G.R. No.
L-75697
VALENTIN TIO doing business under the name and style of
OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE,
METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA, respondents.
This petition was filed on September 1, 1986 by petitioner
on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the
constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The
Decree was promulgated on October 5, 1985 and took
effect on April 10, 1986, fifteen (15) days after completion
of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of
the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code
providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected
on each processed video-tape cassette, ready
for playback, regardless of length, an annual tax
of five pesos; Provided, That locally
manufactured or imported blank video tapes
shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters
Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted
by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and
that their "survival and very existence is threatened by the
unregulated proliferation of film piracy." The Intervenors
were thereafter allowed to file their Comment in
Intervention.
The rationale behind the enactment of the DECREE, is set
out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated
circulation of videograms including, among
others, videotapes, discs, cassettes or any
technical improvement or variation thereof, have
greatly prejudiced the operations of
moviehouses and theaters, and have caused a
sharp decline in theatrical attendance by at
least forty percent (40%) and a tremendous drop
in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million
annually in government revenues;
2. WHEREAS, videogram(s) establishments
collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms,
and such earnings have not been subjected to
tax, thereby depriving the Government of
approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of
videogram establishments have also affected
the viability of the movie industry, particularly the
more than 1,200 movie houses and theaters
throughout the country, and occasioned
industry-wide displacement and unemployment
due to the shutdown of numerous moviehouses
and theaters;
4. "WHEREAS, in order to ensure national
economic recovery, it is imperative for the
Government to create an environment
conducive to growth and development of all
business industries, including the movie industry
which has an accumulated investment of about
P3 Billion;
5. WHEREAS, proper taxation of the activities of
videogram establishments will not only alleviate
the dire financial condition of the movie industry
upon which more than 75,000 families and
500,000 workers depend for their livelihood, but
also provide an additional source of revenue for
the Government, and at the same time
rationalize the heretofore uncontrolled
distribution of videograms;
6. WHEREAS, the rampant and unregulated
showing of obscene videogram features
constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and
impairs the mandate of the Constitution for the
State to support the rearing of the youth for civic
efficiency and the development of moral
character and promote their physical,
intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups
have called for remedial measures to curb these
blatant malpractices which have flaunted our
censorship and copyright laws;
8. WHEREAS, in the face of these grave
emergencies corroding the moral values of the
people and betraying the national economic
recovery program, bold emergency measures
must be adopted with dispatch; ... (Numbering of
paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE
rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30%
on the gross receipts payable to the local
government is a RIDER and the same is not
germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory,
oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the
Constitution;
3. There is no factual nor legal basis for the
exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and
authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as
if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in
the title thereof" 1 is sufficiently complied with if the title be
comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that
the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the
parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they
are not inconsistent with or foreign to the general subject
and title. 2 An act having a single general subject,
indicated in the title, may contain any number of
provisions, no matter how diverse they may be, so long as
they are not inconsistent with or foreign to the general
subject, and may be considered in furtherance of such
subject by providing for the method and means of
carrying out the general object." 3 The rule also is that the
constitutional requirement as to the title of a bill should
not be so narrowly construed as to cripple or impede the
power of legislation. 4 It should be given practical rather
than technical construction. 5
Tested by the foregoing criteria, petitioner's contention
that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of
Videograms. — Notwithstanding any provision of
law to the contrary, the province shall collect a
tax of thirty percent (30%) of the purchase price
or rental rate, as the case may be, for every sale,
lease or disposition of a videogram containing a
reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the
proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall
acrrue to the municipality where the tax is
collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of
the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the
regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to
include taxation of the video industry in order to regulate
and rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra.
Those preambles explain the motives of the lawmaker in
presenting the measure. The title of the DECREE, which is
the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes
expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives
in the title or that the latter be an index to the body of
the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question
that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the
activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion
of the authority which exercises it. 9 In imposing a tax, the
legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive
taxation. 10
The tax imposed by the DECREE is not only a regulatory
but also a revenue measure prompted by the realization
that earnings of videogram establishments of around
P600 million per annum have not been subjected to tax,
thereby depriving the Government of an additional
source of revenue. It is an end-user tax, imposed on
retailers for every videogram they make available for
public viewing. It is similar to the 30% amusement tax
imposed or borne by the movie industry which the
theater-owners pay to the government, but which is
passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing
public. It is a tax that is imposed uniformly on all
videogram operators.
The levy of the 30% tax is for a public purpose. It was
imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to protect
the movie industry, the tax remains a valid imposition.
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 industry over
another. 11
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 "inequities which result
from a singling out of one particular class for
taxation or exemption infringe no constitutional
limitation". 12 Taxation has been made the
implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to
the taxing legislature.
3. Petitioner argues that there was no legal nor factual
basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973
Constitution providing that "whenever in the judgment of
the President ... , there exists a grave emergency or a
threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly
fails or is unable to act adequately on any matter for any
reason that in his judgment requires immediate action, he
may, in order to meet the exigency, issue the necessary
decrees, orders, or letters of instructions, which shall form
part of the law of the land."
In refutation, the Intervenors and the Solicitor General's
Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies
corroding the moral values of the people and betraying
the national economic recovery program necessitated
bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment
still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE
contains an undue delegation of legislative power. The
grant in Section 11 of the DECREE of authority to the
BOARD to "solicit the direct assistance of other agencies
and units of the government and deputize, for a fixed
and limited period, the heads or personnel of such
agencies and units to perform enforcement functions for
the Board" is not a delegation of the power to legislate
but merely a conferment of authority or discretion as to its
execution, enforcement, and implementation. "The true
distinction is between the delegation of power to make
the law, which necessarily involves a discretion as to what
it shall be, and conferring authority or discretion as to its
execution to be exercised under and in pursuance of the
law. The first cannot be done; to the latter, no valid
objection can be made." 14 Besides, in the very language
of the decree, the authority of the BOARD to solicit such
assistance is for a "fixed and limited period" with the
deputized agencies concerned being "subject to the
direction and control of the BOARD." That the grant of
such authority might be the source of graft and
corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the
aggrieved parties will not be without adequate remedy
in law.
5. The DECREE is not violative of the ex post
facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence,
and authorizes conviction upon less or different testimony
than the law required at the time of the commission of
the offense." It is petitioner's position that Section 15 of the
DECREE in providing that:
All videogram establishments in the Philippines
are hereby given a period of forty-five (45) days
after the effectivity of this Decree within which to
register with and secure a permit from the
BOARD to engage in the videogram business
and to register with the BOARD all their
inventories of videograms, including videotapes,
 discs, cassettes or other technical improvements
or variations thereof, before they could be sold,
leased, or otherwise disposed of. Thereafter any
videogram found in the possession of any person
engaged in the videogram business without the
required proof of registration by the BOARD, shall
be prima facie evidence of violation of the
Decree, whether the possession of such
videogram be for private showing and/or public
exhibition.
raises immediately a prima facie evidence of violation of
the DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of
the nature of an ex post facto law.
The argument is untenable. As this Court held in the
recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no
constitutional objection to the passage of a law
providing that the presumption of innocence
may be overcome by a contrary presumption
founded upon the experience of human
conduct, and enacting what evidence shall be
sufficient to overcome such presumption of
innocence" (People vs. Mingoa 92 Phil. 856 [1953]
at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the
"legislature may enact that when certain facts
have been proved that they shall be prima facie
evidence of the existence of the guilt of the
accused and shift the burden of proof provided
there be a rational connection between the
facts proved and the ultimate facts presumed so
that the inference of the one from proof of the
others is not unreasonable and arbitrary because
of lack of connection between the two in
common experience". 16
Applied to the challenged provision, there is no question
that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact
presumed which is violation of the DECREE, besides the
fact that the prima facie presumption of violation of the
DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither
retrospective in character.
6. We do not share petitioner's fears that the video
industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new
industry, the need for its regulation was apparent. While
the underlying objective of the DECREE is to protect the
moribund movie industry, there is no question that public
welfare is at bottom of its enactment, considering "the
unfair competition posed by rampant film piracy; the
erosion of the moral fiber of the viewing public brought
about by the availability of unclassified and unreviewed
video tapes containing pornographic films and films with
brutally violent sequences; and losses in government
revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video
establishments are virtually untaxed since mere payment
of Mayor's permit and municipal license fees are required
to engage in business. 17
The enactment of the Decree since April 10, 1986 has not
brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have
proliferated in many places notwithstanding the 30% tax
imposed.
In the last analysis, what petitioner basically questions is
the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and
exclusively a matter of legislative concern.
Only congressional power or competence, not
the wisdom of the action taken, may be the basis
for declaring a statute invalid. This is as it ought to
be. The principle of separation of powers has in
the main wisely allocated the respective
authority of each department and confined its
jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if
on a matter left to the discretion of a coordinate
branch, the judiciary would substitute its own. If
there be adherence to the rule of law, as there
ought to be, the last offender should be courts of
justice, to which rightly litigants submit their
controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The
attack on the validity of the challenged provision
likewise insofar as there may be objections, even
if valid and cogent on its wisdom cannot be
sustained. 18
In fine, petitioner has not overcome the presumption of
validity which attaches to a challenged statute. We find
no clear violation of the Constitution which would justify
us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
G.R. No. 106440 January 29, 1996
ALEJANDRO MANOSCA, ASUNCION MANOSCA and
LEONICA MANOSCA, petitioners,
vs.
HON. COURT OF APPEALS, HON. BENJAMIN V. PELAYO,
Presiding Judge, RTC-Pasig, Metro Manila, Branch 168,
HON. GRADUACION A. REYES CLARAVAL, Presiding Judge,
RTC-Pasig, Metro Manila, Branch 71, and REPUBLIC OF THE
PHILIPPINES, respondents.
DECISION
VITUG, J.:
In this appeal, via a petition for review on certiorari, from
the decision1 of the Court of Appeals, dated 15 January
1992, in CA-G.R. SP No. 24969 (entitled "Alejandro
Manosca, et al. v. Hon. Benjamin V. Pelayo, et al."), this
Court is asked to resolve whether or not the "public use"
requirement of Eminent Domain is extant in the
attempted expropriation by the Republic of a 492-
square-meter parcel of land so declared by the National
Historical Institute ("NHI") as a national historical landmark.
The facts of the case are not in dispute.
Petitioners inherited a piece of land located at P. Burgos
Street, Calzada, Taguig. Metro Manila, with an area of
about four hundred ninety-two (492) square meters.
When the parcel was ascertained by the NHI to have
been the birthsite of Felix Y. Manalo, the founder of Iglesia
Ni Cristo, it passed Resolution No. 1, Series of 1986,
pursuant to Section 42 of Presidential Decree No. 260,
declaring the land to be a national historical landmark.
The resolution was, on 06 January 1986, approved by the
Minister of Education, Culture and Sports. Later, the
opinion of the Secretary of Justice was asked on the
legality of the measure. In his Opinion No. 133, Series of
1987, the Secretary of Justice replied in the affirmative; he
explained:
According to your guidelines, national landmarks
are places or objects that are associated with an
event, achievement, characteristic, or
modification that makes a turning point or stage
in Philippine history. Thus, the birthsite of the
founder of the Iglesia ni Cristo, the late Felix Y.
Manalo, who, admittedly, had made
contributions to Philippine history and culture has
been declared as a national landmark. It has
been held that places invested with unusual
historical interest is a public use for which the
 power of eminent domain may be authorized . . .
. need not be clothed with any constitutional gear to exist;
In view thereof, it is believed that the National
Historical Institute as an agency of the
Government charged with the maintenance and
care of national shrines, monuments and
landmarks and the development of historical sites
that may be declared as national shrines,
monuments and/or landmarks, may initiate the
institution of condemnation proceedings for the
purpose of acquiring the lot in question in
accordance with the procedure provided for in
Rule 67 of the Revised Rules of Court. The
proceedings should be instituted by the Office of
the Solicitor General in behalf of the Republic.
Accordingly, on 29 May 1989, the Republic, through the
Office of the Solicitor-General, instituted a complaint for
expropriation3 before the Regional Trial Court of Pasig for
and in behalf of the NHI alleging, inter alia, that:
Pursuant to Section 4 of Presidential Decree No.
260, the National Historical Institute issued
Resolution No. 1, Series of 1986, which was
approved on January, 1986 by the then Minister
of Education, Culture and Sports, declaring the
above described parcel of land which is the
birthsite of Felix Y. Manalo, founder of the "Iglesia
ni Cristo," as a National Historical Landrnark. The
plaintiff perforce needs the land as such national
historical landmark which is a public purpose.
At the same time, respondent Republic filed an urgent
motion for the issuance of an order to permit it to take
immediate possession of the property. The motion was
opposed by petitioners. After a hearing, the trial court
issued, on 03 August 1989,4 an order fixing the provisional
market (P54,120.00) and assessed (P16,236.00) values of
the property and authorizing the Republic to take over
the property once the required sum would have been
deposited with the Municipal Treasurer of Taguig, Metro
Manila.
Petitioners moved to dismiss the complaint on the main
thesis that the intended expropriation was not for a public
purpose and, incidentally, that the act would constitute
an application of public funds, directly or indirectly, for
the use, benefit, or support of Iglesia ni Cristo, a religious
entity, contrary to the provision of Section 29(2), Article VI,
of the 1987 Constitution.5 Petitioners sought, in the
meanwhile, a suspension in the implementation of the
03rd August 1989 order of the trial court.
On 15 February 1990, following the filing by respondent
Republic of its reply to petitioners' motion seeking the
dismissal of the case, the trial court issued its denial of
said motion to dismiss.6 Five (5) days later, or on 20
February 1990,7 another order was issued by the trial
court, declaring moot and academic the motion for
reconsideration and/or suspension of the order of 03
August 1989 with the rejection of petitioners' motion to
dismiss. Petitioners' motion for the reconsideration of the
20th February 1990 order was likewise denied by the trial
court in its 16th April 1991 order.8
Petitioners then lodged a petition for certiorari and
prohibition with the Court of Appeals. In its now disputed
15th January 1992 decision, the appellate court dismissed
the petition on the ground that the remedy of appeal in
the ordinary course of law was an adequate remedy and
that the petition itself, in any case, had failed to show any
grave abuse of discretion or lack of jurisdictional
competence on the part of the trial court. A motion for
the reconsideration of the decision was denied in the
23rd July 1992 resolution of the appellate court.
We begin, in this present recourse of petitioners, with a
few known postulates.
Eminent domain, also often referred to as expropriation
and, with less frequency, as condemnation, is, like police
power and taxation, an inherent power of sovereignty. It
instead, provisions in our Constitution on the subject are
meant more to regulate, rather than to grant, the
exercise of the power. Eminent domain is generally so
described as "the highest and most exact idea of
property remaining in the government" that may be
acquired for some public purpose through a method in
the nature of a forced purchase by the State.9 It is a right
to take or reassert dominion over property within the state
for public use or to meet a public exigency. It is said to be
an essential part of governance even in its most primitive
form and thus inseparable from sovereignty. 10 The only
direct constitutional qualification is that "private property
shall not be taken for public use without just
compensation." 11 This proscription is intended to provide
a safeguard against possible abuse and so to protect as
well the individual against whose property the power is
sought to be enforced.
Petitioners assert that the expropriation has failed to meet
the guidelines set by this Court in the case of Guido
v.Rural Progress Administration, 12 to wit: (a) the size of the
land expropriated; (b) the large number of people
benefited; and, (c) the extent of social and economic
reform.13 Petitioners suggest that we confine the concept
of expropriation only to the following public uses, 14 i.e.,
the —
. . . taking of property for military posts, roads,
streets, sidewalks, bridges, ferries, levees,
wharves, piers, public buildings including
schoolhouses, parks, playgrounds, plazas, market
places, artesian wells, water supply and
sewerage systems, cemeteries, crematories, and
railroads.
This view of petitioners is much too limitative and
restrictive.
The court, in Guido, merely passed upon the issue of the
extent of the President's power under Commonwealth
Act No. 539 to, specifically, acquire private lands for
subdivision into smaller home lots or farms for resale
to bona fidetenants or occupants. It was in this particular
context of the statute that the Court had made the
pronouncement. The guidelines in Guido were not meant
to be preclusive in nature and, most certainly, the power
of eminent domain should not now be understood as
being confined only to the expropriation of vast tracts of
land and landed estates. 15
The term "public use," not having been otherwise defined
by the constitution, must be considered in its general
concept of meeting a public need or a public
exigency. 16 Black summarizes the characterization given
by various courts to the term; thus:
Public Use. Eminent domain. The constitutional
and statutory basis for taking property by
eminent domain. For condemnation purposes,
"public use" is one which confers same benefit or
advantage to the public; it is not confined to
actual use by public. It is measured in terms of
right of public to use proposed facilities for which
condemnation is sought and, as long as public
has right of use, whether exercised by one or
many members of public, a "public advantage"
or "public benefit" accrues sufficient to constitute
a public use. Montana Power Co. vs. Bokma,
Mont. 457 P. 2d 769, 772, 773.
Public use, in constitutional provisions restricting
the exercise of the right to take private property
in virtue of eminent domain, means a use
concerning the whole community as
distinguished from particular individuals. But each
and every member of society need not be
equally interested in such use, or be personally
and directly affected by it; if the object is to
satisfy a great public want or exigency, that is
sufficient. Rindge Co. vs. Los Angeles County, 262
 U.S. 700, 43 S.Ct. 689, 692, 67 L.Ed. 1186. The term
may be said to mean public usefulness, utility, or
advantage, or what is productive of general
benefit. It may be limited to the inhabitants of a
small or restricted locality, but must be in
common, and not for a particular individual. The
use must be a needful one for the public, which
cannot be surrendered without obvious general
loss and inconvenience. A "public use" for which
land may be taken defies absolute definition for
it changes with varying conditions of society,
new appliances in the sciences, changing
conceptions of scope and functions of
government, and other differing circumstances
brought about by an increase in population and
new modes of communication and
transportation. Katz v. Brandon, 156 Conn., 521,
245 A.2d 579,586. 17
The validity of the exercise of the power of eminent
domain for traditional purposes is beyond question; it is
not at all to be said, however, that public use should
thereby be restricted to such traditional uses. The idea
that "public use" is strictly limited to clear cases of "use by
the public" has long been discarded. This Court in Heirs
of Juancho Ardona v. Reyes,18 quoting from Berman
v. Parker (348 U.S. 25; 99 L. ed. 27), held:
We do not sit to determine whether a particular
housing project is or is not desirable. The concept
of the public welfare is broad and inclusive. See
DayBrite Lighting, Inc. v. Missouri, 342 US 421, 424,
96 L. Ed. 469, 472, 72 S Ct 405. The values it
represents are spiritual as well as physical,
aesthetic as well as monetary. It is within the
power of the legislature to determine that the
community should be beautiful as well as
healthy, spacious as well as clean, well-balanced
as well as carefully patrolled. In the present case,
the Congress and its authorized agencies have
made determinations that take into account a
wide variety of values. It is no for us to reappraise
them. If those who govern the District of
Columbia decide that the Nation's Capital
should be beautiful as well as sanitary, there is
nothing in the Fifth Amendment that stands in the
way.
Once the object is within the authority of
Congress, the right to realize it through the
exercise of eminent domain is clear. For the
power of eminent domain is merely the means to
the end. See Luxton v. North River Bridge Co. 153
US 525, 529, 530, 38 L. ed. 808, 810, 14 S Ct 891;
United States v. Gettysburg Electric R. Co. 160 US
668, 679, 40 L. ed. 576, 580, 16 S Ct 427.
It has been explained as early as Seña v. Manila Railroad
Co., 19 that:
. . . A historical research discloses the meaning of
the term "public use" to be one of constant
growth. As society advances, its demands upon
the individual increase and each demand is a
new use to which the resources of the individual
may be devoted. . . . for "whatever is beneficially
employed for the community is a public use.
Chief Justice Enrique M. Fernando states:
The taking to be valid must be for public use.
There was a time when it was felt that a literal
meaning should be attached to such a
requirement. Whatever project is undertaken
must be for the public to enjoy, as in the case of
streets or parks. Otherwise, expropriation is not
allowable. It is not so any more. As long as the
purpose of the taking is public, then the power of
eminent domain comes into play. As just noted,
the constitution in at least two cases, to remove
any doubt, determines what is public use. One is
the expropriation of lands to be subdivided into
small lots for resale at cost to individuals. The
other is the transfer, through the exercise of this
power, of utilities and other private enterprise to
the government. It is accurate to state then that
at present whatever may be beneficially
employed for the general welfare satisfies the
requirement of public use. 20
Chief Justice Fernando, writing
the ponencia in J.M. Tuason & Co. vs. Land Tenure
Administration, 21 has viewed the Constitution a dynamic
instrument and one that "is not to be construed narrowly
or pedantically" so as to enable it "to meet adequately
whatever problems the future has in store." Fr. Joaquin
Bernas, a noted constitutionalist himself, has aptly
observed that what, in fact, has ultimately emerged is a
concept of public use which is just as broad as "public
welfare." 22
Petitioners ask: But "(w)hat is the so-called unusual interest
that the expropriation of (Felix Manalo's) birthplace
become so vital as to be a public use appropriate for the
exercise of the power of eminent domain" when only
members of the Iglesia ni Cristo would benefit? This
attempt to give some religious perspective to the case
deserves little consideration, for what should be
significant is the principal objective of, not the casual
consequences that might follow from, the exercise of the
power. The purpose in setting up the marker is essentially
to recognize the distinctive contribution of the late Felix
Manalo to the culture of the Philippines, rather than to
commemorate his founding and leadership of the Iglesia
ni Cristo.
The practical reality that greater benefit may be
derived by members of the Iglesia ni Cristo than
by most others could well be true but such a
peculiar advantage still remains to be merely
incidental and secondary in nature. Indeed, that
only a few would actually benefit from the
expropriation of property does not necessarily
diminish the essence and character of public
use. 23
Petitioners contend that they have been denied due
process in the fixing of the provisional value of their
property. Petitioners need merely to be reminded that
what the law prohibits is the lack of opportunity to be
heard;24 contrary to petitioners' argument, the records of
this case are replete with pleadings 25 that could have
dealt, directly or indirectly, with the provisional value of
the property.
Petitioners, finally, would fault respondent appellate court
in sustaining the trial court's order which considered
inapplicable the case of Noble v. City of Manila. 26 Both
courts held correctly. The Republic was not a party to the
alleged contract of exchange between the Iglesia ni
Cristo and petitioners which (the contracting parties)
alone, not the Republic, could properly be bound.
All considered, the Court finds the assailed decision to be
in accord with law and jurisprudence.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Footnotes
1 Penned by Justice Nathanael De Pano, Jr., with
the concurrence of Justices Luis Victor and
Fortunato Vailoces.
2 "The National Museum and the National
Historical Commission are hereby vested with the
right to declare other such historical and cultural
sites as National Shrines, Monuments, and/or
Landmarks, in accordance with the guidelines
set forth in R.A. 4846 and the spirit of this Decree."
3 Rollo, pp. 77-82.
4 Rollo, pp. 66-67.
5 Sec. 29. . . .
(2) No public money or property shall be
appropriated, applied, paid, or employed,
directly or indirectly, for the use, benefit, or
support of any sect, church, denomination,
sectarian institution, or system of religion, or of
any priest, preacher, minister, or other religious
teacher, or dignitary as such, except when such
priest, preacher, minister, or dignitary is assigned
to the armed forces, or to any penal institution, or
government orphanage or leprosarium.
(c) A motion for reconsideration and/or
suspension of the implementation of the
03 August 1989 Order (Rollo, pp. 93-95);
and
(d) A motion for reconsideration of the
orders dated 15 and 20 February, 1990
(Rollo, pp. 103-111).
26 TheNoble case holds that where there is a
valid and subsisting contract between the
owners of the property and the expropriating
authority, there is no need or reason for
expropriation (67 Phil. 1).
G.R. No. 166006 March 14, 2008

6 Rollo, pp. 68-69. PLANTERS PRODUCTS, INC., Petitioner,

vs.
7 Rollo, p. 70. FERTIPHIL CORPORATION, Respondent.

8 Rollo, pp. 71-76. DECISION

9 Black's Law Dictionary, 6th ed., p. 523. REYES, R.T., J.:

10 Visayan Refining Company vs. Camus, 40 Phil. THE Regional Trial Courts (RTC) have the authority and
550. jurisdiction to consider the constitutionality of statutes,
executive orders, presidential decrees and other
11 Sec.
issuances. The Constitution vests that power not only in
9, Art. III, 1987 Constitution.
the Supreme Court but in all Regional Trial Courts.
12 84 Phil. 847.
The principle is relevant in this petition for review on
certiorari of the Decision1 of the Court of Appeals (CA)
13 Rollo, pp. 38-39. affirming with modification that of the RTC in Makati
City,2 finding petitioner Planters Products, Inc. (PPI) liable
14 Rollo, p. 42. to private respondent Fertiphil Corporation (Fertiphil) for
the levies it paid under Letter of Instruction (LOI) No. 1465.
15 See
Province of Camarines Sur v. Court of
Appeals, 222 SCRA 173. The Facts

16 See U.S. vs. Toribio, 15 Phil. 85. Petitioner PPI and private respondent Fertiphil are private
corporations incorporated under Philippine laws.3 They
17 Black's Law Dictionary, p. 1232. are both engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals.
18 125 SCRA 221.
On June 3, 1985, then President Ferdinand Marcos,
19 42
exercising his legislative powers, issued LOI No. 1465 which
Phil. 102. provided, among others, for the imposition of a capital
recovery component (CRC) on the domestic sale of all
20 EnriqueFernando, The Constitution of the grades of fertilizers in the Philippines.4 The LOI provides:
Philippines, 2nd ed., pp. 523-524.
3. The Administrator of the Fertilizer Pesticide Authority to
21 31 SCRA 413. include in its fertilizer pricing formula a capital
contribution component of not less than ₱10 per bag. This
22 JoaquinBernas, The Constitution of the capital contribution shall be collected until adequate
Republic of the Philippines, Vol. 1, 1987 ed., capital is raised to make PPI viable. Such capital
p.282. contribution shall be applied by FPA to all domestic sales
of fertilizers in the Philippines.5 (Underscoring supplied)
23 Philippine Columbian Association v. Panis, 228
SCRA 668. Pursuant to the LOI, Fertiphil paid ₱10 for every bag of
fertilizer it sold in the domestic market to the Fertilizer and
24 Capuno Pesticide Authority (FPA). FPA then remitted the amount
v. Jaramillo, 234 SCRA 212.
collected to the Far East Bank and Trust Company, the
depositary bank of PPI. Fertiphil paid ₱6,689,144 to FPA
25 Those pleadings include: from July 8, 1985 to January 24, 1986.6

(a) An urgent motion that the hearing on
the fixing of the property's provisional
value and the taking of possession by
the Republic over the same be held in
abeyance until after petitioners shall
have received a copy of the complaint
and summons (Rollo, pp. 86-88);
(b) A motion to dismiss, dated 08 August
1989, seeking to dismiss the complaint
instituted by the Republic on the ground
that the expropriation in question is not
for a public purpose and contrary to
Section 29(a), Article VI, of the 1987
Constitution (Rollo, pp. 90-91);
After the 1986 Edsa Revolution, FPA voluntarily stopped
the imposition of the ₱10 levy. With the return of
democracy, Fertiphil demanded from PPI a refund of the
amounts it paid under LOI No. 1465, but PPI refused to
accede to the demand.7
Fertiphil filed a complaint for collection and
damages8 against FPA and PPI with the RTC in Makati. It
questioned the constitutionality of LOI No. 1465 for being
unjust, unreasonable, oppressive, invalid and an unlawful
imposition that amounted to a denial of due process of
law.9 Fertiphil alleged that the LOI solely favored PPI, a
privately owned corporation, which used the proceeds to
maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General,
countered that the issuance of LOI No. 1465 was a valid
exercise of the police power of the State in ensuring the
stability of the fertilizer industry in the country. It also
averred that Fertiphil did not sustain any damage from
the LOI because the burden imposed by the levy fell on
the ultimate consumer, not the seller.
RTC Disposition
On November 20, 1991, the RTC rendered judgment in
favor of Fertiphil, disposing as follows:
WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against the
defendant Planters Product, Inc., ordering the latter to
pay the former:
1) the sum of ₱6,698,144.00 with interest at 12%
from the time of judicial demand;
2) the sum of ₱100,000 as attorney’s fees;
3) the cost of suit.
SO ORDERED.11
Ruling that the imposition of the ₱10 CRC was an exercise
of the State’s inherent power of taxation, the RTC
invalidated the levy for violating the basic principle that
taxes can only be levied for public purpose, viz.:
It is apparent that the imposition of ₱10 per fertilizer bag
sold in the country by LOI 1465 is purportedly in the
exercise of the power of taxation. It is a settled principle
that the power of taxation by the state is plenary.
Comprehensive and supreme, the principal check upon
its abuse resting in the responsibility of the members of the
legislature to their constituents. However, there are two
kinds of limitations on the power of taxation: the inherent
limitations and the constitutional limitations.
One of the inherent limitations is that a tax may be levied
only for public purposes:
The power to tax can be resorted to only for a
constitutionally valid public purpose. By the same token,
taxes may not be levied for purely private purposes, for
building up of private fortunes, or for the redress of
private wrongs. They cannot be levied for the
improvement of private property, or for the benefit, and
promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of
constitutional law that no general tax can be levied
except for the purpose of raising money which is to be
expended for public use. Funds cannot be exacted
under the guise of taxation to promote a purpose that is
not of public interest. Without such limitation, the power
to tax could be exercised or employed as an authority to
destroy the economy of the people. A tax, however, is
not held void on the ground of want of public interest
unless the want of such interest is clear. (71 Am. Jur. pp.
371-372)
In the case at bar, the plaintiff paid the amount of
₱6,698,144.00 to the Fertilizer and Pesticide Authority
pursuant to the ₱10 per bag of fertilizer sold imposition
under LOI 1465 which, in turn, remitted the amount to the
defendant Planters Products, Inc. thru the latter’s
depository bank, Far East Bank and Trust Co. Thus, by
virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which
is a private domestic corporation, became poorer by the
amount of ₱6,698,144.00 and the defendant, Planters
Product, Inc., another private domestic corporation,
became richer by the amount of ₱6,698,144.00.
Tested by the standards of constitutionality as set forth in
the afore-quoted jurisprudence, it is quite evident that LOI
1465 insofar as it imposes the amount of ₱10 per fertilizer
bag sold in the country and orders that the said amount
should go to the defendant Planters Product, Inc. is
unlawful because it violates the mandate that a tax can
be levied only for a public purpose and not to benefit,
aid and promote a private enterprise such as Planters
Product, Inc.12
PPI moved for reconsideration but its motion was
denied.13 PPI then filed a notice of appeal with the RTC
but it failed to pay the requisite appeal docket fee. In a
separate but related proceeding, this Court14 allowed the
appeal of PPI and remanded the case to the CA for
proper disposition.
CA Decision
On November 28, 2003, the CA handed down its decision
affirming with modification that of the RTC, with the
following fallo:
IN VIEW OF ALL THE FOREGOING, the decision appealed
from is hereby AFFIRMED, subject to the MODIFICATION
that the award of attorney’s fees is hereby DELETED.15
In affirming the RTC decision, the CA ruled that the lis
mota of the complaint for collection was the
constitutionality of LOI No. 1465, thus:
The question then is whether it was proper for the trial
court to exercise its power to judicially determine the
constitutionality of the subject statute in the instant case.
As a rule, where the controversy can be settled on other
grounds, the courts will not resolve the constitutionality of
a law (Lim v. Pacquing, 240 SCRA 649 [1995]). The policy
of the courts is to avoid ruling on constitutional questions
and to presume that the acts of political departments are
valid, absent a clear and unmistakable showing to the
contrary.
However, the courts are not precluded from exercising
such power when the following requisites are obtaining in
a controversy before it: First, there must be before the
court an actual case calling for the exercise of judicial
review. Second, the question must be ripe for
adjudication. Third, the person challenging the validity of
the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the
earliest opportunity; and lastly, the issue of
constitutionality must be the very lis mota of the case
(Integrated Bar of the Philippines v. Zamora, 338 SCRA 81
[2000]).
Indisputably, the present case was primarily instituted for
collection and damages. However, a perusal of the
complaint also reveals that the instant action is founded
on the claim that the levy imposed was an unlawful and
unconstitutional special assessment. Consequently, the
requisite that the constitutionality of the law in question
be the very lis mota of the case is present, making it
proper for the trial court to rule on the constitutionality of
LOI 1465.16
The CA held that even on the assumption that LOI No.
1465 was issued under the police power of the state, it is
still unconstitutional because it did not promote public
welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held
that the levy imposed under the said law was an invalid
exercise of the State’s power of taxation inasmuch as it
violated the inherent and constitutional prescription that
taxes be levied only for public purposes. It reasoned out
that the amount collected under the levy was remitted to
the depository bank of PPI, which the latter used to
advance its private interest.
On the other hand, appellant submits that the subject
statute’s passage was a valid exercise of police power. In
addition, it disputes the court a quo’s findings arguing
that the collections under LOI 1465 was for the benefit of
Planters Foundation, Incorporated (PFI), a foundation
created by law to hold in trust for millions of farmers, the
stock ownership of PPI.
Of the three fundamental powers of the State, the
exercise of police power has been characterized as the
most essential, insistent and the least limitable of powers,
extending as it does to all the great public needs. It may
be exercised as long as the activity or the property
sought to be regulated has some relevance to public
welfare (Constitutional Law, by Isagani A. Cruz, p. 38,
1995 Edition).
Vast as the power is, however, it must be exercised within
the limits set by the Constitution, which requires the
concurrence of a lawful subject and a lawful method.
Thus, our courts have laid down the test to determine the
validity of a police measure as follows: (1) the interests of
the public generally, as distinguished from those of a
particular class, requires its exercise; and (2) the means
employed are reasonably necessary for the
accomplishment of the purpose and not unduly
oppressive upon individuals (National Development
Company v. Philippine Veterans Bank, 192 SCRA 257
[1990]).
It is upon applying this established tests that We sustain
the trial court’s holding LOI 1465 unconstitutional. To be
sure, ensuring the continued supply and distribution of
fertilizer in the country is an undertaking imbued with
public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will
promote the public welfare. The government’s
commitment to support the successful rehabilitation and
continued viability of PPI, a private corporation, is an
unmistakable attempt to mask the subject statute’s
impartiality. There is no way to treat the self-interest of a
favored entity, like PPI, as identical with the general
interest of the country’s farmers or even the Filipino
people in general. Well to stress, substantive due process
exacts fairness and equal protection disallows distinction
where none is needed. When a statute’s public purpose
is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being
an arbitrary exercise of government power. To rule in
favor of appellant would contravene the general
principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive
benefit of private individuals.17
The CA did not accept PPI’s claim that the levy imposed
under LOI No. 1465 was for the benefit of Planters
Foundation, Inc., a foundation created to hold in trust the
stock ownership of PPI. The CA stated:
Appellant next claims that the collections under LOI 1465
was for the benefit of Planters Foundation, Incorporated
(PFI), a foundation created by law to hold in trust for
millions of farmers, the stock ownership of PFI on the
strength of Letter of Undertaking (LOU) issued by then
Prime Minister Cesar Virata on April 18, 1985 and affirmed
by the Secretary of Justice in an Opinion dated October
12, 1987, to wit:
"2. Upon the effective date of this Letter of Undertaking,
the Republic shall cause FPA to include in its fertilizer
pricing formula a capital recovery component, the
proceeds of which will be used initially for the purpose of
funding the unpaid portion of the outstanding capital
stock of Planters presently held in trust by Planters
Foundation, Inc. (Planters Foundation), which unpaid
capital is estimated at approximately ₱206 million
(subject to validation by Planters and Planters
Foundation) (such unpaid portion of the outstanding
capital stock of Planters being hereafter referred to as
the ‘Unpaid Capital’), and subsequently for such capital
increases as may be required for the continuing viability
of Planters.
The capital recovery component shall be in the minimum
amount of ₱10 per bag, which will be added to the price
of all domestic sales of fertilizer in the Philippines by any
importer and/or fertilizer mother company. In this
connection, the Republic hereby acknowledges that the
advances by Planters to Planters Foundation which were
applied to the payment of the Planters shares now held in
trust by Planters Foundation, have been assigned to,
among others, the Creditors. Accordingly, the Republic,
through FPA, hereby agrees to deposit the proceeds of
the capital recovery component in the special trust
account designated in the notice dated April 2, 1985,
addressed by counsel for the Creditors to Planters
Foundation. Such proceeds shall be deposited by FPA on
or before the 15th day of each month.
The capital recovery component shall continue to be
charged and collected until payment in full of (a) the
Unpaid Capital and/or (b) any shortfall in the payment of
the Subsidy Receivables, (c) any carrying cost accruing
from the date hereof on the amounts which may be
outstanding from time to time of the Unpaid Capital
and/or the Subsidy Receivables and (d) the capital
increases contemplated in paragraph 2 hereof. For the
purpose of the foregoing clause (c), the ‘carrying cost’
shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking
into account both its peso and foreign currency-
denominated obligations." (Records, pp. 42-43)
Appellant’s proposition is open to question, to say the
least. The LOU issued by then Prime Minister Virata taken
together with the Justice Secretary’s Opinion does not
preponderantly demonstrate that the collections made
were held in trust in favor of millions of farmers.
Unfortunately for appellant, in the absence of sufficient
evidence to establish its claims, this Court is constrained
to rely on what is explicitly provided in LOI 1465 – that one
of the primary aims in imposing the levy is to support the
successful rehabilitation and continued viability of PPI.18
PPI moved for reconsideration but its motion was
denied.19 It then filed the present petition with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE
COLLATERALLY ATTACKED AND BE DECREED VIA A
DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION
AND DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY
IS NOT THE VERY LIS MOTA OF THE CASE. NEITHER CAN LOI
1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH
HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE
OF ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN
THE COUNTRY, AND FOR BENEFITING A FOUNDATION
CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF
FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A
VALID LEGISLATION PURSUANT TO THE EXERCISE OF
TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY
COMPONENT WAS REMITTED TO THE GOVERNMENT, AND
BECAME GOVERNMENT FUNDS PURSUANT TO AN
EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED
DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE
PRINCIPLE OF "OPERATIVE FACT" PRIOR TO ANY
DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE
ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT
CASE.20 (Underscoring supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi
and the jurisdiction of the RTC to resolve constitutional
issues.
Fertiphil has locus standi because it suffered direct injury;
doctrine of standing is a mere procedural technicality
which may be waived.
PPI argues that Fertiphil has no locus standi to question
the constitutionality of LOI No. 1465 because it does not
have a "personal and substantial interest in the case or
will sustain direct injury as a result of its enforcement."21 It
asserts that Fertiphil did not suffer any damage from the
CRC imposition because "incidence of the levy fell on the
ultimate consumer or the farmers themselves, not on the
seller fertilizer company."22
We cannot agree. The doctrine of locus standi or the right
of appearance in a court of justice has been adequately
discussed by this Court in a catena of cases. Succinctly
put, the doctrine requires a litigant to have a material
interest in the outcome of a case. In private suits, locus
standi requires a litigant to be a "real party in interest,"
which is defined as "the party who stands to be benefited
or injured by the judgment in the suit or the party entitled
to the avails of the suit."23
In public suits, this Court recognizes the difficulty of
applying the doctrine especially when plaintiff asserts a
public right on behalf of the general public because of
conflicting public policy issues. 24 On one end, there is the
right of the ordinary citizen to petition the courts to be
freed from unlawful government intrusion and illegal
official action. At the other end, there is the public policy
precluding excessive judicial interference in official acts,
which may unnecessarily hinder the delivery of basic
public services.
In this jurisdiction, We have adopted the "direct injury test"
to determine locus standi in public suits. In People v.
Vera,25 it was held that a person who impugns the validity
of a statute must have "a personal and substantial interest
in the case such that he has sustained, or will sustain
direct injury as a result." The "direct injury test" in public
suits is similar to the "real party in interest" rule for private
suits under Section 2, Rule 3 of the 1997 Rules of Civil
Procedure.26
Recognizing that a strict application of the "direct injury"
test may hamper public interest, this Court relaxed the
requirement in cases of "transcendental importance" or
with "far reaching implications." Being a mere procedural
technicality, it has also been held that locus standi may
be waived in the public interest.27
Whether or not the complaint for collection is
characterized as a private or public suit, Fertiphil has
locus standi to file it. Fertiphil suffered a direct injury from
the enforcement of LOI No. 1465. It was required, and it
did pay, the ₱10 levy imposed for every bag of fertilizer
sold on the domestic market. It may be true that Fertiphil
has passed some or all of the levy to the ultimate
consumer, but that does not disqualify it from attacking
the constitutionality of the LOI or from seeking a refund.
As seller, it bore the ultimate burden of paying the levy. It
faced the possibility of severe sanctions for failure to pay
the levy. The fact of payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement
of the LOI because it was compelled to factor in its
product the levy. The levy certainly rendered the fertilizer
products of Fertiphil and other domestic sellers much
more expensive. The harm to their business consists not
only in fewer clients because of the increased price, but
also in adopting alternative corporate strategies to meet
the demands of LOI No. 1465. Fertiphil and other fertilizer
sellers may have shouldered all or part of the levy just to
be competitive in the market. The harm occasioned on
the business of Fertiphil is sufficient injury for purposes of
locus standi.
Even assuming arguendo that there is no direct injury, We
find that the liberal policy consistently adopted by this
Court on locus standi must apply. The issues raised by
Fertiphil are of paramount public importance. It involves
not only the constitutionality of a tax law but, more
importantly, the use of taxes for public purpose. Former
President Marcos issued LOI No. 1465 with the intention of
rehabilitating an ailing private company. This is clear from
the text of the LOI. PPI is expressly named in the LOI as the
direct beneficiary of the levy. Worse, the levy was made
dependent and conditional upon PPI becoming
financially viable. The LOI provided that "the capital
contribution shall be collected until adequate capital is
raised to make PPI viable."
The constitutionality of the levy is already in doubt on a
plain reading of the statute. It is Our constitutional duty to
squarely resolve the issue as the final arbiter of all
justiciable controversies. The doctrine of standing, being
a mere procedural technicality, should be waived, if at
all, to adequately thresh out an important constitutional
issue.
RTC may resolve constitutional issues; the constitutional
issue was adequately raised in the complaint; it is the lis
mota of the case.
PPI insists that the RTC and the CA erred in ruling on the
constitutionality of the LOI. It asserts that the
constitutionality of the LOI cannot be collaterally
attacked in a complaint for collection.28 Alternatively, the
resolution of the constitutional issue is not necessary for a
determination of the complaint for collection.29
Fertiphil counters that the constitutionality of the LOI was
adequately pleaded in its complaint. It claims that the
constitutionality of LOI No. 1465 is the very lis mota of the
case because the trial court cannot determine its claim
without resolving the issue.30
It is settled that the RTC has jurisdiction to resolve the
constitutionality of a statute, presidential decree or an
executive order. This is clear from Section 5, Article VIII of
the 1987 Constitution, which provides:
SECTION 5. The Supreme Court shall have the following
powers:
xxxx
(2) Review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the Rules of Court may
provide, final judgments and orders of lower courts in:
(a) 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. (Underscoring
supplied)
In Mirasol v. Court of Appeals,31 this Court recognized the
power of the RTC to resolve constitutional issues, thus:
On the first issue. It is settled that Regional Trial Courts
have the authority and jurisdiction to consider the
constitutionality of a statute, presidential decree, or
executive order. 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 not
only in this Court, but in all Regional Trial Courts.32
In the recent case of Equi-Asia Placement, Inc. v.
Department of Foreign Affairs,33 this Court reiterated:
There is no denying that regular courts have jurisdiction
over cases involving the validity or constitutionality of a
rule or regulation issued by administrative agencies. Such
jurisdiction, however, is not limited to the Court of
Appeals or to this Court alone for even the regional trial
courts can take cognizance of actions assailing a specific
rule or set of rules promulgated by administrative bodies.
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.34
Judicial review of official acts on the ground of
unconstitutionality may be sought or availed of through
any of the actions cognizable by courts of justice, not
necessarily in a suit for declaratory relief. Such review
may be had in criminal actions, as in People v.
Ferrer35 involving the constitutionality of the now defunct
Anti-Subversion law, or in ordinary actions, as in Krivenko
v. Register of Deeds36 involving the constitutionality of
laws prohibiting aliens from acquiring public lands. The
constitutional issue, however, (a) must be properly raised
and presented in the case, and (b) its resolution is
necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.37
Contrary to PPI’s claim, the constitutionality of LOI No.
1465 was properly and adequately raised in the
complaint for collection filed with the RTC. The pertinent
portions of the complaint allege:
6. The CRC of ₱10 per bag levied under LOI 1465 on
domestic sales of all grades of fertilizer in the Philippines,
is unlawful, unjust, uncalled for, unreasonable, inequitable
and oppressive because:
xxxx
(c) It favors only one private domestic corporation, i.e.,
defendant PPPI, and imposed at the expense and
disadvantage of the other fertilizer importers/distributors
who were themselves in tight business situation and were
then exerting all efforts and maximizing management
and marketing skills to remain viable;
xxxx
(e) It was a glaring example of crony capitalism, a forced
program through which the PPI, having been
presumptuously masqueraded as "the" fertilizer industry
itself, was the sole and anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special
assessment and its imposition is tantamount to illegal
exaction amounting to a denial of due process since the
persons of entities which had to bear the burden of
paying the CRC derived no benefit therefrom; that on
the contrary it was used by PPI in trying to regain its
former despicable monopoly of the fertilizer industry to
the detriment of other distributors and
importers.38 (Underscoring supplied)
The constitutionality of LOI No. 1465 is also the very lis
mota of the complaint for collection. Fertiphil filed the
complaint to compel PPI to refund the levies paid under
the statute on the ground that the law imposing the levy
is unconstitutional. The thesis is that an unconstitutional
law is void. It has no legal effect. Being void, Fertiphil had
no legal obligation to pay the levy. Necessarily, all levies
duly paid pursuant to an unconstitutional law should be
refunded under the civil code principle against unjust
enrichment. The refund is a mere consequence of the
law being declared unconstitutional. The RTC surely
cannot order PPI to refund Fertiphil if it does not declare
the LOI unconstitutional. It is the unconstitutionality of the
LOI which triggers the refund. The issue of constitutionality
is the very lis mota of the complaint with the RTC.
The ₱10 levy under LOI No. 1465 is an exercise of the
power of taxation.
At any rate, the Court holds that the RTC and the CA did
not err in ruling against the constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the
police power or the power of taxation. It claims that the
LOI was implemented for the purpose of assuring the
fertilizer supply and distribution in the country and for
benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional because
it was enacted to give benefit to a private company. The
levy was imposed to pay the corporate debt of PPI.
Fertiphil also argues that, even if the LOI is enacted under
the police power, it is still unconstitutional because it did
not promote the general welfare of the people or public
interest.
Police power and the power of taxation are inherent
powers of the State. These powers are distinct and have
different tests for validity. Police power is the power of the
State to enact legislation that may interfere with personal
liberty or property in order to promote the general
welfare,39 while the power of taxation is the power to levy
taxes to be used for public purpose. The main purpose of
police power is the regulation of a behavior or conduct,
while taxation is revenue generation. The "lawful subjects"
and "lawful means" tests are used to determine the
validity of a law enacted under the police power.40 The
power of taxation, on the other hand, is circumscribed by
inherent and constitutional limitations.
We agree with the RTC that the imposition of the levy was
an exercise by the State of its taxation power. While it is
true that the power of taxation can be used as an
implement of police power,41 the primary purpose of the
levy is revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called
a tax.42
In Philippine Airlines, Inc. v. Edu,43 it was held that the
imposition of a vehicle registration fee is not an exercise
by the State of its police power, but of its taxation power,
thus:
It is clear from the provisions of Section 73 of
Commonwealth Act 123 and Section 61 of the Land
Transportation and Traffic Code that the legislative intent
and purpose behind the law requiring owners of vehicles
to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a
much lesser degree, pay for the operating expenses of
the administering agency. x x x Fees may be properly
regarded as taxes even though they also serve as an
instrument of regulation.
Taxation may be made the implement of the state's
police power (Lutz v. Araneta, 98 Phil. 148). If the purpose
is primarily revenue, or if revenue is, at least, one of the
real and substantial purposes, then the exaction is
properly called a tax. Such is the case of motor vehicle
registration fees. The same provision appears as Section
59(b) in the Land Transportation Code. It is patent
therefrom that the legislators had in mind a regulatory tax
as the law refers to the imposition on the registration,
operation or ownership of a motor vehicle as a "tax or
fee." x x x Simply put, if the exaction under Rep. Act 4136
were merely a regulatory fee, the imposition in Rep. Act
5448 need not be an "additional" tax. Rep. Act 4136 also
speaks of other "fees" such as the special permit fees for
certain types of motor vehicles (Sec. 10) and additional
fees for change of registration (Sec. 11). These are not to
be understood as taxes because such fees are very
minimal to be revenue-raising. Thus, they are not
mentioned by Sec. 59(b) of the Code as taxes like the
motor vehicle registration fee and chauffeurs’ license fee.
Such fees are to go into the expenditures of the Land
Transportation Commission as provided for in the last
proviso of Sec. 61.44 (Underscoring supplied)
The ₱10 levy under LOI No. 1465 is too excessive to serve
a mere regulatory purpose. The levy, no doubt, was a big
burden on the seller or the ultimate consumer. It
increased the price of a bag of fertilizer by as much as
five percent.45 A plain reading of the LOI also supports the
conclusion that the levy was for revenue generation. The
LOI expressly provided that the levy was imposed "until
adequate capital is raised to make PPI viable."
Taxes are exacted only for a public purpose. The ₱10 levy
is unconstitutional because it was not for a public
purpose. The levy was imposed to give undue benefit to
PPI.
An inherent limitation on the power of taxation is public
purpose. Taxes are exacted only for a public purpose.
They cannot be used for purely private purposes or for
the exclusive benefit of private persons.46 The reason for
this is simple. The power to tax exists for the general
welfare; hence, implicit in its power is the limitation that it
should be used only for a public purpose. It would be a
robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States
case bluntly put it: "To lay with one hand, the power of
the government on the property of the citizen, and with
the other to bestow it upon favored individuals to aid
private enterprises and build up private fortunes, is
nonetheless a robbery because it is done under the forms
of law and is called taxation."47
The term "public purpose" is not defined. It is an elastic
concept that can be hammered to fit modern standards.
Jurisprudence states that "public purpose" should be
given a broad interpretation. It does not only pertain to
those purposes which are traditionally viewed as
essentially government functions, such as building roads
and delivery of basic services, but also includes those
purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal
settlers, low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public
purpose are continually expanding in light of the
expansion of government functions, the inherent
requirement that taxes can only be exacted for a public
purpose still stands. Public purpose is the heart of a tax
law. When a tax law is only a mask to exact funds from
the public when its true intent is to give undue benefit
and advantage to a private enterprise, that law will not
satisfy the requirement of "public purpose."
The purpose of a law is evident from its text or inferable
from other secondary sources. Here, We agree with the
RTC and that CA that the levy imposed under LOI No.
1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed
to benefit PPI, a private company. The purpose is explicit
from Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to
include in its fertilizer pricing formula a capital
contribution component of not less than ₱10 per bag. This
capital contribution shall be collected until adequate
capital is raised to make PPI viable. Such capital
contribution shall be applied by FPA to all domestic sales
of fertilizers in the Philippines.48 (Underscoring supplied)
It is a basic rule of statutory construction that the text of a
statute should be given a literal meaning. In this case, the
text of the LOI is plain that the levy was imposed in order
to raise capital for PPI. The framers of the LOI did not even
hide the insidious purpose of the law. They were cavalier
enough to name PPI as the ultimate beneficiary of the
taxes levied under the LOI. We find it utterly repulsive that
a tax law would expressly name a private company as
the ultimate beneficiary of the taxes to be levied from the
public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the ₱10
levy was conditional and dependent upon PPI becoming
financially "viable." This suggests that the levy was
actually imposed to benefit PPI. The LOI notably does not
fix a maximum amount when PPI is deemed financially
"viable." Worse, the liability of Fertiphil and other domestic
sellers of fertilizer to pay the levy is made indefinite. They
are required to continuously pay the levy until adequate
capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under
the LOI were directly remitted and deposited by FPA to
Far East Bank and Trust Company, the depositary bank of
PPI.49 This proves that PPI benefited from the LOI. It is also
proves that the main purpose of the law was to give
undue benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of
PPI. A reading of the Letter of Understanding50 dated
May 18, 1985 signed by then Prime Minister Cesar Virata
reveals that PPI was in deep financial problem because
of its huge corporate debts. There were pending petitions
for rehabilitation against PPI before the Securities and
Exchange Commission. The government guaranteed
payment of PPI’s debts to its foreign creditors. To fund the
payment, President Marcos issued LOI No. 1465. The
pertinent portions of the letter of understanding read:
Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
May 18, 1985
TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE "CREDITORS")
OF PLANTERS PRODUCTS, INC. ("PLANTERS")
Gentlemen:
This has reference to Planters which is the principal
importer and distributor of fertilizer, pesticides and
agricultural chemicals in the Philippines. As regards
Planters, the Philippine Government confirms its
awareness of the following: (1) that Planters has
outstanding obligations in foreign currency and/or pesos,
to the Creditors, (2) that Planters is currently experiencing
financial difficulties, and (3) that there are presently
pending with the Securities and Exchange Commission of
the Philippines a petition filed at Planters’ own behest for
the suspension of payment of all its obligations, and a
separate petition filed by Manufacturers Hanover Trust
Company, Manila Offshore Branch for the appointment
of a rehabilitation receiver for Planters.
In connection with the foregoing, the Republic of the
Philippines (the "Republic") confirms that it considers and
continues to consider Planters as a major fertilizer
distributor. Accordingly, for and in consideration of your
expressed willingness to consider and participate in the
effort to rehabilitate Planters, the Republic hereby
manifests its full and unqualified support of the successful
rehabilitation and continuing viability of Planters, and to
that end, hereby binds and obligates itself to the creditors
and Planters, as follows:
xxxx
2. Upon the effective date of this Letter of Undertaking,
the Republic shall cause FPA to include in its fertilizer
pricing formula a capital recovery component, the
proceeds of which will be used initially for the purpose of
funding the unpaid portion of the outstanding capital
stock of Planters presently held in trust by Planters
Foundation, Inc. ("Planters Foundation"), which unpaid
capital is estimated at approximately ₱206 million
(subject to validation by Planters and Planters
Foundation) such unpaid portion of the outstanding
capital stock of Planters being hereafter referred to as
the "Unpaid Capital"), and subsequently for such capital
increases as may be required for the continuing viability
of Planters.
xxxx
The capital recovery component shall continue to be
charged and collected until payment in full of (a) the
Unpaid Capital and/or (b) any shortfall in the payment of
the Subsidy Receivables, (c) any carrying cost accruing
from the date hereof on the amounts which may be
outstanding from time to time of the Unpaid Capital
and/or the Subsidy Receivables, and (d) the capital
increases contemplated in paragraph 2 hereof. For the
purpose of the foregoing clause (c), the "carrying cost"
shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking
into account both its peso and foreign currency-
denominated obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance51
It is clear from the Letter of Understanding that the levy
was imposed precisely to pay the corporate debts of PPI.
We cannot agree with PPI that the levy was imposed to
ensure the stability of the fertilizer industry in the country.
The letter of understanding and the plain text of the LOI
clearly indicate that the levy was exacted for the benefit
of a private corporation.
All told, the RTC and the CA did not err in holding that the
levy imposed under LOI No. 1465 was not for a public
purpose. LOI No. 1465 failed to comply with the public
purpose requirement for tax laws.
The LOI is still unconstitutional even if enacted under the
police power; it did not promote public interest.
Even if We consider LOI No. 1695 enacted under the
police power of the State, it would still be invalid for
failing to comply with the test of "lawful subjects" and
"lawful means." Jurisprudence states the test as follows:
(1) the interest of the public generally, as distinguished
from those of particular class, requires its exercise; and (2)
the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly
oppressive upon individuals.52
For the same reasons as discussed, LOI No. 1695 is invalid
because it did not promote public interest. The law was
enacted to give undue advantage to a private
corporation. We quote with approval the CA
ratiocination on this point, thus:
It is upon applying this established tests that We sustain
the trial court’s holding LOI 1465
unconstitutional.1awphil To be sure, ensuring the
continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest.
However, the method by which LOI 1465 sought to
achieve this is by no means a measure that will promote
the public welfare. The government’s commitment to
support the successful rehabilitation and continued
viability of PPI, a private corporation, is an unmistakable
attempt to mask the subject statute’s impartiality. There is
no way to treat the self-interest of a favored entity, like
PPI, as identical with the general interest of the country’s
farmers or even the Filipino people in general. Well to
stress, substantive due process exacts fairness and equal
protection disallows distinction where none is
needed. When a statute’s public purpose is spoiled by
private interest, the use of police power becomes a
travesty which must be struck down for being an arbitrary
exercise of government power.To rule in favor of
appellant would contravene the general principle that
revenues derived from taxes cannot be used for purely
private purposes or for the exclusive benefit of private
individuals. (Underscoring supplied)
doctrine of operative fact, which provides that an
unconstitutional law has an effect before being declared
unconstitutional. PPI wants to retain the levies paid under
LOI No. 1465 even if it is subsequently declared to be
unconstitutional.
We cannot agree. It is settled that no question, issue or
argument will be entertained on appeal, unless it has
been raised in the court a quo.53 PPI did not raise the
applicability of the doctrine of operative fact with the
RTC and the CA. It cannot belatedly raise the issue with
Us in order to extricate itself from the dire effects of an
unconstitutional law.
At any rate, We find the doctrine inapplicable. The
general rule is that an unconstitutional law is void. It
produces no rights, imposes no duties and affords no
protection. It has no legal effect. It is, in legal
contemplation, inoperative as if it has not been
passed.54 Being void, Fertiphil is not required to pay the
levy. All levies paid should be refunded in accordance
with the general civil code principle against unjust
enrichment. The general rule is supported by Article 7 of
the Civil Code, which provides:
ART. 7. Laws are repealed only by subsequent ones, and
their violation or non-observance shall not be excused by
disuse or custom or practice to the contrary.
When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall
govern.
The doctrine of operative fact, as an exception to the
general rule, only applies as a matter of equity and fair
play.55It nullifies the effects of an unconstitutional law by
recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact
and may have consequences which cannot always be
ignored. The past cannot always be erased by a new
judicial declaration.56
The doctrine is applicable when a declaration of
unconstitutionality will impose an undue burden on those
who have relied on the invalid law. Thus, it was applied to
a criminal case when a declaration of unconstitutionality
would put the accused in double jeopardy57 or would put
in limbo the acts done by a municipality in reliance upon
a law creating it.58
Here, We do not find anything iniquitous in ordering PPI to
refund the amounts paid by Fertiphil under LOI No. 1465.
It unduly benefited from the levy. It was proven during the
trial that the levies paid were remitted and deposited to
its bank account. Quite the reverse, it would be
inequitable and unjust not to order a refund. To do so
would unjustly enrich PPI at the expense of Fertiphil.
Article 22 of the Civil Code explicitly provides that "every
person who, through an act of performance by another
comes into possession of something at the expense of the
latter without just or legal ground shall return the same to
him." We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI
must refund the amounts paid by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals
Decision dated November 28, 2003 is AFFIRMED.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:

CONSUELO YNARES-SANTIAGO
The general rule is that an unconstitutional law is void; the
Associate Justice
doctrine of operative fact is inapplicable.
Chairperson

