7/21/2019 Pagcor vs.

Bir Digest

PHILIPPINE AMUSEMENT AND GAMING CORPORATION VS. BUREAU OF INTERNAL REVENUE

ISSUE:
Is Republic Act 9337 constitutional insofar as it excluded PAGCOR from the enumeration of GOCCs exempt from the
payment of corporate income tax?

HELD:
YES. The original exemption of PAGCOR from corporate income tax was not made pursuant to a valid classification
based on substantial distinctions so that the law may operate only on some and not on all. Instead, the same was merely
granted due to the acquiescence of the House Committee on Ways and Means to the request of PAGCOR.

The argument that the withdrawal of the exemption also violates the non-impairment clause will not hold since any
franchise is subject to amendment, alteration or repeal by Congress.
However, the Court made it clear that PAGCOR remains exempt from payment of indirect taxes and as such its
purchases remain not subject to VAT, reiterating the rule laid down in the Acesite case.

PAGCOR vs. BIR: 

ISSUE : W/N PAGCOR IS EXEMPTED FROM VAT. YES.

Facts: With the passage of Republic Act No. (RA) 9337, the Philippine Amusement and Gaming Corporation
(PAGCOR) has been excluded from the list of government-owned and –controlled corporations (GOCCs) that
are exempt from tax under Section27(c) of the Tax Code; PAGCOR is now subject to corporate income tax.

The Supreme Court (SC) held that the omission of PAGCOR from the list of tax-exempt GOCCs by RA 9337
does not violate the right to equal protection of the laws under Section 1, Article III of the Constitution,
because PAGCOR’s exemption from payment of corporate income tax was not based on classification showing
substantial distinctions; rather, it was granted upon the corporation’s own request to be exempted from
corporate income tax. Legislative records likewise reveal that the legislative intention is to require PAGCOR to

pay corporate income tax.

With regard to the issue that the removal of PAGCOR from the exempted list violates the non-impairment
clause contained in Section 10, Article III of the Constitution — which provides that no law impairing the
obligation of contracts shall be passed — the SC explained that following its previous ruling in the case
of Manila Electric Company v. Province of Laguna 366 Phil. 428(1999), this does not apply.

Franchises such as that granted to PAGCOR partake of the nature of a grant, and is thus beyond the purview of
the non-impairment clause of the Constitution.

As regards the liability of PAGCOR to VAT, the SC finds Section 4.108-3 of Revenue Regulations No. (RR) 16-
2005, which subjects PAGCOR and its licensees and franchisees to VAT, null and void for being contrary to the
National Internal Revenue Code (NIRC), as amended by RA 9337. According to the SC, RA 9337 does not
contain any provision that subjects PAGCOR to VAT. Instead, the SC finds support to the VAT exemption of
PAGCOR under Section 109(k) of the Tax Code, which provides that transactions exempt under international
agreements to which the Philippines is a signatory or under special laws [except Presidential Decree No. (PD)
529] are exempt from VAT. Considering that PAGCOR’s charter, i.e., PD1869 — which grants PAGCOR
exemption from taxes — is a special law, it is exempt from payment of VAT.

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 7/21/2019 Pagcor vs. Bir Digest

Accordingly, the SC held that the BIR exceeded its authority in subjecting PAGCOR to VAT, and thus declared
RR 16-05 null and void — insofar as it subjects PAGCOR to VAT — for being contrary to the NIRC, as amended by RA
9337.

PAGCOR is subject to income tax but remains exempt from the imposition of value added tax. 

With the amendment by R.A. No. 9337 of Section 27 (c) of the National Internal Revenue Code of 1997
by omitting PAGCOR from the list of government corporations exempt for income tax, the legislative intent is
to require PAGCOR to pay corporate income tax. However, nowhere in R.A. No. 9337 is it provided that
PAGCOR can be subjected to VAT. Thus, the provision of RR No. 16-2005, which the respondent BIR issued
to implement the VAT law, subjecting PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337.
(Philippine Amusement and Gaming Corporation vs. BIR G.R. No. 172087, March 15, 2011)  

With the passage of Republic Act No. (RA) 9337, the Philippine
Amusement and Gaming Corporation (PAGCOR) has been excluded from the list
of government-owned and –controlled corporations (GOCCs) that are exempt from tax
under Section27(c) of the Tax Code; PAGCOR is now subject to corporate income tax. The
Sup re me Cou rt (SC ) hel d tha t the omi ssi on of PAGCOR from the list of tax-exempt GOCCs by RA 9337
does not violate the right to equal protection of the laws under Section1, Article III of the Constitution,
because PAGCOR’s
exemptionf r o m p a y m e n t o f c o r p o r a t e i n c o m e t a x w a s n o t b a s e d o n classificati on sh
owing substantial distinctions; rather, it was granted upon the corporation’s own request to be
exempted from corporate income tax. Legislative records likewise reveal that the
legi slati ve inten tion is to requ ire PAGC OR t o p ay c orpo rate income tax.

With regard to the issue that the removal of PAGCOR from the exe mp te d li st vi ol at es th e no n-
impairment clause contained in Section 10, Article III of the Constitution — which provides that no law
impairing the obligation of contracts shall be passed — the SC explained that following its previous
ruling in the case of Manila Electric Company v. Province of Laguna 366 Phil. 428(1999), this does
not apply. Franchises such as that granted to PAGCOR partake of the nature of a grant, and is thus
beyond the purview of the non-impairment clause of the Constitution. As regards the liability of
PAGCOR to VAT, the SC finds Section4.1 08 -3 o f Re ve nu e Re gu l at io n s No . (R R) 16 -
2 0 0 5 , w h i c h subjects PAGCOR and its licensees and franchisees to VAT, null an d vo id fo r
being contrary to the National Internal Revenue Code (NIRC), as amended by RA 9337.

According to the SC, RA 9337 does not contain any provision that subjects PAGCOR to VAT. Instead,
the SC finds support to the VAT exemption of PAGCOR under Section 109(k) of the Tax
C o d e , w h i c h p r o v i d e s t h a t t r a n s a c t i o n s e x e m p t u n d e r international
agreements to which the Philippines is a signatory or under special laws [except Presidential Decree No. (PD)
529] are exempt from VAT. Considering that PAGCOR’s charter, i.e., PD1869 —  which grants PAGCOR
exemption from taxes — is a special law, it is exempt from payment of VAT. Accordingly, the
S C h e l d t h a t t h e B I R e x c e e d e d i t s a u t h o r i t y i n s u b j e c t i n g PAGCOR to VAT, and thus
declared RR 16-05 null and void — insofar as it subjects PAGCOR to VAT — for being contrary to the NIRC, as
amended by RA 9337. [Philippine Amusement and
Ga mi ng Co rp or at io n (P AG CO R ) v. t h e Bu re au of In t e rn al Revenue (BIR), et. al., GR 172087,
March 15, 2011.

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