP No. 01360 and
the February 12, 2008 Resolution2 denying
petitioner's motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport
Authority (MCIAA) was created by Congress on
July 31, 1990 under Republic Act No. 69583 to
"undertake the economical, efficient and
effective control, management and supervision
of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu
City x x x and such other airports as may be
established in the Province of Cebu." It is
represented in this case by the Office of the
Solicitor General. Respondent City of Lapu-Lapu
is a local government unit and political
subdivision, created and existing under its own
charter with capacity to sue and be sued.
Respondent Elena T. Pacaldo was impleaded in
her capacity as the City Treasurer of respondent
City.
Upon its creation, petitioner enjoyed exemption
from realty taxes under the following provision
of Republic Act No. 6958:
Section 14. Tax Exemptions.– The Authority shall
be exempt from realty taxes imposed by the
National Government or any of its political
subdivisions, agencies and instrumentalities:
Provided, That no tax exemption herein granted
shall extend to any subsidiary which may be
organized by the Authority.
On September 11, 1996, however, this Court
rendered a decision in Mactan-Cebu
International Airport Authority v. Marcos4 (the
1996 MCIAA case) declaring that upon the
effectivity of Republic Act No. 7160 (The Local
Government Code of 1991), petitioner was no
longer exempt from real estate taxes. The Court
held:
Since the last paragraph of Section 234
unequivocally withdrew, upon the effectivity of
the LGC, exemptions from payment of real
property taxes granted to natural or juridical
persons, including government-owned or
controlled corporations, except as provided in
the said section, and the petitioner is,
undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from
such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn. x x x.
On January 7, 1997, respondent City issued to
petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan
International Airport in the amount of
₱162,058,959.52. Petitioner complained that
there were discrepancies in said Statement of
Real Estate Tax as follows:
(a) [T]he statement included lots and buildings
not found in the inventory of petitioner’s real
properties;
(b) [S]ome of the lots were covered by two
separate tax declarations which resulted in
double assessment;
(c) [There were] double entries pertaining to the
same lots; and
(d) [T]he statement included lots utilized
exclusively for governmental purposes.5
Respondent City amended its billing and sent a
new Statement of Real Estate Tax to petitioner in
the amount of ₱151,376,134.66. Petitioner
averred that this amount covered real estate
taxes on the lots utilized solely and exclusively
for public or governmental purposes such as the
airfield, runway and taxiway, and the lots on
which they are situated.6
Petitioner paid respondent City the amount of
four million pesos (₱4,000,000.00) monthly,
which was later increased to six million pesos
(₱6,000,000.00) monthly. As of December 2003,
petitioner had paid respondent City a total of
₱275,728,313.36.7
Upon request of petitioner’s General Manager,
the Secretary of the Department of Justice (DOJ)
issued Opinion No. 50, Series of 1998,8 and we
quote the pertinent portions of said Opinion
below:
You further state that among the real properties
deemed transferred to MCIAA are the airfield,
runway, taxiway and the lots on which the
runway and taxiway are situated, the tax
declarations of which were transferred in the
name of the MCIAA. In 1997, the City of Lapu-
Lapu imposed real estate taxes on these
properties invoking the provisions of the Local
Government Code.
It is your view that these properties are not
subject to real property tax because they are
exclusively used for airport purposes. You said
that the runway and taxiway are not only used
by the commercial airlines but also by the
Philippine Air Force and other government
agencies. As such and in conjunction with the
above interpretation of Section 15 of R.A. No.
6958, you believe that these properties are
considered owned by the Republic of the
Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The
properties used for airport purposes (i.e. airfield,
runway, taxiway and the lots on which the
runway and taxiway are situated) are owned by
the Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the
legislature has complete control over the
property which a municipal corporation has
acquired in its public or governmental capacity
and which is devoted to public or governmental
use. The municipality in dealing with said
property is subject to such restrictions and
limitations as the legislature may impose. On the
other hand, property which a municipal
corporation acquired in its private or proprietary
capacity, is held by it in the same character as a
private individual. Hence, the legislature in
dealing with such property, is subject to the
constitutional restrictions concerning property
(Martin, Public Corporations [1997], p. 30; see
also Province of Zamboanga del [Norte] v. City of
Zamboanga [131 Phil. 446]). The same may be
said of properties transferred to the MCIAA and
used for airport purposes, such as those involved
herein. Since such properties are of public
dominion, they are deemed held by the MCIAA
in trust for the Government and can be alienated
only as may be provided by law.
Based on the foregoing, it is our considered
opinion that the properties used for airport
purposes, such as the airfield, runway and
taxiway and the lots on which the runway and
taxiway are located, are owned by the State or
by the Republic of the Philippines and are merely
held in trust by the MCIAA, notwithstanding that
certificates of titles thereto may have been
issued in the name of the MCIAA. (Emphases
added.)
Based on the above DOJ Opinion, the
Department of Finance issued a 2nd
Indorsement to the City Treasurer of Lapu-Lapu
dated August 3, 1998,9 which reads:
The distinction as to which among the MCIAA
properties are still considered "owned by the
State or by the Republic of the Philippines," such
as the resolution in the above-cited DOJ Opinion
No. 50, for purposes of real property tax
exemption is hereby deemed tenable
considering that the subject "airfield, runway,
taxiway and the lots on which the runway and
taxiway are situated" appears to be the subject
of real property tax assessment and collection of
the city government of Lapu-Lapu, hence, the
same are definitely located within the
jurisdiction of Lapu-Lapu City. Moreover, then
Undersecretary Antonio P. Belicena of the
Department of Finance, in his 1st Indorsement
dated May 18, 1998, advanced that "this
Department (DOF) interposes no objection to
the request of Mactan Cebu International
Airport Authority for exemption from payment
of real property tax on the property used for
airport purposes" mentioned above.
The City Assessor, therefore, is hereby instructed
to transfer the assessment of the subject airfield,
runway, taxiway and the lots on which the
runway and taxiway are situated, from the
"Taxable Roll" to the "Exempt Roll" of real
properties.
The City Treasurer thereat should be informed
on the action taken for his immediate
appropriate action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent
petitioner a Statement of Real Property Tax
Balances up to the year 2002 reflecting the
amount of ₱246,395,477.20. Petitioner claimed
that the statement again included the lots
utilized solely and exclusively for public purpose
such as the airfield, runway, and taxiway and the
lots on which these are built. Respondent
Pacaldo then issued Notices of Levy on 18 sets of
real properties of petitioner.10
Petitioner filed a petition for prohibition11 with
the Regional Trial Court (RTC) of Lapu-Lapu City
with prayer for the issuance of a temporary
restraining order (TRO) and/or a writ of
preliminary injunction, docketed as SCA No.
6056-L. Branch 53 of RTC Lapu-Lapu City then
issued a 72-hour TRO. The petition for
prohibition sought to enjoin respondent City
from issuing a warrant of levy against
petitioner’s properties and from selling them at
public auction for delinquency in realty tax
obligations. The petition likewise prayed for a
declaration that the airport terminal building,
the airfield, runway, taxiway and the lots on
which they are situated are exempted from real
estate taxes after due hearing. Petitioner based
its claim of exemption on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for
extension of the TRO. Thus, on December10,
2003, respondent City auctioned 27 of
petitioner’s properties. As there was no
interested bidder who participated in the
auction sale, respondent City forfeited and
purchased said properties. The corresponding
Certificates of Sale of Delinquent Property were
issued to respondent City.12
Petitioner claimed before the RTC that it had
discovered that respondent City did not pass any
ordinance authorizing the collection of real
property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment.
Petitioner argued that without the
corresponding tax ordinances, respondent City
could not impose and collect real property tax,
an additional tax for the SEF, and penalty interest
from petitioner.13
The RTC issued an Order14 on December 28, 2004
granting petitioner’s application for a writ of
preliminary injunction. The pertinent portions of
the Order are quoted below:
The supervening legal issue has rendered it
imperative that the matter of the consolidation
of the ownership of the auctioned properties be
placed on hold. Furthermore, it is the view of the
Court that great prejudice and damage will be
suffered by petitioner if it were to lose its
dominion over these properties now when the
most important legal issue has still to be resolved
by the Court. Besides, the respondents and the
intervenor have not sufficiently shown cause
why petitioner’s application should not be
granted.
WHEREFORE, the foregoing considered,
petitioner’s application for a writ of preliminary
injunction is granted. Consequently, upon the
approval of a bond in the amount of one million
pesos (₱1,000,000.00), let a writ of preliminary
injunction issue enjoining the respondents, the
intervenor, their agents or persons acting in
[their] behalf, to desist from consolidating and
exercising ownership over the properties of the
petitioner.
However, upon motion of respondents, the RTC
lifted the writ of preliminary injunction in an
Order15 dated December 5, 2005. The RTC
reasoned as follows:
The respondent City, in the courseof the hearing
of its motion, presented to this Court a certified
copy of its Ordinance No. 44 (Omnibus Tax
Ordinance of the City of Lapu-Lapu), Section 25
whereof authorized the collection of a rate of
one and one-half (1 1/2) [per centum] from
owners, executors or administrators of any real
estate lying within the jurisdiction of the City of
Lapu-Lapu, based on the assessed value as
shown in the latest revision.
Though this ordinance was enacted prior to the
effectivity of Republic Act No. 7160 (Local
Government Code of 1991), to the mind of the
Court this ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 x x x
[and the] Implementing Rules and Regulations of
RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is
within the rates prescribed by RA 7160, though
the 25% penalty collected is higher than the 2%
interest allowed under Sec. 255 of the said law
which provides:
In case of failure to pay the basic real property
tax or any other tax levied under this Title upon
the expiration of the periods as provided in
Section 250, or when due, as the case may be,
shall subject the taxpayer to the payment of
interest at the rate of two percent (2%) per
month on the unpaid amount or a fraction
thereof, until the delinquent tax shall have been
fully paid: Provided, however, That in no case
shall the total interest on the unpaid tax or
portion thereof exceed thirty-six (36) months.
This difference does not however detract from
the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA
7160 and Article 278 of the Implementing Rules
and Regulations. The outcome of this disparity is
simply that respondent City can only collect an
interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to
recompute the petitioner’s tax liability.
It is also the Court’s perception that respondent
City can still collect the additional 1% tax on real
property without an ordinance to this effect. It
may be recalled that Republic Act No. 5447 has
created the Special Education Fund which is
constituted from the proceeds of the additional
tax on real property imposed by the law.
Respondent City has collected this tax as
mandated by this law without any ordinance for
the purpose, as there is no need for it. Even
when RA 5447 was amended by PD 464 (Real
Property Tax Code), respondent City had
continued to collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but
what has been repealed are only Section 3, a(3)
and b(2) which concern the allocation of the
additional tax, considering that under RA 7160,
the proceeds of the additional 1% tax on real
property accrue exclusively to the Special
Education Fund. Nevertheless, RA 5447 has not
been totally repealed; there is only a partial
repeal.
It may be observed that there is no requirement
in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax.
This is so since RA 5447 is still in force and effect,
and the declared policy of the government in
enacting the law, which is to contribute to the
financial support of the goals of education as
provided in the Constitution, necessitates the
continued and uninterrupted collection of the
tax. Considering that this is a tax of far-reaching
importance, to require the passage of an
ordinance in order that the tax may be collected
would be to place the collection of the tax at the
option of the local legislature. This would run
counter to the declared policy of the
government when the SEF was created and the
tax imposed.
As regards the allegation of respondents that
this Court has no jurisdiction to entertain the
instant petition, the Court deems it proper, at
this stage of the proceedings, not to treat this
issue, as it involves facts which are yet to be
established.
x x x [T]he Court’s issuance of a writ of
preliminary injunction may appear to be a futile
gesture in the light of Section 263 of RA 7160. x
x x.
xxxx
It would seem from the foregoing provisions,
that once the taxpayer fails to redeem within the
one-year period, ownership fully vests on the
local government unit concerned. Thus, when in
the present case petitioner failed to redeem the
parcels of land acquired by respondent City, the
ownership thereof became fully vested on
respondent City without the latter having to
perform any other acts to perfect its ownership.
Corollary thereto, ownership on the part of
respondent City has become a fait accompli.
WHEREFORE, in the light of the foregoing
considerations, respondents’ motion for
reconsideration is granted, and the order of this
Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of
preliminary injunction issued by this Court is
hereby lifted.
Aggrieved, petitioner filed a petition for
certiorari16 with the Court of Appeals (Cebu City),
with urgent prayer for the issuance of a TRO
and/or writ of preliminary injunction, docketed
as CA-G.R. SP No. 01360. The Court of Appeals
(Cebu City) issued a TRO17 on January 5, 2006
and shortly thereafter, issued a writ of
preliminary injunction18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated
the questioned Decision on October 8, 2007,
holding that petitioner is a government-owned
or controlled corporation and its properties are
subject to realty tax. The dispositive portion of
the questioned Decision reads:
WHEREFORE, in view of the foregoing, judgment
is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the
airfield, runway, taxiway and the lots on which
they are situated NOT EXEMPT from the real
estate tax imposed by the respondent City of
Lapu-Lapu;
b. We DECLARE the imposition and collection of
the real estate tax, the additional levy for the
Special Education Fund and the penalty interest
as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code,
respondent city can only collect an interest of 2%
per month on the unpaid tax which total interest
shall, in no case, exceed thirty-six (36) months; c.
We DECLARE the sale in public auction of the
aforesaid properties and the eventual forfeiture
and purchase of the subject property by the
respondent City of Lapu-Lapu as NULL and VOID.
However, petitioner MCIAA’s property is
encumbered only by a limited lien possessed by
the respondent City of Lapu-Lapu in accord with
Section 257 of the Local Government
Code.19 Petitioner filed a Motion for Partial
Reconsideration20 of the questioned Decision
covering only the portion of said decision
declaring that petitioner is a GOCC and,
therefore, not exempt from the realty tax and
special education fund imposed by respondent
City. Petitioner cited Manila International
Airport Authority v. Court of Appeals21 (the 2006
MIAA case) involving the City of Parañaque and
the Manila International Airport Authority.
Petitioner claimed that it had been described by
this Court as a government instrumentality, and
that it followed "as a logical consequence that
petitioner is exempt from the taxing powers of
respondent City of Lapu-Lapu."22 Petitioner
alleged that the 1996 MCIAA case had been
overturned by the Court in the 2006 MIAA case.
Petitioner thus prayed that it be declared
exempt from paying the realty tax, special
education fund, and interest being collected by
respondent City.
On February 12, 2008, the Court of Appeals
denied petitioner’s motion for partial
reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the
precedent established in the 1996 MCIAA case
and refused to apply the 2006 MIAA case. The
Court of Appeals wrote in the questioned
Decision: "We find that our position is in line with
the coherent and cohesive interpretation of the
relevant provisions of the Local Government
Code on local taxation enunciated in the [1996
MCIAA] case which to our mind is more elegant
and rational and provides intellectual clarity than
the one provided by the Supreme Court in the
[2006] MIAA case."23
In the questioned Decision, the Court of Appeals
held that petitioner’s airport terminal building,
airfield, runway, taxiway, and the lots on which
they are situated are not exempt from real
estate tax reasoning as follows:
Under the Local Government Code (LGC for
brevity), enacted pursuant to the constitutional
mandate of local autonomy, all natural and
juridical persons, including government-owned
or controlled corporations (GOCCs),
instrumentalities and agencies, are no longer
exempt from local taxes even if previously
granted an exemption. The only exemptions
from local taxes are those specifically provided
under the Code itself, or those enacted through
subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3,
Article X of the Constitution, provides for the
exercise by local government units of their
power to tax, the scope thereof or its limitations,
and the exemptions from local taxation.
Section 133 of the LGC prescribes the common
limitations on the taxing powers of local
government units. x x x.
xxxx
The above-stated provision, however, qualified
the exemption of the National Government, its
agencies and instrumentalities from local
taxation with the phrase "unless otherwise
provided herein."
Section 232 of the LGC provides for the power of
the local government units (LGUs for brevity) to
levy real property tax. x x x.
xxxx
Section 234 of the LGC provides for the
exemptions from payment of real property taxes
and withdraws previous exemptions granted to
natural and juridical persons, including
government-owned and controlled
corporations, except as provided therein. x x x.
xxxx
Section 193 of the LGC is the general provision
on withdrawal of tax exemption privileges. x x
x.24 (Citations omitted.)
The Court of Appeals went on to state that
contrary to the ruling of the Supreme Court in
the 2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute
prohibition on the power of the LGUs to tax the
National Government, its agencies and
instrumentalities as the same is qualified by
Sections 193, 232 and 234 which "otherwise
provided"; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis
ours.)
The Court of Appeals ratiocinated in the
following manner:
Pursuant to the explicit provision of Section 193
of the LGC, exemptions previously enjoyed by
persons, whether natural or juridical, like the
petitioner MCIAA, are deemed withdrawn upon
the effectivity of the Code. Further, the last
paragraph of Section 234 of the Code also
unequivocally withdrew, upon the Code’s
effectivity, exemptions from payment of real
property taxes previously granted to natural or
juridical persons, including government-owned
or controlled corporations, except as provided in
the said section. Petitioner MCIAA, undoubtedly
a juridical person, it follows that its exemption
from such tax granted under Section 14 of R.A.
6958 has been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is
acknowledged that, under Section 133 of the
LGC, instrumentalities were generally exempt
from all forms of local government taxation,
unless otherwise provided in the Code. On the
other hand, Section 232 "otherwise provided"
insofar as it allowed local government units to
levy an ad valorem real property tax, irrespective
of who owned the property. At the same time,
the imposition of real property taxes under
Section 232 is, in turn, qualified by the phrase
"not hereinafter specifically exempted." The
exemptions from real property taxes are
enumerated in Section 234 of the Code which
specifically states that only real properties
owned by the Republic of the Philippines or any
of its political subdivisions are exempted from
the payment of the tax. Clearly, instrumentalities
or GOCCs do not fall within the exceptions under
Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the
prohibition on taxing the national government,
its agencies and instrumentalities under Section
133 is qualified by Sections 232 and 234, and
accordingly, the only relevant exemption now
applicable to these bodies is what is now
provided under Section 234(a) of the Code. It
may be noted that the express withdrawal of
previously granted exemptions to persons from
the payment of real property tax by the LGC does
not even make any distinction as to whether the
exempt person is a governmental entity or not.
As Sections 193 and 234 of the Code both state,
the withdrawal applies to "all persons, including
GOCCs," thus encompassing the two classes of
persons recognized under our laws, natural
persons and juridical persons.
xxxx
The question of whether or not petitioner
MCIAA is an instrumentality or a GOCC has
already been lengthily but soundly, cogently and
lucidly answered in the [1996 MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority
of the Supreme Court in the [2006 MIAA] case
that MIAA (and also petitioner MCIAA) is not a
government-owned or controlled corporation
but an instrumentality based on Section 2(10) of
the Administrative Code of 1987 appears to be
unsound. In the [2006 MIAA] case, the majority
justifies MIAA’s purported exemption on Section
133(o)of the Local Government Code which
places "agencies and instrumentalities: as
generally exempt from the taxation powers of
the LGUs. It further went on to hold that "By
express mandate of the Local Government Code,
local governments cannot impose any kind of tax
on national government instrumentalities like
the MIAA." x x x.26 (Citations omitted.)
The Court of Appeals further cited Justice Tinga’s
dissent in the 2006 MIAA case as well as
provisions from petitioner MCIAA’s charter to
show that petitioner is a GOCC.27 The Court of
Appeals wrote:
These cited provisions establish the fitness of the
petitioner MCIAA to be the subject of legal
relations. Under its charter, it has the power to
acquire, possess and incur obligations. It also has
the power to contract in its own name and to
acquire title to movable or immovable property.
More importantly, it may likewise exercise
powers of a corporation under the Corporation
Code. Moreover, based on its own allegation, it
even recognized itself as a GOCC when it alleged
in its petition for prohibition filed before the
lower court that it "is a body corporate organized
and existing under Republic Act No. 6958 x x x."
We also find to be not meritorious the assertion
of petitioner MCIAA that the respondent city can
no longer challenge the tax-exempt character of
the properties since it is estopped from doing so
when respondent City of Lapu-Lapu, through its
former mayor, Ernest H. Weigel, Jr., had long ago
conceded that petitioner’s properties are
exempt from real property tax.
It is not denied by the respondent city that it
considered, through its former mayor, Ernest H.
Weigel, Jr., petitioner’s subject properties,
specifically the runway and taxiway, as exempt
from taxes. However, as astutely pointed out by
the respondent city it "can never be in estoppel,
particularly in matters involving taxes. It is a well-
known rule that erroneous application and
enforcement of the law by public officers do not
preclude subsequent correct application of the
statute, and that the Government is never
estopped by mistake or error on the part of its
agents."28 (Citations omitted.)
The Court of Appeals established the following:
a) [R]espondent City was able to prove and
establish that it has a valid and existing
ordinance for the imposition of realty tax against
petitioner MCIAA;
b) [T]he imposition and collection of additional
levy of 1% Special Education Fund (SEF) is
authorized by law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for
delinquent taxes is not only authorized by law
but is likewise [sanctioned] by respondent City’s
ordinance.29
The Court of Appeals likewise held that
respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus
Tax Ordinance of Lapu-Lapu City, which provided
for the imposition of real property tax. The
relevant provision reads:
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-
half (1 1/2) percentum shall be collected from
owners, executors or administrators of any real
estate lying within the territorial jurisdiction of
the City of Lapu-Lapu, based on the assessed
value as shown in the latest revision.30
The Court of Appeals found that even if
Ordinance No. 44 was enacted prior to the
effectivity of the LGC, it remained in force and
effect, citing Section 529 of the LGC and Article
278 of the LGC’s Implementing Rules and
Regulations.31
As regards the Special Education Fund, the Court
of Appeals held that respondent City can still
collect the additional 1% tax on real property
even without an ordinance to this effect, as this
is authorized by Republic Act No. 5447, as
amended by Presidential Decree No. 464 (the
Real Property Tax Code), which does not require
an enabling tax ordinance. The Court of Appeals
affirmed the RTC’s ruling that Republic Act No.
5447 was still in force and effect
notwithstanding the passing of the LGC, as the
latter only partially repealed the former law.
What Section 534 of the LGC repealed was
Section 3 a(3) and b(2) of Republic Act No. 5447,
and not the entire law that created the Special
Education Fund.32 The repealed provisions
referred to allocation of taxes on Virginia type
cigarettes and duties on imported leaf tobacco
and the percentage remittances to the taxing
authority concerned. The Court of Appeals, citing
The Commission on Audit of the Province of
Cebu v. Province of Cebu,33 held that "[t]he
failure to add a specific repealing clause
particularly mentioning the statute to be
repealed indicates that the intent was not to
repeal any existing law on the matter, unless an
irreconcilable inconsistency and repugnancy
exists in the terms of the new and the old
laws."34 The Court of Appeals quoted the RTC’s
discussion on this issue, which we reproduce
below:
It may be observed that there is no requirement
in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax.
This is so since R.A. 5447 is still in force and
effect, and the declared policy of the
government in enacting the law, which is to
contribute to the financial support of the goals
of education as provided in the Constitution,
necessitates the continued and uninterrupted
collection of the tax. Considering that this is a tax
of far-reaching importance, to require the
passage of an ordinance in order that the tax
may be collected would be to place the
collection of the tax at the option of the local
legislature. This would run counter to the
declared policy of the government when the SEF
was created and the tax imposed.35 Regarding
the penalty interest, the Court of Appeals found
that Section 30 of Ordinance No. 44 of
respondent City provided for a penalty surcharge
of 25% of the tax due for a given year. Said
provision reads:
Section 30. – PENALTY FOR FAILURE TO PAY TAX.
– Failure to pay the tax provided for under this
Chapter within the time fixed in Section 27, shall
subject the taxpayer to a surcharge of twenty-
five percent (25%), without interest.36
The Court of Appeals however declared that
after the effectivity of the Local Government
Code, the respondent City could only collect
penalty surcharge up to the extent of 72%,
covering a period of three years or 36 months,
for the entire delinquent property.37 This was
lower than the 25% per annum surcharge
imposed by Ordinance No. 44.38 The Court of
Appeals affirmed
the findings of the RTC in the decision quoted
below:
The tax collected under Ordinance No. 44 is
within the rates prescribed by RA 7160, though
the 25% penalty collected is higher than the 2%
allowed under Sec. 255 of the said law which
provides:
xxxx
This difference does not however detract from
the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA
No. 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this
disparity is simply that respondent City can only
collect an interest of 2% per month on the
unpaid tax. Consequently, respondent city will
have to [recompute] the petitioner’s tax
liability.39
It is worthy to note that the Court of Appeals
nevertheless held that even if it is clear that
respondent City has the power to impose real
property taxes over petitioner, "it is also
evident and categorical that, under Republic
Act No. 6958, the properties of petitioner
MCIAA may not be conveyed or transferred to
any person or entity except to the national
government."40 The relevant provisions of the
said law are quoted below:
Section 4. Functions, Powers and Duties.– The
Authority shall have the following functions,
powers and duties:
xxxx
(e) To acquire, purchase, own, administer, lease,
mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever
kind and nature, whether movable or
immovable, or any interest therein: Provided,
That any asset located in the Mactan
International Airport important to national
security shall not be subject to alienation or
mortgage by the Authority nor to transfer to any
entity other than the National Government[.]
Section 13. Borrowing Power.– The Authority
may, in accordance with Section 21, Article XII of
the Constitution and other existing laws, rules
and regulations on local or foreign borrowing,
raise funds, either from local or international
sources, by way of loans, credit or securities, and
other borrowing instruments with the power to
create pledges, mortgages and other voluntary
liens or encumbrances on any of its assets or
properties, subject to the prior approval of the
President of the Philippines.
All loans contracted by the Authority under this
section, together with all interests and other
sums payable in respect thereof, shall constitute
a charge upon all the revenues and assets of the
Authority and shall rank equally with one
another, but shall have priority over any other
claim or charge on the revenue and assets of the
Authority: Provided, That this provision shall not
be construed as a prohibition or restriction on
the power of the Authority to create pledges,
mortgages and other voluntary liens or
encumbrances on any asset or property of the
Authority. The payment of the loans or other
indebtedness of the Authority may be
guaranteed by the National Government subject
to the approval of the President of the
Philippines.
The Court of Appeals concluded that "it is clear
that petitioner MCIAA is denied by its charter the
absolute right to dispose of its property to any
person or entity except to the national
government and it is not empowered to obtain
loans or encumber its property without the
approval of the President."41 The questioned
Decision contained the following conclusion:
With the advent of RA 7160, the Local
Government Code, the power to tax is no longer
vested exclusively on Congress. LGUs, through its
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. And one of the most significant
provisions of the LGC is the removal of the
blanket inclusion of instrumentalities and
agencies of the national government from the
coverage of local taxation. The express
withdrawal by the Code of previously granted
exemptions from realty taxes applied to
instrumentalities and government-owned or
controlled corporations (GOCCs) such as the
petitioner Mactan-Cebu International Airport
Authority. Thus, petitioner MCIAA became a
taxable person in view of the withdrawal of the
realty tax exemption that it previously enjoyed
under Section 14 of RA No. 6958 of its charter.
As expressed and categorically held in the
Mactan case, the removal and withdrawal of tax
exemptions previously enjoyed by persons,
natural or juridical, are consistent with the State
policy to ensure autonomy to local governments
and the objective of the Local Government Code
that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest
development as self-reliant communities and
make them effective partners in the attainment
of national goals.
However, in the case at bench, petitioner
MCIAA’s charter expressly bars the alienation or
mortgage of its property to any person or entity
except to the national government. Therefore,
while petitioner MCIAA is a taxable person for
purposes of real property taxation, respondent
City of Lapu-Lapu is prohibited from seizing,
selling and owning these properties by and
through a public auction in order to satisfy
petitioner MCIAA’s tax liability.42 (Citations
omitted.)
In the questioned Resolution that affirmed its
questioned Decision, the Court of Appeals
denied petitioner’s motion for reconsideration
based on the following grounds:
First, the MCIAA case remains the controlling law
on the matter as the same is the established
precedent; not the MIAA case but the MCIAA
case since the former, as keenly pointed out by
the respondent City of Lapu-Lapu, has not yet modification, much less reversal,
43
attained finality as there is still yet a pending thereof. (Emphasis added, citations omitted.)
motion for reconsideration filed with the
PETITIONER’S THEORY
Supreme Court in the aforesaid case.
Petitioner is before us now claiming that this
Second, and more importantly, the ruling of the
Court, in the 2006 MIAA case, had expressly
Supreme Court in the MIAA case cannot be
declared that petitioner, while vested with
similarly invoked in the case at bench. The said
corporate powers, is not considered a
case cannot be considered as the "law of the
government-owned or controlled corporation,
case." The "law of the case" doctrine has been
but is a government instrumentality like the
defined as that principle under which
Manila International Airport Authority (MIAA),
determinations of questions of law will generally
Philippine Ports Authority (PPA), University of
be held to govern a case throughout all its
the Philippines, and Bangko Sentral ng Pilipinas
subsequent stages where such determination
(BSP). Petitioner alleges that as a government
has already been made on a prior appeal to a
instrumentality, all its airport lands and buildings
court of last resort. It is merely a rule of
are exempt from real estate taxes imposed by
procedure and does not go to the power of the
respondent City.44 Petitioner alleges that
court, and will not be adhered to where its
Republic Act No. 6958 placed "a limitation on
application will result in an unjust decision. It
petitioner’s administration of its assets and
relates entirely to questions of law, and is
properties" as it provides under Section 4(e) that
confined in its operation to subsequent
"any asset in the international airport important
proceedings in the same case. According to said
to national security cannot be alienated or
doctrine, whatever has been irrevocably
mortgaged by petitioner or transferred to any
established constitutes the law of the case only
entity other than the National Government."45
as to the same parties in the same case and not
to different parties in an entirely different case. Thus, petitioner claims that the Court of Appeals
Besides, pending resolution of the aforesaid (Cebu City) gravely erred in disregarding the
motion for reconsideration in the MIAA case, the following:
latter case has not irrevocably established
I
anything.
Thus, after a thorough and judicious review of PETITIONER IS A GOVERNMENT
the allegations in petitioner’s motion for INSTRUMENTALITY AS EXPRESSLY DECLARED BY
reconsideration, this Court resolves to deny the THE HONORABLE COURT IN THE MIAA CASE. AS
SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE
same as the matters raised therein had already
TAXES IMPOSED BY RESPONDENT CITY OF
been exhaustively discussed in the decision
LAPULAPU.
sought to be reconsidered, and that no new
matters were raised which would warrant the II
THE PROPERTIES OF PETITIONER CONSISTING OF
THE AIRPORT TERMINAL BUILDING, AIRFIELD,
RUNWAY, TAXIWAY, INCLUDING THE LOTS ON
WHICH THEY ARE SITUATED, ARE EXEMPT FROM
REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT
IMPOSE REAL PROPERTY TAX WITHOUT ANY
APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT
IMPOSE AN ADDITIONAL 1% TAX FOR THE
SPECIAL EDUCATION FUND IN THE ABSENCE OF
ANY CORRESPONDING ORDINANCE.
V Section 2 of Republic Act No. 6958 reads:
RESPONDENT CITY OF LAPU-LAPU CANNOT
IMPOSE ANY INTEREST SANSANY ORDINANCE
MANDATING ITS IMPOSITION.46
Petitioner claims the following similarities with
MIAA:
1. MCIAA belongs to the same class and
performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the
international and domestic airport in Paranaque
City for public use, while MCIAA was organized
to operate the international and domestic
airport in Mactan for public use.
4. Both are attached agencies of the Department
of Transportation and Communications.47
Petitioner compares its charter (Republic Act No.
6958) with that of MIAA (Executive Order No.
903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International
Airport Authority. There is hereby established a
body corporate to be known as the Manila
International Airport Authority which shall be
attached to the Ministry of Transportation and
Communications. The principal office of the
Authority shall be located at the New Manila
International Airport. The Authority may
establish such offices, branches, agencies or
subsidiaries as it may deem proper and
necessary; x x x.
Section 2. Creation of the Mactan-Cebu
International Airport Authority.– There is hereby
established a body corporate to be known as the
Mactan-Cebu International Airport Authority
which shall be attached to the Department of
Transportation and Communications. The
principal office of the Authority shall be located
at the Mactan International Airport, Province of
Cebu.
The Authority may have such branches, agencies
or subsidiaries as it may deem proper and
necessary.
As to MIAA’s purposes and objectives, Section 4
of Executive Order No. 903 reads:
Sec. 4. Purposes and Objectives. The Authority
shall have the following purposes and objectives:
(a) To help encourage and promote international
and domestic air traffic in the Philippines as a
means of making the Philippines a center of
international trade and tourism and accelerating
the development of the means of transportation
and communications in the country;
(b) To formulate and adopt for application in the
Airport internationally acceptable standards of
airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and
reliable airport facilities for international and
domestic air travel.
Petitioner claims that the above purposes and
objectives are analogous to those enumerated in
its charter, specifically Section 3 of Republic Act
No. 6958, which reads:
Section 3. Primary Purposes and Objectives.–
The Authority shall principally undertake the
economical, efficient and effective control,
management and supervision of the Mactan
International Airport in the Province of Cebu and
the Lahug Airport in Cebu City, hereinafter
collectively referred to as the airports, and such
other airports as may be established in the
Province of Cebu. In addition, it shall have the
following objectives:
(a) To encourage, promote and develop
international and domestic air traffic in the
central Visayas and Mindanao regions as a
means of making the regions centers of
international trade and tourism, and
accelerating the development of the means of
transportation and communications in the
country; and
(b) To upgrade the services and facilities of the
airports and to formulate internationally
acceptable standards of airport accommodation
and service.
The powers, functions and duties of MIAA under
Section 5 of Executive Order No. 903 are:
Sec. 5. Functions, Powers and Duties. The
Authority shall have the following functions,
powers and duties:
(a) To formulate, in coordination with the Bureau
of Air Transportation and other appropriate
government agencies, a comprehensive and
integrated policy and program for the Airport
and to implement, review and update such
policy and program periodically;
(b) To control, supervise, construct, maintain,
operate and provide such facilities or services as
shall be necessary for the efficient functioning of
the Airport;
(c) To promulgate rules and regulations
governing the planning, development,
maintenance, operation and improvement of
the Airport, and to control and/or supervise as
may be necessary the construction of any
structure or the rendition of any services within
the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal
the same from time to time;
(h) To execute or enter into contracts of any kind
or nature;
(i) To acquire, purchase, own, administer, lease,
mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever
kind and nature, whether movable or
immovable, or any interest therein;
(j) To exercise the power of eminent domain in
the pursuit of its purposes and objectives;
(k) To levy, and collect dues, charges, fees or
assessments for the use of the Airport premises,
works, appliances, facilities or concessions or for
any service provided by the Authority, subject to
the approval of the Minister of Transportation
and Communications in consultation with the
Minister of Finance, and subject further to the
provisions of Batas Pambansa Blg. 325 where
applicable;
(l) To invest its idle funds, as it may deem proper,
in government securities and other evidences of
indebtedness of the government;
(m) To provide services, whether on its own or
otherwise, within the Airport and the
approaches thereof, which shall include but shall
not be limited to, the following:
(1) Aircraft movement and allocation of parking
areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services
directed towards the care, convenience and
security of passengers, visitors and other airport
users; and
(4) Sorting, weighing, measuring, warehousing
or handling of baggage and goods.
(n) To perform such other acts and transact such
other business, directly or indirectly necessary,
incidental or conducive to the attainment of the
purposes and objectives of the Authority,
including the adoption of necessary measures to
remedy congestion in the Airport; and
(o) To exercise all the powers of a corporation
under the Corporation Law, insofar as these
powers are not inconsistent with the provisions
of this Executive Order.
Petitioner claims that MCIAA has related
functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision
quoted below:
Section 4. Functions, Powers and Duties.– The
Authority shall have the following functions,
powers and duties:
(a) To formulate a comprehensive and
integrated development policy and program for
the airports and to implement, review and
update such policy and program periodically;
(b) To control, supervise, construct, maintain,
operate and provide such facilities or services as
shall be necessary for the efficient functioning of
the airports;
(c) To promulgate rules and regulations
governing the planning, development,
maintenance, operation and improvement of
the airports, and to control and supervise the
construction of any structure or the rendition of
any service within the airports;
(d) To exercise all the powers of a corporation
under the Corporation Code of the Philippines,
insofar as those powers are not inconsistent with
the provisions of this Act;
(e) To acquire, purchase, own, administer, lease,
mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever
kind and nature, whether movable or
immovable, or any interest therein: Provided,
That any asset located in the Mactan
International Airport important to national
security shall not be subject to alienation or
mortgage by the Authority nor to transfer to any
entity other than the National Government;
(f) To exercise the power of eminent domain in
the pursuit of its purposes and objectives;
(g) To levy and collect dues, charges, fees or
assessments for the use of airport premises,
works, appliances, facilities or concessions, or
for any service provided by the Authority;
(h) To retain and appropriate dues, fees and
charges collected by the Authority relative to the
use of airport premises for such measures as
may be necessary to make the Authority more
effective and efficient in the discharge of its
assigned tasks;
(i) To invest its idle funds, as it may deem proper,
in government securities and other evidences of
indebtedness; and
(j) To provide services, whether on its own or