PPI also argues that Fertiphil cannot seek a refund even if

LOI No. 1465 is declared unconstitutional. It banks on the
 MA. ALICIA AUSTRIA- MINITA V. CHICO- On August 27, 1986, respondent corporation received a
MARTINEZ NAZARIO letter dated August 15, 1986 from petitioner assessing
Associate Justice Associate Justice respondent several deficiency taxes. The assessed
deficiency internal revenue taxes, inclusive of surcharge
and interest, were as follows:
ANTONIO EDUARDO B. NACHURA
Associate Justice
I. DEFICIENCY INCOME TAX
ATTESTATION FY ended March 31, 1985
Undeclared gross income (Philphos and NDC
I attest that the conclusions in the above Decision had construction projects) P967,269,8
been reached in consultation before the case was
Less: Cost and expenses (50%) 483,634,90
assigned to the writer of the opinion of the Court’s
Division. Net undeclared income 483,634,90
Income tax due thereon 169,272,21
CONSUELO YNARES-SANTIAGO
Add: 50% surcharge 84,636,108
Associate Justice
Chairperson 20% int. p.a.fr. 7-15-85 to 8-15-86 36,675,646
TOTAL AMOUNT DUE P290,583,9
CERTIFIC ATI ON II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
FY ended March 31, 1985
Pursuant to Section 13, Article VIII of the Constitution and
the Division Chairperson’s Attestation, I certify that the Undeclared gross income from Philphos and
conclusions in the above Decision had been reached in NDC construction projects P483,634,9
consultation before the case was assigned to the writer Less: Income tax thereon 169,272,21
of the opinion of the Court’s Division.
Amount subject to Tax 314,362,68
REYNATO S. PUNO Tax due thereon 47,154,403
Chief Justice Add: 50% surcharge 23,577,201
20% int. p.a.fr. 4-26-85 to 8-15-86 12,305,360
G.R. No. 137377 December 18, 2001
TOTAL AMOUNT DUE P83,036,96
COMMISSIONER OF INTERNAL REVENUE, petitioner, III. DEFICIENCY CONTRACTOR'S TAX
vs. FY ended March 31, 1985
MARUBENI CORPORATION, respondent.
Undeclared gross receipts/gross income from
Philphos and NDC construction projects P967,269,8
PUNO, J.:
Contractor's tax due thereon (4%) 38,690,792
In this petition for review, the Commissioner of Internal Add: 50% surcharge for non-declaration 19,345,396
Revenue assails the decision dated January 15, 1999 of
20% surcharge for late payment 9,672,698.0
the Court of Appeals in CA-G.R. SP No. 42518 which
affirmed the decision dated July 29, 1996 of the Court of Sub-total 67,708,886
Tax Appeals in CTA Case No. 4109. The tax court ordered Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 17,854,739
the Commissioner of Internal Revenue to desist from
collecting the 1985 deficiency income, branch profit TOTAL AMOUNT DUE P85,563,62
remittance and contractor's taxes from Marubeni IV. DEFICIENCY COMMERCIAL BROKER'S TAX
Corporation after finding the latter to have properly
FY ended March 31, 1985
availed of the tax amnesty under Executive Orders Nos.
41 and 64, as amended. Undeclared share from commission income
(denominated as "subsidy from Home Office") P24,683,11
Respondent Marubeni Corporation is a foreign Tax due thereon 1,628,569.0
corporation organized and existing under the laws of
Add: 50% surcharge for non-declaration 814,284.50
Japan. It is engaged in general import and export
trading, financing and the construction business. It is duly 20% surcharge for late payment 407,142.2
registered to engage in such business in the Philippines Sub-total 2,849,995.7
and maintains a branch office in Manila.
Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 751,539.9
Sometime in November 1985, petitioner Commissioner of TOTAL AMOUNT DUE P3,600,5
Internal Revenue issued a letter of authority to examine
the books of accounts of the Manila branch office of The 50% surcharge was imposed for your client's failure to
respondent corporation for the fiscal year ending March report for tax purposes the aforesaid taxable revenues
1985. In the course of the examination, petitioner found while the 25% surcharge was imposed because of your
respondent to have undeclared income from two (2) client's failure to pay on time the above deficiency
contracts in the Philippines, both of which were percentage taxes.
completed in 1984. One of the contracts was with the
National Development Company (NDC) in connection
xxx xxx xxx"1
with the construction and installation of a wharf/port
complex at the Leyte Industrial Development Estate in the
municipality of Isabel, province of Leyte. The other Petitioner found that the NDC and Philphos contracts
contract was with the Philippine Phosphate Fertilizer were made on a "turn-key" basis and that the gross
Corporation (Philphos) for the construction of an income from the two projects amounted to
ammonia storage complex also at the Leyte Industrial P967,269,811.14. Each contract was for a piece of work
Development Estate. and since the projects called for the construction and
installation of facilities in the Philippines, the entire income
therefrom constituted income from Philippine sources,
On March 1, 1986, petitioner's revenue examiners
hence, subject to internal revenue taxes. The assessment
recommended an assessment for deficiency income,
letter further stated that the same was petitioner's final
branch profit remittance, contractor's and commercial
decision and that if respondent disagreed with it,
broker's taxes. Respondent questioned this assessment in
respondent may file an appeal with the Court of Tax
a letter dated June 5, 1986.
Appeals within thirty (30) days from receipt of the
assessment.
On September 26, 1986, respondent filed two (2) petitions
for review with the Court of Tax Appeals. The first petition,
CTA Case No. 4109, questioned the deficiency income,
branch profit remittance and contractor's tax
assessments in petitioner's assessment letter. The second,
CTA Case No. 4110, questioned the deficiency
commercial broker's assessment in the same letter.
Earlier, on August 2, 1986, Executive Order (E.O.) No.
412 declaring a one-time amnesty covering unpaid
income taxes for the years 1981 to 1985 was issued. Under
this E.O., a taxpayer who wished to avail of the income
tax amnesty should, on or before October 31, 1986: (a)
file a sworn statement declaring his net worth as of
December 31, 1985; (b) file a certified true copy of his
statement declaring his net worth as of December 31,
1980 on record with the Bureau of Internal Revenue (BIR),
or if no such record exists, file a statement of said net
worth subject to verification by the BIR; and (c) file a
return and pay a tax equivalent to ten per cent (10%) of
the increase in net worth from December 31, 1980 to
December 31, 1985.
In accordance with the terms of E.O. No. 41, respondent
filed its tax amnesty return dated October 30, 1986 and
attached thereto its sworn statement of assets and
liabilities and net worth as of Fiscal Year (FY) 1981 and FY
1986. The return was received by the BIR on November 3,
1986 and respondent paid the amount of P2,891,273.00
equivalent to ten percent (10%) of its net worth increase
between 1981 and 1986.
The period of the amnesty in E.O. No. 41 was later
extended from October 31, 1986 to December 5, 1986 by
E.O. No. 54 dated November 4, 1986.
On November 17, 1986, the scope and coverage of E.O.
No. 41 was expanded by Executive Order (E.O.) No. 64. In
addition to the income tax amnesty granted by E.O. No.
41 for the years 1981 to 1985, E.O. No. 64 3 included
estate and donor's taxes under Title III and the tax on
business under Chapter II, Title V of the National Internal
Revenue Code, also covering the years 1981 to 1985. E.O.
No. 64 further provided that the immunities and privileges
under E.O. No. 41 were extended to the foregoing tax
liabilities, and the period within which the taxpayer could
avail of the amnesty was extended to December 15,
1986. Those taxpayers who already filed their amnesty
return under E.O. No. 41, as amended, could avail
themselves of the benefits, immunities and privileges
under the new E.O. by filing an amended return and
paying an additional 5% on the increase in net worth to
cover business, estate and donor's tax liabilities.
The period of amnesty under E.O. No. 64 was extended to
January 31, 1987 by E.O No. 95 dated December 17,
1986.
On December 15, 1986, respondent filed a supplemental
tax amnesty return under the benefit of E.O. No. 64 and
paid a further amount of P1,445,637.00 to the BIR
equivalent to five percent (5%) of the increase of its net
worth between 1981 and 1986.
On July 29, 1996, almost ten (10) years after filing of the
case, the Court of Tax Appeals rendered a decision in
CTA Case No. 4109. The tax court found that respondent
had properly availed of the tax amnesty under E.O. Nos.
41 and 64 and declared the deficiency taxes subject of
said case as deemed cancelled and withdrawn. The
Court of Tax Appeals disposed of as follows:
"WHEREFORE, the respondent Commissioner of
Internal Revenue is hereby ORDERED to DESIST
from collecting the 1985 deficiency taxes it had
assessed against petitioner and the same are
deemed considered [sic] CANCELLED and
WITHDRAWN by reason of the proper availment
by petitioner of the amnesty under Executive
Order No. 41, as amended."4
Petitioner challenged the decision of the tax court by
filing CA-G.R. SP No. 42518 with the Court of Appeals.
On January 15, 1999, the Court of Appeals dismissed the
petition and affirmed the decision of the Court of Tax
Appeals. Hence, this recourse.
Before us, petitioner raises the following issues:
"(1) Whether or not the Court of Appeals erred in
affirming the Decision of the Court of Tax
Appeals which ruled that herein respondent's
deficiency tax liabilities were extinguished upon
respondent's availment of tax amnesty under
Executive Orders Nos. 41 and 64.
(2) Whether or not respondent is liable to pay the
income, branch profit remittance, and
contractor's taxes assessed by petitioner."5
The main controversy in this case lies in the interpretation
of the exception to the amnesty coverage of E.O. Nos. 41
and 64. There are three (3) types of taxes involved herein
— income tax, branch profit remittance tax and
contractor's tax. These taxes are covered by the
amnesties granted by E.O. Nos. 41 and 64. Petitioner
claims, however, that respondent is disqualified from
availing of the said amnesties because the latter falls
under the exception in Section 4 (b) of E.O. No. 41.
Section 4 of E.O. No. 41 enumerates which taxpayers
cannot avail of the amnesty granted thereunder, viz:
"Sec. 4. Exceptions. — The following taxpayers
may not avail themselves of the amnesty herein
granted:
a) Those falling under the provisions of Executive
Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in
Court as of the effectivity hereof;
c) Those with criminal cases involving violations of
the income tax law already filed in court as of
the effectivity hereof;
d) Those that have withholding tax liabilities
under the National Internal Revenue Code, as
amended, insofar as the said liabilities are
concerned;
e) Those with tax cases pending investigation by
the Bureau of Internal Revenue as of the
effectivity hereof as a result of information
furnished under Section 316 of the National
Internal Revenue Code, as amended;
f) Those with pending cases involving
unexplained or unlawfully acquired wealth
before the Sandiganbayan;
g) Those liable under Title Seven, Chapter Three
(Frauds, Illegal Exactions and Transactions) and
Chapter Four (Malversation of Public Funds and
Property) of the Revised Penal Code, as
amended."
Petitioner argues that at the time respondent filed for
income tax amnesty on October 30, 1986, CTA Case No.
4109 had already been filed and was pending; before
the Court of Tax Appeals. Respondent therefore fell under
the exception in Section 4 (b) of E.O. No. 41.
Petitioner's claim cannot be sustained. Section 4 (b) of
E.O. No. 41 is very clear and unambiguous. It excepts
from income tax amnesty those taxpayers "with income
tax cases already filed in court as of the effectivity
hereof." The point of reference is the date of effectivity of
E.O. No. 41. The filing of income tax cases in court must
have been made before and as of the date
of effectivity of E.O. No. 41. Thus, for a taxpayer not to be
disqualified under Section 4 (b) there must have been no
income tax cases filed in court against him when E.O. No.
41 took effect. This is regardless of when the taxpayer
filed for income tax amnesty, provided of course he files it
on or before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No.
4109 questioning the 1985 deficiency income, branch
profit remittance and contractor's tax assessments was
filed by respondent with the Court of Tax Appeals on
September 26, 1986. When E.O. No. 41 became effective
on August 22, 1986, CTA Case No. 4109 had not yet been
filed in court. Respondent corporation did not fall under
the said exception in Section 4 (b), hence, respondent
was not disqualified from availing of the amnesty for
income tax under E.O. No. 41.
The same ruling also applies to the deficiency branch
profit remittance tax assessment. A branch profit
remittance tax is defined and imposed in Section 24 (b)
(2) (ii), Title II, Chapter III of the National Internal Revenue
Code.6 In the tax code, this tax falls under Title II on
Income Tax. It is a tax on income. Respondent therefore
did not fall under the exception in Section 4 (b) when it
filed for amnesty of its deficiency branch profit
remittance tax assessment.
The difficulty herein is with respect to the contractor's tax
assessment and respondent's availment of the amnesty
under E.O. No. 64. E.O. No. 64 expanded the coverage of
E.O. No. 41 by including estate and donor's taxes and tax
on business. Estate and donor's taxes fall under Title III of
the Tax Code while business taxes fall under Chapter II,
Title V of the same. The contractor's tax is provided in
Section 205, Chapter II, Title V of the Tax Code; it is
defined and imposed under the title on business taxes,
and is therefore a tax on business.7
When E.O. No. 64 took effect on November 17, 1986, it
did not provide for exceptions to the coverage of the
amnesty for business, estate and donor's taxes. Instead,
Section 8 of E.O. No. 64 provided that:
"Section 8. The provisions of Executive Orders Nos.
41 and 54 which are not contrary to or
inconsistent with this amendatory Executive
Order shall remain in full force and effect."
By virtue of Section 8 as afore-quoted, the provisions of
E.O. No. 41 not contrary to or inconsistent with the
amendatory act were reenacted in E.O. No. 64. Thus,
Section 4 of E.O. No. 41 on the exceptions to amnesty
coverage also applied to E.O. No. 64. With respect to
Section 4 (b) in particular, this provision excepts from tax
amnesty coverage a taxpayer who has "income tax
cases already filed in court as of the effectivity hereof." As
to what Executive Order the exception refers to,
respondent argues that because of the words "income"
and "hereof," they refer to Executive Order No. 41.8
In view of the amendment introduced by E.O. No. 64,
Section 4 (b) cannot be construed to refer to E.O. No. 41
and its date of effectivity. The general rule is that an
amendatory act operates prospectively.9 While an
amendment is generally construed as becoming a part
of the original act as if it had always been contained
therein,10 it may not be given a retroactive effect unless it
is so provided expressly or by necessary implication and
no vested right or obligations of contract are thereby
impaired.11
There is nothing in E.O. No. 64 that provides that it should
retroact to the date of effectivity of E.O. No. 41, the
original issuance. Neither is it necessarily implied from E.O.
No. 64 that it or any of its provisions should apply
retroactively. Executive Order No. 64 is a substantive
amendment of E.O. No. 41. It does not merely change
provisions in E.O. No. 41. It supplements the original act by
adding other taxes not covered in the first.12 It has been
held that where a statute amending a tax law is silent as
to whether it operates retroactively, the amendment will
not be given a retroactive effect so as to subject to tax
past transactions not subject to tax under the original
act.13 In an amendatory act, every case of doubt must
be resolved against its retroactive effect.14
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances.
A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law.15 It partakes of an
absolute forgiveness or waiver by the government of its
right to collect what is due it and to give tax evaders who
wish to relent a chance to start with a clean slate.16 A tax
amnesty, much like a tax exemption, is never favored nor
presumed in law.17 If granted, the terms of the amnesty,
like that of a tax exemption, must be construed strictly
against the taxpayer and liberally in favor of the taxing
authority.18 For the right of taxation is inherent in
government. The State cannot strip itself of the most
essential power of taxation by doubtful words. He who
claims an exemption (or an amnesty) from the common
burden must justify his claim by the clearest grant of
organic or state law. It cannot be allowed to exist upon a
vague implication. If a doubt arises as to the intent of the
legislature, that doubt must be resolved in favor of the
state.19
In the instant case, the vagueness in Section 4 (b)
brought about by E.O. No. 64 should therefore be
construed strictly against the taxpayer. The term "income
tax cases" should be read as to refer to estate and
donor's taxes and taxes on business while the word
"hereof," to E.O. No. 64. Since Executive Order No. 64 took
effect on November 17, 1986, consequently, insofar as
the taxes in E.O. No. 64 are concerned, the date of
effectivity referred to in Section 4 (b) of E.O. No. 41 should
be November 17, 1986.
Respondent filed CTA Case No. 4109 on September 26,
1986. When E.O. No. 64 took effect on November 17,
1986, CTA Case No. 4109 was already filed and pending
in court. By the time respondent filed its supplementary
tax amnesty return on December 15, 1986, respondent
already fell under the exception in Section 4 (b) of E.O.
Nos. 41 and 64 and was disqualified from availing of the
business tax amnesty granted therein.
It is respondent's other argument that assuming it did not
validly avail of the amnesty under the two Executive
Orders, it is still not liable for the deficiency contractor's
tax because the income from the projects came from the
"Offshore Portion" of the contracts. The two contracts
were divided into two parts, i.e., the Onshore Portion and
the Offshore Portion. All materials and equipment in the
contract under the "Offshore Portion" were manufactured
and completed in Japan, not in the Philippines, and are
therefore not subject to Philippine taxes.
Before going into respondent's arguments, it is necessary
to discuss the background of the two contracts, examine
their pertinent provisions and implementation.
The NDC and Philphos are two government corporations.
In 1980, the NDC, as the corporate investment arm of the
Philippine Government, established the Philphos to
engage in the large-scale manufacture of phosphatic
fertilizer for the local and foreign markets.20 The Philphos
plant complex which was envisioned to be the largest
phosphatic fertilizer operation in Asia, and among the
largest in the world, covered an area of 180 hectares
within the 435-hectare Leyte Industrial Development
Estate in the municipality of Isabel, province of Leyte.
In 1982, the NDC opened for public bidding a project to
construct and install a modern, reliable, efficient and
integrated wharf/port complex at the Leyte Industrial
Development Estate. The wharf/port complex was
intended to be one of the major facilities for the industrial
plants at the Leyte Industrial Development Estate. It was
to be specifically adapted to the site for the handling of
phosphate rock, bagged or bulk fertilizer products, liquid
materials and other products of Philphos, the Philippine
Associated Smelting and Refining Corporation
(Pasar),21 and other industrial plants within the Estate. The
bidding was participated in by Marubeni Head Office in
Japan.
Marubeni, Japan pre-qualified and on March 22, 1982,
the NDC and respondent entered into an agreement
entitled "Turn-Key Contract for Leyte Industrial Estate Port
Development Project Between National Development
Company and Marubeni Corporation."22 The Port
Development Project would consist of a wharf, berths,
causeways, mechanical and liquids unloading and
loading systems, fuel oil depot, utilities systems, storage
and service buildings, offsite facilities, harbor service
vessels, navigational aid system, fire-fighting system, area
lighting, mobile equipment, spare parts and other related
facilities.23 The scope of the works under the contract
covered turn-key supply, which included grants of
licenses and the transfer of technology and know-
how,24 and:
". . . the design and engineering, supply and
delivery, construction, erection and installation,
supervision, direction and control of testing and
commissioning of the Wharf-Port Complex as set
forth in Annex I of this Contract, as well as the
coordination of tie-ins at boundaries and
schedule of the use of a part or the whole of the
Wharf/Port Complex through the Owner, with the
design and construction of other facilities around
the site. The scope of works shall also include any
activity, work and supply necessary for,
incidental to or appropriate under present
international industrial port practice, for the
timely and successful implementation of the
object of this Contract, whether or not expressly
referred to in the abovementioned Annex I."25
The contract price for the wharf/port complex was
¥12,790,389,000.00 and P44,327,940.00. In the contract,
the price in Japanese currency was broken down into
two portions: (1) the Japanese Yen Portion I; (2) the
Japanese Yen Portion II, while the price in Philippine
currency was referred to as the Philippine Pesos Portion.
The Japanese Yen Portions I and II were financed in two
(2) ways: (a) by yen credit loan provided by the Overseas
Economic Cooperation Fund (OECF); and (b) by
supplier's credit in favor of Marubeni from the Export-
Import Bank of Japan. The OECF is a Fund under the
Ministry of Finance of Japan extended by the Japanese
government as assistance to foreign governments to
promote economic development.26 The OECF extended
to the Philippine Government a loan of ¥7,560,000,000.00
for the Leyte Industrial Estate Port Development Project
and authorized the NDC to implement the same.27 The
other type of financing is an indirect type where the
supplier, i.e., Marubeni, obtained a loan from the Export-
Import Bank of Japan to advance payment to its sub-
contractors.28
Under the financing schemes, the Japanese Yen Portions
I and II and the Philippine Pesos Portion were further
broken down and subdivided according to the materials,
equipment and services rendered on the project. The
price breakdown and the corresponding materials,
equipment and services were contained in a list
attached as Annex III to the contract.29
A few months after execution of the NDC contract,
Philphos opened for public bidding a project to construct
and install two ammonia storage tanks in Isabel. Like the
NDC contract, it was Marubeni Head Office in Japan that
participated in and won the bidding. Thus, on May 2,
1982, Philphos and respondent corporation entered into
an agreement entitled "Turn-Key Contract for Ammonia
Storage Complex Between Philippine Phosphate Fertilizer
Corporation and Marubeni Corporation."30 The object of
the contract was to establish and place in operating
condition a modern, reliable, efficient and integrated
ammonia storage complex adapted to the site for the
receipt and storage of liquid anhydrous ammonia31 and
for the delivery of ammonia to an integrated fertilizer
plant adjacent to the storage complex and to vessels at
the dock.32 The storage complex was to consist of
ammonia storage tanks, refrigeration system, ship
unloading system, transfer pumps, ammonia heating
system, fire-fighting system, area lighting, spare parts, and
other related facilities.33 The scope of the works required
for the completion of the ammonia storage complex
covered the supply, including grants of licenses and
transfer of technology and know-how,34 and:
". . . the design and engineering, supply and
delivery, construction, erection and installation,
supervision, direction and control of testing and
commissioning of the Ammonia Storage
Complex as set forth in Annex I of this Contract,
as well as the coordination of tie-ins at
boundaries and schedule of the use of a part or
the whole of the Ammonia Storage Complex
through the Owner with the design and
construction of other facilities at and around the
Site. The scope of works shall also include any
activity, work and supply necessary for,
incidental to or appropriate under present
international industrial practice, for the timely
and successful implementation of the object of
this Contract, whether or not expressly referred to
in the abovementioned Annex I."35
The contract price for the project was ¥3,255,751,000.00
and P17,406,000.00. Like the NDC contract, the price was
divided into three portions. The price in Japanese
currency was broken down into the Japanese Yen
Portion I and Japanese Yen Portion II while the price in
Philippine currency was classified as the Philippine Pesos
Portion. Both Japanese Yen Portions I and II were
financed by supplier's credit from the Export-Import Bank
of Japan. The price stated in the three portions were
further broken down into the corresponding materials,
equipment and services required for the project and their
individual prices. Like the NDC contract, the breakdown
in the Philphos contract is contained in a list attached to
the latter as Annex III.36
The division of the price into Japanese Yen Portions I and
II and the Philippine Pesos Portion under the two
contracts corresponds to the two parts into which the
contracts were classified — the Foreign Offshore Portion
and the Philippine Onshore Portion. In both contracts, the
Japanese Yen Portion I corresponds to the Foreign
Offshore Portion.37 Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine
Onshore Portion.38
Under the Philippine Onshore Portion, respondent does
not deny its liability for the contractor's tax on the income
from the two projects. In fact respondent claims, which
petitioner has not denied, that the income it derived from
the Onshore Portion of the two projects had been
declared for tax purposes and the taxes thereon already
paid to the Philippine government.39 It is with regard to
the gross receipts from the Foreign Offshore Portion of the
two contracts that the liabilities involved in the
assessments subject of this case arose. Petitioner argues
that since the two agreements are turn-key,40 they call for
the supply of both materials and services to the client,
they are contracts for a piece of work and are indivisible.
The situs of the two projects is in the Philippines, and the
materials provided and services rendered were all done
and completed within the territorial jurisdiction of the
Philippines.41 Accordingly, respondent's entire receipts
from the contracts, including its receipts from the
Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and
materials should be subjected to contractor's tax in
accordance with the ruling in Commissioner of Internal
Revenue v. Engineering Equipment & Supply Co.42
A contractor's tax is imposed in the National Internal
Revenue Code (NIRC) as follows:
"Sec. 205. Contractors, proprietors or operators of
dockyards, and others. —A contractor's tax of
four percent of the gross receipts is hereby
 imposed on proprietors or operators of the
following business establishments and/or persons
engaged in the business of selling or rendering
the following services for a fee or compensation:
(a) General engineering, general
building and specialty contractors, as
defined in Republic Act No. 4566;
xxx xxx xxx
(q) Other independent contractors. The
term "independent contractors" includes
persons (juridical or natural) not
enumerated above (but not including
individuals subject to the occupation tax
under the Local Tax Code) whose
activity consists essentially of the sale of
all kinds of services for a fee regardless of
whether or not the performance of the
service calls for the exercise or use of the
physical or mental faculties of such
contractors or their employees. It does
not include regional or area
headquarters established in the
Philippines by multinational corporations,
including their alien executives, and
which headquarters do not earn or
derive income from the Philippines and
which act as supervisory,
communications and coordinating
centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region.
xxx xxx xxx43
Under the afore-quoted provision, an independent
contractor is a person whose activity consists essentially
of the sale of all kinds of services for a fee, regardless of
whether or not the performance of the service calls for
the exercise or use of the physical or mental faculties of
such contractors or their employees. The word
"contractor" refers to a person who, in the pursuit of
independent business, undertakes to do a specific job or
piece of work for other persons, using his own means and
methods without submitting himself to control as to the
petty details.44
A contractor's tax is a tax imposed upon the privilege of
engaging in business.45 It is generally in the nature of an
excise tax on the exercise of a privilege of selling services
or labor rather than a sale on products;46 and is directly
collectible from the person exercising the
privilege.47 Being an excise tax, it can be levied by the
taxing authority only when the acts, privileges or business
are done or performed within the jurisdiction of said
authority.48 Like property taxes, it cannot be imposed on
an occupation or privilege outside the taxing district.49
In the case at bar, it is undisputed that respondent was
an independent contractor under the terms of the two
subject contracts. Respondent, however, argues that the
work therein were not all performed in the Philippines
because some of them were completed in Japan in
accordance with the provisions of the contracts.
An examination of Annex III to the two contracts reveals
that the materials and equipment to be made and the
works and services to be performed by respondent are
indeed classified into two. The first part, entitled
"Breakdown of Japanese Yen Portion I" provides:
"Japanese Yen Portion I of the Contract Price has
been subdivided according to discrete portions
of materials and equipment which will be
shipped to Leyte as units and lots. This subdivision
of price is to be used by owner to verify invoice
for Progress Payments under Article 19.2.1 of the
Contract. The agreed subdivision of Japanese
Yen Portion I is as follows:
xxx xxx xxx50
The subdivision of Japanese Yen Portion I covers materials
and equipment while Japanese Yen Portion II and the
Philippine Pesos Portion enumerate other materials and
equipment and the construction and installation work on
the project. In other words, the supplies for the project
are listed under Portion I while labor and other supplies
are listed under Portion II and the Philippine Pesos Portion.
Mr. Takeshi Hojo, then General Manager of the Industrial
Plant Section II of the Industrial Plant Department of
Marubeni Corporation in Japan who supervised the
implementation of the two projects, testified that all the
machines and equipment listed under Japanese Yen
Portion I in Annex III were manufactured in Japan.51 The
machines and equipment were designed, engineered
and fabricated by Japanese firms sub-contracted by
Marubeni from the list of sub-contractors in the technical
appendices to each contract.52 Marubeni sub-
contracted a majority of the equipment and supplies to
Kawasaki Steel Corporation which did the design,
fabrication, engineering and manufacture
thereof;53 Yashima & Co. Ltd. which manufactured the
mobile equipment; Bridgestone which provided the
rubber fenders of the mobile equipment;54 and B.S.
Japan for the supply of radio equipment.55 The
engineering and design works made by Kawasaki Steel
Corporation included the lay-out of the plant facility and
calculation of the design in accordance with the
specifications given by respondent.56 All sub-contractors
and manufacturers are Japanese corporations and are
based in Japan and all engineering and design works
were performed in that country.57
The materials and equipment under Portion I of the NDC
Port Project is primarily composed of two (2) sets of ship
unloader and loader; several boats and mobile
equipment.58 The ship unloader unloads bags or bulk
products from the ship to the port while the ship loader
loads products from the port to the ship. The unloader
and loader are big steel structures on top of each is a
large crane and a compartment for operation of the
crane. Two sets of these equipment were completely
manufactured in Japan according to the specifications
of the project. After manufacture, they were rolled on to
a barge and transported to Isabel, Leyte.59 Upon
reaching Isabel, the unloader and loader were rolled off
the barge and pulled to the pier to the spot where they
were installed.60 Their installation simply consisted of
bolting them onto the pier.61
Like the ship unloader and loader, the three tugboats
and a line boat were completely manufactured in
Japan. The boats sailed to Isabel on their own power. The
mobile equipment, consisting of three to four sets of
tractors, cranes and dozers, trailers and forklifts, were also
manufactured and completed in Japan. They were
loaded on to a shipping vessel and unloaded at the
Isabel Port. These pieces of equipment were all on wheels
and self-propelled. Once unloaded at the port, they
were ready to be driven and perform what they were
designed to do.62
In addition to the foregoing, there are other items listed in
Japanese Yen Portion I in Annex III to the NDC contract.
These other items consist of supplies and materials for five
(5) berths, two (2) roads, a causeway, a warehouse, a
transit shed, an administration building and a security
building. Most of the materials consist of steel sheets, steel
pipes, channels and beams and other steel structures,
navigational and communication as well as electrical
equipment.63
In connection with the Philphos contract, the major
pieces of equipment supplied by respondent were the
ammonia storage tanks and refrigeration units.64 The steel
plates for the tank were manufactured and cut in Japan
according to drawings and specifications and then
shipped to Isabel. Once there, respondent's employees
put the steel plates together to form the storage tank. As
to the refrigeration units, they were completed and
assembled in Japan and thereafter shipped to Isabel. The
units were simply installed there. 65 Annex III to the
Philphos contract lists down under the Japanese Yen
Portion I the materials for the ammonia storage tank,
incidental equipment, piping facilities, electrical and
instrumental apparatus, foundation material and spare
parts.
All the materials and equipment transported to the
Philippines were inspected and tested in Japan prior to
shipment in accordance with the terms of the
contracts.66 The inspection was made by representatives
of respondent corporation, of NDC and Philphos. NDC, in
fact, contracted the services of a private consultancy
firm to verify the correctness of the tests on the machines
and equipment67 while Philphos sent a representative to
Japan to inspect the storage equipment.68
The sub-contractors of the materials and equipment
under Japanese Yen Portion I were all paid by
respondent in Japan. In his deposition upon oral
examination, Kenjiro Yamakawa, formerly the Assistant
General Manager and Manager of the Steel Plant
Marketing Department, Engineering & Construction
Division, Kawasaki Steel Corporation, testified that the
equipment and supplies for the two projects provided by
Kawasaki under Japanese Yen Portion I were paid by
Marubeni in Japan. Receipts for such payments were
duly issued by Kawasaki in Japanese and
English.69 Yashima & Co. Ltd. and B.S. Japan were likewise
paid by Marubeni in Japan.70
Between Marubeni and the two Philippine corporations,
payments for all materials and equipment under
Japanese Yen Portion I were made to Marubeni by NDC
and Philphos also in Japan. The NDC, through the
Philippine National Bank, established letters of credit in
favor of respondent through the Bank of Tokyo. The letters
of credit were financed by letters of commitment issued
by the OECF with the Bank of Tokyo. The Bank of Tokyo,
upon respondent's submission of pertinent documents,
released the amount in the letters of credit in favor of
respondent and credited the amount therein to
respondent's account within the same bank.71
Clearly, the service of "design and engineering, supply
and delivery, construction, erection and installation,
supervision, direction and control of testing and
commissioning, coordination. . . "72 of the two projects
involved two taxing jurisdictions. These acts occurred in
two countries — Japan and the Philippines. While the
construction and installation work were completed within
the Philippines, the evidence is clear that some pieces of
equipment and supplies were completely designed and
engineered in Japan. The two sets of ship unloader and
loader, the boats and mobile equipment for the NDC
project and the ammonia storage tanks and refrigeration
units were made and completed in Japan. They were
already finished products when shipped to the
Philippines. The other construction supplies listed under
the Offshore Portion such as the steel sheets, pipes and
structures, electrical and instrumental apparatus, these
were not finished products when shipped to the
Philippines. They, however, were likewise fabricated and
manufactured by the sub-contractors in Japan. All
services for the design, fabrication, engineering and
manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in
Japan. These services were rendered outside the taxing
jurisdiction of the Philippines and are therefore not
subject to contractor's tax.
Contrary to petitioner's claim, the case of Commissioner
of Internal Revenue v. Engineering Equipment & Supply
Co73 is not in point. In that case, the Court found that
Engineering Equipment, although an independent
contractor, was not engaged in the manufacture of air
conditioning units in the Philippines. Engineering
Equipment designed, supplied and installed centralized
air-conditioning systems for clients who contracted its
services. Engineering, however, did not manufacture all
the materials for the air-conditioning system. It imported
some items for the system it designed and installed.74 The
issues in that case dealt with services performed within
the local taxing jurisdiction. There was no foreign element
involved in the supply of materials and services.
With the foregoing discussion, it is unnecessary to discuss
the other issues raised by the parties.
IN VIEW WHEREOF, the petition is denied. The decision in
CA-G.R. SP No. 42518 is affirmed.
SO ORDERED.
Davide, Jr., C .J ., Kapunan, Pardo, and Ynares-Santiago,
JJ ., concur.
G.R. No. L-26379 December 27, 1969
WILLIAM C. REAGAN, ETC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Quasha, Asperilla, Blanco, Zafra and Tayag for petitioner.
Office of the Solicitor General Antonio P. Barredo,
Assistant Solicitor General Felicisimo R. Rosete, Solicitor
Lolita O. Gal-lang and Special Attorney Gamaliel H.
Mantolino for respondent.
FERNANDO, J.:
A question novel in character, the answer to which has
far-reaching implications, is raised by petitioner William C.
Reagan, at one time a civilian employee of an American
corporation providing technical assistance to the United
States Air Force in the Philippines. He would dispute the
payment of the income tax assessed on him by
respondent Commissioner of Internal Revenue on an
amount realized by him on a sale of his automobile to a
member of the United States Marine Corps, the
transaction having taken place at the Clark Field Air Base
at Pampanga. It is his contention, seriously and earnestly
expressed, that in legal contemplation the sale was
made outside Philippine territory and therefore beyond
our jurisdictional power to tax.
Such a plea, far-fetched and implausible, on its face
betraying no kinship with reality, he would justify by
invoking, mistakenly as will hereafter be more fully shown
an observation to that effect in a 1951
opinion, 1 petitioner ignoring that such utterance was
made purely as a flourish of rhetoric and by way of
emphasizing the decision reached, that the trading firm
as purchaser of army goods must respond for the sales
taxes due from an importer, as the American armed
forces being exempt could not be taxed as such under
the National Internal Revenue Code.2 Such an
assumption, inspired by the commendable aim to render
unavailing any attempt at tax evasion on the part of such
vendee, found expression anew in a 1962
decision,3 coupled with the reminder however, to render
the truth unmistakable, that "the areas covered by the
United States Military Bases are not foreign territories both
in the political and geographical sense."
As thus clarified, it is manifest that such a view amounts at
most to a legal fiction and is moreover obiter. It certainly
cannot control the resolution of the specific question that
confronts us. We declare our stand in an unequivocal
manner. The sale having taken place on what
indisputably is Philippine territory, petitioner's liability for
the income tax due as a result thereof was unavoidable.
As the Court of Tax Appeals reached a similar conclusion,
we sustain its decision now before us on appeal.
In the decision appealed from, the Court of Tax Appeals,
after stating the nature of the case, started the recital of
facts thus: "It appears that petitioner, a citizen of the
United States and an employee of Bendix Radio, Division
of Bendix Aviation Corporation, which provides technical
assistance to the United States Air Force, was assigned at
Clark Air Base, Philippines, on or about July 7, 1959 ... .
Nine (9) months thereafter and before his tour of duty
expired, petitioner imported on April 22, 1960 a tax-free
1960 Cadillac car with accessories valued at $6,443.83,
including freight, insurance and other charges."4 Then
came the following: "On July 11, 1960, more than two (2)
months after the 1960 Cadillac car was imported into the
Philippines, petitioner requested the Base Commander,
Clark Air Base, for a permit to sell the car, which was
granted provided that the sale was made to a member
of the United States Armed Forces or a citizen of the
United States employed in the U.S. military bases in the
Philippines. On the same date, July 11, 1960, petitioner
sold his car for $6,600.00 to a certain Willie Johnson, Jr.
(Private first class), United States Marine Corps, Sangley
Point, Cavite, Philippines, as shown by a Bill of Sale . . .
executed at Clark Air Base. On the same date, Pfc. Willie
(William) Johnson, Jr. sold the car to Fred Meneses for
P32,000.00 as evidenced by a deed of sale executed in
Manila."5
As a result of the transaction thus made, respondent
Commissioner of Internal Revenue, after deducting the
landed cost of the car as well as the personal exemption
to which petitioner was entitled, fixed as his net taxable
income arising from such transaction the amount of
P17,912.34, rendering him liable for income tax in the sum
of P2,979.00. After paying the sum, he sought a refund
from respondent claiming that he was exempt, but
pending action on his request for refund, he filed the
case with the Court of Tax Appeals seeking recovery of
the sum of P2,979.00 plus the legal rate of interest.
As noted in the appealed decision: "The only issue
submitted for our resolution is whether or not the said
income tax of P2,979.00 was legally collected by
respondent for petitioner."6 After discussing the legal
issues raised, primarily the contention that the Clark Air
Base "in legal contemplation, is a base outside the
Philippines" the sale therefore having taken place on
"foreign soil", the Court of Tax Appeals found nothing
objectionable in the assessment and thereafter the
payment of P2,979.00 as income tax and denied the
refund on the same. Hence, this appeal predicated on a
legal theory we cannot accept. Petitioner cannot make
out a case for reversal.
1. Resort to fundamentals is unavoidable to place things
in their proper perspective, petitioner apparently feeling
justified in his refusal to defer to basic postulates of
constitutional and international law, induced no doubt by
the weight he would accord to the observation made by
this Court in the two opinions earlier referred to. To
repeat, scant comfort, if at all is to be derived from such
an obiter dictum, one which is likewise far from reflecting
the fact as it is.
Nothing is better settled than that the Philippines being
independent and sovereign, its authority may be
exercised over its entire domain. There is no portion
thereof that is beyond its power. Within its limits, its
decrees are supreme, its commands paramount. Its laws
govern therein, and everyone to whom it applies must
submit to its terms. That is the extent of its jurisdiction, both
territorial and personal. Necessarily, likewise, it has to be
exclusive. If it were not thus, there is a diminution of its
sovereignty.
It is to be admitted that any state may, by its consent,
express or implied, submit to a restriction of its sovereign
rights. There may thus be a curtailment of what otherwise
is a power plenary in character. That is the concept of
sovereignty as auto-limitation, which, in the succinct
language of Jellinek, "is the property of a state-force due
to which it has the exclusive capacity of legal self-
determination and self-restriction."7 A state then, if it
chooses to, may refrain from the exercise of what
otherwise is illimitable competence.
Its laws may as to some persons found within its territory
no longer control. Nor does the matter end there. It is not
precluded from allowing another power to participate in
the exercise of jurisdictional right over certain portions of
its territory. If it does so, it by no means follows that such
areas become impressed with an alien character. They
retain their status as native soil. They are still subject to its
authority. Its jurisdiction may be diminished, but it does
not disappear. So it is with the bases under lease to the
American armed forces by virtue of the military bases
agreement of 1947. They are not and cannot be foreign
territory.
Decisions coming from petitioner's native land, penned
by jurists of repute, speak to that effect with impressive
unanimity. We start with the citation from Chief Justice
Marshall, announced in the leading case of Schooner
Exchange v. M'Faddon,8 an 1812 decision: "The
jurisdiction of the nation within its own territory is
necessarily exclusive and absolute. It is susceptible of no
limitation not imposed by itself. Any restriction upon it,
deriving validity from an external source, would imply a
diminution of its sovereignty to the extent of the
restriction, and an investment of that sovereignty to the
same extent in that power which could impose such
restriction." After which came this paragraph: "All
exceptions, therefore, to the full and complete power of
a nation within its own territories, must be traced up to
the consent of the nation itself. They can flow from no
other legitimate source."
Chief Justice Taney, in an 1857 decision,9 affirmed the
fundamental principle of everyone within the territorial
domain of a state being subject to its commands: "For
undoubtedly every person who is found within the limits of
a government, whether the temporary purposes or as a
resident, is bound by its laws." It is no exaggeration then
for Justice Brewer to stress that the United States
government "is one having jurisdiction over every foot of
soil within its territory, and acting directly upon each
[individual found therein]; . . ."10
Not too long ago, there was a reiteration of such a view,
this time from the pen of Justice Van Devanter. Thus: "It
now is settled in the United States and recognized
elsewhere that the territory subject to its jurisdiction
includes the land areas under its dominion and control
the ports, harbors, bays, and other in closed arms of the
sea along its coast, and a marginal belt of the sea
extending from the coast line outward a marine league,
or 3 geographic miles."11 He could cite moreover, in
addition to many American decisions, such eminent
treatise-writers as Kent, Moore, Hyde, Wilson, Westlake,
Wheaton and Oppenheim.
As a matter of fact, the eminent commentator Hyde in his
three-volume work on International Law, as interpreted
and applied by the United States, made clear that not
even the embassy premises of a foreign power are to be
considered outside the territorial domain of the host state.
Thus: "The ground occupied by an embassy is not in fact
the territory of the foreign State to which the premises
belong through possession or ownership. The lawfulness or
unlawfulness of acts there committed is determined by
the territorial sovereign. If an attache commits an offense
within the precincts of an embassy, his immunity from
prosecution is not because he has not violated the local
law, but rather for the reason that the individual is exempt
from prosecution. If a person not so exempt, or whose
immunity is waived, similarly commits a crime therein, the
territorial sovereign, if it secures custody of the offender,
may subject him to prosecution, even though its criminal
code normally does not contemplate the punishment of
one who commits an offense outside of the national
domain. It is not believed, therefore, that an ambassador
himself possesses the right to exercise jurisdiction, contrary
to the will of the State of his sojourn, even within his
embassy with respect to acts there committed. Nor is
there apparent at the present time any tendency on the
part of States to acquiesce in his exercise of it."12
2. In the light of the above, the first and crucial error
imputed to the Court of Tax Appeals to the effect that it
should have held that the Clark Air Force is foreign soil or
territory for purposes of income tax legislation is clearly
without support in law. As thus correctly viewed,
petitioner's hope for the reversal of the decision
completely fades away. There is nothing in the Military
Bases Agreement that lends support to such an assertion.
It has not become foreign soil or territory. This country's
jurisdictional rights therein, certainly not excluding the
power to tax, have been preserved. As to certain tax
matters, an appropriate exemption was provided for.
Petitioner could not have been unaware that to maintain
the contrary would be to defy reality and would be an
affront to the law. While his first assigned error is thus
worded, he would seek to impart plausibility to his claim
by the ostensible invocation of the exemption clause in
the Agreement by virtue of which a "national of the
United States serving in or employed in the Philippines in
connection with the construction, maintenance,
operation or defense of the bases and residing in the
Philippines only by reason of such employment" is not to
be taxed on his income unless "derived from Philippine
source or sources other than the United States
sources."13 The reliance, to repeat, is more apparent than
real for as noted at the outset of this opinion, petitioner
places more faith not on the language of the provision
on exemption but on a sentiment given expression in a
1951 opinion of this Court, which would be made to yield
such an unwarranted interpretation at war with the
controlling constitutional and international law principles.
At any rate, even if such a contention were more
adequately pressed and insisted upon, it is on its face
devoid of merit as the source clearly was Philippine.
In Saura Import and Export Co. v. Meer,14 the case above
referred to, this Court affirmed a decision rendered about
seven months previously,15 holding liable as an importer,
within the contemplation of the National Internal
Revenue Code provision, the trading firm that purchased
army goods from a United States government agency in
the Philippines. It is easily understandable why. If it were
not thus, tax evasion would have been facilitated. The
United States forces that brought in such equipment later
disposed of as surplus, when no longer needed for military
purposes, was beyond the reach of our tax statutes.
Justice Tuason, who spoke for the Court, adhered to such
a rationale, quoting extensively from the earlier opinion.
He could have stopped there. He chose not to do so. The
transaction having occurred in 1946, not so long after the
liberation of the Philippines, he proceeded to discuss the
role of the American military contingent in the Philippines
as a belligerent occupant. In the course of such a
dissertion, drawing on his well-known gift for rhetoric and
cognizant that he was making an as if statement, he did
say: "While in army bases or installations within the
Philippines those goods were in contemplation of law on
foreign soil."
It is thus evident that the first, and thereafter the
controlling, decision as to the liability for sales taxes as an
importer by the purchaser, could have been reached
without any need for such expression as that given
utterance by Justice Tuason. Its value then as an
authoritative doctrine cannot be as much as petitioner
would mistakenly attach to it. It was clearly obiter not
being necessary for the resolution of the issue before this
Court.16 It was an opinion "uttered by the way."17 It could
not then be controlling on the question before us now,
the liability of the petitioner for income tax which, as
announced at the opening of this opinion, is squarely
raised for the first time.18
On this point, Chief Justice Marshall could again be
listened to with profit. Thus: "It is a maxim, not to be
disregarded, that general expressions, in every opinion,
are to be taken in connection with the case in which
those expressions are used. If they go beyond the case,
they may be respected, but ought not to control the
judgment in a subsequent suit when the very point is
presented for decision."19
Nor did the fact that such utterance of Justice Tuason
was cited in Co Po v. Collector of Internal Revenue,20 a
1962 decision relied upon by petitioner, put a different
complexion on the matter. Again, it was by way of pure
embellishment, there being no need to repeat it, to
reach the conclusion that it was the purchaser of army
goods, this time from military bases, that must respond for
the advance sales taxes as importer. Again, the purpose
that animated the reiteration of such a view was clearly
to emphasize that through the employment of such a
fiction, tax evasion is precluded. What is more, how far
divorced from the truth was such statement was
emphasized by Justice Barrera, who penned the Co Po
opinion, thus: "It is true that the areas covered by the
United States Military Bases are not foreign territories both
in the political and geographical sense."21
Justice Tuason moreover made explicit that rather than
corresponding with reality, what was said by him was in
the way of a legal fiction. Note his stress on "in
contemplation of law." To lend further support to a
conclusion already announced, being at that a
confirmation of what had been arrived at in the earlier
case, distinguished by its sound appreciation of the issue
then before this Court and to preclude any tax evasion,
an observation certainly not to be taken literally was thus
given utterance.
This is not to say that it should have been ignored
altogether afterwards. It could be utilized again, as it
undoubtedly was, especially so for the purpose intended,
namely to stigmatize as without support in law any
attempt on the part of a taxpayer to escape an
obligation incumbent upon him. So it was quoted with
that end in view in the Co Po case. It certainly does not
justify any effort to render futile the collection of a tax
legally due, as here. That was farthest from the thought of
Justice Tuason.
What is more, the statement on its face is, to repeat, a
legal fiction. This is not to discount the uses of a fictio
juris in the science of the law. It was Cardozo who
pointed out its value as a device "to advance the ends of
justice" although at times it could be "clumsy" and even
"offensive".22 Certainly, then, while far from objectionable
as thus enunciated, this observation of Justice Tuason
could be misused or misconstrued in a clumsy manner to
reach an offensive result. To repeat, properly used, a
legal fiction could be relied upon by the law, as
Frankfurter noted, in the pursuit of legitimate
ends.23 Petitioner then would be well-advised to take to
heart such counsel of care and circumspection before
invoking not a legal fiction that would avoid a mockery
of the law by avoiding tax evasion but what clearly is a
misinterpretation thereof, leading to results that would
have shocked its originator.
The conclusion is thus irresistible that the crucial error
assigned, the only one that calls for discussion to the
effect that for income tax purposes the Clark Air Force
Base is outside Philippine territory, is utterly without merit.
So we have said earlier.
3. To impute then to the statement of Justice Tuason the
meaning that petitioner would fasten on it is, to
paraphrase Frankfurter, to be guilty of succumbing to the
vice of literalness. To so conclude is, whether by design or
inadvertence, to misread it. It certainly is not susceptible
of the mischievous consequences now sought to be
fastened on it by petitioner.
That it would be fraught with such peril to the
enforcement of our tax statutes on the military bases
under lease to the American armed forces could not
have been within the contemplation of Justice Tuason. To
so attribute such a bizarre consequence is to be guilty of
a grave disservice to the memory of a great jurist. For his
real and genuine sentiment on the matter in consonance
with the imperative mandate of controlling constitutional
and international law concepts was categorically set
forth by him, not as an obiter but as the rationale of the
decision, in People v. Acierto24 thus: "By the [Military
Bases] Agreement, it should be noted, the Philippine
Government merely consents that the United States
exercise jurisdiction in certain cases. The consent was
given purely as a matter of comity, courtesy, or
expediency over the bases as part of the Philippine
territory or divested itself completely of jurisdiction over
offenses committed therein."
Nor did he stop there. He did stress further the full extent
of our territorial jurisdiction in words that do not admit of
doubt. Thus: "This provision is not and can not on principle
or authority be construed as a limitation upon the rights of
the Philippine Government. If anything, it is an emphatic
recognition and reaffirmation of Philippine sovereignty
over the bases and of the truth that all jurisdictional rights
granted to the United States and not exercised by the
latter are reserved by the Philippines for itself."25
It is in the same spirit that we approach the specific
question confronting us in this litigation. We hold, as
announced at the outset, that petitioner was liable for
the income tax arising from a sale of his automobile in the
Clark Field Air Base, which clearly is and cannot otherwise
be other than, within our territorial jurisdiction to tax.
4. With the mist thus lifted from the situation as it truly
presents itself, there is nothing that stands in the way of
an affirmance of the Court of Tax Appeals decision. No
useful purpose would be served by discussing the other
assigned errors, petitioner himself being fully aware that if
the Clark Air Force Base is to be considered, as it ought to
be and as it is, Philippine soil or territory, his claim for
exemption from the income tax due was distinguished
only by its futility.
There is further satisfaction in finding ourselves unable to
indulge petitioner in his plea for reversal. We thus manifest
fealty to a pronouncement made time and time again
that the law does not look with favor on tax exemptions
and that he who would seek to be thus privileged must
justify it by words too plain to be mistaken and too
categorical to be misinterpreted.26 Petitioner had not
done so. Petitioner cannot do so.
WHEREFORE, the decision of the Court of Tax Appeals of
May 12, 1966 denying the refund of P2,979.00 as the
income tax paid by petitioner is affirmed. With costs
against petitioner.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez,
Castro and Teehankee, JJ., concur.
Reyes, J.B.L., J., concurs in the result.
Barredo, J., took no part.
Footnotes
1Saura Import and Export Co. v. Meer, 88 Phil.
199, 202 affirming Go Cheng Tee v. Meer, 87 Phil.
18 (1950).
2 Sec. 186, National Internal Revenue Code.
3Co Po v. Collector of Internal Revenue, 5 SCRA
1057.
4Decision, Annex 4, Brief for Petitioner-Appellant,
pp. 20-21.
5 Ibid., p. 21.
6 Ibid., p. 23.
7Jellinek as quoted in Cohen, Recent Theories of
Sovereignty, p. 35 (1937).
8 7 Cranch 116, 136.
9 Brown v. Duchesne, 19 How. 183, 194.
10 In re Debs. 158 US 564 (1894).
11Cunard Steamship Co. v. Mellon, 262 US 100
(1922).
122 Hyde, International Law Chiefly as Interpreted
and Applied by the United States, pp. 1285-1286
(1947).
13Act XII of the Military Bases Agreement, par. 2,
reads: "No national of the United States serving in
or employed in the Philippines in connection with
the construction, maintenance, operation or
defense of the bases and residing in the
Philippines by reason only of such employment,
or his spouse and minor children and dependent
parents of either spouse, shall be liable to pay
income tax in the Philippines except in respect of
income derived from Philippine source or sources
other than the United States sources." (1
Philippine Treaty Series, 357, 362 [1968]).
14 88 Phil. 199 (1951).
15 Go Cheng Tee v. Meer, 87 Phil. 18 (1950).
16Uy Po v. Collector of Customs, 34 Phil. 153
(1916); Morales v. Paredes, 55 Phil. 565 (1930);
Abad v. Carganillo Vda. de Yance, 95 Phil. 51
(1954).
17 People v. Macadaeg, 91 Phil. 410 (1952).
18 Cf. de los Reyes v. de Villa, 48 Phil. 227 (1925).
19 6 Wheat, 264, 399 (1821) reiterated in Myers v.
United States, 272 US 52, (1926). Cf. Northern Nat.
Bank. v. Porter Township, 110 US 608 (1884);
Weyerhaeuser v. Hoyt, 219 US 380 (1911); Osaka
Shosen Kaisha Line v. United States, 300 US 98;
Wright v. United States, 302 US 583 (1938); Green
v. United States, 355 US 184 (1957).
20 25 SCRA 1057.
21 Ibid., p. 1059.
22Cardozo, The Paradoxes of Legal Science, 34
(1928).
23Nashville C. St. Louis Ry v. Browning, 310 US 362
(1940).
24 92 Phil. 534, 542 (1953).
25 Ibid., p. 534.
26Cf. Commissioner of Internal Revenue v.
Guerrero, 21 SCRA 180 (1967) and the cases
therein cited. See also E. Rodriguez, Inc. v.
Collector of Internal Revenue, 28 SCRA 1119
(1969).
G.R. No. 45697 November 1, 1939
MANILA ELECTRIC COMPANY, plaintiff-appellant,
vs.
A.L. YATCO, Collector of Internal Revenue, defendant-
appellee.
Ross, Lawrence, Selph and Carrascoso for appellant.
Office of the Solicitor-General Tuason for appellee.
MORAN, J.:
In 1935, plaintiff Manila Electric Company, a corporation
organized and existing under the laws of the Philippines,
with its principal office and place of business in the City of
Manila, insured with the city of New York Insurance
Company and the United States Guaranty Company,
certain real and personal properties situated in the
Philippines. The insurance was entered into in behalf of
said plaintiff by its broker in New York City. The insurance
companies are foreign corporations not licensed to do
business in the Philippines and having no agents therein.
The policies contained provisions for the settlement and
payment of losses upon the occurence of any risk insured
against, a sample of which is policy No. 20 of the New
York insurance Company attached to and made an
integral part of the agreed statement of facts.
Plaintiff through its broker paid, in New York, to said
insurance company premiums in the sum of P91,696. The
Collector of Internal Revenue, under the authority of
section 192 of act No. 2427, as amended, assessed and
levied a tax of one per centum on said premiums, which
plaintiff paid under protest. The protest having been
overruled, plaintiff instituted the present action to recover
the tax. The trial court dismissed the complaint, and from
the judgment thus rendered, plaintiff took the instant
appeal.
The pertinent portions of the Act here involved read:
SEC. 192. It shall be unlawful for any person,
company or corporation, or forward applications
for insurance in or to issue or to deliver or accept
policies of or for any company or companies not
having been legally authorized to transact
business in the Philippine Islands, as provided in
this chapter; and any such person, company or
corporation violating the provisions of this section
shall be deemed guilty of a penal offense, and
upon conviction thereof, shall for each such
offense be punished by a fine of two hundred
pesos, or imprisonment for two months, or both in
the discretion not authorized to transact business
in the Philippine Island may be placed upon
terms and conditions as follows:
xxx xxx xxx
. . . . And provided further, that the prohibitions of
this section shall not affect the right of an owner
of property to apply for and obtain for himself
policies in foreign companies in cases were said
owner does not make use of the services of any
agent, company or corporation residing or doing
business in the Philippine Islands. In all case where
owners of property obtain insurance directly with
foreign companies, it shall be the duty of said
owners to report to the insurance commissioner
and to the Collector of Internal Revenue each
case where insurance has been so effected, and
shall pay the tax of one per centum on premium
paid, in the manner required by law of insurance
companies, and shall be subject to the same
penalties for failure to do so.
Appellant maintains that the second paragraph of the
provisions of the Act aforecited is unconstitutional, and
has been so declared by the Supreme Court of the
United States in the case of Compania General de
Tabacos v. Collector of Internal Revenue, 275 U.S., 87, 48
Sup. Ct. Rep., 100, 72 Law. ed., 177.
The case relied upon involves a suit to recover from the
Collector of Internal Revenue certain taxes in connection
with insurance premiums which the Tobacco Barcelona,
Spain, paid to the Guardian Insurance Company of
London, England, and to Le Comite des Assurances
Maritimes de Paris, of Paris, France. The Tobacco
Company, through its head office in Barcelona, insured
against fire with the London Company the merchandise it
had in deposit in the warehouse in the Philippines. As the
merchandise were from time to time shipped to Europe,
the head office at Barcelona insured the same with the
Paris Company against marine risks while such
merchandise were in transit from the Philippines to Spain.
The London Company, unlike the Paris Company, was
licensed to do insurance business in the Philippines and
had an agent therein. Losses, if any, on policies were to
be paid to the Tobacco Company in Paris. The tax
assessed and levied by the Collector of Internal Revenue,
under the same law now involved, was challenged as
unconstitutional. The Supreme Court of the united States
sustained the tax with respect to premiums paid to the
London Company and held it erroneous with respect to
premiums paid to the Paris Company.lawphi1.net
The factual basis upon which the imposition of the tax on
premiums paid to the Paris Company was declared
erroneous, is stated by the Supreme Court of the United
States thus:
Coming then to the tax on the premiums paid to
the Paris Company the contract of insurance on
which the premium was paid was made at
Barcelona in Spain, the headquarters of the
Tobacco Company between the Tobacco
Company and the Paris Company, and any
losses arising thereunder were to be paid in Paris.
The Paris Company had no communication
whatever with anyone in the Philippine Islands.
The collection of this tax involves an ex-action
upon a company of Spain lawfully doing business
in the Philippine Islands effected by reason of a
contract made by that company with a
company in Paris on merchandise shipped from
the Philippine Islands for delivery in Barcelona. It is
an imposition upon a contract not made in the
Philippines and having no situs there and to be
measured by money paid as premiums in Paris,
with the place of payment of loss, if any, in Paris.
We are very clear that the contract and the
premiums paid under it are not within the
jurisdiction of the government of the Philippine
Islands.
And, upon the authority of the cases of Allgeyer v.
Lousiana, 165 U.S., 578, 41 Law. ed., 832, and St. Louis
Cotton Compress Company v. Arkansas, 250 U.S., 346,
677 Law. ed., 279, the Supreme Court of the United States
held that "as the state is forbidden to deprive a person of
his liberty without due process of law, it may not compel
anyone within its jurisdiction to pay tribute to it for
contracts or money paid to secure the benefits of
contract made and to be performed outside of the
state."
On the other hand, the Supreme Court of the United
States, in sustaining the imposition of the tax upon
premiums paid by the assured to the London Company,
says:
. . . . Does the fact that while the Tobacco
Company and the London Company were within
the jurisdiction of the Philippines they made a
contract outside of the Philippines, prevent the
imposition upon the assured of a tax of 1 per
cent upon the money paid by it as a premium to
the London Company? We may properly assume
that this tax placed upon the assured must
ultimately be paid by the insurer, and treating its
real incidence as such, the question arises
whether making and carrying out the policy does
not involve an exercise or use of the right of the
London Company to do business in the Philippine
Islands under its license, because the policy
covers fire risks no property within the Philippine
Islands which may require adjustment and the
activities of agents in the Philippine Islands with
respect to settlement of losses arising thereunder.
This we think must be answered affirmatively
under Equitable Life Assur. Soc. v. Pennsylvania,
238 U.S., 143 Law. ed., 1239, 35 Sup. Ct. Rep., 829.
The case is a close one, but in deference to the
conclusion we reached in the latter case, we
affirm the judgment of the court below in respect
to the tax upon the premium paid to the London
Company.
The ruling in the Paris Company case is obviously not
applicable in the instant one, for there, not only was the
contract executed in a foreign country, but the
merchandise insured was in transit from the Philippines to
Spain, and nothing was to be done in the Philippines in
pursuance of the contract. However, the rule laid down
in connection with the London Company may, by
analogy, be applied in the present case, the essential
facts of both cases being similar. Here, the insured is a
corporation organized under the laws of the Philippines,
its principal office and place of business being in the City
of Manila. The New York Insurance Company and the
United States Guaranty Company may be said to be
doing policies issued by them cover risks on properties
within the Philippines, which may require adjustment and
the activities of agents in the Philippines with respect to
the settlement of losses arising thereunder. For instance, it
is therein stipulated that "the insured, as often as may be
reasonably required, shall exhibit to any person
designated by the company all the remains of any
property therein described and submit to examination
under oath by any person named by the company, and
as often as may be reasonably required, shall exhibit to
any person designated by the company all the remains
of any property therein described and submit to an
examination all books of accounts . . . at such reasonable
time and place as may be designated by the company
or its representative." And, in case of disagreement as to
the amount of losses or damages as to require the
appointment of appraisers, the insurance contract
provides that "the appraisers shall first select a competent
umpire; and failure for fifteen days to agree to such
umpire, then, on request of the insured or of the
company, such umpire shall be selected by a judge of
the court of record in the state in which the property
insured is located.".
True it is that the London Company had a license to do
business in the Philippines, but this fact was not a decisive
factor in the decision of that case, for reliance was
therein placed on the Equitable Life Assurance Society v.
Pennsylvania, 238 U.S., 143, 59 Law. ed., 1239, 35 Sup. Ct.
Rep., 829, wherein it was said that "the Equitable Society
was doing business in Pennsylvania when it was annually
paying the dividends in Pennsylvania or sending an
adjuster into the state in case of dispute or making proof
of death," and therefore "the taxpayer had subjected
itself to the jurisdiction of Pennsylvania in doing business
there." (See Compañia General de Tabacos v. Collector
of Internal Revenue, 275 U.S., 87, 72 Law. ed., 177, 182.)
The controlling consideration, therefore, in the decision of
the London Company case was that said company, by
making and carrying out policies covering risks located in
this country which might require adjustment or the
making of proof of loss therein, did business in the
Philippines and subjected itself to its jurisdiction, a rule
that can perfectly be applied in the present case to the
new York Insurance Company and the United States
Guaranty Company.
It is argued, however, that the sending of an unjuster to
the Philippines to fix the amount of losses, is a mere
contingency and not an actual fact, as such, it cannot
be a ground for holding that the insurance companies
subjected themselves to the taxing jurisdiction of the
Philippines. This argument could have been made in the
London Company case where no adjuster appears to
have ever been sent to the Philippines nor any
adjustment ever made, and yet the stipulations to that
effect were held to be sufficient to bring the foreign
corporation within the taxing jurisdiction of the Philippines.
In epitome, then, the whole question involved in this
appeal is whether or not the disputed tax is one imposed
by the Commonwealth of the Philippines upon a contract
beyond its jurisdiction. We are of the opinion and so hold
that where the insured against also within the Philippines,
the risk insured against also within the Philippines, and
certain incidents of the contract are to be attended to in
the Philippines, such as, payment of dividends when
received in cash, sending of an unjuster into the
Philippines in case of dispute, or making of proof of loss,
the Commonwealth of the Philippines has the power to
impose the tax upon the insured, regardless of whether
the contract is executed in a foreign country and with a
foreign corporation. Under such circumstances,
substantial elements of the contract may be said to be so
situated in the Philippines as to give its government the
power to tax. And, even if it be assumed that the tax
imposed upon the insured will ultimately be passed on
the insurer, thus constituting an indirect tax upon the
foreign corporation, it would still be valid, because the
foreign corporation, by the stipulations of its contract, has
subjected itself to the taxing jurisdiction of the Philippines.
After all, Commonwealth of the Philippines, by protecting
the properties insured, benefits the foreign corporation,
and it is but reasonable that the latter should pay a just
contribution therefor. It would certainly be a
discrimination against domestic corporations to hold the
tax valid when the policy is given by them and invalid
when issued by foreign corporations.
Judgment affirmed, with costs against appellant.
Avanceña, C.J., Villa-Real, Imperial, Diaz, Laurel and
Concepcion, JJ., concur.
G.R. Nos. 167274-75 September 11, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
FORTUNE TOBACCO CORPORATION, Respondent.
x-----------------------x
G.R. No. 192576
FORTUNE TOBACCO CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
VELASCO, JR., J.:
Fortune Tobacco Corporation (FTC), as petitioner in G.R.
No. 192576,1 assails and seeks the reversal of the Decision
of the Court of Tax Appeals (CTA) En Banc dated March
12, 2010, as effectively reiterated in a Resolution of June
11, 2010, both rendered in C.T.A. EB No. 530 entitled
Fortune Tobacco Corporation v. Commissioner of Internal
Revenue. The assailed issuances affirmed the Resolution
of the CTA First Division dated June 4, 2009, denying the
Motion for Issuance of Additional Writ of Execution filed
by herein petitioner in CTA Case Nos. 6365, 6383 & 6612,
and the Resolution dated August 10, 2009 which denied
its Motion for Reconsideration.
The present appellate proceedings traces its origin from
and finds context in the July 21, 2008 Decision2 of the
Court in G.R. Nos. 167274-75, an appeal thereto
interposed by the Commissioner of Internal Revenue (BIR
Commissioner) from the consolidated Decision and
Resolution issued by the Court of Appeals on September
28, 2004 and March 1, 2005, respectively, in CA-G.R. SP
Nos. 80675 and 83165. The decretal part of the July 21,
2008 Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA G.R. SP No. 80675, dated 28
September 2004,and its Resolution, dated 1 March 2005,
are AFFIRMED. No pronouncement as to costs.
SO ORDERED.3 (Emphasis supplied.)
The antecedent facts, as summarized by the CTA in its
adverted March 12, 2010 Decision, are as follows:
FTC (herein petitioner Fortune Tobacco Corporation) is
engaged in manufacturing or producing cigarette
brands with tax rate classification based on net retail
price prescribed as follows:
Brand Tax Rate
 (CTA En Banc Decision,
Champion M 100 ₱1.00
Annex "A," Petition, pp. 2-4)
Salem M 100 ₱1.00
Salem M King ₱1.00
Camel F King ₱1.00
Camel Lights Box 20’s ₱1.00
Camel Filters Box 20’s ₱1.00
Winston F King ₱5.00
Winston Lights ₱5.00
Prior to January 1, 1997, the aforesaid cigarette brands
were subject to ad-valorem tax under Section 142 of the
1977 Tax Code, as amended. However, upon the
effectivity of Republic Act (R.A.) No. 8240on January 1,
1997, a shift from ad valorem tax system to the specific
tax system was adopted imposing excise taxes on
cigarette brands under Section 142 thereof, now
renumbered as Section 145 of the 1997 Tax Code, stating
the following pertinent provision:
The excise tax from any brand of cigarettes within the
next three (3) years from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is due from each
brand on October 1, 1996. x x x The rates of excise tax on
cigars and cigarettes under paragraphs (1), (2), (3) and
(4) hereof, shall be increased by twelve percent (12%) on
January 1, 2000.
Upon the Commissioner’s recommendation, the
Secretary of Finance, issued Revenue Regulations (RR)
No. 17-99 dated December 16,1999 for the purpose of
implementing the provision for a 12% increase of excise
tax on, among others, cigars and cigarettes packed by
machines by January 1, 2000. RR No. 17-99 provides that
the new specific tax rate for any existing brand of cigars,
cigarettes packed by machine x x x shall not be lower
than the excise tax that is actually being paid prior to
January 1, 2000.
2. Since the claim for refund was not acted upon,
petitioner filed on December 11, 2001 and
January 30, 2002, respectively, Petitions for
Review before the Court of Tax Appeals (CTA)
docketed as CTA Case Nos. 6365 and 6383
questioning the validity of Revenue Regulations
No.17-99 with claims for refund in the amounts
₱35,651,410.00 and ₱644,735,615.00, respectively.
These amounts represented overpaid excise
taxes for the periods from January 1, 2000 to
January 31, 2000 and February 1, 2000 to
December 31, 2001, respectively (Ibid., pp. 4-5).
3. In separate Decision dated October 21, 2002,
the CTA in Division ordered the Commissioner of
Internal Revenue (respondent herein) to refund
to petitioner the erroneously paid excise taxes in
the amounts of ₱35,651,410.00 for the period
covering January 1, 2000 to January 31, 2000
(CTA Case No. 6365) and ₱644,735,615.00 for the
period February 1, 2000 to December 31, 2001
(CTA Case No.6383) (Ibid.).
4. Respondent filed a motion for reconsideration
of the Decision dated October 21, 2002 covering
CTA Case Nos. 6365 and 6383which was granted
in the Resolution dated July 15, 2003.
5. Subsequently, petitioner filed another petition
docketed as CTA Case No. 6612 questioning the
validity of Revenue Regulations No.17-99 with a
prayer for the refund of overpaid excise tax
amounting to₱355,385,920.00, covering the
period from January 1, 2002 to December 31,
2002 (Ibid., p. 5).
6. Petitioner thereafter filed a consolidated
Motion for Reconsideration of the Resolution
dated July 15, 2003 (Ibid., pp. 5-6).

