PAGCOR vs. BIR: ISSUE : W/N PAGCOR IS EXEMPTED FROM VAT. YES.Facts:With the passage of Republic Act No.

(RA) 9337, the PhilippineAmusement and Gaming Corporation (PAGCOR) has beenexcluded from the list of government-owned and -controlledcorporations (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 violatethe right to equal protection of the laws under Section 1, ArticleIII of the Constitution, because PAGCORs exemption from payment of corporate income tax was not based on classificationshowing substantial distinctions; rather, it was granted upon thecorporations own request to be exempted from corporateincome tax. Legislative records likewise reveal that the legislativeintention is to require PAGCOR to pay corporateincome tax.With regard to the issue that the removal of PAGCOR from theexempted list violates the non-impairment clause contained inSection 10, Article III of the Constitution which provides thatno law impairing the obligation of contracts shall be passed theSC 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 natureof a grant, and is thus beyond the purview of the non-impairmentclause of the Constitution.As regards the liability of PAGCOR to VAT, the SC findsSection 4.108-3 of Revenue Regulations No. (RR) 16-2005,which subjects PAGCOR and its licensees and franchisees toVAT, null and void for being contrary to the National InternalRevenue Code (NIRC), as amended by RA 9337. According tothe SC, RA 9337 does not contain any provision that subjectsPAGCOR to VAT. Instead, the SC finds support to the VATexemption of PAGCOR under Section 109(k) of theTax 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] areexempt from VAT. Considering that PAGCORs charter, i.e., PD1869 which grants PAGCOR exemption from taxes is aspecial law, it is exempt from payment of VAT.Accordingly, the SC held that the BIR exceeded its authority insubjecting PAGCOR to VAT, and thus declared RR 16-05 nulland void insofar as it subjects PAGCOR to VAT for beingcontrary to the NIRC, as amended by RA 9337. PAGCOR is subject to income tax but remains exempt fromthe 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 corporateincome tax. However, nowhere in R.A. No. 9337 is it providedthat PAGCOR can be subjected to VAT. Thus, the provision of RR No. 16-2005, which the respondent BIR issued to implementthe 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 PhilippineAmusement and Gaming Corporation (PAGCOR) has beenexcluded from the list of government-owned and controlledcorporations (GOCCs) that are exempt from tax under Section27(c) of the Tax Code; PAGCOR is now subject to corporateincome tax. The Supreme Court (SC) held that the omission of PAGCOR from the list of taxexempt GOCCs by RA 9337 doesnot violate the right to equal protection of the laws under Section1, Article III of the Constitution, because PAGCORs exemptionfrom payment of corporate income tax was not based onclassification showing substantial distinctions; rather, it wasgranted upon the corporations own request to be exempted fromcorporate income tax. Legislative records likewise reveal that thelegislative intention is to require PAGCOR to pay corporateincome tax.With regard to the issue that the removal of PAGCOR from theexempted list violates the non-impairment clause contained inSection 10, Article III of the Constitution which provides thatno law impairing the obligation of contractsshall be passed the SC explained that following its previousruling in the case of Manila Electric Company v. Province of Laguna 366 Phil. 428(1999), this does not apply. Franchises such as that granted toPAGCOR partake of the nature of a grant, and is thus beyond the purview of the non-impairment clause of the Constitution. Asregards the liability of PAGCOR to VAT, the SC finds Section4.108-3 of Revenue Regulations No. (RR) 16-2005, whichsubjects PAGCOR and its licensees and franchisees to VAT, nulland void for being contrary to the National Internal RevenueCode (NIRC), as amended by RA 9337.According to the SC, RA 9337 does not contain any provisionthat subjects PAGCOR to VAT. Instead, the SC finds support tothe VAT exemption of PAGCOR under Section 109(k) of the TaxCode, 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+ areexempt from VAT. Considering that PAGCORs charter, i.e., PD1869 which grants PAGCOR exemption from taxes is aspecial law, it is exempt from payment of VAT. Accordingly, theSC held that the BIR exceeded its authority in subjectingPAGCOR to VAT, and thus declared RR 16-05 null and void insofar as it subjects PAGCOR to VAT for being contrary tothe NIRC, as amended by RA 9337. [Philippine Amusement andGaming Corporation (PAGCOR) v. the Bureau of InternalRevenue (BIR), et. al., GR 172087, March 15, 2011.