otherwise, within the airports and the
approaches thereof as may be necessary or in
connection with the maintenance and operation
of the airports and their facilities.
Petitioner claims that like MIAA, it has police
authority within its premises, as shown in their
respective charters quoted below:
EO 903, Sec. 6. Police Authority. — The Authority
shall have the power to exercise such police
authority as may be necessary within its
premises to carry out its functions and attain its
purposes and objectives, without prejudice to
the exercise of functions within the same
premises by the Ministry of National Defense
through the Aviation Security Command
(AVSECOM) as provided in LOI 961: Provided,
That the Authority may request the assistance of
law enforcement agencies, including request for
deputization as may be required. x x x.
R.A. No. 6958, Section 5. Police Authority.– The
Authority shall have the power to exercise such
police authority as may be necessary within its
premises or areas of operation to carry out its
functions and attain its purposes and objectives:
Provided, That the Authority may request the
assistance of law enforcement agencies,
including request for deputization as may be
required. x x x.
Petitioner pointed out other similarities in the
two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil
Service Law, rules and regulations (Section 15,
Executive Order No. 903; Section 12, Republic
Act No. 6958);
2. Both charters contain a proviso on tax
exemptions (Section 21, Executive Order No.
903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit
to the President an annual report generally
dealing with their activities and operations
(Section 14, Executive Order No. 903; Section 11,
Republic Act No. 6958); and
4. Both have borrowing power subject to the
approval of the President (Section 16, Executive
Order No. 903; Section 13, Republic Act No.
6958).48
Petitioner suggests that it is because of its
similarity with MIAA that this Court, in the 2006
MIAA case, placed it in the same class as MIAA
and considered it as a government
instrumentality. Petitioner submits that since it
is also a government instrumentality like MIAA,
the following conclusion arrived by the Court in
the 2006 MIAA case is also applicable to
petitioner:
Under Section 2(10) and (13) of the
Introductory Provisions of the Administrative
Code, which governs the legal relation and
status of government units, agencies and
offices within the entire government
machinery, MIAA is a government
instrumentality and not a government-owned
or controlled corporation. Under Section 133(o)
of the Local Government Code, MIAA as a
government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees
or charges of any kind" by local governments.
The only exception is when MIAA leases its real
property to a "taxable person" as provided in
Section 234(a) of the Local Government Code,
in which case the specific real property leased
becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings
leased to taxable persons like private parties
are subject to real estate tax by the City of
Parañaque.
Under Article 420 of the Civil Code, the Airport
Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion
and thus owned by the State or the Republic of
the Philippines. Article 420 specifically mentions
"ports x x x constructed by the State," which
includes public airports and seaports, as
properties of public dominion and owned by the
Republic. As properties of public dominion
owned by the Republic, there is no doubt
whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate
tax under Section 234(a) of the Local
Government Code. This Court has also
repeatedly ruled that properties of public
dominion are not subject to execution or
foreclosure sale.49 (Emphases added.)
Petitioner insists that its properties consisting of
the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated
are not subject to real property tax because they
are actually, solely and exclusively used for
public purposes.50 They are indispensable to the
operation of the Mactan International Airport
and by their very nature, these properties are
exempt from tax. Said properties belong to the
State and are merely held by petitioner in trust.
As earlier mentioned, petitioner claims that
these properties are important to national
security and cannot be alienated, mortgaged, or
transferred to any entity except the National
Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real
property taxes as it is a government
instrumentality;
b) Declaring respondent City of Lapu-Lapu as
bereft of any authority to levy and collect the
basic real property tax, the additional tax for the
SEF and the penalty interest for its failure to pass
the corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands
and buildings of petitioner as exempt from real
property taxes as they are used solely and
exclusively for public purpose.51
In its Consolidated Reply filed through the OSG,
petitioner claims that the 2006 MIAA ruling has
overturned the 1996 MCIAA ruling. Petitioner
cites Justice Dante O. Tinga’s dissent in the MIAA
ruling, as follows:
[The] ineluctable conclusion is that the majority
rejects the rationale and ruling in Mactan. The
majority provides for a wildly different
interpretation of Section 133, 193 and 234 of the
Local Government Code than that employed by
the Court in Mactan. Moreover, the parties in
Mactan and in this case are similarly situated, as
can be obviously deducted from the fact that
both petitioners are airport authorities
operating under similarly worded charters. And
the fact that the majority cites doctrines
contrapuntal to the Local Government Code as in
Basco and Maceda evinces an intent to go
against the Court’s jurisprudential trend
adopting the philosophy of expanded local
government rule under the Local Government
Code.
x x x The majority is obviously inconsistent with
Mactan and there is no way these two rulings
can stand together. Following basic principles in
statutory construction, Mactan will be deemed
as giving way to this new ruling.
xxxx
There is no way the majority can be justified
unless Mactan is overturned. The MCIAA and the
MIAA are similarly situated. They are both, as will
be demonstrated, GOCCs, commonly engaged in
the business of operating an airport. They are
the owners of airport properties they
respectively maintain and hold title over these
properties in their name. These entities are both
owned by the State, and denied by their
respective charters the absolute right to dispose
of their properties without prior approval
elsewhere. Both of them are not empowered to
obtain loans or encumber their properties
without prior approval the prior approval of the
President.52 (Citations omitted.)
Petitioner likewise claims that the enactment of
Ordinance No. 070-2007 is an admission on
respondent City’s part that it must have a tax
measure to be able to impose a tax or special
assessment. Petitioner avers that assuming that
it is a non-exempt entity or that its airport lands
and buildings are not exempt, it was only upon
the effectivity of Ordinance No. 070-2007 on
January 1,2008 that respondent City could
properly impose the basic real property tax, the
additional tax for the SEF, and the interest in
case of nonpayment.53
Petitioner filed its Memorandum54 on June 17,
2009.
RESPONDENTS’ THEORY
In their Comment,55 respondents point out that
petitioner partially moved for a reconsideration
of the questioned Decision only as to the issue of
whether petitioner is a GOCC or not. Thus,
respondents declare that the other portions of
the questioned decision had already attained
finality and ought not to be placed in issue in this
petition for certiorari. Thus, respondents
discussed the other issues raised by petitioner
with reservation as to this objection.
Respondents summarized the issues and the
grounds relied upon as follows:
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A
GOVERNMENT INSTRUMENTALITY EXEMPT
FROM PAYING REAL PROPERTY TAXES
WHETHER OR NOT RESPONDENT CITY CAN
[IMPOSE] REALTY TAX, SPECIAL EDUCATION
FUND AND PENALTY INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL
BUILDING, AIRFIELD, RUNWAY, TAXIWAY
INCLUDING THE LOTS ON WHICH THEY ARE
SITUATED ARE EXEMPT FROM REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT
FROM REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE
NOT EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST
GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE
INJURY WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION
OF THE LGC56
Respondents claim that "the mere mention of
MCIAA in the MIAA v. [Court of Appeals] case
does not make it the controlling case on the
matter."57 Respondents further claim that the
1996 MCIAA case where this Court held that
petitioner is a GOCC is the controlling
jurisprudence. Respondents point out that
petitioner and MIAA are two very different
entities. Respondents argue that petitioner is a
GOCC contrary to its assertions, based on its
Charter and on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a
GOCC but an instrumentality of the government,
still the following statement in the 1996 MCIAA
case applies:
Besides, nothing can prevent Congress from
decreeing that even instrumentalities or
agencies of the Government performing
governmental functions may be subject to tax.
Where it is done precisely to fulfill a
constitutional mandate and national policy, no
one can doubt its wisdom.58 Respondents argue
that MCIAA properties such as the terminal
building, taxiway and runway are not exempt
from real property taxation. As discussed in the
1996 MCIAA case, Section 234 of the LGC
omitted GOCCs such as MCIAA from entities
enjoying tax exemptions. Said decision also
provides that the transfer of ownership of the
land to petitioner was absolute and petitioner
cannot evade payment of taxes.59
Even if the following issues were not raised by
petitioner in its motion for reconsideration of
the questioned Decision, and thus the ruling
pertaining to these issues in the questioned
decision had become final, respondents still
discussed its side over its objections as to the
propriety of bringing these up before this Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and
interest.
a. Based on the Local Government Code
(Sections 232, 233, 255) and its IRR (Sections
241, 247).
b. The City of Lapu-Lapu passed in1980
Ordinance No. 44, or the Omnibus Tax
Ordinance, wherein the imposition of real
property tax was made. This Ordinance was in
force and effect by virtue of Article 278 of the IRR
of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the
Revised Lapu-Lapu City Revenue Code, imposed
real property taxes, special education fund and
further provided for the payment of interest and
surcharges. Thus, the issue is passé and is moot
and academic.
3. Respondent City can collect Special Education
Fund.
a. The LGC does not require the enactment of an
ordinance for the collection of the SEF.
b. Congress did not entirely repeal the SEF law,
hence, its levy, imposition and collection need
not be covered by ordinance. Besides, the City
has enacted the Revenue Code containing
provisions for the levy and collection of the
SEF.61
Furthermore, respondents aver that:
1. Collection of taxes is beyond the ambit of
injunction.
a. Respondents contend that the petition only
questions the denial of the writ of preliminary
injunction by the RTC and the Court of Appeals.
Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be
caused petitioner and the direct affront and
challenge against the power to tax, which is an
attribute of sovereignty, it is but appropriate
that injunctive relief should be denied.
2. Petitioner did not comply with LGC provisions
on payment under protest.
a. Petitioner should have protested the tax
imposition as provided in Article 285 of the IRR
of Republic Act No. 7160. Section 252 of Republic
Act No. 716062 requires that the taxpayer’s
protest can only be entertained if the tax is first
paid under protest.63
Respondents submitted their
Memorandum64 on June 30, 2009, wherein they
allege that the 1996 MCIAA case is still good law,
as shown by the following cases wherein it was
quoted:
1. National Power Corporation v. Local Board of
Assessment Appeals of Batangas [545 Phil. 92
(2007)];
2. Mactan-Cebu International Airport Authority
v. Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting
Corporation[588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications,
Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference
to the 1996 MCIAA case "could hardly mean that
the doctrine has breathed its last" and that the
1996 MCIAA case stands as precedent and is
controlling on petitioner MCIAA.65
Respondents allege that the issue for
consideration is whether it is proper for
petitioner to raise the issue of whether it is not
liable to pay real property taxes, special
education fund (SEF), interests and/or
surcharges.66 Respondents argue that the Court
of Appeals was correct in declaring petitioner
liable for realty taxes, etc., on the terminal
building, taxiway, and runway. Respondent City
relies on the following grounds:
1. The case of MCIAA v. Marcos, et al., is
controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234
of the Local Government Code of 1991
authorizes the collection of real property taxes
(etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not
of the Public Dominion and are not exempt from
realty taxes, special education fund and interest;
5. Respondent City can collect realty tax,
interest/surcharge, and Special Education Fund
from MCIAA; [and]
6. Estoppel does not lie against the
government.67
THIS COURT’S RULING
The petition has merit. The petitioner is an
instrumentality of the government; thus, its
properties actually, solely and exclusively used
for public purposes, consisting of the airport
terminal building, airfield, runway, taxiway and
the lots on which they are situated, are not
subject to real property tax and respondent City
is not justified in collecting taxes from petitioner
over said properties.
DISCUSSION
The Court of Appeals (Cebu City) erred in
declaring that the 1996 MCIAA case still controls
and that petitioner is a GOCC. The 2006 MIAA
case governs.
The Court of Appeals’ reliance on the 1996
MCIAA case is misplaced and its staunch refusal
to apply the 2006 MIAA case is patently
erroneous. The Court of Appeals, finding for
respondents, refused to apply the ruling in the
2006 MIAA case on the premise that the same
had not yet reached finality, and that as far as
MCIAA is concerned, the 1996 MCIAA case is still
good law.68
While it is true, as respondents allege, that the
1996 MCIAA case was cited in a long line of
cases,69 still, in 2006, the Court en banc decided
a case that in effect reversed the 1996 Mactan
ruling. The 2006 MIAA case had, since the
promulgation of the questioned Decision and
Resolution, reached finality and had in fact been
either affirmed or cited in numerous cases by the
Court.70 The decision became final and
executory on November 3, 2006.71 Furthermore,
the 2006 MIAA case was decided by the Court en
banc while the 1996 MCIAA case was decided by
a Division. Hence, the 1996 MCIAA case should
be read in light of the subsequent and
unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that
MIAA’s airport lands and buildings are exempt
from real estate tax imposed by local
governments; that it is not a GOCC but an
instrumentality of the national government,
with its real properties being owned by the
Republic of the Philippines, and these are
exempt from real estate tax. Specifically
referring to petitioner, we stated as follows:
Many government instrumentalities are vested
with corporate powers but they do not become
stock or non-stock corporations, which is a
necessary condition before an agency or
instrumentality is deemed a government-owned
or controlled corporation. Examples are the
Mactan International Airport Authority, the
Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise
corporate powers but they are not organized as
stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of
the Administrative Code. These government
instrumentalities are sometimes loosely called
government corporate entities. However, they
are not government-owned or controlled
corporations in the strict sense as understood
under the Administrative Code, which is the
governing law defining the legal relationship and
status of government entities.72 (Emphases
ours.)
In the 2006 MIAA case, the issue before the
Court was "whether the Airport Lands and
Buildings of MIAA are exempt from real estate
tax under existing laws."73 We quote the
extensive discussion of the Court that led to its
finding that MIAA’s lands and buildings were
exempt from real estate tax imposed by local
governments:
First, MIAA is not a government-owned or
controlled corporation but an instrumentality of
the National Government and thus exempt from
local taxation. Second, the real properties of
MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or
Controlled Corporation
xxxx
There is no dispute that a government-owned or
controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-
owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the
Administrative Code of 1987 defines a
government-owned or controlled corporation as
follows:
SEC. 2. General Terms Defined. - x x x (13)
Government-owned or controlled corporation
refers to any agency organized as a stock or non-
stock corporation, vested with functions relating
to public needs whether governmental or
proprietary in nature, and owned by the
Government directly or through its
instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its
capital stock: x x x.
A government-owned or controlled corporation
must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or
non-stock corporation. MIAA is not a stock
corporation because it has no capital stock
divided into shares. MIAA has no stockholders or
voting shares. x x x
xxxx
Clearly, under its Charter, MIAA does not have
capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock
corporation as one whose "capital stock is
divided into shares and x x x authorized to
distribute to the holders of such shares dividends
x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock
corporation.
MIAA is also not a non-stock corporation
because it has no members. Section 87 of the
Corporation Code defines a non-stock
corporation as "one where no part of its income
is distributable as dividends to its members,
trustees or officers." A non-stock corporation
must have members. Even if we assume that the
Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot
distribute any part of their income to their
members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock
corporation.
Section 88 of the Corporation Code provides that
non-stock corporations are "organized for
charitable, religious, educational, professional,
cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like
chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is
organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock
corporation, MIAA does not qualify as a
government-owned or controlled corporation.
What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested
with corporate powers to perform efficiently its
governmental functions. MIAA is like any other
government instrumentality, the only difference
is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of
the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. - x x x
(10) Instrumentality refers to any agency of the
National Government, not integrated within the
department framework, vested with special
functions or jurisdiction by law, endowed with
some if not all corporate powers, administering
special funds, and enjoying operational
autonomy, usually through a charter. x x x.
When the law vests in a government
instrumentality corporate powers, the
instrumentality does not become a corporation.
Unless the government instrumentality is
organized as a stock or non-stock corporation, it
remains a government instrumentality
exercising not only governmental but also
corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police
authority and the levying of fees and charges. At
the same time, MIAA exercises "all the powers of
a corporation under the Corporation Law,
insofar as these powers are not inconsistent with
the provisions of this Executive Order."
Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National
Government machinery although not integrated
with the department framework. The MIAA
Charter expressly states that transforming MIAA
into a "separate and autonomous body" will
make its operation more "financially viable."
Many government instrumentalities are vested
with corporate powers but they do not become
stock or non-stock corporations, which is a
necessary condition before an agency or
instrumentality is deemed a government-owned
or controlled corporation. Examples are the
Mactan International Airport Authority, the
Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise
corporate powers but they are not organized as
stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of
the Administrative Code. These government
instrumentalities are sometimes loosely called
government corporate entities. However, they
are not government-owned or controlled
corporations in the strict sense as understood
under the Administrative Code, which is the
governing law defining the legal relationship and
status of government entities.74 (Emphases ours,
citations omitted.)
The Court in the 2006 MIAA case went on to
discuss the limitation on the taxing power of the
local governments as against the national
government or its instrumentality:
A government instrumentality like MIAA falls
under Section 133(o) of the Local Government
Code, which states:
SEC. 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:
xxxx
(o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities and local government units. x x
x.
Section 133(o) recognizes the basic principle that
local governments cannot tax the national
government, which historically merely delegated
to local governments the power to tax. While the
1987 Constitution now includes taxation as one
of the powers of local governments, local
governments may only exercise such power
"subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to
tax on national government instrumentalities,
such power is construed strictly against local
governments. The rule is that a tax is never
presumed and there must be clear language in
the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved
against taxation. This rule applies with greater
force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly
construed against the taxpayer claiming the
exemption. However, when Congress grants an
exemption to a national government
instrumentality from local taxation, such
exemption is construed liberally in favor of the
national government instrumentality. x x x.
xxxx
There is, moreover, no point in national and local
governments taxing each other, unless a sound
and compelling policy requires such transfer of
public funds from one government pocket to
another.
There is also no reason for local governments to
tax national government instrumentalities for
rendering essential public services to inhabitants
of local governments. The only exception is
when the legislature clearly intended to tax
government instrumentalities for the delivery of
essential public services for sound and
compelling policy considerations. There must be
express language in the law empowering local
governments to tax national government
instrumentalities. Any doubt whether such
power exists is resolved against local
governments.
Thus, Section 133 of the Local Government Code
states that "unless otherwise provided" in the
Code, local governments cannot tax national
government instrumentalities. x x x.75 (Emphases
ours, citations omitted.)
The Court emphasized that the airport lands and
buildings of MIAA are owned by the Republic and
belong to the public domain. The Court said:
The Airport Lands and Buildings of MIAA are
property of public dominion and therefore
owned by the State or the Republic of the
Philippines. x x x.
xxxx
No one can dispute that properties of public
dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports
and bridges constructed by the State," are
owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties
of public dominion and thus owned by the State
or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to
public use because they are used by the public
for international and domestic travel and
transportation. The fact that the MIAA collects
terminal fees and other charges from the public
does not remove the character of the Airport
Lands and Buildings as properties for public use.
x x x.
xxxx
The terminal fees MIAA charges to passengers,
as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection
of such fees does not change the character of
MIAA as an airport for public use. Such fees are
often termed user’s tax. This means taxing those
among the public who actually use a public
facility instead of taxing all the public including
those who never use the particular public
facility. A user’s tax is more equitable - a
principle of taxation mandated in the 1987
Constitution.
The Airport Lands and Buildings of MIAA x x x are
properties of public dominion because they are
intended for public use. As properties of public
dominion, they indisputably belong to the State
or the Republic of the Philippines.76 (Emphases
supplied, citations omitted.)
The Court also held in the 2006 MIAA case that
airport lands and buildings are outside the
commerce of man.
As properties of public dominion, the Airport
Lands and Buildings are outside the commerce of
man. The Court has ruled repeatedly that
properties of public dominion are outside the
commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas
that properties devoted to public use are outside
the commerce of man, thus:
xxxx
The Civil Code, Article 1271, prescribes that
everything which is not outside the commerce of
man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public
dominion, being outside the commerce of man,
cannot be the subject of an auction sale.
Properties of public dominion, being for public
use, are not subject to levy, encumbrance or
disposition through public or private sale. Any
encumbrance, levy on execution or auction sale
of any property of public dominion is void for
being contrary to public policy. Essential public
services will stop if properties of public dominion
are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.
Before MIAA can encumber the Airport Lands
and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings.
x x x.
xxxx
Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings
from public use, these properties remain
properties of public dominion and are
inalienable. Since the Airport Lands and
Buildings are inalienable in their present status
as properties of public dominion, they are not
subject to levy on execution or foreclosure sale.
As long as the Airport Lands and Buildings are
reserved for public use, their ownership remains
with the State or the Republic of the Philippines.
The authority of the President to reserve lands of
the public domain for public use, and to
withdraw such public use, is reiterated in Section
14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public
and Private Domain of the Government. - (1) The
President shall have the power to reserve for
settlement or public use, and for specific public
purposes, any of the lands of the public domain,
the use of which is not otherwise directed by
law. The reserved land shall thereafter remain
subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
xxxx
There is no question, therefore, that unless the
Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public
use, they are properties of public dominion,
owned by the Republic and outside the
commerce of man.77
Thus, the Court held that MIAA is "merely
holding title to the Airport Lands and Buildings in
trust for the Republic. [Under] Section 48,
Chapter 12, Book I of the Administrative Code
[which] allows instrumentalities like MIAA to
hold title to real properties owned by the
Republic."78
The Court in the 2006 MIAA case cited Section
234(a) of the Local Government Code and held
that said provision exempts from real estate tax
any "[r]eal property owned by the Republic of
the Philippines."79 The Court emphasized,
however, that "portions of the Airport Lands and
Buildings that MIAA leases to private entities are
not exempt from real estate tax." The Court
further held:
This exemption should be read in relation with
Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees
or charges of any kind on the National
Government, its agencies and instrumentalities x
x x." The real properties owned by the Republic
are titled either in the name of the Republic itself
or in the name of agencies or instrumentalities
of the National Government. The Administrative
Code allows real property owned by the Republic
to be titled in the name of agencies or
instrumentalities of the national government.
Such real properties remain owned by the
Republic and continue to be exempt from real
estate tax.
The Republic may grant the beneficial use of its
real property to an agency or instrumentality of
the national government. This happens when
title of the real property is transferred to an
agency or instrumentality even as the Republic
remains the owner of the real property. Such
arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local
Government Code states that real property
owned by the Republic loses its tax exemption
only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person." MIAA, as a government
instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code.
Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make
these real properties subject to real estate tax.
However, portions of the Airport Lands and
Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example,
the land area occupied by hangars that MIAA
leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a
consideration to a taxable person and therefore
such land area is subject to real estate tax. x x x.80
Significantly, the Court reiterated the above
ruling and applied the same reasoning in Manila
International Airport Authority v. City of
Pasay,81 thus:
The only difference between the 2006 MIAA case
and this case is that the 2006 MIAA case involved
airport lands and buildings located in Parañaque
City while this case involved airport lands and
buildings located in Pasay City. The 2006 MIAA
case and this case raised the same threshold
issue: whether the local government can impose
real property tax on the airport lands, consisting
mostly of the runways, as well as the airport
buildings, of MIAA. x x x.
xxxx
The definition of "instrumentality" under Section
2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase
"includes x x x government-owned or controlled
corporations" which means that a government
"instrumentality" may or may not be a
"government-owned or controlled corporation."
Obviously, the term government
"instrumentality" is broader than the term
"government-owned or controlled corporation."
x x x.
xxxx
The fact that two terms have separate
definitions means that while a government
"instrumentality" may include a "government-
owned or controlled corporation," there may be
a government "instrumentality" that will not
qualify as a "government-owned or controlled
corporation."
A close scrutiny of the definition of
"government-owned or controlled corporation"
in Section 2(13) will show that MIAA would not
fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a
"government-owned or controlled corporation."
x x x.
xxxx
Thus, MIAA is not a government-owned or
controlled corporation but a government
instrumentality which is exempt from any kind of
tax from the local governments. Indeed, the
exercise of the taxing power of local government
units is subject to the limitations enumerated in
Section 133 of the Local Government Code.
Under Section 133(o) of the Local Government
Code, local government units have no power to
tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay
real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of
MIAA are properties of public dominion
intended for public use, and as such are exempt
from real property tax under Section 234(a) of
the Local Government Code. However, under the
same provision, if MIAA leases its real property
to a taxable person, the specific property leased
becomes subject to real property tax. In this
case, only those portions of the NAIA Pasay
properties which are leased to taxable persons
like private parties are subject to real property
tax by the City of Pasay. (Emphases added,
citations omitted.)
The Court not only mentioned petitioner MCIAA
as similarly situated as MIAA. It also mentioned
several other government instrumentalities,
among which was the Philippine Fisheries
Development Authority. Thus, applying the 2006
MIAA ruling, the Court, in Philippine Fisheries
Development Authority v. Court of
82
Appeals, held:
On the basis of the parameters set in the MIAA
case, the Authority should be classified as an
instrumentality of the national government. As
such, it is generally exempt from payment of real
property tax, except those portions which have
been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries
Development Authority was cited as among the
instrumentalities of the national government. x x
x.
xxxx
Indeed, the Authority is not a GOCC but an
instrumentality of the government. The
Authority has a capital stock but it is not divided
into shares of stocks. Also, it has no stockholders
or voting shares. Hence, it is not a stock
corporation. Neither [is it] a non-stock
corporation because it has no members.
The Authority is actually a national government
instrumentality which is defined as an agency of
the national government, not integrated within
the department framework, vested with special
functions or jurisdiction by law, endowed with
some if not all corporate powers, administering
special funds, and enjoying operational
autonomy, usually through a charter. When the
law vests in a government instrumentality
corporate powers, the instrumentality does not
become a corporation. Unless the government
instrumentality is organized as a stock or non-
stock corporation, it remains a government
instrumentality exercising not only
governmental but also corporate powers.
Thus, the Authority which is tasked with the
special public function to carry out the
government’s policy "to promote the
development of the country’s fishing industry
and improve the efficiency in handling,
preserving, marketing, and distribution of fish
and other aquatic products," exercises the
governmental powers of eminent domain, and
the power to levy fees and charges. At the same
time, the Authority exercises "the general
corporate powers conferred by laws upon
private and government-owned or controlled
corporations."
xxxx
In light of the foregoing, the Authority should be
classified as an instrumentality of the national
government which is liable to pay taxes only with
respect to the portions of the property, the
beneficial use of which were vested in private
entities. When local governments invoke the
power to tax on national government
instrumentalities, such power is construed
strictly against local governments. The rule is
that a tax is never presumed and there must be
clear language in the law imposing the tax. Any
doubt whether a person, article or activity is
taxable is resolved against taxation. This rule
applies with greater force when local
governments seek to tax national government
instrumentalities.
Thus, the real property tax assessments issued
by the City of Iloilo should be upheld only with
respect to the portions leased to private
persons.1âwphi1 In case the Authority fails to
pay the real property taxes due thereon, said
portions cannot be sold at public auction to
satisfy the tax delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an
instrumentality of the national government,
hence, it is liable to pay real property taxes
assessed by the City of Iloilo on the IFPC only
with respect to those portions which are leased
to private entities. Notwithstanding said tax
delinquency on the leased portions of the IFPC,
the latter or any part thereof, being a property
of public domain, cannot be sold at public
auction. This means that the City of Iloilo has to
satisfy the tax delinquency through means other
than the sale at public auction of the IFPC.
(Citations omitted.) Another government
instrumentality specifically mentioned in the
2006 MIAA case was the Philippine Ports
Authority (PPA). Hence, in Curata v. Philippine
Ports Authority,83 the Court held that the PPA is
similarly situated as MIAA, and ruled in this wise:
This Court’s disquisition in Manila International
Airport Authority v. Court of Appeals –– ruling
that MIAA is not a government-owned and/or
controlled corporation (GOCC), but an
instrumentality of the National Government and
thus exempt from local taxation, and that its real
properties are owned by the Republic of the
Philippines –– is instructive. x x x. These findings
are squarely applicable to PPA, as it is similarly
situated as MIAA. First, PPA is likewise not a
GOCC for not having shares of stocks or
members. Second, the docks, piers and buildings
it administers are likewise owned by the
Republic and, thus, outside the commerce of
man. Third, PPA is a mere trustee of these
properties. Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of the
government vested with corporate powers to
perform efficiently its governmental functions.
Therefore, an undeniable conclusion is that the
funds of PPA partake of government funds, and
such may not be garnished absent an allocation
by its Board or by statutory grant. If the PPA
funds cannot be garnished and its properties,
being government properties, cannot be levied
via a writ of execution pursuant to a final
judgment, then the trial court likewise cannot
grant discretionary execution pending appeal, as
it would run afoul of the established
jurisprudence that government properties are
exempt from execution. What cannot be done
directly cannot be done indirectly. (Citations
omitted.)
In Government Service Insurance System v. City
Treasurer and City Assessor of the City of
Manila84 the Court found that the GSIS was also
a government instrumentality and not a GOCC,
applying the 2006 MIAA case even though the
GSIS was not among those specifically
mentioned by the Court as similarly situated as
MIAA. The Court said:
GSIS an instrumentality of the National
Government
Apart from the foregoing consideration, the
Court’s fairly recent ruling in Manila
International Airport Authority v. Court of
Appeals, a case likewise involving real estate tax
assessments by a Metro Manila city on the real
properties administered by MIAA, argues for the
non-tax liability of GSIS for real estate taxes. x x
x.
xxxx
While perhaps not of governing sway in all fours
inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and
runways, are properties of the public dominion
and, hence, outside the commerce of man, the
rationale underpinning the disposition in that
case is squarely applicable to GSIS, both MIAA
and GSIS being similarly situated. First, while
created under CA 186 as a non-stock
corporation, a status that has remained
unchanged even when it operated under PD
1146 and RA 8291, GSIS is not, in the context of
the aforequoted Sec. 193 of the LGC, a GOCC
following the teaching of Manila International
Airport Authority, for, like MIAA, GSIS’s capital is
not divided into unit shares. Also, GSIS has no
members to speak of. And by members, the
reference is to those who, under Sec. 87 of the
Corporation Code, make up the non-stock
corporation, and not to the compulsory
members of the system who are government
employees. Its management is entrusted to a
Board of Trustees whose members are
appointed by the President.
Second, the subject properties under GSIS’s
name are likewise owned by the Republic. The
GSIS is but a mere trustee of the subject
properties which have either been ceded to it by
the Government or acquired for the
enhancement of the system. This particular
property arrangement is clearly shown by the
fact that the disposal or conveyance of said
subject properties are either done by or through
the authority of the President of the Philippines.
x x x. (Emphasis added, citations omitted.)
All the more do we find that petitioner MCIAA,
with its many similarities to the MIAA, should be
classified as a government instrumentality, as its
properties are being used for public purposes,
and should be exempt from real estate taxes.
This is not to derogate in any way the delegated
authority of local government units to collect
realty taxes, but to uphold the fundamental
doctrines of uniformity in taxation and equal
protection of the laws, by applying all the
jurisprudence that have exempted from said
taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006
MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with
corporate powers but it is not a stock or non-
stock corporation, which is a necessary condition
before an agency or instrumentalityis deemed a
government-owned or controlled corporation.
Like MIAA, petitioner MCIAA has capital under its
charter but it is not divided into shares of stock.
It also has no stockholders or voting shares.
Republic Act No. 6958 provides:
Section 9. Capital.– The [Mactan-Cebu
International Airport] Authority shall have an
authorized capital stock equal to and consisting
of:
(a) The value of fixed assets (including airport
facilities, runways and equipment) and such
other properties, movable and immovable,
currently administered by or belonging to the
airports as valued on the date of the effectivity
of this Act;
(b) The value of such real estate owned and/or
administered by the airports; and
(c) Government contribution in such amount as
may be deemed an appropriate initial
balance.1âwphi1 Such initial amount, as
approved by the President of the Philippines,
which shall be more or less equivalent to six (6)
months working capital requirement of the
Authority, is hereby authorized to be
appropriated in the General Appropriations Act
of the year following its enactment into law.
Thereafter, the government contribution to the
capital of the Authority shall be provided for in
the General Appropriations Act.
Like in MIAA, the airport lands and buildings of
MCIAA are properties of public dominion
because they are intended for public use. As
properties of public dominion, they indisputably
belong to the State or the Republic of the
Philippines, and are outside the commerce of
man. This, unless petitioner leases its real
property to a taxable person, the specific
property leased becomes subject to real
property tax; in which case, only those portions
of petitioner’s properties which are leased to
taxable persons like private parties are subject to
real property tax by the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA
the findings and conclusions of the Court in the
2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned
or controlled corporation under Section 2(13) of
the Introductory Provisions of the Administrative
Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a
government-owned or controlled corporation
under Section 16, Article XII of the 1987
Constitution because MIAA is not required to
meet the test of economic viability. MIAA is a
government instrumentality vested with
corporate powers and performing essential
public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative
Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local
governments under Section 133(o) of the Local
Government Code. The exception to the
exemption in Section 234(a) does not apply to
MIAA because MIAA is not a taxable entity under
the Local Government Code. Such exception
applies only if the beneficial use of real property
owned by the Republic is given to a taxable
entity.
Finally, the Airport Lands and Buildings of MIAA
are properties devoted to public use and thus are
properties of public dominion. Properties of
public dominion are owned by the State or the
Republic. x x x.
xxxx
The term "ports x x x constructed by the State"
includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public
use, and at the very least intended for public
service. Whether intended for public use or
public service, the Airport Lands and Buildings
are properties of public dominion. As properties
of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a)
of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory
Provisions of the Administrative Code, which
governs the legal relation and status of
government units, agencies and offices within
the entire government machinery, MIAA is a
government instrumentality and not a
government-owned or controlled corporation.
Under Section 133(o) of the Local Government
Code, MIAA as a government instrumentality is
not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA
leases its real property to a "taxable person" as
provided in Section 234(a) of the Local
Government Code, in which case the specific real
property leased becomes subject to real estate
tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private
parties are subject to real estate tax by the City
of Parañaque.
Under Article 420 of the Civil Code, the Airport
Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and
thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions
"ports x x x constructed by the State," which
includes public airports and seaports, as
properties of public dominion and owned by the
Republic. As properties of public dominion
owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings
are expressly exempt from real estate tax under
Section 234(a) of the Local Government Code.
This Court has also repeatedly ruled that
properties of public dominion are not subject to
execution or foreclosure sale.85 (Emphases
added.) WHEREFORE, we hereby GRANT the
petition. We REVERSE and SET ASIDE the
Decision dated October 8, 2007 and the
Resolution dated February 12, 2008 of the Court
of Appeals (Cebu City) in CA-G.R. SP No. 01360.
Accordingly, we DECLARE:

1. Petitioner's properties that are actually, solely

and exclusively used for public purpose,
consisting of the airport terminal building,
airfield, runway, taxiway and the lots on which
they are situated, EXEMPT from real property tax
imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments,

including the additional tax for the special
education fund and the penalty interest, as well
as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on
petitioner's properties, except the assessment
covering the portions that petitioner has leased
to private parties.

3. NULL and VOID the sale in public auction of 27

of petitioner's properties and the eventual
forfeiture and purchase of the said properties by
respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of
Sale of Delinquent Property issued to
respondent City of Lapu-Lapu.

SO ORDERED.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner,
Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal
Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO
TANTUICO, Chairman, Commissioner on Audit,
and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own
behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for
declaratory relief or prohibition proceeding 1 on
the validity of Section I of Batas Pambansa Blg.
135 depends upon a showing of its constitutional
infirmity. The assailed provision further amends
Section 21 of the National Internal Revenue
Code of 1977, which provides for rates of tax on
citizens or residents on (a) taxable compensation
income, (b) taxable net income, (c) royalties,
prizes, and other winnings, (d) interest from
bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust
fund and similar arrangements, (e) dividends and
share of individual partner in the net profits of
taxable partnership, (f) adjusted gross
income. 2 Petitioner 3 as taxpayer alleges that by
virtue thereof, "he would be unduly
discriminated against by the imposition of higher
rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the
above sction as arbitrary amounting to class
legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a
transgression of both the equal protection and
due process clauses 6 of the Constitution as well
as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982,
required respondents to file an answer within 10
days from notice. Such an answer, after two
extensions were granted the Office of the
Solicitor General, was filed on May 28,
1982. 8 The facts as alleged were admitted but
not the allegations which to their mind are
"mere arguments, opinions or conclusions on
the part of the petitioner, the truth [for them]
being those stated [in their] Special and
Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid
exercise of the State's power to tax. The
authorities and cases cited while correctly
quoted or paraghraph do not support
petitioner's stand." 10 The prayer is for the
dismissal of the petition for lack of merit.
This Court finds such a plea more than justified.
The petition must be dismissed.
1. It is manifest that the field of state activity has
assumed a much wider scope, The reason was so
clearly set forth by retired Chief Justice
Makalintal thus: "The areas which used to be left
to private enterprise and initiative and which the
government was called upon to enter optionally,
and only 'because it was better equipped to
administer for the public welfare than is any
private individual or group of individuals,'
continue to lose their well-defined boundaries
and to be absorbed within activities that the
government must undertake in its sovereign
capacity if it is to meet the increasing social
challenges of the times." 11 Hence the need for
more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the
performance of vital state functions. It is the
source of the bulk of public funds. To praphrase
a recent decision, taxes being the lifeblood of the
government, their prompt and certain
availability is of the essence. 12
2. The power to tax moreover, to borrow from
Justice Malcolm, "is an attribute of sovereignty.
It is the strongest of all the powers of of
government." 13 It is, of course, to be admitted
that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The
Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due
process and equal protection clauses inay
properly be invoked, all petitioner does, to
invalidate in appropriate cases a revenue
measure. if it were otherwise, there would -be
truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the
power to destroy." 14 In a separate opinion
in Graves v. New York, 15 Justice Frankfurter,
after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the
times following] a free use of absolutes." 16 This
is merely to emphasize that it is riot and there
cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web
of unreality spun from Marshall's famous dictum
was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power
to destroy while this Court sits." 17 So it is in the
Philippines.
3. This Court then is left with no choice. The
Constitution as the fundamental law overrides
any legislative or executive, act that runs counter
to it. In any case therefore where it can be
demonstrated that the challenged statutory
provision — as petitioner here alleges — fails to
abide by its command, then this Court must so
declare and adjudge it null. The injury thus is
centered on the question of whether the
imposition of a higher tax rate on taxable net
income derived from business or profession than
on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus
apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There must
be a factual foundation of such unconstitutional
taint. Considering that petitioner here would
condemn such a provision as void or its face, he
has not made out a case. This is merely to adhere
to the authoritative doctrine that were the due
process and equal protection clauses are
invoked, considering that they arc not fixed rules
but rather broad standards, there is a need for of
such persuasive character as would lead to such
a conclusion. Absent such a showing, the
presumption of validity must prevail. 18
5. It is undoubted that the due process clause
may be invoked where a taxing statute is so
arbitrary that it finds no support in the
Constitution. An obvious example is where it can
be shown to amount to the confiscation of
property. That would be a clear abuse of power.
It then becomes the duty of this Court to say that
such an arbitrary act amounted to the exercise
of an authority not conferred. That properly calls
for the application of the Holmes dictum. It has
also been held that where the assailed tax
measure is beyond the jurisdiction of the state,
or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable,
it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable
standard to avoid the charge that there is a
denial of this constitutional mandate whether
the assailed act is in the exercise of the lice
power or the power of eminent domain is to
demonstrated that the governmental act
assailed, far from being inspired by the
attainment of the common weal was prompted
by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It
suffices then that the laws operate equally and
uniformly on all persons under similar
circumstances or that all persons must be
treated in the same manner, the conditions not
being different, both in the privileges conferred
and the liabilities imposed. Favoritism and
undue preference cannot be allowed. For the
principle is that equal protection and security
shall be given to every person under
circumtances which if not Identical are
analogous. If law be looked upon in terms of
burden or charges, those that fall within a class
should be treated in the same fashion, whatever
restrictions cast on some in the group equally
binding on the rest." 20 That same formulation
applies as well to taxation measures. The equal
protection clause is, of course, inspired by the
noble concept of approximating the Ideal of the
laws benefits being available to all and the affairs
of men being governed by that serene and
impartial uniformity, which is of the very essence
of the Idea of law. There is, however, wisdom, as
well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied
equality. The Fourteenth Amendment enjoins
'the equal protection of the laws,' and laws are
not abstract propositions. They do not relate to
abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, address
to the attainment of specific ends by the use of
specific remedies. The Constitution does not
require things which are different in fact or
opinion to be treated in law as though they were
the same." 21 Hence the constant reiteration of
the view that classification if rational in character
is allowable. As a matter of fact, in a leading case
of Lutz V. Araneta, 22 this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate,
it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which
result from a singling out of one particular class
for taxation, or exemption infringe no
constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred
concept of uniformity. According to the
Constitution: "The rule of taxation shag be
uniform and equitable." 24 This requirement is
met according to Justice Laurel in Philippine
Trust Company v. Yatco,25 decided in 1940, when
the tax "operates with the same force and effect
in every place where the subject may be found.
" 26 He likewise added: "The rule of uniformity
does not call for perfect uniformity or perfect
equality, because this is hardly
27
attainable." The problem of classification did
not present itself in that case. It did not arise
until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means
that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation, ... . 28 As clarified by Justice
Tuason, where "the differentiation" complained
of "conforms to the practical dictates of justice
and equity" it "is not discriminatory within the
meaning of this clause and is therefore
uniform." 29 There is quite a similarity then to the
standard of equal protection for all that is
required is that the tax "applies equally to all
persons, firms and corporations placed in similar
situation."30
8. Further on this point. Apparently, what misled
petitioner is his failure to take into consideration
the distinction between a tax rate and a tax base.
There is no legal objection to a broader tax base
or taxable income by eliminating all deductible
items and at the same time reducing the
applicable tax rate. Taxpayers may be classified
into different categories. To repeat, it. is enough
that the classification must rest upon substantial
distinctions that make real differences. In the WHEREFORE, the petition is dismissed. Costs
case of the gross income taxation embodied in against petitioner.
Batas Pambansa Blg. 135, the, discernible basis
of classification is the susceptibility of the
income to the application of generalized rules
removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who
are recipients of compensation income are set
apart as a class. As there is practically no
overhead expense, these taxpayers are e not
entitled to make deductions for income tax
purposes because they are in the same situation
more or less. On the other hand, in the case of
professionals in the practice of their calling and
businessmen, there is no uniformity in the costs
or expenses necessary to produce their income.
It would not be just then to disregard the
disparities by giving all of them zero deduction
and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is
ample justification then for the Batasang
Pambansa to adopt the gross system of income
taxation to compensation income, while
continuing the system of net income taxation as
regards professional and business income.
9. Nothing can be clearer, therefore, than that
the petition is without merit, considering the (1)
lack of factual foundation to show the arbitrary
character of the assailed provision; 31 (2) the
force of controlling doctrines on due process,
equal protection, and uniformity in taxation and
(3) the reasonableness of the distinction
between compensation and taxable net income
of professionals and businessman certainly not a
suspect classification,
G.R. No. 70648 July 31, 1987
COMMISSIONER OF CUSTOMS, petitioner,
vs.
COURT OF TAX APPEALS and CAMPOS RUEDA
CORPORATION, respondents,
MELENCIO-HERRERA, J.:
Petitioner Commissioner of Customs seeks a
reversal of the Decision of respondent Court of
Tax Appeals* in CTA Case No. 2830
entitled "Campos Rueda Corporation, Petitioner,
vs. The Hon. Commissioner of Customs,
Respondent" wherein respondent Court ordered
petitioner to refund to private respondent
Campos Rueda Corporation the Customs duties
the latter had overpaid on three of its
importations.
The essential facts are not in controversy, the
main issue being one of law.
1) Campos Rueda Corporation (Respondent
Company, for short), ordered tungsol flashers
from the United States. One shipment, worth
$10,812.20, arrived in Manila on November 1,
1973 for which it filed the corresponding Import
Entry.
Another shipment of the same article, worth
$18,220.10, arrived in Manila on February 12,
1974 with Respondent Company again filing the
necessary Import Entry.
The invoice and declared unit price was $0.66 for
the two importations. However, the Bureau of
Customs re-appraised the two shipments at the
rate of $1.08 per piece based on an "Alert
Notice" sent by Finance Attaches abroad.
Respondent Company paid the increased taxes
and duties amounting to P18,591.00 and
P52,226.00 for the respective shipments, but
filed Manila Protests Nos. 9274 and 9275
claiming a refund of said amounts.
2) Respondent Company also ordered sealed
beams from the United States. The merchandise
worth $18,964.54 arrived in Manila on March 31,
1974 for which the corresponding Import Entry
was filed. The invoice price of the merchandise
was $0.908 per piece but the Collector of
Customs of Manila re-appraised it to $1.35 a
piece based on an "Alert Notice" received from
Finance Attaches abroad. Again, Respondent
Company paid the increased duties and taxes
amounting to P67,525.00 but filed at the same
time Manila Protest No. 9287 for refund of the
excess paid.
From the denial of the Protests by the Collector
of Customs, Respondent Company appealed to
the Commissioner of Customs, which affirmed
in toto the consolidated Decision appealed from
on the ground that "Alert Notices are sent by
Finance Attaches in their official capacity as such
officials, aware of their bounden duty to keep
the Department of Finance abreast with the
current prices of commodities for the imposition
of correct amount of duties and taxes on taxable
importations."
Respondent Company elevated the case to
respondent Court of Tax Appeals which, on
March 19, 1985, rendered judgment finding that
petitioner had violated Section 201 of the Tariff
and Customs Code, and ruling:
As to petitioner's claim for tax refund, the same
cannot be passed upon by the Court because
there is nothing in the records to show that
petitioner had filed its written claim for refund
thereof with the Commissioner of Internal
Revenue and that the latter was made a party to
this case.
xxx xxx xxx
In view of the foregoing, and since there is no
controversy between the parties as to the
computation of the customs duties sought to be
refunded, only that amount of overpaid customs
duties should be refundable to petitioner.
Wherefore, the appealed decision is modified.
Respondent is hereby ordered to grant the
refund of overpaid customs duties to petitioner
Campos Rueda Corporation. Without
pronouncement as to costs.
SO ORDERED.
Hence, petitioner's recourse to this instance.
The issue posed is whether or not the re-
appraisal made by the Commissioner of Customs
was in accordance with Section 201 of the Tariff
and Customs Code of the Philippines (RA No.
1937), as amended by PD Nos. 34 and 1464.
Section 201 of the Tariff and Customs Code
reads:
Section 201. Basis of Dutiable Value. — The
dutiable value of an imported article subject to
an ad valorem rate of duty shall be based on the
home consumption value or price (excluding
internal excise taxes) of same, like or similar
articles, as bought and sold or offered for sale
freely in the usual wholesale quantities in the
ordinary course of trade, in the principal markets
of the country from where exported on the date
of exportation to the Philippines, or where there
is none on such date, then on the home
consumption value or price nearest to the date
of exportation including the value of all
containers, coverings and/or packings of any
kind and all other costs, charges and expenses
incident to placing the article in a condition
ready for shipment to the Philippines, plus ten
(10) per cent of such home consumption value or
price.
The home consumption value or price under this
section shall be the value or price declared in the
consular, commercial, trade or sales invoice.
Where there exists a reasonable doubt as to the
value or price of the imported article declared in
the entry, the correct dutiable value of the
article shall be ascertained from the reports of
the Revenue Attache or Commercial Attache
(Foreign Trade Promotion Attaches pursuant to
Republic Act Numbered Fifty-four hundred and
sixty-six or other Philippine diplomatic officers
and from such other information that may be
available to the Bureau of Customs.
From the data thus gathered, the Commissioner
of Customs shall ascertain and establish the
home consumption values of articles exported to
the Philippines and shall publish such lists of
values from time to time.
When the dutiable value provided for in the
preceding paragraphs cannot be ascertained for
failure of the importer to produce the
documents mentioned in the second paragraph,
or where there exists a reasonable doubt as to
dutiable value of the imported article declared in
the entry, it shall be the domestic wholesale
selling price of such or similar article in Manila or
other principal markets in the Philippines on the
date the duty becomes payable on the article
under appraisement, in the usual wholesale
quantities and in the ordinary course of trade,
minus —
(a) Twenty (20) per cent thereof for expenses
and profits; and
(b) Duties and taxes paid thereon.
Clearly, the dutiable value of an imported article
is based on the home consumption value or price
as declared in the consular, commercial, trade or
sales invoice. But where there is a reasonable
doubt, the correct dutiable value shall be
ascertained from the reports of the Revenue
Attache or Commercial Attache and from such
other information that may be available to the
Bureau of Customs. Also required by the statute
is the publication from time to time of the lists of
the home consumption values.
In the corresponding Import Entries, Respondent
Company quoted the prices of the imported
merchandise as declared in the consular invoices
and as required by Section 201. Reasonable
doubt regarding the declarations was not shown
to have existed such that recourse to reports
from commercial attaches or other information
became necessary. Neither was there
compliance with the requirement in Section 201
regarding publication of the fists of dutiable
values of imported articles from time to time.
The re-appraisal made by the Bureau of Customs
was based on "Alert Notices" received from
Finance Attaches abroad, which, however, were
not disclosed, neither to Respondent Company
nor to respondent Court. As respondent Court
had bewailed:
In the case at bar, it is worthy to state that the
respondent's re-appraisal of the subject
shipments or articles imported were based on
the alleged piece of document known as "Alert
Notice" which was not even presented by
respondent to the Court. At any rate, assuming
that there really is such a document and the
same was received by the Commissioner of
Customs, the fact is that the records do not show
from what data the alleged alerted value was
taken, and how the Commissioner of Customs
ascertained and established the home
consumption value of the imported articles
and/or merchandise and when and where such
alerted value was published as required by law.
Under these circumstances, the re-appraisal
made by respondent is clearly not in accordance
with the provisions of Section 201 of the Tariff
and Customs Code.
While it is true that appraisers of the Bureau of
Customs are given ample leeway in determining
the correct customs duties under Section 1405 of
the Tariff and Customs Code,1 Section 201 of the
same Code, which prescribes the criteria for the
determination of the dutiable values of imported
articles, has not been complied with. What is
more, administrative proceedings are not
exempt from the operation of due process
requirements one of which is that a finding by an
administrative tribunal should be supported by
substantial evidence presented at the hearing or
at least contained in the records or disclosed to
the parties affected.2 In this case the "Alert
Notices" on which petitioner based its re-
appraisal were not disclosed during the
proceedings before the Bureau of Customs nor
presented in evidence before respondent Court.
The re-appraisal made by petitioner, therefore,
can be faulted with arbitrariness in disregard of
the standard of due process to which all
governmental action should conform to impress
upon it the stamp of validity.1awph!1