FTC paid excise taxes on all its cigarettes manufactured 7. The CTA in Division issued Resolution dated
and removed from its place of production for the November 4,2003 which reversed the Resolution
following period: dated July 15, 2003 and ordered respondent to
refund to petitioner the amounts of 35,651,410.00
PERIOD PAYMENT for the period covering January 1 to January 31,
2000 and ₱644,735,615.00 for the period covering
January 1, 2000 to ₱585,705,250.00 February 1, 2000 to December 31, 2001, or in the
January 31, 2000 aggregate amount of ₱680,387,025.00,
representing erroneously paid excise taxes (Ibid.,
February 1, 2000 to ₱19,366,783,535.00 p. 6).
December 31, 2001

January 1, 2002 to ₱11,359,578,560.00 8. In its Decision dated December 4, 2003, the

December 31, 2002 CTA in Division in Case No. 6612 declared RR No.
17-99 invalid and contrary to Section 145 of the
1997 National Internal Revenue Code (NIRC). The
FTC subsequently sought administrative redress for refund Court ordered respondent to refund to petitioner
before the Commissioner on the following dates: the amount of ₱355,385,920.00 representing
overpaid excise taxes for the period covering
PERIOD ADMINISTRATIVE AMOUNT January 1, 2002 to December 21, 2002 (Ibid.)
FILING OF CLAIM CLAIMED
9. Respondent filed a motion for reconsideration
January 1, 2000 February 7, 2000 ₱35,651,410.00 of the Decision dated December 4, 2003 but this
to was denied in the Resolution dated March 17,
January 31, 2004 (Ibid.)
2000

February 1, Various claims filed ₱644,735,615.00 10. On December 10, 2003, respondent
2000 from Commissioner filed a Petition for Review with the
to December March 21, 2000 – Court of Appeals (CA) questioning the CTA
31, January 28, 2002 Resolution dated November 4, 2003 which was
2001 issued in CTA Case Nos. 6365 and 6383. The case
was docketed as CA-G.R. SP No.80675 (Ibid.).
January 1, 2002 February 3, 2003 ₱355,385,920.00
to 11. On April 28, 2004, respondent Commissioner
December 31, filed another appeal before the CA questioning
2002 the CTA Decision dated December 4, 2003 issued
in CTA Case No. 6612. The case was docketed as
CA-G.R. SP No. 83165 (Ibid., p. 7).
 12. Thereafter, petitioner filed a Consolidated
Motion for Execution Pending Appeal before the
CTA for CTA Case Nos. 6365 and 6383 and an
Amended Motion for Execution Pending Appeal
for CTA Case No. 6612 (Ibid.).
13. The motions were denied in the CTA
Resolutions dated August 2, 2004 and August 3,
2004, respectively. The CTA in Division pointed out
that Section 12, Rule 43 of the1997 Rules of Civil
Procedure should be interpreted with Section 18
of R.A. 1125 which provides that CTA rulings
become final and conclusive only where there is
no perfected appeal. Considering that
respondent filed an appeal with the CA, the CTA
in Division’s rulings granting the amounts of
₱355,385,920.00 and ₱680,387,025.00 were not
yet final and executory (Ibid.).
14. In the consolidated CA Decision dated
September 28,2004 issued in CA-G.R. SP Nos.
80675 (CTA Case Nos. 6365 and6383) and 83165
(CTA Case No. 6612), the appellate court denied
respondent’s petitions and affirmed petitioner’s
refund claims in the amounts of ₱680,387,025.00
(CTA Case Nos. 6365 and 6383)
and₱355,385,920.00 (CTA Case No. 6612),
respectively (Ibid., p. 8).
15. Respondent filed a motion for reconsideration
of the CA Decision dated September 28, 2004
but this was denied in the CA’s Resolution dated
March 1, 2005 (Ibid.).
16. Respondent, filed a Petition for Review on
Certiorari docketed as G.R. Nos. 167274-75 on
May 4, 2005 before the Honorable Court. On
June 22, 2005, a Supplemental Petition for Review
was filed and the petitions were consolidated
(Ibid.).
17. In its Decision dated July 21, 2008 in G.R. Nos.
167274-75, the Honorable Court affirmed the
findings of the CA granting petitioner’s claim for
refund. The dispositive portion of said Decision
reads:
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. SP No.80675, dated 28
September 2004, and its Resolution, dated 1 March 2005,
are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Commissioner of Internal
Revenue vs. Fortune Tobacco
Corporation, 559 SCRA 160
(2008)
18. On January 23, 2009, petitioner filed a motion for
execution praying for the issuance of a writ of execution
of the Decision of the Honorable Court in G.R. Nos.
167274-75 dated July 21, 2008 which was recorded in the
Book of Entries of Judgments on November 6, 2008(Ibid.,
p. 10).
Petitioner’s prayer was for the CTA to order the BIR to
pay/refund the amounts adjudged by the CTA, as
follows:
a) CTA Case No. 6612 under the Decision 04
December 2003 – the amount of Three Hundred
Fifty Five Million Three Hundred Eighty Five
Thousand Nine Hundred Twenty Pesos
(₱355,385,920.00).
b) CTA Case Nos. 6365 and 6383 under the
Decisions dated 21 October 2002 and Resolution
dated 04 November 2003 – the amount of Six
Hundred Eighty Million Three Hundred Eighty
Seven Thousand Twenty Five Pesos
(₱680,387,025.00).
(Petition, p. 11)
19. On April 14, 2009, the CTA issued a Writ of Execution,
which reads:
You are hereby ORDERED TO REFUND in favor of the
petitioner FORTUNE TOBACCO CORPORATION, pursuant
to the Supreme Court Decision in the above-entitled case
(SC G.R. 167274-75),dated July 21, 2008, which has
become final and executory on November 6, 2008, by
virtue of the Entry of Judgment by the Supreme Court on
said dated, which reads as follows:
xxxx
the amounts of ₱35,651,410.00 (C.T.A Case No. 6365) and
₱644,735,615.00 (C.T.A Case No. 6383) or a total of
₱680,387,025.00 representing petitioners’ erroneously paid
excise taxes for the periods January 1-31, 2000 and
February 1, 2000 to December 31, 2001,respectively
under CA G.R. SP No. 80675 (C.T.A. Case No. 6365 and
C.T.A. Case No. 6383).
(CTA – 1st Division
Resolution dated June 04,
2009, pp. 2-3)
20. On April 21, 2009, petitioner filed a motion for
the issuance of an additional writ of execution
praying that the CTA order the Commissioner of
Internal Revenue to pay petitioner the amount of
Three Hundred Fifty-Five Million Three Hundred
Eighty Five Thousand Nine Hundred Twenty Pesos
(₱355,385,920.00) representing the amount of tax
to be refunded in C.T.A. Case No. 6612 under its
Decision dated December 4, 2003 and affirmed
by the Honorable Court in its Decision dated July
21, 2008 (Petition, p. 12, CTA Decision dated
March 12, 2010, supra, p. 10).
21. In the CTA Resolution dated June 4, 2009, the
CTA denied petitioner’s Motion for the Issuance
of Additional Writ of Execution (Ibid., p. 11).
22. Petitioner filed a motion for reconsideration of
the Resolution dated June 4, 2009, but this was
denied in the CTA Resolution dated August 10,
2009 (Ibid.).
The dispositive portion of the Resolution reads:
WHEREFORE, premises considered, the instant"
Motion for Reconsideration" is hereby DENIED for
lack of merit.
23. Aggrieved by the Decision, petitioner filed a
petition for review before the CTA En Banc
docketed as CTA EB Case No. 530,raising the
following arguments, to wit:
The Honorable Court of Tax Appeals seriously
erred contrary to law and jurisprudence when it
held in the assailed decision and resolution that
petitioner Fortune Tobacco Corporation is not
entitled to the writ of execution covering the
decision in CTA Case No. 6612.
The Decision of the Court of Tax Appeals in CTA
Case Nos. 6365, 6383 and 6612 has become final
and executory.
The Decision of the Honorable Supreme Court in
GR Nos. 167274-75 covers both CA GR SP No.
80675 and 83165.
 24. The CTA En Banc, in the Decision dated
March 12, 2010,dismissed said petition for review.
The dispositive portion of said Decision reads:
WHEREFORE, premises considered, the Petition for
Review is DISMISSED. The Resolutions dated June
4,2009 and August 10, 2009 are AFFIRMED.
SO ORDERED.
(Annex "A," Petition, p. 16)
25. Petitioner filed a Motion for Leave to file
Motion for Reconsideration with attached Motion
for Reconsideration but this was denied in the
CTA En Banc’s Resolution dated June 11, 2010.
The dispositive portion of said Resolution reads:
WHEREFORE, premises considered, petitioner’s Motion for
Leave to file attached Motion for Reconsideration and its
Motion for Reconsideration are hereby DENIED for lack of
merit.
SO ORDERED.4 (Emphasis supplied.)
Undeterred by the rebuff from the CTA, petitioner FTC has
come to this Court via a petition for review, the recourse
docketed as G.R. 192576,thereat praying in essence that
an order issue (a) directing the CTA to issue an additional
writ of execution directing the Bureau of Internal
Revenue(BIR) to pay FTC the amount of tax refund
(₱355,385,920.00) as adjudged in CTA Case No. 6612 and
(b) clarifying that the Court’s Decision in G.R. Nos. 167274-
75 applies to the affirmatory ruling of the CA in CA G.R.
S₱80675 and CA G.R. SP No. 83165. FTC predicates its
instant petition on two (2) stated grounds, viz.:
I
The Decision of the Honorable Supreme Court in S.C. GR
Nos.167274-75, which has become final and executory,
affirmed the Decision of the Court of Tax Appeals in CTA
Case Nos. 6365, 6383 and 6612 and to the Decision of the
Court of Appeals in CA G.R. SP No. 80675 and CAG.R. SP
No. 83165.
II
The writ of execution prayed for and pertaining to CTA
Case No.6612 and CA G.R. SP No. 83165 is consistent with
the decision of the Supreme Court in GR Nos. 167274-75.
The petition is meritorious. But before delving on the merits
of this recourse, certain undisputed predicates have to
be laid and basic premises restated to explain the
consolidation of G.R. Nos. 167274-75 and G.R. No.192576,
thus:
1. As may be recalled, FTC filed before the CTA
three (3) separate petitions for refund covering
three different periods involving varying amounts
as hereunder indicated:
a) CTA Case No. 6365 (Jan. 1 to Jan. 31,
2000) for ₱35,651,410.00;
b) CTA Case No. 6383 (Feb. 1, 2000 to
Dec. 31, 2001) for ₱644,735,615.00; and
c) CTA Case No. 6612 (Jan. 1 to Dec. 31,
2002) for 355,385,92
In three (3) separate decisions/resolutions, the
CTA found the claims for refund for the amounts
aforestated valid and thus ordered the payment
thereof.
2. From the adverse ruling of the CTA in the three
(3) cases, the BIR Commissioner went to the CA
on a petition for review assailing in CA-G.R.SP No.
80675 the CTA decision/resolution pertaining to
consolidated CTA Case Nos. 6365 & 6383. A
similar petition, docketed as CA G.R. SP
No.83165, was subsequently filed assailing the
CTA decision/resolution on CTA Case No. 6612.
3. Eventually, the CA, by Decision dated
September 4, 2004, denied the Commissioner’s
consolidated petition for review. The appellate
Court also denied the Commissioner’s motion for
reconsideration on March 1,2005.
4. It is upon the foregoing state of things that the
Commissioner came to this Court in G.R. Nos.
167274-75 to defeat FTC’s claim for refund thus
granted initially by the CTA and then by the CA
in CA-G.R. SP No. 80675and CA-G.R. SP No.
83165.
By Decision dated July 21, 2008, the Court found against
the Commissioner, disposing as follows:
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA G.R. SP No. 80675, dated 28
September 2004,and its Resolution, dated 1 March 2005,
are AFFIRMED. No pronouncement as to costs.
SO ORDERED.5 (Emphasis supplied.)
From the foregoing narration, two critical facts are at
once apparent. First , the BIR Commissioner came to this
Court on a petition for review in G.R. Nos. 167274-75 to set
aside the consolidated decision of the CA in CA-G.R. SP
No. 80675 and CA-G.R. SP No. 83165. Second, while the
Court’s Decision dated July 21, 2008 in G.R. Nos. 167274-
75 denied the Commissioner’s petition for review,
necessarily implying that the CA’s appealed
consolidated decision is affirmed in toto, the fallo of that
decidendi makes no mention or even alludes to the
appealed CA decision in CA-G.R. No. 83165, albeit the
main decision’s recital of facts made particular reference
to that appealed CA decision. In fine, there exists an
apparent in consistency between the dispositive portion
and the body of the main decision, which ideally should
have been addressed before the finality of the said
decision.
Owing to the foregoing aberration, but cognizant of the
fact that the process of clarifying the dispositive portion in
G.R. Nos. 167274-75 should be acted upon in the main
case, the Court, by Resolution6 dated February 25,2013
ordered the consolidation of this petition (G.R. No.
192576) with G.R. Nos. 167274-75, to be assigned to any of
the members of the Division who participated in the
rendition of the decision.
Now to the crux of the controversy.
Petitioner FTC posits that the CTA should have issued the
desired additional writ of execution in CTA Case No. 6612
since the body of the Decision of this Court in G.R. Nos.
167274-75 encompasses both CA G.R. Case No. 80675
which covers CTA Case Nos. 6365 and 6383 and CA G.R.
Case No. 83165 which embraces CTA Case No. 6612.
While the fallo of the Decision dated July 21, 2008 in G.R.
Case Nos. 167274-75 did not indeed specifically mention
CA G.R. SP No. 83165, petitioner FTC would nonetheless
maintain that such a slip is but an inadvertent omission in
the fallo. For the text of the July 21, 2008 Decision, FTC
adds, clearly reveals that said CA case was intended to
be included in the disposition of the case.
Respondent Commissioner, on the other hand, argues
that per the CTA, no reversible error may be attributed to
the tax court in rejecting, without more, the prayer for the
additional writ of execution pertaining to CTA Case No.
6612, subject of CA G.R. SP No. 83165. For the purpose,
the Commissioner cited a catena of cases on the limits of
a writ of execution. It is pointed out that such writ must
conform to the judgment to be executed; its
enforcement may not vary the terms of the judgment it
seeks to enforce, nor go beyond its terms. As further
asseverated, "whatever may be found in the body of the
decision can only be considered as part of the reasons or
conclusions of the court and while they may serve as
guide or enlightenment to determine the ratio decidendi,
what is controlling is what appears in the dispositive part
of the decision."7
Respondent Commissioner’s posture on the tenability of
the CTA’s assailed denial action is correct. As it were, CTA
did no more than simply apply established jurisprudence
that a writ of execution issued by the court of origin
tasked to implement the final decision in the case
handled by it cannot go beyond the contents of the
dispositive portion of the decision sought to be
implemented. The execution of a judgment is purely a
ministerial phase of adjudication. The executing court is
without power its own, to tinker let alone vary the explicit
wordings of the dispositive portion, as couched.
But the state of things under the premises ought not to
remain uncorrected. And the BIR cannot plausibly raise a
valid objection for such approach. That bureau knew
where it was coming from when it appealed, first before
the CA then to this Court, the award of refund to FTC and
the rationale underpinning the award. It cannot plausibly,
in all good faith, seek refuge on the basis of slip on the
formulation of the fallo of a decision to evade a duty. On
the other hand, FTC has discharged its burden of
establishing its entitlement to the tax refund in the total
amount indicated in its underlying petitions for refund
filed with the CTA. The successive favorable rulings of the
tax court, the appellate court and finally this Court in G.R.
Nos. 167274-75 say as much. Accordingly, the Court, in
the higher interest of justice and orderly proceedings
should make the corresponding clarification on the fallo
of its July 21, 2008 Decision in G.R. Case Nos.162274-75. It
is an established rule that when the dispositive portion of
a judgment, which has meanwhile become final and
executory, contains a clerical error or an ambiguity
arising from a inadvertent omission, such error or
ambiguity may be clarified by reference to the body of
the decision itself.
After a scrutiny of the body of the aforesaid July 21, 2008
Decision, the Court finds it necessary to render a
judgment nunc pro tunc and address an error in the fallo
of said decision. The office of a judgment nunc pro tunc
is to record some act of the court done at a former time
which was not then carried into the record, and the
power of a court to make such entries is restricted to
placing upon the record evidence of judicial action
which has actually been taken.9 The object of a
judgment nunc pro tunc is not the rendering of a new
judgment and the ascertainment and determination of
new rights, but is one placing in proper form on the
record, that has been previously rendered, to make it
speak the truth, so as to make it show what the judicial
action really was, not to correct judicial errors, such as to
render a judgment which the court ought to have
rendered, in place of the one it did erroneously render,
not to supply non-action by the court, however erroneous
the judgment may have been.10 The Court would thus
have the record reflect the deliberations and discussions
had on the issue. In this particular case it is a correction of
a clerical, not a judicial error. The body of the decision in
question is clear proof that the fallo must be corrected, to
properly convey the ruling of this Court.
We thus declare that the dispositive portion of said
decision should be clarified to include CA G.R. SP No.
83165 which affirmed the December 4,2003 Decision of
the Court of Tax Appeals in CTA Case No. 6612, for the
following reasons, heretofore summarized:
1. The petition for review on certiorari in G.R. Nos.
167274-75filed by respondent CIR sought the
reversal of the September 28, 2004Decision of the
Court of Appeals rendered in the consolidated
cases of CA-G.R. SP No. 80675 and CA-G.R. SP
No. 83165, thus:Hence, this petition for review on
certiorari under Rule 45 of the Rules of Court
which seeks the nullification of the Court of
Appeals’ (1)Decision promulgated on September
28, 2004 in CA-G.R. SP No. 80675and CA-G.R. SP
No. 83165, both entitled "Commissioner of Internal
Revenue vs. Fortune Tobacco Corporation,"
denying the CIR’s petition and affirming the
assailed decisions and resolutions of the Court of
Tax Appeals (CTA) in CTA Cases Nos. 6365, 6383
and 6612; and (2)Resolution dated March 1, 2005
denying petitioner’s motion for reconsideration of
the said decision."11
Earlier on, it was made clear that respondent CIR
questioned the Decision of the CTA dated
October 21, 2002 in CTA Case Nos. 6365 and
6383 in CA G.R. SP No. 80675 before the Court of
Appeals. In CA G.R. SP No. 83165, the
Commissioner also assailed the Decision of the
CTA dated December 4, 2003 in CTA Case No.
66l2 also before the same appellate court. The
two CA cases were later consolidated. Since the
appellate court rendered its September 28, 2004
Decision in the consolidated cases of CAG.R. SP
Nos. 80675 and 83165, what reached and was
challenged before this Court in G.R. Nos. 167274-
75 is the ruling of the Court of Appeals in both
cases. When this Court rendered its July 21, 2008
Decision, the ruling necessarily embraced both
CA G.R. SP Case Nos. 80675 and 83165 and
adjudicated the respective rights of the parties.
Clearly then, there was indeed an inadvertence
in not specifying in the fallo of our July 21,
2008Decision that the September 28, 2004 CA
Decision included not only CAG.R. SP No. 80675
but also CA G.R. SP No. 83165 since the two
cases were merged prior to the issuance of the
September 28, 2004 Decision.
Given the above perspective, the inclusion of CA
G.R. SP Case No.83165 in the fallo of the Decision
dated July 21, 2008 is very much in order and is in
keeping with the imperatives of fairness.
2. The very contents of the body of the Decision
dated July 21,2008 rendered by this Court in G.R.
Nos. 167274-75 undoubtedly reveal that both CA
G.R. SP No. 80675 and CA G.R. SP No. 83165 were
the subject matter of the petition therein. And as
FTC would point out at every turn, the Court’s
Decision passed upon and decided the merits of
the September 28,2004 Decision of the Court of
Appeals in the consolidated cases of CA G.R.SP
Case Nos. 80675 and 83165 and necessarily CA
G.R. SP No. 83165 was included in our disposition
of G.R. Nos. 167274-75. We quote the pertinent
portions of the said decision:
The following undisputed facts, summarized by
the Court of Appeals, are quoted in the assailed
Decision dated 28 September 2004:
CAG.R. SP No. 80675
xxxx
Petitioner FTC is the manufacturer/producer of,
among others, the following cigarette brands,
with tax rate classification based on net retail
price prescribed by Annex "D" to R.A. No. 4280, to
wit:
Brand Tax Rate
Champion M 100 ₱1.00
Salem M 100 ₱1.00
Salem M King ₱1.00
Camel F King ₱1.00
Camel Lights Box 20’s ₱1.00

