Basco vs Philippine Amusements and Gaming Corporation

197 SCRA 52 [GR No. 91649 May 14, 1991]

Facts: A TV ad proudly announces: “The New PAGCOR – Responding Through Responsible Gaming.” But the
petitioners think otherwise, that is why, they filed the instant petition seeking to annul the PAGCOR charter – PD 1869,
because it is allegedly contrary to morals, public policy and order, and because –

a. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila city
government’s right to impose taxes and license fees, which is recognized by law;

b. For the same reason stated in the immediately preceeding paragraph, the law has intruded into the local government’s
right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local
autonomy;

c. It violates the equal protection clause of the constitution in that it legalizes PAGCOR – conducted gambling, while most
other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices;

d. It violates the avowed trend of the Cory government away from the monopolistic and crony economy, and toward free
enterprise and privatization.

Issue: Whether or not the city of Manila may levy taxes on PAGCOR.

Held: No. The city of Manila, being a mere municipal corporation has no inherent right to impose taxes. Thus, the charter
or statute must plainly show an intent to confer that power or the municipality cannot assume it. Its power to tax therefore
must always yield to a legislative act which is superior having been passed upon by the state itself which has the inherent
power to tax.

The city of Manila’s power to impose license fees on gambling has long been revoked. As early as 1975, the power of
local governments to regulate gambling thru the grant of “franchise, licenses or permits” was withdrawn by PD no. 771
and was vested exclusively on the national government.

Therefore, only the national government has the power to issue “license or permits” for the operation of gambling.
Necessarily the power to demand or collect license fees which is a consequence of the issuance of “licenses or permits” is
no longer vested in the City of Manila.

Local governments has no power to tax instrumentalities of the National Government. PAGCOR is a government owned
or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the national
government.

The power of the local government to “impose taxes and fees” is always subject to “limitations” which congress may
provide by law. Since PD 1869 remains an operative law until amended, repealed or revoked, its exemption clause
remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be
violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 constitution simply means “decentralization.” It does not make
local governments sovereign within the state or an “imperium in imperio.”

What is settled is that the matter of regulating; taxing or otherwise dealing with gambling in a state concern and hence, it
is the sole prerogative of the state to retain it or delegate it to local governments.
 Manila Electric Company vs Province of Laguna
G.R. No. 131359

Facts:  On various dates, certain municipalities of the Province of Laguna, including, Biñan, Sta. Rosa, San Pedro,
Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their respective
municipal councils granting franchise in favor of the Manila Electric Company (Meralco) for the supply of electric light,
heat and power within their concerned areas. On 19 January 1983, Meralco was likewise granted a franchise by the
National Electrification Administration to operate an electric light and power service in the Municipality of Calamba,
Laguna. On 12 September 1991, Republic Act 7160 (1991 Local Government Code [LGC]) was enacted to take effect on
1 January 1992 enjoining local government units to create their own sources of revenue and to levy taxes, fees and
charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to the
provisions of the Code, Laguna enacted Provincial Ordinance 01-92, effective 1 January 1993, which provided a
Franchise Tax (Section 2.09). On the basis of the ordinance, Provincial Treasurer sent a demand letter to Meralco for the
corresponding tax payment. Meralco paid the tax under protest. A formal claim for refund was thereafter sent by Meralco
to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National
Government pursuant to PD 551 (Section 1) already included the franchise tax imposed by the Provincial Tax Ordinance.
On 28 August 1995, the claim for refund of Meralco was denied in a letter signed by Governor Lina. In denying the claim,
the province relied on a more recent law, RA 7160 (1991 LGC), than the old decree invoked by Meralco (PD 551). On 14
February 1996, Meralco filed with the Regional Trial Court (RTC) of Sta. Cruz, Laguna, a complaint for refund, with a
prayer for the issuance of a writ of preliminary injunction and/or TRO, against the Province of Laguna and Balazo in his
capacity as the Provincial Treasurer of Laguna. The trial court, in its assailed decision of 30 September 1997, dismissed
the complaint and declared the ordinance valid, binding, reasonable, and enforceable. Hence, the petition.