WHEREFORE, the Petition for Review on

certiorari is denied, and the appealed judgment
is hereby affirmed. No costs.

SO ORDERED.
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF
FINANCE & JOSE U. ONG, as COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW
OFFICES, CARLO A. CARAG, MANUELITO O.
CABALLES, ELPIDIO C. JAMORA, JR. and
BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as
SECRETARY OF FINANCE and JOSE U. ONG, in his
capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices
for petitioners in G.R. 109446.
VITUG, J.:
These two consolidated special civil actions for
prohibition challenge, in G.R. No. 109289, the
constitutionality of Republic Act No. 7496, also
commonly known as the Simplified Net Income
Taxation Scheme ("SNIT"), amending certain
provisions of the National Internal Revenue Code
and, in
G.R. No. 109446, the validity of Section 6,
Revenue Regulations No. 2-93, promulgated by
public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely
affected by the continued implementation of the
amendatory legislation.
In G.R. No. 109289, it is asserted that the
enactment of Republic Act
No. 7496 violates the following provisions of the
Constitution:
Article VI, Section 26(1) — Every bill passed by
the Congress shall embrace only one subject
which shall be expressed in the title thereof.
Article VI, Section 28(1) — The rule of taxation
shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
Article III, Section 1 — No person shall be
deprived of . . . property without due process of
law, nor shall any person be denied the equal
protection of the laws.
In G.R. No. 109446, petitioners, assailing Section
6 of Revenue Regulations No. 2-93, argue that
public respondents have exceeded their rule-
making authority in applying SNIT to general
professional partnerships.
The Solicitor General espouses the position
taken by public respondents.
The Court has given due course to both petitions.
The parties, in compliance with the Court's
directive, have filed their respective
memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill
No. 34314, progenitor of Republic Act No. 7496,
is a misnomer or, at least, deficient for being
merely entitled, "Simplified Net Income Taxation
Scheme for the Self-Employed
and Professionals Engaged in the Practice of
their Profession" (Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income
Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their
Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29,
so referred to, of the National Internal Revenue
Code, as now amended, provide:
Sec. 21. Tax on citizens or residents. —
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-
Employed and/or Professionals Engaged in the
Practice of Profession. — A tax is hereby
imposed upon the taxable net income as
determined in Section 27 received during each
taxable year from all sources, other than income
covered by paragraphs (b), (c), (d) and (e) of this
section by every individual whether
a citizen of the Philippines or an alien residing in
the Philippines who is self-employed or practices
his profession herein, determined in accordance
with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross income. — In
computing taxable income subject to tax under
Sections 21(a), 24(a), (b) and (c); and 25 (a)(1),
there shall be allowed as deductions the items
specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing
taxable income subject to tax under Section 21
(f) in the case of individuals engaged in business
or practice of profession, only the following
direct costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in
activities in the course of or pursuant to the
business or practice of their profession;
(c) Telecommunications, electricity, fuel, light
and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and
accredited relief organizations for the
rehabilitation of calamity stricken areas declared
by the President; and
(g) Interest paid or accrued within a taxable year
on loans contracted from accredited financial
institutions which must be proven to have been
incurred in connection with the conduct of a
taxpayer's profession, trade or business.
For individuals whose cost of goods sold and
direct costs are difficult to determine, a
maximum of forty per cent (40%) of their gross
receipts shall be allowed as deductions to
answer for business or professional expenses as
the case may be.
On the basis of the above language of the law, it
would be difficult to accept petitioner's view that
the amendatory law should be considered as
having now adopted a gross income, instead of
as having still retained the net income, taxation
scheme. The allowance for deductible items, it is
true, may have significantly been reduced by the
questioned law in comparison with that which
has prevailed prior to the amendment; limiting,
however, allowable deductions from gross
income is neither discordant with, nor opposed
to, the net income tax concept. The fact of the
matter is still that various deductions, which are
by no means inconsequential, continue to be
well provided under the new law.
Article VI, Section 26(1), of the Constitution has
been envisioned so as (a) to prevent log-rolling
legislation intended to unite the members of the
legislature who favor any one of unrelated
subjects in support of the whole act, (b) to avoid
surprises or even fraud upon the legislature, and
(c) to fairly apprise the people, through such
publications of its proceedings as are usually
made, of the subjects of legislation.1 The above
objectives of the fundamental law appear to us
to have been sufficiently met. Anything else
would be to require a virtual compendium of the
law which could not have been the intendment
of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496
desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that
the law would now attempt to tax single
proprietorships and professionals differently
from the manner it imposes the tax on
corporations and partnerships. The contention
clearly forgets, however, that such a system of
income taxation has long been the prevailing
rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept
of equal protection, merely requires that all
subjects or objects of taxation, similarly situated,
are to be treated alike both in privileges and
liabilities (Juan Luna Subdivision vs. Sarmiento,
91 Phil. 371). Uniformity does not forfend
classification as long as: (1) the standards that
are used therefor are substantial and not
arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law
applies, all things being equal, to both present
and future conditions, and (4) the classification
applies equally well to all those belonging to the
same class (Pepsi Cola vs. City of Butuan, 24 SCRA
3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent
from the amendatory law is the legislative intent
to increasingly shift the income tax system
towards the schedular approach2 in the income
taxation of individual taxpayers and to maintain,
by and large, the present global treatment3 on
taxable corporations. We certainly do not view
this classification to be arbitrary and
inappropriate.
Petitioner gives a fairly extensive discussion on
the merits of the law, illustrating, in the process,
what he believes to be an imbalance between
the tax liabilities of those covered by the
amendatory law and those who are not. With the
legislature primarily lies the discretion to
determine the nature (kind), object (purpose),
extent (rate), coverage (subjects)
and situs (place) of taxation. This court cannot
freely delve into those matters which, by
constitutional fiat, rightly rest on legislative
judgment. Of course, where a tax measure
becomes so unconscionable and unjust as to
amount to confiscation of property, courts will
not hesitate to strike it down, for, despite all its
plenitude, the power to tax cannot override
constitutional proscriptions. This stage,
however, has not been demonstrated to have
been reached within any appreciable distance in
this controversy before us.
Having arrived at this conclusion, the plea of
petitioner to have the law declared
unconstitutional for being violative of due
process must perforce fail. The due process
clause may correctly be invoked only when there
is a clear contravention of inherent or
constitutional limitations in the exercise of the
tax power. No such transgression is so evident to
us.
G.R. No. 109446
The several propositions advanced by
petitioners revolve around the question of
whether or not public respondents have
exceeded their authority in promulgating
Section 6, Revenue Regulations No. 2-93, to
carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The
general professional partnership (GPP) and the
partners comprising the GPP are covered by R. A.
No. 7496. Thus, in determining the net profit of
the partnership, only the direct costs mentioned
in said law are to be deducted from partnership
income. Also, the expenses paid or incurred by
partners in their individual capacities in the
practice of their profession which are not
reimbursed or paid by the partnership but are
not considered as direct cost, are not deductible
from his gross income.
The real objection of petitioners is focused on
the administrative interpretation of public
respondents that would apply SNIT to partners in
general professional partnerships. Petitioners
cite the pertinent deliberations in Congress
during its enactment of Republic Act No. 7496,
also quoted by the Honorable Hernando B.
Perez, minority floor leader of the House of
Representatives, in the latter's privilege speech
by way of commenting on the questioned
implementing regulation of public respondents
following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to
get the correct impression of this bill. Do we
speak here of individuals who are earning, I
mean, who earn through business enterprises
and therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This
does not apply to corporations. It applies only to
individuals.
(See Deliberations on H. B. No. 34314, August 6,
1991, 6:15 P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the
Gentleman from Batangas say that this bill is
intended to increase collections as far as
individuals are concerned and to make collection
of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator
Mamintal Tamano on the Senate version of the
SNITS, it is categorically stated, thus:
This bill, Mr. President, is not applicable to
business corporations or to partnerships; it is
only with respect to individuals and
professionals. (Emphasis ours)
The Court, first of all, should like to correct the
apparent misconception that general
professional partnerships are subject to the
payment of income tax or that there is a
difference in the tax treatment between
individuals engaged in business or in the practice
of their respective professions and partners in
general professional partnerships. The fact of
the matter is that a general professional
partnership, unlike an ordinary business
partnership (which is treated as a corporation for
income tax purposes and so subject to the
corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the
professional partnership, which is tax exempt,
but on the partners themselves in their
individual capacity computed on their
distributive shares of partnership profits. Section
23 of the Tax Code, which has not been amended
at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general
professional partnerships. — (a) Persons
exercising a common profession in general
partnership shall be liable for income tax only in
their individual capacity, and the share in the net
profits of the general professional partnership to
which any taxable partner would be entitled
whether distributed or otherwise, shall be
returned for taxation and the tax paid in
accordance with the provisions of this Title.
(b) In determining his distributive share in the
net income of the partnership, each partner —
(1) Shall take into account separately his
distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent
provided by the pertinent provisions of this
Code, and
(2) Shall be deemed to have elected the itemized
deductions, unless he declares his distributive
share of the gross income undiminished by his
share of the deductions.
There is, then and now, no distinction in income
tax liability between a person who practices his
profession alone or individually and one who
does it through partnership (whether registered
or not) with others in the exercise of a common
profession. Indeed, outside of the gross
compensation income tax and the final tax on
passive investment income, under the present
income tax system all individuals deriving
income from any source whatsoever are treated
in almost invariably the same manner and under
a common set of rules.
We can well appreciate the concern taken by
petitioners if perhaps we were to consider
Republic Act No. 7496 as an entirely
independent, not merely as an amendatory,
piece of legislation. The view can easily become
myopic, however, when the law is understood,
as it should be, as only forming part of, and
subject to, the whole income tax concept and
precepts long obtaining under the National
Internal Revenue Code. To elaborate a little, the
phrase "income taxpayers" is an all embracing
term used in the Tax Code, and it practically
covers all persons who derive taxable income.
The law, in levying the tax, adopts the most
comprehensive tax situs of nationality and
residence of the taxpayer (that renders citizens,
regardless of residence, and resident aliens
subject to income tax liability on their income
from all sources) and of the generally accepted
and internationally recognized income taxable
base (that can subject non-resident aliens and
foreign corporations to income tax on their
income from Philippine sources). In the process,
the Code classifies taxpayers into four main
groups, namely: (1) Individuals, (2) Corporations,
(3) Estates under Judicial Settlement and (4)
Irrevocable Trusts (irrevocable both as
to corpus and as to income).
Partnerships are, under the Code, either "taxable
partnerships" or "exempt
partnerships." Ordinarily, partnerships, no
matter how created or organized, are subject to
income tax (and thus alluded to as "taxable
partnerships") which, for purposes of the above
categorization, are by law assimilated to be
within the context of, and so legally
contemplated as, corporations. Except for few
variances, such as in the application of the
"constructive receipt rule" in the derivation of
income, the income tax approach is alike to both
juridical persons. Obviously, SNIT is not intended
or envisioned, as so correctly pointed out in the
discussions in Congress during its deliberations
on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are
independently subject to the payment of income
tax.
"Exempt partnerships," upon the other hand, are
not similarly identified as corporations nor even
considered as independent taxable entities for
income tax purposes. A
general professional partnership is such an
example.4 Here, the partners themselves, not
the partnership (although it is still obligated to
file an income tax return [mainly for
administration and data]), are liable for the
payment of income tax in
their individual capacity computed on their
respective and distributive shares of profits. In
the determination of the tax liability, a partner
does so as an individual, and there is no choice
on the matter. In fine, under the Tax Code on
income taxation, the general professional
partnership is deemed to be no more than a
mere mechanism or a flow-through entity in the
generation of income by, and the ultimate
distribution of such income to, respectively, each
of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not

alter, but merely confirmed, the above standing
rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable
deductions applicable to all individual income
taxpayers on their non-compensation income.
There is no evident intention of the law, either
before or after the amendatory legislation, to
place in an unequal footing or in significant
variance the income tax treatment of
professionals who practice their respective
professions individually and of those who do it
through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No

special pronouncement on costs.

SO ORDERED.
G.R. No. L-6093 February 24, 1954
THE SHELL CO. OF P.I., LTD., plaintiff-appellant,
vs.
E. E. VAÑO, as Municipal Treasurer of the
Municipality of Cordova, Province of
Cebu, defendant-appellee.
C.J. Johnston and A.P. Deen for appellant.
Provincial Fiscal Jose C. Borromeo and Assistant
Provincial Fiscal Ananias V. Maribao for appellee.
PADILLA, J.:
The Municipal Council of Cordova, Province of
Cebu, adopted the following ordinances: No. 10,
series of 1946, which imposes an annual tax of
P150 on occupation or the exercise of the
privilege of installation manager; No. 9, series of
1947, which imposes an annual tax of P40 for
local deposits in drums of combustible and
inflammable materials and an annual tax of P200
for tin can factories; and No. 11, series of 1948,
which imposes an annual tax of P150 on tin can
factories having a maximum output capacity of
30,000 tin cans. The Shell Co. of P.I. Ltd., a
foreign corporation, filed suit for the refund of
the taxes paid by it, on the ground that the
ordinances imposing such taxes are ultra
vires. The defendant denies that they are so. The
controversy was submitted for judgment upon
stipulation of facts which reads as follows:
Come now the parties in the above-entitled case
by their undersigned attorneys and hereby agree
to the following stipulation of facts:
1. That the parties admit the allegations
contained in Paragraph 1 of the Amended
Complaint referring to residence, personality,
and capacity of the parties except the fact that
E.E. Vaño is now replaced by F.A. Corbo as
Municipal Treasurer of Cordova, Cebu;
2. That the parties admit the allegations
contained in paragraph 2 of the Amended
Complaint. Official Receipts Nos. A-1280606, A-
37607422, A-3769852 and A-21030388 are
herein marked as Exhibits A, B, C, and D,
respectively for the plaintiff;
3. That the parties admit that payments made
under Exhibits B, C, and D were all under
protest and plaintiff admits that Exhibit A
was not paid under protest;
4. That the parties admit that Official Receipt No.
A-1280606 for P40 and Official Receipt No. A-
3760742 for P200 were collected by the
defendant by virtue of Ordinance No. 9, (Secs. E-
4 and E-6, respectively) under Resolution No. 31,
series of 1947, enacted December 15, 1947,
approved by the Provincial Board of Cebu in its
Resolution No. 644, series of 1948. Copy of said
Ordinance No. 9, series of 1947, is herein marked
as Exhibit "E" for the plaintiff, and as Exhibit "I"
for the defendant;
5. That the parties admit that Official Receipt No.
A-3760852 for P150 was paid for taxes imposed
on Installation Managers, collected by the
defendant by virtue of Ordinance No. 10 (section
3, E-12) under Resolution No. 38, series of 1946,
approved by the Provincial Board of Cebu in its
Resolution No. 1070, series of 1946. Copy of .said
Ordinance No. 10, series of 1946 is marked as
Exhibit "F" for the plaintiff and as Exhibit "2" for
the defendant;
6. That the parties admit that Official Receipt No.
A-21030388 for P5,450 was paid by plaintiff and
that said amount was collected by defendant by
virtue of Ordinance No. 11, series of 1948 (under
Resolution No. 46) enacted August 31, 1948 and
approved by the Provincial Board of Cebu in its
Resolution No. 115, series of 1949, and same was
approved by the Honorable Secretary of Finance
under the provisions of section 4 of
Commonwealth Act No. 472. Copy of said
Ordinance No. 11, series of 1948 is herein
marked as Exhibit "G" for the plaintiff, and
Exhibit "3" for the defendant. Copy of the
approval of the Honorable Secretary of Finance
of the same Ordinance is herein marked as
Exhibit "4" for the defendant.
Wherefore, aside from oral evidence which may
be offered by the parties and other points not
covered by this stipulation, this case is hereby
submitted upon the foregoing agreed facts and
record of evidence.
Cebu City, Philippines, January 20, 1950.
THE SHELL CO. OF P.I.
(Sgd.) L. DE BLECHYN
Plaintiff
THE MUNICIPALITY OF CORD
(Sgd.) F.A. CO
Defendant
(Record on Appeal, pp. 15-18.)
The parties reserved the right to introduce
parole evidence but no such evidence was
submitted by either party. From the judgment
holding the ordinances valid and dismissing the
complaint the plaintiff has appealed.
It is contended that as the municipal ordinance
imposing an annual tax of P40 for "minor local
deposit in drums of combustible and
inflammable materials," and of P200 "for tin
factory" was adopted under and pursuant to
section 2244 of the Revised Administrative Code,
which provides that the municipal council in the
exercise of the regulative authority may require
any person engaged in any business or
occupation, such as "storing combustible or
explosive materials" or "the conducting of any
other business of an unwholesome, obnoxious,
offensive, or dangerous character," to obtain a
permit for which a reasonable fee, in no case to
exceed P10 per annum, may be charged, the
annual tax of P40 and P200 are unauthorized and
illegal. The permit and the fee referred to may be
required and charged by the Municipal Council
of Cordova in the exercise of its regulative
authority, whereas the ordinance which imposes
the taxes in question was adopted under and
pursuant to the provisions of Commonwealth
Act No. 472, which authorizes municipal councils
and municipal district councils "to impose license
taxes upon persons engaged in any occupation
or business, or exercising privileges in the
municipality or municipal district, by requiring
them to secure licenses at rates fixed by the
municipal council or municipal district council,"
which shall be just and uniform but not
"percentage taxes and taxes on specified
articles." Likewise, Ordinance No. 10, series of
1946, which imposes an annual tax of P150 on
"installation manager" comes under the
provisions of Commonwealth Act No. 472. But it
is claimed that "installation manager" is a
designation made by the plaintiff and such
designation cannot be deemed to be a "calling"
as defined in section 178 of the National Internal
Revenue Code (Com. Act No. 466), and that the
installation manager employed by the plaintiff is
a salaried employee which may not be taxed by
the municipal council under the provisions of
Commonwealth Act No. 472. This contention is
without merit, because even if the installation
manager is a salaried employee of the plaintiff,
still it is an occupation "and one occupation or
line of business does not become exempt by
being conducted with some other occupation or
business for which such tax has been paid'1 and
the occupation tax must be paid "by each
individual engaged in a calling subject
thereto."2 And pursuant to section 179 of the
National Internal Revenue Code, "The payment
of . . . occupation tax shall not exempt any
person from any tax, . . . provided by law or
ordinance in places where such . . . occupation in
. . . regulated by municipal law, nor shall the
payment of any such tax be held to prohibit any
municipality from placing a tax upon the same . .
. occupation, for local purposes, where the
imposition of such tax is authorized by law." It is
true that, according to the stipulation of facts,
Ordinance No. 10, series of 1946, was approved
by the Provincial Board of Cebu in its Resolution
No. 1070, series of 1946, and that it does not
appear that it was approved by the Department
of Finance, as provided for and required in
section 4, paragraph 2, of Commonwealth Act
No. 472, the rate of municipal tax being in excess
of P50 per annum. But at this point on the
approval of the Department of Finance was not
raised in the court below, it cannot be raised for
the first time on appeal. The issue joined by the
parties in their pleadings and the point raised by
the plaintiff is that the municipal council was not
empowered to adopt the ordinance and not that
it was not approved by the Department of
Finance. The fact that it was not stated in the
stipulation of facts justifies the presumption that
the ordinance was approved in accordance with
law.
The contention that the ordinance is
discriminatory and hostile because there is no
other person in the locality who exercises such
"designation" or occupation is also without
merit, because the fact that there is no other
person in the locality who exercises such a
"designation" or calling does not make the
ordinance discriminatory and hostile, inasmuch
as it is and will be applicable to any person or
firm who exercises such calling or occupation
named or designated as "installation manager."
Lastly, Ordinance No. 11, series of 1948, which
imposes a municipal tax of P150 on tin can
factories having a maximum annual output
capacity of 30,000 tin cans which, according to
the stipulation of facts, was approved by the
Provincial Board of Cebu and the Department of
Finance, is valid and lawful, because it is neither
a percentage tax nor one on specified articles
which are the only exceptions provided in
section 1, Commonwealth Act No. 472. Neither
does it fall under any of the prohibitions
provided for in section 3 of the same Act. Specific
taxes enumerated in the National Internal
Revenue Code are those that are imposed upon
"things manufactured or produced in the
Philippines for domestic sale or consumption"
and upon "things imported from the United
States and foreign countries," such as distilled
spirits, domestic denatured alcohol, fermented
liquors, products of tobacco, cigars and
cigarettes, matches, mechanical lighters,
firecrackers, skimmed milk, manufactured oils
and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards,
sacharine.3 And it is not a percentage tax
because it is tax on business and the maximum
annual output capacity is not a percentage,
because it is not a share or a tax based on the
amount of the proceeds realized out of the sale
of the tin cans manufactured therein but on the
business of manufacturing tin cans having a
maximum annual output capacity of 30,000 tin
cans.