Camel Filters Box 20’s ₱1.00
Winston F Kings ₱5.00
Winston Lights ₱5.00
Immediately prior to January 1, 1997, the above-
mentioned cigarette brands were subject to ad valorem
tax pursuant to then Section142 of the Tax Code of 1977,
as amended. However, on January 1, 1997,R.A. No. 8240
took effect whereby a shift from the ad valorem tax
(AVT)system to the specific tax system was made and
subjecting the aforesaid cigarette brands to specific tax
under Section 142 thereof, now renumbered as Sec. 145
of the Tax Code of 1997, pertinent provisions of which are
quoted thus:
xxxx
The rates of excise tax on cigars and cigarettes under
paragraphs (1), (2) (3) and (4) hereof, shall be increased
by twelve percent (12%) on January 1, 2000. (Emphasis
supplied.)
xxxx
To implement the provisions for a twelve percent (12%)
increase of excise tax on, among others, cigars and
cigarettes packed by machines by January 1, 2000, the
Secretary of Finance, xxx issued Revenue Regulations [RR]
No. 17-99, dated December 16, 1999, which provides the
increase on the applicable tax rates on cigar and
cigarettes x x x.
[tax rates deleted]
Revenue Regulations No. 17-99 likewise provides in the
last paragraph of Section 1 thereof, "(t)hat the new
specific tax rate for any existing brand of cigars,
cigarettes packed by machine, distilled spirits, wines and
fermented liquor shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000."
For the period covering January 1-31, 2000, petitioner
allegedly paid specific taxes on all brands manufactured
and removed in the total amounts of ₱585,705,250.00.
On February 7, 2000, petitioner filed with respondent’s
Appellate Division a claim for refund or tax credit of its
purportedly overpaid excise tax for the month of January
2000 in the amount of ₱35,651,410.00.
On June 21, 2001, petitioner filed with respondent’s Legal
Service a letter dated June 20, 2001 reiterating all the
claims for refund/tax credit of its overpaid excise taxes
filed on various dates, including the present claim for the
month of January 2000 in the amount of ₱35,651,410.00.
As there was no action on the part of the respondent,
petitioner filed the instant petition for review with this
Court on December 11, 2001,in order to comply with the
two-year period for filing a claim for refund.
xxxx
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that
the said case questions the CTA’s December 4, 2003
decision in CTA Case No.6612 granting respondent’s
claim for refund of the amount of ₱355,385,920.00
representing erroneously or illegally collected specific
taxes covering the period January 1, 2002 to December
31, 2002, as well as its March 17, 2004 Resolution denying
a reconsideration thereof.
xxxx
However, on consolidated motions for reconsideration
filed by the respondent in CTA Case Nos. 6363 and 6383,
the July 15, 2002 resolution was set aside, and the Tax
Court ruled, this time with a semblance of finality, that the
respondent is entitled to the refund claimed. Hence, in
are solution dated November 4, 2003, the tax court
reinstated its December 21, 2002 Decision and disposed
as follows:
WHEREFORE, our Decisions in CTA Case Nos.6365 and
6383 are hereby REINSTATED. Accordingly, respondent is
hereby ORDERED to REFUND petitioner the total amount
of ₱680,387,025.00 representing erroneously paid excise
taxes for the period January 1, 2000 to January 31, 2000
and February 1,2000 to December 31, 2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the CTA rendered a
decision in CTA Case No. 6612 granting the prayer for the
refund of the amount of ₱355,385,920.00 representing
overpaid excise tax for the period covering January 1,
2002 to December 31, 2002. The tax court disposed of the
case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is
GRANTED. Accordingly, respondent is hereby ORDERED to
REFUND to petitioner the amount of ₱355,385,920.00
representing overpaid excise tax for the period covering
January 1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the
same was denied in a Resolution dated March 17,
2004.1âwphi1(Emphasis supplied; citations omitted.)
The Commissioner appealed the aforesaid decisions of
the CTA. The petition questioning the grant of refund in
the amount of ₱680,387,025.00 was docketed as CA-G.R.
SP No. 80675, whereas that assailing the grant of refund in
the amount of ₱355,385,920.00 was docketed as CA-G.R.
SP No. 83165. The petitions were consolidated and
eventually denied by the CA. The appellate court also
denied reconsideration in its Resolution dated 1 March
2005.
In its Memorandum 22 dated November 2006, filed on
behalf of the Commissioner, the Office of the Solicitor
General (OSG) seeks to convince the Court that the
literal interpretation given by the CTA and the CA of
Section 145 of the Tax Code of 1997 (Tax Code) would
lead to a lower tax imposable on 1 January 2000 than
that imposable during the transition period. Instead of an
increase of 12% in the tax rate effective on 1 January
2000 as allegedly mandated by the Tax Code, the
appellate court’s ruling would result in a significant
decrease in the tax rate by as much as 66%.
xxxx
Finally, the OSG asserts that a tax refund is in the nature of
a tax exemption and must, therefore, be construed
strictly against the taxpayer, such as Fortune Tobacco. In
its Memorandum dated 10 November 2006, Fortune
Tobacco argues that the CTA and the CA merely
followed the letter of the law when they ruled that the
basis for the 12% increase in the tax rate should be the
net retail price of the cigarettes in the market as outlined
in paragraph C, sub par. (1)-(4), Section 145 of the Tax
Code. The Commissioner allegedly has gone beyond his
delegated rule-making power when he promulgated,
enforced and implemented RR No. 17-99,which
effectively created a separate classification for
cigarettes based on the excise tax "actually being paid
prior to January 1, 2000."
xxxx
This entire controversy revolves around the interplay
between Section 145 of the Tax Code and RR 17-99. The
main issue is an inquiry into whether the revenue
regulation has exceeded the allowable limits of legislative
delegation.
xxxx
Revenue Regulation 17-99, which was issued pursuant to
the unquestioned authority of the Secretary of Finance to
promulgate rules and regulations for the effective
implementation of the Tax Code, interprets the above-
quoted provision and reflects the 12% increase in excise
taxes in the following manner:
[table on tax rates deleted]
This table reflects Section 145 of the Tax Code insofar as it
mandates a 12% increase effective on 1 January 2000
based on the taxes indicated under paragraph C, sub-
paragraph (1)-(4). However, RR No.17-99 went further and
added that "The new specific tax rate for any existing
brand of cigars, cigarettes packed by machine, distilled
spirits, wines and fermented liquor shall not be lower than
the excise tax that is actually being paid prior to January
1, 2000."
Parenthetically, Section 145 states that during the
transition period ,i.e., within the next three (3) years from
the effectivity of the Tax Code, the excise tax from any
brand of cigarettes shall not be lower than the tax due
from each brand on 1 October 1996. This qualification,
however, is conspicuously absent as regards the 12%
increase which is to be applied on cigars and cigarettes
packed by machine, among others, effective on 1
January 2000. Clearly and unmistakably, Section
145mandates a new rate of excise tax for cigarettes
packed by machine due to the 12% increase effective
on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be
lower than that collected prior to this date.
By adding the qualification that the tax due after the 12%
increase becomes effective shall not be lower than the
tax actually paid prior to 1January 2000, RR No. 17-99
effectively imposes a tax which is the higher amount
between the ad valorem tax being paid at the end of
the three (3)-year transition period and the specific tax
under paragraph C, sub-paragraph (1)-(4), as increased
by 12%—a situation not supported by the plain wording
of Section 145 of the Tax Code.
This is not the first time that national revenue officials had
ventured in the area of unauthorized administrative
legislation.
In Commissioner of Internal Revenue v. Reyes, respondent
was not informed in writing of the law and the facts on
which the assessment of estate taxes was made pursuant
to Section 228 of the 1997 Tax Code, as amended by
Republic Act (R.A.) No. 8424. She was merely notified of
the findings by the Commissioner, who had simply relied
upon the old provisions of the law and RR No. 12-85 which
was based on the old provision of the law. The Court held
that in case of discrepancy between the law as
amended and the implementing regulation based on the
old law, the former necessarily prevails. The law must still
be followed, even though the existing tax regulation at
that time provided for a different procedure.
xxxx
In the case at bar, the OSG’s argument that by 1 January
2000, the excise tax on cigarettes should be the higher
tax imposed under the specific tax system and the tax
imposed under the
ad valorem tax system plus the 12% increase imposed by
paragraph 5, Section 145 of the Tax Code, is an
unsuccessful attempt to justify what is clearly an
impermissible incursion into the limits of administrative
legislation. Such an interpretation is not supported by the
clear language of the law and is obviously only meant to
validate the OSG’s thesis that Section 145 of the Tax
Code is ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1
January 2000 does not apply to the brands of cigarettes
listed under Annex "D" is likewise unmeritorious, absurd
even. Paragraph 8, Section 145of the Tax Code simply
states that, "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’, shall remain in force until
revised by Congress." This declaration certainly does not
lend itself to the interpretation given to it by the OSG. As
plainly worded, the average net retail prices of the listed
brands under Annex "D," which classify cigarettes
according to their net retail price into low, medium or
high, obviously remain the bases for the application of
the increase in excise tax rates effective on 1 January
2000.
The foregoing leads us to conclude that RR No. 17-99 is
indeed indefensibly flawed. The Commissioner cannot
seek refuge in his claim that the purpose behind the
passage of the Tax Code is to generate additional
revenues for the government. Revenue generation has
undoubtedly been a major consideration in the passage
of the Tax Code. However, as borne by the legislative
record, the shift from the ad valorem system to the
specific tax system is likewise meant to promote fair
competition among the players in the industries
concerned, to ensure an equitable distribution of the tax
burden and to simplify tax administration by classifying
cigarettes x x x into high, medium and low- priced based
on their net retail price and accordingly graduating tax
rates.
xxxx
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA G.R. SP No. 80675, dated 28
September 2004, and its Resolution, dated 1 March 2005,
are AFFIRMED. No pronouncement as to costs.
SO ORDERED.12
The July 21, 2008 Decision in G.R. Nos. 167274-75 brings
into sharp focus the following facts and proceedings:
1. It specifically mentioned CA G.R. SP No. 80675
and CA G.R.SP No. 83165 as the subject matter of
the decision on p. 2 and p. 7,respectively.
2. It traced the history of CTA Case Nos. 6365 and
6383 from the time the CTA peremptorily resolved
the twin refund suits to the appeal of the
decisions thereat to the Court of Appeals via a
petition docketed as CA-G.R. SP No. 80675 and
eventually to this Court in G.R. Nos. 167274-75. It
likewise narrated the events connected with CTA
Case No. 6612 to the time the decision in said
case was appealed to the Court of Appeals in
CA-G.R.SP No. 83165, consolidated with CA G.R.
SP No. 80675 and later decided by the appellate
court. It cited the appeal from the CA decision
by the BIR Commissioner to this Court in G.R. Nos.
167274-75.
3. It resolved in the negative the main issue
presented in both CA-G.R. SP No. 80675 and CA-
G.R. SP No. 83165 as to whether or not the last
paragraph of Section 1 of Revenue Regulation
No. 17-99 is in accordance with the pertinent
provisions of Republic Act No. 8240, now
incorporated in Section 145 of the Tax Code of
1997.
4. The very disposition in the fallo in G.R. Case
Nos. 167274-75 that "the petition is denied" and
that the "Decision of the Court of Appeals x x x
dated 28 September 2004 and its Resolution
dated 1 March 2005 are affirmed" reflects an
intention that CA G.R. SP No. 83165 should have
 been stated therein, being one of the cases
subject of the September 28, 2004 CA Decision.
The legality of Revenue Regulation No. 17-99 is the only
determinative issue resolved by the July 21, 2008 Decision
which was the very same issue resolved by the CA in the
consolidated CA-G.R. SP Nos.80675 and 83165 and
exactly the same issue in CTA Nos. 6365, 6383 and 6612.
From the foregoing cogent reasons, We conclude that
CA-G.R. SP No. 83165 should be included in the fallo of
the July 21, 2008 decision.1âwphi1
It is established jurisprudence that "the only portion of the
decision which becomes the subject of execution and
determines what is ordained is the dispositive part, the
body of the decision being considered as the reasons or
conclusions of the Court, rather than its adjudication."13
In the case of Ong Ching Kian Chung v. China National
Cereals Oil and Foodstuffs Import and Export Corporation,
the Court noted two (2)exceptions to the rule that the
fallo prevails over the body of the opinion, viz:
(a) where there is ambiguity or uncertainty, the
body of the opinion may be referred to for
purposes of construing the judgment because
the dispositive part of a decision must find
support from the decision’s ratio decidendi;
(b) where extensive and explicit discussion and
settlement of the issue is found in the body of the
decision.14
Both exceptions obtain in the present case. We find that
there is an ambiguity in the fallo of Our July 21, 2008
Decision in G.R. Nos. 167274-75 considering that the
propriety of the CA holding in CA-G.R. SP No.83165
formed part of the core issues raised in G.R. Case Nos.
167274-75, but unfortunately was left out in the all-
important decretal portion of the judgment. The fallo of
Our July 21, 2008 Decision should, therefore, be
correspondingly corrected.
For sure, the CTA cannot, as the Commissioner argues, be
faulted for denying petitioner FTC’s Motion for Additional
Writ of Execution filed in CTA Case Nos. 6365, 6383 and
6612 and for denying petitioner’s Motion for
Reconsideration for it has no power nor authority to
deviate from the wording of the dispositive portion of Our
July 21, 2008 Decision in G.R. Nos. 167274-75. To reiterate,
the CTA simply followed the all too familiar doctrine that
"when there is a conflict between the dispositive portion
of the decision and the body thereof, the dispositive
portion controls irrespective what appears in the body of
the decision."15 Veering away from the fallo might even
be viewed as irregular and may give rise to a charge of
breach of the Code of Judicial Conduct. Nevertheless, it
behooves this Court for reasons articulated earlier to
grant relief to petitioner FTC by way of clarifying Our July
21, 2008 Decision. This corrective step constitutes, in the
final analysis, a continuation of the proceedings in G.R.
Case Nos. 167274-75. And it is the right thing to do under
the premises. If the BIR, or other government taxing
agencies for that matter, expects taxpayers to observe
fairness, honesty, transparency and accountability in
paying their taxes, it must, to borrow from BPI Family
Savings Bank, Inc. v Court of Appeals16 hold itself against
the same standard in refunding excess payments or
illegal exactions. As a necessary corollary, when the
taxpayer’s entitlement to are fund stands undisputed, the
State should not misuse technicalities and legalisms,
however exalted, to keep money not belonging to it.17 As
we stressed in G.R. Nos. 167274-75, the government is not
exempt from the application of solutio indebiti, a basic
postulate proscribing one, including the State, from
enriching himself or herself at the expense of another.18So
it must be here.
WHEREFORE, the petition is GRANTED. The dispositive
portion of the Court’s July 21, 2008 Decision in G.R. Nos.
167274-75 is corrected to reflect the inclusion of CA G.R.
SP No. 83165 therein. As amended, the fallo of the
aforesaid decision shall read:
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in the consolidated cases of CA- G.R.
SP No. 80675 and 83165 dated 28 September 2004, and its
Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs.
The Decision of the Court of Tax Appeals (CTA) En Banc
dated March 12, 2010 and the Resolution dated June 11,
2010 in CTA EB No. 530 entitled "Fortune Tobacco
Corporation vs. Commissioner of Internal Revenue" as well
as the Resolutions dated June 4, 2009 and August 10,
2009which denied the Motion for Issuance of Additional
Writ of Execution of the CTA First Division in CTA Cases
Nos. 6365, 6383 and 6612 are SETASIDE. The CTA is
ORDERED to issue a writ of execution directing the
respondent CIR to pay petitioner Fortune Tobacco
Corporation the amount of tax refund of ₱355,385,920.00
as adjudged in CTA Case No. 6612.
SO ORDERED.
G.R. No. 168056 October 18, 2005
Agenda for Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson
S. Alcantara, et al. vs. The Hon. Executive Secretary
Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel,
Jr., et al. vs. Executive Secretary Eduardo R. Ermita, et al.);
G.R. No. 168461 (Association of Pilipinas Shell Dealers,
Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463
(Francis Joseph G. Escudero vs. Cesar V. Purisima, et al);
and G.R. No. 168730 (Bataan Governor Enrique T. Garcia,
Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for
reconsideration of the Court’s Decision dated September
1, 2005 upholding the constitutionality of Republic Act No.
9337 or the VAT Reform Act1:
1) Motion for Reconsideration filed by petitioners in G.R.
No. 168463, Escudero, et al., on the following grounds:
A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR
THE SALE OF PETROLEUM PRODUCTS AND POWER
GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION ON THE PART OF THE BICAMERAL
CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE
CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE ORIGINATION
OF REVENUE BILLS UNDER §24, ARTICLE VI, 1987 PHILIPPINE
CONSTITUTION.
C. REPUBLIC ACT NO. 9337’S STAND-BY AUTHORITY TO THE
EXECUTIVE TO INCREASE THE VAT RATE, ESPECIALLY ON
ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER
GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES
UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No.
168730, Bataan Governor Enrique T. Garcia, Jr., with the
argument that burdening the consumers with significantly
higher prices under a VAT regime vis-à-vis a 3% gross tax
renders the law unconstitutional for being arbitrary,
oppressive and inequitable.
and
3) Motion for Reconsideration by petitioners Association
of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the
grounds that:
I. This Honorable Court erred in upholding the
constitutionality of Section 110(A)(2) and Section 110(B)
of the NIRC, as amended by the EVAT Law, imposing
limitations on the amount of input VAT that may be
claimed as a credit against output VAT, as well as Section
114(C) of the NIRC, as amended by the EVAT Law,
requiring the government or any of its instrumentalities to
withhold a 5% final withholding VAT on their gross
payments on purchases of goods and services, and
finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to
amount to a deprivation of property without due process
of law in violation of Article III, Section 1 of the 1987
Philippine Constitution;
B. do not violate the equal protection clause prescribed
under Article III, Section 1 of the 1987 Philippine
Constitution; and
C. apply uniformly to all those belonging to the same
class and do not violate Article VI, Section 28(1) of the
1987 Philippine Constitution.
II. This Honorable Court erred in upholding the
constitutionality of Section 110(B) of the NIRC, as
amended by the EVAT Law, imposing a limitation on the
amount of input VAT that may be claimed as a credit
against output VAT notwithstanding the finding that the
tax is not progressive as exhorted by Article VI, Section
28(1) of the 1987 Philippine Constitution.
Respondents filed their Consolidated Comment.
Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral
conference committee should not even have acted on
the no pass-on provisions since there is no disagreement
between House Bill Nos. 3705 and 3555 on the one hand,
and Senate Bill No. 1950 on the other, with regard to
the no pass-on provision for the sale of service for power
generation because both the Senate and the House
were in agreement that the VAT burden for the sale of
such service shall not be passed on to the end-consumer.
As to the no pass-on provision for sale of petroleum
products, petitioners argue that the fact that the
presence of such a no pass-on provision in the House
version and the absence thereof in the Senate Bill means
there is no conflict because "a House provision cannot be
in conflict with something that does not exist."
Such argument is flawed. Note that the rules of both
houses of Congress provide that a conference
committee shall settle the "differences" in the respective
bills of each house. Verily, the fact that a no pass-
on provision is present in one version but absent in the
other, and one version intends two industries, i.e., power
generation companies and petroleum sellers, to bear the
burden of the tax, while the other version intended only
the industry of power generation, transmission and
distribution to be saddled with such burden, clearly shows
that there are indeed differences between the bills
coming from each house, which differences should be
acted upon by the bicameral conference committee. It
is incorrect to conclude that there is no clash between
two opposing forces with regard to the no pass-
on provision for VAT on the sale of petroleum products
merely because such provision exists in the House version
while it is absent in the Senate version. It is precisely the
absence of such provision in the Senate bill and the
presence thereof in the House bills that causes the
conflict. The absence of the provision in the Senate bill
shows the Senate’s disagreement to the intention of the
House of Representatives make the sellers of petroleum
bear the burden of the VAT. Thus, there are indeed two
opposing forces: on one side, the House of
Representatives which wants petroleum dealers to be
saddled with the burden of paying VAT and on the other,
the Senate which does not see it proper to make that
particular industry bear said burden. Clearly, such
conflicts and differences between the no pass-
on provisions in the Senate and House bills had to be
acted upon by the bicameral conference committee as
mandated by the rules of both houses of Congress.
Moreover, the deletion of the no pass-on provision made
the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision
promulgated on September 1, 2005, is a tax on spending
or consumption, thus, the burden thereof is ultimately
borne by the end-consumer.
Escudero, et al., then claim that there had been changes
introduced in the Rules of the House of Representatives
regarding the conduct of the House panel in a bicameral
conference committee, since the time of Tolentino vs.
Secretary of Finance2 to act as safeguards against
possible abuse of authority by the House members of the
bicameral conference committee. Even assuming that
the rule requiring the House panel to report back to the
House if there are substantial differences in the House
and Senate bills had indeed been introduced
after Tolentino, the Court stands by its ruling that the issue
of whether or not the House panel in the bicameral
conference committee complied with said internal rule
cannot be inquired into by the Court. To reiterate, "mere
failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body)
when the requisite number of members have agreed to a
particular measure."3
Escudero, et. al., also contend that Republic Act No. 9337
grossly violates the constitutional imperative on exclusive
origination of revenue bills under Section 24 of Article VI
of the Constitution when the Senate introduced
amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may
propose or concur with amendments.
Section 24 speaks of origination of certain bills from the
House of Representatives which has been interpreted in
the Tolentino case as follows:
… To begin with, it is not the law — but the revenue bill —
which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important
to emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole … At this point,
what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a
revenue statute — and not only the bill which initiated
the legislative process culminating in the enactment of
the law — must substantially be the same as the House
bill would be to deny the Senate's power not only to
"concur with amendments" but also to " propose
amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
… Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version
even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills
and bills of local application must come from the House
of Representatives on the theory that, elected as they
are from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.4
Clearly, after the House bills as approved on third reading
are duly transmitted to the Senate, the Constitution states
that the latter can propose or concur with amendments.
The Court finds that the subject provisions found in the
Senate bill are within the purview of such constitutional
provision as declared in the Tolentino case.
The intent of the House of Representatives in initiating
House Bill Nos. 3555 and 3705 was to solve the country’s
serious financial problems. It was stated in the respective
explanatory notes that there is a need for the
government to make significant expenditure savings and
a credible package of revenue measures. These
measures include improvement of tax administration and
control and leakages in revenues from income taxes and
value added tax. It is also stated that one opportunity
that could be beneficial to the overall status of our
economy is to review existing tax rates, evaluating the
relevance given our present conditions. Thus, with these
purposes in mind and to accomplish these purposes for
which the house bills were filed, i.e., to raise revenues for
the government, the Senate introduced amendments on
income taxes, which as admitted by Senator Ralph
Recto, would yield about ₱10.5 billion a year.
Moreover, since the objective of these house bills is to
raise revenues, the increase in corporate income taxes
would be a great help and would also soften the impact
of VAT measure on the consumers by distributing the
burden across all sectors instead of putting it entirely on
the shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC)
provisions found in Senate Bill No. 1950, i.e., percentage
taxes, franchise taxes, amusement and excise taxes,
these provisions are needed so as to cushion the effects
of VAT on consumers. As we said in our decision, certain
goods and services which were subject to percentage
tax and excise tax would no longer be VAT exempt, thus,
the consumer would be burdened more as they would
be paying the VAT in addition to these taxes. Thus, there is
a need to amend these sections to soften the impact of
VAT. The Court finds no reason to reverse the earlier ruling
that the Senate introduced amendments that are
germane to the subject matter and purposes of the
house bills.
Petitioners Escudero, et al., also reiterate that R.A. No.
9337’s stand- by authority to the Executive to increase the
VAT rate, especially on account of the recommendatory
power granted to the Secretary of Finance, constitutes
undue delegation of legislative power. They submit that
the recommendatory power given to the Secretary of
Finance in regard to the occurrence of either of two
events using the Gross Domestic Product (GDP) as a
benchmark necessarily and inherently required extended
analysis and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates
that in making his recommendation to the President on
the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. He is acting as the
agent of the legislative department, to determine and
declare the event upon which its expressed will is to take
effect. The Secretary of Finance becomes the means or
tool by which legislative policy is determined and
implemented, considering that he possesses all the
facilities to gather data and information and has a much
broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other
pertinent information and verify if any of the two
conditions laid out by Congress is present. Congress
granted the Secretary of Finance the authority to
ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a
percentage of GDP of the previous year exceeds two
and four-fifth percent (24/5%) or the national government
deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1½%). If either of
these two instances has occurred, the Secretary of
Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must
be imposed by the President effective January 1, 2006.
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be
done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the
only way in which the legislative process can go
forward. There is no undue delegation of legislative
power but only of the discretion as to the execution of a
law. This is constitutionally permissible. Congress did not
delegate the power to tax but the mere implementation
of the law. The intent and will to increase the VAT rate to
12% came from Congress and the task of the President is
to simply execute the legislative policy. That Congress
chose to use the GDP as a benchmark to determine
economic growth is not within the province of the Court
to inquire into, its task being to interpret the law.
With regard to petitioner Garcia’s arguments, the Court
also finds the same to be without merit. As stated in the
assailed Decision, the Court recognizes the burden that
the consumers will be bearing with the passage of R.A.
No. 9337. But as was also stated by the Court, it cannot
strike down the law as unconstitutional simply because of
its yokes. The legislature has spoken and the only role that
the Court plays in the picture is to determine whether the
law was passed with due regard to the mandates of the
Constitution. Inasmuch as the Court finds that there are
no constitutional infirmities with its passage, the validity of
the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers,
Inc. reiterated their arguments in the petition, citing this
time, the dissertation of Associate Justice Dante O. Tinga
in his Dissenting Opinion.
The glitch in petitioners’ arguments is that it presents
figures based on an event that is yet to happen. Their
illustration of the possible effects of the 70% limitation,
while seemingly concrete, still remains theoretical.
Theories have no place in this case as the Court must only
deal with an existing case or controversy that is
appropriate or ripe for judicial determination, not one that
is conjectural or merely anticipatory.5 The Court will not
intervene absent an actual and substantial controversy
admitting of specific relief through a decree conclusive in
nature, as distinguished from an opinion advising what
the law would be upon a hypothetical state of facts.6
The impact of the 70% limitation on the creditable input
tax will ultimately depend on how one manages and
operates its business. Market forces, strategy and
acumen will dictate their moves. With or without these
VAT provisions, an entrepreneur who does not have the
ken to adapt to economic variables will surely perish in
the competition. The arguments posed are within the
realm of business, and the solution lies also in business.
Petitioners also reiterate their argument that the input tax
is a property or a property right. In the same breath, the
Court reiterates its finding that it is not a property or a
property right, and a VAT-registered person’s entitlement
to the creditable input tax is a mere statutory privilege.
Petitioners also contend that even if the right to credit the
input VAT is merely a statutory privilege, it has already
evolved into a vested right that the State cannot remove.
As the Court stated in its Decision, the right to credit the
input tax is a mere creation of law. Prior to the enactment
of multi-stage sales taxation, the sales taxes paid at every
level of distribution are not recoverable from the taxes
payable. With the advent of Executive Order No. 273
imposing a 10% multi-stage tax on all sales, it was only
then that the crediting of the input tax paid on purchase
or importation of goods and services by VAT-registered
persons against the output tax was established. This
continued with the Expanded VAT Law (R.A. No. 7716),
and The Tax Reform Act of 1997 (R.A. No. 8424). The right
to credit input tax as against the output tax is clearly a
privilege created by law, a privilege that also the law can
limit. It should be stressed that a person has no vested
right in statutory privileges.7
The concept of "vested right" is a consequence of the
constitutional guaranty of due process that expresses a
present fixed interest which in right reason and natural
justice is protected against arbitrary state action; it
includes not only legal or equitable title to the
enforcement of a demand but also exemptions from new
obligations created after the right has become vested.
Rights are considered vested when the right to
enjoyment is a present interest, absolute, unconditional,
and perfect or fixed and irrefutable.8 As adeptly stated
by Associate Justice Minita V. Chico-Nazario in her
Concurring Opinion, which the Court adopts, petitioners’
right to the input VAT credits has not yet vested, thus –
It should be remembered that prior to Rep. Act No. 9337,
the petroleum dealers’ input VAT credits were inexistent –
they were unrecognized and disallowed by law. The
petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits
when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet
even been implemented, is that petroleum dealers’ right
to use their input VAT as credit against their output VAT
unlimitedly has not vested, being a mere expectancy of
a future benefit and being contingent on the
continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep.
Act No. 9337.
The elucidation of Associate Justice Artemio V.
Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted
accounting principles. These refer to accounting
concepts, measurement techniques, and standards of
presentation in a company’s financial statements, and
are not rooted in laws of nature, as are the laws of
physical science, for these are merely developed and
continually modified by local and international regulatory
accounting bodies. To state otherwise and recognize
such asset account as a vested right is to limit the taxing
power of the State. Unlimited, plenary, comprehensive
and supreme, this power cannot be unduly restricted by
mere creations of the State.
More importantly, the assailed provisions of R.A. No. 9337
already involve legislative policy and wisdom. So long as
there is a public end for which R.A. No. 9337 was passed,
the means through which such end shall be
accomplished is for the legislature to choose so long as it
is within constitutional bounds. As stated in Carmichael vs.
Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that
the legislature, in adopting the present scheme rather
than another, had no basis for its choice, or was arbitrary
or unreasonable in its action. But, as the state is free to
distribute the burden of a tax without regard to the
particular purpose for which it is to be used, there is no
warrant in the Constitution for setting the tax aside
because a court thinks that it could have distributed the
burden more wisely. Those are functions reserved for the
legislature.9
WHEREFORE, the Motions for Reconsideration are
hereby DENIED WITH FINALITY. The temporary restraining
order issued by the Court is LIFTED.
SO ORDERED.
(The Justices who filed their respective concurring and
dissenting opinions maintain their respective positions.
Justice Dante O. Tinga filed a dissenting opinion to the
present Resolution; while Justice Consuelo Ynares-
Santiago joins him in his dissenting opinion.)
Footnotes
1 Also referred to as the EVAT Law.
2G.R. Nos. 115455, 115525, 115543, 115544,
115754, 115781, 115852, 115873 and 115931,
August 25, 1994, 235 SCRA 630.
3Fariñas vs. The Executive Secretary, G.R. No.
147387, December 10, 2003, 417 SCRA 503, 530.
4 Supra, note no. 2, pp. 661-663.
5Velarde vs. Social Justice Society, G.R. No.
159357, April 28, 2004, 428 SCRA 283.
6Information Technology Foundation of the Phils.
vs. COMELEC, G.R. No. 159139, June 15, 2005.
7Lahom vs. Sibulo, G.R. No. 143989, July 14, 2003,
406 SCRA 135.
8 Ibid.
9 301 U.S. 495.
The Lawphil Project - Arellano Law Foundation
GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly
AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO v. THE HON. EXECUTIVE SECRETARY
EDUARDO ERMITA, ET AL.)
GR No. 168207 – (AQUILINO Q. PIMENTEL, JR., ET. AL. v.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, ET. AL.)
GR No. 168461 – ASSOCIATION OF PILIPINAS SHELL
DEALERS, INC. represented by its President, ROSARIO
ANTONIO, ET AL. v. CESAR V. PURISIMA, in his capacity as
Secretary of the Department of Finance and GUILLERMO
L. PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue.
GR No. 168463 – FRANCIS JOSEPH G. ESCUDERO, ET AL. v.
CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and EDUARDO R.
ERMITA, in his capacity as Executive Secretary.
GR. No. 168730 – BATAAN GOVERNOR ENRIQUE T.
GARCIA, JR. v. HON. EDUARDO R. ERMITA, in his capacity
as the Executive Secretary; HON. MARGARITO TEVES, in his
capacity as Secretary of Finance; HON. JOSE MARIO
BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Customs.
x-------------------------------------------------------------------x
DISSENTING OPINION
Tinga, J.:
Once again, the majority has refused to engage and
refute in any meaningful fashion the arguments raised by
the petitioners in G.R. No. 168461. The de
minimis appreciation exhibited by the majority of the
issues of 70% cap, the 60-month amortization period, and
5% withholding VAT on transactions made with the
national government is regrettable, with ruinous
consequences for the nation. I see no reason to turn
back from any of the views expressed in
my Dissenting Opinion, and I accordingly dissent from the
denial of the Motion for Reconsideration filed by the
petitioners in G.R. No. 168461.1
The reasons for my vote have been comprehensively
discussed in my previous Dissenting Opinion, and I do not
see the need to replicate them herein. However, I wish to
stress a few points.
Tax Statutes May Be Invalidated
If They Pose a Clear and Present Danger
To the Deprivation of Life, Liberty and
Property Without Due Process of Law
The majority again dismisses the arguments of the
petitioners as "theoretical", "conjectural" or merely
"anticipatory," notwithstanding that the injury to the
taxpayers resulting from Section 8 and 12 of the E-VAT
Law is ascertainable with mathematical certainty. In
support of this view, the majority cites the
Court’s Resolution dated 15 June 2005 in Information
Technology Foundation v. COMELEC,2 one of the rulings
issued in that case subsequent to the
main Decision rendered on 13 January 2004. The
reference is grievously ironic, considering that in the 13
January 2004 Decision, the Court, over vigorous dissents,
chose anyway to intervene and grant the petition
despite the fact that the petitioners therein did not allege
any violation of any constitutional provision or letter of
statute.3 In this case, the petitioners have squarely
invoked the violation of the Bill of Rights of the
Constitution, and yet the majority is suddenly timid, unlike
in Infotech.
Still, the formulation of the majority unfortunately leaves
the impression that any statute, taxing or otherwise, is
beyond judicial attack prior to its implementation. If the
tax measure in question provided that the taxpayer shall
remit all income earned to the government beginning 1
January 2008, would this mean that the Court can take
cognizance of the legal challenge only starting 2 January
2008?
I do not share the majority’s penchant for awaiting the
blood spurts before taking action even when the knife’s
edge already dangles. As I maintained in my Dissenting
Opinion, a tax measure may be validly challenged and
stricken down even before its implementation if it poses a
clear and present danger to the deprivation of life, liberty
or property of the taxpayer without due process of law.
This is the expectation of every citizen who wishes to
maintain trust in all the branches of government. In the
enforcement of the constitutional rights of all persons, the
commonsense expectation is that the Court, as guardian
of these rights, is empowered to step in even before the
prospective violation takes place. Hence, the evolution
of the "clear and present danger" doctrine and other
analogous principles, without which, the Court would be
seen as inutile in the face of constitutional violation.
Of course, not every anticipatory threat to constitutional
liberties can be assailed prior to implementation, hence
the employment of the "clear and present danger"
standard to separate the wheat from the chaff. Still, the
Court should not be so readily dismissive of the
petitioners’ posture herein merely because it is
anticipatory. There should have been a meaningful
engagement by the majority of the facts and formulae
presented by the petitioners before the reasonable
conclusion could have been reached on the maturity of
the claim. That the majority has not bothered to do so is
ultimately of tragic consequence.
70% Input VAT Credit
An Impaired Asset
The ponencia, joined by Justices Panganiban and Chico-
Nazario, express the belief that no property rights attach
to the input VAT paid by the taxpayer. This is a bizarre
view that assumes that all income earned by private
persons preternaturally belongs to the government, and
whatever is retained by the person after taxes is acquired
as a matter of privilege. This is the sort of thinking that has
fermented revolutions throughout history, such as the
American Revolution of 1776.
I pointed out in my Dissenting Opinion that under current
accepted international accounting standards, the 30%
prepaid input VAT would be recorded as a loss in the
accounting books, since the possibility of its recovery is
improbable, considering that the E-VAT Law allows its
recovery only after the business has ceased to exist. Even
the Bureau of Internal Revenue itself has long recognized
the unutilized input VAT as an asset.
The majority fails to realize that even under the new E-VAT
Law, the State recognizes that the persons who pre-pay
that input VAT, usually the dealers or retailers, are not the
persons who are liable to pay for the tax. The VAT system,
as implemented through the previous VAT law and the
new E-VAT Law, squarely holds the end consumer as the
taxpayer liable to shoulder the input VAT. Nonetheless,
under the mechanism foisted in the new E-VAT Law, the
dealer or retailer who pre-pays the input VAT is virtually
precluded from recovering the pre-paid input VAT, since
the law only allows such recovery upon the cessation of
the business. Indeed, the only way said class of taxpayers
can recover this pre-paid input VAT was if it were to
cease operations at the end of every quarter.
The illusion that blinds the majority to this state of affairs is
the claim that the pre-paid input VAT may anyway be
carried over into the succeeding quarter, a chimera
enhanced by the grossly misleading presentation of the
Office of the Solicitor General. What this deception
fosters, and what the majority fails to realize, is that since
the taxpayer is perpetually obliged to remit the 30% input
VAT every quarter, there would be a continuous
accumulation of excess input VAT. It is not true then that
the input VAT prepaid for the first quarter can be
recovered in the second, third or fourth quarter of that
year, or at any time in the next year for that matter since
the amount of prepaid input VAT accumulates with every
succeeding prepayment of input VAT. Moreover, the
accumulation of the prepaid input VAT diminishes the
actual value of the refundable amounts, considering the
established principle of "time-value of money", as
explained in my Dissenting Opinion.
Thus, the pre-paid input VAT, for which the petitioners and
other similarly situated taxpayers are not even ultimately
liable in the first place, represents in tangible terms an
actual loss. To put it more succinctly, when the taxpayer
prepays the 30% input VAT, there is no chance for its
recovery except until after the taxpayer ceases to be
such. This point is crucial, as it goes in the heart of the
constitutional challenge raised by the petitioners. A
recognition that the input VAT is a property asset places it
squarely in the ambit of the due process clause.
The majority now stresses that prior to Executive Order No.
273 sales taxes paid by the retailer or dealers were not
recoverable. The nature of a sales tax precisely is that it is
shouldered by the seller, not the consumer. In that case,
the clear legislative intent is to encumber the retailer with
the end tax. Under the VAT system, as enshrined under
Rep. Act No. 9337, the new E-VAT Law, there is precisely a
legislative recognition that it is the end user, not the seller,
who shoulders the E-VAT. The problem with the new E-VAT
law is that it correspondingly imposes a defeatist
mechanism that obviates this entitlement of the seller by
forcibly withholding in perpetua this pre-paid input VAT.
The majority cites with approval Justice Chico-Nazario’s
argument, as expressed in her concurring opinion, that
prior to the new E-VAT Law, the petroleum dealers in
particular had no input VAT credits to speak of, and
therefore, could not assert any property rights to the input
VAT credits under the new law. Of course the petroleum
dealers had no input VAT credits prior to the E-VAT Law
because precisely they were not covered by the VAT
system in the first place. What would now be classified as
"input VAT credits" was, in real terms, profit obtainable by
the petroleum dealers prior to the new E-VAT Law. The E-
VAT Law stands to diminish such profit, not by outright
taking perhaps, but by ad infinitum confiscation with the
illusory promise of eventual return. Obviously, there is a
deprivation of property in such case; yet is it seriously
contended that such deprivation is ipso facto sheltered if
it is not classified as a taking, but instead reclassified as a
"credit"?
It is highly distressful that the Court, in its haste to decree
petitioners as bereft of any vested property rights, rejects
the notion that a person has a vested right to the
earnings and profits incurred in business. Before, no legal
basis could be found to prop up such a palpably
outlandish claim; but the Decision, as affirmed by the
majority’s Resolution, now enshrines a temerarious
proposition with doctrinal status.
In the Decision, and also in Justice
Panganiban’s Separate Opinion therein, the case
of United Paracale Mining Co. v. De la Rosa4 was cited in
support of the proposition that there is no vested right to
the input VAT credit. Justice Panganiban went as far as to
cite that case to support the contention that "[t]here is no
vested right in a deferred input tax account; it is a mere
statutory privilege." Reliance on the case is quite
misplaced. First, as pointed out in my Dissenting Opinion,
it does not even pertain to tax credits involving as it does,
questions on the jurisdiction of the Bureau of
Mines.5 Second, the putative vested rights therein
pertained to mining claims, yet all mineral resources
indisputably belong to the State. Herein, the rights pertain
to profit incurred by private enterprise, and certainly the
majority cannot contend that such profits actually
belong to the State.
As stated in my Dissenting Opinion, the Constitution itself
recognizes a right to income and profit when it
recognizes "the right of enterprises to reasonable returns
on investments, and to expansion and growth."6 Section
20, Article II of the Constitution further mandates that the
State recognize the indispensable role of the private
sector, the encouragement of private enterprise, and the
provision of incentives to needed investments.7 Indeed,
there is a fundamental recognition in any form of
democratic government that recognizes a capitalist
economy that the enterprise has a right to its profits.
Today, the Court instead affirms that there is no such
right. Should capital flight ensue, the phenomenom
should not be blamed on investors in view of our judicial
system’s rejection of capitalism’s fundamental precept.
Mainstream Denunciation of 70% Cap
The fact that petitioners are dealers of petroleum
products may have left the impression that the 70% cap
singularly affects the petroleum industry; or that other
classes of dealers or retailers do not pose the same
objections to these "innovations" in the E-VAT law. This is
far from the truth.
In fact, the clamor against the 70% cap has been
widespread among the players and components in the
financial mainstream. Denunciations have been
registered by the Philippine Chamber of Commerce and
Industry8, the Joint Foreign Chambers of the Philippines
(comprising of the American Chamber of Commerce in
the Philippines, the Australian-New Zealand Chamber
Commerce of the Philippines, Inc., the Canadian
Chamber of Commerce of the Philippines, Inc., the
European Chamber of Commerce of the Philippines, Inc.,
the Japanese Chamber of Commerce of the Philippines,
Inc., the Korean Chamber of Commerce and Industry of
the Philippines, and the Philippine Association of
Multinational Companies Regional Headquarters,
Inc.),9 the Filipino-Chinese Chamber of Commerce and
Industry,10 the Federation of Philippine Industries,11 the
Consumer and Oil Price Watch,12 the Association of
Certified Public Accountants in Public Practice,13 the
Philippine Tobacco Institute,14 and the auditing firm of
PricewaterhouseCooper.15
Even newly installed Finance Secretary Margarito Teves
has expressed concern that the 70% input VAT "may not
work across all industries because of varying profit
margins".16 Other experts who have voiced concerns on
the 70% input VAT are former NEDA Directors Cielito
Habito17 and Solita Monsod,18 Peter Wallace of the
Wallace Business Forum,19 and Paul R. Cooper, director of
PricewaterhouseCooper.
In fact, Mr. Cooper published in the Philippine Daily
Inquirer a lengthy disquisition on the problems surrounding
the 70% cap, portions of which I replicate below:
Policy concerns on the cap
When the idea of putting a cap was originally introduced
on the floor of the Senate. The idea was to address to
some extent the under-reporting of output VAT by non-
complaint taxpayers. The original suggestion was a 90
percent cap, or effectively a 1-percent minimum VAT. At
that level, the rule should not impact adversely on
complaint taxpayers, but would result in non-complaint
taxpayers having to account for closer to their true tax
liability.
As a general policy consideration, one should question
why our legislators are penalizing complaint taxpayers
when the fundamental issue is at the apparent inability of
the Bureau of Internal Revenue (BIR) to implement tax law
effectively.
At a 90-percent cap, the measure might still have been
defensible as a rough proxy for VAT. However,
somewhere in the bicameral process, the rule has
become even more punitive with a 70-percent cap. As
with most amendments introduced at the bicameral
stage, there is no public indication about what
lawmakers were thinking when they put the travesty in
place.
xxx
One of the arguments in Senate debates for taxing the
power and petroleum sectors was that if it was good
enough for mom-and-pop stores to have to account for
the VAT, it was good enough for the biggest companies
in the country to do the same. A similar argument here is
that if small businesses have to pay a minimum 3-percent
tax, why should larger VAT-registered persons get away
with paying less?
The problem with this thinking is threefold:
· The percentage tax applies to small businesses in the
hard-to-tax sector and a few believe the BIR collects
close to what it should from this. Nor should we be overly
concerned if this is the case—the revenues are small, and
the BIR’s efforts would be a lot better focused on larger
taxpayers where more significant revenues will be at
issue.
· VAT-registered persons incur compliance costs. The 3-
percent tax might be better conceived as a slightly more
expensive option to allow taxpayers to opt out of the
VAT, rather than a punitive rule for small businesses. (If the
percentage tax is considered unduly punitive, why is it
not just repealed?)
· Ironically, one of the new measures in the Senate bill
was to allow taxpayers with turnovers below, the
registration threshold to register voluntarily for VAT if they
believe the 3-percent tax imposition to be excessive.
Without the minimum VAT, smaller taxpayers might have
been encouraged to enter the more formalized VAT
sector.
Potential consequences of the cap
The minimum VAT will distort the way taxpayers conduct
business. A 3-percent minimum VAT is more likely to
impact on sellers of goods than on sellers of services, as
their proportion of taxable inputs are lower (there is no
VAT paid when using labor, but there is VAT on the
purchase of goods). Consequently, there will be a bias
toward consuming services over goods. Businesses may
have an incentive to obtain goods from the informal
(and potentially tax-evading) sector as there will be no
input tax paid for the purchase—in other words, the bill
may actively encourage less tax complaint behavior.
Business structures may change; expect buy-sell
distributors to convent into commission agents, as this
reduces the risk that they will need to pay more than
should be paid under a VAT system to cover the 3-
percent minimum VAT.20
These objections are voiced by members of the sensible
center, and not those reflexively against VAT or any tax
imposition of the current administration. These objections
are raised by the people who stand to be directly
affected on a daily punitive basis by the imposition of the
70% cap, the 60-month amortization period and the 5%
withholding VAT. Indeed, Justice Chico-Nazario has
expressed her disbelief over, or at least has asserted as
unproven, the claimed impact of the input VAT on the
petroleum dealers.21 Of course there can be no tangible
gauge as of yet on the impact of these changes in the
VAT law, since they have yet to be implemented.
However, the prevalent adverse reaction within the
business sector should be sufficiently expressive of the
actual fears of the people who should know better. It is
sad that the majority, by maintaining a blithely naïve view
of the input VAT, perpetuates the disconnect between
the Court and the business sector, unnecessarily
considering that in this instance, the concerns of the
financial community can be translated into a viable
constitutional challenge.
Reliance on Legislative Amendments
An Abdication of the Court’s Constitutional Duty
Justice Panganiban has already expressed the view that
the remedy to the inequities caused by the new input
VAT system would be amending the law, and not an
outright declaration of unconstitutionality. I can only
hazard a guess on how many members of the Court or
the legal community are similarly reliant on that remedy
as a means of assuaging their fears on the impact of the
input VAT innovations.
As I stated in my Dissenting Opinion, it is this Court, and
not the legislature, which has the duty to strike down
unconstitutional laws. Congress may amend
unconstitutional laws to remedy such legal infirmities, but
it is under no constitutional or legal obligation to do so.
The same does not hold true with this Court. The essence
of judicial review mandates that the Court strike down
unconstitutional laws.
Another corollary prospect has also arisen, that the
Executive Department itself will mitigate the
implementation of the 70% cap by not fully implementing
the law.
This prospect of course is speculative, the sort of
speculation that is wholly dependent on the whim of the
officials of the executive branch and one that cannot be
quantified by mathematical formula. This cannot be the
basis for any judicial action or vote. Moreover, such resort
may actually be illegal.
For one, Article 239 of the Revised Penal Code imposes
the penalty of prision correccional on public officers "who
shall encroach upon the powers of the legislative branch
of the Government, either by making general rules or
regulations beyond the scope of his authority, or by
attempting to repeal a law or suspending the execution
thereof." Certainly, the remedy to the inequities of the E-
VAT Law cannot be left to administrative pussy-footing,
considering that these officials may be jailed for refusing
to implement the law, or obfuscating the legislative will.
Second, it is a cardinal rule that an administrative agency
such as the Bureau of Internal Revenue or even the
Department of Finance cannot amend an act of
Congress. Whatever administrative regulations they may
adopt under legislative authority must be in harmony with
the provisions of the law they are intended to carry into
effect. They cannot widen or diminish its scope.22
Finally, it must be remembered that one of the central
doctrines enforced in the disposition of the joint petitions
is that the power to tax belongs solely to the legislative
branch of government. If the legislative will were to be
frustrated by haphazard implementation by the
executive branch, all our disquisitions on this matter, as
well as the key constitutional principle on the inherent,
non-delegable nature of the legislative power of
taxation, will be for naught.
Indeed, I truly fear the scenario when, after the deluge,
the executive branch of government suspends the
implementation of the 70% cap, or increases the cap to a
higher amount such as 90%. Any taxpayer will have
standing to attack such remedial measure, considering
that the net effect would be to diminish the
government’s collection of cash at hand. Following the
law, the proper judicial action would be to uphold the
clear legislative intent over the reengineering of the
taxing provisions by the executive branch of government.
Yet if the courts instead uphold the power of the
executive branch of government to reinvent the tax
statute, then the end concession would be that the
power to enact tax laws ultimately belongs to the
executive branch of government.
I hesitate to say this, but there will be confusion, instability,
and multiple fatalities within the business sector with the
enforcement of the amendments of Section 8 and 12 of
the E-VAT Law. It could have been stopped through the
allowance of the petition in G.R. No. 168461, but
regrettably the Court did not act.
I respectfully dissent.
DANTE O. TINGA
Associate Justice
G.R. No. L-18125 May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF
LAGUNA, petitioner,
vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS
AND SEWERAGE AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for
petitioner.
Manuel B. Roño for respondent National Waterworks and
Sewerage Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of
Tax Appeals reversing a resolution or decision of the
Board of Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water
pipes, reservoir, intake and buildings used by herein
respondent, National Waterworks and Sewerage
Authority — hereinafter referred to as NAWASA — in the
operation of its waterworks system in the municipalities of
Cabuyao, Sta. Rosa and Biñan, province of Laguna, are
subject to real estate tax.
Wherefore, the parties respectfully pray that the
foregoing stipulation of facts be admitted and approved
by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët
The parties have submitted in the Court of Tax Appeals a
stipulation of facts. The pertinent parts thereof are to the
effect:
1. That the petitioner National Waterworks and
Sewerage Authority (NWSA) is a public
corporation created by virtue of Republic Act
No. 1383, and that it is owned by the
Government of the Philippines as well as all
property comprising waterworks and sewerage
systems placed under it:.
2. That, pursuant to the provisions of Republic Act
No. 1383, petitioner NWSA took over all the
property of the former Metropolitan Water District
and all the existing local government-owned
waterworks and sewerage systems all over the
Philippines, including the Cabuyao-Sta. Rosa-
Biñan Waterworks System owned by the Province
of Laguna (Section 8, Republic Act No. 1283);
3. That the functions and activities of petitioner
NWSA, as enumerated in Republic Act No. 1383,
more particularly Section 2 thereof, are the same
and identical with the functions of the defunct
Metropolitan Water District, particularly Section 2,
Act 2832, is amended;
4. That petitioner National Waterworks and
Sewerage Authority (NWSA) has no capital stock
divided into shares of stocks, no stockholders,
and is not authorized by its Charter to distribute
dividends; and, on the other hand, whatever
surplus funds it has realized, may and will after
meeting its yearly obligations, have been, are
and may be, used for the construction,
expansion and improvement of its waterworks
and sewer services;
5. That at the time that the Cabuyao-Sta. Rosa-
Biñan Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-
supporting and revenue-producing, but that all
its surplus income are not declared as profits as
this surplus are or may be invested for the
expansion thereof;
6. That in the year 1956 the Provincial Assessor of
Laguna assessed, for purposes of real estate
taxes, the property comprising the Cabuyao-Sta.
Rosa-Biñan Waterworks System and described in
Tax Declaration No. 5987 (Exh. "A-l") which, as
stated in Paragraph 2 hereof, herein petitioner
NWSA had taken over;
7. That against the above-mentioned assessment
made by the Provincial Assessor of Laguna,
petitioner NWSA protested, claiming that the
property described under Tax Declaration No.
5987 (Exh. "A-l") are exempted from the payment
of real estate taxes in view of the nature and kind
of said property and functions and activities of
petitioner, as provided in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was
overruled on appeal before the herein
respondent Board of Assessment Appeals, hence
the present petition for review filed by petitioner;
xxx xxx xxx"
After appropriate proceedings, the Court of Tax Appeals
rendered the aforementioned decision reversing the
action taken by petitioner Board, which, accordingly, has
brought the case to us for review, under the provisions of
Republic Act No. 1125, contending that the properties in
question are subject to real estate tax because: (1)
although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental,
political or sovereign capacity, but in a private,
proprietary or patrimonial character, which, allegedly, is
not covered by the exemption contained in section 3(a)
of Republic Act No. 470; and 2) this exemption, even if
applicable to patrimonial property, must yield to the
provisions of section 1 of Republic Act No. 104, under
which all corporations, agencies or instrumentalities
owned or controlled by the Government are subject to
taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470
provide:
SEC. 2. Incidence of real property tax. — Except
in chartered cities, there shall be levied, assessed,
and collected, an annual ad valorem tax on real
property, including land, buildings, machinery,
and other improvements not hereinafter
specifically exempted.
SEC. 3. Property exempt from tax. — The
exemptions shall be as follows:
(a) Property owned by . . . the Republic of the
Philippines, any province, city, municipality or
municipal district. . . .
It is conceded, in the stipulation of facts, that the
property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the
Republic of the Philippines and falls squarely within the
letter of the above provision. This notwithstanding,
petitioner Board maintains that respondent NAWASA is
not entitled to the benefits of the exemption established
in said section 3(a), inasmuch as, in the case of the City
of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of
the City of Cebu, which the NAWASA had sought to take
over, pursuant to the provisions of Republic Act No. 1383
— as it did in the case at bar, with respect to the
Cabuyao-Sta. Rosa-Biñan Waterworks System — are
patrimonial property of said city, which held it in a
proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said
assets were subject to taxation. In that case we merely
reiterated the doctrine, laid down in the case of City of
Baguio vs. NAWASA, G. R. No. L-12032, decided on
August 31, 1959, that municipal corporations hold in their
proprietary character, the assets of their respective
waterworks, which, accordingly, cannot be taken or
appropriated by the National Government and placed
under the NAWASA without payment of just
compensation. Neither the Cebu case nor that of Baguio
sustains the theory that said assets are taxable.
Upon the other hand, in exempting from taxation
"property owned by the Republic of the Philippines, any
province, city, municipality or municipal district . . .," said
section 3(a) of Republic Act No. 470 makes no distinction
between property held in a sovereign, governmental or
political capacity and those possessed in a private,
proprietary or patrimonial character. And where the law
does not distinguish neither may we, unless there are
facts and circumstances clearly showing that the
lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention.
Indeed, the noun "property" and the verb "owned" used
in said section 3(a) strongly suggest that the object of
exemption is considered more from the view point of
dominion, than from that of domain. Moreover, taxes are
financial burdens imposed for the purpose of raising
revenues with which to defray the cost of the operation
of the Government, and a tax on property of the
Government, whether national or local, would merely
have the effect of taking money from one pocket to put
it in another pocket (Cooley on Taxation, Sec. 621, 4th
Edition.) Hence, it would not serve, in the final analysis,
the main purpose of taxation. What is more, it would tend
to defeat it, on account of the paper work, time and
consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which
petitioner relies, reads:
. . . All corporations, agencies, or instrumentalities
owned or controlled by the government shall
pay such duties, taxes, fees and other charges
upon their transaction, business, industries, sale,
or income as are imposed by law upon
individuals, associations or corporations engaged
in any taxable business, industry, or activity
except on goods or commodities imported or
purchased and sold or distributed for relief
purposes as may be determined by the President
of the Philippines.
This provision is inapplicable to the case at bar for it refers
only to duties, taxes, fees and other charges upon
"transaction, business, industry, sale or income" and does
not include taxes on property like real estate tax.
WHEREFORE, the decision appealed from is hereby
affirmed, without special pronouncement as to costs. It is
so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L.,
Barrera, Paredes, Dizon, Regala, and Makalintal, JJ.,
concur.
Labrador, J., took no part.
G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as
Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent
Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.
NOCON, J.:
Just like lightning which does strike the same place twice
in some instances, this matter of indirect tax exemption of
the private respondent National Power Corporation
(NPC) is brought to this Court a second time. Unfazed by
the Decision We promulgated on May 31, 19911 petitioner
Ernesto Maceda asks this Court to reconsider said
Decision. Lest We be criticized for denying due process to
the petitioner. We have decided to take a second look
at the issues. In the process, a hearing was held on July 9,
1992 where all parties presented their respective
arguments. Etched in this Court's mind are the
paradoxical claims by both petitioner and private
respondents that their respective positions are for the
benefit of the Filipino people.
I withdraw NPC's tax exemption for real estate taxes. As
A Chronological review of the relevant NPC laws,
specially with respect to its tax exemption provisions, at
the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was
enacted creating the National Power Corporation, a
public corporation, mainly to develop hydraulic power
from all water sources in the Philippines.2 The sum of
P250,000.00 was appropriated out of the funds in the
Philippine Treasury for the purpose of organizing the NPC
and conducting its preliminary work.3 The main source of
funds for the NPC was the flotation of bonds in the capital
markets4 and these bonds
. . . issued under the authority of this Act
shall be exempt from the payment of all
taxes by the Commonwealth of the
Philippines, or by any authority, branch,
division or political subdivision thereof
and subject to the provisions of the Act
of Congress, approved March 24, 1934,
otherwise known as the Tydings McDuffle
Law, which facts shall be stated upon
the face of said bonds. . . . .5
On June 24, 1938, C.A. No. 344 was enacted increasing
to P550,000.00 the funds needed for the initial operations
of the NPC and reiterating the provision of the flotation of
bonds as soon as the first construction of any hydraulic
power project was to be decided by the NPC Board.6 The
provision on tax exemption in relation to the issuance of
the NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted
removing the provision on the payment of the bond's
principal and interest in "gold coins" but adding that
payment could be made in United States dollars.7 The
provision on tax exemption in relation to the issuance of
the NPC bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted
authorizing the President of the Philippines to guarantee,
absolutely and unconditionally, as primary obligor, the
payment of any and all NPC loans.8 He was also
authorized to contract on behalf of the NPC with the
International Bank for Reconstruction and Development
(IBRD) for NPC loans for the accomplishment of NPC's
corporate objectives9 and for the reconstruction and
development of the economy of the country. 10 It was
expressly stated that:
Any such loan or loans shall be exempt
from taxes, duties, fees, imposts, charges,
contributions and restrictions of the
Republic of the Philippines, its provinces,
cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly
authorizing the NPC, for the first time, to incur other types
of indebtedness, aside from indebtedness incurred by
flotation of bonds. 12 As to the pertinent tax exemption
provision, the law stated as follows:
To facilitate payment of its indebtedness,
the National Power Corporation shall be
exempt from all taxes, duties, fees,
imposts, charges, and restrictions of the
Republic of the Philippines, its provinces,
cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending
R.A. No. 357 in that, aside from the IBRD, the President of
the Philippines was authorized to negotiate, contract and
guarantee loans with the Export-Import Bank of of
Washigton, D.C., U.S.A., or any other international
financial institution. 14 The tax provision for repayment of
these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to
enacted, the law states as follows:
To facilitate payment of its indebtedness,
the National Power Corporation shall be
exempt from all taxes, except real
property tax, and from all duties, fees,
imposts, charges, and restrictions of the
Republic of the Philippines, its provinces,
cities, and municipalities.15
On September 8, 1955, R.A. No. 1397 was enacted
directing that the NPC projects to be funded by the
increased indebtedness 16 should bear the National
Economic Council's stamp of approval. The tax
exemption provision related to the payment of this total
indebtedness was not amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing
the total amount of foreign loans NPC was authorized to
incur to US$100,000,000.00 from the US$50,000,000.00
ceiling in R.A. No. 357. 17 The tax provision related to the
repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the
corporate life of NPC to December 31, 2000. 18 All laws or
provisions of laws and executive orders contrary to said
R.A. No. 2058 were expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting
the NPC from a public corporation into a stock
corporation with an authorized capital stock of
P100,000,000.00 divided into 1,000.000 shares having a
par value of P100.00 each, with said capital stock wholly
subscribed to by the Government. 20 No tax exemption
was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing
the above-mentioned authorized capital stock to
P250,000,000.00 with the increase to be wholly subscribed
by the Government. 21 No tax provision was incorporated
in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's
capital stock was increased again to P300,000,000.00, the
increase to be wholly subscribed by the Government. No
tax provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted
revising the charter of the NPC, C.A. No. 120, as
amended. Declared as primary objectives of the nation
were:
Declaration of Policy. — Congress
hereby declares that (1) the
comprehensive development, utilization
and conservation of Philippine water
resources for all beneficial uses, including
power generation, and (2) the total
electrification of the Philippines through
the development of power from all
sources to meet the needs of industrial
development and dispersal and the
needs of rural electrification are primary
objectives of the nation which shall be
pursued coordinately and supported by
all instrumentalities and agencies of the
government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8,
and divided into sections 8 (a) (Authority to incur
Domestic Indebtedness) and Section 8 (b) (Authority to
Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3
of Section 8(a), states as follows:
The bonds issued under the authority of
this subsection shall be exempt from the
payment of all taxes by the Republic of
the Philippines, or by any authority,
branch, division or political subdivision
thereof which facts shall be stated upon
the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to
contract, Paragraph No. 5, Section 8(b), states as follows:
The loans, credits and indebtedness
contracted under this subsection and
the payment of the principal, interest
and other charges thereon, as well as
the importation of machinery,
equipment, materials and supplies by the
Corporation, paid from the proceeds of
any loan, credit or indebtedeness
incurred under this Act, shall also be
exempt from all taxes, fees, imposts,
other charges and restrictions, including
import restrictions, by the Republic of the
Philippines, or any of its agencies and
political subdivisions. 25
A new section was added to the charter, now known as
Section 13, R.A. No. 6395, which declares the non-profit
character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and
shall devote all its returns from its capital
investment, as well as excess revenues
from its operation, for expansion. To
enable the Corporation to pay its
indebtedness and obligations and in
furtherance and effective
implementation of the policy enunciated
in Section one of this Act, the
Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties,
fees, imposts, charges costs and service
fees in any court or administrative
proceedings in which it may be a party,
restrictions and duties to the Republic of
the Philippines, its provinces, cities, and
municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise
taxes and realty taxes to be paid to the
National Government, its provinces,
cities, municipalities and other
government agencies and
instrumentalities;
(c) From all import duties, compensating
taxes and advanced sales tax, and
wharfage fees on import of foreign
goods required for its operations and
projects; and
(d) From all taxes, duties, fees, imposts
and all other charges its provinces, cities,
municipalities and other government
agencies and instrumentalities, on all
petroleum products used by the
Corporation in the generation,
transmission, utilization, and sale of
electric power. 26
On November 7, 1972, Presidential
Decree No. 40 was issued declaring that
the electrification of the entire country
was one of the primary concerns of the
country. And in connection with this, it
was specifically stated that:
The setting up of transmission line grids
and the construction of associated
generation facilities in Luzon, Mindanao
and major islands of the country,
including the Visayas, shall be the
responsibility of the National Power
Corporation (NPC) as the authorized
implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for
the NPC to own and operate as a single
integrated system all generating facilities
supplying electric power to the entire
area embraced by any grid set up by
the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra
powers to the NPC to enable it to fulfill its role under
aforesaid P.D. No. 40. Its authorized capital stock was
raised to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of
P3,000,000,000.00 at any one time, 30 and the NPC was
authorized to borrow a total of US$1,000,000,000.00 31 in
foreign loans.
The relevant tax exemption provision for these foreign
loans states as follows:
The loans, credits and indebtedness
contracted under this subsection and
the payment of the principal, interest
and other charges thereon, as well as
the importation of machinery,
equipment, materials, supplies and
services, by the Corporation, paid from
the proceeds of any loan, credit or
indebtedness incurred under this Act,
shall also be exempt from all direct and
indirect taxes, fees, imposts, other
charges and restrictions, including import
restrictions previously and presently
imposed, and to be imposed by the
Republic of the Philippines, or any of its
agencies and political
subdivisions. 32(Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended
to read as follows:
(a) From the payment of all taxes, duties,
fees, imposts, charges and restrictions to
the Republic of the Philippines, its
provinces, cities, municipalities and other
government agencies and
instrumentalities including the taxes,
duties, fees, imposts and other charges
provided for under the Tariff and
Customs Code of the Philippines,
Republic Act Numbered Nineteen
Hundred Thirty-Seven, as amended, and
as further amended by Presidential
Decree No. 34 dated October 27, 1972,
and Presidential Decree No. 69, dated
November 24, 1972, and costs and
service fees in any court or administrative
proceedings in which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts,
and all other charges imposed directly or
indirectly by the Republic of the
Philippines, its provinces, cities,
municipalities and other government
agencies and instrumentalities, on all
petroleum products used by the
Corporation in the generation,
transmission, utilization and sale of
electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing
certain restrictions in the NPC's sale of electricity to its
different customers. 34 No tax exemption provision was
amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that
P200,000,000.00 would be appropriated annually to cover
the unpaid subscription of the Government in the NPC
authorized capital stock, which amount would be taken
from taxes accruing to the General Funds of the
Government, proceeds from loans, issuance of bonds,
treasury bills or notes to be issued by the Secretary of
Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion
programs for generation and
transmission facilities which includes
nuclear power generation, the present
capitalization of National Power
Corporation (NPC) and the ceilings for
domestic and foreign borrowings are
deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption
provisions of the Revised Charter, the
non-profit character of NPC has not
been fully utilized because of restrictive
interpretation of the taxing agencies of
the government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated
expansion program and attain the
declared objective of total
electrification of the country, further
amendments of certain sections of
Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380, 395 and
758, have become imperative; 38
Thus NPC's capital stock was raised to
P8,000,000,000.00, 39 the total domestic indebtedness
ceiling was increased to P12,000,000,000.00, 40 the total
foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395,
was amended to read as follows:
The Corporation shall be non-profit and
shall devote all its returns from its capital
investment as well as excess revenues
from its operation, for expansion. To
enable the Corporation to pay to its
indebtedness and obligations and in
furtherance and effective
implementation of the policy enunciated
in Section one of this Act, the
Corporation, including its subsidiaries, is
hereby declared exempt from the
payment of all forms of taxes, duties,
fees, imposts as well as costs and service
fees including filing fees, appeal bonds,
supersedeas bonds, in any court or
administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this
controversy are P.D. Nos. 882, 1177, 1931 and Executive
Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing
the tax exemption of NPC with regard to imports as
follows:
WHEREAS, importations by certain
government agencies, including
government-owned or controlled
corporation, are exempt from the
payment of customs duties and
compensating tax; and
WHEREAS, in order to reduce foreign
exchange spending and to protect
domestic industries, it is necessary to
restrict and regulate such tax-free
importations.
NOW THEREFORE, I, FERDINAND E.
MARCOS, President of the Philippines, by
virtue of the powers vested in me by the
Constitution, and do hereby decree and
order the following:
Sec. 1. All importations of any
government agency, including
government-owned or controlled
corporations which are exempt from the
payment of customs duties and internal
 revenue taxes, shall be subject to the
prior approval of an Inter-Agency
Committee which shall insure
compliance with the following
conditions:
(a) That no such article of local
manufacture are available in sufficient
quantity and comparable quality at
reasonable prices;
(b) That the articles to be imported are
directly and actually needed and will be
used exclusively by the grantee of the
exemption for its operations and projects
or in the conduct of its functions; and
(c) The shipping documents covering the
importation are in the name of the
grantee to whom the goods shall be
delivered directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the
power to regulate and control the tax-
free importation of government
agencies in accordance with the
conditions set forth in Section 1 hereof
and the regulations to be promulgated
to implement the provisions of this
Decree. Provided, however, That any
government agency or government-
owned or controlled corporation, or any
local manufacturer or business firm
adversely affected by any decision or
ruling of the Inter-Agency Committee
may file an appeal with the Office of the
President within ten days from the date
of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act
No. 6395; . . .. and all similar provisions of
all general and special laws and decrees
are hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to
formulate and implement a National
Budget that is an instrument of national
development, reflective of national
objectives, strategies and plans. The
budget shall be supportive of and
consistent with the socio-economic
development plan and shall be oriented
towards the achievement of explicit
objectives and expected results, to
ensure that funds are utilized and
operations are conducted effectively,
economically and efficiently. The
national budget shall be formulated
within a context of a regionalized
government structure and of the totality
of revenues and other receipts,
expenditures and borrowings of all levels
of government-owned or controlled
corporations. The budget shall likewise
be prepared within the context of the
national long-term plan and of a long-
term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or
controlled corporations, shall pay income taxes, customs
duties and other taxes and fees are imposed under
revenues laws: provided, that organizations otherwise
exempted by law from the payment of such taxes/duties
may ask for a subsidy from the General Fund in the exact
amount of taxes/duties due: provided, further, that a
procedure shall be established by the Secretary of
Finance and the Commissioner of the Budget, whereby
such subsidies shall automatically be considered as both
revenue and expenditure of the General Fund. 44
The law also declared that —
[A]ll laws, decrees, executive orders,
rules and regulations or parts thereof
which are inconsistent with the provisions
of the Decree are hereby repealed
and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass
the Government found itself in after the Aquino
assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177
has already expressly repealed the grant
of tax privileges to any government-
owned or controlled corporation and all
other units of government; 46
and since there was a
. . . need for government-owned or
controlled corporations and all other
units of government enjoying tax
privileges to share in the requirements of
development, fiscal or otherwise, by
paying the duties, taxes and other
charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on
general law to the contrary
notwithstanding, all exemptions from the
payment of duties, taxes, fees, imposts
and other charges heretofore granted in
favor of government-owned or
controlled corporations including their
subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines
and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives
Review Board created under Presidential
Decree No. 776, is hereby empowered to
restore, partially or totally, the
exemptions withdrawn by Section 1
above, any applicable tax and duty,
taking into account, among others, any
or all of the following:
1) The effect on the relative price levels;
2) The relative contribution of the
corporation to the revenue generation
effort;
3) The nature of the activity in which the
corporation is engaged in; or
4) In general the greater national interest
to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential
Decree No. 1177 as well as all other laws,
decrees, executive orders, administrative
orders, rules, regulations or parts thereof
which are inconsistent with this Decree
are hereby repealed, amended or
modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with
a view to correct presidential restoration or grant of tax
exemption to other government and private entities
without benefit of review by the Fiscal Incentives Review
Board, to wit:
WHEREAS, Presidential Decree Nos. 1931
and 1955 issued on June 11, 1984 and
October 14, 1984, respectively, withdrew
the tax and duty exemption privileges,
including the preferential tax treatment,
of government and private entities with
certain exceptions, in order that the
requirements of national economic
development, in terms of fiscals and
other resources, may be met more
adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and
duty exemption privileges were restored
by the Fiscal Incentives Review Board
(FIRB), a number of affected entities,
government and private, had their tax
and duty exemption privileges restored
or granted by Presidential action without
benefit or review by the Fiscal Incentives
Review Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private
entities may be better provided where
necessary by explicit subsidy and
budgetary support rather than tax and
duty exemption privileges if only to
improve the fiscal monitoring aspects of
government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or
special law to the contrary
notwithstanding, all tax and duty
incentives granted to government and
private entities are hereby withdrawn,
except:
a) those covered by the non-impairment
clause of the Constitution;
b) those conferred by effective
internation agreement to which the
Government of the Republic of the
Philippines is a signatory;
c) those enjoyed by enterprises
registered with:
(i) the Board of
Investment pursuant to
Presidential Decree No.
1789, as amended;
(ii) the Export Processing
Zone Authority, pursuant
to Presidential Decree
No. 66 as amended;
(iii) the Philippine
Veterans Investment
Development
Corporation Industrial
Authority pursuant to
Presidential Decree No.
538, was amended.
d) those enjoyed by the copper mining
industry pursuant to the provisions of
Letter of Instructions No. 1416;
e) those conferred under the four basic
codes namely:
(i) the Tariff and Customs
Code, as amended;
(ii) the National Internal
Revenue Code, as
amended;
(iii) the Local Tax Code,
as amended;
(iv) the Real Property Tax
Code, as amended;
f) those approved by
the President upon the
recommendation of the
Fiscal Incentives Review
Board.
Sec. 2. The Fiscal Incentives Review
Board created under Presidential Decree
No. 776, as amended, is hereby
authorized to:
a) restore tax and/or duty exemptions
withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax
and/or duty exemption that may be
restored;
c) impose conditions for the restoration
of tax and/or duty exemption;
d) prescribe the date of period of
effectivity of the restoration of tax and/or
duty exemption;
e) formulate and submit to the President
for approval, a complete system for the
grant of subsidies to deserving
beneficiaries, in lieu of or in combination
with the restoration of tax and duty
exemptions or preferential treatment in
taxation, indicating the source of
funding therefor, eligible beneficiaries
and the terms and conditions for the
grant thereof taking into consideration
the international commitment of the
Philippines and the necessary
precautions such that the grant of
subsidies does not become the basis for
countervailing action.
Sec. 3. In the discharge of its authority
hereunder, the Fiscal Incentives Review
Board shall take into account any or all
of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary
to the revenue generation effort;
c) nature of the activity the beneficiary is
engaged; and
d) in general, the greater national
interest to be served.
xxx xxx xxx
 Sec. 5. All laws, orders, issuances, rules
and regulations or parts thereof
inconsistent with this Executive Order are
hereby repealed or modified
accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon
the promulgation of the rules and regulations, to be
issued by the Ministry of Finance. 49 Said rules and
regulations were promulgated and published in the
Official Gazette
on February 23, 1987. These became effective on the
15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic
approach that all would-be lawyers, learn in their
TAXATION I course, which fro convenient reference, is as
follows:
Classifications or kinds of Taxes:
According to Persons who pay or who
bear the burden:
a. Direct Tax — the where the person
supposed to pay the tax really pays
it. WITHOUT transferring the burden to
someone else.
Examples: Individual income tax,
corporate income tax, transfer taxes
(estate tax, donor's tax), residence tax,
immigration tax
b. Indirect Tax — that where the tax is
imposed upon goods BEFORE reaching
the consumer who ultimately pays for it,
not as a tax, but as a part of the
purchase price.
Examples: the internal revenue indirect
taxes (specific tax, percentage taxes,
(VAT) and the tariff and customs indirect
taxes (import duties, special import tax
and other dues) 52
IV
To simply matter, the issues raised by petitioner in his
motion for reconsideration can be reduced to the
following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being
enjoyed?
(3) If there are taxes to be paid, who shall pay for these
taxes?
V from its operation, for expansion. To
Petitioner contends that P.D. No. 938 repealed the
indirect tax exemption of NPC as the phrase "all forms of
taxes etc.," in its section 10, amending Section 13, R.A.
No. 6395, as amended by P.D. No. 380, does not expressly
include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it
has been the lawmaker's intention that the NPC was to
be completely tax exempt from all forms of taxes —
direct and indirect.
NPC's tax exemptions at first applied to the bonds it was
authorized to float to finance its operations upon its
creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD
for foreign financing, any loans obtained were to be
completely tax exempt.
After the NPC was authorized to borrow from other
sources of funds — aside issuance of bonds — it was
again specifically exempted from all types of taxes "to
facilitate payment of its indebtedness." Even when the
ceilings for domestic and foreign borrowings were
periodically increased, the tax exemption privileges of
the NPC were maintained.
NPC's tax exemption from real estate taxes was, however,
specifically withdrawn by Rep. Act No. 987, as above
stated. The exemption was, however, restored by R.A. No.
6395.
Section 13, R.A. No. 6395, was very comprehensive in its
enumeration of the tax exemptions allowed NPC. Its
section 13(d) is the starting point of this bone of
contention among the parties. For easy reference, it is
reproduced as follows:
[T]he Corporation is hereby declared
exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts
and all other charges imposed by the
Republic of the Philippines, its provinces,
cities, municipalities and other
government agencies and
instrumentalities, on all petroleum
products used by the Corporation in the
generation, transmission, utilization, and
sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said
Section 13(d), which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts,
and all other charges imposed directly or
indirectly by the Republic of the
Philippines, its provinces, cities,
municipalities and other government
agencies and instrumentalities, on all
petroleum products used by the
Corporation in the generation,
transmission, utilization and sale of
electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b),
(c) and (d) into one very simple paragraph as follows:
The Corporation shall be non-profit and
shall devote all its returns from its capital
investment as well as excess revenues
enable the Corporation to pay its
indebtedness and obligations and in
furtherance and effective
implementation of the policy enunciated
in Section one of this Act, the
Corporation, including its subsidiaries, is
hereby declared exempt from the
payment of ALL FORMS OF taxes, duties,
fees, imposts as well as costs and service
fees including filing fees, appeal bonds,
supersedeas bonds, in any court or
administrative proceedings. (Emphasis
supplied)
Petitioner reminds Us that:
 [I]t must be borne in mind that
Presidential Decree Nos. 380
and 938 were issued by one man, acting
as such the Executive and Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were
made by the same person, it would have
been very easy for him to retain the
same or similar language used in P.D. No.
380 P.D. No. 938 if his intention were to
preserve the indirect tax exemption of
NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then
President Marcos no matter what his fault were. It should
be noted that section 13, R.A. No. 6395, provided for tax
exemptions for the following items:
13(a) : court or administrative
proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required
for its operations and projects;
13(d) : petroleum products used in
generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the
phrase "ALL FORMS OF TAXES, ETC.,", included 13(a) under
the "as well as" clause and added PNOC subsidiaries as
qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read
all the NPC laws in the order of enactment or issuance as
narrated above in part I hereof. President Marcos must
have considered all the NPC statutes from C.A. No. 120
up to its latest amendments, P.D. No. 380, P.D. No. 395
and P.D. No. 759, AND came up 55 with a very simple
Section 13, R.A. No. 6395, as amended by P.D. No. 938.
One common theme in all these laws is that the NPC
must be enable to pay its indebtedness 56 which, as of
P.D. No. 938, was P12 Billion in total domestic
indebtedness, at any one time, and U$4 Billion in total
foreign loans at any one time. The NPC must be and has
to be exempt from all forms of taxes if this goal is to be
achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to
P8 Billion. It must be remembered that to pay the
government share in its capital stock P.D. No. 758 was
issued mandating that P200 Million would be
appropriated annually to cover the said unpaid
subscription of the Government in NPC's authorized
capital stock. And significantly one of the sources of this
annual appropriation of P200 million is TAX MONEY
accruing to the General Fund of the Government. It does
not stand to reason then that former President Marcos
would order P200 Million to be taken partially or totally
from tax money to be used to pay the Government
subscription in the NPC, on one hand, and then order the
NPC to pay all its indirect taxes, on the other.
The above conclusion that then President Marcos
lumped up Sections 13 (b), 13 (c) and (d) into the phrase
"All FORMS OF" is supported by the fact that he did not do
the same for the tax exemption provision for the foreign
loans to be incurred.
The tax exemption on foreign loans found in Section 8(b),
R.A. No. 6395, reads as follows:
The loans, credits and indebtedness
contracted under this subsection and
the payment of the principal, interest
and other charges thereon, as well as
the importation of machinery,
equipment, materials and supplies by the
Corporation, paid from the proceeds of
any loan, credit or indebtedness incurred
under this Act, shall also be exempt from
all taxes, fees, imposts, other charges
and restrictions, including import
restrictions, by the Republic of the
Philippines, or any of its agencies and
political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness
contracted this subsection and the
payment of the principal, interest and
other charges thereon, as well as the
importation of machinery, equipment,
materials, supplies and services, by the
Corporation, paid from the proceeds of
any loan, credit or indebtedness incurred
under this Act, shall also be exempt from
all direct and indirect taxes, fees,
imposts, other charges and restrictions,
including import restrictions previously
and presently imposed, and to be
imposed by the Republic of the
Philippines, or any of its agencies and
political subdivisions. 58(Emphasis
supplied)
P.D. No. 938 did not amend the same 59 and so the tax
exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. Since the subject
matter of this particular Section 8 (b) had to do only with
loans and machinery imported, paid for from the
proceeds of these foreign loans, THERE WAS NO OTHER
SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax
exemption stood as is — with the express mention of
"direct
and indirect" tax exemptions. And this "direct and
indirect" tax exemption privilege extended to "taxes, fees,
imposts, other charges . . . to be imposed" in the future —
surely, an indication that the lawmakers wanted the NPC
to be exempt from ALL FORMS of taxes — direct and
indirect.
It is crystal clear, therefore, that NPC had been granted
tax exemption privileges for both direct and indirect taxes
under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society,
the Government decided to rationalize government
receipts and expenditures by formulating and
implementing a National Budget. 60 The NPC, being a
government owned and controlled corporation had to
be shed off its tax exemption status privileges under P.D.
No. 1177. It was, however, allowed to ask for a subsidy
from the General Fund in the exact amount of
taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed
NPC's tax-free importation privileges. It allowed, however,
NPC to appeal said repeal with the Office of the
President and to avail of tax-free importation privileges
under its Section 1, subject to the prior approval of an
Inter-Agency Committed created by virtue of said P.D.
No. 882. It is presumed that the NPC, being the special
creation of the State, was allowed to continue its tax-free
importations.
This Court notes that petitioner brought to the attention of
this Court, the matter of the abolition of NPC's tax
exemption privileges by P.D. No. 1177 61 only in his
Common Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for
Reconsideration, four (4) months AFTER the motion for
Reconsideration had been filed. During oral arguments
heard on July 9, 1992, he proceeded to discuss this tax
exemption withdrawal as explained by then Secretary of
Justice Vicente Abad Santos in opinion No. 133 (S
'77). 62 A careful perusal of petitioner's senate Blue Ribbon
Committee Report No. 474, the basis of the petition at
bar, fails to yield any mention of said P.D. No. 1177's
effect on NPC's tax exemption privileges. 63 Applying by
analogy Pulido vs. Pablo, 64 the court declares that the
matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the
petitioner.
Be that as it may, the Court still has to discuss the effect of
P.D. No. 1177 on the NPC tax exemption privileges as this
statute has been reiterated twice in P.D. No. 1931. The
express repeal of tax privileges of any government-
owned or controlled corporation (GOCC). NPC included,
was reiterated in the fourth whereas clause of P.D. No.
1931's preamble. The subsidy provided for in Section 23,
P.D. No. 1177, being inconsistent with Section 2, P.D. No.
1931, was deemed repealed as the Fiscal Incentives
Revenue Board was tasked with recommending the
partial or total restoration of tax exemptions withdrawn by
Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not
NPC asked for the subsidy contemplated in Section 23,
P.D. No. 1177. Considering, however, that under Section
16 of P.D. No. 1177, NPC had to submit to the Office of
the President its request for the P200 million mandated by
P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC
authorized capital stock and that under Section 22, of the
same P.D. No. NPC had to likewise submit to the Office of
the President its internal operating budget for review due
to capital inputs of the government (P.D. No. 758) and to
the national government's guarantee of the domestic
and foreign indebtedness of the NPC, it is clear that NPC
was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy
granted to exempt GOCC's that suddenly found
themselves having to pay taxes. It will be noted that
Section 23, P.D. No. 1177, mandated that the Secretary of
Finance and the Commissioner of the Budget had to
establish the necessary procedure to accomplish the tax
payment/tax subsidy scheme of the Government. In
effect, NPC, did not put any cash to pay any tax as it got
from the General Fund the amounts necessary to pay
different revenue collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No.
1177 on July 30, 1977, the NPC lost all its
duty and tax exemptions, whether direct
or indirect. And so there was nothing to
be withdrawn or to be restored under
P.D. No. 1931, issued on June 11, 1984.
This is evident from sections 1 and 2 of
said P.D. No. 1931, which reads:
"Section 1. The provisions
of special or general law
to the contrary
notwithstanding, all
exemptions from the
payment of duties,
taxes, fees, imports and
other charges
heretofore granted in
favor of government-
owned or controlled
corporations including
their subsidiaries are
hereby withdrawn."
Sec. 2. The President of
the Philippines and/or
the Minister of Finance,
upon the
recommendation of the
Fiscal Incentives Review
Board created under
P.D. No. 776, is hereby
empowered to restore
partially or totally, the
exemptions withdrawn
by section 1 above. . . .
Hence, P.D. No. 1931 did not have any
effect or did it change NPC's status.
Since it had already lost all its tax
exemptions privilege with the issuance of
P.D. No. 1177 seven (7) years earlier or on
July 30, 1977, there were no tax
exemptions to be withdrawn by section 1
which could later be restored by the
Minister of Finance upon the
recommendation of the FIRB under
Section 2 of P.D. No. 1931. Consequently,
FIRB resolutions No. 10-85, and 1-86, were
all illegally and validly issued since FIRB
acted beyond their statutory authority by
creating and not merely restoring the tax
exempt status of NPC. The same is true
for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93
which likewise abolished all duties and
tax exemptions but allowed the
President upon recommendation of the
FIRB to restore those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-
enacts in the same or substantially the
same terms the provisions of the act or
acts so revised and consolidated, the
revision and consolidation shall be taken
to be a continuation of the former act or
acts, although the former act or acts
may be expressly repealed by the
revised and consolidated act; and all
rights
and liabilities under the former act or
acts are preserved and may be
enforced. 66
the Court rules that when P.D. No. 1931 basically
reenacted in its Section 1 the first half of Section 23, P.D.
No. 1177, on withdrawal of tax exemption privileges of all
GOCC's said Section 1, P.D. No. 1931 was deemed to be
a continuation of the first half of Section 23, P.D. No. 1177,
although the second half of Section 23, P.D. No. 177, on
the subsidy scheme for former tax exempt GOCCs had
been expressly repealed by Section 2 with its institution of
the FIRB recommendation of partial/total restoration of
tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No.
1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC
could no longer obtain a subsidy for the taxes it had to
pay. It could, however, under P.D. No. 1931, ask for a
total restoration of its tax exemption privileges, which, it
did, and the same were granted under FIRB Resolutions
Nos. 10-85 67 and 1-86 68 as approved by the Minister of
Finance.
Consequently, contrary to petitioner's submission, FIRB
Resolutions Nos. 10-85 and 1-86 were both legally and
validly issued by the FIRB pursuant to P.D. No. 1931. FIRB
did not created NPC's tax exemption status but merely
restored it. 69
Some quarters have expressed the view that P.D. No.
1931 was illegally issued under the now rather infamous
Amendment No. 6 70 as there was no showing that
President Marcos' encroachment on legislative
prerogatives was justified under the then prevailing
condition that he could legislate "only if the Batasang
Pambansa 'failed or was unable to act inadequately on
any matter that in his judgment required immediate
action' to meet the 'exigency'. 71
Actually under said Amendment No. 6, then President
Marcos could issue decrees not only when the Interim
Batasang Pambansa failed or was unable to act
adequately on any matter for any reason that in his
(Marcos') judgment required immediate action, but also
when there existed a grave emergency or a threat or
thereof. It must be remembered that said Presidential
Decree was issued only around nine (9) months after the
Philippines unilaterally declared a moratorium on its
foreign debt payments 72 as a result of the economic
crisis triggered by loss of confidence in the government
brought about by the Aquino assassination. The
Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the
NPC 74 which had a US$ 2.1 billion white elephant of a
Bataan Nuclear Power Plant on its back. 75 From all
indications, it must have been this grave emergency of a
debt rescheduling which compelled Marcos to issue P.D.
No. 1931, under his Amendment 6 power. 76
The rule, therefore, that under the 1973 Constitution "no
law granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the
Batasang Pambansa" 77 does not apply as said P.D. No.
1931 was not passed by the Interim Batasang Pambansa
but by then President Marcos under His Amendment No.
6 power.
P.D. No. 1931 was, therefore, validly issued by then
President Marcos under his Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges
were again clipped by, this time, President Aquino. Its
section 2 allowed the NPC to apply for the restoration of
its tax exemption privileges. The same was granted under
FIRB Resolution No. 17-87 78 dated June 24, 1987 which
restored NPC's tax exemption privileges effective, starting
March 10, 1987, the date of effectivity of E.O. No. 93
(S'86).
FIRB Resolution No. 17-87 was approved by the President
on October 5, 1987. 79 There is no indication, however,
from the records of the case whether or not similar
approvals were given by then President Marcos for FIRB
Resolutions Nos. 10-85 and 1- 86. This has led some
quarters to believe that a "travesty of justice" might have
occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives
Review Board as what happened in Zambales Chromate
vs. Court of Appeals 80 when the Secretary of Agriculture
and Natural Resources approved a decision earlier
rendered by him when he was the Director of
Mines, 81 and in Anzaldo vs. Clave 82 where Presidential
Executive Assistant Clave affirmed, on appeal to
Malacañang, his own decision as Chairman of the Civil
Service Commission. 83
Upon deeper analysis, the question arises as to whether
one can talk about "due process" being violated when
FIRB Resolutions Nos. 10-85 and 1-86 were approved by
the Minister of Finance when the same were
recommended by him in his capacity as Chairman of the
Fiscal Incentives Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different
parties were involved: mining groups and scientist-
doctors, respectively. Thus, there was a need for
procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there
is no other comparable entity — not even a single public
or private corporation — whose rights would be violated
if NPC's tax exemption privileges were to be restored.
While there might have been a MERALCO before Martial
Law, it is of public knowledge that the MERALCO
generating plants were sold to the NPC in line with the
State policy that NPC was to be the State implementing
arm for the electrification of the entire country. Besides,
MERALCO was limited to Manila and its environs. And as
of 1984, there was no more MERALCO — as a producer of
electricity — which could have objected to the
restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted
tax exemption privileges for the first time. It was just asking
that its tax exemption privileges be restored. It is for these
reasons that, at least in NPC's case, the recommendation
and approval of NPC's tax exemption privileges under
FIRB Resolution Nos. 10-85 and 1-86, done by the same
person acting in his dual capacities as Chairman of the
Fiscal Incentives Review Board and Minister of Finance,
respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was
approved by President Aquino on October 5, 1987, the
view has been expressed that President Aquino, at least
with regard to E.O. 93 (S'86), had no authority to sub-
delegate to the FIRB, which was allegedly not a delegate
of the legislature, the power delegated to her
thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was
exercising both Executive and Legislative powers. Thus,
there was no power delegated to her, rather it was she
who was delegating her power. She delegated it to the
FIRB, which, for purposes of E.O No. 93 (S'86), is a
delegate of the legislature. Clearly, she was not sub-
delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was
complete in itself — it set forth the policy to be carried
out 85 and it fixed the standard to which the delegate
had to conform in the performance of his
functions, 86 both qualities having been enunciated by
this Court in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had
its tax exemption privileges restored from June 11, 1984
up to the present.
VII
The next question that projects itself is — who pays the
tax?
The answer to the question could be gleamed from the
manner by which the Commissaries of the Armed Forces
of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the
Armed of the Philippines, and their defendants but
groceries and other goods free of all taxes and duties if
bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat
the unchargeable specific, ad valorem and other taxes
on the goods earmarked for AFP Commissaries as an
added cost of operation and distribute it over the total
units of goods sold as it would any other cost. Thus, even
the ordinary supermarket buyer probably pays for the
specific, ad valorem and other taxes which theses
suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private
respondents-oil companies have to absorb the taxes they
add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May
14, 1954, the Secretary of Justice renders an
opinion, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the
National Power Corporation from "all
taxes, duties, fees, imposts, charges, and
restrictions of the Republic of the
Philippines and its provinces, cities, and
municipalities." This exemption is broad
enough to include all taxes, whether
direct or indirect, which the National
Power Corporation may be required to
 pay, such as the specific tax on
petroleum products. That it is indirect or is
of no amount [should be of no moment],
for it is the corporation that ultimately
pays it. The view which refuses to accord
the exemption because the tax is first
paid by the seller disregards realities and
gives more importance to form than to
substance. Equity and law always exalt
substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be
construed strictly but not so grudgingly as
knowledge that many impositions
taxpayers have to pay are in the nature
of indirect taxes. To limit the exemption
granted the National Power Corporation
to direct taxes notwithstanding the
general and broad language of the
statue will be to thwrat the legislative
intention in giving exemption from all
forms of taxes and impositions without
distinguishing between those that are
direct and those that are not. (Emphasis
supplied)
In view of all the foregoing, the Court rules and declares
that the oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker
fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is
expected to be passed on through the channels of
commerce to the user or consumer of the goods sold.
Because, however, the NPC has been exempted from
both direct and indirect taxation, the NPC must beheld
exempted from absorbing the economic burden of
indirect taxation. This means, on the one hand, that the
oil companies which wish to sell to NPC absorb all or part
of the economic burden of the taxes previously paid to
BIR, which could they shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the
other hand, that the NPC may refuse to pay the part of
the "normal" purchase price of bunker fuel oil which
represents all or part of the taxes previously paid by the
oil companies to BIR. If NPC nonetheless purchases such
oil from the oil companies — because to do so may be
more convenient and ultimately less costly for NPC than
NPC itself importing and hauling and storing the oil from
overseas — NPC is entitled to be reimbursed by the BIR for
that part of the buying price of NPC which verifiably
represents the tax already paid by the oil company-
vendor to the BIR.
It should be noted at this point in time that the whole
issue of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on
June 16, 1987 by virtue of which the ad valorem tax rate
on bunker fuel oil was reduced to ZERO (0%) PER CENTUM.
Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION
128 OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED BY REVISING THE
EXCISE TAX RATES OF CERTAIN
PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of
the National Internal Revenue Code, as
amended, is hereby amended to read
as follows:
Par. (b) — For products subject to ad
valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker
oil and on similar fuel oils having more or
less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take
effect immediately.
Done in the city of Manila, this 17th day
of June, in the year of Our Lord, nineteen
hundred and eighty-seven. (Emphasis
supplied)
The oil companies can now deliver bunker fuel oil to NPC
without having to worry about who is going to bear the
economic burden of the ad valorem taxes. What this
Court will now dispose of are petitioner's complaints that
some indirect tax money has been illegally refunded by
the Bureau of Internal Revenue to the NPC and that more
claims for refunds by the NPC are being processed for
payment by the BIR.
A case in point is the Tax Credit Memo issued by the
Bureau of Internal Revenue in favor of the NPC last July 7,
1986 for P58.020.110.79 which were for "erroneously paid
specific and ad valorem taxes during the period from
October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to
declare this Tax Credit Memo illegal as the PNC did not
have indirect tax exemptions with the enactment of P.D.
No. 938. As We have already ruled otherwise, the only
questions left are whether NPC Is entitled to a tax refund
for the tax component of the price of the bunker fuel oil
purchased from Caltex (Phils.) Inc. and whether the
Bureau of Internal Revenue properly refunded the
amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984
withdrawing the
tax exemptions of all GOCCs — NPC included, it was only
on May 8, 1985 when the BIR issues its letter authority to
the NPC authorizing it to withdraw tax-free bunker fuel oil
from the oil companies pursuant to FIRB Resolution No. 10-
85. 92 Since the tax exemption restoration was retroactive
to June 11, 1984 there was a need. therefore, to recover
said amount as Caltex (PhiIs.) Inc. had already paid the
BIR the specific and ad valorem taxes on the bunker oil it
sold NPC during the period above indicated and had
billed NPC correspondingly. 93 It should be noted that the
NPC, in its letter-claim dated September 11, 1985 to the
Commissioner of the Bureau of Internal Revenue DID NOT
CATEGORICALLY AND UNEQUIVOCALLY STATE that itself
paid the P58.020,110.79 as part of the bunker fuel oil price
it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally,
collected taxes is section 230 of the National Internal
Revenue Code of 1977, as amended which reads as
follows:
Sec. 230. Recover of tax erroneously or
illegally collected. — No suit or
proceeding shall be maintained in any
court for the recovery of any national
internal revenue tax hereafter alleged to
have been erroneously or illegally
assessed or collected, or of any penalty
claimed to have been collected without
authority, or of any sum alleged to have
been excessive or in any Manner
wrongfully collected. until a claim for
refund or credit has been duly filed with
the Commissioner; but such suit or
proceeding may be maintained,
 whether or not such tax, penalty, or sum Narvasa, C.J., Feliciano, Bidin, Regalado, Romero,
has been paid under protest or duress. Bellosillo and Melo, JJ., concur.