Issue: Whether or not the withdrawal of tax exemption to Meralco by the local government unit (province) violates the
non-impairment clause of the Constitution?

RULING: No. The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the
now repealed Local Tax Code (PD 231 pursuant to Section 2, Article XI, 1973 Constitution; in effect since 1 July 1973).
The 1991 Code explicitly authorizes provincial governments, notwithstanding “any exemption granted by any law or
other special law to impose a tax on businesses enjoying a franchise (Section 137). Indicative of the legislative intent to
carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local Government Code
has effectively withdrawn tax exemptions or incentives theretofore enjoyed by certain entities (Section 193). While tax
exemptions contained in special franchises are in the nature of contracts and a part of the inducement for carrying on the
franchise, these exemptions, nevertheless are far from being strictly contractual in nature. Contractual tax exemptions, in
the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully
entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without
impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as
and when the common good so requires. Indeed, Article XII, Section 11, of the 1987 Constitution is explicit that no
franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be
subject to amendment, alteration or repeal by Congress as and when the common good so requires.
 PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN
69 SCRA 460
GR No. L-31156, February 27, 1976

FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to declare Section 2 of
Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing
authority as well as to declare Ordinances Nos. 23 and 27 denominated as "municipal production tax" of the Municipality
of Tanauan, Leyte, null and void. Ordinance 23 levies and collects from soft drinks producers and manufacturers a tax of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked, and Ordinance 27 levies and collects on soft drinks
produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity. Aside from the undue delegation of authority, appellant contends that
it allows double taxation, and that the subject ordinances are void for they impose percentage or specific tax.

ISSUE: Are the contentions of the appellant tenable?

HELD: No. On the issue of undue delegation of taxing power, it is settled that the power of taxation is an essential and
inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly
conferred by the people.  It is a power that is purely legislative and which the central legislative body cannot delegate
either to the executive or judicial department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for purposes of local self-government carries with it the
power to confer on such local governmental agencies the power to tax.
   Also, there is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of
double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, so that double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or
municipality.
   On the last issue raised, the ordinances do not partake of the nature of a percentage tax on sales, or other taxes in any
form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of
the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but
there is not set ratio between the volume of sales and the amount of the tax.

Sison v Ancheta G.R. No. L-59431. July 25, 1984

Facts: Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended
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.

Petitioner as taxpayer alleged that "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." He characterizes the above section as arbitrary amounting to class legislation, oppressive and
capricious in character.
For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution
as well as of the rule requiring uniformity in taxation.

The OSG prayed for dismissal of the petition due to lack of merit.

Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.

(WON there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the
rule requiring uniformity in taxation)

Ruling: No. Petition dismissed

 The need for more revenues is rationalized by the government's role to fill the gap not done by public enterprise in order
to meet the needs of the times. It is better equipped to administer for the public welfare.

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.

The power to tax is an attribute of sovereignty and the strongest power of the government. There are restrictions, however,
diversely affecting as it does property rights, both the due process and equal protection clauses may properly be invoked,
as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would be a
destructive power.

The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness as basis without a
factual foundation. This is merely to adhere to the authoritative doctrine that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion.

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 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.

For equal protection, the applicable standard to determine whether this was denied in the exercise of police power or
eminent domain was the presence of the purpose of hostility or unreasonable discrimination.

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 circumstances, which if not identical are analogous. If law be looks 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.

The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the
laws's 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.
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, addressed 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.

Lutz v Araneta- 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.

Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly attainable 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. 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". There was a difference 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.

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. As
there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes
because they are in the same situation more or less. Taxpayers who are recipients of compensation income are set apart as
a class.

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 was a lack of a factual foundation, the forcer of doctrines on due process and equal protection, and he
reasonableness of the distinction between compensation and taxable net income of professionals and businessmen not
being a dubious classification.