In an action for refund of municipal taxes

claimed to have been paid and collected under
an illegal ordinance, the real party in interest is
not the municipal treasurer but the municipality
concerned that is empowered to sue and be
sued.4

The judgment appealed from is hereby affirmed,

with costs against the appellant.
G.R. No. 163583 August 20, 2008
BRITISH AMERICAN TOBACCO, petitioner,
vs.
JOSE ISIDRO N. CAMACHO, in his capacity as
Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal
Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc.,
fortune tobacco, corp., MIGHTY
CORPORATION, and JT InTERNATIONAL,
S.A., respondents-in-intervention.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1)
Section 145 of the National Internal Revenue
Code (NIRC), as recodified by Republic Act (RA)
8424; (2) RA 9334, which further amended
Section 145 of the NIRC on January 1, 2005; (3)
Revenue Regulations Nos. 1-97, 9-2003, and 22-
2003; and (4) Revenue Memorandum Order No.
6-2003. Petitioner argues that the said
provisions are violative of the equal protection
and uniformity clauses of the Constitution.
RA 8240, entitled "An Act Amending Sections
138, 139, 140, and 142 of the NIRC, as Amended
and For Other Purposes," took effect on January
1, 1997. In the same year, Congress passed RA
8424 or The Tax Reform Act of 1997, re-codifying
the NIRC. Section 142 was renumbered as
Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four
tiers of tax rates based on the net retail price per
pack of cigarettes. To determine the applicable
tax rates of existing cigarette brands, a survey of
the net retail prices per pack of cigarettes was
conducted as of October 1, 1996, the results of
which were embodied in Annex "D" of the NIRC
as the duly registered, existing or active brands
of cigarettes.
1
Paragraph (c) of Section 145, states –
SEC. 145. Cigars and cigarettes. –
xxxx
(c) Cigarettes packed by machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Thirteen pesos
and forty-four centavos (P13.44) per pack;
(2) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten
pesos (10.00) per pack, the tax shall be Eight
pesos and ninety-six centavos (P8.96) per pack;
(3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty centavos
(P6.50) per pack, the tax shall be Five pesos and
sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso and
twelve centavos (P1.12) per pack.
Variants of existing brands of cigarettes which
are introduced in the domestic market after the
effectivity of this Act shall be taxed under the
highest classification of any variant of that
brand.
xxxx
New brands shall be classified according to
their current net retail price.
For the above purpose, net retail price shall
mean the price at which the cigarette is sold on
retail in 20 major supermarkets in Metro Manila
(for brands of cigarettes marketed nationally),
excluding the amount intended to cover the
applicable excise tax and the value-added tax.
For brands which are marketed only outside
Metro Manila, the net retail price shall mean the
price at which the cigarette is sold in five major
supermarkets in the region excluding the
amount intended to cover the applicable excise
tax and the value-added tax.
The classification of each brand of cigarettes
based on its average net retail price as of
October 1, 1996, as set forth in Annex "D" of
this Act, shall remain in force until revised by
Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed
according to their current net retail price while
existing or "old" brands shall be taxed based on
their net retail price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal
Revenue (BIR) issued Revenue Regulations No.
1-97,2 which classified the existing brands of
cigarettes as those duly registered or active
brands prior to January 1, 1997. New brands, or
those registered after January 1, 1997, shall be
initially assessed at their suggested retail price
until such time that the appropriate survey to
determine their current net retail price is
conducted. Pertinent portion of the regulations
reads –
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of
cigarettes – shall include duly registered,
existing or active brands of cigarettes, prior to
January 1, 1997.
xxxx
6. New Brands – shall mean brands duly
registered after January 1, 1997 and shall include
duly registered, inactive brands of cigarette not
sold in commercial quantity before January 1,
1997.
Section 4. Classification and Manner of Taxation
of Existing Brands, New Brands and Variant of
Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their
current net retail price. In the meantime that the
current net retail price has not yet been
established, the suggested net retail price shall
be used to determine the specific tax
classification. Thereafter, a survey shall be
conducted in 20 major supermarkets or retail
outlets in Metro Manila (for brands of cigarette
marketed nationally) or in five (5) major
supermarkets or retail outlets in the region (for
brands which are marketed only outside Metro
Manila) at which the cigarette is sold on retail in
reams/cartons, three (3) months after the initial
removal of the new brand to determine the
actual net retail price excluding the excise tax
and value added tax which shall then be the basis
in determining the specific tax classification. In
case the current net retail price is higher than the
suggested net retail price, the former shall
prevail. Any difference in specific tax due shall be
assessed and collected inclusive of increments as
provided for by the National Internal Revenue
Code, as amended.
In June 2001, petitioner British American
Tobacco introduced into the market Lucky Strike
Filter, Lucky Strike Lights and Lucky Strike
Menthol Lights cigarettes, with a suggested
retail price of P9.90 per pack.3 Pursuant to Sec.
145 (c) quoted above, the Lucky Strike brands
were initially assessed the excise tax at P8.96 per
pack.
On February 17, 2003, Revenue Regulations No.
9-2003,4 amended Revenue Regulations No. 1-
97 by providing, among others, a periodic review
every two years or earlier of the current net
retail price of new brands and variants thereof
for the purpose of establishing and updating
their tax classification, thus:
For the purpose of establishing or updating the
tax classification of new brands and variant(s)
thereof, their current net retail price shall be
reviewed periodically through the conduct of
survey or any other appropriate activity, as
mentioned above, every two (2) years unless
earlier ordered by the Commissioner. However,
notwithstanding any increase in the current net
retail price, the tax classification of such new
brands shall remain in force until the same is
altered or changed through the issuance of an
appropriate Revenue Regulations.
Pursuant thereto, Revenue Memorandum
Order No. 6-20035 was issued on March 11,
2003, prescribing the guidelines and procedures
in establishing current net retail prices of new
brands of cigarettes and alcohol products.
Subsequently, Revenue Regulations No. 22-
20036 was issued on August 8, 2003 to
implement the revised tax classification of
certain new brands introduced in the market
after January 1, 1997, based on the survey of
their current net retail price. The survey revealed
that Lucky Strike Filter, Lucky Strike Lights, and
Lucky Strike Menthol Lights, are sold at the
current net retail price of P22.54, P22.61 and
P21.23, per pack, respectively.7 Respondent
Commissioner of the Bureau of Internal Revenue
thus recommended the applicable tax rate of
P13.44 per pack inasmuch as Lucky Strike’s
average net retail price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed
before the Regional Trial Court (RTC) of Makati,
Branch 61, a petition for injunction with prayer
for the issuance of a temporary restraining order
(TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 03-1032. Said petition
sought to enjoin the implementation of Section
145 of the NIRC, Revenue Regulations Nos. 1-97,
9-2003, 22-2003 and Revenue Memorandum
Order No. 6-2003 on the ground that they
discriminate against new brands of cigarettes, in
violation of the equal protection and uniformity
provisions of the Constitution.
Respondent Commissioner of Internal Revenue
filed an Opposition8 to the application for the
issuance of a TRO. On September 4, 2003, the
trial court denied the application for TRO,
holding that the courts have no authority to
restrain the collection of taxes.9 Meanwhile,
respondent Secretary of Finance filed a Motion
to Dismiss,10 contending that the petition is
premature for lack of an actual controversy or
urgent necessity to justify judicial intervention.
In an Order dated March 4, 2004, the trial court
denied the motion to dismiss and issued a writ of
preliminary injunction to enjoin the
implementation of Revenue Regulations Nos. 1-
97, 9-2003, 22-2003 and Revenue Memorandum
Order No. 6-2003.11 Respondents filed a Motion
for Reconsideration12 and Supplemental Motion
for Reconsideration.13 At the hearing on the said
motions, petitioner and respondent
Commissioner of Internal Revenue stipulated
that the only issue in this case is the
constitutionality of the assailed law, order, and
regulations.14
On May 12, 2004, the trial court rendered a
decision15 upholding the constitutionality of
Section 145 of the NIRC, Revenue Regulations
Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003. The trial court
also lifted the writ of preliminary injunction. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the instant
Petition is hereby DISMISSED for lack of merit.
The Writ of Preliminary Injunction previously
issued is hereby lifted and dissolved.
SO ORDERED.16
Petitioner brought the instant petition for review
directly with this Court on a pure question of law.
While the petition was pending, RA 9334 (An Act
Increasing The Excise Tax Rates Imposed on
Alcohol And Tobacco Products, Amending For
The Purpose Sections 131, 141, 143, 144, 145
and 288 of the NIRC of 1997, As Amended), took
effect on January 1, 2005. The statute, among
others,–
(1) increased the excise tax rates provided in
paragraph (c) of Section 145;
(2) mandated that new brands of cigarettes shall
initially be classified according to their suggested
net retail price, until such time that their correct
tax bracket is finally determined under a
specified period and, after which, their
classification shall remain in force until revised
by Congress;
(3) retained Annex "D" as tax base of those
surveyed as of October 1, 1996 including the
classification of brands for the same products
which, although not set forth in said Annex "D,"
were registered on or before January 1, 1997 and
were being commercially produced and
marketed on or after October 1, 1996, and which
continue to be commercially produced and
marketed after the effectivity of this Act. Said
classification shall remain in force until revised
by Congress; and
(4) provided a legislative freeze on brands of
cigarettes introduced between the period
January 2, 199717 to December 31, 2003, such
that said cigarettes shall remain in the
classification under which the BIR has
determined them to belong as of December 31,
2003, until revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes. –
xxxx
(C) Cigarettes Packed by Machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00)
per pack;
Effective on January 1, 2007, Two pesos and
twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and
forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and
seventy-two centavos (P2.72) per pack.
(2) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty centavos
(P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and thirty-
five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and
seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and
fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and
fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten
pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and
thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and
eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and
forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos
(P12.00) per pack.
(4) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos
(P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos
and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven
pesos and sixteen centavos (P27.16) per pack;
and
Effective on January 1, 2011, Twenty-eight pesos
and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately
following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after
the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net
retail price at which new brands, as defined
above, of locally manufactured or imported
cigarettes are intended by the manufacturer or
importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila
for those marketed nationwide, and in other
regions, for those with regional markets. At the
end of three (3) months from the product
launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new
brand against the net retail price as defined
herein and determine the correct tax bracket
under which a particular new brand of cigarette,
as defined above, shall be classified. After the
end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall
revalidate the initially validated net retail price
against the net retail price as of the time of
revalidation in order to finally determine the
correct tax bracket under which a particular new
brand of cigarettes shall be classified; Provided
however, That brands of cigarettes introduced
in the domestic market between January 1,
1997 [should be January 2, 1997] and December
31, 2003 shall remain in the classification under
which the Bureau of Internal Revenue has
determined them to belong as of December 31,
2003. Such classification of new brands and
brands introduced between January 1, 1997
and December 31, 2003 shall not be revised
except by an act of Congress.
Net retail price, as determined by the Bureau of
Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue
itself, or the National Statistics Office when
deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which
the cigarette is sold in retail in at least twenty
(20) major supermarkets in Metro Manila (for
brands of cigarettes marketed nationally),
excluding the amount intended to cover the
applicable excise tax and the value-added tax.
For brands which are marketed only outside
Metro Manila, the "net retail price" shall mean
the price at which the cigarette is sold in at least
five (5) major supermarkets in the region
excluding the amount intended to cover the
applicable excise tax and value-added tax.
The classification of each brand of cigarettes
based on its average net retail price as of
October 1, 1996, as set forth in Annex "D",
including the classification of brands for the
same products which, although not set forth in
said Annex "D", were registered and were being
commercially produced and marketed on or
after October 1, 1996, and which continue to be
commercially produced and marketed after the
effectivity of this Act, shall remain in force until
revised by Congress. (Emphasis added)
Under RA 9334, the excise tax due on
petitioner’s products was increased to P25.00
per pack. In the implementation thereof,
respondent Commissioner assessed petitioner’s
importation of 911,000 packs of Lucky Strike
cigarettes at the increased tax rate of P25.00 per
pack, rendering it liable for taxes in the total sum
of P22,775,000.00.18
Hence, petitioner filed a Motion to Admit
Attached Supplement19 and a Supplement20 to
the petition for review, assailing the
constitutionality of RA 9334 insofar as it retained
Annex "D" and praying for a downward
classification of Lucky Strike products at the
bracket taxable at P8.96 per pack. Petitioner
contended that the continued use of Annex "D"
as the tax base of existing brands of cigarettes
gives undue protection to said brands which are
still taxed based on their price as of October
1996 notwithstanding that they are now sold at
the same or even at a higher price than new
brands like Lucky Strike. Thus, old brands of
cigarettes such as Marlboro and Philip Morris
which, like Lucky Strike, are sold at or more than
P22.00 per pack, are taxed at the rate of P10.88
per pack, while Lucky Strike products are taxed
at P26.06 per pack.
In its Comment to the supplemental petition,
respondents, through the Office of the Solicitor
General (OSG), argued that the passage of RA
9334, specifically the provision imposing a
legislative freeze on the classification of
cigarettes introduced into the market between
January 2, 1997 and December 31, 2003,
rendered the instant petition academic. The OSG
claims that the provision in Section 145, as
amended by RA 9334, prohibiting the
reclassification of cigarettes introduced during
said period, "cured’ the perceived defect of
Section 145 considering that, like the cigarettes
under Annex "D," petitioner’s brands and other
brands introduced between January 2, 1997 and
December 31, 2003, shall remain in the
classification under which the BIR has placed
them and only Congress has the power to
reclassify them.
On March 20, 2006, Philip Morris Philippines
Manufacturing Incorporated filed a Motion for
Leave to Intervene with attached Comment-in-
Intervention.21 This was followed by the Motions
for Leave to Intervene of Fortune Tobacco
Corporation,22 Mighty Corporation, 23 and JT
International, S.A., with their respective
Comments-in-Intervention. The Intervenors
claim that they are parties-in-interest who stand
to be affected by the ruling of the Court on the
constitutionality of Section 145 of the NIRC and
its Annex "D" because they are manufacturers of
cigarette brands which are included in the said
Annex. Hence, their intervention is proper since
the protection of their interest cannot be
addressed in a separate proceeding.
According to the Intervenors, no inequality exists
because cigarettes classified by the BIR based on
their net retail price as of December 31, 2003
now enjoy the same status quo provision that
prevents the BIR from reclassifying cigarettes
included in Annex "D." It added that the Court
has no power to pass upon the wisdom of the
legislature in retaining Annex "D" in RA 9334;
and that the nullification of said Annex would
bring about tremendous loss of revenue to the
government, chaos in the collection of taxes,
illicit trade of cigarettes, and cause decline in
cigarette demand to the detriment of the
farmers who depend on the tobacco industry.
Intervenor Fortune Tobacco further contends
that petitioner is estopped from questioning the
constitutionality of Section 145 and its
implementing rules and regulations because it
entered into the cigarette industry fully aware of
the existing tax system and its consequences.
Petitioner imported cigarettes into the country
knowing that its suggested retail price, which will
be the initial basis of its tax classification, will be
confirmed and validated through a survey by the
BIR to determine the correct tax that would be
levied on its cigarettes.
Moreover, Fortune Tobacco claims that the
challenge to the validity of the BIR issuances
should have been brought by petitioner before
the Court of Tax Appeals (CTA) and not the RTC
because it is the CTA which has exclusive
appellate jurisdiction over decisions of the BIR in
tax disputes.
On August 7, 2006, the OSG manifested that it
interposes no objection to the motions for
intervention.24 Therefore, considering the
substantial interest of the intervenors, and in the
higher interest of justice, the Court admits their
intervention.
Before going into the substantive issues of this
case, we must first address the matter of
jurisdiction, in light of Fortune Tobacco’s
contention that petitioner should have brought
its petition before the Court of Tax Appeals
rather than the regional trial court.
The jurisdiction of the Court of Tax Appeals is
defined in Republic Act No. 1125, as amended by
Republic Act No. 9282. Section 7 thereof states,
in pertinent part:
Sec. 7. Jurisdiction. — The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by
appeal, as herein provided:
1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relations
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code
provides a specific period of action, in which case
the inaction shall be deemed a denial; xxx.25
While the above statute confers on the CTA
jurisdiction to resolve tax disputes in general,
this does not include cases where the
constitutionality of a law or rule is challenged.
Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation
issued by the administrative agency in the
performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the
same. The determination of whether a specific
rule or set of rules issued by an administrative
agency contravenes the law or the constitution
is within the jurisdiction of the regular courts.
Indeed, the Constitution vests the power of
judicial review or the power to declare a law,
treaty, international or executive agreement,
presidential decree, order, instruction,
ordinance, or regulation in the courts, including
the regional trial courts. This is within the scope
of judicial power, which includes the authority of
the courts to determine in an appropriate action
the validity of the acts of the political
departments. Judicial power includes the duty of
the courts of justice to settle actual
controversies involving rights which are legally
demandable and enforceable, and to determine
whether or not there has been a grave abuse of
discretion amounting to lack or excess of
jurisdiction on the part of any branch or
instrumentality of the Government.26
In Drilon v. Lim,27 it was held:
We stress at the outset that the lower court had
jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in
the general definition of the judicial power to
determine what are the valid and binding laws by
the criterion of their conformity to the
fundamental law. Specifically, B.P. 129 vests in
the regional trial courts jurisdiction over all civil
cases in which the subject of the litigation is
incapable of pecuniary estimation, even as the
accused in a criminal action has the right to
question in his defense the constitutionality of a
law he is charged with violating and of the
proceedings taken against him, particularly as
they contravene the Bill of Rights. Moreover,
Article X, Section 5(2), of the Constitution vests
in the Supreme Court appellate jurisdiction over
final judgments and orders of lower courts in all
cases in which the constitutionality or validity of
any treaty, international or executive
agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or
regulation is in question.
The petition for injunction filed by petitioner
before the RTC is a direct attack on the
constitutionality of Section 145(C) of the NIRC, as
amended, and the validity of its implementing
rules and regulations. In fact, the RTC limited the
resolution of the subject case to the issue of the
constitutionality of the assailed provisions. The
determination of whether the assailed law and
its implementing rules and regulations
contravene the Constitution is within the
jurisdiction of regular courts. The Constitution
vests the power of judicial review or the power
to declare a law, treaty, international or
executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the
courts, including the regional trial
28
courts. Petitioner, therefore, properly filed the
subject case before the RTC.
We come now to the issue of whether petitioner
is estopped from assailing the authority of the
Commissioner of Internal Revenue. Fortune
Tobacco raises this objection by pointing out that
when petitioner requested the Commissioner
for a ruling that its Lucky Strike Soft Pack
cigarettes was a "new brand" rather than a
variant of an existing brand, and thus subject to
a lower specific tax rate, petitioner executed an
undertaking to comply with the procedures
under existing regulations for the assessment of
deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after
invoking the authority of the Commissioner of
Internal Revenue, cannot later on turn around
when the ruling is adverse to it.
Estoppel, an equitable principle rooted in natural
justice, prevents persons from going back on
their own acts and representations, to the
prejudice of others who have relied on
them.29 The principle is codified in Article 1431
of the Civil Code, which provides:
Through estoppel, an admission or
representation is rendered conclusive upon the
person making it and cannot be denied or
disproved as against the person relying thereon.
Estoppel can also be found in Rule 131, Section 2
(a) of the Rules of Court, viz:
Sec. 2. Conclusive presumptions. — The
following are instances of conclusive
presumptions:
(a) Whenever a party has by his own declaration,
act or omission, intentionally and deliberately
led another to believe a particular thing true, and
to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or
omission be permitted to falsify it.
The elements of estoppel are: first, the actor
who usually must have knowledge, notice or
suspicion of the true facts, communicates
something to another in a misleading way, either
by words, conduct or silence; second, the other
in fact relies, and relies reasonably or justifiably,
upon that communication; third, the other
would be harmed materially if the actor is later
permitted to assert any claim inconsistent with
his earlier conduct; and fourth, the actor knows,
expects or foresees that the other would act
upon the information given or that a reasonable
person in the actor's position would expect or
foresee such action.30
31
In the early case of Kalalo v. Luz, the elements
of estoppel, as related to the party to be
estopped, are: (1) conduct amounting to false
representation or concealment of material facts;
or at least calculated to convey the impression
that the facts are other than, and inconsistent
with, those which the party subsequently
attempts to assert; (2) intent, or at least
expectation that this conduct shall be acted
upon by, or at least influence, the other party;
and (3) knowledge, actual or constructive, of the
real facts.
We find that petitioner was not guilty of
estoppel. When it made the undertaking to
comply with all issuances of the BIR, which at
that time it considered as valid, petitioner did
not commit any false misrepresentation or
misleading act. Indeed, petitioner cannot be
faulted for initially undertaking to comply with,
and subjecting itself to the operation of Section
145(C), and only later on filing the subject case
praying for the declaration of its
unconstitutionality when the circumstances
change and the law results in what it perceives
to be unlawful discrimination. The mere fact that
a law has been relied upon in the past and all that
time has not been attacked as unconstitutional
is not a ground for considering petitioner
estopped from assailing its validity. For courts
will pass upon a constitutional question only
when presented before it in bona fide cases for
determination, and the fact that the question
has not been raised before is not a valid reason
for refusing to allow it to be raised later.32
Now to the substantive issues.
To place this case in its proper context, we deem
it necessary to first discuss how the assailed law
operates in order to identify, with precision, the
specific provisions which, according to
petitioner, have created a grossly discriminatory
classification scheme between old and new
brands. The pertinent portions of RA 8240, as
amended by RA 9334, are reproduced below for
ready reference:
SEC. 145. Cigars and Cigarettes. –
xxxx
(C) Cigarettes Packed by Machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00)
per pack;
Effective on January 1, 2007, Two pesos and
twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and
forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and
seventy-two centavos (P2.72) per pack.
(2) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty centavos
(P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and thirty-
five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and
seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and
fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and
fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten
pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and
thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and
eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and
forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos
(P12.00) per pack.
(4) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos
(P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos
and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven
pesos and sixteen centavos (P27.16) per pack;
and
Effective on January 1, 2011, Twenty-eight pesos
and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately
following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after
the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net
retail price at which new brands, as defined
above, of locally manufactured or imported
cigarettes are intended by the manufacturer or
importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila
for those marketed nationwide, and in other
regions, for those with regional markets. At the
end of three (3) months from the product
launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new
brand against the net retail price as defined
herein and determine the correct tax bracket
under which a particular new brand of cigarette,
as defined above, shall be classified. After the
end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall
revalidate the initially validated net retail price
against the net retail price as of the time of
revalidation in order to finally determine the
correct tax bracket under which a particular new
brand of cigarettes shall be classified; Provided
however, That brands of cigarettes introduced in
the domestic market between January 1, 1997
[should be January 2, 1997] and December 31,
2003 shall remain in the classification under
which the Bureau of Internal Revenue has
determined them to belong as of December 31,
2003. Such classification of new brands and
brands introduced between January 1, 1997 and
December 31, 2003 shall not be revised except
by an act of Congress.
Net retail price, as determined by the Bureau of
Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue
itself, or the National Statistics Office when
deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which
the cigarette is sold in retail in at least twenty
(20) major supermarkets in Metro Manila (for
brands of cigarettes marketed nationally),
excluding the amount intended to cover the
applicable excise tax and the value-added tax.
For brands which are marketed only outside
Metro Manila, the "net retail price" shall mean
the price at which the cigarette is sold in at least
five (5) major supermarkets in the region
excluding the amount intended to cover the
applicable excise tax and value-added tax.
The classification of each brand of cigarettes
based on its average net retail price as of
October 1, 1996, as set forth in Annex "D",
including the classification of brands for the
same products which, although not set forth in
said Annex "D", were registered and were being
commercially produced and marketed on or
after October 1, 1996, and which continue to be
commercially produced and marketed after the
effectivity of this Act, shall remain in force until
revised by Congress.
As can be seen, the law creates a four-tiered
system which we may refer to as the low-
priced,33 medium-priced,34 high-priced,35 and
premium-priced36 tax brackets. When a brand is
introduced in the market, the current net retail
price is determined through the aforequoted
specified procedure. The current net retail price
is then used to classify under which tax bracket
the brand belongs in order to finally determine
the corresponding excise tax rate on a per pack
basis. The assailed feature of this law pertains to
the mechanism where, after a brand is classified
based on its current net retail price, the
classification is frozen and only Congress can
thereafter reclassify the same. From a practical
point of view, Annex "D" is merely a by-product
of the whole mechanism and philosophy of the
assailed law. That is, the brands under Annex "D"
were also classified based on their current net
retail price, the only difference being that they
were the first ones so classified since they were
the only brands surveyed as of October 1, 1996,
or prior to the effectivity of RA 8240 on January
1, 1997.37
Due to this legislative classification scheme, it
is possible that over time the net retail price of a
previously classified brand, whether it be a brand
under Annex "D" or a new brand classified after
the effectivity of RA 8240 on January 1,
1997, would increase (due to inflation, increase
of production costs, manufacturer’s decision to
increase its prices, etc.) to a point that its net
retail price pierces the tax bracket to which it was
previously classified.38 Consequently, even if its
present day net retail price would make it fall
under a higher tax bracket, the previously
classified brand would continue to be subject to
the excise tax rate under the lower tax bracket
by virtue of the legislative classification freeze.
Petitioner claims that this is what happened in
2004 to the Marlboro and Philip Morris brands,
which were permanently classified under Annex
"D." As of October 1, 1996, Marlboro had net
retail prices ranging from P6.78 to P6.84 while
Philip Morris had net retail prices ranging from
P7.39 to P7.48. Thus, pursuant to RA
8240,39 Marlboro and Philip Morris were
classified under the high-priced tax bracket and
subjected to an excise tax rate of P8.96 per pack.
Petitioner then presented evidence showing that
after the lapse of about seven years or sometime
in 2004, Marlboro’s and Philip Morris’ net retail
prices per pack both increased to about
P15.59.40 This meant that they would fall under
the premium-priced tax bracket, with a higher
excise tax rate of P13.44 per pack,41 had they
been classified based on their 2004 net retail
prices. However, due to the legislative
classification freeze, they continued to be
classified under the high-priced tax bracket with
a lower excise tax rate. Petitioner thereafter
deplores the fact that its Lucky Strike Filter,
Lucky Strike Lights, and Lucky Strike Menthol
Lights cigarettes, introduced in the market
sometime in 2001 and validated by a BIR survey
in 2003, were found to have net retail prices of
P11.53, P11.59 and P10.34,42 respectively, which
are lower than those of Marlboro and Philip
Morris. However, since petitioner’s cigarettes
were newly introduced brands in the market,
they were taxed based on their current net retail
prices and, thus, fall under the premium-priced
tax bracket with a higher excise tax rate of
P13.44 per pack. This unequal tax treatment
between Marlboro and Philip Morris, on the one
hand, and Lucky Strike, on the other, is the crux