In any case, no such suit or proceeding Padilla and Quiason, JJ. took no part.
shall be begun after the expiration of
two years from the date of payment of
the tax or penalty regardless of any
supervening cause that may arise after
# Footnotes
payment; Provided, however, That the
Commissioner may, even without a
written claim therefor, refund or credit 1 Penned by Justice Gancayo,
any tax, where on the face of the return concurred in by Justices Narvasa,
upon which payment was made, such Melencio-Herrera, Feliciano, Bidin,
payment appears clearly, to have been Medialdea, and Regalado; separate
erroneously paid. dissenting opinions by Justices Cruz,
Paras, and Sarmiento, with justices Griño-
Aquino and Davide joining in the dissent
xxx xxx xxx
of Justice Sarmiento while Justice
Gutierrez joined in the dissents. Chief
Inasmuch as NPC filled its claim for P58.020,110.79 on Justice Gutierrez joined in the dissents.
September 11, 1985, 95 the Commissioner correctly issued Chief Justice Fernan and Justice Padilla
the Tax Credit Memo in view of NPC's indirect tax took no part.
exemption.
2 Com. Act No. 120, secs. 1, & 2 (g).
Petitioner, however, asks Us to restrain the Commissioner
from acting favorably on NPC's claim for P410.580,000.00
3 Com. Act No. 120, sec. 11.
which represents specific and ad valorem taxes paid by
the oil companies to the BIR from June 11, 1984 to the
early part of 1986. 96 4 Com. Act No. 120, sec. 2(k).

A careful examination of petitioner's pleadings and 5 Com. Act No. 120, sec. 4, par. 3.
annexes attached thereto does not reveal when the
alleged claim for a P410,580,000.00 tax refund was filed. It 6 Com. Act No. 344, sec. 1.
is only stated In paragraph No. 2 of the Deed of
Assignment 97executed by and between NPC and Caltex 7 Com. Act No. 495, sec. 1.
(Phils.) Inc., as follows:
8 Rep. Act No. 357, sec. 3.
That the ASSIGNOR(NPC) has a pending
tax credit claim with the Bureau of
Internal Revenue amounting to 9 Rep. Act No. 357, sec. 1.
P442,887,716.16. P58.020,110.79 of which
is due to Assignor's oil purchases from the 10 Rep. Act No. 357, sec. 2.
Assignee (Caltex [Phils.] Inc.)
11 Rep. Act No. 357, sec. 8.
Actually, as the Court sees it, this is a clear case of a
"Mexican standoff." We cannot restrain the BIR from 12 Rep. Act No. 358, sec. 1.
refunding said amount because of Our ruling that NPC
has both direct and indirect tax exemption privileges.
13 Rep. Act No. 358, sec. 2.
Neither can We order the BIR to refund said amount to
NPC as there is no pending petition for review
on certiorari of a suit for its collection before Us. At any 14 Rep. Act No. 813, sec. 1.
rate, at this point in time, NPC can no longer file any suit
to collect said amount EVEN IF lt has previously filed a 15 Rep. Act No. 987, sec. 2.
claim with the BIR because it is time-barred under Section
230 of the National Internal Revenue Code of 1977. as 16 Increased to P500,000,000.00 from
amended, which states: P170,500,000.00 in Rep. Act No. 358 (Rep.
Act No. 1397, sec. 1).
In any case, no such suit or proceeding
shall be begun after the expiration of 17 Rep Act No. 2055, secs. 1 and 2.
two years from the date of payment of
the tax or penalty REGARDLESS of any
18 Rep Act No. 2058, sec. 1.
supervening cause that may arise
after payment. . . . (Emphasis supplied)
19 Rep Act No. 2058, sec. 2.
The date of the Deed of Assignment is June 6. 1986. Even
if We were to assume that payment by NPC for the 20 Rep Act No. 2641, sec. 1.
amount of P410,580,000.00 had been made on said date.
it is clear that more than two (2) years had already 21 Rep Act No. 3043, sec. 1.
elapsed from said date. At the same time, We should
note that there is no legal obstacle to the BIR granting, 22 Rep Act No. 4897, sec. 1.
even without a suit by NPC, the tax credit or refund
claimed by NPC, assuming that NPC's claim had been
23 Rep Act No. 6395, sec. 2.
made seasonably, and assuming the amounts covered
had actually been paid previously by the oil companies
to the BIR. 24 Rep Act No. 6395, sec. 8(a).

WHEREFORE, in view of all the foregoing, the Motion for 25 Rep Act No. 6395, sec. 8(b).
Reconsideration of petitioner is hereby DENIED for lack of
merit and the decision of this Court promulgated on May 26 Rep Act No. 6395, sec. 13.
31, 1991 is hereby AFFIRMED.
27 Pres. Dec. No. 40, par. 2.
SO ORDERED.
28 Pres. Dec. No. 40, par. 5.
29 Pres. Dec. No. 380, sec. 5.
30 Pres. Dec. No. 380, sec. 8.
31 Pres. Dec. No. 380, sec. 9, par. 1.
32 Pres. Dec. No. 380, sec. 9, par. 4.
33 Pres. Dec. No. 380, sec. 10.
34 Pres. Dec. No. 395, par. 1.
35 Pres. Dec. No. 758, sec. 1.
36 Pres. Dec. No. 938, 1st Whereas
clause.
37 Pres. Dec. No. 938, 4th Whereas
clause.
38 Pres. Dec. No. 938, 6th Whereas
clause.
39 Pres. Dec. No. 938, sec. 5.
40 Pres. Dec. No. 938, sec. 6.
41 Pres. Dec. No. 938, sec. 8.
42 Pres. Dec. No. 938, sec. 10.
43 Pres. Dec. No. 1177, sec. 4.
44 Pres. Dec. No. 1177, sec. 23.
45 Pres. Dec. No. 1177, sec. 90.
46 Pres. Dec. No. 1931, Fourth Whereas
clause.
47 Pres. Dec. No. 1931, Fifth Whereas
clause.
48 Exec. Order No. 93 (S'86). sec. 6.
49 Exec. Order No. 93, sec. 4.
50 Rule V, Rules and Regulations to
Implement Exec. Order No. 93.
51 83 O.G. 8, pp. 722-725.
52 PARAS, TAXATION FUNDAMENTALS, 24-
25 (1966)
53 Rollo, p. 687; Motion for
Reconsideration, p. 12.
54 Rollo, p. 688; Motion for
Reconsideration, p. 13.
55 "Statutes are considered to be in pari
materia — to pertain to the same subject
matter — when they relate to the same
person or thing, or to the same class of
persons of things, or have the same
purpose or object. They may be
independent or amendatory in form;
they may be complete enactments
dealing with a single, limited subject
matter or sections of code or revision; or
they may be combination of these. (2
Sutherland Statutory Construction, 2nd
Ed., sec. 5202, p. 535)
xxx xxx xxx
Statutes in pari materia, although some
may be special and some general, in the
event one of them is ambiguous or
uncertain, are to be construed together,
even if the various statutes have not
been enacted simultaneously, and do
not refer to each other expressly, and
although some of them have been
repealed or have expired, or held
unconstitutional, or invalid. (Crawford,
Statutory Construction, sec. 231, p. 431.)
xxx xxx xxx
The reasons which support this rule are
twofold. In the first place, all the
enactments of the same legislature on
the general subject-matter are to be
regarded as parts of one uniform system.
Later statutes are considered as
supplementary or complementary to the
earlier enactments. In the passage of
each act, the legislative body must be
supposed to have had in mind and in
contemplation the existing legislation on
the same subject, and to have shaped
its new enactment with reference
thereto. Secondly, the rule derives
support from the principle which requires
the interpretation of a statute shall be
such, if possible, as to avoid any
repugnancy or inconsistency between
different enactments of the same
legislature. To achieve this result, it is
necessary to consider all previous acts
relating to the same matters, and to
construe the act in hand so as to avoid,
as far as it may be possible, any conflict
between them. Hence for example,
when the legislature has used a word in
a statute in one sense and with one
meaning, and subsequently uses the
same word in legislating on the same
subject matter, it will be understood as
using the word in the same sense, unless
there is something in the context or in the
nature of things to indicate that it
intended a different meaning thereby.
(Black on Interpretation of Laws, 2nd Ed.,
pp. 232-234) FRANCISCO, STATUTORY
CONSTRUCTION, 287-288 (1986).
56 The NPC is the implementing arm of
the State in its policy of electrification of
the entire country. Its authorized capital
stock and total local and foreign debt
ceiling have, therefore, been regularly
raised to provide NPC with massive fund
flows to achieve said policy.
57 Rep. Act No. 6395. sec. 8 (b), par. 5.
58 Rep. Act No. 6395, sec. 8 (b), par. 5.
was deleted and paragraph 5, sec. 8(b)
became paragraph 4, Section 8(b), as
amended by Pres. Dec. 380.
59 "Sec. 8. The first paragraph of Section
8(b) of the same Act is hereby further
amended and a new paragraph shall
be inserted between the third and fourth
paragraph of said section which shall
both read as follows: . . .."
60 See Pres. Dec. No. 1177, sec. 4.
61 Rollo, p. 783.
62 T.S.N., July 9, 1992, pp. 19-21.
63 Rollo, pp. 53-119. In the report
submitted to the Senate Blue Ribbon
Committee, the discussion centered on
NPC's tax exemption privileges being
abolished by Pres. Dec. No. 1931 in
paragraphs 11, 37, 81, 83.1 and F.1 Pres.
Dec. No. 1177 was mentioned in
paragraph C(2) in the Recommendation
portion but only by way of its state policy
being made a model for a future bill to
be filled by the Senators involved in the
investigation.
64 117 SCRA 16 (1980).
65 In this case, Judge Magno Pulido of
then CFI of Alaminos, Pangasinan,
Branch XIII, promulgated a decision on
May 17, 1974 in Criminal Case No. 266-A
entitled "People vs. Bantolino." Bantolino
filed a complaint against the judge
charging him with ignorance of the law
because his sentence was "with
subsidiary imprisonment." The case
dismissed after respondent judge therein
state that he had corrected "with" to
"without" but Bantolino's lawyer, Atty.
Pulido, refused to return his (Atty. Pulido)
copy for a corrected copy.
Later, Atty. Pulido filed another charge
against Judge Pablo, this time, for
falsifying a Court of Appeals' decision (re
Bantolino's appeal with the Com. Act
No.) and minutes of court hearings as
well as insertions in the record of a false
commitment order. Respondent judge
pleaded, among others, res adjudicata.
The Court made a distinction between
the two administrative complaints and
concluded that there was no res
adjudicata. On the procedural aspect
involved, the Court stated:
"Furthermore, the defense of res
adjudicata was not seasonably invoked.
"It may be noted that respondent Judge
initially raised the defense of res
adjudicata only in the motion for
reconsideration dated November 8,
1981. Atty. Pulido filed this complaint on
April 6, 1978. Respondent failed to set up
the defense of res adjudicata when he
filed his comment dated June 19, 1974 in
compliance with the first indorsement
dated June 3, 1974 of the then Assistant
to the Judicial Consultant, now Deputy
Court Administrator Arturo B. Buena.
Such failure to interpose the defense
of res adjudicata at the earliest
opportunity is fatal as it deemed
waived."
66 73 Am Jur 2d 518, sec. 410, citing
United States v. Grainger 346 US 235, 97 L
Ed 1575, 73 S Ct 1069; State v Bean 159
Me 455, 195 A2d 68; States v. Holland,
202 Or 656, 277 P2d 386.
For example, State vs. Bean was an
action by the State ton recover for
goods and services rendered an inmate
of a state hospital.
The defendant was committed to the
Augusta State Hospital on September 21,
1949 by order of court after he had been
found not guilty of the commission of a
crime by reason of insanity.
The defendant was confined when the
prevailing laws were R.S. Ch. 27, Sec. 121
which provided that the person so
committed shall be there supported at
his own expense, if he has sufficient
means; otherwise at the expense of the
State,' and R.S. Ch. 27 Sec. 139 which
provided that "The state may recover
from the insane, if able, or from persons
legally liable for his support, the
reasonable expenses of his support in
either insane hospital.' R.S. Ch. 27, Sec
121, was expressly repealed by P.L. 1961,
Ch. 304, Sec 17 while R.S. Ch. 27, Sec.
139 was expressly repealed by P.L. 1961,
Ch. 304, Sec. 26.
However, by P.L. 1961, Ch. 304, Secs. 4
and 5, the legislature simultaneously
enacted amendments which in the case
of Sec. 4 thereof charged the
Department of Mental Health and
Corrections with the duty of determining
the ability of the patient to pay for his
support and of establishing rates and
fees therefor, and in the case of sec. 5, it
provided that "such fees charges shall be
a debt of the patient or any person
legally liable for his support."
It was only on January 20,1960 that the
hospital billed the defendant for his stay
from September 21, 1949 in the amount
of $6651.72. Plaintiff filed on October 26,
1962 a case to recover said amount.
Defendant disclaimed liability by arguing
that the enactment of P.L. 1961, Ch. 304
was to terminate his liability for board
and care furnished prior to its
enactment.
The State of Maine's Supreme Judicial
Court rebuffed the defendant and held
that:
"[I]n the instant case P.L. 1961, Ch. 304
was intended to be a revision and
condensation of the statutes relating to
the Department of Mental Health and
Corrections by which the substance of
the right of the State of Maine to
reimbursement for care and support
from the criminally insane in accordance
with "means" or "ability" to pay remained
undisturbed. We are satisfied that it was
the intention of the Legislature that there
should be no moment when the right to
such reimbursement did not exist. We
think, the governing principle was well
stated in 50 Am. Jur. 559, Sec. 555;
"It is a general rule of law that where a
statute is repealed and all or some of its
provisions are not the same time re-
enacted, the re-enactment is
considered a reaffirmance of the old
law, and a neutralization of the repeal,
so that the provisions of the repealed act
which are thus re-enacted continue in
force without interruption, and all rights
and liabilities incurred thereunder are
preserved and may be
enforced. Similarly, the rule of
construction applicable to acts which
revise and consolidate other acts is,
that when the revised and consolidated
act re-enacts in the same or substantially
the same terms the provisions of the act
or acts so revised and consolidated, the
revision and consolidation shall be taken
to be a continuation of the former act or
acts, although the former act or acts
may be expressly repealed by the
revised and consolidated act; and all
rights and liabilities under the former act
or acts are preserved and may be
enforced." (State vs. Bean, 195 A2d 68,
71, 72; Emphasis supplied)

67 BE IT RESOLVED, AS IT HEREBY
RESOLVED, That:

1. Effective June 11, 1984, the tax and

duty exemption privileges enjoyed by
the National Power Corporation under
Com. Act No. No. 120 as amended are
restored up to June 30, 1985.

2. Provided, That this restoration does not

apply to the following:

a. importations of fuel oil (crude

equivalent) and coal as per FIRB
Resolutions No. 1-84;

b. commercially-funded importations;
and

c. interest income derived from any SUBJECT: National Power Corporation (NPC)"
investment source.
68 BE IT RESOLVED, AS IT IS HEREBY
3. Provided further, That in the case of RESOLVED: That
importations funded by international
financing agreements, the NPC is hereby 1. Effective July 1, 1985, the tax and duty
required to furnish the FIRB on a periodic exemption privileges enjoyed by the
basis the particulars of items received or National Power Corporation (NPC) under
to be received through such Commonwealth Act No. 120, as
arrangements, for purposes of tax and amended, are restored; Provided, That
duty exemption privileges. importations of fuel oil (crude oil
equivalent) and coal of the herein
grantee shall be subject to the basic
( and
additional imports duties; Provided,S
further, That the following shall remain
G
fully taxable: D
.
a. Commercially funded importations;)
and A
L
F
b. Interest income derived by said
R
grantee from bank deposits and yield or
E
any other monetary benefits from
D
deposits substitutes, trust funds and other
O
similar arrangements.
P
I
2. The NPC as a government corporation
O
is exempt from the real property taxD on
land and improvements owned by E it
provided that the beneficial use of R the
property is not transferred to another
O
pursuant to the provisions of Sec. D 10(a) of
the Real Property Tax Code, as A
amended. ,
J
R
.

A
c
t
i
n
g
M
i
n
i
s
t
e
r
o
f
F
i

SUBJECT: National Power Corporation."
69 Note should be taken that FIRB
Resolution No. 10-85 covered the period
from June 11, 1984 up to June 30, 1985
while FIRB Resolution No. 1-86 covered
the period from July 1, 1985 up to March
10, 1987.
70 "Whenever in the judgment of the
President, there exists a grave
emergency or a threat or imminence
thereof, or whenever the interim
Batasang Pambansa or the regular
National Assembly fails or is unable to act
adequately on any matter for any
reason that in his judgment requires
immediate action, he may in order to
meet the exigency, issued the necessary
decrees, orders, or letters of instruction,
which shall form part of the law of the
land."
71 Rollo, p. 652.
72 "The Philippines and International
Monetary Fund (IMF) have failed in talks
here to finalize an agreement on a $630
million standby credit badly needed by
the Philippines, informed sources close to
the talks told Reuters yesterday.
xxx xxx xxx
"Talks on the credit began in October
when the Philippines declared a
moratorium on repayments on its $26-
billion foreign debt and asked creditor
banks to reschedule some of the debt."
(Times Journal, June 21, 1984)
73 The Philippines will not default in the
payment of its $25-billion foreign debt
because it could be branded as an
outlaw in the international community,
President Marcos said yesterday." (Times
Journal, June 18, 1984)
74 WASHINGTON, D.C. — The Philippines
and a consortium of international banks
have signed in New York an agreement
restructuring $2.9 billion in maturing short
and medium terms loans of the Central
Bank and six other government
corporations.
"The amount restructed represents 90
percent of the public sector loans to be
restructured with international banks.
Included in the restructuring were the
loans of the Philippine National Bank
(PNB), National Investment Development
Corp. (NIDC), Development Bank of the
Philippines (DBP), Philippine National Oil
Corp. (PNOC), National Power
Corporation (NAPOCOR) and Philippine
Airlines (PAL)." (Express, January 12, 1986)
75 "The $2.1-billion BNPP, nestled on a
plateau hugging the South China Sea, is
planned to generate 620 megawatts for
the Luzon grid. The 'people power' revolt
in 1986, however, toppled the plant's
proponent, then President Marcos, from
power.
"So many technical defects were said to
have been discovered in the plant, and
this "most prodigious" project of the
government-owned National Power
Corp. was mothballed and has
remained so up to the present. It is a
"white elephant" and the country
continues to pay a huge interests to its
builder, Westinghouse, every month."
(Manila Bulletin, July 15, 1992)
76 President Marcos issued for decrees
yesterday, among them Decree No.
1934 (should be 1939 amending Rep. Act
No. 4850 (should be Rep. Act No. 4850
(should be Rep. Act. No. 4860) to allow
an increase in the ceiling on direct
foreign borrowings of the government
from $5 billion to $10 billion.
"It would allow him to exclude specific
categories of external debt from the
debt service limitation whenever
necessary in connection with the
general rescheduling or refinancing of
foreign credits.
"The decree also increases the ceiling on
the government's guarantee from the
present $2.5 billion to $7.5 billion.
"It authorizes the government's
guarantee of external debts of
government corporations.
"He also issued:
1. Decree No. 1932 (should be No. 1937)
amending the Central Bank Charter to
allow it greater flexibility in administering
the monetary, banking and credit system
and to give a policy direction in the
areas of money, banking and credit.
2. Decree No 1933 (should be no. 1938)
clothing the government with expanded
authority to guarantee foreign loans of
the Central Bank.
3. Decree no. 1936 (should be No. 1939)
authorizing the Credit Information
Bureau, to secure credit information on
individuals and institutions in the
possession of government and private
entities.

(Manila Bulletin, June 29, 1984)

77 "Section 17(4), Article VIII, 1973

Constitution.

78 "BE IT RESOLVED, AS IT IS HEREBY

RESOLVED, That the tax and duty
exemption privileges of the National
Power Corporation, including those
pertaining to its domestic purchases of
petroleum and petroleum products,
granted under the terms and conditions
of Commonwealth Act No. 120 (Creating
the National Power Corporation, defining
its powers, objectives and functions, and
for other purposes), as amended, are
restored effective March 10, 1987,
subject to the following conditions:

1. The restoration of the tax and duty

exemption privileges does not apply to
the following:

1.1. Importations of fuel oil (crude

equivalent) and coal;

1.2. Commercially-funded importations

(i.e., importations which include but are
not limited to those financed by the
NPC's own internal funds, domestic
borrowings from any source whatsoever,
borrowings from foreign-based private
financial institutions, etc.); and
1.3. Interest income derived from any
source.
2. The NPC shall submit to the FIRB a
report of its expansion of relieved
program, including details of disposition
of relieved tax and duty payments for
such expansion on an annual basis or as
often as the FIRB may require it to do so.
This report shall be in addition to the
usual FIRB reporting requirements on
incentive availment.
79 Rollo, p. 233; Annex "M" of the Petition.
80 94 SCRA 261 (1974).
81 In order that the review of the
decision of a subordinate officer might
not turn out to be a farce, the reviewing
officer must perforce be other than the
officer whose decision is under review;
otherwise, there could be no different
view or there would be no real view of
the case. The decision of the reviewing
officer would be biased view; inevitably,
it would be the same view since being
human, he would not admit that he was
mistaken in his first view of the case."
(Ibid., p. 267) (
S
82 119 SCRA 353 (1982). G
D
83 "Due process of law means .
)
fundamental fairness It is not fair to
Doctor Anzaldo that Presidential A
L
Executive Assistant Clave should decide
whether his own recommendation F as
Chairman of the Civil Service R
Commission, as to who between E Doctor
Anzaldo and Doctor Venzon should D be
appointed Science Research SupervisorO
P
II, should be adopted by the President of
the Philippines." (Ibid. p. 357). I
O
D
84 "A Fiscal Incentive Review Board is
E
hereby created for the purpose of
R
determining what subsidies and tax
O
exemptions should be modified,
D
withdrawn, revoked and suspended,
A
which shall be composed of the
,
following officials:
J
R
.

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c
o "The Board may recommend to the
n President of the Philippines and for
o reasons of compatibility with the
declared economic policy, the
withdrawal, modification revocation or
suspension of the enforceability of any of
the above-cited statutory or tax
exemption grants, except those granted
by the Constitution. To attain its
objectives, the Board may require the
assistance of any appropriate
government agency or entity. The Board
shall meet once a month, or oftener at
the call of Secretary of Finance." (Sec. 2,
Pres. Dec. No. 776)
lawlessness, anarchy, disorder and
wanton destruction of lives and property)
and their dependents, I ordered the
Philippine Veterans Bank to set aside the
sum of five million pesos (P5,000,000.00)
in Letter of Instruction No. 31, October 23,
1972, as amended, for the operation
and maintenance of commissary and PX
facilities for the aforementioned
veterans, their widows and orphans, and
the members of the Armed Forces of the
Philippines and their dependents;

85 WITHDRAWING ALL TAX AND DUTY "WHEREAS, to better realize the

INCENTIVES, SUBJECT TO CERTAIN
EXCEPTIONS, EXPANDING THE POWERS
OF THE FISCAL INCENTIVES REVIEW
BOARD AND FOR OTHER PURPOSES."
86 In the discharge of its authority
hereunder the Fiscal Incentives Review
Board shall take into account or any of
the following considerations:
objectives of the aforementioned Leter
Instructions and in order to render fuller
meaning to said objectives, it is
necessary that certain commodities
which are to be sold by the commissary
from local producers, manufacturers or
suppliers be free of all taxes, duties
and/or charges imposed by the
Government;

a) the NOW, THEREFORE, I, FERDINAND E.

effect MARCOS, President of the Philippines, by
on virtue of the powers in me vested by the
relative Constitution as Commander-in-Chief of
price all the Armed Forces of the Philippines,
levels; and pursuant to the Letter of Instruction
cited above, do hereby promulgate and
decree as part of the law of the land
b)
that all purchases from local sources,
relative
manufacturers, suppliers and producers
contrib
of commodities or items decided by the
ution of
AFP Exchange and Commissary Service
the
to be sold to persons entitled to
benefici
commissary and PX privileges under
ary to
Letter of Instruction No. 31, dated
the
October 23, 1972, as amended, shall be
revenu
free of all taxes, duties and other
e
charges prescribed for similar
generat
commodities or items under existing
ion
revenue and other laws and regulations.
effort;

The Chief of Staff, AFP, with approval of

c)
December, in the year of Our Lord,
nature
nineteen hundred and seventy-two."
of the
(Emphasis Supplied)
activity
the
benefici 89 Footnote No. 15 Philippine Acetylene
ary is Co., Inc. vs. Commissioner of Internal
engage Revenue, 20 SCRA 1056, at 1064: "In the
d; and long run a sales tax is probably shifted to
the consumer, but during the period
when supply is being adjusted to
d) in
changes in demand it must be in part
general
absorbed. In practice the business man
, the
will treat the levy as an added cost of
greater
operation and distribute it over his sales
national
as he would any other cost, increasing
interest
by more than the amount of tax prices of
to be
goods demand for which will be least
served."
affected and leaving other prices
unchanged." [47 Harv. Ld. Rev. 860, 869
87 15 SCRA 569 (1965). (1934)].

88 "WHEREAS, pursuant to Proclamation 90 Opinion No. 106, S'54.

No. 1081, dated September 21, 1972,
martial law is in effect throughout the
91 Rollo, p. 212; Petition, Annex "F".
land;

92 Rollo, p. 124 Petition, Annex "D" of

"WHEREAS, in order to extend further
Annex "A".
assistance to the Veterans of the
Philippines in World War II, and their
windows and orphans, as well as to the 93 Rollo, p. 156; Petition, Annex "N-1" of
members of the Armed Forces of the Annex "A".
Philippines (who are now carrying the
greater part of the burden of suppressing 94 Rollo, p. 128; Petition, Annex "G" of
the activities of groups of men actively Annex "A".
engaged in a criminal conspiracy to
seize political and state powers in the 95 Ibid.
Philippines and of eradicating
 96 Rollo, p. 12.
97 Rollo, p. 213, Petition, Annex "G".
G.R. No. 109791 July 14, 2003
PHILIPPINE PORTS AUTHORITY, petitioner,
vs.
CITY OF ILOILO, respondent.
AZCUNA, J.:
Before us is a petition for review on certiorari assailing the
Decision of the Regional Trial Court of Iloilo City, Branch
39, dated February 26, 1993 in Civil Case No. 18477, a
case for collection of a sum of money. Seeking to raise
questions purely of law, petitioner Philippine Ports
Authority (PPA) would want us to set aside the ruling
ordering it to pay real property and business taxes to
respondent City of Iloilo.
The factual antecedents are summarized by the trial
court:
This is an action for the "recovery of sum of
money" filed by [respondent] City of Iloilo, a
public corporation organized under the laws of
the Republic of the Philippines, represented by
the Hon. Rodolfo T. Ganzon as City Mayor,
against petitioner, Philippine Ports Authority
(PPA), a government corporation created by
P.D. 857.
[Respondent] seeks to collect from [petitioner]
real property taxes as well as business taxes,
computed from the last quarter of 1984 up to
fourth quarter of 1988.
[Respondent] alleges that [petitioner] is engaged
in the business of arrastre and stevedoring
services and the leasing of real estate for which it
should be obligated to pay business taxes. It
further alleges that [petitioner] is the declared
and registered owner of a warehouse which is
used in the operation of its business and is also
thereby subject to real property taxes.
It demands the aggregate amount of
P510,888.86 in realty and business taxes as of
December 1988 (real property tax – last quarter
of 1984 to 1988; business tax- 1984 to 1988)
including its corresponding interests and penalty
charges.
On July 19, 1989, [petitioner] filed a motion to
dismiss but [it] was denied by this court. A motion
for reconsideration was filed, but the same was
still denied, after which [petitioner] filed its
answer.
During the pre-trial conference, the following
factual and legal issues were defined and
clarified.
Factual Issues:
1. Whether or not [petitioner] is engaged in
business;
2. Whether or not the assessment of tax by
[respondent] is accurate as of 4th quarter of 1988
from the year 1984; real property tax in the
amount of P180,953.93 and business tax in the
amount of P329,934.93 as of December 31, 1988.
Legal Issues:
1. Whether or not Philippine Ports Authority is
exempt from the payment of real property tax
and business tax;
2. Whether by filing a motion to dismiss,
[petitioner] impliedly admitted the allegations in
the complaint;
3. Whether Philippine Ports Authority is engaged
in business. If in the negative, whether or not it is
exempt from payment of business taxes.
During trial, [respondent] presented two
witnesses, namely: Mrs. Rizalina F. Tulio and Mr.
Leoncio Macrangala.
xxx xxx xxx
After [respondent] had rested its case,
[petitioner] did not present any evidence.
Instead, its counsel asked the court to give him
time to file a memorandum, as said counsel is
convinced that the issues involved in this case
are purely legal issues.
He has no quarrel as regards the computation of
the real property and business taxes made by
[respondent]. He is convinced, however, that the
issue in this case involves a question of law and
that [petitioner] is not liable to pay any kind of
taxes to the City of Iloilo.1
The court a quo rendered its decision holding petitioner
liable for real property taxes from the last quarter of 1984
to December 1986, and for business taxes with respect to
petitioner’s lease of real property from the last quarter of
1984 up to 1988. It, however, held that respondent may
not collect business taxes on petitioner’s arrastre and
stevedoring services, as these form part of petitioner’s
governmental functions. The dispositive portion of said
decision states:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay
the plaintiff, as follows:
1. the amount of P98,519.16 as real property tax,
from [the] last quarter of 1984 up to December
1986;
2. the amount of P3,828.07, as business tax, for
leasing of real estate from [the] last quarter of
1984 up to 1988.2
Petitioner now seeks a review of the case, contending
that the court a quo decided a question of substance
which has not been decided by us in that:
(i) It decreed a property of public dominion (port
facility) as subject to realty taxes just because the
mentioned property is being administered by
what it perceived to be a taxable government
corporation. And,
(ii) It declared that petitioner PPA is subject to
"business taxes" for leasing to private persons or
entities real estate without considering that
petitioner PPA is not engaged in "business."3
In its Comment, respondent in addition raises the issue of
whether or not petitioner may change its theory on
appeal. It points out that petitioner never raised the issue
that the subject property is of public dominion during the
trial nor did it mention it in the memorandum it filed with
the lower court. It further contends that such change of
theory patently contradicts petitioner’s admission in its
pleadings and is disallowed under applicable
jurisprudence.4
The records show that the theory of petitioner before the
trial court was different from that of the present petition.
In fact, even while at the trial court stage, petitioner was
not consistent in its theory.5 Initially in its pleadings therein,
it argued that as a government-owned corporation, it is
exempt from paying real property taxes by virtue of its
specific exemption in its charter,6 Section 40 of the Real
Property Tax Code and Executive Order No. 93.
Subsequently, in the memorandum it filed with the trial
court, it omitted its earlier argument and changed its
theory by alleging that it is a government instrumentality,
which, according to applicable jurisprudence, may not
be taxed by the local government. After obtaining an
adverse decision from the trial court, it adopts yet
another stance on appeal before us, contesting the
taxability of its warehouse. It argued for the first time that
since "ports constructed by the State" are considered
under the Civil Code as properties of public dominion, its
warehouse, which it insists to be part of its port, should be
treated likewise. To support this, it invokes Article 420 of
the Civil Code, which 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;
xxx xxx xxx
[Emphasis supplied]
Insisting that the subject warehouse is considered as part
of its port, it points to Section 3 (e) of its charter quoted
hereunder:
e) "port" means a place where ships may anchor
or tie up for the purpose of shelter, repair, loading
or discharge of cargo, or for other such activities
connected with water-borne commerce,
and including all the land and water areas and
the structures, equipment and facilities related to
these functions. [Emphasis supplied]
A perusal of the records shows that this thesis was never
presented nor discussed at the trial stage.
As a rule, a party who deliberately adopts a certain
theory upon which the case is tried and decided by the
lower court will not be permitted to change theory on
appeal.7 Points of law, theories, issues and arguments not
brought to the attention of the lower court need not be,
and ordinarily will not be, considered by a reviewing
court, as these cannot be raised for the first time at such
late stage. Basic considerations of due process underlie
this rule.8 It would be unfair to the adverse party who
would have no opportunity to present further evidence
material to the new theory, which it could have done
had it been aware of it at the time of the hearing before
the trial court.9 To permit petitioner in this case to change
its theory on appeal would thus be unfair to respondent,
and offend the basic rules of fair play, justice and due
process.10
Petitioner however cites an exception to the rule, as
enunciated in Lianga Lumber Co. v. Lianga Timber Co.,
Inc.,11wherein we said:
[I]n the interest of justice and within the sound
discretion of the appellate court, a party may
change his theory on appeal only when the
factual bases thereof would not require
presentation of any further evidence by the
adverse party in order to enable it to properly
meet the issue raised in the new theory.
Petitioner contends that its new theory falls under the
aforecited exception, as the issue does not involve any
disputed evidentiary matter.
Contrary to petitioner’s claim, we find that the new issue
raised is not a purely legal question. It must be
emphasized that the enumeration of properties of public
dominion under Article 420 of the Civil Code specifically
states "ports constructed by the State." Thus, in order to
consider the port in the case at bar as falling under the
said classification, the fact that the port was constructed
by the State must first be established by sufficient
evidence. This fact proved crucial in Santos v.
Moreno,12 where the issue raised was whether the canals
constructed by private persons were of public or private
ownership. We ruled that the canals were privately
owned, thus:
Under Art. 420, canals constructed by the State
and devoted and devoted to public use are of
public ownership. Conversely, canals
constructed by private persons within private
lands and devoted exclusively for private use
must be of private ownership.
In the case at bar, no proof was adduced to establish
that the port was constructed by the State. Petitioner
cannot have us automatically conclude that its port
qualified as "property of public dominion." It would be
unfair to respondent, which would be deprived of its
opportunity to present evidence to disprove the factual
basis of the new theory. It is thus clear that
the Lianga exception cannot apply in the case at bar.
Moreover, as correctly pointed out by respondent, we
cannot ignore the fact that petitioner’s new position runs
contrary to its own admission in the pleadings filed in the
trial court. Under paragraph 3 of respondent’s complaint
quoted hereunder, the fact of petitioner’s ownership of
the property was specifically alleged as follows:
III
Defendant is likewise the declared and
registered owner of a warehouse standing on Lot
No. 1065 situated at Bgy. Concepcion, City
Proper, declared under Tax Declaration No.
56325. Xerox copy of the said Tax Declaration is
hereto attached as annex "D" and formns] an
integral part of herein complaint;13
In its Answer, referring to the abovecited complaint,
petitioner stated, "Paragraph 3 is admitted."14 Notably,
this admission was never questioned nor put at issue
during the trial.
Now before us, petitioner contradicts its earlier admission
by claiming that the subject warehouse is a property of
public dominion. This inconsistency is made more
apparent by looking closely at what public dominion
means. Tolentino explains this in this wise:
Private ownership is defined elsewhere in the
Code; but the meaning of public dominion is
nowhere defined. From the context of various
provisions, it is clear that public dominion does
not carry the idea of ownership; property of
public dominion is not owned by the State, but
pertains to the State, which as territorial sovereign
exercises certain judicial prerogatives over such
property. The ownership of such property, which
has the special characteristics of a collective
ownership for the general use and enjoyment, by
virtue of their application to the satisfaction of
collective needs, is in the social group, whether
national, provincial, or municipal. Their purpose is
not to serve the State as a juridical person, but
the citizens; they are intended for the common
and public welfare, and so they cannot be the
object of appropriation, either by the State or by
private persons.15 [Emphasis supplied]
Following the above, properties of public dominion are
owned by the general public and cannot be declared to
be owned by a public corporation, such as petitioner.
As the object of the pleadings is to draw the lines of
battle, so to speak, between the litigants and to indicate
fairly the nature of the claims or defenses of both parties,
a party cannot subsequently take a position contrary to,
or inconsistent, with his pleadings.16 Unless a party alleges
palpable mistake or denies such admission, judicial
admissions cannot be controverted.17 Petitioner is thus
bound by its admission of ownership of the subject
property and is barred from claiming otherwise.
We also note that petitioner failed to raise the issue of
ownership during the pre-trial. In its petition, it insists that
to determine liability for real property tax, the ownership
of the property must first be ascertained.18 In the pre-trial
order, however, to which petitioner did not object,
nowhere was the issue of ownership included in the
stipulated factual or legal issues.19
We have ruled that a pre-trial is primarily intended to
make certain that all issues necessary to the disposition of
a case are properly raised. Thus to obviate the element
of surprise, parties are expected to disclose at the pre-
trial conference all issues of law and fact which they
intend to raise at the trial. Consequently, the
determination of issues at a pre-trial conference bars the
consideration of other questions on appeal.20 Hence, in
the case at bar, the fact that the issue of ownership is
outside of what has been delimited during the pre-trial
further justifies the disallowance of petitioner’s new
theory.
Therefore, on the basis of the foregoing considerations
and in the absence of compelling reasons to rule
otherwise, we hold that petitioner may not be permitted
to change its theory at this stage. Well-settled is the rule
that questions that were not raised in the lower court
cannot be raised for the first time on appeal.21
In any case, granting that petitioner’s present theory is
allowed at this stage, we nevertheless find it untenable.
Concededly, "ports constructed by the State" are
properties of the public dominion, as Article 420 of the
Civil Code enumerates these as properties "intended for
public use." It must be stressed however that what is
being taxed in the present case is petitioner’s warehouse,
which, although located within the port, is distinct from
the port itself. In Light Rail Transit Authority v. Central
Board of Assessment Appeals et al.,22 petitioner therein
similarly sought an exemption from real estate taxes on its
passenger terminals, arguing that said properties are
considered as part of the "public roads," which are
classified as property of public dominion in the Civil
Code.23 We ruled therein that:
…[T]he properties of petitioner are not exclusively
considered as public roads being improvements
placed upon the public road, and this
[separable] nature of the structure in itself
physically distinguishes it from a public road.
Considering further that carriageways or
passenger terminals are elevated structures
which are not freely accessible to the public, vis-
à-vis roads which are public improvements
openly utilized by the public, the former are
entirely different from the latter.
Using the same reasoning, the warehouse in the case at
bar may not be held as part of the port, considering its
separable nature as an improvement upon the port, and
the fact that it is not open for use by everyone and freely
accessible to the public. In the same way that we ruled in
one case that the exemption of public property from
taxation does not extend to improvements made thereon
by homesteaders or occupants at their own
expense,24 we likewise uphold the taxability of the
warehouse in the instant case, it being a mere
improvement built on an alleged property of public
dominion, assuming petitioner’s port to be so. Moreover,
petitioner may not invoke the definition of "port" in its
charter to expand the meaning of "ports constructed by
the State" in the Civil Code to include improvements built
thereon. It must be noted that the charter itself limited the
use of said definition only for the interpretation of
Presidential Decree (P.D.) No. 857, its by-laws, regulations
and rules,25 and not of other statutes such as the Civil
Code. Given these parameters, therefore, petitioner’s
move to present its new theory, even if allowed, would
nonetheless prove to be futile.
The trial court correctly ruled that for the assessed period
of 1984 to 1988, petitioner’s exemption from real property
taxes was withdrawn by P.D. No. 1931, at least for the
period of 1984 to 1986.
Originally, petitioner was exempt from real property taxes
on the basis of the Real Property Tax Code26 then
governing, which provided:
SECTION 40. Exemptions 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 corporation so exempt
by its charter: Provided; however, That this
exemption shall not apply to real property of the
above-named entities the beneficial use of
which has been granted, for consideration or
otherwise, to a taxable person.
Petitioner’s charter, P.D. 857,27 further specifically
exempted it from real property taxes:
SECTION 25. Exemption from Realty Taxes – The
Authority shall be exempt from the payment of
real property taxes imposed by the Republic of
the Philippines, its agencies, instrumentalities or
political subdivisions; Provided, That no tax
exemptions shall be extended to any subsidiaries
of the Authority that may be organized;
Provided, finally, That investments in fixed assets
shall be deductible for income tax purposes.
It can thus be seen from the foregoing that petitioner, as
a government-owned or controlled corporation, enjoyed
an exemption from real property taxes.
On June 11, 1984, however, P.D. 1931 effectively
withdrew all tax exemption privileges granted to
government-owned or controlled corporations as stated
in Section 1 thereof, which reads:
Sec. 1. The provisions of special or general law to
the contrary notwithstanding, all exemptions from
the payment of duties, taxes, fees, imposts and
other charges heretofore granted in favor of
government-owned or controlled corporations
including their subsidiaries, are hereby withdrawn.
Under the same law, the exemption can be restored in
special cases through an application for restoration with
the Secretary of Finance,28 which, notably, petitioner did
not avail.
Subsequently, Executive Order (E.O.) No. 93 was enacted
on December 17, 1986 restoring tax exemptions provided
under certain laws, one of which is the Real Property Tax
Code. The pertinent portion of said law provides:
SECTION 1. The provisions of any general or
special law to the contrary notwithstanding, all
tax and duty incentives granted to government
and private entities are hereby withdrawn,
except:
xxx xxx xxx
e) those conferred under four basic codes
namely:
(i) the Tariff and Customs Code, as
amended;
(ii) the National Internal Revenue Code,
as amended;
 (iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as
amended;
[Emphasis supplied]
The abovecited laws, therefore, indicate that petitioner’s
tax exemption from real property taxes was withdrawn by
P.D. 1931 effective June 11, 1984, but was subsequently
restored by virtue of E.O. 93, starting December 17,
1986.29 Hence, petitioner is liable for real property taxes
on its warehouse, computed from the last quarter of 1984
up to December 1986.
Petitioner, however, seeks to be excused from liability for
taxes by invoking the pronouncement in Basco v.
PAGCOR30 (Basco) quoted hereunder:
PAGCOR has a dual role, to operate and to
regulate gambling casinos. The latter role is
governmental, which places it in the category of
an agency or instrumentality of the
Government. Being an instrumentality of the
Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation
might be burdened, impeded or subject to
control by a mere Local government. [Emphasis
supplied]
Petitioner points out that its exercise of regulatory
functions as decreed by its charter31 places it within the
category of an "agency or instrumentality of the
government," which, according to Basco, is beyond the
reach of local taxation.
Reliance in the abovecited case is unavailing considering
that P.D. 1931 was never raised therein, and given that
the issue in said case focused on the constitutionality of
P.D. 1869, the charter of PAGCOR. The said decision did
not absolutely prohibit local governments from taxing
government instrumentalities. In fact we stated therein:
The power of local government to "impose taxes
and fees" is always subject to "limitations" which
Congress may provide by law. Since P.D. 1869
remains an "operative" law until "amended,
repealed or revoked"…its "exemption clause"
remains an exemption to the exercise of the
power of local governments to impose taxes and
fees.32
Furthermore, in the more recent case of Mactan Cebu
International Airport Authority v. Marcos,33 where
the Bascocase was similarly invoked for tax exemption,
we stated: "[N]othing 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." The fact that tax exemptions of
government-owned or controlled corporations have
been expressly withdrawn by the present Local
Government Code34 clearly attests against petitioner’s
claim of absolute exemption of government
instrumentalities from local taxation.
Petitioner also contends that the term "government-
owned or controlled corporations" referred in P.D. 1931
covers only those not performing governmental functions.
This argument is without legal basis for it reads into the
law a distinction that is not there. It runs contrary to the
clear intent of the law to withdraw from all units of the
government, including government-owned or controlled
corporations, their exemptions from taxes. Had it been
otherwise, the law would have said so.35
Moreover, the trial court correctly pointed out that if
indeed petitioner were not subject to local taxation,
petitioner’s charter would not have specifically provided
for its exemption from the payment of real property tax.
Its exemption therein therefore proves that it was only an
exception to the general rule of taxability of petitioner.
Given that said privilege was withdrawn by subsequent
law, petitioner’s claim for exemption from real property
taxes for the entire assessed period fails.
We affirm the finding of the lower court on petitioner’s
liability for business taxes for the lease of its building to
private corporations. During the trial, petitioner did not
present any evidence to refute respondent’s proof of
petitioner’s income from the lease of its property. Neither
did it present any proof of exemption from business taxes.
Instead, it emphasized its charter provisions defining its
functions as governmental in nature. It averred that it
allowed port users to occupy certain premises within the
port area only to ensure order and convenience in
discharging its governmental functions. It hence claimed
that it is not engaged in business, as the act of leasing out
its property was not motivated by profit, but by its duty to
manage and control port operations.
The argument is unconvincing. As admitted by petitioner,
it leases out its premises to private persons for
"convenience" and not necessarily as part of its
governmental function of administering port operations.
In fact, its charter classifies such act of leasing out port
facilities as one of petitioner’s corporate powers.36 Any
income or profit generated by an entity, even of a
corporation organized without any intention of realizing
profit in the conduct of its activities, is subject to
tax.37 What matters is the established fact that it leased
out its building to ten private entities from which it
regularly earned substantial income. Thus, in the absence
of any proof of exemption therefrom, petitioner is liable
for the assessed business taxes.
In closing, we reiterate that in taxing government-owned
or controlled corporations, the State ultimately suffers no
loss. In National Power Corp. v. Presiding Judge, RTC, Br.
XXV,38 we elucidated:
Actually, the State has no reason to decry the
taxation of NAPOCOR’s properties, as and by
way of real property taxes. Real property taxes,
after all, form part and parcel of the financing
apparatus of the Government in development
and nation-building, particularly in the local
government level.
xxx xxx xxx
To all intents and purposes, real property taxes
are funds taken by the State with one hand and
given to the other. In no measure can the
government be said to have lost anything.
Finally, we find it appropriate to restate that the primary
reason for the withdrawal of tax exemption privileges
granted to government-owned and controlled
corporations and all other units of government was that
such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated
enterprises, hence resulting in the need for these entities
to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due
from them.39
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 91649 May 14, 1991
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE,
SOCRATES MARANAN AND LORENZO
SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION
(PAGCOR), respondent.
H.B. Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for
petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.
PARAS, J.:
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 Philippine
Amusement and Gaming Corporation (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
preceding 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 monopolistic and crony
economy, and toward free enterprise and
privatization. (p. 2, Amended Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim
that PD 1869 is contrary to the declared national policy of
the "new restored democracy" and the people's will as
expressed in the 1987 Constitution. The decree is said to
have a "gambling objective" and therefore is contrary to
Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and
Section 3 (2) of Article XIV, of the present Constitution (p.
3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers
and practicing lawyers (petitioner Basco being also the
Chairman of the Committee on Laws of the City Council
of Manila), can question and seek the annulment of PD
1869 on the alleged grounds mentioned above.
The Philippine Amusements and Gaming Corporation
(PAGCOR) was created by virtue of P.D. 1067-A dated
January 1, 1977 and was granted a franchise under P.D.
1067-B also dated January 1, 1977 "to establish, operate
and maintain gambling casinos on land or water within
the territorial jurisdiction of the Philippines." Its operation
was originally conducted in the well known floating
casino "Philippine Tourist." The operation was considered
a success for it proved to be a potential source of
revenue to fund infrastructure and socio-economic
projects, thus, P.D. 1399 was passed on June 2, 1978 for
PAGCOR to fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created
under P.D. 1869 to enable the Government to regulate
and centralize all games of chance authorized by
existing franchise or permitted by law, under the following
declared policy —
Sec. 1. Declaration of Policy. — It is hereby
declared to be the policy of the State to
centralize and integrate all games of chance not
heretofore authorized by existing franchises or
permitted by law in order to attain the following
objectives:
(a) To centralize and integrate the right and
authority to operate and conduct games of
chance into one corporate entity to be
controlled, administered and supervised by the
Government.
(b) To establish and operate clubs and casinos,
for amusement and recreation, including sports
gaming pools, (basketball, football, lotteries, etc.)
and such other forms of amusement and
recreation including games of chance, which
may be allowed by law within the territorial
jurisdiction of the Philippines and which will: (1)
generate sources of additional revenue to fund
infrastructure and socio-civic projects, such as
flood control programs, beautification, sewerage
and sewage projects, Tulungan ng Bayan
Centers, Nutritional Programs, Population Control
and such other essential public services; (2)
create recreation and integrated facilities which
will expand and improve the country's existing
tourist attractions; and (3) minimize, if not totally
eradicate, all the evils, malpractices and
corruptions that are normally prevalent on the
conduct and operation of gambling clubs and
casinos without direct government involvement.
(Section 1, P.D. 1869)
To attain these objectives PAGCOR is given territorial
jurisdiction all over the Philippines. Under its Charter's
repealing clause, all laws, decrees, executive orders, rules
and regulations, inconsistent therewith, are accordingly
repealed, amended or modified.
It is reported that PAGCOR is the third largest source of
government revenue, next to the Bureau of Internal
Revenue and the Bureau of Customs. In 1989 alone,
PAGCOR earned P3.43 Billion, and directly remitted to the
National Government a total of P2.5 Billion in form of
franchise tax, government's income share, the President's
Social Fund and Host Cities' share. In addition, PAGCOR
sponsored other socio-cultural and charitable projects on
its own or in cooperation with various governmental
agencies, and other private associations and
organizations. In its 3 1/2 years of operation under the
present administration, PAGCOR remitted to the
government a total of P6.2 Billion. As of December 31,
1989, PAGCOR was employing 4,494 employees in its nine
(9) casinos nationwide, directly supporting the livelihood
of Four Thousand Four Hundred Ninety-Four (4,494)
families.
But the petitioners, are questioning the validity of P.D. No.
1869. They allege that the same is "null and void" for
being "contrary to morals, public policy and public order,"
monopolistic and tends toward "crony economy", and is
violative of the equal protection clause and local
autonomy as well as for running counter to the state
policies enunciated in Sections 11 (Personal Dignity and
Human Rights), 12 (Family) and 13 (Role of Youth) of
Article II, Section 1 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987
Constitution.
This challenge to P.D. No. 1869 deserves a searching and
thorough scrutiny and the most deliberate consideration
by the Court, involving as it does the exercise of what has
been described as "the highest and most delicate
function which belongs to the judicial department of the
government." (State v. Manuel, 20 N.C. 144; Lozano v.
Martinez, 146 SCRA 323).
As We enter upon the task of passing on the validity of an
act of a co-equal and coordinate branch of the
government We need not be reminded of the time-
honored principle, deeply ingrained in our jurisprudence,
that a statute is presumed to be valid. Every presumption
must be indulged in favor of its constitutionality. This is not
to say that We approach Our task with diffidence or
timidity. Where it is clear that the legislature or the
executive for that matter, has over-stepped the limits of
its authority under the constitution, We should not hesitate
to wield the axe and let it fall heavily, as fall it must, on
the offending statute (Lozano v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers' Union, et al, 59
SCRA 54, the Court thru Mr. Justice Zaldivar underscored
the —
. . . thoroughly established principle which must
be followed in all cases where questions of
constitutionality as obtain in the instant cases are
involved. All presumptions are indulged in favor
of constitutionality; one who attacks a statute
alleging unconstitutionality must prove its
invalidity beyond a reasonable doubt; that a law
may work hardship does not render it
unconstitutional; that if any reasonable basis may
be conceived which supports the statute, it will
be upheld and the challenger must negate all
possible basis; that the courts are not concerned
with the wisdom, justice, policy or expediency of
a statute and that a liberal interpretation of the
constitution in favor of the constitutionality of
legislation should be adopted. (Danner v. Hass,
194 N.W. 2nd534, 539; Spurbeck v. Statton, 106
N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas
v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v.
Commission on Elections, 82 SCRA 30, 55 [1978];
and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-
242 [1983] cited in Citizens Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA
521, 540)
Of course, there is first, the procedural issue. The
respondents are questioning the legal personality of
petitioners to file the instant petition.
Considering however the importance to the public of the
case at bar, and in keeping with the Court's duty, under
the 1987 Constitution, to determine whether or not the
other branches of government have kept themselves
within the limits of the Constitution and the laws and that
they have not abused the discretion given to them, the
Court has brushed aside technicalities of procedure and
has taken cognizance of this petition. (Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163
SCRA 371)
With particular regard to the requirement of
proper party as applied in the cases before us,
We hold that the same is satisfied by the
petitioners and intervenors because each of
them has sustained or is in danger of sustaining
an immediate injury as a result of the acts or
measures complained of. And even if, strictly
speaking they are not covered by the definition,
it is still within the wide discretion of the Court to
waive the requirement and so remove the
impediment to its addressing and resolving the
serious constitutional questions raised.
In the first Emergency Powers Cases, ordinary
citizens and taxpayers were allowed to question
the constitutionality of several executive orders
issued by President Quirino although they were
involving only an indirect and general interest
shared in common with the public. The Court
dismissed the objection that they were not
proper parties and ruled that "the transcendental
importance to the public of these cases
demands that they be settled promptly and
definitely, brushing aside, if we must technicalities
of procedure." We have since then applied the
exception in many other cases. (Association of
Small Landowners in the Philippines, Inc. v. Sec. of
Agrarian Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now
discuss the substantive issues raised.
Gambling in all its forms, unless allowed by law, is
generally prohibited. But the prohibition of gambling does
not mean that the Government cannot regulate it in the
exercise of its police power.
The concept of police power is well-established in this
jurisdiction. It has been defined as the "state authority to
enact legislation that may interfere with personal liberty
or property in order to promote the general welfare." (Edu
v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an
imposition or restraint upon liberty or property, (2) in order
to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms
to underscore its all-comprehensive embrace. (Philippine
Association of Service Exporters, Inc. v. Drilon, 163 SCRA
386).
Its scope, ever-expanding to meet the exigencies of the
times, even to anticipate the future where it could be
done, provides enough room for an efficient and flexible
response to conditions and circumstances thus assuming
the greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain
reason that it does not owe its origin to the charter. Along
with the taxing power and eminent domain, it is inborn in
the very fact of statehood and sovereignty. It is a
fundamental attribute of government that has enabled it
to perform the most vital functions of governance.
Marshall, to whom the expression has been credited,
refers to it succinctly as the plenary power of the state "to
govern its citizens". (Tribe, American Constitutional Law,
323, 1978). The police power of the State is a power co-
extensive with self-protection and is most aptly termed
the "law of overwhelming necessity." (Rubi v. Provincial
Board of Mindoro, 39 Phil. 660, 708) It is "the most essential,
insistent, and illimitable of powers." (Smith Bell & Co. v.
National, 40 Phil. 136) It is a dynamic force that enables
the state to meet the agencies of the winds of change.
What was the reason behind the enactment of P.D.
1869?
P.D. 1869 was enacted pursuant to the policy of the
government to "regulate and centralize thru an
appropriate institution all games of chance authorized by
existing franchise or permitted by law" (1st whereas
clause, PD 1869). As was subsequently proved, regulating
and centralizing gambling operations in one corporate
entity — the PAGCOR, was beneficial not just to the
Government but to society in general. It is a reliable
source of much needed revenue for the cash strapped
Government. It provided funds for social impact projects
and subjected gambling to "close scrutiny, regulation,
supervision and control of the Government" (4th Whereas
Clause, PD 1869). With the creation of PAGCOR and the
direct intervention of the Government, the evil practices
and corruptions that go with gambling will be minimized if
not totally eradicated. Public welfare, then, lies at the
bottom of the enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of
the right of the City of Manila to impose taxes and legal
fees; that the exemption clause in P.D. 1869 is violative of
the principle of local autonomy. They must be referring to
Section 13 par. (2) of P.D. 1869 which exempts PAGCOR,
as the franchise holder from paying any "tax of any kind
or form, income or otherwise, as well as fees, charges or
levies of whatever nature, whether National or Local."
(2) Income and other taxes. — a) Franchise
Holder: No tax of any kind or form, income or
otherwise as well as fees, charges or levies of
whatever nature, whether National or Local, shall
be assessed and collected under this franchise
from the Corporation; nor shall any form or tax or
charge attach in any way to the earnings of the
Corporation, except a franchise tax of five (5%)
percent of the gross revenues or earnings derived
 by the Corporation from its operations under this
franchise. Such tax shall be due and payable
quarterly to the National Government and shall
be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description,
levied, established or collected by any
municipal, provincial or national government
authority (Section 13 [2]).
Their contention stated hereinabove is without merit for
the following reasons:
(a) The City of Manila, being a mere Municipal
corporation has no inherent right to impose taxes (Icard
v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva,
105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA
643). Thus, "the Charter or statute must plainly show an
intent to confer that power or the municipality cannot
assume it" (Medina v. City of Baguio, 12 SCRA 62). 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" (Bernas,
the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed.
p. 445).
(b) The Charter of the City of Manila is subject to control
by Congress. It should be stressed that "municipal
corporations are mere creatures of Congress" (Unson v.
Lacson, G.R. No. 7909, January 18, 1957) which has the
power to "create and abolish municipal corporations"
due to its "general legislative powers" (Asuncion v.
Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over Local
governments (Hebron v. Reyes, G.R. No. 9124, July 2,
1950). And if Congress can grant the City of Manila the
power to tax certain matters, it can also provide for
exemptions or even take back the power.
(c) 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 P.D. No. 771 and was vested exclusively on the
National Government, thus:
Sec. 1. Any provision of law to the contrary
notwithstanding, the authority of chartered cities
and other local governments to issue license,
permit or other form of franchise to operate,
maintain and establish horse and dog race
tracks, jai-alai and other forms of gambling is
hereby revoked.
Sec. 2. Hereafter, all permits or franchises to
operate, maintain and establish, horse and dog
race tracks, jai-alai and other forms of gambling
shall be issued by the national government upon
proper application and verification of the
qualification of the applicant . . .
Therefore, only the National Government has the power
to issue "licenses 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.
(d) Local governments have 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. In addition to its
corporate powers (Sec. 3, Title II, PD 1869) it also exercises
regulatory powers thus:
Sec. 9. Regulatory Power. — The Corporation
shall maintain a Registry of the affiliated entities,
and shall exercise all the powers, authority and
the responsibilities vested in the Securities and
Exchange Commission over such affiliating
entities mentioned under the preceding section,
including, but not limited to amendments of
Articles of Incorporation and By-Laws, changes in
corporate term, structure, capitalization and
other matters concerning the operation of the
affiliated entities, the provisions of the
Corporation Code of the Philippines to the
contrary notwithstanding, except only with
respect to original incorporation.
PAGCOR has a dual role, to operate and to regulate
gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality
of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere
Local government.
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. Marland, 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.
(e) Petitioners also argue that the Local Autonomy
Clause of the Constitution will be violated by P.D. 1869.
This is a pointless argument. Article X of the 1987
Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the
power to create its own source of revenue and
to levy taxes, fees, and other charges subject to
such guidelines and limitation as the congress
may provide, consistent with the basic policy on
local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local government.
(emphasis supplied)
The power of 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" (Sec. 3, Art. XVIII,
1987 Constitution), 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" (III Records
of the 1987 Constitutional Commission, pp. 435-436, as
cited in Bernas, The Constitution of the Republic of the
Philippines, Vol. II, First Ed., 1988, p. 374). It does not make
local governments sovereign within the state or an
"imperium in imperio."
Local Government has been described as a
political subdivision of a nation or state which is
constituted by law and has substantial control of
local affairs. In a unitary system of government,
such as the government under the Philippine
Constitution, local governments can only be
an intra sovereign subdivision of one sovereign
nation, it cannot be an imperium in imperio.
Local government in such a system can only
mean a measure of decentralization of the
function of government. (emphasis supplied)
As to what state powers should be "decentralized" and
what may be delegated to local government units
remains a matter of policy, which concerns wisdom. It is
therefore a political question. (Citizens Alliance for
Consumer Protection v. Energy Regulatory Board, 162
SCRA 539).
What is settled is that the matter of regulating, taxing or
otherwise dealing with gambling is a State concern and
hence, it is the sole prerogative of the State to retain it or
delegate it to local governments.
As gambling is usually an offense against the
State, legislative grant or express charter power is
generally necessary to empower the local
corporation to deal with the subject. . . . In the
absence of express grant of power to
enact, ordinance provisions on this subject which
are inconsistent with the state laws are void.
(Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte
Solomon, 9, Cals. 440, 27 PAC 757 following in re
Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep.
280, 11 LRA 480, as cited in Mc Quinllan Vol.
3 Ibid, p. 548, emphasis supplied)
Petitioners next contend that P.D. 1869 violates the equal
protection clause of the Constitution, because "it
legalized PAGCOR — conducted gambling, while most
gambling are outlawed together with prostitution, drug
trafficking and other vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this
contention. The petitioners' posture ignores the well-
accepted meaning of the clause "equal protection of
the laws." The clause does not preclude classification of
individuals who may be accorded different treatment
under the law as long as the classification is not
unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil.
1155). A law does not have to operate in equal force on
all persons or things to be conformable to Article III,
Section 1 of the Constitution (DECS v. San Diego, G.R. No.
89572, December 21, 1989).
The "equal protection clause" does not prohibit the
Legislature from establishing classes of individuals or
objects upon which different rules shall operate (Laurel v.
Misa, 43 O.G. 2847). The Constitution does not require
situations which are different in fact or opinion to be
treated in law as though they were the same (Gomez v.
Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by
PAGCOR is violative of the equal protection is not clearly
explained in the petition. The mere fact that some
gambling activities like cockfighting (P.D 449) horse
racing (R.A. 306 as amended by RA 983), sweepstakes,
lotteries and races (RA 1169 as amended by B.P. 42) are
legalized under certain conditions, while others are
prohibited, does not render the applicable laws, P.D.
1869 for one, unconstitutional.
If the law presumably hits the evil where it is most
felt, it is not to be overthrown because there are
other instances to which it might have been
applied. (Gomez v. Palomar, 25 SCRA 827)
The equal protection clause of the
14th Amendment does not mean that all
occupations called by the same name must be
treated the same way; the state may do what it
can to prevent which is deemed as evil and stop
short of those cases in which harm to the few
concerned is not less than the harm to the public
that would insure if the rule laid down were
made mathematically exact. (Dominican Hotel
v. Arizona, 249 US 2651).
Anent petitioners' claim that PD 1869 is contrary to the
"avowed trend of the Cory Government away from
monopolies and crony economy and toward free
enterprise and privatization" suffice it to state that this is
not a ground for this Court to nullify P.D. 1869. If, indeed,
PD 1869 runs counter to the government's policies then it
is for the Executive Department to recommend to
Congress its repeal or amendment.
The judiciary does not settle policy issues. The
Court can only declare what the law is and not
what the law should be.1âwphi1 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. (Valmonte v. Belmonte, Jr., 170
SCRA 256).
On the issue of "monopoly," however, the Constitution
provides that:
Sec. 19. The State shall regulate or prohibit
monopolies when public interest so requires. No
combinations in restraint of trade or unfair
competition shall be allowed. (Art. XII, National
Economy and Patrimony)
It should be noted that, as the provision is worded,
monopolies are not necessarily prohibited by the
Constitution. The state must still decide whether public
interest demands that monopolies be regulated or
prohibited. Again, this is a matter of policy for the
Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections
11 (Personality Dignity) 12 (Family) and 13 (Role of Youth)
of Article II; Section 13 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987
Constitution, suffice it to state also that these are merely
statements of principles and, policies. As such, they are
basically not self-executing, meaning a law should be
passed by Congress to clearly define and effectuate
such principles.
In general, therefore, the 1935 provisions were
not intended to be self-executing principles
ready for enforcement through the courts. They
were rather directives addressed to the
executive and the legislature. If the executive
and the legislature failed to heed the directives
of the articles the available remedy was not
judicial or political. The electorate could express
their displeasure with the failure of the executive
and the legislature through the language of the
ballot. (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of
constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387;
Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82
SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore,
for PD 1869 to be nullified, it must be shown that there is a
clear and unequivocal breach of the Constitution, not
merely a doubtful and equivocal one. In other words, the
grounds for nullity must be clear and beyond reasonable
doubt. (Peralta v. Comelec, supra) Those who petition
this Court to declare a law, or parts thereof,
unconstitutional must clearly establish the basis for such a
declaration. Otherwise, their petition must fail. Based on
the grounds raised by petitioners to challenge the
constitutionality of P.D. 1869, the Court finds that
petitioners have failed to overcome the presumption. The
dismissal of this petition is therefore, inevitable. But as to
whether P.D. 1869 remains a wise legislation considering
the issues of "morality, monopoly, trend to free enterprise,
privatization as well as the state principles on social
justice, role of youth and educational values" being
raised, is up for Congress to determine.
As this Court held in Citizens' Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA 521 —
Presidential Decree No. 1956, as amended by
Executive Order No. 137 has, in any case, in its
favor the presumption of validity and
constitutionality which petitioners Valmonte and
the KMU have not overturned. Petitioners have
not undertaken to identify the provisions in the
Constitution which they claim to have been
violated by that statute. This Court, however, is
not compelled to speculate and to imagine how
the assailed legislation may possibly offend some
provision of the Constitution. The Court notes,
further, in this respect that petitioners have in the
main put in question the wisdom, justice and
expediency of the establishment of the OPSF,
issues which are not properly addressed to this
Court and which this Court may not
constitutionally pass upon. Those issues should be
addressed rather to the political departments of
government: the President and the Congress.
Parenthetically, We wish to state that gambling is
generally immoral, and this is precisely so when the
gambling resorted to is excessive. This excessiveness
necessarily depends not only on the financial resources of
the gambler and his family but also on his mental, social,
and spiritual outlook on life. However, the mere fact that
some persons may have lost their material fortunes,
mental control, physical health, or even their lives does
not necessarily mean that the same are directly
attributable to gambling. Gambling may have been the
antecedent, but certainly not necessarily the cause. For
the same consequences could have been preceded by
an overdose of food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano,
Gancayco, Bidin, Sarmiento, Griño-Aquino, Medialdea,
Regalado and Davide, Jr., JJ., concur.
Separate Opinions
PADILLA, J., concurring:
I concur in the result of the learned decision penned by
my brother Mr. Justice Paras. This means that I agree with
the decision insofar as it holds that the prohibition,
control, and regulation of the entire activity known as
gambling properly pertain to "state policy." It is, therefore,
the political departments of government, namely, the
legislative and the executive that should decide on what
government should do in the entire area of gambling,
and assume full responsibility to the people for such
policy.
The courts, as the decision states, cannot inquire into the
wisdom, morality or expediency of policies adopted by
the political departments of government in areas which
fall within their authority, except only when such policies
pose a clear and present danger to the life, liberty or
property of the individual. This case does not involve such
a factual situation.
However, I hasten to make of record that I do not
subscribe to gambling in any form. It demeans the
human personality, destroys self-confidence and
eviscerates one's self-respect, which in the long run will
corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck
families and homes; it is an antithesis to individual reliance
and reliability as well as personal industry which are the
touchstones of real economic progress and national
development.
Gambling is reprehensible whether maintained by
government or privatized. The revenues realized by the
government out of "legalized" gambling will, in the long
run, be more than offset and negated by the irreparable
damage to the people's moral values.
Also, the moral standing of the government in its
repeated avowals against "illegal gambling" is fatally
flawed and becomes untenable when it itself engages in
the very activity it seeks to eradicate.
One can go through the Court's decision today and
mentally replace the activity referred to therein
as gambling, which is legal only because it is authorized
by law and run by the government, with the activity
known as prostitution. Would prostitution be any less
reprehensible were it to be authorized by law, franchised,
and "regulated" by the government, in return for the
substantial revenues it would yield the government to
carry out its laudable projects, such as infrastructure and
social amelioration? The question, I believe, answers itself.
I submit that the sooner the legislative department
outlaws all forms of gambling, as a fundamental state
policy, and the sooner the executive implements such
policy, the better it will be for the nation.
Melencio-Herrera, J., concur.
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR
OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino International Airport (NAIA)
Complex in Parañaque City under Executive Order No.
903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter").
Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently,
Executive Order Nos. 9091 and 2982 amended the MIAA
Charter.
As operator of the international airport, MIAA administers
the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the
runways and buildings ("Airport Lands and Buildings") then
under the Bureau of Air Transportation.4 The MIAA Charter
further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other
mode unless specifically approved by the President of
the Philippines.5
On 21 March 1997, the Office of the Government
Corporate Counsel (OGCC) issued Opinion No. 061. The
OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to
MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay
the real estate tax imposed by the City. MIAA then paid
some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real
Estate Tax Delinquency from the City of Parañaque for
the taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:
TAX DECLARATION TAXABLE YEAR TAX DUE
E-016-01370 1992-2001 19,558,160.00
E-016-01374 1992-2001 111,689,424.90
E-016-01375 1992-2001 20,276,058.00
E-016-01376 1992-2001 58,144,028.00
E-016-01377 1992-2001 18,134,614.65
E-016-01378 1992-2001 111,107,950.40
E-016-01379 1992-2001 4,322,340.00
E-016-01380 1992-2001 7,776,436.00
*E-016-013-85 1998-2001 6,444,810.00
*E-016-01387 1998-2001 34,876,800.00
*E-016-01396 1998-2001 75,240.00
GRAND TOTAL P392,435,861.95
1992-1997 RPT was paid on Dec. 24, 1997 as per
O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City
Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency. MIAA thus sought a
clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147
clarifying OGCC Opinion No. 061. The OGCC pointed out
that Section 206 of the Local Government Code requires
persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the
MIAA Charter is the proof that MIAA is exempt from real
estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals
an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining
order. The petition sought to restrain the City of
Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands
and Buildings. The petition was docketed as CA-G.R. SP
No. 66878.
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
PENALTY Court issued a temporary
TOTAL
restraining order (TRO) effective immediately. The Court
11,201,083.20 30,789,243.20
ordered respondents to cease and desist from selling at
68,149,479.59 179,838,904.49
public auction the Airport Lands and Buildings.
Respondents
12,371,832.00received the TRO on the same day that the
32,647,890.00
Court issued it. However, respondents received the TRO
35,477,712.00 93,621,740.00
only at 1:25 p.m. or three hours after the conclusion of the
11,065,188.59
public auction. 29,199,803.24
67,794,681.59 178,902,631.99
On 10 February
2,637,360.00 2003, this Court issued a Resolution
6,959,700.00
confirming nunc pro tunc the TRO.
4,744,944.00 12,521,380.00
On2,900,164.50
29 March 2005, the 9,344,974.50
Court heard the parties in oral
arguments.
5,694,560.00In compliance with the directive issued during
50,571,360.00
the hearing, MIAA, respondent
33,858.00 109,098.00City of Parañaque, and
the Solicitor General subsequently submitted their
P232,070,863.47
respective Memoranda. P 624,506,725.42
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 follows:
SEC. 2. General Terms Defined. – x 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. (Emphasis supplied)
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. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the
Authority to be contributed by the National
Government shall be increased from Two and
One-half Billion (P2,500,000,000.00) Pesos to Ten
Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport
facilities, runways and equipment and such other
properties, movable and immovable[,] which
may be contributed by the National Government
or transferred by it from any of its agencies, the
valuation of which shall be determined jointly
with the Department of Budget and
Management and the Commission on Audit on
the date of such contribution or transfer after
making due allowances for depreciation and
other deductions taking into account the loans
and other liabilities of the Authority at the time of
the takeover of the assets and other properties;
(b) That the amount of P605 million as of
December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the
National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for
in Section 11 of E. O. No. 903 as amended, shall
be converted into the equity of the National
Government in the Authority. Thereafter, the
Government contribution to the capital of the
Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital
stock that is divided into shares.
Section 3 of the Corporation Code10 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.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
domain,12 police authority13 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
instrumentalitiesand 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 private constructions.24 (Emphasis
supplied)
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the
subject of an auction sale.25
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 encumber26 the Airport Lands and
Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law
governing the classification and disposition of lands of the
public domain other than timber and mineral
lands,"27 provide:
SECTION 83. Upon the recommendation of the
Secretary of Agriculture and Natural Resources,
the President may designate by proclamation
any tract or tracts of land of the public domain
as reservations for the use of the Republic of the
Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with
 regulations prescribed for this purposes, or for
quasi-public uses or purposes when the public
interest requires it, including reservations for
highways, rights of way for railroads, hydraulic
power sites, irrigation systems, communal
pastures or lequas communales, public parks,
public quarries, public fishponds, working men's
village and other improvements for the public
benefit.
SECTION 88. The tract or tracts of land reserved
under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other
disposition until again declared alienable under
the provisions of this Act or by proclamation of
the President. (Emphasis and underscoring
supplied)
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;
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 instrumentalitiesx 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,31Laguna Lake
Development Authority,32 Fisheries Development
Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro
Port Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local
governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not
distinguish between national government
instrumentalities with or without juridical personalities.
Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government
instrumentality under Section 133(o) of the Local
Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from
imposing any kind of tax on the national government, its
agencies and instrumentalities.
Section 133 of the Local Government Code starts with the
saving clause "[u]nless otherwise provided in this Code."
This means that unless the Local Government Code
grants an express authorization, local governments have
no power to tax the national government, its agencies
and instrumentalities. Clearly, the rule is local
governments have no power to tax the national
government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the
national government, its agencies and instrumentalities
only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to
the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government
Code 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)
Under Section 234(a), real property owned by the
Republic is exempt from real estate tax. The exception to
this exemption is when the government gives the
beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the
only instance when the national government, its
agencies and instrumentalities are subject to any kind of
tax by local governments. The exception to the
exemption applies only to real estate tax and not to any
other tax. The justification for the exception to the
exemption is that the real property, although owned by
the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable
person.
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 Limitations on
the Taxing Powers of Local Government Units." Section
133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to
tax. Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of
tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the
taxing power than this.
Since Section 133 prescribes the "common limitations" on
the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning
and purpose, the "common limitations" on the taxing
power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing
power in Section 133, then local governments can
impose any kind of tax on the national government, its
agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national
government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception
— which is an exception to the exemption of the
Republic from real estate tax imposed by local
governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects
real property owned by the Republic, whether titled in
the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of
such property is given to a taxable entity.
The minority also claims that the definition in the
Administrative Code of the phrase "government-owned
or controlled corporation" is not controlling. The minority
points out that Section 2 of the Introductory Provisions of
the Administrative Code admits that its definitions are not
controlling when it provides:
SEC. 2. General Terms Defined. — Unless the
specific words of the text, or the context as a
whole, or a particular statute, shall require a
different meaning:
xxxx
The minority then concludes that reliance on the
Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2
of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the
Administrative Code. However, this does not
automatically mean that the definition in the
Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code
clearly states that "unless the specific words x x x of a
particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall
apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-
owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the
Administrative Code prevails.
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
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.
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 Airport Lands and Buildings of the
Manila International Airport Authority EXEMPT from the
real estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments,
including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the
Airport Lands and Buildings of the Manila International
Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale,
and all its effects, of the Airport Lands and Buildings of the
Manila International Airport Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago,
Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio
Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario,
Garcia, Velasco, Jr., J.J., concur.
x-----------------------------------------------------------------
--------------x
DISSENTING OPINION
TINGA, J. :
The legally correct resolution of this petition would have
had the added benefit of an utterly fair and equitable
result – a recognition of the constitutional and statutory
power of the City of Parañaque to impose real property
taxes on the Manila International Airport Authority (MIAA),
but at the same time, upholding a statutory limitation that
prevents the City of Parañaque from seizing and
conducting an execution sale over the real properties of
MIAA. In the end, all that the City of Parañaque would
hold over the MIAA is a limited lien, unenforceable as it is
through the sale or disposition of MIAA properties. Not
only is this the legal effect of all the relevant constitutional
and statutory provisions applied to this case, it also leaves
the room for negotiation for a mutually acceptable
resolution between the City of Parañaque and MIAA.
Instead, with blind but measured rage, the majority today
veers wildly off-course, shattering statutes and judicial
precedents left and right in order to protect the precious
Ming vase that is the Manila International Airport Authority
(MIAA). While the MIAA is left unscathed, it is surrounded
by the wreckage that once was the constitutional policy,
duly enacted into law, that was local autonomy. Make
no mistake, the majority has virtually declared war on the
seventy nine (79) provinces, one hundred seventeen
(117) cities, and one thousand five hundred (1,500)
municipalities of the Philippines.1
The icing on this inedible cake is the strained and
purposely vague rationale used to justify the majority
opinion. Decisions of the Supreme Court are expected to
provide clarity to the parties and to students of
jurisprudence, as to what the law of the case is,
especially when the doctrines of long standing are
modified or clarified. With all due respect, the decision in
this case is plainly so, so wrong on many levels. More
egregious, in the majority's resolve to spare the Manila
International Airport Authority (MIAA) from liability for real
estate taxes, no clear-cut rule emerges on the important
question of the power of local government units (LGUs) to
tax government corporations, instrumentalities or
agencies.
The majority would overturn sub silencio, among others,
at least one dozen precedents enumerated below:
1) Mactan-Cebu International Airport Authority v. Hon.
Marcos,2 the leading case penned in 1997 by recently
retired Chief Justice Davide, which held that the express
withdrawal by the Local Government Code of previously
granted exemptions from realty taxes applied to
instrumentalities and government-owned or controlled
corporations (GOCCs) such as the Mactan-Cebu
International Airport Authority (MCIAA). The majority
invokes the ruling in Basco v. Pagcor,3 a precedent
discredited in Mactan, and a vanguard of a doctrine so
noxious to the concept of local government rule that the
Local Government Code was drafted precisely to
counter such philosophy. The efficacy of several rulings
that expressly rely on Mactan, such as PHILRECA v. DILG
Secretary,4 City Government of San Pablo v. Hon.
Reyes5 is now put in question.
2) The rulings in National Power Corporation v. City of
Cabanatuan,6 wherein the Court, through Justice Puno,
declared that the National Power Corporation, a GOCC,
is liable for franchise taxes under the Local Government
Code, and succeeding cases that have relied on it such
as Batangas Power Corp. v. Batangas City7 The majority
now states that deems instrumentalities as defined under
the Administrative Code of 1987 as purportedly beyond
the reach of any form of taxation by LGUs, stating "[l]ocal
governments are devoid of power to tax the national
government, its agencies and
instrumentalities."8 Unfortunately, using the definition
employed by the majority, as provided by Section 2(d) of
the Administrative Code, GOCCs are also considered as
instrumentalities, thus leading to the astounding
conclusion that GOCCs may not be taxed by LGUs under
the Local Government Code.
3) Lung Center of the Philippines v. Quezon City,9 wherein
a unanimous en banc Court held that the Lung Center of
the Philippines may be liable for real property taxes. Using
the majority's reasoning, the Lung Center would be
properly classified as an instrumentality which the majority
now holds as exempt from all forms of local taxation.10
4) City of Davao v. RTC,11 where the Court held that the
Government Service Insurance System (GSIS) was liable
for real property taxes for the years 1992 to 1994, its
previous exemption having been withdrawn by the
enactment of the Local Government Code.12 This
decision, which expressly relied on Mactan, would be
directly though silently overruled by the majority.
5) The common essence of the Court's rulings in the two
Philippine Ports Authority v. City of Iloilo,13 cases penned
by Justices Callejo and Azcuna respectively, which relied
in part on Mactan in holding the Philippine Ports Authority
(PPA) liable for realty taxes, notwithstanding the fact that
it is a GOCC. Based on the reasoning of the majority, the
PPA cannot be considered a GOCC. The reliance of
these cases on Mactan, and its rationale for holding
governmental entities like the PPA liable for local
government taxation is mooted by the majority.
6) The 1963 precedent of Social Security System
Employees Association v. Soriano,14 which declared the
Social Security Commission (SSC) as a GOCC performing
proprietary functions. Based on the rationale employed
by the majority, the Social Security System is not a GOCC.
Or perhaps more accurately, "no longer" a GOCC.
7) The decision penned by Justice (now Chief Justice)
Panganiban, Light Rail Transit Authority v. Central Board
of Assessment.15 The characterization therein of the Light
Rail Transit Authority (LRTA) as a "service-oriented
commercial endeavor" whose patrimonial property is
subject to local taxation is now rendered
inconsequential, owing to the majority's thinking that an
entity such as the LRTA is itself exempt from local
government taxation16, irrespective of the functions it
performs. Moreover, based on the majority's criteria, LRTA
is not a GOCC.
8) The cases of Teodoro v. National Airports
Corporation17 and Civil Aeronautics Administration v.
Court of Appeals.18 wherein the Court held that the
predecessor agency of the MIAA, which was similarly
engaged in the operation, administration and
management of the Manila International Agency, was
engaged in the exercise of proprietary, as opposed to
sovereign functions. The majority would hold otherwise
that the property maintained by MIAA is actually
patrimonial, thus implying that MIAA is actually engaged
in sovereign functions.
9) My own majority in Phividec Industrial Authority v.
Capitol Steel,19 wherein the Court held that the Phividec
Industrial Authority, a GOCC, was required to secure the
services of the Office of the Government Corporate
Counsel for legal representation.20 Based on the
reasoning of the majority, Phividec would not be a
GOCC, and the mandate of the Office of the
Government Corporate Counsel extends only to GOCCs.
10) Two decisions promulgated by the Court just last
month (June 2006), National Power Corporation v.
Province of Isabela21 and GSIS v. City Assessor of Iloilo
City.22 In the former, the Court pronounced that
"[a]lthough as a general rule, LGUs cannot impose taxes,
fees, or charges of any kind on the National Government,
its agencies and instrumentalities, this rule admits of an
exception, i.e., when specific provisions of the LGC
authorize the LGUs to impose taxes, fees or charges on
the aforementioned entities." Yet the majority now rules
that the exceptions in the LGC no longer hold, since
"local governments are devoid of power to tax the
national government, its agencies and
instrumentalities."23 The ruling in the latter case, which
held the GSIS as liable for real property taxes, is now put
in jeopardy by the majority's ruling.
There are certainly many other precedents affected,
perhaps all previous jurisprudence regarding local
government taxation vis-a-vis government entities, as well
as any previous definitions of GOCCs, and previous
distinctions between the exercise of governmental and
proprietary functions (a distinction laid down by this Court
as far back as 191624). What is the reason offered by the
majority for overturning or modifying all these precedents
and doctrines? None is given, for the majority takes
comfort instead in the pretense that these precedents
never existed. Only children should be permitted to
subscribe to the theory that something bad will go away
if you pretend hard enough that it does not exist.
I.
Case Should Have Been Decided
Following Mactan Precedent
The core issue in this case, whether the MIAA is liable to
the City of Parañaque for real property taxes under the
Local Government Code, has already been decided by
this Court in the Mactan case, and should have been
resolved by simply applying precedent.
Mactan Explained
A brief recall of the Mactan case is in order. The Mactan-
Cebu International Airport Authority (MCIAA) claimed
that it was exempt from payment of real property taxes
to the City of Cebu, invoking the specific exemption
granted in Section 14 of its charter, Republic Act No.
6958, and its status as an instrumentality of the
government performing governmental
functions.25 Particularly, MCIAA invoked Section 133 of
the Local Government Code, precisely the same
provision utilized by the majority as the basis for MIAA's
exemption. Section 133 reads:
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:
xxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities and local
government units. (emphasis and underscoring supplied).
However, the Court in Mactan noted that Section 133
qualified the exemption of the National Government, its
agencies and instrumentalities from local taxation with
the phrase "unless otherwise provided herein." It then
considered the other relevant provisions of the Local
Government Code, particularly the following:
SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless
otherwise provided in this Code, tax exemption or
incentives granted to, or enjoyed by all persons, whether
natural or juridical, including government-owned and
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.26
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
improvements not hereafter specifically exempted.27
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 subdivisions 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, non-profit 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 and controlled corporations
engaged in the 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.28
Clearly, Section 133 was not intended to be so absolute a
prohibition on the power of LGUs to tax the National
Government, its agencies and instrumentalities, as
evidenced by these cited provisions which "otherwise
provided." But what was the extent of the limitation under
Section 133? This is how the Court, correctly to my mind,
defined the parameters in Mactan:
The foregoing sections of the LGC speak 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 or provisos in these sections, 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 are explicitly indicated in the next. For
instance, in item (a) which excepts income taxes "when
levied on banks and other financial institutions"; item (d)
which excepts "wharfage on wharves constructed and
maintained by the local government unit concerned";
and item (1) which excepts taxes, fees and charges for
the registration and issuance of licenses 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 provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere
surplusages 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 Sections 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 on the National Government, its
agencies and instrumentalities, and local government
units"; however, pursuant to Section 232, provinces, cities,
and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, "real
property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise,
to a taxable person," as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently
enjoyed by natural or judicial 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 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 insofar as real property taxes are concerned
by limiting the retention only to those enumerated
therein; all others not included in the enumeration lost the
privilege upon the effectivity of the LGC. Moreover, even
as to real property 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 a taxable person for
consideration or otherwise.
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. 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
Sections 232 and 234.29
The Court in Mactan acknowledged that under Section
133, 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 LGUs 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, 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 234.30
Mactan Overturned the
Precedents Now Relied
Upon by the Majority
But the petitioners in Mactan also raised the Court's ruling
in Basco v. PAGCOR,31 decided before the enactment of
the Local Government Code. The Court in Basco
declared the PAGCOR as exempt from local taxes,
justifying the exemption in this wise:
Local governments have 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. In addition to its corporate powers
(Sec. 3, Title II, PD 1869) it also exercises regulatory powers
xxx
PAGCOR has a dual role, to operate and to regulate
gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality
of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere
Local government.
"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. Marland, 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 activates 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" (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.32
Basco is as strident a reiteration of the old guard view
that frowned on the principle of local autonomy,
especially as it interfered with the prerogatives and
privileges of the national government. Also consider the
following citation from Maceda v. Macaraig,33 decided
the same year as Basco. Discussing the rule of
construction of tax exemptions on government
instrumentalities, the sentiments are of a similar vein.
Moreover, it is a recognized principle that the rule on
strict interpretation does not apply in the case of
exemptions in favor of a government political subdivision
or instrumentality.
The basis for applying the rule of strict construction to
statutory provisions granting tax exemptions or
deductions, even more obvious than with reference to
the affirmative or levying provisions of tax statutes, is to
minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.
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.
In the case of property owned by the state or a city or
other public corporations, the express exemption should
not be construed with the same degree of strictness that
applies to exemptions contrary to the policy of the state,
since as to such property "exemption is the rule and
taxation the exception."34
Strikingly, the majority cites these two very cases and the
stodgy rationale provided therein. This evinces the
perspective from which the majority is coming from. It is
admittedly a viewpoint once shared by this Court, and
en vogue prior to the enactment of the Local
Government Code of 1991.
However, the Local Government Code of 1991 ushered in
a new ethos on how the art of governance should be
practiced in the Philippines, conceding greater powers
once held in the private reserve of the national
government to LGUs. The majority might have private
qualms about the wisdom of the policy of local
autonomy, but the members of the Court are not
expected to substitute their personal biases for the
legislative will, especially when the 1987 Constitution itself
promotes the principle of local autonomy.
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local
governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy
local autonomy.
Section 3. The Congress shall enact a local government
code which shall provide for a more responsive and
accountable local government structure instituted
through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers,
responsibilities, and resources, and provide for the
qualifications, election, appointment and removal, term,
salaries, powers and functions and duties of local officials,
and all other matters relating to the organization and
operation of the local units.
xxx
Section 5. Each local government unit shall have the
power to create its own sources of revenues and 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.
xxx
The Court in Mactan recognized that a new day had
dawned with the enactment of the 1987 Constitution and
the Local Government Code of 1991. Thus, it expressly
rejected the contention of the MCIAA that Basco was
applicable to them. In doing so, the language of the
Court was dramatic, if only to emphasize how
monumental the shift in philosophy was with the
enactment of the Local Government Code:
Accordingly, the position taken by the [MCIAA] is
untenable. Reliance on Basco v. Philippine Amusement
and Gaming Corporation is unavailing since it was
decided before the effectivity of the [Local Government
Code]. 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.35 (emphasis supplied)
The Court Has Repeatedly
Reaffirmed Mactan Over the
Precedents Now Relied Upon
By the Majority
Since then and until today, the Court has been emphatic
in declaring the Basco doctrine as dead. The notion that
instrumentalities may be subjected to local taxation by
LGUs was again affirmed in National Power Corporation
v. City of Cabanatuan,36 which was penned by Justice
Puno. NPC or Napocor, invoking its continued exemption
from payment of franchise taxes to the City of
Cabanatuan, alleged that it was an instrumentality of the
National Government which could not be taxed by a city
government. To that end, Basco was cited by NPC. The
Court had this to say about Basco.
xxx[T]he doctrine in Basco vs. Philippine Amusement and
Gaming Corporation relied upon by the petitioner to
support its claim no longer applies. To emphasize, the
Basco case was decided prior to the effectivity of the
LGC, when no law empowering the local government
units to tax instrumentalities of the National Government
was in effect. However, as this Court ruled in the case of
Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos, nothing prevents Congress from decreeing that
even instrumentalities or agencies of the government
performing governmental functions may be subject to
tax. In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of
government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA,
although an instrumentality of the national government,
was subject to real property tax.37
In the 2003 case of Philippine Ports Authority v. City of
Iloilo,38 the Court, in the able ponencia of Justice Azcuna,
affirmed the levy of realty taxes on the PPA. Although the
taxes were assessed under the old Real Property Tax
Code and not the Local Government Code, the Court
again cited Mactan to refute PPA's invocation of Basco
as the basis of its exemption.
[Basco] did not absolutely prohibit local governments
from taxing government instrumentalities. In fact we
stated therein:
The power of local government to "impose taxes and
fees" is always subject to "limitations" which Congress may
provide by law. Since P.D. 1869 remains an "operative"
law until "amended, repealed or revoked". . . its
"exemption clause" remains an exemption to the exercise
of the power of local governments to impose taxes and
fees.
Furthermore, in the more recent case of Mactan Cebu
International Airport Authority v. Marcos, where the Basco
case was similarly invoked for tax exemption, we stated:
"[N]othing 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." The fact that tax exemptions of government-
owned or controlled corporations have been expressly
withdrawn by the present Local Government Code
clearly attests against petitioner's claim of absolute
exemption of government instrumentalities from local
taxation.39
Just last month, the Court in National Power Corporation
v. Province of Isabela40 again rejected Basco in emphatic
terms. Held the Court, through Justice Callejo, Sr.:
Thus, the doctrine laid down in the Basco case is no
longer true. In the Cabanatuan case, the Court noted
primarily that the Basco case was decided prior to the
effectivity of the LGC, when no law empowering the
local government units to tax instrumentalities of the
National Government was in effect. It further explained
that in enacting the LGC, Congress empowered the LGUs
to impose certain taxes even on instrumentalities of the
National Government.41
The taxability of the PPA recently came to fore in
Philippine Ports Authority v. City of Iloilo42 case, a decision
also penned by Justice Callejo, Sr., wherein the Court
affirmed the sale of PPA's properties at public auction for
failure to pay realty taxes. The Court again reiterated that
"it was the intention of Congress to withdraw the tax
exemptions granted to or presently enjoyed by all
persons, including government-owned or controlled
corporations, upon the effectivity" of the Code.43 The
Court in the second Public Ports Authority case likewise
cited Mactan as providing the "raison d'etre for the
withdrawal of the exemption," namely, "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. . . . "44
Last year, the Court, in City of Davao v. RTC,45 affirmed
that the legislated exemption from real property taxes of
the Government Service Insurance System (GSIS) was
removed under the Local Government Code. Again,
Mactan was relied upon as the governing precedent.
The removal of the tax exemption stood even though the
then GSIS law46 prohibited the removal of GSIS' tax
exemptions unless the exemption was specifically
repealed, "and a provision is enacted to substitute the
declared policy of exemption from any and all taxes as
an essential factor for the solvency of the fund."47 The
Court, citing established doctrines in statutory
construction and Duarte v. Dade48ruled that such
proscription on future legislation was itself prohibited, as
"the legislature cannot bind a future legislature to a
particular mode of repeal."49
And most recently, just less than one month ago, the
Court, through Justice Corona in Government Service
Insurance System v. City Assessor of Iloilo50 again affirmed
that the Local Government Code removed the previous
exemption from real property taxes of the GSIS. Again
Mactan was cited as having "expressly withdrawn the
[tax] exemption of the [GOCC].51
Clearly then, Mactan is not a stray or unique precedent,
but the basis of a jurisprudential rule employed by the
Court since its adoption, the doctrine therein consistent
with the Local Government Code. Corollarily, Basco, the
polar opposite of Mactan has been emphatically
rejected and declared inconsistent with the Local
Government Code.
II.
Majority, in Effectively Overturning Mactan,
Refuses to Say Why Mactan Is Wrong
The majority cites Basco in support. It does not cite
Mactan, other than an incidental reference that it is
relied upon by the respondents.52 However, 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.
Before I dwell upon the numerous flaws of the majority, a
brief comment is necessitated on the majority's studied
murkiness vis-à-vis the Mactan precedent. 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.
However, the majority does not bother to explain why
Mactan is wrong. The interpretation in Mactan of the
relevant provisions of the Local Government Code is
elegant and rational, yet the majority refuses to explain
why this reasoning of the Court in Mactan is erroneous. In
fact, the majority does not even engage Mactan in any
meaningful way. If the majority believes that Mactan
may still stand despite this ruling, it remains silent as to the
viable distinctions between these two cases.
The majority's silence on Mactan is baffling, considering
how different this new ruling is with the ostensible
precedent. Perhaps the majority does not simply know
how to dispense with the ruling in Mactan. If Mactan truly
deserves to be discarded as precedent, it deserves a
more honorable end than death by amnesia or
ignonominous disregard. The majority could have
devoted its discussion in explaining why it thinks Mactan is
wrong, instead of pretending that Mactan never existed
at all. Such an approach might not have won the votes
of the minority, but at least it would provide some degree
of intellectual clarity for the parties, LGUs and the
national government, students of jurisprudence and
practitioners. A more meaningful debate on the matter
would have been possible, enriching the study of law and
the intellectual dynamic of this Court.
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.53 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.54 Both of them are
not empowered to obtain loans or encumber their
properties without prior approval the prior approval of the
President.55
III.
Instrumentalities, Agencies
And GOCCs Generally
Liable for Real Property Tax
I shall now proceed to demonstrate the errors in
reasoning of the majority. A bulwark of my position lies
with Mactan, which will further demonstrate why the
majority has found it inconvenient to even grapple with
the precedent that is Mactan in the first place.
Mactan held that the prohibition on taxing the national
government, its agencies and instrumentalities under
Section 133 is qualified by Section 232 and Section 234,
and accordingly, the only relevant exemption now
applicable to these bodies is as provided under Section
234(o), or on "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."
It should be noted that the express withdrawal of
previously granted exemptions by the Local Government
Code do not even make any distinction as to whether
the exempt person is a governmental entity or not. As
Sections 193 and 234 both state, the withdrawal applies
to "all persons, including [GOCCs]", thus encompassing
the two classes of persons recognized under our laws,
natural persons56 and juridical persons.57
The fact that the Local Government Code mandates the
withdrawal of previously granted exemptions evinces
certain key points. If an entity was previously granted an
express exemption from real property taxes in the first
place, the obvious conclusion would be that such entity
would ordinarily be liable for such taxes without the
exemption. If such entities were already deemed exempt
due to some overarching principle of law, then it would
be a redundancy or surplusage to grant an exemption to
an already exempt entity. This fact militates against the
claim that MIAA is preternaturally exempt from realty
taxes, since it required the enactment of an express
exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in
Mactan and asserts that government instrumentalities are
not taxable persons unless they lease their properties to a
taxable person. The general rule laid down in Section 232
is given short shrift. In arriving at this conclusion, several
leaps in reasoning are committed.
Majority's Flawed Definition
of GOCCs.
The majority takes pains to assert that the MIAA is not a
GOCC, but rather an instrumentality. However, and quite
grievously, the supposed foundation of this assertion is an
adulteration.
The majority gives the impression that a government
instrumentality is a distinct concept from a government
corporation.58 Most tellingly, the majority selectively cites
a portion of Section 2(10) of the Administrative Code of
1987, as follows:
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. xxx59 (emphasis
omitted)
However, Section 2(10) of the Administrative Code, when
read in full, makes an important clarification which the
majority does not show. The portions omitted by the
majority are highlighted below:
(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. This term includes
regulatory agencies, chartered institutions and
government—owned or controlled corporations.60
Since Section 2(10) makes reference to "agency of the
National Government," Section 2(4) is also worth citing in
full:
(4) 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. (emphasis supplied)61
Clearly then, based on the Administrative Code, a GOCC
may be an instrumentality or an agency of the National
Government. Thus, there actually is no point in the
majority's assertion that MIAA is not a GOCC, since based
on the majority's premise of Section 133 as the key
provision, the material question is whether MIAA is either
an instrumentality, an agency, or the National
Government itself. The very provisions of the
Administrative Code provide that a GOCC can be either
an instrumentality or an agency, so why even bother to
extensively discuss whether or not MIAA is a GOCC?
Indeed as far back as the 1927 case of Government of
the Philippine Islands v. Springer,62 the Supreme Court
already noted that a corporation of which the
government is the majority stockholder "remains an
agency or instrumentality of government."63
Ordinarily, the inconsequential verbiage stewing in
judicial opinions deserve little rebuttal. However, the
entire discussion of the majority on the definition of a
GOCC, obiter as it may ultimately be, deserves emphatic
refutation. The views of the majority on this matter are
very dangerous, and would lead to absurdities, perhaps
unforeseen by the majority. For in fact, the majority
effectively declassifies many entities created and
recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective
charters as to the definition of these entities.
Majority Ignores the Power
Of Congress to Legislate and
Define Chartered Corporations
First, the majority declares that, citing Section 2(13) of the
Administrative Code, a GOCC must be "organized as a
stock or non-stock corporation," as defined under the
Corporation Code. To insist on this as an absolute rule fails
on bare theory. Congress has the undeniable power to
create a corporation by legislative charter, and has been
doing so throughout legislative history. There is no
constitutional prohibition on Congress as to what structure
these chartered corporations should take on. Clearly,
Congress has the prerogative to create a corporation in
whatever form it chooses, and it is not bound by any
traditional format. Even if there is a definition of what a
corporation is under the Corporation Code or the
Administrative Code, these laws are by no means
sacrosanct. It should be remembered that these two
statutes fall within the same level of hierarchy as a
congressional charter, since they all are legislative
enactments. Certainly, Congress can choose to disregard
either the Corporation Code or the Administrative Code
in defining the corporate structure of a GOCC, utilizing
the same extent of legislative powers similarly vesting it
the putative ability to amend or abolish the Corporation
Code or the Administrative Code.
These principles are actually recognized by both the
Administrative Code and the Corporation Code. The
definition of GOCCs, agencies and instrumentalities
under the Administrative Code are laid down in the
section entitled "General Terms Defined," which qualifies:
Sec. 2. General Terms Defined. – Unless the specific words
of the text, or the context as a whole, or a particular
statute, shall require a different meaning: (emphasis
supplied)
xxx
Similar in vein is Section 6 of the Corporation Code which
provides:
SEC. 4. Corporations created by special laws or
charters.— Corporations created by special laws or
charters shall be governed primarily by the provisions of
the special law or charter creating them or applicable to
them, supplemented by the provisions of this Code,
insofar as they are applicable. (emphasis supplied)
Thus, the clear doctrine emerges – the law that governs
the definition of a corporation or entity created by
Congress is its legislative charter. If the legislative
enactment defines an entity as a corporation, then it is a
corporation, no matter if the Corporation Code or the
Administrative Code seemingly provides otherwise. In
case of conflict between the legislative charter of a
government corporation, on one hand, and the
Corporate Code and the Administrative Code, on the
other, the former always prevails.
Majority, in Ignoring the
Legislative Charters, Effectively
Classifies Duly Established GOCCs,
With Disastrous and Far Reaching
Legal Consequences
Second, the majority claims that MIAA does not qualify
either as a stock or non-stock corporation, as defined
under the Corporation Code. It explains that the MIAA is
not a stock corporation because it does not have any
capital stock divided into shares. Neither can it be
considered as a non-stock corporation because it has no
members, and under Section 87, a non-stock corporation
is one where no part of its income is distributable as
dividends to its members, trustees or officers.
This formulation of course ignores Section 4 of the
Corporation Code, which again provides that
corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or
charter, and not the Corporation Code.
That the MIAA cannot be considered a stock corporation
if only because it does not have a stock structure is hardly
a plausible proposition. Indeed, there is no point in
requiring a capital stock 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.
Admittedly, there are GOCCs established in such a
manner, such as the National Power Corporation (NPC),
which is provided with authorized capital stock wholly
subscribed and paid for by the Government of the
Philippines, divided into shares but at the same time, is
prohibited from transferring, negotiating, pledging,
mortgaging or otherwise giving these shares as security
for payment of any obligation.64 However, based on the
Corporation Code definition relied upon by the majority,
even the NPC cannot be considered as a stock
corporation. Under Section 3 of the Corporation Code,
stock corporations are defined as being "authorized to
distribute to the holders of its shares dividends or
allotments of the surplus profits on the basis of the shares
held."65 On the other hand, Section 13 of the NPC's
charter states that "the Corporation shall be non-profit
and shall devote all its returns from its capital investment,
as well as excess revenues from its operation, for
expansion."66 Can the holder of the shares of NPC, the
National Government, receive its surplus profits on the
basis of its shares held? It cannot, according to the NPC
charter, and hence, following Section 3 of the
Corporation Code, the NPC is not a stock corporation, if
the majority is to be believed.
The majority likewise claims that corporations without
members cannot be deemed non-stock corporations.
This would seemingly exclude entities such as the NPC,
which like MIAA, has no ostensible members. Moreover,
non-stock corporations cannot distribute any part of its
income as dividends to its members, trustees or officers.
The majority faults MIAA for remitting 20% of its gross
operating income to the national government. How
about the Philippine Health Insurance Corporation,
created with the "status of a tax-exempt government
corporation attached to the Department of Health"
under Rep. Act No. 7875.67 It too cannot be considered
as a stock corporation because it has no capital stock
structure. But using the criteria of the majority, it is
doubtful if it would pass muster as a non-stock
corporation, since the PHIC or Philhealth, as it is
commonly known, is expressly empowered "to collect,
deposit, invest, administer and disburse" the National
Health Insurance Fund.68 Or how about the Social Security
System, which under its revised charter, Republic Act No.
8282, is denominated as a "corporate body."69 The SSS has
no capital stock structure, but has capital comprised of
contributions by its members, which are eventually
remitted back to its members. Does this disqualify the SSS
from classification as a GOCC, notwithstanding this
Court's previous pronouncement in Social Security System
Employees Association v. Soriano?70
In fact, Republic Act No. 7656, enacted in 1993, requires
that all GOCCs, whether stock or non-stock,71 declare
and remit at least fifty percent (50%) of their annual net
earnings as cash, stock or property dividends to the
National Government.72 But according to the majority,
non-stock corporations are prohibited from declaring any
part of its income as dividends. But if Republic Act No.
7656 requires even non-stock corporations to declare
dividends from income, should it not follow that the
prohibition against declaration of dividends by non-stock
corporations under the Corporation Code does not apply
to government-owned or controlled corporations? For if
not, and the majority's illogic is pursued, Republic Act No.
7656, passed in 1993, would be fatally flawed, as it would
contravene the Administrative Code of 1987 and the
Corporation Code.
In fact, the ruinous effects of the majority's hypothesis on
the nature of GOCCs can be illustrated by Republic Act
No. 7656. Following the majority's definition of a GOCC
and in accordance with Republic Act No. 7656, here are
but a few entities which are not obliged to remit fifty
(50%) of its annual net earnings to the National
Government as they are excluded from the scope of
Republic Act No. 7656:
1) Philippine Ports Authority73 – has no capital stock74, no
members, and obliged to apply the balance of its
income or revenue at the end of each year in a general
reserve.75
2) Bases Conversion Development Authority76 - has no
capital stock,77 no members.
3) Philippine Economic Zone Authority78 - no capital
stock,79 no members.
4) Light Rail Transit Authority80 - no capital stock,81 no
members.
5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no
members, required to remit fifty percent (50%) of its net
profits to the National Treasury.84
6) National Power Corporation85 - has capital stock but is
prohibited from "distributing to the holders of its shares
dividends or allotments of the surplus profits on the basis
of the shares held;"86 no members.
7) Manila International Airport Authority – no capital
stock87, no members88, mandated to remit twenty
percent (20%) of its annual gross operating income to the
National Treasury.89
Thus, for the majority, the MIAA, among many others,
cannot be considered as within the coverage of
Republic Act No. 7656. Apparently, President Fidel V.
Ramos disagreed. How else then could Executive Order
No. 483, signed in 1998 by President Ramos, be
explained? The issuance provides:
WHEREAS, Section 1 of Republic Act No. 7656 provides
that:
"Section 1. Declaration of Policy. - It is hereby declared
the policy of the State that in order for the National
Government to realize additional revenues, government-
owned and/or controlled corporations, without impairing
their viability and the purposes for which they have been
established, shall share a substantial amount of their net
earnings to the National Government."
WHEREAS, to support the viability and mandate of
government-owned and/or controlled corporations
[GOCCs], the liquidity, retained earnings position and
medium-term plans and programs of these GOCCs were
considered in the determination of the reasonable
dividend rates of such corporations on their 1997 net
earnings.
WHEREAS, pursuant to Section 5 of RA 7656, the Secretary
of Finance recommended the adjustment on the
percentage of annual net earnings that shall be
declared by the Manila International Airport Authority
[MIAA] and Phividec Industrial Authority [PIA] in the
interest of national economy and general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the
Philippines, by virtue of the powers vested in me by law,
do hereby order:
SECTION 1. The percentage of net earnings to be
declared and remitted by the MIAA and PIA as dividends
to the National Government as provided for under
Section 3 of Republic Act No. 7656 is adjusted from at
least fifty percent [50%] to the rates specified hereunder:
1. Manila International Airport Authority - 35% [cash]
2. Phividec Industrial Authority - 25% [cash]
SECTION 2. The adjusted dividend rates provided for
under Section 1 are only applicable on 1997 net earnings
of the concerned government-owned and/or controlled
corporations.
Obviously, it was the opinion of President Ramos and the
Secretary of Finance that MIAA is a GOCC, for how else
could it have come under the coverage of Republic Act
No. 7656, a law applicable only to GOCCs? But, the
majority apparently disagrees, and resultantly holds that
MIAA is not obliged to remit even the reduced rate of
thirty five percent (35%) of its net earnings to the national
government, since it cannot be covered by Republic Act
No. 7656.
All this mischief because the majority would declare the
Administrative Code of 1987 and the Corporation Code
as the sole sources of law defining what a government
corporation is. As I stated earlier, I find it illogical that
chartered corporations are compelled to comply with
the templates of the Corporation Code, especially when
the Corporation Code itself states that these corporations
are to be governed by their own charters. This is
especially true considering that the very provision cited
by the majority, Section 87 of the Corporation Code,
expressly says that the definition provided therein is laid
down "for the purposes of this [Corporation] Code." Read
in conjunction with Section 4 of the Corporation Code
which mandates that corporations created by charter be
governed by the law creating them, it is clear that
contrary to the majority, MIAA is not disqualified from
classification as a non-stock corporation by reason of
Section 87, the provision not being applicable to
corporations created by special laws or charters. In fact, I
see no real impediment why the MIAA and similarly
situated corporations such as the PHIC, the SSS, the
Philippine Deposit Insurance Commission, or maybe even
the NPC could at the very least, be deemed as no stock
corporations (as differentiated from non-stock
corporations).
The point, stripped to bare simplicity, is that entity created
by legislative enactment is a corporation if the legislature
says so. After all, it is the legislature that dictates what a
corporation is in the first place. This is better illustrated by
another set of entities created before martial law. These
include the Mindanao Development Authority,90 the
Northern Samar Development Authority,91 the Ilocos Sur
Development Authority,92 the Southeastern Samar
Development Authority93 and the Mountain Province
Development Authority.94 An examination of the first
section of the statutes creating these entities reveal that
they were established "to foster accelerated and
balanced growth" of their respective regions, and
towards such end, the charters commonly provide that "it
is recognized that a government corporation should be
created for the purpose," and accordingly, these charters
"hereby created a body corporate."95 However, these
corporations do not have capital stock nor members,
and are obliged to return the unexpended balances of
their appropriations and earnings to a revolving fund in
the National Treasury. The majority effectively declassifies
these entities as GOCCs, never mind the fact that their
very charters declare them to be GOCCs.
I mention these entities not to bring an element of
obscurantism into the fray. I cite them as examples to
emphasize my fundamental point—that it is the legislative
charters of these entities, and not the Administrative
Code, which define the class of personality of these
entities created by Congress. To adopt the view of the
majority would be, in effect, to sanction an implied
repeal of numerous congressional charters for the
purpose of declassifying GOCCs. Certainly, this could not
have been the intent of the crafters of the Administrative
Code when they drafted the "Definition of Terms"
incorporated therein.
MIAA Is Without
Doubt, A GOCC
Following the charters of government corporations, there
are two kinds of GOCCs, namely: GOCCs which are
stock corporations and GOCCs which are no stock
corporations (as distinguished from non-stock
corporation). Stock GOCCs are simply those which have
capital stock while no stock GOCCs are those which
have no capital stock. Obviously these definitions are
different from the definitions of the terms in the
Corporation Code. Verily, GOCCs which are not
incorporated with the Securities and Exchange
Commission are not governed by the Corporation Code
but by their respective charters.
For the MIAA's part, its charter is replete with provisions
that indubitably classify it as a GOCC. Observe the
following provisions from MIAA's charter:
SECTION 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; Provided, That any
subsidiary that may be organized shall have the prior
approval of the President.
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.
xxx
SECTION 5. Functions, Powers, and Duties. — The Authority
shall have the following functions, powers and duties:
xxx
(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;
xxx
(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.
xxx
SECTION 16. Borrowing Power. — The Authority may, after
consultation with the Minister of Finance and with the
approval of the President of the Philippines, as
recommended by the Minister of Transportation and
Communications, raise funds, either from local or
international sources, by way of loans, credits 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.
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 assets or
property of the Authority.
Except as expressly authorized by the President of the
Philippines the total outstanding indebtedness of the
Authority in the principal amount, in local and foreign
currency, shall not at any time exceed the net worth of
the Authority at any given time.
xxx
The President or his duly authorized representative after
consultation with the Minister of Finance may guarantee,
in the name and on behalf of the Republic of the
Philippines, the payment of the loans or other
indebtedness of the Authority up to the amount herein
authorized.
These cited provisions establish the fitness of MIAA to be
the subject of legal relations.96 MIAA under its charter
may acquire and possess property, incur obligations, and
bring civil or criminal actions. It has the power to contract
in its own name, and to acquire title to real or personal
property. It likewise may exercise a panoply of corporate
powers and possesses all the trappings of corporate
personality, such as a corporate name, a corporate seal
and by-laws. All these are contained in MIAA's charter
which, as conceded by the Corporation Code and even
the Administrative Code, is the primary law that governs
the definition and organization of the MIAA.
In fact, MIAA itself believes that it is a GOCC represents
itself as such. It said so itself in the very first paragraph of
the present petition before this Court.97 So does,
apparently, the Department of Budget and
Management, which classifies MIAA as a "government
owned & controlled corporation" on its internet
website.98 There is also the matter of Executive Order No.
483, which evinces the belief of the then-president of the
Philippines that MIAA is a GOCC. And the Court before
had similarly characterized MIAA as a government-
owned and controlled corporation in the earlier MIAA
case, Manila International Airport Authority v. Commission
on Audit.99
Why then the hesitance to declare MIAA a GOCC? As
the majority repeatedly asserts, it is because MIAA is
actually an instrumentality. But the very definition relied
upon by the majority of an instrumentality under the
Administrative Code clearly states that a GOCC is
likewise an instrumentality or an agency. The question of
whether MIAA is a GOCC might not even be
determinative of this Petition, but the effect of the
majority's disquisition on that matter may even be more
destructive than the ruling that MIAA is exempt from
realty taxes. Is the majority ready to live up to the
momentous consequences of its flawed reasoning?
Novel Proviso in 1987 Constitution
Prescribing Standards in the
Creation of GOCCs Necessarily
Applies only to GOCCs Created
After 1987.
One last point on this matter on whether MIAA is a
GOCC. The majority triumphantly points to Section 16,
Article XII of the 1987 Constitution, which mandates that
the creation of GOCCs through special charters be "in
the interest of the common good and subject to the test
of economic viability." For the majority, the test of
economic viability does not apply to government entities
vested with corporate powers and performing essential
public services. But this test of "economic viability" is new
to the constitutional framework. No such test was
imposed in previous Constitutions, including the 1973
Constitution which was the fundamental law in force
when the MIAA was created. How then could the MIAA,
or any GOCC created before 1987 be expected to meet
this new precondition to the creation of a GOCC? Does
the dissent seriously suggest that GOCCs created before
1987 may be declassified on account of their failure to
meet this "economic viability test"?
Instrumentalities and Agencies
Also Generally Liable For
Real Property Taxes
Next, the majority, having bludgeoned its way into
asserting that MIAA is not a GOCC, then argues that
MIAA is an instrumentality. It cites incompletely, as earlier
stated, the provision of Section 2(10) of the Administrative
Code. A more convincing view offered during
deliberations, but which was not adopted by the
ponencia, argued that MIAA is not an instrumentality but
an agency, considering the fact that under the
Administrative Code, the MIAA is attached within the
department framework of the Department of
Transportation and Communications.100 Interestingly,
Executive Order No. 341, enacted by President Arroyo in
2004, similarly calls MIAA an agency. Since
instrumentalities are expressly defined as "an agency not
integrated within the department framework," that view
concluded that MIAA cannot be deemed an
instrumentality.
Still, that distinction is ultimately irrelevant. Of course, as
stated earlier, the Administrative Code considers GOCCs
as agencies,101 so the fact that MIAA is an agency does
not exclude it from classification as a GOCC. On the
other hand, the majority justifies MIAA's purported
exemption on Section 133 of the Local Government
Code, which similarly situates "agencies and
instrumentalities" as generally exempt from the taxation
powers of LGUs. And on this point, the majority again
evades Mactan and somehow concludes that Section
133 is the general rule, notwithstanding Sections 232 and
234(a) of the Local Government Code. And the majority's
ultimate conclusion? "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."102
The Court's interpretation of the Local Government Code
in Mactan renders the law integrally harmonious and
gives due accord to the respective prerogatives of the
national government and LGUs. Sections 133 and 234(a)
ensure that the Republic of the Philippines or its political
subdivisions shall not be subjected to any form of local
government taxation, except realty taxes if the beneficial
use of the property owned has been granted for
consideration to a taxable entity or person. On the other
hand, Section 133 likewise assures that government
instrumentalities such as GOCCs may not be arbitrarily
taxed by LGUs, since they could be subjected to local
taxation if there is a specific proviso thereon in the Code.
One such proviso is Section 137, which as the Court found
in National Power Corporation,103 permits the imposition
of a franchise tax on businesses enjoying a franchise,
even if it be a GOCC such as NPC. And, as the Court
acknowledged in Mactan, Section 232 provides another
exception on the taxability of instrumentalities.
The majority abjectly refuses to engage Section 232 of
the Local Government Code although it provides the
indubitable general rule that LGUs "may levy an annual
ad valorem tax on real property such as land, building,
machinery, and other improvements not hereafter
specifically exempted." The specific exemptions are
provided by Section 234. Section 232 comes sequentially
after Section 133(o),104 and even if the sequencing is
irrelevant, Section 232 would fall under the qualifying
phrase of Section 133, "Unless otherwise provided herein."
It is sad, but not surprising that the majority is not willing to
consider or even discuss the general rule, but only the
exemptions under Section 133 and Section 234. After all, if
the majority is dead set in ruling for MIAA no matter what
the law says, why bother citing what the law does say.
Constitution, Laws and
Jurisprudence Have Long
Explained the Rationale
Behind the Local Taxation
Of GOCCs.
This blithe disregard of precedents, almost all of them
unanimously decided, is nowhere more evident than in
the succeeding discussion of the majority, which asserts
that the power of local governments to tax national
government instrumentalities be construed strictly against
local governments. The Maceda case, decided before
the Local Government Code, is cited, as is Basco. This
section of the majority employs deliberate pretense that
the Code never existed, or that the fundamentals of local
autonomy are of limited effect in our country. Why is it
that the Local Government Code is barely mentioned in
this section of the majority? Because Section 5 of the
Code, purposely omitted by the majority provides for a
different rule of interpretation than that asserted:
Section 5. Rules of Interpretation. – In the interpretation of
the provisions of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit
shall be liberally interpreted in its favor, and in case of
doubt, any question thereon shall be resolved in favor of
devolution of powers and of the lower local government
unit. Any fair and reasonable doubt as to the existence of
the power shall be interpreted in favor of the local
government unit concerned;
(b) In case of doubt, any tax ordinance or revenue
measure shall be construed strictly against the local
government unit enacting it, and liberally in favor of the
taxpayer. Any tax exemption, incentive or relief granted
by any local government unit pursuant to the provisions
of this Code shall be construed strictly against the person
claiming it; xxx
Yet the majority insists that "there is 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."105 I
wonder whether the Constitution satisfies the majority's
desire for "a sound and compelling policy." To repeat:
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local
governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy
local autonomy.
xxx
Section 5. Each local government unit shall have the
power to create its own sources of revenues and 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.
Or how about the Local Government Code, presumably
an expression of sound and compelling policy
considering that it was enacted by the legislature, that
veritable source of all statutes:
SEC. 129. Power to Create Sources of Revenue. - Each
local government unit shall exercise its power to create its
own sources of revenue and to levy taxes, fees, and
charges subject to the provisions herein, consistent with
the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government
units.
Justice Puno, in National Power Corporation v. City of
Cabanatuan,106 provides a more "sound and compelling
policy considerations" that would warrant sustaining the
taxability of government-owned entities by local
government units under the Local Government Code.
Doubtless, the power to tax is the most effective
instrument to raise needed revenues to finance and
support myriad activities of the local government units for
the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court
observed in the Mactan case, "the original reasons for the
withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all
other units of government were that such privilege
resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises." With the
added burden of devolution, it is even more imperative
for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or
other charges due from them.107
I dare not improve on Justice Puno's exhaustive
disquisition on the statutory and jurisprudential shift
brought about the acceptance of the principles of local
autonomy:
In recent years, the increasing social challenges of the
times expanded the scope of state activity, and taxation
has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare
and similar objectives. Taxation assumes even greater
significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other
charges pursuant to Article X, section 5 of the 1987
Constitution, viz:
"Section 5. Each Local Government unit shall have the
power to create its own sources of revenue, to levy taxes,
fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that
genuine development can be achieved only by
strengthening local autonomy and promoting
decentralization of governance. For a long time, the
country's highly centralized government structure has
bred a culture of dependence among local government
leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on
the part of local government leaders." 35 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, viz:
"Section 3. The Congress shall enact a local government
code which shall provide for a more responsive and
accountable local government structure instituted
through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers,
responsibilities, and resources, and provide for the
qualifications, election, appointment and removal, term,
salaries, powers and functions and duties of local officials,
and all other matters relating to the organization and
operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160,
also known as the Local Government Code of 1991
(LGC), various measures have been enacted to promote
local autonomy. These include the Barrio Charter of 1959,
the Local Autonomy Act of 1959, the Decentralization Act
of 1967 and the Local Government Code of 1983. Despite
these initiatives, however, the shackles of dependence
on the national government remained. Local
government units were faced with the same problems
that hamper their capabilities to participate effectively in
the national development efforts, among which are: (a)
inadequate tax base, (b) lack of fiscal control over
external sources of income, (c) limited authority to
prioritize and approve development projects, (d) heavy
dependence on external sources of income, and (e)
limited supervisory control over personnel of national line
agencies.
Considered as the most revolutionary piece of legislation
on local autonomy, the LGC effectively deals with the
fiscal constraints faced by LGUs. It widens the tax base of
LGUs to include taxes which were prohibited by previous
laws such as the imposition of taxes on forest products,
forest concessionaires, mineral products, mining
operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with
their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum
and maximum tax rates and leaves the determination of
the actual rates to the respective sanggunian.108
And the Court's ruling through Justice Azcuna in Philippine
Ports Authority v. City of Iloilo109, provides especially clear
and emphatic rationale:
In closing, we reiterate that in taxing government-owned
or controlled corporations, the State ultimately suffers no
loss. In National Power Corp. v. Presiding Judge, RTC, Br.
XXV, 38 we elucidated:
Actually, the State has no reason to decry the taxation of
NPC's properties, as and by way of real property taxes.
Real property taxes, after all, form part and parcel of the
financing apparatus of the Government in development
and nation-building, particularly in the local government
level.
xxxxxxxxx
To all intents and purposes, real property taxes are funds
taken by the State with one hand and given to the other.
In no measure can the government be said to have lost
anything.
Finally, we find it appropriate to restate that the primary
reason for the withdrawal of tax exemption privileges
granted to government-owned and controlled
corporations and all other units of government was that
such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated
enterprises, hence resulting in the need for these entities
to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due
from them.110
How does the majority counter these seemingly valid
rationales which establish the soundness of a policy
consideration subjecting national instrumentalities to
local taxation? Again, by simply ignoring that these
doctrines exist. It is unfortunate if the majority deems
these cases or the principles of devolution and local
autonomy as simply too inconvenient, and relies instead
on discredited precedents. Of course, if the majority
faces the issues squarely, and expressly discusses why
Basco was right and Mactan was wrong, then this entire
endeavor of the Court would be more intellectually
satisfying. But, this is not a game the majority wants to
play.
Mischaracterization of My
Views on the Tax Exemption
Enjoyed by the National Government
Instead, the majority engages in an extended attack
pertaining to Section 193, mischaracterizing my views on
that provision as if I had been interpreting the provision as
making "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."111
Nothing is farther from the truth. I have never advanced
any theory of the sort imputed in the majority. My main
thesis on the matter merely echoes the explicit provision
of Section 193 that unless otherwise provided in the Local
Government Code (LGC) all tax exemptions enjoyed by
all persons, whether natural or juridical, including GOCCs,
were withdrawn upon the effectivity of the Code. Since
the provision speaks of withdrawal of tax exemptions of
persons, it follows that the exemptions theretofore
enjoyed by MIAA which is definitely a person are
deemed withdrawn upon the advent of the Code.
On the other hand, the provision does not address the
question of who are beyond the reach of the taxing
power of LGUs. In fine, the grant of tax exemption or the
withdrawal thereof assumes that the person or entity
involved is subject to tax. Thus, Section 193 does not
apply to entities which were never given any tax
exemption. This would include the national government
and its political subdivisions which, as a general rule, are
not subjected to tax in the first place.112 Corollarily, the
national government and its political subdivisions do not
need tax exemptions. And Section 193 which ordains the
withdrawal of tax exemptions is obviously irrelevant to
them.
Section 193 is in point for the disposition of this case as it
forecloses dependence for the grant of tax exemption to
MIAA on Section 21 of its charter. Even the majority
should concede that the charter section is now
ineffectual, as Section 193 withdraws the tax exemptions
previously enjoyed by all juridical persons.
With Section 193 mandating the withdrawal of tax
exemptions granted to all persons upon the effectivity of
the LGC, for MIAA to continue enjoying exemption from
realty tax, it will have to rely on a basis other than Section
21 of its charter.
Lung Center of the Philippines v. Quezon City113 provides
another illustrative example of the jurisprudential havoc
wrought about by the majority. Pursuant to its charter, the
Lung Center was organized as a trust administered by an
eponymous GOCC organized with the SEC.114 There is no
doubt it is a GOCC, even by the majority's reckoning.
Applying the Administrative Code, it is also considered as
an agency, the term encompassing even GOCCs. Yet
since the Administrative Code definition of
"instrumentalities" encompasses agencies, especially
those not attached to a line department such as the
Lung Center, it also follows that the Lung Center is an
instrumentality, which for the majority is exempt from all
local government taxes, especially real estate taxes. Yet
just in 2004, the Court unanimously held that the Lung
Center was not exempt from real property taxes. Can the
majority and Lung Center be reconciled? I do not see
how, and no attempt is made to demonstrate otherwise.
Another key point. The last paragraph of Section 234
specifically asserts that any previous exemptions from
realty taxes granted to or enjoyed by all persons,
including all GOCCs, are thereby withdrawn. The
majority's interpretation of Sections 133 and 234(a)
however necessarily implies that all instrumentalities,
including GOCCs, can never be subjected to real
property taxation under the Code. If that is so, what then
is the sense of the last paragraph specifically withdrawing
previous tax exemptions to all persons, including GOCCs
when juridical persons such as MIAA are anyway, to his
view, already exempt from such taxes under Section 133?
The majority's interpretation would effectively render the
express and emphatic withdrawal of previous exemptions
to GOCCs inutile. Ut magis valeat quam pereat. Hence,
where a statute is susceptible of more than one
interpretation, the court should adopt such reasonable
and beneficial construction which will render the
provision thereof operative and effective, as well as
harmonious with each other.115
But, the majority seems content rendering as absurd the
Local Government Code, since it does not have much
use anyway for the Code's general philosophy of fiscal
autonomy, as evidently seen by the continued reliance
on Basco or Maceda. Local government rule has never
been a grant of emancipation from the national
government. This is the favorite bugaboo of the
opponents of local autonomy—the fallacy that
autonomy equates to independence.
Thus, the conclusion of the majority is that under Section
133(o), MIAA as a government instrumentality is beyond
the reach of local taxation because it is not subject to
taxes, fees or charges of any kind. Moreover, the taxation
of national instrumentalities and agencies by LGUs should
be strictly construed against the LGUs, citing Maceda
and Basco. No mention is made of the subsequent
rejection of these cases in jurisprudence following the
Local Government Code, including Mactan. The majority
is similarly silent on the general rule under Section 232 on
real property taxation or Section 5 on the rules of
construction of the Local Government Code.
V.
MIAA, and not the National Government
Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government Code explicitly
provides that there are exceptions to the general rule on
rule property taxation, as "hereafter specifically
exempted." Section 234, certainly "hereafter," provides
indubitable basis for exempting entities from real property
taxation. It provides the most viable legal support for any
claim that an governmental entity such as the MIAA is
exempt from real property taxes. To repeat:
SECTION 234. Exemptions from Real Property Tax. -- The
following are exempted from payment of the real
property tax:
xxx
(f) 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:
The majority asserts that the properties owned by MIAA
are owned by the Republic of the Philippines, thus
placing them under the exemption under Section 234. To
arrive at this conclusion, the majority employs four main
arguments.
MIAA Property Is Patrimonial
And Not Part of Public Dominion
The majority claims that the Airport Lands and Buildings
are property of public dominion as defined by the Civil
Code, and therefore owned by the State or the Republic
of the Philippines. But as pointed out by Justice Azcuna in
the first PPA case, if indeed a property is considered part
of the public dominion, such property is "owned by the
general public and cannot be declared to be owned by
a public corporation, such as [the PPA]."
Relevant on this point are the following provisions of the
MIAA charter:
Section 3. Creation of the Manila International Airport
Authority. – xxx
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. xxx Any portion
thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President
of the Philippines.
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.
Clearly, it is the MIAA, and not either the State, the
Republic of the Philippines or the national government
that asserts legal title over the Airport Lands and Buildings.
There was an express transfer of ownership between the
MIAA and the national government. If the distinction is to
be blurred, as the majority does, between the
State/Republic/Government and a body corporate such
as the MIAA, then the MIAA charter showcases the
remarkable absurdity of an entity transferring property to
itself.
Nothing in the Civil Code or the Constitution prohibits the
State from transferring ownership over property of public
dominion to an entity that it similarly owns. It is just like a
family transferring ownership over the properties its
members own into a family corporation. The family
exercises effective control over the administration and
disposition of these properties. Yet for several purposes
under the law, such as taxation, it is the corporation that
is deemed to own those properties. A similar situation
obtains with MIAA, the State, and the Airport Lands and
Buildings.
The second Public Ports Authority case, penned by
Justice Callejo, likewise lays down useful doctrines in this
regard. The Court refuted the claim that the properties of
the PPA were owned by the Republic of the Philippines,
noting that PPA's charter expressly transferred ownership
over these properties to the PPA, a situation which
similarly obtains with MIAA. The Court even went as far as
saying that the fact that the PPA "had not been issued
any torrens title over the port and port facilities and
appurtenances is of no legal consequence. A torrens title
does not, by itself, vest ownership; it is merely an
evidence of title over properties. xxx It has never been
recognized as a mode of acquiring ownership over real
properties."116
The Court further added:
xxx The bare fact that the port and its facilities and
appurtenances are accessible to the general public does
not exempt it from the payment of real property taxes. It
must be stressed that the said port facilities and
appurtenances are the petitioner's corporate patrimonial
properties, not for public use, and that the operation of
the port and its facilities and the administration of its
buildings are in the nature of ordinary business. The
petitioner is clothed, under P.D. No. 857, with corporate
status and corporate powers in the furtherance of its
proprietary interests xxx The petitioner is even empowered
to invest its funds in such government securities approved
by the Board of Directors, and derives its income from
rates, charges or fees for the use by vessels of the port
premises, appliances or equipment. xxx Clearly then, the
petitioner is a profit-earning corporation; hence, its
patrimonial properties are subject to tax.117
There is no doubt that the properties of the MIAA, as with
the PPA, are in a sense, for public use. A similar argument
was propounded by the Light Rail Transit Authority in Light
Rail Transit Authority v. Central Board of
Assessment,118which was cited in Philippine Ports Authority
and deserves renewed emphasis. The Light Rail Transit
Authority (LRTA), a body corporate, "provides valuable
transportation facilities to the paying public."119 It claimed
that its carriage-ways and terminal stations are
immovably attached to government-owned national
roads, and to impose real property taxes thereupon
would be to impose taxes on public roads. This view did
not persuade the Court, whose decision was penned by
Justice (now Chief Justice) Panganiban. It was noted:
Though the creation of the LRTA was impelled by public
service — to provide mass transportation to alleviate the
traffic and transportation situation in Metro Manila — its
operation undeniably partakes of ordinary business.
Petitioner is clothed with corporate status and corporate
powers in the furtherance of its proprietary objectives.
Indeed, it operates much like any private corporation
engaged in the mass transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its
carriageways and terminal stations are patrimonial
property subject to tax, notwithstanding its claim of being
a government-owned or controlled corporation.
xxx
Petitioner argues that it merely operates and maintains
the LRT system, and that the actual users of the
carriageways and terminal stations are the commuting
public. It adds that the public use character of the LRT is
not negated by the fact that revenue is obtained from
the latter's operations.
We do not agree. Unlike public roads which are open for
use by everyone, the LRT is accessible only to those who
pay the required fare. It is thus apparent that petitioner
does not exist solely for public service, and that the LRT
carriageways and terminal stations are not exclusively for
public use. Although petitioner is a public utility, it is
nonetheless profit-earning. It actually uses those
carriageways and terminal stations in its public utility
business and earns money therefrom.120
xxx
Even granting that the national government indeed owns
the carriageways and terminal stations, the exemption
would not apply because their beneficial use has been
granted to petitioner, a taxable entity.121
There is no substantial distinction between the properties
held by the PPA, the LRTA, and the MIAA. These three
entities are in the business of operating facilities that
promote public transportation.
The majority further asserts that MIAA's properties, being
part of the public dominion, are outside the commerce
of man. But if this is so, then why does Section 3 of MIAA's
charter authorize the President of the Philippines to
approve the sale of any of these properties? In fact, why
does MIAA's charter in the first place authorize the
transfer of these airport properties, assuming that indeed
these are beyond the commerce of man?
No Trust Has Been Created
Over MIAA Properties For
The Benefit of the Republic
The majority posits that while MIAA might be holding title
over the Airport Lands and Buildings, it is holding it in trust
for the Republic. A provision of the Administrative Code is
cited, but said provision does not expressly provide that
the property is held in trust. Trusts are either express or
implied, and only those situations enumerated under the
Civil Code would constitute an implied trust. MIAA does
not fall within this enumeration, and neither is there a
provision in MIAA's charter expressly stating that these
properties are being held in trust. In fact, under its charter,
MIAA is obligated to retain up to eighty percent (80%) of
its gross operating income, not an inconsequential sum
assuming that the beneficial owner of MIAA's properties is
actually the Republic, and not the MIAA.
Also, the claim that beneficial ownership over the MIAA
remains with the government and not MIAA is ultimately
irrelevant. Section 234(a) of the Local Government Code
provides among those exempted from paying real
property taxes are "[r]eal property owned by the
[Republic]… except when the beneficial use thereof has
been granted, for consideration or otherwise, to a
taxable person." In the context of Section 234(a), the
identity of the beneficial owner over the properties is not
determinative as to whether the exemption avails. It is the
identity of the beneficial user of the property owned by
the Republic or its political subdivisions that is crucial, for if
said beneficial user is a taxable person, then the
exemption does not lie.
I fear the majority confuses the notion of what might be
construed as "beneficial ownership" of the Republic over
the properties of MIAA as nothing more than what arises
as a consequence of the fact that the capital of MIAA is
contributed by the National Government.122 If so, then
there is no difference between the State's ownership
rights over MIAA properties than those of a majority
stockholder over the properties of a corporation. Even if
such shareholder effectively owns the corporation and
controls the disposition of its assets, the personality of the
stockholder remains separately distinct from that of the
corporation. A brief recall of the entrenched rule in
corporate law is in order:
The first consequence of the doctrine of legal entity
regarding the separate identity of the corporation and its
stockholders insofar as their obligations and liabilities are
concerned, is spelled out in this general rule deeply
entrenched in American jurisprudence:
Unless the liability is expressly imposed by constitutional or
statutory provisions, or by the charter, or by special
agreement of the stockholders, stockholders are not
personally liable for debts of the corporation either at law
or equity. The reason is that the corporation is a legal
entity or artificial person, distinct from the members who
compose it, in their individual capacity; and when it
contracts a debt, it is the debt of the legal entity or
artificial person – the corporation – and not the debt of
the individual members. (13A Fletcher Cyc. Corp. Sec.
6213)
The entirely separate identity of the rights and remedies
of a corporation itself and its individual stockholders have
been given definite recognition for a long time. Applying
said principle, the Supreme Court declared that a
corporation may not be made to answer for acts or
liabilities of its stockholders or those of legal entities to
which it may be connected, or vice versa. (Palay Inc. v.
Clave et. al. 124 SCRA 638) It was likewise declared in a
similar case that a bonafide corporation should alone be
liable for corporate acts duly authorized by its officers
and directors. (Caram Jr. v. Court of Appeals et.al. 151
SCRA, p. 372)123
It bears repeating that MIAA under its charter, is expressly
conferred the right to exercise all the powers of a
corporation under the Corporation Law, including the
right to corporate succession, and the right to sue and be
sued in its corporate name.124 The national government
made a particular choice to divest ownership and
operation of the Manila International Airport and transfer
the same to such an empowered entity due to perceived
advantages. Yet such transfer cannot be deemed
consequence free merely because it was the State which
contributed the operating capital of this body corporate.
The majority claims that the transfer the assets of MIAA
was meant merely to effect a reorganization. The
imputed rationale for such transfer does not serve to
militate against the legal consequences of such
assignment. Certainly, if it was intended that the transfer
should be free of consequence, then why was it effected
to a body corporate, with a distinct legal personality from
that of the State or Republic? The stated aims of the
MIAA could have very well been accomplished by
creating an agency without independent juridical
personality.
VI.
MIAA Performs Proprietary Functions
Nonetheless, Section 234(f) exempts properties owned by
the Republic of the Philippines or its political subdivisions
from realty taxation. The obvious question is what
comprises "the Republic of the Philippines." I think the key
to understanding the scope of "the Republic" is the
phrase "political subdivisions." Under the Constitution,
political subdivisions are defined as "the provinces, cities,
municipalities and barangays."125 In correlation, the
Administrative Code of 1987 defines "local government"
as referring to "the political subdivisions established by or
in accordance with the Constitution."
Clearly then, these political subdivisions are engaged in
the exercise of sovereign functions and are accordingly
exempt. The same could be said generally of the national
government, which would be similarly exempt. After all,
even with the principle of local autonomy, it is inherently
noxious and self-defeatist for local taxation to interfere
with the sovereign exercise of functions. However, the
exercise of proprietary functions is a different matter
altogether.
Sovereign and Proprietary
Functions Distinguished
Sovereign or constituent functions are those which
constitute the very bonds of society and are compulsory
in nature, while ministrant or proprietary functions are
those undertaken by way of advancing the general
interests of society and are merely optional.126 An
exhaustive discussion on the matter was provided by the
Court in Bacani v. NACOCO:127
xxx This institution, when referring to the national
government, has reference to what our Constitution has
established composed of three great departments, the
legislative, executive, and the judicial, through which the
powers and functions of government are exercised.
These functions are twofold: constituent and ministrant.
The former are those which constitute the very bonds of
society and are compulsory in nature; the latter are those
that are undertaken only by way of advancing the
general interests of society, and are merely optional.
President Wilson enumerates the constituent functions as
follows:
"'(1) The keeping of order and providing for the protection
of persons and property from violence and robbery.
'(2) The fixing of the legal relations between man and
wife and between parents and children.
'(3) The regulation of the holding, transmission, and
interchange of property, and the determination of its
liabilities for debt or for crime.
'(4) The determination of contract rights between
individuals.
'(5) The definition and punishment of crime.
'(6) The administration of justice in civil cases.
'(7) The determination of the political duties, privileges,
and relations of citizens.
'(8) Dealings of the state with foreign powers: the
preservation of the state from external danger or
encroachment and the advancement of its international
interests.'" (Malcolm, The Government of the Philippine
Islands, p. 19.)
The most important of the ministrant functions are: public
works, public education, public charity, health and safety
regulations, and regulations of trade and industry. The
principles determining whether or not a government shall
exercise certain of these optional functions are: (1) that a
government should do for the public welfare those things
which private capital would not naturally undertake and
(2) that a government should do these things which by its
very nature it is better equipped to administer for the
public welfare than is any private individual or group of
individuals. (Malcolm, The Government of the Philippine
Islands, pp. 19-20.)
From the above we may infer that, strictly speaking, there
are functions which our government is required to
exercise to promote its objectives as expressed in our
Constitution and which are exercised by it as an attribute
of sovereignty, and those which it may exercise to
promote merely the welfare, progress and prosperity of
the people. To this latter class belongs the organization of
those corporations owned or controlled by the
government to promote certain aspects of the economic
life of our people such as the National Coconut
Corporation. These are what we call government-owned
or controlled corporations which may take on the form of
a private enterprise or one organized with powers and
formal characteristics of a private corporations under the
Corporation Law.128
The Court in Bacani rejected the proposition that the
National Coconut Corporation exercised sovereign
functions:
Does the fact that these corporations perform certain
functions of government make them a part of the
Government of the Philippines?
The answer is simple: they do not acquire that status for
the simple reason that they do not come under the
classification of municipal or public corporation. Take for
instance the National Coconut Corporation. While it was
organized with the purpose of "adjusting the coconut
industry to a position independent of trade preferences in
the United States" and of providing "Facilities for the
better curing of copra products and the proper utilization
of coconut by-products," a function which our
government has chosen to exercise to promote the
coconut industry, however, it was given a corporate
power separate and distinct from our government, for it
was made subject to the provisions of our Corporation
Law in so far as its corporate existence and the powers
that it may exercise are concerned (sections 2 and 4,
Commonwealth Act No. 518). It may sue and be sued in
the same manner as any other private corporations, and
in this sense it is an entity different from our government.
As this Court has aptly said, "The mere fact that the
Government happens to be a majority stockholder does
not make it a public corporation" (National Coal Co. vs.
Collector of Internal Revenue, 46 Phil., 586-587). "By
becoming a stockholder in the National Coal Company,
the Government divested itself of its sovereign character
so far as respects the transactions of the corporation. . . .
Unlike the Government, the corporation may be sued
without its consent, and is subject to taxation. Yet the
National Coal Company remains an agency or
instrumentality of government." (Government of the
Philippine Islands vs. Springer, 50 Phil., 288.)
The following restatement of the entrenched rule by
former SEC Chairperson Rosario Lopez bears noting:
The fact that government corporations are
instrumentalities of the State does not divest them with
immunity from suit. (Malong v. PNR, 138 SCRA p. 63) It is
settled that when the government engages in a
particular business through the instrumentality of a
corporation, it divests itself pro hoc vice of its sovereign
character so as to subject itself to the rules governing
private corporations, (PNB v. Pabolan 82 SCRA 595) and is
to be treated like any other corporation. (PNR v. Union de
Maquinistas Fogonero y Motormen, 84 SCRA 223)
In the same vein, when the government becomes a
stockholder in a corporation, it does not exercise
sovereignty as such. It acts merely as a corporator and
exercises no other power in the management of the
affairs of the corporation than are expressly given by the
incorporating act. Nor does the fact that the government
may own all or a majority of the capital stock take from
the corporation its character as such, or make the
government the real party in interest. (Amtorg Trading
Corp. v. US 71 F2d 524, 528)129
MIAA Performs Proprietary
Functions No Matter How
Vital to the Public Interest
The simple truth is that, based on these accepted
doctrinal tests, MIAA performs proprietary functions. The
operation of an airport facility by the State may be
imbued with public interest, but it is by no means
indispensable or obligatory on the national government.
In fact, as demonstrated in other countries, it makes a lot
of economic sense to leave the operation of airports to
the private sector.
The majority tries to becloud this issue by pointing out that
the MIAA does not compete in the marketplace as there
is no competing international airport operated by the
private sector; and that MIAA performs an essential
public service as the primary domestic and international
airport of the Philippines. This premise is false, for one. On
a local scale, MIAA competes with other international
airports situated in the Philippines, such as Davao
International Airport and MCIAA. More pertinently, MIAA
also competes with other international airports in Asia, at
least. International airlines take into account the quality
and conditions of various international airports in
determining the number of flights it would assign to a
particular airport, or even in choosing a hub through
which destinations necessitating connecting flights would
pass through.
Even if it could be conceded that MIAA does not
compete in the market place, the example of the
Philippine National Railways should be taken into
account. The PNR does not compete in the marketplace,
and performs an essential public service as the operator
of the railway system in the Philippines. Is the PNR
engaged in sovereign functions? The Court, in Malong v.
Philippine National Railways,130 held that it was not.131
Even more relevant to this particular case is Teodoro v.
National Airports Corporation,132 concerning the proper
appreciation of the functions performed by the Civil
Aeronautics Administration (CAA), which had succeeded
the defunction National Airports Corporation. The CAA
claimed that as an unincorporated agency of the
Republic of the Philippines, it was incapable of suing and
being sued. The Court noted:
Among the general powers of the Civil Aeronautics
Administration are, under Section 3, to execute contracts
of any kind, to purchase property, and to grant
concession rights, and under Section 4, to charge landing
fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any
property under its management.
These provisions confer upon the Civil Aeronautics
Administration, in our opinion, the power to sue and be
sued. The power to sue and be sued is implied from the
power to transact private business. And if it has the power
to sue and be sued on its behalf, the Civil Aeronautics
Administration with greater reason should have the
power to prosecute and defend suits for and against the
National Airports Corporation, having acquired all the
properties, funds and choses in action and assumed all
the liabilities of the latter. To deny the National Airports
Corporation's creditors access to the courts of justice
against the Civil Aeronautics Administration is to say that
the government could impair the obligation of its
corporations by the simple expedient of converting them
into unincorporated agencies. 133
xxx
Eventually, the charter of the CAA was revised, and it
among its expanded functions was "[t]o administer,
operate, manage, control, maintain and develop the
Manila International Airport."134 Notwithstanding this
expansion, in the 1988 case of CAA v. Court of
Appeals135 the Court reaffirmed the ruling that the CAA
was engaged in "private or non-governmental
functions."136 Thus, the Court had already ruled that the
predecessor agency of MIAA, the CAA was engaged in
private or non-governmental functions. These are more
precedents ignored by the majority. The following
observation from the Teodoro case very well applies to
MIAA.
The Civil Aeronautics Administration comes under the
category of a private entity. Although not a body
corporate it was created, like the National Airports
Corporation, not to maintain a necessary function of
government, but to run what is essentially a business,
even if revenues be not its prime objective but rather the
promotion of travel and the convenience of the traveling
public. It is engaged in an enterprise which, far from
being the exclusive prerogative of state, may, more than
the construction of public roads, be undertaken by
private concerns.137
If the determinative point in distinguishing between
sovereign functions and proprietary functions is the vitality
of the public service being performed, then it should be
noted that there is no more important public service
performed than that engaged in by public utilities. But
notably, the Constitution itself authorizes private persons
to exercise these functions as it allows them to operate
public utilities in this country138 If indeed such functions
are actually sovereign and belonging properly to the
government, shouldn't it follow that the exercise of these
tasks remain within the exclusive preserve of the State?
There really is no prohibition against the government
taxing itself,139 and nothing obscene with allowing
government entities exercising proprietary functions to be
taxed for the purpose of raising the coffers of LGUs. On
the other hand, it would be an even more noxious
proposition that the government or the instrumentalities
that it owns are above the law and may refuse to pay a
validly imposed tax. MIAA, or any similar entity engaged
in the exercise of proprietary, and not sovereign
functions, cannot avoid the adverse-effects of tax
evasion simply on the claim that it is imbued with some of
the attributes of government.
VII.
MIAA Property Not Subject to
Execution Sale Without Consent
Of the President.
Despite the fact that the City of Parañaque ineluctably
has the power to impose real property taxes over the
MIAA, there is an equally relevant statutory limitation on
this power that must be fully upheld. Section 3 of the
MIAA charter states that "[a]ny portion [of the [lands
transferred, conveyed and assigned to the ownership
and administration of the MIAA] shall not be disposed
through sale or through any other mode unless
specifically approved by the President of the
Philippines."140
Nothing in the Local Government Code, even with its
wide grant of powers to LGUs, can be deemed as
repealing this prohibition under Section 3, even if it
effectively forecloses one possible remedy of the LGU in
the collection of delinquent real property taxes. While the
Local Government Code withdrew all previous local tax
exemptions of the MIAA and other natural and juridical
persons, it did not similarly withdraw any previously
enacted prohibitions on properties owned by GOCCs,
agencies or instrumentalities. Moreover, the resulting legal
effect, subjecting on one hand the MIAA to local taxes
but on the other hand shielding its properties from any
form of sale or disposition, is not contradictory or
paradoxical, onerous as its effect may be on the LGU. It
simply means that the LGU has to find another way to
collect the taxes due from MIAA, thus paving the way for
a mutually acceptable negotiated solution.141
There are several other reasons this statutory limitation
should be upheld and applied to this case. It is at this
juncture that the importance of the Manila Airport to our
national life and commerce may be accorded proper
consideration. The closure of the airport, even by reason
of MIAA's legal omission to pay its taxes, will have an
injurious effect to our national economy, which is ever
reliant on air travel and traffic. The same effect would
obtain if ownership and administration of the airport were
to be transferred to an LGU or some other entity which
were not specifically chartered or tasked to perform such
vital function. It is for this reason that the MIAA charter
specifically forbids the sale or disposition of MIAA
properties without the consent of the President. The
prohibition prevents the peremptory closure of the MIAA
or the hampering of its operations on account of the
demands of its creditors. The airport is important enough
to be sheltered by legislation from ordinary legal
processes.
Section 3 of the MIAA charter may also be appreciated
as within the proper exercise of executive control by the
President over the MIAA, a GOCC which despite its
separate legal personality, is still subsumed within the
executive branch of government. The power of
executive control by the President should be upheld so
long as such exercise does not contravene the
Constitution or the law, the President having the corollary
duty to faithfully execute the Constitution and the laws of
the land.142 In this case, the exercise of executive control
is precisely recognized and authorized by the legislature,
and it should be upheld even if it comes at the expense
of limiting the power of local government units to collect
real property taxes.
Had this petition been denied instead with Mactan as
basis, but with the caveat that the MIAA properties could
not be subject of execution sale without the consent of
the President, I suspect that the parties would feel little
distress. Through such action, both the Local Government
Code and the MIAA charter would have been upheld.
The prerogatives of LGUs in real property taxation, as
guaranteed by the Local Government Code, would
have been preserved, yet the concerns about the
ruinous effects of having to close the Manila International
Airport would have been averted. The parties would then
be compelled to try harder at working out a compromise,
a task, if I might add, they are all too willing to engage
in.143 Unfortunately, the majority will cause precisely the
opposite result of unremitting hostility, not only to the City
of Parañaque, but to the thousands of LGUs in the
country.
VIII.
Summary of Points
My points may be summarized as follows:
1) Mactan and a long line of succeeding cases have
already settled the rule that under the Local Government
Code, enacted pursuant to the constitutional mandate
of local autonomy, all natural and juridical persons, even
those 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 Local Government
Code itself, or those enacted through subsequent
legislation.
2) Under the Local Government Code, particularly
Section 232, instrumentalities, agencies and GOCCs are
generally liable for real property taxes. The only
exemptions therefrom under the same Code are
provided in Section 234, which include real property
owned by the Republic of the Philippines or any of its
political subdivisions.
3) The subject properties are owned by MIAA, a GOCC,
holding title in its own name. MIAA, a separate legal
entity from the Republic of the Philippines, is the legal
owner of the properties, and is thus liable for real property
taxes, as it does not fall within the exemptions under
Section 234 of the Local Government Code.
4) The MIAA charter expressly bars the sale or disposition
of MIAA properties. As a result, the City of Parañaque is
prohibited from seizing or selling these properties by
public auction in order to satisfy MIAA's tax liability. In the
end, MIAA is encumbered only by a limited lien possessed
by the City of Parañaque.
On the other hand, the majority's flaws are summarized as
follows:
1) The majority deliberately ignores all precedents which
run counter to its hypothesis, including Mactan. Instead, it
relies and directly cites those doctrines and precedents
which were overturned by Mactan. By imposing a
different result than that warranted by the precedents
without explaining why Mactan or the other precedents
are wrong, the majority attempts to overturn all these
ruling sub silencio and without legal justification, in a
manner that is not sanctioned by the practices and
traditions of this Court.
2) The majority deliberately ignores the policy and
philosophy of local fiscal autonomy, as mandated by the
Constitution, enacted under the Local Government
Code, and affirmed by precedents. Instead, the majority
asserts that there is no sound rationale for local
governments to tax national government
instrumentalities, despite the blunt existence of such
rationales in the Constitution, the Local Government
Code, and precedents.
3) The majority, in a needless effort to justify itself, adopts
an extremely strained exaltation of the Administrative
Code above and beyond the Corporation Code and the
various legislative charters, in order to impose a wholly
absurd definition of GOCCs that effectively declassifies
innumerable existing GOCCs, to catastrophic legal
consequences.
4) The majority asserts that by virtue of Section 133(o) of
the Local Government Code, all national government
agencies and instrumentalities are exempt from any form
of local taxation, in contravention of several precedents
to the contrary and the proviso under Section 133, "unless
otherwise provided herein [the Local Government
Code]."
5) The majority erroneously argues that MIAA holds its
properties in trust for the Republic of the Philippines, and
that such properties are patrimonial in character. No
express or implied trust has been created to benefit the
national government. The legal distinction between
sovereign and proprietary functions, as affirmed by
jurisprudence, likewise preclude the classification of MIAA
properties as patrimonial.
IX.
Epilogue
If my previous discussion still fails to convince on how
wrong the majority is, then the following points are well-
worth considering. The majority cites the Bangko Sentral
ng Pilipinas (Bangko Sentral) as a government
instrumentality that exercises corporate powers but not
organized as a stock or non-stock corporation.
Correspondingly for the majority, the Bangko ng Sentral is
exempt from all forms of local taxation by LGUs by virtue
of the Local Government Code.
Section 125 of Rep. Act No. 7653, The New Central Bank
Act, states:
SECTION 125. Tax Exemptions. — The Bangko Sentral shall
be exempt for a period of five (5) years from the
approval of this Act from all national, provincial,
municipal and city taxes, fees, charges and assessments.
The New Central Bank Act was promulgated after the
Local Government Code if the BSP is already
preternaturally exempt from local taxation owing to its
personality as an "government instrumentality," why then
the need to make a new grant of exemption, which if the
majority is to be believed, is actually a redundancy. But
even more tellingly, does not this provision evince a clear
intent that after the lapse of five (5) years, that the
Bangko Sentral will be liable for provincial, municipal and
city taxes? This is the clear congressional intent, and it is
Congress, not this Court which dictates which entities are
subject to taxation and which are exempt.
Perhaps this notion will offend the majority, because the
Bangko Sentral is not even a government owned
corporation, but a government instrumentality, or
perhaps "loosely", a "government corporate entity." How
could such an entity like the Bangko Sentral , which is not
even a government owned corporation, be subjected to
local taxation like any mere mortal? But then, see Section
1 of the New Central Bank Act:
SECTION 1. Declaration of Policy. — The State shall
maintain a central monetary authority that shall function
and operate as an independent and accountable body 3 Section 3, MIAA Charter.
corporate in the discharge of its mandated responsibilities
concerning money, banking and credit. In line with this 4 Section 22, MIAA Charter.
policy, and considering its unique functions and
responsibilities, the central monetary authority established 5 Section 3, MIAA Charter.
under this Act, while being a government-owned
corporation, shall enjoy fiscal and administrative
autonomy.
6 Rollo, pp. 22-23.