of petitioner’s contention that the legislative
classification freeze violates the equal protection
and uniformity of taxation clauses of the
Constitution.
It is apparent that, contrary to its assertions,
petitioner is not only questioning the undue
favoritism accorded to brands under Annex "D,"
but the entire mechanism and philosophy of the
law which freezes the tax classification of a
cigarette brand based on its current net retail
price. Stated differently, the alleged
discrimination arising from the legislative
classification freeze between the brands under
Annex "D" and petitioner’s newly introduced
brands arose only because the former were
classified based on their "current" net retail price
as of October 1, 1996 and petitioner’s newly
introduced brands were classified based on their
"current" net retail price as of 2003. Without this
corresponding freezing of the classification of
petitioner’s newly introduced brands based on
their current net retail price, it would be
impossible to establish that a disparate tax
treatment occurred between the Annex "D"
brands and petitioner’s newly introduced
brands.
This clarification is significant because, under
these circumstances, a declaration of
unconstitutionality would necessarily entail
nullifying the whole mechanism of the law and
not just Annex "D." Consequently, if the assailed
law is declared unconstitutional on equal
protection grounds, the entire method by which
a brand of cigarette is classified would have to be
invalidated. As a result, no method to classify
brands under Annex "D" as well as new brands
would be left behind and the whole Section 145
of the NIRC, as amended, would become
inoperative.43
To simplify the succeeding discussions, we shall
refer to the whole mechanism and philosophy of
the assailed law which freezes the tax
classification of a cigarette brand based on its
current net retail price and which, thus,
produced different classes of brands based on
the time of their introduction in the market
(starting with the brands in Annex "D" since they
were the first brands so classified as of October
1, 1996) as the classification freeze provision.44
As thus formulated, the central issue is whether
or not the classification freeze provision violates
the equal protection and uniformity of taxation
clauses of the Constitution.
In Sison, Jr. v. Ancheta,45 this Court, through
Chief Justice Fernando, explained the applicable
standard in deciding equal protection and
uniformity of taxation challenges:
Now for equal protection. The applicable
standard to avoid the charge that there is a
denial of this constitutional mandate whether
the assailed act is in the exercise of the police
power or the power of eminent domain is to
demonstrate "that the governmental act
assailed, far from being inspired by the
attainment of the common weal was prompted
by the spirit of hostility, or at the very least, reiteration of the view that classification if
discrimination that finds no support in reason. It rational in character is allowable. As a matter of
suffices then that the laws operate equally and fact, in a leading case of Lutz v. Araneta, this
uniformly on all persons under similar Court, through Justice J.B.L. Reyes, went so far as
circumstances or that all persons must be to hold "at any rate, it is inherent in the power to
treated in the same manner, the conditions not tax that a state be free to select the subjects of
being different, both in the privileges conferred taxation, and it has been repeatedly held that
and the liabilities imposed. Favoritism and 'inequalities which result from a singling out of
undue preference cannot be allowed. For the one particular class for taxation, or exemption
principle is that equal protection and security infringe no constitutional limitation.'"
shall be given to every person under
Petitioner likewise invoked the kindred concept
circumstances, which if not identical are
of uniformity. According to the Constitution:
analogous. If law be looks upon in terms of
"The rule of taxation shall be uniform and
burden or charges, those that fall within a class
equitable." This requirement is met according to
should be treated in the same fashion, whatever
Justice Laurel in Philippine Trust Company v.
restrictions cast on some in the group equally
Yatco, decided in 1940, when the tax "operates
binding on the rest." That same formulation
with the same force and effect in every place
applies as well to taxation measures. The equal
where the subject may be found." He likewise
protection clause is, of course, inspired by the
added: "The rule of uniformity does not call for
noble concept of approximating the ideal of the
perfect uniformity or perfect equality, because
laws's benefits being available to all and the
this is hardly attainable." The problem of
affairs of men being governed by that serene and
classification did not present itself in that case. It
impartial uniformity, which is of the very essence
did not arise until nine years later, when the
of the idea of law. There is, however, wisdom, as
Supreme Court held: "Equality and uniformity in
well as realism, in these words of Justice
taxation means that all taxable articles or kinds
Frankfurter: "The equality at which the 'equal
of property of the same class shall be taxed at
protection' clause aims is not a disembodied
the same rate. The taxing power has the
equality. The Fourteenth Amendment enjoins
authority to make reasonable and natural
'the equal protection of the laws,' and laws are
classifications for purposes of taxation, . . . As
not abstract propositions. They do not relate to
clarified by Justice Tuason, where "the
abstract units A, B and C, but are expressions of
differentiation" complained of "conforms to the
policy arising out of specific difficulties,
practical dictates of justice and equity" it "is not
addressed to the attainment of specific ends by
discriminatory within the meaning of this clause
the use of specific remedies. The Constitution
and is therefore uniform." There is quite a
does not require things which are different in
similarity then to the standard of equal
fact or opinion to be treated in law as though
protection for all that is required is that the tax
they were the same." Hence the constant
"applies equally to all persons, firms and
corporations placed in similar
situation."46 (Emphasis supplied)
In consonance thereto, we have held that "in our
jurisdiction, the standard and analysis of equal
protection challenges in the main have followed
the ‘rational basis’ test, coupled with a
deferential attitude to legislative classifications
and a reluctance to invalidate a law unless there
is a showing of a clear and unequivocal breach of
the Constitution."47 Within the present context
of tax legislation on sin products which neither
contains a suspect classification nor impinges on
a fundamental right, the rational-basis test thus
finds application. Under this test, a legislative
classification, to survive an equal protection
challenge, must be shown to rationally further a
legitimate state interest.48 The classifications
must be reasonable and rest upon some ground
of difference having a fair and substantial
relation to the object of the legislation.49 Since
every law has in its favor the presumption of
constitutionality, the burden of proof is on the
one attacking the constitutionality of the law to
prove beyond reasonable doubt that the
legislative classification is without rational
basis.50 The presumption of constitutionality can
be overcome only by the most explicit
demonstration that a classification is a hostile
and oppressive discrimination against particular
persons and classes, and that there is no
conceivable basis which might support it.51
A legislative classification that is reasonable does
not offend the constitutional guaranty of the
equal protection of the laws. The classification is
considered valid and reasonable provided that:
(1) it rests on substantial distinctions; (2) it is
germane to the purpose of the law; (3) it applies,
all things being equal, to both present and future
conditions; and (4) it applies equally to all those
belonging to the same class.52
The first, third and fourth requisites are satisfied.
The classification freeze provision was inserted
in the law for reasons of practicality and
expediency. That is, since a new brand was not
yet in existence at the time of the passage of RA
8240, then Congress needed a uniform
mechanism to fix the tax bracket of a new brand.
The current net retail price, similar to what was
used to classify the brands under Annex "D" as of
October 1, 1996, was thus the logical and
practical choice. Further, with the amendments
introduced by RA 9334, the freezing of the tax
classifications now expressly applies not just to
Annex "D" brands but to newer brands
introduced after the effectivity of RA 8240 on
January 1, 1997 and any new brand that will be
introduced in the future.53 (However, as will be
discussed later, the intent to apply the freezing
mechanism to newer brands was already in place
even prior to the amendments introduced by RA
9334 to RA 8240.) This does not explain,
however, why the classification is "frozen" after
its determination based on current net retail
price and how this is germane to the purpose of
the assailed law. An examination of the
legislative history of RA 8240 provides
interesting answers to this question.
RA 8240 was the first of three parts in the
Comprehensive Tax Reform Package then being
pushed by the Ramos Administration. It was
enacted with the following objectives stated in
the Sponsorship Speech of Senator Juan Ponce
Enrile (Senator Enrile), viz:
First, to evolve a tax structure which will
promote fair competition among the players in
the industries concerned and generate buoyant
and stable revenue for the government.
Second, to ensure that the tax burden is
equitably distributed not only amongst the
industries affected but equally amongst the
various levels of our society that are involved in
various markets that are going to be affected by
the excise tax on distilled spirits, fermented
liquor, cigars and cigarettes.
In the case of firms engaged in the industries
producing the products that we are about to tax,
this means relating the tax burden to their
market share, not only in terms of quantity, Mr.
President, but in terms of value.
In case of consumers, this will mean evolving a
multi-tiered rate structure so that low-priced
products are subject to lower tax rates and
higher-priced products are subject to higher tax
rates.
Third, to simplify the tax administration and
compliance with the tax laws that are about to
unfold in order to minimize losses arising from
inefficiencies and tax avoidance scheme, if not
outright tax evasion.54
In the initial stages of the crafting of the assailed
law, the Department of Finance (DOF)
recommended to Congress a shift from the then
existing ad valorem taxation system to a specific
taxation system with respect to sin products,
including cigarettes. The DOF noted that the ad
valorem taxation system was a source of massive
tax leakages because the taxpayer was able to
evade paying the correct amount of taxes
through the undervaluation of the price of
cigarettes using various marketing arms and
dummy corporations. In order to address this
problem, the DOF proposed a specific taxation
system where the cigarettes would be taxed
based on volume or on a per pack basis which
was believed to be less susceptible to price
manipulation. The reason was that the BIR would
only need to monitor the sales volume of
cigarettes, from which it could easily compute
the corresponding tax liability of cigarette
manufacturers. Thus, the DOF suggested the use
of a three-tiered system which operates in
substantially the same manner as the four-tiered
system under RA 8240 as earlier discussed. The
proposal of the DOF was embodied in House Bill
(H.B.) No. 6060, the pertinent portions of which
states—
SEC. 142. Cigars and cigarettes.—
(c) Cigarettes packed by machine.— There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the manufacturer’s or importer’s wholesale
price (net of excise tax and value-added tax) per
pack exceeds four pesos and twenty centavos
(P4.20), the tax shall be seven pesos and fifty
centavos (P7.50);
(2) If the manufacturer’s or importer’s wholesale
price (net of excise tax and value-added tax) per
pack exceeds three pesos and ninety centavos
(P3.90) but does not exceed four pesos and
twenty centavos (P4.20), the tax shall be five
pesos and fifty centavos (P5.50): provided, that
after two (2) years from the effectivity of this
Act, cigarettes otherwise subject to tax under
this subparagraph shall be taxed under
subparagraph (1) above.
(3) If the manufacturer’s or importer’s wholesale
price (net of excise tax and value-added tax) per
pack does not exceeds three pesos and ninety
centavos (P3.90), the tax rate shall be one peso
(P1.00).
Variants of existing brands and new brands of
cigarettes packed by machine to be introduced
in the domestic market after the effectivity of
this Act, shall be taxed under paragraph (c)(1)
hereof.
The rates of specific tax on cigars and cigarettes
under paragraphs (a), (b), and (c) hereof,
including the price levels for purposes of
classifying cigarettes packed by machine, shall
be revised upward two (2) years after the
effectivity of this Act and every two years
thereafter by the Commissioner of Internal
Revenue, subject to the approval of the
Secretary of Finance, taking into account the
movement of the consumer price index for
cigars and cigarettes as established by the
National Statistics Office: provided, that the
increase in taxes and/or price levels shall be
equal to the present change in such consumer
price index for the two-year
period: provided, further, that the President,
upon the recommendation of the Secretary of
Finance, may suspend or defer the adjustment
in price levels and tax rates when the interest of
the national economy and general welfare so
require, such as the need to obviate
unemployment, and economic and social
dislocation: provided, finally, that the revised
price levels and tax rates authorized herein
shall in all cases be rounded off to the nearest
centavo and shall be in force and effect on the
date of publication thereof in a newspaper of
general circulation. x x x (Emphasis supplied)
What is of particular interest with respect to the
proposal of the DOF is that it contained a
provision for the periodic adjustment of the
excise tax rates and tax brackets, and a
corresponding periodic resurvey and
reclassification of cigarette brands based on the
increase in the consumer price index as
determined by the Commissioner of Internal
Revenue subject to certain guidelines. The
evident intent was to prevent inflation from
eroding the value of the excise taxes that would
be collected from cigarettes over time by
adjusting the tax rate and tax brackets based on
the increase in the consumer price index.
Further, under this proposal, old brands as well
as new brands introduced thereafter would be
subjected to a resurvey and reclassification
based on their respective values at the end of
every two years in order to align them with the
adjustment of the excise tax rate and tax
brackets due to the movement in the consumer
price index.55
Of course, we now know that the DOF proposal,
insofar as the periodic adjustment of tax rates
and tax brackets, and the periodic resurvey and
reclassification of cigarette brands are
concerned, did not gain approval from Congress.
The House and Senate pushed through with their
own versions of the excise tax system on beers
and cigarettes both denominated as H.B. No.
7198. For convenience, we shall refer to the bill
deliberated upon by the House as the House
Version and that of the Senate as the Senate
Version.
The House’s Committee on Ways and Means,
then chaired by Congressman Exequiel B. Javier
(Congressman Javier), roundly rejected the DOF
proposal. Instead, in its Committee Report
submitted to the plenary, it proposed a different
excise tax system which used a specific tax as a
basic tax with an ad valorem comparator.
Further, it deleted the proposal to have a
periodic adjustment of tax rates and the tax
brackets as well as periodic resurvey and
reclassification of cigarette brands, to wit:
The rigidity of the specific tax system calls for the
need for frequent congressional intervention to
adjust the tax rates to inflation and to keep pace
with the expanding needs of government for
more revenues. The DOF admits this flaw
inherent in the tax system it proposed. Hence, to
obviate the need for remedial legislation, the
DOF is asking Congress to grant to the
Commissioner the power to revise, one, the
specific tax rates: and two, the price levels of
beer and cigarettes. What the DOF is asking, Mr.
Speaker, is for Congress to delegate to the
Commissioner of Internal Revenue the power to
fix the tax rates and classify the subjects of
taxation based on their price levels for purposes
of fixing the tax rates. While we sympathize with
the predicament of the DOF, it is not for
Congress to abdicate such power. The power
sought to be delegated to be exercised by the
Commissioner of Internal Revenue is a legislative
power vested by the Constitution in Congress
pursuant to Section 1, Article VI of the
Constitution. Where the power is vested, there it
must remain— in Congress, a body of
representatives elected by the people. Congress
may not delegate such power, much less
abdicate it.
xxxx
Moreover, the grant of such power, if at all
constitutionally permissible, to the
Commissioner of Internal Revenue is fraught
with ethical implications. The debates on how
much revenue will be raised, how much money
will be taken from the pockets of taxpayers, will
inexorably shift from the democratic Halls of
Congress to the secret and non-transparent
corridors of unelected agencies of government,
the Department of Finance and the Bureau of
Internal Revenue, which are not accountable to
our people. We cannot countenance the shift for
ethical reasons, lest we be accused of betraying
the trust reposed on this Chamber by the people.
xxx
A final point on this proposal, Mr. Speaker, is the
exercise of the taxing power of the
Commissioner of Internal Revenue which will be
triggered by inflation rates based on the
consumer price index. Simply stated, Mr.
Speaker, the specific tax rates will be fixed by the
Commissioner depending on the price levels of
beers and cigarettes as determined by the
consumers’ price index. This is a novel idea, if not
necessarily weird in the field of taxation. What if
the brewer or the cigarette manufacturer sells at
a price below the consumers’ price index? Will it
be taxed on the basis of the consumer’s price
index which is over and above its wholesale or
retail price as the case may be? This is a weird
form of exaction where the tax is based not on
what the brewer or manufacturer actually
realized but on an imaginary wholesale or retail
price. This amounts to a taxation based on
presumptive price levels and renders the specific
tax a presumptive tax. We hope, the DOF and the
BIR will also honor a presumptive tax payment.
Moreover, specific tax rates based on price levels
tied to consumer’s price index as proposed by
the DOF engenders anti-trust concerns. The
proposal if enacted into law will serve as a
barrier to the entry of new players in the beer
and cigarette industries which are presently
dominated by shared monopolies. A new player
in these industries will be denied business
flexibility to fix its price levels to promote its
product and penetrate the market as the price
levels are dictated by the consumer price index.
The proposed tax regime, Mr. Speaker, will
merely enhance the stranglehold of the
oligopolies in the beer and cigarette industries,
thus, reversing the government’s policy of
dismantling monopolies and combinations in
restraint of trade.56
For its part, the Senate’s Committee on Ways
and Means, then chaired by Senator Juan Ponce
Enrile (Senator Enrile), developed its own
version of the excise tax system on cigarettes.
The Senate Version consisted of a four-tiered
system and, interestingly enough, contained a
periodic excise tax rate and tax bracket
adjustment as well as a periodic resurvey and
reclassification of brands provision ("periodic
adjustment and reclassification provision," for
brevity) to be conducted by the DOF in
coordination with the BIR and the National
Statistics Office based on the increase in the
consumer price index— similar to the one
proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal
Revenue Code, as amended, is hereby further
amended to read as follows:
"SEC. 142. Cigars and cigarettes. –
xxxx
(c) Cigarettes packed by machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Twelve pesos
(P12.00) per pack;
(2) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) per pack, the tax shall be
Eight pesos (P8.00) per pack;
(3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00) up
to Six pesos and fifty centavos (P6.50) per pack,
the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso
(P1.00) per pack.
Variants of existing brands of cigarettes which
are introduced in the domestic market after the
effectivity of this Act shall be taxed under the
highest classification of any variant of that
brand.
xxx
The rates of specific tax on cigars and cigarettes
under subparagraph (a), (b) and (c) hereof,
including the net retail prices for purposes of
classification, shall be adjusted on the sixth of
January three years after the effectivity of this
Act and every three years thereafter. The
adjustment shall be in accordance with the
inflation rate measured by the average increase
in the consumer price index over the three-year
period. The adjusted tax rates and net price
levels shall be in force on the eighth of January.
Within the period hereinabove mentioned, the
Secretary of Finance shall direct the conduct of
a survey of retail prices of each brand of
cigarettes in coordination with the Bureau of
Internal Revenue and the National Statistics
Office.
For purposes of this Section, net retail price shall
mean the price at which the cigarette is sold on
retail in 20 major supermarkets in Metro Manila
(for brands of cigarettes marketed nationally),
excluding the amount intended to cover the
applicable excise tax and the value-added tax.
For brands which are marketed only outside
Metro Manila, the net retail price shall mean the
price at which the cigarette is sold in five major
supermarkets in the region excluding the
amount intended to cover the applicable excise
tax and the value-added tax.
The classification of each brand of cigarettes in
the initial year of implementation of this Act
shall be based on its average net retail price as
of October 1, 1996. The said classification by
brand shall remain in force until January 7,
2000.
New brands shall be classified according to their
current net retail price.57 (Emphasis supplied)
During the period of interpellations, the late
Senator Raul S. Roco (Senator Roco) expressed
doubts as to the legality and wisdom of putting a
periodic adjustment and reclassification
provision:
Senator Enrile: This will be the first time that a
tax burden will be allowed to be automatically
adjusted upwards based on a system of indexing
tied up with the Consumers Price Index (CPI).
Although I must add that we have adopted a
similar system in adjusting the personal tax
exemption from income tax of our individual
taxpayers.
Senator Roco: They are not exactly the same, Mr.
President. But even then, we do note that this
the first time we are trying to put an automatic
adjustment. My concern is, why do we propose
now this automatic adjustment? What is the
reason that impels the committee? Maybe we
can be enlightened and maybe we shall embrace
it forthwith. But what is the reason?
Senator Enrile: Mr. President, we will recall that
in the House of Representatives, it has adopted
a tax proposal on these products based on a
specific tax as a basic tax with an ad
valorem comparator. The Committee on Ways
and Means of the Senate has not seen it fit to
adopt this system, but it recognized the
possibility that there may be an occasion where
the price movement in the country might
unwarrantedly move upwards, in which case, if
we peg the government to a specific tax rate of
P6.30, P9.30 and P12.30 for beer, since we are
talking of beer, 58 the government might lose in
the process.
In order to consider the interest of the
government in this, Mr. President, and in order
to obviate the possibility that some of these
products categorized under the different tiers
with different specific tax rates from moving
upwards and piercing their own tiers and
thereby expose themselves to an incremental
tax of higher magnitude, it was felt that we
should adopt a system where, in spite of any
escalation in the price of these products in the
future, the tax rates could be adjusted upwards
so that none of these products would leave their
own tier. That was the basic principle under
which we crafted this portion of the tax
proposal.
Senator Roco: Mr. President, we certainly share
the judgment of the distinguished gentleman as
regards the comparator provision in the House
of Representatives and we appreciate the
reasons given. But we are under the impression
that the House also, aside from the comparator,
has an adjustment clause that is fixed. It has fixed
rates for the adjustment. So that one of the basic
differences between the Senate proposed
version now and the House version is that, the
House of Representatives has manifested its will
and judgment as regards the tax to which we will
adjust, whereas the Senate version relegates
fundamentally that judgment to the Department
of Finance.
Senator Enrile: That is correct, Mr. President,
because we felt that in imposing a fixed
adjustment, we might be fixing an amount that
is either too high or too low. We cannot foresee
the economic trends in this country over a period
of two years, three years, let alone ten years. So
we felt that a mechanism ought to be adopted in
order to serve the interest of the government,
the interest of the producers, and the interest of
the consuming public.
Senator Roco: This is where, Mr. President, my
policy difficulties start. Under the Constitution—
I think it is Article VI, Section 24, and it was the
distinguished chairman of the Committee on
Ways and Means who made this Chamber very
conscious of this provision— revenue measures
and tariff measures shall originate exclusively
from the House of Representatives.
The reason for this, Mr. President, is, there is a
long history why the House of Representatives
must originate judgments on tax. The House
members represent specific districts. They
represent specific constituencies, and the whole
history of parliamentarism, the whole history of
Congress as an institution is founded on the
proposition that the direct representatives of
the people must speak about taxes.
Mr. President, while the Senate can concur and
can introduce amendments, the proposed
change here is radical. This is the policy difficulty
that I wish to clarify with the gentleman because
the judgment call now on the amount of tax to
be imposed is not coming from Congress. It is
shifted to the Department of Finance. True, the
Secretary of Finance may have been the best
finance officer two years ago and now the best
finance officer in Asia, but that does not make
him qualified to replace the judgment call of the
House of Representatives. That is my first
difficulty.
Senator Enrile: Mr. President, precisely the law,
in effect, authorizes this rate beforehand. The
computation of the rate is the only thing that
was left to the Department of Finance as a tax
implementor of Congress. This is not unusual
because we have already, as I said, adopted a
system similar to this. If we adjust the personal
exemption of an individual taxpayer, we are in
effect adjusting the applicable tax rate to him.
Senator Roco: But the point I was trying to
demonstrate, Mr. President, is that we depart
precisely from the mandate of the Constitution
that judgment on revenue must emanate from
Congress. Here, it is shifted to the Department of
Finance for no visible or patent reason insofar as
I could understand. The only difference is, who
will make the judgment? Should it be Congress?
Senator Enrile: Mr. President, forgive me for
answering sooner than I should. My
understanding of the Constitution is that all
revenue measures must emanate from the
House. That is all the Constitution says.
Now, it does not say that the judgment call must
belong to the House. The judgment call can
belong both to the House and to the Senate. We
can change whatever proposal the House did.
Precisely, we are now crafting a measure, and we
are saying that this is the rate subject to an
adjustment which we also provide. We are not
giving any unusual power to the Secretary of
Finance because we tell him, "This is the formula
that you must adopt in arriving at the
adjustment so that you do not have to come
back to us."59
Apart from his doubts as to the legality of the
delegation of taxing power to the DOF and BIR,
Senator Roco also voiced out his concern about
the possible abuse and corruption that will arise
from the periodic adjustment and
reclassification provision. Continuing—
Senator Roco: Mr. President, if that is the
argument, that the distinguished gentleman has
a different legal interpretation, we will then now
examine the choice. Because his legal
interpretation is different from mine, then the
issues becomes: Is it more advantageous that
this judgment be exercised by the House?
Should we not concur or modify in terms of the
exercise by the House of its power or are we
better off giving this judgment call to the
Department of Finance?
Let me now submit, Mr. President, that in so
doing, it is more advantageous to fix the rate so
that even if we modify the rates identified by
Congress, it is better and less susceptible to
abuse.
For instance, Mr. President, would the
gentlemen wish to demonstrate to us how this
will be done? On page 8, lines 5 to 9, there is a
provision here as to when the Secretary of
Finance shall direct the conduct of survey of
retail prices of each brand of fermented liquor in
coordination with the Bureau of Internal
Revenue and the National Statistics Office.
These offices are not exactly noted, Mr.
President, for having been sanctified by the Holy
Spirit in their noble intentions. x x x60 (Emphasis
supplied)
Pressing this point, Senator Roco continued his
query:
Senator Roco: x x x [On page 8, lines 5 to 9] it says
that during the two-year period, the Secretary of
Finance shall direct the conduct of the survey.
How? When? Which retail prices and what brand
shall he consider? When he coordinates with the
Bureau of Internal Revenue, what is the Bureau
of Internal Revenue supposed to be doing? What
is the National Statistics Office supposed to be
doing, and under what guides and standards?
May the gentleman wish to demonstrate how
this will be done? My point, Mr. President, is, by
giving the Secretary of Finance, the BIR and the
National Statistics Office discretion over a two-
year period will invite corruption and
arbitrariness, which is more dangerous than
letting the House of Representatives and this
Chamber set the adjustment rate. Why not set
the adjustment rate? Why should Congress not
exercise that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that
the Chairman consider choosing the judgment of
this Chamber and the House of Representatives
over a delegated judgment of the Department of
Finance.
Again, it is not to say that I do not trust the
Department of Finance. It has won awards, and I
also trust the undersecretary. But that is beside
the point. Tomorrow, they may not be
there.61 (Emphasis supplied)
This point was further dissected by the two
senators. There was a genuine difference of
opinion as to which system— one with a fixed
excise tax rate and classification or the other
with a periodic adjustment of excise tax rate and
reclassification— was less susceptible to abuse,
as the following exchanges show:
Senator Enrile: Mr. President, considering the
sensitivity of these products from the viewpoint
of exerted pressures because of the
understandable impact of this measure on the
pockets of the major players producing these
products, the committee felt that perhaps to
lessen such pressures, it is best that we now
establish a norm where the tax will be adjusted
without incurring too much political controversy
as has happened in the case of this proposal.
Senator Roco: But that is exactly the same
reason we say we must rely upon Congress
because Congress, if it is subjected to pressure,
at least balances off because of political factors.
When the Secretary of Finance is now subjected
to pressure, are we saying that the Secretary of
Finance and the Department of Finance is better-
suited to withstand the pressure? Or are we
saying "Let the Finance Secretary decide whom
to yield"?
I am saying that the temptation and the pressure
on the Secretary of Finance is more dangerous
and more corruption-friendly than ascertaining
for ourselves now a fixed rate of increase for a
fixed period.
Senator Enrile: Mr. President, perhaps the
gentleman may not agree with this
representation, but in my humble opinion, this
formulation is less susceptible to pressure
because there is a definite point of reference
which is the consumer price index, and that
consumer price index is not going to be used only
for this purpose. The CPI is used for a national
purpose, and there is less possibility of tinkering
with it.62
Further, Senator Roco, like Congressman Javier,
expressed the view that the periodic adjustment
and reclassification provision would create an
anti-competitive atmosphere. Again, Senators
Roco and Enrile had genuine divergence of
opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an
adjustment clause may, in fact, be
disadvantageous to both companies, whether it
is the Lucio Tan companies or the San Miguel
companies. If we have to adjust our marketing
position every two years based on the
adjustment clause, the established company
may survive, but the new ones will have
tremendous difficulty. Therefore, this provision
tends to indicate an anticompetitive bias.
It is good for San Miguel and the Lucio Tan
companies, but the new companies— assuming
there may be new companies and we want to
encourage them because of the old point of
liberalization— will be at a disadvantage under
this situation. If this observation will find
receptivity in the policy consideration of the
distinguished Gentleman, maybe we can also
further, later on, seek amendments to this
automatic adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee
any anti-competitiveness of this provision with
respect to a new entrant, because a new entrant
will not just come in without studying the
market. He is a lousy businessman if he will just
come in without studying the market. If he
comes in, he will determine at what retail price