Apparently, the clear legislative intent was to create a

government corporation known as the Bangko Sentral ng
Pilipinas. But this legislative intent, the sort that is evident
from the text of the provision and not the one that needs
to be unearthed from the bowels of the archival offices
of the House and the Senate, is for naught to the majority,
as it contravenes the Administrative Code of 1987, which
after all, is "the governing law defining the status and
relationship of government agencies and
instrumentalities" and thus superior to the legislative
charter in determining the personality of a chartered
entity. Its like saying that the architect who designed a
school building is better equipped to teach than the
professor because at least the architect is familiar with
the geometry of the classroom.
Consider further the example of the Philippine Institute of
Traditional and Alternative Health Care (PITAHC), created
by Republic Act No. 8243 in 1997. It has similar
characteristics as MIAA in that it is established as a body
corporate,144 and empowered with the attributes of a
corporation,145 including the power to purchase or
acquire real properties.146 However the PITAHC has no
capital stock and no members, thus following the
majority, it is not a GOCC.
The state policy that guides PITAHC is the development of
traditional and alternative health care,147 and its
objectives include the promotion and advocacy of
alternative, preventive and curative health care
modalities that have been proven safe, effective and
cost effective.148 "Alternative health care modalities"
include "other forms of non-allophatic, occasionally non-
indigenous or imported healing methods" which include,
among others "reflexology, acupuncture, massage,
acupressure" and chiropractics.149
7Under Rule 45 of the 1997 Rules of Civil
Procedure.
8 330 Phil. 392 (1996).
9MIAA Charter as amended by Executive Order
No. 298. See note 2.
10 Batas Pambansa Blg. 68.
11 Section 11 of the MIAA Charter provides:
Contribution to the General Fund for the
Maintenance and Operation of other
Airports. – Within thirty (30) days after the
close of each quarter, twenty
percentum (20%) of the gross operating
income, excluding payments for utilities
of tenants and concessionaires and
terminal fee collections, shall be remitted
to the General Fund in the National
Treasury to be used for the maintenance
and operation of other international and
domestic airports in the country.
Adjustments in the amount paid by the
Authority to the National Treasury under
this Section shall be made at the end of
each year based on the audited
financial statements of the Authority.
12 Section 5(j), MIAA Charter.
13 Section 6, MIAA Charter.
14 Section 5(k), MIAA Charter.

Given these premises, there is no impediment for the 15 Section 5(o), MIAA Charter.
PITAHC to purchase land and construct thereupon a
massage parlor that would provide a cheaper alternative
to the opulent spas that have proliferated around the
16 Third Whereas Clause, MIAA Charter.
metropolis. Such activity is in line with the purpose of the
PITAHC and with state policy. Is such massage parlor 17 Id.
exempt from realty taxes? For the majority, it is, for PITAHC
is an instrumentality or agency exempt from local 18 Constitution, Art. X, Sec. 5.
government taxation, which does not fall under the
exceptions under Section 234 of the Local Government 19274 Phil. 1060, 1100 (1991) quoting C. Dallas
Code. Hence, this massage parlor would not just be a
Sands, 3 Statutes and Statutory Construction 207.
shelter for frazzled nerves, but for taxes as well.
20 274 Phil. 323, 339-340 (1991).
Ridiculous? One might say, certainly a decision of the
Supreme Court cannot be construed to promote an
absurdity. But precisely the majority, and the faulty
21 Constitution, Art. VI, Sec. 28(1).
reasoning it utilizes, opens itself up to all sorts of mischief,
and certainly, a tax-exempt massage parlor is one of the 22 First Whereas Clause, MIAA Charter.
lesser evils that could arise from the majority ruling. This is
indeed a very strange and very wrong decision. 23 30 Phil. 602, 606-607 (1915).

I dissent. 24 102 Phil. 866, 869-870 (1958).

DANTE O. TINGA PNB v. Puruganan, 130 Phil. 498 (1968). See also
25

Martinez v. CA, 155 Phil. 591 (1974).

Associate Justice
26 MIAA Charter, Sec.16.

27Chavez v. Public Estates Authority, 433 Phil. 506

(2002).
Footnotes
28 Section 3, MIAA Charter.
1 Dated 16 September 1983.
29G.R. No. 144104, 29 June 2004, 433 SCRA 119,
2 Dated 26 July 1987. 138.
 30 Republic Act No. 7653, 14 June 1993, Sec. 5. 12Nonetheless, the Court noted therein GSIS's
exemption from real property taxes was
31Executive Order No. 1061, 5 November 1985, reenacted in 1997, and the GSIS at present is
Sec. 3(p). exempt from such taxes under the GSIS Act of
1997. Id., at 299.
32 Republic Act No. 4850, 18 July 1966, Sec. 5.
13G.R. No. 109791, 14 July 2003, 406 SCRA 88, and
G.R. No. 143214, 11 November 2004, 442 SCRA
33Presidential Decree No. 977, 11 August 1976,
175, respectively.
Section 4(j).
14 118 Phil. 1354 (1963).
34 Republic Act No. 7227, 13 March 1992, Sec. 3.
15 396 Phil. 860 (2000).
35Presidential Decree No. 857, 23 December
1975, Sec. 6(b)(xvi).
16 Supra note 8.
36 Republic Act No. 4663, 18 June 1966, Sec. 7(m).
17 91 Phil 203 (1952).
37 Republic Act No. 4567, 19 June 1965, Sec. 7(m).
18G.R. No. L-51806, 8 November 1988, 167 SCRA
28.
38 Republic Act No. 7621, 26 June 1992, Sec. 7(m).
19G.R. No. 155692, 23 October 2003, 414 SCRA
39Republic Act No. 4156, 20 June 1964. Section
327.
4(b).

Id. at 333, citing Section 10, Book IV, Title III,

20
40Republic Act No. 3844, 8 August 1963, as
Chapter 3, Administrative Code of 1987.
amended by Republic Act No. 7907, 23 February
1995.
21 G.R. No. 165827, 16 June 2006.
41 Executive Order No. 81, 3 December 1986.
22 G.R. No. 147192, 27 June 2006.
42 Republic Act No. 8175, 29 December 1995.
23 Supra note 8.
43Presidential Decree No. 252, 21 July 1973, as
amended by Presidential Decree No. 1071, 25
24 See Mendoza v. De Leon, 33 Phil. 508 (1916).
January 1977 and Executive Order No. 1067, 25
November 1985. 25 Mactan, supra note 2, at 397-398.

44 Executive Order No. 80, 3 December 1986. 26 Section 193, Rep. Act No. 7160.

III Records, Constitutional Commission 63 (22

45 27 Section 232, Rep. Act No. 7160.
August 1986).
28Section 234, Rep. Act No. 7160. Emphasis
46 2003 ed., 1181. supplied.

47Manila International Airport Authority v. Airspan 29 Id. at 411-413.

Corporation, G.R. No. 157581, 1 December 2004,
445 SCRA 471. 30 See City of Davao v. RTC, supra note 11, at 293.

TINGA, J. 31 Supra note 3.

1Per Department of Interior and Local 32 Id. at 63-65.

Government. See also "Summary" from the
National Statistical Coordination Board, 33 G.R. No. 88921, 31 May 1991, 197 SCRA 771.
http://www.nscb.gov.ph/activestats
/psgc/NSCB_PSGC_SUMMARY_DEC04.pdf.
34 Id. at 799.
2 330 Phil. 392 (1996).
35 Mactan, supra note 2, at 419-420.
3 G.R. No. 91649, 14 May 1991, 197 SCRA 52.
36 Supra note 6.
4 451 Phil. 683, 698 (2003).
37 Id. at 250-251.
5 364 Phil. 843, 855 (1999).
38 G.R. No. 109791, 14 July 2003, 406 SCRA 88.
6 449 Phil. 233 (2003).
39 Id. at 99-100.
7 G.R. No. 152675 & 152771, 28 April 2004.
40 Supra note 21.
8 Decision, p. 24.
41 Id.
9 G.R. No. 144104, 29 June 2004, 433 SCRA 119.
42G.R. No. 143214, 11 November 2004, 442 SCRA
175.
10 Supra note 8.
43 Id., at 184.
11G.R. No. 127383, 18 August 2005, 467 SCRA 280.
Per the author of this Dissenting Opinion.
44Id. at 185-186, citing MCIAA v. Marcos, supra
note 2.
45 Supra note 11.
46P.D. No. 1981. See City of Davao v. RTC, supra
note 40, at 289.
47 Id. at 287-288.
4832 Phil. 36, 49; cited in City of Davao v. RTC,
supra note 40 at 296-297.
49 Id.
50 Supra note 22.
51 Id.
52 Decision, p. 6.
53MIAA's Charter (E.O No. 903, as amended)
provides:
Section 3. Creation of the Manila
International Airport Authority. – xxx
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.
xxx Any portion thereof shall not be
disposed through sale or through any
other mode unless specifically approved
by the President of the Philippines.
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.
On the other hand, MCIAA's charter
(Rep. Act No. 6958) provides:
Section 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, interest and
privileges relating to airport works or air
operations, including all equipment
which are necessary for the operation of
air navigation, aerodrome control
towers, crash, fire, and rescue facilities
are hereby transferred to the Authority:
Provided, however, That the operational
control of all equipment necessary for
the operation of radio aids to air
navigation, airways communication, the
approach control office and the area
control center shall be retained by the
Air Transportation Office. xxx
54See Section 3, E.O. 903 (as amended), infra
note 140; and Section Section 4(c), Rep. Act No.
6958, which qualifies the power of the MCIAA to
sell its properties, providing 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."
55See Section 16, E.O. 903 (as amended) and
Section 13, Rep. Act No. 6958.
56 See Articles 40 to 43, Civil Code.
57 See Articles 44 to 47, Civil Code.
58 This is apparent from such assertions as "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." See Decision, p. 9-10.
59 Decision, p. 9.
60 See Section 2(10), E.O. 292.
61 See Section 2(4), E.O No. 292.
62 50 Phil. 259 (1927).
63 Id., at 288.
64 See Sec. 5, Rep. Act No. 6395.
65 Section 3, Corporation Code.
66 See Section 13, Rep. Act No. 6395.
67 See Section 1, Rep. Act No. 7875.
68 See Section 16(i), Rep. Act No. 7875.
69 See Section 3, Rep. Act 8282.
70 Supra note 14.
71See Section 2(b), Rep. Act No. 7656, which
defines GOCCs as "corporations organized as a
stock or non-stock corporation xxx"
72See Rep. Act No. 7656, the pertinent provisions
of which read:
c. 3. Dividends.—All government-owned
or -controlled corporations shall declare
and remit at least fifty percent (50%) of
their annual net earnings as cash, stock
or property dividends to the National
Government. This section shall also apply
to those government-owned or -
controlled corporations whose profit
distribution is provided by their respective
charters or by special law, but shall
exclude those enumerated in Section 4
hereof: Provided, That such dividends
accruing to the National Government
shall be received by the National
Treasury and recorded as income of the
General Fund.
Sec. 4. Exemptions.—The provisions of the
preceding section notwithstanding,
government-owned or -controlled
corporations created or organized by
law to administer real or personal
properties or funds held in trust for the
use and the benefit of its members, shall
not be covered by this Act such as, but
not limited to: the Government Service
 Insurance System, the Home
Development Mutual Fund, the
Employees Compensation Commission,
the Overseas Workers Welfare
Administration, and the Philippine
Medical Care Commission.
73 See Pres. Decree No. 857 (as amended).
74 See Section 10, Pres. Decree No. 857.
75 See Section 11, Pres. Decree No. 857.
76 See Rep. Act No. 7227.
77 See Section 6, Rep. Act No. 7227.
78 See Rep. Act No. 7916.
79See Section 47, Rep. Act No. 7916 in relation to
Section 5, Pres. Decree No. 66.
80 See Executive Order No. 603, as amended.
81See Article 6, Section 15 of Executive Order No.
603, as amended.
82 See Rep. Act No. 7653. If there is any doubt
whether the BSP was intended to be covered by
Rep. Act No. 7656, see Section 2(b), Rep. Act No.
7656, which states that "This term [GOCCs shall
also include financial institutions, owned or
controlled by the National Government, but shall
exclude acquired asset corporations, as defined
in the next paragraphs, state universities, and
colleges."
83 See Section 2, Rep. Act No. 7653.
84 See Sections 43 & 44, Rep. Act No. 7653.
85 See Rep. Act No. 6395.
86 Supra note 35.
87 See Decision, p. 10.
88 Id. at 10-11.
89 Id.
90 See Rep. Act No. 3034.
91 See Rep. Act No. 4132.
92 See Rep. Act No. 6070.
93 See Rep. Act No. 5920.
94 See Rep. Act No. 4071.
95 See e.g., Sections 1 & 2, Rep. Act No. 6070.
Section 1. Declaration of Policy. – It is
hereby declared to be the policy of the
Congress to foster the accelerated and
balanced growth of the Province of
Ilocos Sur, within the context of national
plans and policies for social and
economic development, through the
leadership, guidance, and support of the
government. To achieve this end, it is
recognized that a government
corporation should be created for the
purpose of drawing up the necessary
plans of provincial development; xxx
Sec. 2. Ilocos Sur Development Authority
created. – There is hereby created a
body corporate to be known as the
Ilocos Sur Development Authority xxx. The
Authority shall execute the powers and
functions herein vested and conferred
upon it in such manner as will in its
judgment, aid to the fullest possible
extent in carrying out the aims and
purposes set forth below."
96See Art. 37, Civil Code, which provides in part,
"Juridical capacity, which is the fitness to be the
subject of legal relations…"
97See rollo, p. 18. "Petitioner [MIAA] is a
government-owned and controlled corporation
with original charter as it was created by virtue of
Executive Order No. 903 issued by then President
Ferdinand E. Marcos on July 21, 1983, as
amended by Executive Order No. 298 issued by
President Corazon C. Aquino on July 26, 1987,
and with office address at the MIAA
Administration Bldg Complex, MIAA Road, Pasay
City." (emphasis supplied).
98See "Department of Budget and Management
– Web Linkages," http://www.dbm.
gov.ph/web_linkages.htm (Last visited 25
February 2005).
99 G.R. No. 104217, 5 December 1994, 238 SCRA
714; per Quiazon, J.. "Petitioner MIAA is a
government-owned and controlled corporation
for the purpose, among others, of encouraging
and promoting 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". Id. at 716.
See Section 23, Chapter 6, Title XV, Book IV,
100
Administrative Code of 1987.
101 Supra note 60.
102 Supra note 8.
103 Supra note 6.
104Assuming that there is conflict between
Section 133(o), Section 193, Section 232 and
Section 234 of the Local Government Code, the
rule in statutory construction is, "If there be no
such ground for choice between inharmonious
provisions or sections, the latter provision or
section, being the last expression of the
legislative will, must, in construction, vacate the
former to the extent of the repugnancy. It has
been held that in case of irreconcilable conflict
between two provisions of the same statute, the
last in order of position is frequently held to
prevail, unless it clearly appears that the intent of
the legislature is otherwise." R. Agpalo, Statutory
Construction (3rd ed., 1995), p. 201; citing
Lichauco & Co. v. Apostol, 44 Phil. 138 (1922);
Cuyegkeng v. Cruz, 108 Phil. 1147 (1960);
Montenegro v. Castañeda, 91 Phil. 882 (1952).
105 Decision, p. 12.
106 Supra note 6.
107 Id. at 261-262.
108 Id., at 248-250.
109 Supra note 38.
110Id, at 102; citing National Power Corp. v. 136 Id., at 36.
Presiding Judge, RTC, Br. XXV, 190 SCRA 477
(1990). 137Teodoro v. National Airports Commission,
supra note 17, at 207.
111 Decision, p. 25.
138 See Article XII, Section 11, Const.
"Unless otherwise expressed in the tax law, the
112

government and its political subdivisions are 139 Vitug & Acosta, supra note 112, at 35; citing
exempt therefrom." J. Vitug and E. Acosta, Tax Bisaya Land Transportation Co., Inc. v. Collector
Law and Jurisprudence (2nd ed., 2000), at 36. of Internal Revenue, L-11812, 29 May 1959, 105
Phil. 1338.
113 Supra note 9.
140 See Section 3, E.O. 903, as amended.
114 See P.D. No. 1423.
141 Indeed, last 4 February 2005, the MIAA filed a
115R. Agpalo, Statutory Construction (3rd ed., Manifestation before this Court stating that its
1995), at 199; citing Javellana v. Tayo, G.R. No. new General Manager had been conferring with
18919, 29 December 1982, 6 SCRA 1042 (1962); the newly elected local government of
Radiola-Toshiba Phil., Inc. v. IAC, 199 SCRA 373 Parañaque with the end of settling the case at
(1991). mutually acceptable terms. See rollo, pp. 315-
316. While this Manifestation was withdrawn a
116 PPA v. City of Iloilo, supra note 42. few weeks later, see rollo, pp. 320-322, it still
stands as proof that the parties are nevertheless
willing to explore an extrajudicial settlement of
117 Id., at 186-187.
this case.
118 Supra note 15. 142 See Section 17, Article VII, Constitution. "The
President shall have control of all the executive
119 Id. at 869. departments. He shall ensure that the laws be
faithfully executed."
120 Id. at 871.
143 See note 141.
121 Id. at 872.
144 See Section 5, Rep. Act No. 8423.
122 See Section 10, E.O. No. 903.
145 See Section 6(s), Rep. Act No. 8423.
123R. Lopez, I The Corporation Code of the
Philippines Annotated, pp. 15-16 (1994). 146 See Section 6(r), Rep. Act No. 8423.

124 See Section 5, E.O. No. 903. 147 See Section 2, Rep. Act No. 8423.

125See Section 1, Article X of the Constitution, 148 See Section 3(b), Rep. Act No. 8423.
which reads: "The territorial and political
subdivisions of the Republic of the Philippines are 149 See Section 4(d), Rep. Act No. 8423.
the provinces, cities, municipalities and
barangays xxx"
G.R. No. 120082 September 11, 1996
Romualdez-Yap v. CSC, G.R. No. 104226, 12
126

August 1993, 225 SCRA 285, 294. MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY, petitioner,
vs.
127 100 Phil. 468. (1956)
HON. FERDINAND J. MARCOS, in his capacity as the
Presiding Judge of the Regional Trial Court, Branch 20,
128 Id., at 471-473. Cebu City, THE CITY OF CEBU, represented by its Mayor
HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
129 Lopez, supra note 123 at 67. CESA, respondents.