level he will market his product, and he will be
coming under any of the tiers depending upon
his net retail price. Therefore, I do not see how
this particular provision will affect a new entrant.
Senator Roco: Be that as it may, Mr. President,
we obviously will not resort to debate until this
evening, and we will have to look for other ways
of resolving the policy options.
Let me just close that particular area of my
interpellation, by summarizing the points we
were hoping could be clarified.
1. That the automatic adjustment clause is at
best questionable in law.
2. It is corruption-friendly in the sense that it
shifts the discretion from the House of
Representatives and this Chamber to the
Secretary of Finance, no matter how saintly he
may be.
3. There is,— although the judgment call of the
gentleman disagrees— to our view, an
anticompetitive situation that is geared at…63
After these lengthy exchanges, it appears that
the views of Senator Enrile were sustained by the
Senate Body because the Senate Version was
passed on Third Reading without substantially
altering the periodic adjustment and
reclassification provision.
It was actually at the Bicameral Conference
Committee level where the Senate Version
underwent major changes. The Senate Panel
prevailed upon the House Panel to abandon the
basic excise tax rate and ad valorem comparator
as the means to determine the applicable excise
tax rate. Thus, the Senate’s four-tiered system
was retained with minor adjustments as to the
excise tax rate per tier. However, the House
Panel prevailed upon the Senate Panel to delete
the power of the DOF and BIR to periodically
adjust the excise tax rate and tax brackets, and
periodically resurvey and reclassify the cigarette
brands based on the increase in the consumer
price index.
In lieu thereof, the classification of existing
brands based on their average net retail price as
of October 1, 1996 was "frozen" and a fixed
across-the-board 12% increase in the excise tax
rate of each tier after three years from the
effectivity of the Act was put in place. There is a
dearth of discussion in the deliberations as to the
applicability of the freezing mechanism to new
brands after their classification is determined
based on their current net retail price. But a plain
reading of the text of RA 8240, even before its
amendment by RA 9334, as well as the
previously discussed deliberations would readily
lead to the conclusion that the intent of Congress
was to likewise apply the freezing mechanism to
new brands. Precisely, Congress rejected the
proposal to allow the DOF and BIR to periodically
adjust the excise tax rate and tax brackets as well
as to periodically resurvey and reclassify
cigarettes brands which would have
encompassed old and new brands alike. Thus, it
would be absurd for us to conclude that
Congress intended to allow the periodic
reclassification of new brands by the BIR after
their classification is determined based on their
current net retail price. We shall return to this
point when we tackle the second issue.
In explaining the changes made at the Bicameral
Conference Committee level, Senator Enrile, in
his report to the Senate plenary, noted that the
fixing of the excise tax rates was done to avoid
confusion.64 Congressman Javier, for his part,
reported to the House plenary the reasons for
fixing the excise tax rate and freezing the
classification, thus:
Finally, this twin feature, Mr. Speaker, fixed
specific tax rates and frozen classification,
rejects the Senate version which seeks to
abdicate the power of Congress to tax by pegging
the rates as well as the classification of sin
products to consumer price index which
practically vests in the Secretary of Finance the
power to fix the rates and to classify the
products for tax purposes.65 (Emphasis
supplied)
Congressman Javier later added that the frozen
classification was intended to give stability to the
industry as the BIR would be prevented from
tinkering with the classification since it would
remain unchanged despite the increase in the
net retail prices of the previously classified
brands.66 This would also assure the industry
players that there would be no new impositions
as long as the law is unchanged.67
From the foregoing, it is quite evident that
the classification freeze provision could hardly
be considered arbitrary, or motivated by a
hostile or oppressive attitude to unduly favor
older brands over newer brands. Congress was
unequivocal in its unwillingness to delegate the
power to periodically adjust the excise tax rate
and tax brackets as well as to periodically
resurvey and reclassify the cigarette brands
based on the increase in the consumer price
index to the DOF and the BIR. Congress doubted
the constitutionality of such delegation of
power, and likewise, considered the ethical
implications thereof. Curiously, the classification
freeze provision was put in place of the periodic
adjustment and reclassification provision
because of the belief that the latter would foster
an anti-competitive atmosphere in the market.
Yet, as it is, this same criticism is being foisted by
petitioner upon the classification freeze
provision.
To our mind, the classification freeze
provision was in the main the result of
Congress’s earnest efforts to improve the
efficiency and effectivity of the tax
administration over sin products while trying to
balance the same with other state interests. In
particular, the questioned provision addressed
Congress’s administrative concerns regarding
delegating too much authority to the DOF and
BIR as this will open the tax system to potential
areas for abuse and corruption. Congress may
have reasonably conceived that a tax system
which would give the least amount of discretion
to the tax implementers would address the
problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have
reasonably foreseen that, under the DOF
proposal and the Senate Version, the periodic
reclassification of brands would tempt the
cigarette manufacturers to manipulate their
price levels or bribe the tax implementers in
order to allow their brands to be classified at a
lower tax bracket even if their net retail prices
have already migrated to a higher tax bracket
after the adjustment of the tax brackets to the
increase in the consumer price index.
Presumably, this could be done when a resurvey
and reclassification is forthcoming. As briefly
touched upon in the Congressional
deliberations, the difference of the excise tax
rate between the medium-priced and the high-
priced tax brackets under RA 8240, prior to its
amendment, was P3.36. For a moderately
popular brand which sells around 100 million
packs per year, this easily translates to
P336,000,000.68 The incentive for tax avoidance,
if not outright tax evasion, would clearly be
present. Then again, the tax implementers may
use the power to periodically adjust the tax rate
and reclassify the brands as a tool to unduly
oppress the taxpayer in order for the
government to achieve its revenue targets for a
given year.
Thus, Congress sought to, among others, simplify
the whole tax system for sin products to remove
these potential areas of abuse and corruption
from both the side of the taxpayer and the
government. Without doubt, the classification
freeze provision was an integral part of this
overall plan. This is in line with one of the
avowed objectives of the assailed law "to
simplify the tax administration and compliance
with the tax laws that are about to unfold in
order to minimize losses arising from
inefficiencies and tax avoidance scheme, if not
outright tax evasion."69 RA 9334 did not alter
this classification freeze provision of RA 8240. On
the contrary, Congress affirmed this freezing
mechanism by clarifying the wording of the law.
We can thus reasonably conclude, as the
deliberations on RA 9334 readily show, that the
administrative concerns in tax administration,
which moved Congress to enact
the classification freeze provision in RA 8240,
were merely continued by RA 9334. Indeed,
administrative concerns may provide a
legitimate, rational basis for legislative
classification.70 In the case at bar, these
administrative concerns in the measurement
and collection of excise taxes on sin products are
readily apparent as afore-discussed.
Aside from the major concern regarding the
elimination of potential areas for abuse and
corruption from the tax administration of sin
products, the legislative deliberations also show
that the classification freeze provision was
intended to generate buoyant and stable
revenues for government. With the frozen tax
classifications, the revenue inflow would remain
stable and the government would be able to
predict with a greater degree of certainty the
amount of taxes that a cigarette manufacturer
would pay given the trend in its sales volume
over time. The reason for this is that the virtually impossible for new brands to enter the
previously classified cigarette brands would be market.
prevented from moving either upward or
Petitioner did not, however, clearly demonstrate
downward their tax brackets despite the
the exact extent of such impact. It has not been
changes in their net retail prices in the future
shown that the net retail prices of other older
and, as a result, the amount of taxes due from
brands previously classified under this
them would remain predictable.
classification system have already pierced their
The classification freeze provision would, thus,
tax brackets, and, if so, how this has affected the
aid in the revenue planning of the government.71
overall competition in the market. Further, it
All in all, the classification freeze does not necessarily follow that newer brands
provision addressed Congress’s administrative cannot compete against older brands because
concerns in the simplification of tax price is not the only factor in the market as there
administration of sin products, elimination of are other factors like consumer preference,
potential areas for abuse and corruption in tax brand loyalty, etc. In other words, even if the
collection, buoyant and stable revenue newer brands are priced higher due to the
generation, and ease of projection of differential tax treatment, it does not mean that
revenues. Consequently, there can be no denial they cannot compete in the market especially
of the equal protection of the laws since the since cigarettes contain addictive ingredients so
rational-basis test is amply satisfied. that a consumer may be willing to pay a higher
price for a particular brand solely due to its
Going now to the contention of petitioner that
unique formulation. It may also be noted that in
the classification freeze provision unduly favors
2003, the BIR surveyed 29 new brands72 that
older brands over newer brands, we must first
were introduced in the market after the
contextualize the basis of this claim. As
effectivity of RA 8240 on January 1, 1997, thus
previously discussed, the evidence presented by
negating the sweeping generalization of
the petitioner merely showed that in 2004,
petitioner that the classification freeze
Marlboro and Philip Morris, on the one hand,
provision has become an insurmountable barrier
and Lucky Strike, on the other, would have been
to the entry of new brands. Verily, where there
taxed at the same rate had the classification
is a claim of breach of the due process and equal
freeze provision been not in place. But due to the
protection clauses, considering that they are not
operation of the classification freeze provision,
fixed rules but rather broad standards, there is a
Lucky Strike was taxed higher. From here,
need for proof of such persuasive character as
petitioner generalizes that this differential tax
would lead to such a conclusion. Absent such a
treatment arising from the classification freeze
showing, the presumption of validity must
provision adversely impacts the fairness of the
prevail.73
playing field in the industry, particularly,
between older and newer brands. Thus, it is
Be that as it may, petitioner’s evidence does
suggest that, at least in 2004, Philip Morris and
Marlboro, older brands, would have been taxed
at the same rate as Lucky Strike, a newer brand,
due to certain conditions (i.e., the increase of the
older brands’ net retail prices beyond the tax
bracket to which they were previously classified
after the lapse of some time) were it not for
the classification freeze provision. It may be
conceded that this has adversely affected, to a
certain extent, the ability of petitioner to
competitively price its newer brands vis-à-vis the
subject older brands. Thus, to a limited extent,
the assailed law seems to derogate one of its
avowed objectives, i.e. promoting fair
competition among the players in the industry.
Yet, will this occurrence, by itself, render the
assailed law unconstitutional on equal
protection grounds?
We answer in the negative.
Whether Congress acted improvidently in
derogating, to a limited extent, the state’s
interest in promoting fair competition among
the players in the industry, while pursuing other
state interests regarding the simplification of tax
administration of sin products, elimination of
potential areas for abuse and corruption in tax
collection, buoyant and stable revenue
generation, and ease of projection of revenues
through the classification freeze provision, and
whether the questioned provision is the best
means to achieve these state interests,
necessarily go into the wisdom of the assailed
law which we cannot inquire into, much less
overrule. The classification freeze provision has
not been shown to be precipitated by a veiled
attempt, or hostile attitude on the part of
Congress to unduly favor older brands over
newer brands. On the contrary, we must
reasonably assume, owing to the respect due a
co-equal branch of government and as revealed
by the Congressional deliberations, that the
enactment of the questioned provision was
impelled by an earnest desire to improve the
efficiency and effectivity of the tax
administration of sin products. For as long as the
legislative classification is rationally related to
furthering some legitimate state interest, as
here, the rational-basis test is satisfied and the
constitutional challenge is perfunctorily
defeated.
We do not sit in judgment as a supra-legislature
to decide, after a law is passed by Congress,
which state interest is superior over another, or
which method is better suited to achieve one,
some or all of the state’s interests, or what these
interests should be in the first place. This policy-
determining power, by constitutional fiat,
belongs to Congress as it is its function to
determine and balance these interests or choose
which ones to pursue. Time and again we have
ruled that the judiciary does not settle policy
issues. The Court can only declare what the law
is and not what the law should be. Under our
system of government, policy issues are within
the domain of the political branches of
government and of the people themselves as the
repository of all state power.74 Thus, the
legislative classification under the classification
freeze provision, after having been shown to be
rationally related to achieve certain legitimate
state interests and done in good faith, must,
perforce, end our inquiry.
Concededly, the finding that the assailed law
seems to derogate, to a limited extent, one of its
avowed objectives (i.e. promoting fair
competition among the players in the industry)
would suggest that, by Congress’s own
standards, the current excise tax system on sin
products is imperfect. But, certainly, we cannot
declare a statute unconstitutional merely
because it can be improved or that it does not
tend to achieve all of its stated objectives.75 This
is especially true for tax legislation which
simultaneously addresses and impacts multiple
state interests.76 Absent a clear showing of
breach of constitutional limitations, Congress,
owing to its vast experience and expertise in the
field of taxation, must be given sufficient leeway
to formulate and experiment with different tax
systems to address the complex issues and
problems related to tax administration.
Whatever imperfections that may occur, the
same should be addressed to the democratic
process to refine and evolve a taxation system
which ideally will achieve most, if not all, of the
state’s objectives.
In fine, petitioner may have valid reasons to
disagree with the policy decision of Congress and
the method by which the latter sought to
achieve the same. But its remedy is with
Congress and not this Court. As succinctly
articulated in Vance v. Bradley:77
The Constitution presumes that, absent some
reason to infer antipathy, even improvident
decisions will eventually be rectified by the
democratic process, and that judicial
intervention is generally unwarranted no matter
how unwisely we may think a political branch has
acted. Thus, we will not overturn such a statute
unless the varying treatment of different groups
or persons is so unrelated to the achievement of
any combination of legitimate purposes that we
can only conclude that the legislature's actions
were irrational.78
We now tackle the second issue.
Petitioner asserts that Revenue Regulations No.
1-97, as amended by Revenue Regulations No. 9-
2003, Revenue Regulations No. 22-2003 and
Revenue Memorandum Order No. 6-2003, are
invalid insofar as they empower the BIR to
reclassify or update the classification of new
brands of cigarettes based on their current net
retail prices every two years or earlier. It claims
that RA 8240, even prior to its amendment by RA
9334, did not authorize the BIR to conduct said
periodic resurvey and reclassification.
The questioned provisions are found in the
following sections of the assailed issuances:
nd
(1) Section 4(B)(e)(c), 2 paragraph of Revenue
Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, viz:
For the purpose of establishing or updating the
tax classification of new brands and variant(s)
thereof, their current net retail price shall be
reviewed periodically through the conduct of
survey or any other appropriate activity, as
mentioned above, every two (2) years unless
earlier ordered by the Commissioner. However,
notwithstanding any increase in the current net
retail price, the tax classification of such new
brands shall remain in force until the same is
altered or changed through the issuance of an
appropriate Revenue Regulations.
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large
Tax Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as
pertinent to cigarettes packed by machine, viz:
II. POLICIES AND GUIDELINES
1. The conduct of survey covered by this Order,
for purposes of determining the current retail
prices of new brands of cigarettes and alcohol
products introduced in the market on or after
January 1, 1997, shall be undertaken in the
following instances:
xxxx
b. For reclassification of new brands of said
excisable products that were introduced in the
market after January 1, 1997.
xxxx
4. The determination of the current retail prices
of new brands of the aforesaid excisable
products shall be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year
period or as the Commissioner may otherwise
direct, the appropriate tax reclassification of
these brands based on the current net retail
prices thereof shall be determined by a survey to
be conducted upon a written directive by the
Commissioner.
For this purpose, a memorandum order to the
Assistant Commissioner, Large Taxpayers
Service, Heads, Excise Tax Areas, and Regional
Directors of all Revenue Regions, except
Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be
issued by the Commissioner for the submission
of the list of major supermarkets/retail outlets
where the above excisable products are being
sold, as well as the list of selected revenue
officers who shall be designated to conduct the
said activity(ies).
xxxx
6. The results of the survey conducted in
Revenue Region Nos. 4 to 9 shall be submitted
directly to the Chief, LT Assistance Division II
(LTAD II), National Office for consolidation. On
the other hand, the results of the survey
conducted in Revenue Regions other than
Revenue Region Nos. 4 to 9, shall be submitted
to the Office of the Regional Director for regional
consolidation. The consolidated regional survey,
together with the accomplished survey forms
shall be transmitted to the Chief, LTAD II for
national consolidation within three (3) days from
date of actual receipt from the survey teams. The
LTAD II shall be responsible for the evaluation
and analysis of the submitted survey forms and
the preparation of the recommendation for the
updating/revision of the tax classification of each
brand of cigarettes and alcohol products. The
said recommendation, duly validated by the
ACIR, LTS, shall be submitted to the
Commissioner for final review within ten (10)
days from the date of actual receipt of complete
reports from all the surveying Offices.
7. Upon final review by the Commissioner of the
revised tax classification of the different new
brands of cigarettes and alcohol products, the
appropriate revenue regulations shall be
prepared and submitted for approval by the
Secretary of Finance.
xxxx
III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures
on the identification of brands to be surveyed,
supermarkets/retail outlets where the survey
shall be conducted, and the personnel selected
to conduct the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands
covered by the survey pursuant to the provisions
of Item II.2 of this Order containing the complete
description of each brand, existing net retail
price and the corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major
supermarkets/retail outlets within the territorial
jurisdiction of the concerned revenue regions
where the survey will be conducted to be used
as basis in the issuance of Mission Orders. Ensure
that the minimum number of establishments to
be surveyed, as prescribed under existing
revenue laws and regulations, is complied with.
In addition, the names and designations of the tax classification of new brands every two
revenue officers selected to conduct the survey years or earlier subject only to its issuance of the
shall be clearly indicated opposite the names of appropriate Revenue Regulations, when
the establishments to be surveyed. nowhere in Section 145 is such authority granted
to the Bureau. Unless expressly granted to the
There is merit to the contention.
BIR, the power to reclassify cigarette brands
In order to implement RA 8240 following its remains a prerogative of the legislature which
effectivity on January 1, 1997, the BIR issued cannot be usurped by the former.
Revenue Regulations No. 1-97, dated December
More importantly, as previously discussed, the
13, 1996, which mandates a one-time
clear legislative intent was for new brands to
classification only.79 Upon their launch, new
benefit from the same freezing mechanism
brands shall be initially taxed based on their
accorded to Annex "D" brands. To reiterate, in
suggested net retail price. Thereafter, a survey
enacting RA 8240, Congress categorically
shall be conducted within three (3) months to
rejected the DOF proposal and Senate Version
determine their current net retail prices and,
which would have empowered the DOF and BIR
thus, fix their official tax classifications.
to periodically adjust the excise tax rate and tax
However, the BIR made a turnaround by issuing
brackets, and to periodically resurvey and
Revenue Regulations No. 9-2003, dated
reclassify cigarette brands. (This resurvey and
February 17, 2003, which partly amended
reclassification would have naturally
Revenue Regulations No. 1-97, by authorizing
encompassed both old and new brands.) It
the BIR to periodically reclassify new brands (i.e.,
would thus, be absurd for us to conclude that
every two years or earlier) based on their current
Congress intended to allow the periodic
net retail prices. Thereafter, the BIR issued
reclassification of new brands by the BIR after
Revenue Memorandum Order No. 6-2003, dated
their classification is determined based on their
March 11, 2003, prescribing the guidelines on
current net retail price while limiting the freezing
the implementation of Revenue Regulations No.
of the classification to Annex "D" brands.
9-2003. This was patent error on the part of the
Incidentally, Senator Ralph G. Recto expressed
BIR for being contrary to the plain text and
the following views during the deliberations on
legislative intent of RA 8240.
RA 9334, which later amended RA 8240:
It is clear that the afore-quoted portions of
Senator Recto: Because, like I said, when
Revenue Regulations No. 1-97, as amended by
Congress agreed to adopt a specific tax system
Section 2 of Revenue Regulations 9-2003, and
[under R.A. 8240], when Congress did not index
Revenue Memorandum Order No. 6-2003
the brackets, and Congress did not index the
unjustifiably emasculate the operation of
rates but only provided for a one rate increase in
Section 145 of the NIRC because they authorize
the year 2000, we shifted from ad
the Commissioner of Internal Revenue to update
valorem which was based on value to a system
of specific which is based on volume. Congress
then, in effect, determined the classification
based on the prices at that particular period of
time and classified these products accordingly.
Of course, Congress then decided on what will
happen to the new brands or variants of existing
brands. To favor government, a variant would be
classified as the highest rate of tax for that
particular brand. In case of a new brand, Mr.
President, then the BIR should classify them. But
I do not think it was the intention of Congress
then to give the BIR the authority to reclassify
them every so often. I do not think it was the
intention of Congress to allow the BIR to classify
a new brand every two years, for example,
because it will be arbitrary for the BIR to do so. x
x x80 (Emphasis supplied)
For these reasons, the amendments introduced
by RA 9334 to RA 8240, insofar as the freezing
mechanism is concerned, must be seen merely
as underscoring the legislative intent already in
place then, i.e. new brands as being covered by
the freezing mechanism after their classification
based on their current net retail prices.
Unfortunately for petitioner, this result will not
cause a downward reclassification of Lucky
Strike. It will be recalled that petitioner
introduced Lucky Strike in June 2001. However,
as admitted by petitioner itself, the BIR did not
conduct the required market survey within three
months from product launch. As a result, Lucky
Strike was never classified based on its actual
current net retail price. Petitioner failed to
timely seek redress to compel the BIR to conduct
the requisite market survey in order to fix the tax
classification of Lucky Strike. In the meantime,
Lucky Strike was taxed based on
its suggested net retail price of P9.90 per pack,
which is within the high-priced tax bracket. It
was only after the lapse of two years or in 2003
that the BIR conducted a market survey which
was the first time that Lucky
Strike’s actual current net retail price was
surveyed and found to be from P10.34 to P11.53
per pack, which is within the premium-priced tax
bracket. The case of petitioner falls under a
situation where there was no reclassification
based on its current net retail price which would
have been invalid as previously explained. Thus,
we cannot grant petitioner’s prayer for a
downward reclassification of Lucky Strike
because it was never reclassified by the BIR
based on its actual current net retail price.
It should be noted though that on August 8,
2003, the BIR issued Revenue Regulations No.
22-2003 which implemented the revised tax
classifications of new brands based on their
current net retail prices through the market
survey conducted pursuant to Revenue
Regulations No. 9-2003. Annex "A" of Revenue
Regulations No. 22-2003 lists the result of the
market survey and the corresponding
recommended tax classification of the new
brands therein aside from Lucky Strike.
However, whether these other brands were
illegally reclassified based on their actual current
net retail prices by the BIR must be determined
on a case-to-case basis because it is possible that
these brands were classified based on their
actual current net retail price for the first time in
the year 2003 just like Lucky Strike. Thus, we
shall not make any pronouncement as to the
validity of the tax classifications of the other
brands listed therein.
Finally, it must be noted that RA 9334 introduced
changes in the manner by which the current net
retail price of a new brand is determined and
how its classification is permanently fixed, to wit:
New brands, as defined in the immediately
following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after
the date of effectivity of R.A. No. 8240 [on
January 1, 1997].
Suggested net retail price shall mean the net
retail price at which new brands, as defined
above, of locally manufactured or imported
cigarettes are intended by the manufacture or
importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila
for those marketed nationwide, and in other
regions, for those with regional markets. At the
end of three (3) months from the product
launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the
new brand against the net retail price as
defined herein and determine the correct tax
bracket under which a particular new brand of
cigarette, as defined above, shall be classified.
After the end of eighteen (18) months from
such validation, the Bureau of Internal Revenue
shall revalidate the initially validated net retail
price against the net retail price as of the time
of revalidation in order to finally determine the
correct tax bracket under which a particular
new brand of cigarettes shall be classified;
Provided however, That brands of cigarettes
introduced in the domestic market between
January 1, 1997 and December 31, 2003 shall
remain in the classification under which the
Bureau of Internal Revenue has determined
them to belong as of December 31, 2003. Such
classification of new brands and brands
introduced between January 1, 1997 and
December 31, 2003 shall not be revised except
by an act of Congress. (Emphasis supplied)
Thus, Revenue Regulations No. 9-2003 and
Revenue Memorandum Order No. 6-2003
should be deemed modified by the above
provisions from the date of effectivity of RA 9334
on January 1, 2005.
In sum, Section 4(B)(e)(c), 2nd paragraph of
Revenue Regulations No. 1-97, as amended by
Section 2 of Revenue Regulations 9-2003, and
Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax
Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, as pertinent to
cigarettes packed by machine, are invalid insofar
as they grant the BIR the power to reclassify or
update the classification of new brands every
two years or earlier. Further, these provisions
are deemed modified upon the effectivity of RA
9334 on January 1, 2005 insofar as the manner
of determining the permanent classification of
new brands is concerned.
We now tackle the last issue.
Petitioner contends that RA 8240, as amended
by RA 9334, and its implementing rules and
regulations violate the General Agreement on
Tariffs and Trade (GATT) of 1947, as amended,
specifically, Paragraph 2, Article III, Part II:
2. The products of the territory of any
contracting party imported into the territory of
any other contracting party shall not be subject,
directly or indirectly, to internal taxes or other
internal charges of any kind in excess of those
applied, directly or indirectly, to like domestic
products. Moreover, no contracting party shall
otherwise apply internal taxes or other internal
charges to imported or domestic products in a
manner contrary to the principles set forth in
paragraph 1.
It claims that it is the duty of this Court to
correct, in favor of the GATT, whatever
inconsistency exists between the assailed law
and the GATT in order to prevent triggering the
international dispute settlement mechanism
under the GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly
applies to all newly introduced brands in the
market, whether imported or locally
manufactured. It does not purport to single out
imported cigarettes in order to unduly favor
locally produced ones. Further, petitioner’s
evidence was anchored on the alleged unequal
tax treatment between old and new brands
which involves a different frame of reference vis-
à-vis local and imported products. Petitioner has,
therefore, failed to clearly prove its case, both
factually and legally, within the parameters of
the GATT.
At any rate, even assuming arguendo that
petitioner was able to prove that
the classification freeze provision violates the
GATT, the outcome would still be the same. The
GATT is a treaty duly ratified by the Philippine
Senate and under Article VII, Section 2181 of the
Constitution, it merely acquired the status of a
statute.82 Applying the basic principles of
statutory construction in case of irreconcilable
conflict between statutes, RA 8240, as amended
by RA 9334, would prevail over the GATT either
as a later enactment by Congress or as a special
law dealing with the taxation of sin products.
Thus, in Abbas v. Commission on Elections,83 we
had occasion to explain:
Petitioners premise their arguments on the
assumption that the Tripoli Agreement is part of
the law of the land, being a binding international
agreement. The Solicitor General asserts that the
Tripoli Agreement is neither a binding treaty, not
having been entered into by the Republic of the
Philippines with a sovereign state and ratified
according to the provisions of the 1973 or 1987
Constitutions, nor a binding international
agreement.
We find it neither necessary nor determinative
of the case to rule on the nature of the Tripoli
Agreement and its binding effect on the
Philippine Government whether under public
international or internal Philippine law. In the
first place, it is now the Constitution itself that
provides for the creation of an autonomous
region in Muslim Mindanao. The standard for
any inquiry into the validity of R.A. No. 6734
would therefore be what is so provided in the
Constitution. Thus, any conflict between the
provisions of R.A. No. 6734 and the provisions of
the Tripoli Agreement will not have the effect of
enjoining the implementation of the Organic Act.
Assuming for the sake of argument that the
Tripoli Agreement is a binding treaty or
international agreement, it would then
constitute part of the law of the land. But as
internal law it would not be superior to R.A. No.
6734, an enactment of the Congress of the
Philippines, rather it would be in the same class
as the latter [SALONGA, PUBLIC INTERNATIONAL
LAW 320 (4th ed., 1974), citing Head Money
Cases, 112 U.S. 580 (1884) and Foster v. Nelson,
2 Pet. 253 (1829)]. Thus, if at all, R.A. No. 6734
would be amendatory of the Tripoli Agreement,
being a subsequent law. Only a determination by
this Court that R.A. No. 6734 contravenes the
Constitution would result in the granting of the
reliefs sought. (Emphasis supplied)

WHEREFORE, the petition is PARTIALLY

GRANTED and the decision of the Regional Trial
Court of Makati, Branch 61, in Civil Case No. 03-
1032, is AFFIRMED with MODIFICATION. As
modified, this Court declares that:

(1) Section 145 of the NIRC, as amended by

Republic Act No. 9334, is CONSTITUTIONAL; and
that

(2) Section 4(B)(e)(c), 2nd paragraph of Revenue

Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, and Sections
II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers
Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as
pertinent to cigarettes packed by machine,
are INVALID insofar as they grant the BIR the
power to reclassify or update the classification of
new brands every two years or earlier.

SO ORDERED.
G.R. No. 210551, June 30, 2015
JOSE J. FERRER, JR., Petitioner, v. 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:
chanRoblesvirtualLawlibrary
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.
chanroblesvirtuallawlibrary
Effective for five (5) years, the Socialized Housing
Tax (SHT) shall be utilized by the Quezon City 5. 10th year - 20%
Government for the following projects: (a) land chanroblesvirtuallawlibrary
purchase/land banking; (b) improvement of
Furthermore, only the registered owners may
current/existing socialized housing facilities; (c)
avail of the tax credit and may not be continued
land development; (d) construction of core
by the subsequent property owners even if they
houses, sanitary cores, medium-rise buildings
are buyers in good faith, heirs or possessor of a
and other similar structures; and (e) financing of
right in whatever legal capacity over the subject
public-private partnership agreement of the
property.4
Quezon City Government and National Housing
chanroblesvirtuallawlibrary
Authority (NHA) with the private sector.3 Under
certain conditions, a tax credit shall be enjoyed On the other hand, Ordinance No. SP-2235, S-
by taxpayers regularly paying the special 20135 was enacted on December 16, 2013 and
assessment: took effect ten days after when it was approved
chanRoblesvirtualLawlibrary by respondent City Mayor.6 The proceeds
collected from the garbage fees on residential
SECTION 7. TAX CREDIT. Taxpayers dutifully
properties shall be deposited solely and
paying the special assessment tax as imposed by
exclusively in an earmarked special account
this ordinance shall enjoy a tax credit. The tax
under the general fund to be utilized for garbage
credit may be availed of only after five (5) years
collections.7 Section 1 of the Ordinance set forth
of continue[d] payment. Further, the taxpayer
the schedule and manner for the collection of
availing this tax credit must be a taxpayer in good
garbage fees:
standing as certified by the City Treasurer and
chanRoblesvirtualLawlibrary
City Assessor.
SECTION 1. The City Government of Quezon City
The tax credit to be granted shall be equivalent in conformity with and in relation to Republic Act
to the total amount of the special assessment No. 7160, otherwise known as the Local
paid by the property owner, which shall be given Government Code of 1991 HEREBY IMPOSES THE
as follows: FOLLOWING SCHEDULE AND MANNER FOR THE
chanRoblesvirtualLawlibrary ANNUAL COLLECTION OF GARBAGE FEES, AS
FOLLOWS:
1. 6th year - 20%
On all domestic households in Quezon City;
2. 7th year - 20%
3. 8th year - 20%
4. 9th year - 20%
LAND AREA IMPOSABLE FEE b) High-rise apartment units – Owners of high- Memorandum on March 3, 2014 and September
rise apartment units shall pay the annual 8, 2014, respectively.
Less than 200 sq. m. PHP 100.00 garbage fee on the total lot size of the entire
Procedural Matters
apartment and an additional garbage fee
201 sq. m. – 500 sq. m. PHP 200.00
based on the schedule prescribed herein for
501 sq. m. – 1,000 sq. every unit occupied. A. Propriety of a Petition for Certiorari
PHP 300.00
m.
The collection of the garbage fee shall accrue on
Respondents are of the view that this petition
1,001 sq. m. – 1,500 sq. the first day of January and shall be paid
PHP 400.00 for certiorari is improper since they are not
m. simultaneously with the payment of the real
tribunals, boards or officers exercising judicial or
property tax, but not later than the first quarter
1,501 sq. m. – 2,000 sq. quasi-judicial functions. Petitioner, however,
PHP 500.00 installment.8 In case a household owner refuses
m. or more counters that in enacting Ordinance Nos. SP-
to pay, a penalty of 25% of the garbage fee due,
2095 and SP-2235, the Quezon City Council
plus an interest of 2% per month or a fraction
On all condominium unit and socialized housing exercised quasi-judicial function because the
thereof, shall be
projects/units in Quezon City; 9 ordinances ruled against the property owners
charged. ChanRoblesVirtualawlibrary
who must pay the SHT and the garbage fee,
FLOOR AREA IMPOSABLE FEE
exacting from them funds for basic essential
Less than 40 sq. m. PHP25.00 public services that they should not be held
Petitioner alleges that he is a registered co- liable. Even if a Rule 65 petition is improper,
41 sq. m. – 60 sq. m. PHP50.00 owner of a 371-square-meter residential petitioner still asserts that this Court, in a
property in Quezon City which is covered by number of cases like in Rosario v. Court of
61 sq. m. – 100 sq. m. PHP75.00
Transfer Certificate of Title (TCT) No. 216288, Appeals,13 has taken cognizance of an improper
101 sq. m. – 150 sq. m. PHP100.00 and that, on January 7, 2014, he paid his realty remedy in the interest of justice.
tax which already included the garbage fee in the
151 sq. m. – 200 sq. [m.] sum of Php100.00.10ChanRoblesVirtualawlibrary We agree that respondents neither acted in any
PHP200.00
or more judicial or quasi-judicial capacity nor arrogated
The instant petition was filed on January 17, unto themselves any judicial or quasi-judicial
On high-rise Condominium Units
2014. We issued a TRO on February 5, 2014, prerogatives.
a) High-rise Condominium – The Homeowners which enjoined the enforcement of Ordinance
A respondent is said to be exercising judicial
Association of high- rise condominiums shall Nos. SP-2095 and SP-2235 and required
function where he has the power to determine
pay the annual garbage fee on the total size of respondents to comment on the petition
what the law is and what the legal rights of the
the entire condominium and socialized without necessarily giving due course
parties are, and then undertakes to determine
Housing Unit and an additional garbage fee thereto.11ChanRoblesVirtualawlibrary
these questions and adjudicate upon the rights
shall be collected based on area occupied for
of the parties.
every unit already sold or being amortized. Respondents filed their Comment12 with urgent
motion to dissolve the TRO on February 17,
Quasi-judicial function, on the other hand, is “a
2014. Thereafter, petitioner filed a Reply and 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 persons or property under which
adverse claims to such rights are made, and the
controversy ensuing 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
chanroblesvirtuallawlibrary
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.15 Said 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.16ChanRoblesVirtualawlibrary
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.17ChanRoblesVirtualawlibrary
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.18 The 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.19ChanRoblesVirtualawlibrary
Section 2, Rule 65 of the Rules of Court lay down
under what circumstances a petition for
prohibition may be filed:
chanRoblesvirtualLawlibrary
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.
chanroblesvirtuallawlibrary
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:
chanRoblesvirtualLawlibrary
6.3 The Assessor’s office of the Id.ntified 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,24 the Court cited the case
of Senator Jaworski v. Phil. Amusement &
Gaming Corp.,25 where We ratiocinated:
chanRoblesvirtualLawlibrary
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
chanroblesvirtuallawlibrary
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
chanroblesvirtuallawlibrary
“Legal standing” or locus standi calls for more
than just a generalized grievance.28 The concept
has been defined 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 governmental 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.30ChanRoblesVirtualawlibrary
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.31ChanRoblesVirtualawlibrary
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 and 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.33ChanRoblesVirtualawlibrary
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:
chanRoblesvirtualLawlibrary
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.
x x x x
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.
x x x x
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
chanroblesvirtuallawlibrary
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.39ChanRoblesVirtualawlibrary
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. 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:
chanRoblesvirtualLawlibrary
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.
chanroblesvirtuallawlibrary
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
chanroblesvirtuallawlibrary
The obligatory nature of Section 187 was
underscored in Hagonoy Market Vendor Asso. v.
Municipality of Hagonoy:43cralawlawlibrary
x x x [T]he timeframe fixed by law for 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
chanroblesvirtuallawlibrary
Despite these cases, the Court, in Ongsuco, et al.
v. Hon. Malones,45 held 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
P13.69 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.48ChanRoblesVirtualawlibrary
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.,49People 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.
56
Cosalan. 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,60 and Victorias Milling Co., Inc. v.
Municipality of Victorias, etc.,61 respondents
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 P50,000.00, the questioned
ordinance only covers properties with an
assessed value exceeding P100,000.00. 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 who 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
P1,659.83 that the Quezon City Government
annually spends for every household for garbage
collection and waste
62
management. ChanRoblesVirtualawlibrary
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,65Patalinghug v. Court of
66
Appeals, 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. S-
2235 is inconsistent with R.A. No. 9003 for while
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
chanroblesvirtuallawlibrary
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).72ChanRoblesVirtualawlibrary
An ordinance must pass muster under the test of
constitutionality and the test of consistency with
the prevailing laws.73 If not, it is
74
void. 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:
chanRoblesvirtualLawlibrary
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:
chanRoblesvirtualLawlibrary
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.
chanroblesvirtuallawlibrary
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
chanroblesvirtuallawlibrary
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
79
granted.” ChanRoblesVirtualawlibrary
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
81
limitations.” ChanRoblesVirtualawlibrary
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
83
Cabanatuan: cralawlawlibrary
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:
chanRoblesvirtualLawlibrary
“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.”
chanroblesvirtuallawlibrary
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
chanroblesvirtuallawlibrary
Fairly recently, We also stated in Pelizloy Realty
Corporation v. Province of Benguet85 that:
chanRoblesvirtualLawlibrary
The rule governing the taxing power of
provinces, cities, municipalities and barangays is
summarized in Icard v. City Council of Baguio:
chanRoblesvirtualLawlibrary
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]
x x x x
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.”
chanroblesvirtuallawlibrary
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
chanroblesvirtuallawlibrary
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.”88ChanRoblesVirtualawlibrary
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:
chanRoblesvirtualLawlibrary
SECTION 130. Fundamental Principles. – The
following fundamental principles shall govern
the 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:
chanRoblesvirtualLawlibrary
(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 let 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.
chanroblesvirtuallawlibrary
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:
chanRoblesvirtualLawlibrary
(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 wharfage 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.
chanroblesvirtuallawlibrary
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.
chanroblesvirtuallawlibrary
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.:91cralawlawlibrary
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:
chanRoblesvirtualLawlibrary
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, nor 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 and controlling power vested in them
by the constitution, may think necessary and
expedient.92
chanroblesvirtuallawlibrary
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
95
power. ChanRoblesVirtualawlibrary
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:
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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 (P50,000.00).
chanroblesvirtuallawlibrary
The rationale of the SHT is found in the
preambular clauses of the subject ordinance, to
wit:
chanRoblesvirtualLawlibrary
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[.]
chanroblesvirtuallawlibrary
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 about, 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.101ChanRoblesVirtualawlibrary
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 resettlement 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.105ChanRoblesVirtualawlibrary
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 LGUs 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
107
families. ChanRoblesVirtualawlibrary
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.:110cralawlawlibrary
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.
x x x x
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
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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
means employed are reasonably necessary for
the accomplishment of the purpose and not
unduly oppressive upon
112
individuals. ChanRoblesVirtualawlibrary
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.116ChanRoblesVirtualawlibrary
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.117ChanRoblesVirtualawlibrary
For 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.120ChanRoblesVirtualawlibrary
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
P50,000.00, the questioned ordinance only
covers lands with an assessed value exceeding
P100,000.00. 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.122ChanRoblesVirtualawlibrary
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.124ChanRoblesVirtualawlibrary
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:
chanRoblesvirtualLawlibrary
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
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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 general welfare of the
city and its inhabitants.129 Section 16 of the LGC
provides:
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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.
chanroblesvirtuallawlibrary
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.132ChanRoblesVirtualawlibrary
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.136ChanRoblesVirtualawlibrary
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
138
activity. ChanRoblesVirtualawlibrary
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:
chanRoblesvirtualLawlibrary
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 garbage
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.
chanroblesvirtuallawlibrary
Certainly, as opposed to petitioner’s opinion, the
garbage fee is not a tax. In Smart
Communications, Inc. v. Municipality of Malvar,
Batangas,139 the Court had the occasion to
distinguish these two concepts:
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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. 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.”
chanroblesvirtuallawlibrary
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.144ChanRoblesVirtualawlibrary
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
147
sources. Segregation at source refers to a solid
waste management practice of separating, at
the point of origin, different materials found in
solid 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
151
barangays. ChanRoblesVirtualawlibrary
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 solid waste management
plan is source reduction:
chanRoblesvirtualLawlibrary
(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:
chanRoblesvirtualLawlibrary
(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,
provided 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.
chanroblesvirtuallawlibrary
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, programs 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
also 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
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The solid waste management plan shall also
include an implementation schedule for solid
waste diversion:
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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.
chanroblesvirtuallawlibrary
The baseline for the twenty-five percent (25%)
shall be derived from the waste characterization
result155 that each LGU is mandated to
undertake.156ChanRoblesVirtualawlibrary
In 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:
chanRoblesvirtualLawlibrary
SEC. 47. Authority to Collect Solid Waste
Management Fees – The local government unit
shall impose fees in amounts sufficient to pay have been duly accredited by the Local SWM
the costs of preparing, adopting, and Board/Local SWM Cluster Board; provided, the
implementing a solid waste management plan SWM fees shall be covered by a Contract or
prepared pursuant to this Act. The fees shall be Memorandum of Agreement between the
based on the following minimum factors: respective board and the private sector or civil
chanRoblesvirtualLawlibrary society group.
(a) types of solid waste;
The fees shall pay for the costs of preparing,
adopting and implementing a SWM Plan
(b) amount/volume of waste; and
prepared pursuant to the Act. Further, the fees
shall also be used to pay the actual costs incurred
(c) distance of the transfer station to the waste
in collecting the local fees and for project
management facility.
sustainability.
chanroblesvirtuallawlibrary
The fees shall be used to pay the actual costs Section 2. Basis of SWM Service Fees
incurred by the LGU in collecting the local fees.
In determining the amounts of the fees, an LGU Reasonable SWM service fees shall be computed
shall include only those costs directly related to based on but not limited to the following
the adoption and implementation of the plan minimum factors:
and the setting and collection of the local fees. chanRoblesvirtualLawlibrary
chanroblesvirtuallawlibrary
a) Types of solid waste to include special waste
Rule XVII of the IRR of R.A. No. 9003 sets forth
the details: b) amount/volume of waste
chanRoblesvirtualLawlibrary
c) distance of the transfer station to the waste
Section 1. Power to Collect Solid Waste management facility
Management Fees. – The Local SWM
Board/Local SWM Cluster Board shall impose d) capacity or type of LGU constituency
fees on the SWM services provided for by the
LGU and/or any authorized organization or unit. e) cost of construction
In determining the amounts of the fees, a Local
SWM Board/Local SWM Cluster Board shall f) cost of management
include only those costs directly related to the
adoption and implementation of the SWM Plan g) type of technology
and the setting and collection of the local fees. chanroblesvirtuallawlibrary
This power to impose fees may be ceded to the
private sector and civil society groups which
Section 3. Collection of Fees. – Fees may be
collected corresponding to the following levels:
chanRoblesvirtualLawlibrary
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.
chanroblesvirtuallawlibrary
From the afore-quoted provisions, it is clear that to those related to the collection and transport
the authority of a municipality or city to impose of non-recyclable and special wastes.
fees is limited to the collection and transport
of non-recyclable and special wastes and for the Granting, for the sake of argument, that the 0.66
disposal of these into the sanitary landfill. kilogram of solid waste per day refers only to
Barangays, on the other hand, have the authority non-recyclable and special wastes, still, We
to impose fees for the collection and segregation cannot sustain the validity of Ordinance No. S-
of biodegradable, compostable and reusable 2235. It violates the equal protection clause of
wastes from households, commerce, other the Constitution and the provisions of the LGC
sources of domestic wastes, and for the use of that an ordinance must be equitable and based
barangay MRFs. This is but consistent with as far as practicable on the taxpayer’s ability to
Section 10 of R.A. No. 9003 directing that pay, and not unjust, excessive, oppressive,
segregation and collection of biodegradable, confiscatory.158ChanRoblesVirtualawlibrary
compostable and reusable wastes shall be
conducted at the barangay level, while the In the subject ordinance, the rates of the
collection of non-recyclable materials and imposable fee depend on land or floor area and
special wastes shall be the responsibility of the whether the payee is an occupant of a lot,
municipality or city. condominium, social housing project or
apartment. For easy reference, the relevant
In this case, the alleged bases of Ordinance No. provision is again quoted below:
S-2235 in imposing the garbage fee is the volume chanRoblesvirtualLawlibrary
of waste currently generated by each person in
On all domestic households in Quezon City;
Quezon City, which purportedly stands at 0.66
kilogram per day, and the increasing trend of LAND AREA IMPOSABLE FEE
waste generation for the past three
Less than 200 sq.
years.157 Respondents did not elaborate any PHP 100.00
m.
further. The figure presented does not reflect
the specific types of wastes generated – whether
201 sq. m. – 500
residential, market, commercial, industrial, PHP 200.00
sq. m.
construction/demolition, street waste,
agricultural, agro-industrial, institutional, etc. It 501 sq. m. – 1,000
PHP 300.00
is reasonable, therefore, for the Court to sq. m.
presume that such amount pertains to the
1,001 sq. m. –
totality of wastes, without any distinction, PHP 400.00
1,500 sq. m.
generated by Quezon City constituents. To
reiterate, however, the authority of a
municipality or city to impose fees extends only
1,501 sq. m. – For the purpose of garbage collection, there is, in
2,000 sq. m. or PHP 500.00 fact, no substantial distinction between an
more occupant of a lot, on one hand, and an occupant
of a unit in a condominium, socialized housing
On all condominium unit and socialized housing project or apartment, on the other hand. Most
projects/units in Quezon City; likely, garbage output produced by these types
of occupants is uniform and does not vary to a
FLOOR AREA IMPOSABLE FEE
large degree; thus, a similar schedule of fee is
Less than 40 sq. m. PHP25.00 both just and
159
equitable. ChanRoblesVirtualawlibrary
41 sq. m. – 60 sq.
PHP50.00
m. The rates being charged by the ordinance are
unjust and inequitable: a resident of a 200 sq. m.
61 sq. m. – 100 sq.
PHP75.00 unit in a condominium or socialized housing
m.
project has to pay twice the amount than a
101 sq. m. – 150 resident of a lot similar in size; unlike unit
PHP100.00
sq. m. occupants, all occupants of a lot with an area of
200 sq. m. and less have to pay a fixed rate of
151 sq. m. – 200 Php100.00; and the same amount of garbage fee
PHP200.00
sq. [m.] or more is imposed regardless of whether the resident is
On high-rise Condominium Units from a condominium or from a socialized
housing project.
a) High-rise Condominium – The Homeowners
Association of high rise condominiums shall
Indeed, the classifications under Ordinance No.
pay the annual garbage fee on the total size of
S-2235 are not germane to its declared purpose
the entire condominium and socialized
of “promoting shared responsibility with the
Housing Unit and an additional garbage fee
residents to attack their common mindless
shall be collected based on area occupied for
attitude in over-consuming the present
every unit already sold or being amortized.
resources and in generating waste.”160 Instead of
simplistically categorizing the payee into land or
b) High-rise apartment units – Owners of high-
floor occupant of a lot or unit of a condominium,
rise apartment units shall pay the annual
socialized housing project or apartment,
garbage fee on the total lot size of the entire
respondent City Council should have considered
apartment and an additional garbage fee
factors that could truly measure the amount of
based on the schedule prescribed herein for
wastes generated and the appropriate fee for its
every unit occupied.
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, SWM service
fees may be computed based on minimum
factors such as types 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.161cralawlawlibrary
[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
chanroblesvirtuallawlibrary
On top of an unreasonable classification, the
penalty clause of Ordinance No. SP-2235, which
states:
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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.
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lacks the limitation required by Section 168 of
the LGC, which provides:
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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)
chanroblesvirtuallawlibrary
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 for the purpose, stating the dates of approval
not necessary so long as it is not penal in nature. and posting.
Allegedly, Ordinance No. SP-2095 took effect
after its publication while Ordinance No. SP- (c) The gist of all ordinances with penal sanctions
2235 became effective after its approval on shall be published in a newspaper of general
December 26, 2013. circulation within the province where the local
legislative body concerned belongs. In the
The pertinent provisions of the LGC state: absence of any newspaper of general circulation
chanRoblesvirtualLawlibrary within the province, posting of such ordinances
shall be made in all municipalities and cities of
SECTION 59. Effectivity of Ordinances or
the province where the sanggunian of origin is
Resolutions. – (a) Unless otherwise stated in the
situated.
ordinance or the resolution approving the local
development plan and public investment
(d) In the case of highly urbanized and
program, the same shall take effect after ten
independent component cities, the main
(10) days from the date a copy thereof is
features of the ordinance or resolution duly
posted in a bulletin board at the entrance of the
enacted or adopted shall, in addition to being
provincial capitol or city, municipal, or barangay
posted, be published once in a local newspaper
hall, as the case may be, and in at least two (2)
of general circulation within the city: Provided,
other conspicuous places in the local
That in the absence thereof the ordinance or
government unit concerned.
resolution shall be published in any newspaper
of general circulation.
(b) The secretary to the sanggunian concerned
shall cause the posting of an ordinance or
SECTION 188. Publication of Tax Ordinances and
resolution in the bulletin board at the entrance
Revenue Measures. – Within ten (10) days after
of the provincial capitol and the city, municipal,
their approval, certified true copies of all
or barangay hall in at least two (2) conspicuous
provincial, city, and municipal tax ordinances or
places in the local government unit concerned
revenue measures shall be published in full for
not later than five (5) days after approval
three (3) consecutive days in a newspaper of
thereof.
local circulation: Provided, however, That in
provinces, cities and municipalities where there
The text of the ordinance or resolution shall be
are no newspapers of local circulation, the same
disseminated and posted in Filipino or English
may be posted in at least two (2) conspicuous
and in the language or dialect understood by the
and publicly accessible places. (Emphasis
majority of the people in the local government
supplied)
unit concerned, and the secretary to the
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sanggunian shall record such fact in a book kept
On October 17, 2011, respondent Quezon City ENJOINED from taking any further action to
Council enacted Ordinance No. SP-2095, which enforce Ordinance No. SP. 2235.
provides that it would take effect after its
publication in a newspaper of general SO ORDERED.
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.165ChanRoblesVirtualawlibrary

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