130 G.R. No. L-49930, 7 August 1985, 138 SCRA 63.

131"Did the State act in a sovereign capacity or in DAVIDE, JR., J.:

a corporate capacity when it organized the PNR
for the purpose of engaging in transportation?
Did it act differently when it organized the PNR as
successor of the Manila Railroad Company? xxx
We hold that in the instant case the State
divested itself of its sovereign capacity when it
organized the PNR which is no different from its
predecessor, the Manila Railroad Company." Id,
at 66.
132 Supra note 17.
133 Id., at 206.
Section 32(24), Rep. Act No. 776. See CAA v.
134
Court of Appeals, supra note 18, at 36.
135 Supra note 18.
For review under Rule 45 of the Rules of Court on
a pure question of law are the decision of 22
March 19951of 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 on and
Airport Authority (MCIAA) was created service.
by virtue of Republic Act No. 6958,
mandated to "principally undertake the Since the time of its creation, petitioner
economical, efficient and effective MCIAA enjoyed the privilege of
control, management and supervision of exemption from payment of realty taxes
the Mactan International Airport in the in accordance with Section 14 of its
Province of Cebu and the Lahug Airport Charter.
in Cebu City, . . . and such other Airports
as may be established in the Province of
Sec. 14. Tax Exemptions.
Cebu . . . (Sec. 3, RA 6958). It is also
— The authority shall be
mandated to:
exempt from realty
taxes imposed by the
a) National Government or
encour any of its political
age, subdivisions, agencies
promot and instrumentalities . . .
e and
develo
On October 11, 1994, however, Mr.
p
Eustaquio B. Cesa, Officer-in-Charge,
internati
Office of the Treasurer of the City of
onal
Cebu, demanded payment for realty
and
taxes on several parcels of land
domesti
belonging to the petitioner (Lot Nos. 913-
c air
G, 743, 88 SWO, 948-A, 989-A, 474,
traffic in
109(931), I-M, 918, 919, 913-F, 941, 942,
the
947, 77 Psd., 746 and 991-A), located at
Central
Barrio Apas and Barrio Kasambagan,
Visayas
Lahug, Cebu City, in the total amount of
and
P2,229,078.79.
Mindan
ao
regions Petitioner objected to such demand for
as a payment as baseless and unjustified,
means claiming in its favor the aforecited
of Section 14 of RA 6958 which exempt it
making from payment of realty taxes. It was also
the asserted that it is an instrumentality of the
regions government performing governmental
centers functions, citing section 133 of the Local
of Government Code of 1991 which puts
internati limitations on the taxing powers of local
onal government units:
trade
and Sec. 133. Common
tourism, Limitations on the Taxing
and Powers of Local
acceler Government Units. —
ating Unless otherwise
the provided herein, the
develo exercise of the taxing
pment powers of provinces,
of the cities, municipalities,
means and barangay shall not
of extend to the levy of the
transpor following:
tation
and a) . . .
commu
nication
in the xxx xxx xxx
country;
and o)
Taxes,
b) fees or
upgrad charges
e the of any
services kind on
and the
facilities Nationa
of the l
airports Govern
and to ment, it
formula s
te agenci
internati es and
onally instrum
accept entalitie
able s, and
standar local
ds of govern
airport ment
accom units.
modati (Empha
 sis
supplie
d)
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,"7and 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 allgovernment 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 governmental-
owned corporation, 12 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 barangays shall not extend to the levy of
intention of the framers of the said law. the following:

As a general rule, the power to tax is an incident (a) Income tax, except
of sovereignty and is unlimited in its range, when levied on banks
acknowledging in its very nature no limits, so that and other financial
security against its abuse is to be found only in institutions;
the responsibility of the legislature which imposes
the tax on the constituency who are to pay it. (b) Documentary stamp
Nevertheless, effective limitations thereon may tax;
be imposed by the people through their
Constitutions.13 Our Constitution, for instance,
(c) Taxes on estates,
provides that the rule of taxation shall be uniform
"inheritance, gifts,
and equitable and Congress shall evolve a
legacies and other
progressive system of taxation.14 So potent
acquisitions mortis
indeed is the power that it was once opined that
causa, except as
"the power to tax involves the power to
otherwise provided
destroy."15 Verily, taxation is a destructive power
herein
which interferes with the personal and property
for the support of the government. Accordingly,
tax statutes must be construed strictly against the (d) Customs duties,
government and liberally in favor of the registration fees of
taxpayer.16 But since taxes are what we pay for vessels and wharfage
civilized society,17 or are the lifeblood of the on wharves, tonnage
nation, the law frowns against exemptions from dues, and all other kinds
taxation and statutes granting tax exemptions of customs fees charges
are thus construed strictissimi juris against the and dues except
taxpayers and liberally in favor of the taxing wharfage on wharves
authority.18 A claim of exemption from tax constructed and
payment must be clearly shown and based on maintained by the local
language in the law too plain to be government unit
mistaken.19 Elsewise stated, taxation is the rule, concerned:
exemption therefrom is the
exception.20 However, if the grantee of the (e) Taxes, fees and
exemption is a political subdivision or charges and other
instrumentality, the rigid rule of construction does imposition upon goods
not apply because the practical effect of the carried into or out of, or
exemption is merely to reduce the amount of passing through, the
money that has to be handled by the territorial jurisdictions of
government in the course of its operations.21 local government units
in the guise or charges
The power to tax is primarily vested in the for wharfages, tolls for
Congress; however, in our jurisdiction, it may be bridges or otherwise, or
exercised by local legislative bodies, no longer other taxes, fees or
merely by virtue of a valid delegation as before, charges in any form
but pursuant to direct authority conferred by whatsoever upon such
Section 5, Article X of the Constitution.22 Under goods or merchandise;
the latter, the exercise of the power may be
subject to such guidelines and limitations as the (f) Taxes fees or charges
Congress may provide which, however, must be on agricultural and
consistent with the basic policy of local aquatic products when
autonomy. sold by marginal farmers
or fishermen;
There can be no question that under Section 14
of R.A. No. 6958 the petitioner is exempt from the (g) Taxes on business
payment of realty taxes imposed by the National enterprise certified to be
Government or any of its political subdivisions, the Board of Investment
agencies, and instrumentalities. Nevertheless, as pioneer or non-
since taxation is the rule and exemption pioneer for a period of
therefrom the exception, the exemption may six (6) and four (4) years,
thus be withdrawn at the pleasure of the taxing respectively from the
authority. The only exception to this rule is where date of registration;
the exemption was granted to private parties
based on material consideration of a mutual (h) Excise taxes on
nature, which then becomes contractual and is articles enumerated
thus covered by the non-impairment clause of under the National
the Constitution.23 Internal Revenue Code,
as amended, and taxes,
The LGC, enacted pursuant to Section 3, Article X fees or charges on
of the constitution provides for the exercise by petroleum products;
local government units of their power to tax, the
scope thereof or its limitations, and the (i) Percentage or value
exemption from taxation. added tax (VAT) on
sales, barters or
Section 133 of the LGC prescribes the common exchanges or similar
limitations on the taxing powers of local transactions on goods or
government units as follows: services except as
otherwise provided
Sec. 133. Common Limitations on the herein;
Taxing Power of Local Government Units.
— Unless otherwise provided herein, the (j) Taxes on the gross
exercise of the taxing powers of receipts of
provinces, cities, municipalities, and 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
activity,24 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 finance and support myriad activities of local
the Real Property Tax Code, which reads: government units for the delivery of basic
services essential to the promotion of the general
Sec 40. Exemption from Real Property welfare and the enhancement of peace,
Tax. — The exemption shall be as follows: progress, and prosperity of the people. It may
also be relevant to recall that the original reasons
for the withdrawal of tax exemption privileges
(a) Real
granted to government-owned and controlled
propert
corporations and all other units of government
y
were that such privilege resulted in serious tax
owned
base erosion and distortions in the tax treatment
by the
of similarly situated enterprises, and there was a
Republi
need for this entities to share in the requirements
c of the
of the development, fiscal or otherwise, by
Philippin
paying the taxes and other charges due from
es or
them.35
any of
its
political The crucial issues then to be addressed are: (a)
subdivisi whether the parcels of land in question belong to
ons and the Republic of the Philippines whose beneficial
any use has been granted to the petitioner, and (b)
govern whether the petitioner is a "taxable person".
ment-
owned Section 15 of the petitioner's Charter provides:
or
controll Sec. 15. Transfer of Existing Facilities and
ed Intangible Assets. — All existing public
corpora airport facilities, runways, lands, buildings
tions so and other properties, movable or
exempt immovable, belonging to or presently
by is administered by the airports, and all
charter: assets, powers, rights, interests and
Provide privileges relating on airport works, or air
d, operations, including all equipment
howeve which are necessary for the operations
r, that of air navigation, acrodrome control
this towers, crash, fire, and rescue facilities
exempti are hereby transferred to the
on shall Authority: Provided however, that the
not operations control of all equipment
apply necessary for the operation of radio aids
to real to air navigation, airways
propert communication, the approach control
y of the office, and the area control center shall
above be retained by the Air Transportation
mentio Office. No equipment, however, shall be
ned removed by the Air Transportation Office
entities from Mactan without the concurrence of
the the authority. The authority may assist in
benefici the maintenance of the Air
al use Transportation Office equipment.
of
which
The "airports" referred to are the "Lahug Air Port"
has
in Cebu City and the "Mactan International
been
AirPort in the Province of Cebu",36 which
granted
belonged to the Republic of the Philippines, then
, for
under the Air Transportation Office (ATO).37
conside
ration
or It may be reasonable to assume that the term
otherwis "lands" refer to "lands" in Cebu City then
e, to a administered by the Lahug Air Port and includes
taxable the parcels of land the respondent City of Cebu
person. seeks to levy on for real property taxes. This
section involves a "transfer" of the "lands" among
other things, to the petitioner and not just the
Note that as a reproduced in Section 234(a), the
transfer of the beneficial use thereof, with the
phrase "and any government-owned or
ownership being retained by the Republic of the
controlled corporation so exempt by its charter"
Philippines.
was excluded. The justification for this restricted
exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, specially in This "transfer" is actually an absolute conveyance
light of the general provision on withdrawal of of the ownership thereof because the petitioner's
exemption from payment of real property taxes authorized capital stock consists of, inter alia "the
in the last paragraph of property taxes in the last value of such real estate owned and/or
paragraph of Section 234. These policy administered by the airports."38 Hence, the
considerations are consistent with the State petitioner is now the owner of the land in
policy to ensure autonomy to local question and the exception in Section 234(c) of
governments33 and the objective of the LGC that the LGC is inapplicable.
they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest Moreover, the petitioner cannot claim that it was
development as self-reliant communities and never a "taxable person" under its Charter. It
make them effective partners in the attainment was only exempted from the payment of real
of national goals.34 The power to tax is the most property taxes. The grant of the privilege only in
effective instrument to raise needed revenues to
 respect of this tax is conclusive proof of the
legislative intent to make it a taxable person
subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a
taxable person for purposes of real property tax,
in light of the forgoing disquisitions, it had already
become even if it be conceded to be an
"agency" or "instrumentality" of the Government,
a taxable person for such purpose in view of the
withdrawal in the last paragraph of Section 234
of exemptions from the payment of real property
taxes, which, as earlier adverted to, applies to
the petitioner.
Accordingly, the position taken by the petitioner
is untenable. Reliance on Basco vs. Philippine
Amusement and Gaming Corporation39 is
unavailing since it was decided before the
effectivity of the LGC. 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.
WHEREFORE, the instant petition is DENIED. The
challenged decision and order of the Regional
Trial Court of Cebu, Branch 20, in Civil Case No.
CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban,
JJ., concur.
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.19Petitioner 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. 44.38The 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 attained finality as there is still yet a pending
motion for reconsideration filed with the Supreme Court in
the aforesaid case.
Second, and more importantly, the ruling of the Supreme
Court in the MIAA case cannot be similarly invoked in the
case at bench. The said case cannot be considered as
the "law of the case." The "law of the case" doctrine has
been defined as that principle under which
determinations of questions of law will generally be held
to govern a case throughout all its subsequent stages
where such determination has already been made on a
prior appeal to a court of last resort. It is merely a rule of
procedure and does not go to the power of the court,
and will not be adhered to where its application will result
in an unjust decision. It relates entirely to questions of law,
and is confined in its operation to subsequent
proceedings in the same case. According to said
doctrine, whatever has been irrevocably established
constitutes the law of the case only as to the same
parties in the same case and not to different parties in an
entirely different case. Besides, pending resolution of the
aforesaid motion for reconsideration in the MIAA case,
the latter case has not irrevocably established anything.
Thus, after a thorough and judicious review of the
allegations in petitioner’s motion for reconsideration, this
Court resolves to deny the same as the matters raised
therein had already been exhaustively discussed in the
decision sought to be reconsidered, and that no new
matters were raised which would warrant the
modification, much less reversal, thereof.43 (Emphasis
added, citations omitted.)
PETITIONER’S THEORY
Petitioner is before us now claiming that this Court, in the
2006 MIAA case, had expressly declared that petitioner,
while vested with corporate powers, is not considered a
government-owned or controlled corporation, but is a
government instrumentality like the Manila International
Airport Authority (MIAA), Philippine Ports Authority (PPA),
University of the Philippines, and Bangko Sentral ng
Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are
exempt from real estate taxes imposed by respondent
City.44Petitioner alleges that Republic Act No. 6958
placed "a limitation on petitioner’s administration of its
assets and properties" as it provides under Section 4(e)
that "any asset in the international airport important to
national security cannot be alienated or mortgaged by
petitioner or transferred to any entity other than the
National Government."45
Thus, petitioner claims that the Court of Appeals (Cebu
City) gravely erred in disregarding the following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS
EXPRESSLY DECLARED BY THE HONORABLE COURT IN THE
MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL
ESTATE TAXES IMPOSED BY RESPONDENT CITY OF
LAPULAPU.
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
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 of Republic Act No. 6958 reads:
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, 2006.71Furthermore, 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 Appeals,82 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 8 Id. at 135-138.
City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
9 Id. at 139-141.
1. Petitioner's properties that are actually, solely
and exclusively used for public purpose, 10 Id. at 142-162.
consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are 11 Id. at 163-172.
situated, EXEMPT from real property tax imposed
by the City of Lapu-Lapu.
12 Id. at 201-229.
2. VOID all the real property tax assessments,
including the additional tax for the special
13 Id. at 64.
education fund and the penalty interest, as well
as the final notices of real property tax 14 Id. at 280-281.
delinquencies, issued by the City of Lapu-Lapu
on petitioner's properties, except the assessment 15 Id. at 298-301.
covering the portions that petitioner has leased
to private parties. 16 Id. at 302-333.

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

of petitioner's properties and the eventual
17 Id. at 334-335.
forfeiture and purchase of the said properties by
respondent City of Lapu-Lapu. We likewise 18 Id. at 374-376.
declare VOID the corresponding Certificates of
Sale of Delinquent Property issued to respondent 19 Id. at 130.
City of Lapu-Lapu.
20 Id. at 456-466.
SO ORDERED.
21 528 Phil. 181 (2006).
TERESITA J. LEONARDO-DE CASTRO
Associate Justice 22 Rollo, p. 462.

WE CONCUR: 23 Id. at 100.

MARIA LOURDES P.A. SERENO 24 Id. at 101-103.

Chief Justice
Chairperson
25 Id. at 108.

LUCAS P. BERSAMIN JOSE PORTUGAL PEREZ 26 Id. at 108-115.

Associate Justice Associate Justice
27 Id. at 115-118.
ESTELA M. PERLAS-BERNABE
Associate Justice 28 Id. at 118-119.

CERTIFIC ATI ON 29 Id. at 119-120.

Pursuant to Section 13, Article VIII of the Constitution, I 30 CA rollo, p. 452.

certify that the conclusions in the above Decision had
been reached in consultation before the case was
assigned to the writer of the opinion of the Court's
Division.
MARIA LOURDES P.A. SERENO
Chief Justice
Footnotes
1 Rollo, pp. 91-131; penned by Associate Justice
Isaias P. Dicdican with Associate Justices
Francisco P. Acosta and Stephen C. Cruz,
concurring.
2 Id. at 132-134.
3 An Act Creating the Mactan-Cebu
International Airport Authority, Transferring Existing
Assets of the Mactan International Airport and
the Lahug Airport to the Authority, Vesting the
Authority With Power to Administer and Operate
the Mactan International Airport and the Lahug
Airport, And For Other Purposes.
4 330 Phil. 392, 414 (1996).
5 Rollo, p. 59.
6 Id. at 59-60.
7 Id. at 60.
31Section 529. Tax Ordinances or Revenue
Measure. – All existing tax ordinances or revenue
measures of local government units shall
continue to be in force and effect after the
effectivity of this Code unless amended by the
sanggunian concerned, or inconsistent with, or in
violation of, the provisions of this Code.
ARTICLE 278. Existing Tax Ordinances or
Revenue Measures. — (a) All existing tax
ordinances or revenue measures of
provinces, cities, municipalities, and
barangays imposing taxes, fees, or
charges shall continue to be in force and
effect after the effectivity of the Code,
except those imposing levies on tax
bases or tax subjects which are no longer
within the taxing and revenue-raising
powers of the LGU concerned and
where the rates levied in the tax
ordinance are higher than the taxes,
fees, or charges prescribed in this Rule in
which case, the lower rates shall be
collected.
(b) In case of failure of the sanggunian
to amend or revoke tax ordinances or
revenue measures inconsistent with, or in
violation of the provisions of this Rule, the
same shall be deemed rescinded upon
the effectivity of the Code and these
Rules.
32 Rollo, pp. 121-122.
33 422 Phil. 519 (2001).
34 Rollo, p. 123.
35 Id. at 300.
36 CA rollo, p. 453.
37This is the Court of Appeals’ interpretation of
the following provisions of the LGC and its IRR:
LGC, Section 255. Interests on Unpaid
Real Property Tax. - 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.
IRR of RA 7160, ARTICLE 278. Existing Tax
Ordinances or Revenue Measures. — (a)
All existing tax ordinances or revenue
measures of provinces, cities,
municipalities, and barangays imposing
taxes, fees, or charges shall continue to
be in force and effect after the
effectivity of the Code, except those
imposing levies on tax bases or tax
subjects which are no longer within the
taxing and revenue-raising powers of the
LGU concerned and where the rates
levied in the tax ordinance are higher
than the taxes, fees, or charges
prescribed in this Rule in which case, the
lower rates shall be collected.
(b) In case of failure of the sanggunian
to amend or revoke tax ordinances or
revenue measures inconsistent with, or in
violation of the provisions of this Rule, the
same shall be deemed rescinded upon
the effectivity of the Code and these
Rules.
38 Rollo, pp. 124-125.
39 Id. at 125-126.
40 Id. at 126.
41 Id. at 127.
42 Id. at 129-130.
43 Id. at 133-134.
44 Id. at 55-56.
45 Id. at 58.
46 Id. at 68.
47 Id. at 69.
48 Id. at 75.
49Manila International Airport Authority v. Court
of Appeals, supra note 21 at 241.
50 Rollo, p. 77.
51 Id. at 86.
52Manila International Airport Authority v. Court
of Appeals, Tinga, J., Dissent. Supra note 21 at
259-262.
53 Rollo, p. 556.
54 Id. at 572-608.
55 Id. at 508-527.
56 Id. at 515.
57 Id. at 516.
Mactan-Cebu International Airport Authority v.
58
Marcos, supra note 4 at 419-420.
59 Rollo, p. 519.
60 The respondents further argued:
Hence, assuming arguendo that the
provisions of RA 7160 are not self-
executory in so far as realty taxes and its
surcharges are concerned, and further
granting without admitting that the City
needs an enabling ordinance, the
foregoing provision clearly shows that
the City has all the right to impose and
collect the taxes sought for payment.
(Rollo, p. 522.)
61 Rollo, pp. 519-524.
62 Section 252. Payment Under Protest. - (a) No
protest shall be entertained unless the taxpayer
first pays the tax. There shall be annotated on the
tax receipts the words "paid under protest." The
protest in writing must be filed within thirty (30)
days from payment of the tax to the provincial,
city treasurer or municipal treasurer, in the case
of a municipality within Metropolitan Manila
Area, who shall decide the protest within sixty
(60) days from receipt.
[Petitioner disregarded the aforesaid
provision of law thereby depriving the
courts from exercising jurisdiction over
the matter in view of Section 267 of RA
7160 which states:
Section 267. Action Assailing Validity of
Tax Sale. - No court shall entertain any
action assailing the validity of any sale at
public auction of real property or rights
therein under this Title until the taxpayer
shall have deposited with the court the
amount for which the real property was
sold, together with interest of two
percent (2%) per month from the date of
sale to the time of the institution of the
action. The amount so deposited shall be
paid to the purchaser at the auction sale
if the deed is declared invalid but it shall
be returned to the depositor if the action
fails.]
63 Rollo, pp. 524-526.
64 Id. at 614-652.
65 Id. at 616.
66 Id. at 622.
67 Id. at 623.
68In the 1996 MCIAA case, the Court held that
Section 234 of Republic Act No. 7610, or the
Local Government Code (LGC), "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." (Mactan-Cebu International Airport
Authority v. Marcos, supra note 4 at 414.)
69 See City Government of San Pablo, Laguna v.
Reyes, 364 Phil. 842 (1999); Manila Electric
Company v. Province of Laguna,366 Phil. 428
(1999); National Power Corporation v. City of
Cabanatuan, 449 Phil. 233 (2003); Philippine Ports
Authority v. City of Iloilo,484 Phil. 784 (2004); The
City of Davao v. The Regional Trial Court, Branch
XII, Davao City, 504 Phil. 542 (2005); The City
Government of Quezon Cityv. Bayan
Telecommunications, Inc., 519 Phil. 159 (2006);
FELS Energy, Inc. v. The Province of Batangas, 545
Phil. 93 (2007); The Provincial Assessor of
Marinduque v. Court of Appeals, 605 Phil. 357
(2009).
70 See Philippine Fisheries Development Authority
v. Court of Appeals, 555 Phil. 661 (2007); Manila
International Airport Authority v. City of Pasay,
602 Phil. 160 (2009); Curata v. Philippine Ports
Authority, 608 Phil. 9 (2009); Government Service
Insurance System v. City Treasurer and City
Assessor of the City of Manila,623 Phil. 964 (2009);
Philippine Fisheries Development Authority v.
Central Board of Assessment Appeals, 653 Phil.
328 (2010); City of Pasig v. Republic of the
Philippines, 671 Phil. 791 (2011); Republic of the
Philippines v. City of Parañaque, G.R. No. 191109,
July 18, 2012, 677 SCRA 246; Funa v. Manila
Economic and Cultural Office, G.R. No. 193462,
February 4, 2014, 715 SCRA 247.
Philippine Fisheries Development Authority v.
71
Court of Appeals, id. at 667.
72Manila International Airport Authority v. Court
of Appeals, supra note 21 at 213.
73 Id. at 209.
74 Id. at 209-213.
75 Id. at 213-215.
76 Id. at 216-218.
77 Id. at 218-221.
78 Id. at 221.
79SEC. 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[.]
80Manila International Airport Authority v. Court
of Appeals, supra note 21 at 224-225.
81 Supra note 70 at 174-179.
82 Supra note 70 at 668-674.
83 Supra note 70 at 87.
84 Supra note 70 at 978-980.
85Manila International Airport Authority v. Court
of Appeals, supra note 21 at 240-241.
G.R. Nos. L-46255, 46256, 46259 and 46277 January 23,
1940
PHILIPPINE TRUST COMPANY, PEOPLES BANK AND TRUST
COMPANY,
THE YOKOHAMA SPECIE BANK, LTD., and THE CHARTERED
BANK OF INDIA, AUSTRALIA AND CHINA, Plaintiffs-
Appellants, vs. A.L. YATCO, as Collector of Internal
Revenue,Defendant-Appellee.
Ross, Lawrence, Selph & Carrascoso for the appellant.
Office of the Solicitor-General Ozaeta for the appellee.
LAUREL, J.: chanrobles virtual law library
The original plaintiffs in the Court of First Instance of
Manila were the Philippine Trust Company, the Peoples
Bank and Trust Company, the Yokohama Specie Bank,
Ltd., the Chartered Bank of India, Australia & China, the
Bank of the Philippine Islands, the Hongkong & Shanghai
Banking Corporation, and the China Banking
corporation. As the last three named Banks did not
appeal from the decision of the lower court, we are here
concerned with the appeal taken by the plaintiffs named
in the four above-titled
cases.chanroblesvirtualawlibrary chanrobles virtual law
library
The records disclosed that prior to the filing of these suits,
and for a number of years, the plaintiffs-appellants had
been paying capital and deposit taxes without protest,
formerly under section 111 of Act No. 1189, and later
under section 1499 of the Revised Administrative Code of
1917, as amended. The taxes paid under protest and
sought to recovered are as follows:
1934
Philippine Trust Co. P98,308.
-
.................................................... 85
1936
1934
Peoples Bank 188,827.
-
.............................................................. 15
1936
1935
Yokohama Specie Bank 14,265.1
-
............................................ 0
1936
1935
Chartered Bank 132,903.
-
........................................................... 82
1936
Total
............................................................................. P434,304
....................... .92
In the trial court, by agreement of the parties, the case
were submitted and heard together on a joint stipulation
of facts. After trial, the Court of First Instance of Manila
dismissed the actions and upheld the validity of section
1499 of the Revised Administrative Code, as amended by
Act No. 3199.chanroblesvirtualawlibrary chanrobles
virtual law library
Appellants challenge the constitutionality of the
aforesaid section of the Revised Administrative Code,
principally on the grounds that it violates the rule
regarding uniformity of taxation, and that it is
discriminatory, and therefore violative of the equal
protection clause of the
Constitution.chanroblesvirtualawlibrary chanrobles virtual
law library
The provision of the law involved reads:
SEC. 1499. Tax on capital, deposits, and circulation of
banks. - Subject to the exemption herein made there shall
be collected from banks the following taxes on capital,
deposits, and circulation:chanrobles virtual law library
( a) Upon the capital employed by the bank, for each
month, one twenty-fourth of one per
centrum.chanroblesvirtualawlibrary chanrobles virtual law
library
( b) Upon the average amount of deposits of money,
subject to payment by check or draft, or represented by
certificates of deposits, or otherwise, whether payable on
demand, or on some future day, for each month, one
eighteenth of one per
centrum.chanroblesvirtualawlibrarychanrobles virtual law
library
( c) Upon the average amount of circulation issued by
the bank, including as circulation all notes, and other
obligations calculated or intended to circulate or be
used as money, but not including such as may be
retained in the vault of the bank or redeemed and on
deposits for said bank, for each month, one-twelfth of
one per centrum.chanroblesvirtualawlibrary chanrobles
virtual law library
( d) 'Bank' as herein used, includes every incorporated or
other bank, and every person, association, or company
having a place of business where credits are opened by
the deposit or collection of money or currency subject to
be paid or remitted upon draft, check, or order, or where
money is advanced or loaned on stocks, bonds, bullions,
bills of exchange, or promissory notes are received for
discount or for sale.chanroblesvirtualawlibrary chanrobles
virtual law library
"Capital employed" does not include money borrowed or
received from time to time in the usual course of business
from any person not a partner of or interested in such
bank; and no tax shall be imposed on the capital
employed by any person whose sole business is lending
money on real-state security. (Revised Administrative
Code.)
Act No. 3199 repealed the first paragraph of subjection
( d) of this section.chanroblesvirtualawlibrary chanrobles
virtual law library
Appellants stoutly maintain that although the foregoing
provision is of general application and operates on all
banks of the same kind doing business in the Philippines,
the exemption of the National City Bank of New York from
the impositions therein specifically provided (National
City Bank of New York v. Posadas [296 U.S. 497, 80 Law
ed. 351], makes the law discriminatory and violates the
rule of uniformity in taxation. In support of this contention,
appellants rely on State Bank of Ohama v. Endres (1923),
109 Neb. 753, 192 N.W. 322; Central Nat. Bank of Lincoln
v. Sutherland (1925) 113 Nev. 126, 202 N. W. 428;
Commercial State Bank v. Wilson (1928), 53 S.D. 82, 220 N.
W. 152; Security Sav. Bank v. Board of Review (1920), 189
lo. 463, 178 N.W. 562; ans State ex rel. Conrad Banking
Corporation, etc. v. Mady (1928) 83 Mont. 418, 272 Pac.
691. The exemption, however, of an instrumentality of the
Federal Government does not deprive the
Commonwealth of the Philippines of the power to tax
competitors of such instrumentality. (Union Bank & Trust
Co. v. Phelps (1933), 288 U.S. 181, 77 Lae. ed. 687.) And
the lack of uniformity in the result furnishes no ground of
complaint. (Merchants' Bank v. Pennsylvania, 167 U.S. 461,
42 Law. ed. 236). These decisions of the Supreme Court of
the United States are of controlling persuasive effect. (83
Am. Law Rep. Ann. 1441.)chanrobles virtual law library
A tax is considered uniform when it operates with the
same force and effect in every place where the subject
may be found. (State v. Railroad Tax Cases, 92 U.S. 575,
595, 612, 23 Law. ed. 363, 373.) Section 1499 of the
Revised Administrative Code, as amended, applies
uniformly to, and operates on, all banks in the Philippines
without distinction and discrimination, and if the National
City Bank of New York is exempted from its operation
because it is a federal instrumentality subject only to the
authority of Congress, that alone could have the effect
of rendering it violative of the rule of uniformity. In every
well-regulated and enlightened state or government,
certain descriptions of property and also certain
institutions are exempt from taxation, but these
exemptions have never been regarded as disturbing the
rules of taxation, even where the fundamental law had
ordained that it should be uniform. (Des Moines Bank v.
Fairweather, 263 U.S. 103,118). The rule of uniformity does
not call for perfect uniformity or perfect equality,
because this is hardly
attainable.chanroblesvirtualawlibrary chanrobles virtual
law library
It is vaguely argued that section 1499 of the Revised
Administrative Code was declared unconstitutional by
the Supreme Court of the United States insofar as the
National City Bank of New York was concerned. This is an
error. In Posadas v. National City Bank, 296 U.S. 499, 80
Law. ed. 352, it was held that the National City Bank of
New York in the Philippines was established by virtue of
section 25 of the Federal Reserve Act of 1913, which
authorized the establishment of branches of national
banking associations in foreign countries or
dependencies of the United States," and that the
Philippines being a possession and dependency of the
United States, the rule laid down in Domenech v. National
City Bank, 294 U.S. 199, 204, 79 Law. ed. 857, 861, 55 S. Ct.
366, that "a dependency may not tax its sovereign," must
be considered controlling. There was no declaration,
either express or implied, that section 1499 is
unconstitutional and
void.chanroblesvirtualawlibrary chanrobles virtual law
library
The method of assessment prescribed in section 1502, in
relation to section 1499, of the Revised Administrative
Code, for domestic banks while different from that
prescribed for foreign banks is permissible. This conclusion
flows from the legal proposition that "a state may impose
a different rate of taxation upon a foreign corporation for
the privilege of doing business within the state than it
applies to its own corporations upon the franchise which
the state grants in creating them." (Kansas City, Memphis
& Birmingham R.R. Co. vs. Stiles, 242 U.S. 111, 118, 37 S. Ct.
58, 61, 61, Law. ed. 176.) The judgment of the lower court
is affirmed, with costs against the appellants. So ordered.
Avance�a, C.J., Villa-Real, Imperial, Diaz and
Concepcion, JJ., concur.
G.R. No. L-1104 May 31, 1949
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-
appellants,
vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE
MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN
NOLASCO, as Mayor of the City of Manila, defendants-
appellees.
Francisco Zulueta and Poblador Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio
Villamor for appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor
Guillermo E.Torres and Manuel D. Baldeo as amicus
curiae.
PERFECTO, J.:
Twelve corporation engaged in motion picture business
have initiated these proceeding through a complaint
dated May 5, 1946, to impugn the validity of Ordinance
No. 2958 of the City of Manila which was enacted by the
municipalBoard of said city on April 25 1946 approved by
the Mayor on April 27, 1946 and took effect on May 1,
1946 said ordinance reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE
PRICE OF EVERY ADMISSION TICKET SOLD
BY CINEMATOGRAPHS, THEATERS
VAUDEVILLE COMPANIES THEATRICAL
SHOWS AND BOXING EXHIBITION AND
PROVIDING FOR OTHER PURPOSES.
SEC. 1. In addition to the fees paid by
cinematographers, theaters, vaudeville
companies, theatrical shows and boxing
exhibitions, as provided for in sections 633 and
778 of Ordinance No. 1600, known as the Revised
Ordinance of the City of Manila, as amended,
there shall be collected from the place of
amusement which are specifically mentioned
above the following fees on the price of every
admission ticket sold by such enterprises:
a. For every ticket sold the price of which is from P0.25
P0.99
b. For every ticket sold the price of which is from P1 to P1.99
c. For every ticket sold the price of which is from P2
d. for every ticket sold the price of which is from P3 to P4.99
e. or every ticket sold the price of which is from P5collected
f. For every ticket sold the price of which is from P0Government,
g. For ticket sold thee price of which is from P15 or more
SEC. 2 It shall be the duty of every proprietor
lessee, promoter, or operatorof such
cinematographs, theater, vaudeville companies,
theatrical show and boxing exhibition to provide
himself with tickets which shall be serially
numbered, indication therein the name of
amusement place and the fee charge for
admission. Before such ticket are sold he same
shall be presented to the office of the city
Treasurer for registration. Tickets once issued and
presented at the gate of entrance shall be cut
by the gatekeeper into halves, the first half to be
returned to the customer and the other half to
be retained by the gate keeper.
It shall also be the duty of said proprietor lessee
promoter or operator to deliver to the Office of
the City Treasurer the fees corresponding to the
number of ticket old by him within two days after
the performances or exhibition has taken place.
SEC. 3. The fees herein prescribed shall not be
paid where the admission fees or charge are
collection for and in behalf of any charitable
education or religion institution or association.
All place of amusement which are operate by
U.S. Army and Navy with fund belonging to the
U.S. Government are hereby exempted from fees
herein imposed.
SEC. 4. Any person violation any of the provision
of this ordinance shall upon conviction thereof
be punished by a fine of not more than P200 or
by imprisonment for not more than six months or
by both such fine and imprisonment in the
discretion of the court. If the violation is
committed by the club firm or corporation the
manager the managing director or person
charged with the management of the business of
such club firm or corporation shall be criminally
responsible therefor.
SEC. 5. This Ordinance shall take effect on the
May 1, 1946.
Plaintiffs, operator of theaters in Manila And distributor of
local or imported films allege that they are interested in
the provision of section 1,2 and 4 of said ordinance which
they impugn as null and void upon the following grounds:
(a) For violation the Constitution more particular the
provision regarding the uniformity and equality of
taxation and thee equal protection of the laws; (b)
because the Municipal Board of Manila exceeded and
over-stepped the power granted it the Charter of the
City of Manila; (c) because it contravenes violates and is
inconsistent with, existing nationallegislation more
particularly revenue and tax laws and (d) because it is
unfair, unjust, arbitrary capricious unreasonable
oppressive and is contrary to and violation our basic and
recognizes principles of taxation and licensing laws.
Defendants allege as affirmative defenses the following:
(a) That the ordinance was passed by the Municipal
Board of Manila by virtue of its express legislative power
to tax fix the license fee and regulate the business of
theaters, cinematographs and further to fix the location
of and to tax, fix the license fee for and regulate the
business of theatrical performances public exhibition
circus and other performances and places of
amusement; (b) that the graduated tax required by said
ordinance being applied to all cinematographs, theaters,
vaudeville
to companies
P0.05 theatricalshow and boxing
exhibitions similarly situated and as a class without
distinction or exception the same does not violate the
0.10
prohibition against uniformity and equality of taxation; (c)
to the
that P2.99 0.15 tax onadmission tickets to theaters
graduated
and other
places
0.20 of amusement imposed by the National
Internal Revenue Code (Commonwealth Act No. 466) is
to P5.99 by and0.25 for the purposes of the National
to P14.99 0.35 whereas, Ordinance No.2958 imposes and
requires the collection of a similar tax by and for the
0.50
purposes of the Government of the City of Manila, and
there is no case of double taxation, (d) that said
ordinance having been enacted under the express
power of the Municipal Board to tax for revenue as
distinguishedfrom its power to license for purely police
purposes, the fact that the amount collected thereunder
are higher than what are needed for police regulation
and supervision does not render said ordinance unfair
unjust capricious unreasonable and oppressive; (e) that
consideration the nature of the business of the plaintiffs
and the enormous volume of business they handle the
graduated tax fixed by the ordinance is not
unreasonable.
Defendants allege also that since May 1, 1946, when the
ordinance in question took effect plaintiffs have been
charging the theater-going public increased prices for
admission to the cinematographs owned and operated
to the graduated tax imposed by said ordinance and as
a result while refusing to pay said tax but at the same
time collecting an amount equal to said tax plaintiffs
have taken undue advantage of said ordinance to
realized more profits.
On September 5, 1946, Judge Emilio Pena of the court of
first Instance of Manila rendered a decision upholding the
validity of Ordinance No. 2958.
Plaintiffs appellants assign in the their brief three errors
committed by the trial court. We will consider them
separately.
Appellants contend that the lower court erred in holding
that under section 2444 (m) of the Revised administrative
Code the Municipal Board of the City ofManila had the
power to enact Ordinance No. 2958.
Section 2444 (m) of the Revised Administrative code
reads as follows:
To tax fix the license fee and regulate the
business of hotels restaurants refreshment places,
cafes, lodging houses, boarding houses livery
garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of
and to tax fix the license fee for and regulate the
businessof lively stables, the license fee for and
regulate the business of livery stable, boarding
stables, embalmers, public billiard table public
pool tables, bowling alleys, dance halls, public
dancing halls, cabarets, circusand other similar
parades, public vehicles, race tracks, horse
races,Junk dealers, theatrical performances,
public exhibitions, circus andother performances
and places of amusements, match factories,
blacksmith shops, foundries, steam boilers, lumber
yards, shipyards, thestorage and sale of
gunpowder, tar, pitch, resin, coal, oil,
gasoline,benzene, turpentine, 'hemp, cotton,
nitroglycerin, petroleum or any Ofthe products
thereof and of all other highly combustible or
explosivematerials and other establishment likely
to endanger the public safety or give rise to
conflagration or explosion and subject to the
provision of ordinance issue by the (Philippines
Health Service) Bureau of Health in accordance
with law tanneries, renders tallow chandlers bone
factories and soap factories.
Appellants line of argument runs as follows:
By virtue of the specific power granted in the above
quoted provision of the Revised Administration Code
Ordinance No. 2958 was enacted.
On August 7, 1940 the National Assembly enacted
Commonwealth Act No. 466, known as the National
Internal Revenue Code section 18, 260 and 261 of which
read as follows:
SEC. 18. Sources of revenue. — The following
taxes fees and charges are deemed to be
national internal revenue taxes:
(a) Income tax;
(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or
occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and
charges, namely, taxes on banks and
insurance companies franchise taxes on
amusements charges on forest product
fees for sealing weights and measures
firearms license fees radio registration
fees and water rentals.
SEC. 260. Amusement taxes. — There shall be
collected from the proprietor, lessee, or
operation of theater cinematographs, concert
halls, circuses, boxing exhibition and other places
of amusement the following taxes:
(a) When the amount paid for admission
exceeds twenty-nine centavos, two centavos on
each admission;
(b) When the amount paid for admission
exceeds twenty-nine but does not exceed thirty-
nine centavos, three centavos on each
admission;
(c) When the amount paid for admission
exceeds thirty-nine centavos but does not
exceed forty-nine centavos four centavos on
each admission.
(d) When the amount paid for admission
exceeds forty-nine centavos but does not
exceed fifty-nine centavos five admission.
(e) When the amount paid for admission
exceeds fifty-nine centavos but does not exceed
sixty-nine centavos six centavos on each
admission.
(f) When the amount paid for admission exceeds
sixty-nine centavos but does not exceed seventy
nine centavos seven centavos on each
admission.
(g) When the amount paid for admission
exceeds seventy nine centavos but does not
exceed eighty-nine centavos eight centavos on
each admission;
(h) When the amount paid for admission exceeds
eighty-nine centavos but does not exceed ninty-
nine centavos, nine centavos on each
admission;
(i) When the amount paid for admission exceeds
ninety-nine centavos, ten centavos on each
admission.
In the case of theaters or cinematographs, the
taxes herein prescribed shall first be decuted and
withheld by the proprietros, lessees, or operators
of such theaters or cinematogrphs and paid to
the Collector of Internal Revenue before the
gross receipts are divided between the
proprietros, lessees, or operators of the theaters
of cinematographs and the distributors of the
cinematographic films.
In the case of cockpits, race tracks, and
cabarets, there shall be collected from the
proprietor, lessee, or operator a tax equivalent to
ten per centum of the gross receipts, irrespective
of whether or not any amount is charged or paid
for admission: Provided, however, That in the
case of race tracks, this tax is in addition to the
privilege tax prescribed in seciton 193. for the
purpose of the amusement tax, the term "gross
receipts" embraces all the receipts of the
proprietor, lessee, or operator of the amusement
place, excluding the receipts derived by him
from the sale of liquors, beverages, or other
articles subject to specific tax, or from any
business subject to tax under this Code. (This
section was amended by section 8, Republic Act
No. 39, effective October 1, 1946. We are
quoting the original provision to show the status
of the law when the Ordinance was passed.)
SEC. 261. Exemption. — The tax herein imposed
shall not be paid where the admission fee or
charges are collected by or for and in behalf of
any religious, charitable, scientific, or
educational institution or association, and where
no part of the net proceeds of such admission
fees or charges inures to the benefit of any
private stockholder or individual.
Ordinance No. 2958 does not specify the kind of the tax
sought to be imposed but the seven schedules and other
details of said ordinance are, in every respect, identical
with the amusement tax provided by section 260 of
Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised
Administrative Code confers upon the City of Manila the
power to impose a tax on business but not on
amusement and, consequently, Ordinance No. 2958 was
enacted beyond the charter powers of the City of
Manila.
The whole argument of plaintiffs hinges, therefore, on the
assumption that the power granted to the City of Manila
by section 2444(m) of the Revised Administrative Code is
limited to the authority to impose a tax on business, with
exclusion of the power to impose a tax amusement; but,
the assumption is based on an arbitrary labeling of the
kind of tax authorized by said section 2444(m). The
distinction made by plaintiffs as to the power to tax on
business and the power to tax on amusement has no
ground under the provisions of section 2444(m) of the
Revised Administrative Code. The tax therein authorized
cannot be defined as tax on business and cannot be
restricted within a smaller scope than what is authorized
by the words used, to the extent of excluding what
plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised
Administrative Code includes theaters, cinematographs,
public billiard tables, public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circuses and
other similar places, race tracks, horse races, theatrical
performances, public exhibition, circus and other
performances and places of amusements, will show
conclusively that the power to tax amusement is expressly
included within the power granted by section 2444(m) of
the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in
not holding that section 2444 (m) of the Revised
Administrative Code was repealed or the power therein
contained was withdrawn by the National Assembly by
the enactment of Commonwealth Act No. 466 known as
the National Internal Revenue Code.
In support of this contention, plaintiffs aver that the
Charter of the City of Manila, containing section 2444(m)
of the Revised Administrative Code, was enacted on
December 8, 1929. On April 25, 1940, the National
Assembly enacted Commonwealth Act No. 466,
including provisions on amusement tax, covering the
whole field on taxation and provided for more than what
the ordinance in question has provided. As a result, there
are two taxing powers seeking to occupy exactly the
same field of legislation, and so the apparent conflict
must be resolved with the conclusion that, with the
enactment of Commonwealth Act No. 466, as later
amended by Republic Act No. 39, section 2444(m) of the
Revised Administrative Code has been impliedly
repealed and the power therein delegated to the City of
Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The
conflict pointed out by them is imaginary. Both provisions
of law may stand together and be enforced at the same
time without any incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not
holding that Ordinance No. 2958 violated the principle of
equality and uniformity of taxation enjoined by the
Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the
philippines).
To support this contenttion, appellantts point out to the
fact that the ordinance in question does not tax "many
more kinds of amusements" than those therein specified,
such as "race tracks, cockpits, cabarets, concert halls,
circuses, and other places of amusement." the argument
has absolutely no merit. The fact that some places of
amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies,
theatrical shows, and boxing exhibitions and other kinds
of amusements or places of amusement are taxed, is no
argument at all against the equality and uniformity of the
tax imposition. Equality and uniformity of the tax
imposition. 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; and the appellants cannot point
out what places of amusement taxed by the ordinance
do not constitute a class by themselves and which can
be confused with those not included in the ordinance.
The judgment of the trial court is affirmed with costs
against appellants.
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-
visthose 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. 8The 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 attainable." 27 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 case of the
gross income taxation embodied in 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,
WHEREFORE, the petition is dismissed. Costs against
petitioner.
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate
Estate of the deceased Antonio Jayme Ledesma,plaintiff-
appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First
Assistant Solicitor General Guillermo E. Torres and Solicitor
Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of
Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise
known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section
1) with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes
upon sugar as provided in the Tydings-McDuffe Act, and
the "eventual loss of its preferential position in the United
States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component
elements thereof" and "to stabilize the sugar industry so as
to prepare it for the eventuality of the loss of its
preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an
increase of the existing tax on the manufacture of sugar,
on a graduated basis, on each picul of sugar
manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of
sugar cane and ceded to others for a consideration, on
lease or otherwise —
a tax equivalent to the difference between the
money value of the rental or consideration
collected and the amount representing 12 per
centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall
accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment
and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to
attain any or all of the following objectives, as
may be provided by law.
First, to place the sugar industry in a position to
maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the
United States market, and ultimately to insure its
continued existence notwithstanding the loss of
that market and the consequent necessity of
meeting competition in the free markets of the
world;
Second, to readjust the benefits derived from the
sugar industry by all of the component elements
thereof — the mill, the landowner, the planter of
the sugar cane, and the laborers in the factory
and in the field — so that all might continue
profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas
more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a
living wage and to improve their living and
working conditions: Provided, That the President
of the Philippines may, until the adjourment of
the next regular session of the National Assembly,
make the necessary disbursements from the fund
herein created (1) for the establishment and
operation of sugar experiment station or stations
and the undertaking of researchers (a) to
increase the recoveries of the centrifugal sugar
factories with the view of reducing
manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane
more adaptable to different district conditions in
the Philippines, (c) to lower the costs of raising
sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel,
(e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine
what crop or crops are suitable for rotation and
for the utilization of excess cane lands, and (g)
on other problems the solution of which would
help rehabilitate and stabilize the industry, and
(2) for the improvement of living and working
conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary
agency or agencies to take charge of the
expenditure and allocation of said funds to carry
out the purpose hereinbefore enumerated, and,
likewise, authorizing the disbursement from the
fund herein created of the necessary amount or
amounts needed for salaries, wages, travelling
expenses, equipment, and other sundry expenses
of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-
1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff's
opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed
by the Court of First Instance, the plaintifs appealed the
case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption
that the tax provided for in Commonwealth Act No. 567 is
a pure exercise of the taxing power. Analysis of the Act,
and particularly of section 6 (heretofore quoted in full),
will show that the tax is levied with a regulatory purpose,
to provide means for the rehabilitation and stabilization of
the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation,
sugar occupying a leading position among its export
products; that it gives employment to thousands of
laborers in fields and factories; that it is a great source of
the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general
welfare. Hence it was competent for the legislature to
find that the general welfare demanded that the sugar
industry should be stabilized in turn; and in the wide field
of its police power, the lawmaking body could provide
that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added
strain of the increase in taxes that it had to sustain (Sligh
vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State
ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs.
Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with
reference to the citrus industry in Florida —
The protection of a large industry constituting
one of the great sources of the state's wealth
and therefore directly or indirectly affecting the
welfare of so great a portion of the population of
the State is affected to such an extent by public
interests as to be within the police power of the
sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and
promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine
within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the
legislative discretion must be allowed fully play, subject
only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the
law (above quoted) bear no relation to the objective
pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the
implement of the state's police power (Great Atl. & Pac.
Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs.
Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579).
Even from the standpoint that the Act is a pure tax
measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products
and solution of allied problems, as well as to the
improvements of living and working conditions in sugar
mills or plantations, without any part of such money being
channeled directly to private persons, constitutes
expenditure of tax money for private purposes, (compare
Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR
1392, 1400).
The decision appealed from is affirmed, with costs against
appellant. So ordered.
G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO
ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves &
Jose Laureta for petitioner.
Sotero H. Laurel for respondents.
FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated
September 17, 1968 of respondent Judge Francisco Arca
of the Court of First Instance of Manila, Branch I, in Civil
Case No. 72797, the dispositive portion of winch reads.
Wherefore, judgment is hereby rendered
in favor of the petitioner and against the
respondents, declaring Ordinance No. 6
37 of the City of Manila null and void. The
preliminary injunction is made
permanent. No pronouncement as to
cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.

That the tax to be levied should burden the sugar

producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited
from the expenditure of the funds derived from it. 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"
(Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495,
81 L. Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no

moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively
spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other
industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to
a policy of "all or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if
the law presumably hits the evil where it is most felt, it is
not to be overthrown because there are other instances
to which it might have been applied;" and that "the
The controverted Ordinance No. 6537 was passed by the
legislative authority, exerted within its proper field, need
Municipal Board of Manila on February 22, 1968 and
not embrace all the evils within its reach" (N. L. R. B. vs.
Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
signed by the herein petitioner Mayor Antonio J. Villegas
of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL
FOR ANY PERSON NOT A CITIZEN OF THE
PHILIPPINES TO BE EMPLOYED IN ANY
PLACE OF EMPLOYMENT OR TO BE
ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE
CITY OF MANILA WITHOUT FIRST
SECURING AN EMPLOYMENT PERMIT
FROM THE MAYOR OF MANILA; AND FOR
OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens
from being employed or to engage or participate in any
position or occupation or business enumerated therein,
whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of
Manila and paying the permit fee of P50.00 except
persons employed in the diplomatic or consular missions
of foreign countries, or in the technical assistance
programs of both the Philippine Government and any
foreign government, and those working in their respective
households, and members of religious orders or
congregations, sect or denomination, who are not paid
monetarily or in kind.
Violations of this ordinance is punishable by an
imprisonment of not less than three (3) months to six (6)
months or fine of not less than P100.00 but not more than
P200.00 or both such fine and imprisonment, upon
conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao
Ho who was employed in Manila, filed a petition with the
Court of First Instance of Manila, Branch I, denominated
as Civil Case No. 72797, praying for the issuance of the
writ of preliminary injunction and restraining order to stop
the enforcement of Ordinance No. 6537 as well as for a
judgment declaring said Ordinance No. 6537 null and
void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the
following as his grounds for wanting the ordinance
declared null and void:
1) As a revenue measure imposed on
aliens employed in the City of Manila,
Ordinance No. 6537 is discriminatory and
violative of the rule of the uniformity in
taxation;
2) As a police power measure, it makes
no distinction between useful and non-
useful occupations, imposing a fixed
P50.00 employment permit, which is out
of proportion to the cost of registration
and that it fails to prescribe any standard
to guide and/or limit the action of the
Mayor, thus, violating the fundamental
principle on illegal delegation of
legislative powers:
3) It is arbitrary, oppressive and
unreasonable, being applied only to
aliens who are thus, deprived of their
rights to life, liberty and property and
therefore, violates the due process and
equal protection clauses of the
Constitution.7
On May 24, 1968, respondent Judge issued the writ of
preliminary injunction and on September 17, 1968
rendered judgment declaring Ordinance No. 6537 null
and void and making permanent the writ of preliminary
injunction. 8
Contesting the aforecited decision of respondent Judge,
then Mayor Antonio J. Villegas filed the present petition
on March 27, 1969. Petitioner assigned the following as
errors allegedly committed by respondent Judge in the
latter's decision of September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A
SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537
VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE
COMMITTED A GRAVE AND PATENT
ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE
PRINCIPLE AGAINST UNDUE DESIGNATION
OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER
COMMITTED A SERIOUS AND PATENT
ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE DUE
PROCESS AND EQUAL PROTECTION
CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537
cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the
rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a
tax or revenue measure but is an exercise of the police
power of the state, it being principally a regulatory
measure in nature.
The contention that Ordinance No. 6537 is not a purely
tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the
first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise
of discretion and judgment in the processing and
approval or disapproval of applications for employment
permits and therefore is regulatory in character the
second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure.
There is no logic or justification in exacting P50.00 from
aliens who have been cleared for employment. It is
obvious that the purpose of the ordinance is to raise
money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is
excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are
required to pay it. Although the equal protection clause
of the Constitution does not forbid classification, it is
imperative that the classification should be based on real
and substantial differences having a reasonable relation
to the subject of the particular legislation. The same
amount of P50.00 is being collected from every
employed alien whether he is casual or permanent, part
time or full time or whether he is a lowly employee or a
highly paid executive
Ordinance No. 6537 does not lay down any criterion or
standard to guide the Mayor in the exercise of his
discretion. It has been held that where an ordinance of a
municipality fails to state any policy or to set up any
standard to guide or limit the mayor's action, expresses
no purpose to be attained by requiring a permit,
enumerates no conditions for its grant or refusal, and
entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the
issuance of building permits, such ordinance is invalid,
being an undefined and unlimited delegation of power
to allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price
Stabilization Board, 11 where a law granted a government
agency power to determine the allocation of wheat flour
among importers, the Supreme Court ruled against the
interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be
exercised without a policy, rule, or standard from which it
can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority
and discretion to grant and refuse permits of all classes
conferred upon the Mayor of Manila by the Revised
Charter of Manila is not uncontrolled discretion but legal
discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain
or suggest any standard or criterion to guide the mayor in
the exercise of the power which has been granted to him
by the ordinance.
The ordinance in question violates the due process of law
and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a
permit from the City Mayor of Manila who may withhold
or refuse it at will is tantamount to denying him the basic
right of the people in the Philippines to engage in a
means of livelihood. While it is true that the Philippines as
a State is not obliged to admit aliens within its territory,
once an alien is admitted, he cannot be deprived of life
without due process of law. This guarantee includes the
means of livelihood. The shelter of protection under the
due process and equal protection clause is given to all
persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby
affirmed, without pronouncement as to costs.
SO ORDERED.
G.R. No. 11572 September 22, 1916
FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-
appellants,
vs.
VENANCIO CONCEPCION, as Acting Collector of Internal
Revenue, defendant-appellee.
Aitken and De Selms for appellants.
Attorney-General Avanceña for appellee.
TRENT, J.:
Section 100 of Act No. 2339, passed February 27, 1914,
effective July 1, 1914, imposed an annual tax of P4 per
square meter upon "electric signs, billboards, and spaces
used for posting or displaying temporary signs, and all
signs displayed on premises not occupied by buildings."
This section was subsequently amended by Act No. 2432,
effective January 1, 1915, by reducing the tax on such
signs, billboards, etc., to P2 per square meter or fraction
thereof. Section 26 of Act No. 2432 was in turn amended
by Act No. 2445, but this amendment does not in any
way affect the questions involved in the case under
consideration. The taxes imposed by Act No. 2432, as
amended, were ratified by the Congress of the United
States on March 4, 1915. The ratifying clause reads as
follows:
The internal-revenue taxes imposed by the
Philippine Legislature under the law enacted by
that body on December twenty-third, nineteen
hundred and fourteen (Act No. 2432), as
amended by the law enacted by it on January
sixteenth, nineteen hundred and fifteen (Act No.
2445), are hereby legalized and ratified, and the
collection of all such taxes heretofore or
hereafter is hereby legalized, ratified and
confirmed as fully to all intents and purposes as if
the same had by prior Act of Congress been
specifically authorized and directed.
Francis A. Churchill and Stewart Tait, copartners doing
business under the firm name and style of the Mercantile
Advertising Agency, owners of a sign or billboard
containing an area of 52 square meters constructed on
private property in the city of Manila and exposed to
public view, were taxes thereon P104. The tax was paid
under protest and the plaintiffs having exhausted all their
administrative remedies instituted the present action
under section 140 of Act No. 2339 against the Collector of
Internal Revenue to recover back the amount thus paid.
From a judgment dismissing the complaint upon the
merits, with costs, the plaintiffs appealed.
It is now urged that the trial court erred:
(1) In not holding that the tax as imposed by
virtue of Act No. 2339, as amended by Act No.
2432, as amended by Act No. 2445, constitutes
deprivation of property without compensation or
due process of law, because it is confiscatory
and unjustly discriminatory and (2) in not holding
that the said tax is void for lack of uniformity,
because it is not graded according to value;
because the classification on which it is based on
any reasonable ground; and furthermore,
because it constitutes double taxation.
We will first inquire whether the tax in question is
confiscatory as to the business of the plaintiff Upon this
point the lower court, in accepting the testimony of the
plaintiff, Churchill, to the effect that "the billboard in
question cost P300 to construct, that its annual gross
earning power is P268, and that the annual tax is P104,"
found "that for a five years' period the gross income from
the billboard would be P1,340, and that the expenditures
for original construction and taxes would amount to P820,
leaving a balance of P520," held that "unless the tax
equals or exceeds the gross income, the court would
hardly be justified in declaring the tax confiscatory." These
findings of fact and conclusions of law are attacked
upon the ground that the court failed to take into-
consideration the pertinent facts that the annual
depreciation of the billboard is 20 per cent; that at the
end of five years the capital of P300 would be
completely lost; that the plaintiffs are entitled to receive a
reasonable rate of interest on this capital; and that there
should be charged against the billboard its proportion of
the overhead charges such as labor, management,
maintenance, rental of office premises, rental or
purchase of ground space for board, repair, paints, oils,
etc., resulting in an actual loss per year on the business,
instead of an apparent profit of P520 for five years, or P44
for one year. If these contentions rested upon a sound
basis it might be said that the tax is, in a sense,
confiscatory; but they do not, as we will attempt to show
from the evidence of record.
The plaintiff Churchill testified in part as follows:
Q. In your opinion, Mr. Churchill, state what
you would think of the rates that are charged by
you for advertising purposes in connection with
this board; could they be raised? —
A. No.
Q. Why? —
A. The business wouldn't allow it; the
business wouldn't afford it; and otherwise it would
mean bankruptcy to try to increase it.
Q. Who couldn't afford it? Explain it fully Mr.
Churchill? —
 A. The merchants couldn't afford to pay
more. On cross-examination:
Q. It is a fact, it is not, Mr. Churchill, that
since the passage of Act No. 2339 you have
never made any attempt to raise the advertising
rates? —
A. It would be impossible to raise them.
Q. My question is: You have never made
any attempt to raise them? —
A. We have talked it over with the
merchants and talked over the price on the
event of a tax being put at a reasonable
amount, about putting up some increase.
Q. But you have never made an actual
attempt to increase your rates? —
A. I would consider that an actual
attempt.
Q. You have never fixed the rate higher
than it is now? —
A. No; no.
It was agreed that Tait, the other plaintiff, would testify to
the same effect. The parties, plaintiffs and defendant,
further agreed "that a number of persons have voluntarily
and without protest paid the taxes imposed by section
100 of Act No. 2339, as amended by Act No. 2432, and in
turn amended by Act No. 2445."
It will thus be seen that the contention that the rates
charged for advertising cannot be raised is purely
hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the
plaintiffs themselves admit that a number of other persons
have voluntarily and without protest paid the tax herein
complained of. Under these circumstances, can it be
held as a matter of fact that the tax is confiscatory or
that, as a matter of law, the tax is unconstitutional? Is the
exercise of the taxing power of the Legislature
dependent upon and restricted by the opinion of two
interested witnesses? There can be but one answer to
these questions, especially in view of the fact that others
are paying the tax and presumably making a reasonable
profit from their business.
In Chicago and Grand Trunk Railway Co. vs.
Wellman (143 U. S., 339), a question similar to the one now
under consideration was raised and decided by the
Supreme Court of the United States. The principal
contention made in that case was that an Act of the
Legislature of Michigan fixing the amount per mile to be
charged by railways for the transportation of a passenger
was unconstitutional, on the ground that the rate so fixed
was confiscatory. It was agreed in the pleadings that the
total earnings and income of the company from all
sources for a given year were less than the expenses for
the same period. In addition to this agreed statement of
facts, two witnesses were called, one the traffic manager
and the other the treasurer of the company. Their
testimony was to the effect that in view of the
competition prevailing at Chicago for through business, it
was impossible to increase the freight rates then charged
by the company because it would throw the volume of
business into the hands of competing roads. In overruling
the contention of the company that the act in question
was unconstitutional on the ground that the rate fixed
thereby was confiscatory, the court said:
Surely, before the courts are called upon to
adjudge an act of the legislature fixing the
maximum passenger rates for railroad companies
to be unconstitutional, on the ground that its
enforcement would prevent the stockholders
from receiving any dividends on their
investments, or the bondholders any interest on
their loans, they should be fully advised as to
what is done with the receipts and earnings of
the company; for if so advised, it might clearly
appear that a prudent and honest management
would, within the rates prescribed, secure to the
bondholders their interest, and to the
stockholders reasonable dividends. While the
protection of vested rights of property is a
supreme duty of the courts, it has not come to
this, that the legislative power rests subservient to
the discretion of any railroad corporation which
may, by exorbitant and unreasonable salaries, or
in some other improper way, transfer its earnings
into what it is pleased to call `operating
expenses.'
It is further alleged that the tax in question is
unconstitutional because "the law herein complained of
was enacted for the sole purpose of destroying billboards
and advertising business depending on the use of signs or
billboards." If it be conceded that the Legislature has the
power to impose a tax upon signs, signboards, and
billboards, then "the judicial cannot prescribed to the
legislative department of the Government limitation upon
the exercise of its acknowledge powers." (Veazie Bank vs.
Fenno, 8 Wall., 533, 548.) That the Philippine Legislature
has the power to impose such taxes, we think there can
be no serious doubt, because "the power to impose taxes
is one so unlimited in force and so searching in extent,
that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest
in the discretion of the authority which exercises it. It
reaches to every trade or occupation; to every object of
industry, use, or enjoyment; to every species of
possession; and it imposes a burden which, in case of
failure to discharge it, may be followed by seizure and
sale or confiscation of property. No attribute of
sovereignty is more pervading, and at no point does the
power of the government affect more constantly and
intimately all the relations of life than through the
exactions made under it." (Cooley's Constitutional
Limitations, 6th Edition, p. 587.)
In McCray vs. U.S. (195 U.S., 27), the court, in ruling
adversely to the contention that a federal tax on
oleomargarine artificially colored was void because the
real purpose of Congress was not to raise revenue but to
tax out of existence a substance not harmful of itself and
one which might be lawfully manufactured and sold,
said:
Whilst, as a result of our written constitution, it is
axiomatic that the judicial department of the
government is charged with the solemn duty of
enforcing the Constitution, and therefore, in
cases property presented, of determining
whether a given manifestation of authority has
exceeded the power conferred by that
instrument, no instance is afforded from the
foundation of the government where an act
which was within a power conferred, was
declared to be repugnant to the Constitution,
because it appeared to the judicial mind that
the particular exertion of constitutional power
was either unwise or unjust. To announce such a
principle would amount to declaring that, in our
constitutional system, the judiciary was not only
charged with the duty of upholding the
Constitution, but also with the responsibility of
correcting every possible abuse arising from the
exercise by the other departments of their
conceded authority. So to hold would be to
overthrow the entire distinction between the
legislative, judicial, and executive departments
of the government, upon which our system is
founded, and would be a mere act of judicial
usurpation.
If a case were presented where the abuse of the taxing
power of the local legislature was to extreme as to make
it plain to the judicial mind that the power had been
exercised for the sole purpose of destroying rights which
could not be rightfully destroyed consistently with the
principles of freedom and justice upon which the
Philippine Government rests, then it would be the duty of
the courts to say that such an arbitrary act was not
merely an abuse of the power, but was the exercise of an
authority not conferred. (McCray vs. U.S., supra.) But the
instant case is not one of that character, for the reason
that the tax herein complained of falls far short of being
confiscatory. Consequently, it cannot be held that the
Legislature has gone beyond the power conferred upon
it by the Philippine Bill in so far as the amount of the tax is
concerned.
Is the tax void for lack of uniformity or because it is not
graded according to value or constitutes double
taxation, or because the classification upon which it is
based is mere arbitrary selection and not based on any
reasonable grounds? The only limitation, in so far as these
questions are concerned, placed upon the Philippine
Legislature in the exercise of its taxing power is that found
in section 5 of the Philippine Bill, wherein it is declared
"that the rule of taxation in said Islands shall be uniform."
Uniformity in taxation — says Black on
Constitutional Law, page 292 — means that all
taxable articles or kinds of property, of the same
class, shall be taxed at the same rate. It does not
mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities,
and luxuries, shall all be assessed at the same
rate. Different articles may be taxed at different
amounts, provided the rate is uniform on the
same class everywhere, with all people, and at
all times.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found
(State Railroad Tax Cases, 92 U.S., 575.) The words
"uniform throughout the United States," as required of a
tax by the Constitution, do not signify an intrinsic, but
simply a geographical, uniformity, and such uniformity is
therefore the only uniformity which is prescribed by the
Constitution. (Patton vs. Brady, 184 U.S., 608; 46 L. Ed.,
713.) A tax is uniform, within the constitutional
requirement, when it operates with the same force and
effect in every place where the subject of it is found.
(Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.)
"Uniformity," as applied to the constitutional provision that
all taxes shall be uniform, means that all property
belonging to the same class shall be taxed alike. (Adams
vs. Mississippi State Bank, 23 South, 395, citing Mississippi
Mills vs Cook, 56 Miss., 40.) The statute under
consideration imposes a tax of P2 per square meter or
fraction thereof upon every electric sign, bill-board, etc.,
wherever found in the Philippine Islands. Or in other
words, "the rule of taxation" upon such signs is uniform
throughout the Islands. The rule, which we have just
quoted from the Philippine Bill, does not require taxes to
be graded according to the value of the subject or
subjects upon which they are imposed, especially those
levied as privilege or occupation taxes. We can hardly
see wherein the tax in question constitutes double
taxation. The fact that the land upon which the billboards
are located is taxed at so much per unit and the
billboards at so much per square meter does not
constitute "double taxation." Double taxation, within the
true meaning of that expression, does not necessarily
affect its validity. (1 Cooley on Taxation, 3d ed., 389.) And
again, it is not for the judiciary to say that the
classification upon which the tax is based "is mere
arbitrary selection and not based upon any reasonable
grounds." The Legislature selected signs and billboards as
a subject for taxation and it must be presumed that it, in
so doing, acted with a full knowledge of the situation.
For the foregoing reasons, the judgment appealed from is
affirmed, with costs against the appellants. So ordered.
G.R. No. L-23771 August 4, 1988
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE
COURT OF TAX APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power Co., Inc.
SARMIENTO, J.:
This is an appeal from the decision * of the Court of Tax
Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly heard
upon agreement of the parties, absolving the respondent
taxpayer from liability for the deficiency percentage,
franchise, and fixed taxes and surcharge assessed
against it in the sums of P19,293.41 and P3,616.86 for the
years 1946 to 1954 and 1959 to 1961, respectively.
The respondent taxpayer, Lingayen Gulf Electric Power
Co., Inc., operates an electric power plant serving the
adjoining municipalities of Lingayen and Binmaley, both
in the province of Pangasinan, pursuant to the municipal
franchise granted it by their respective municipal
councils, under Resolution Nos. 14 and 25 of June 29 and
July 2, 1946, respectively. Section 10 of these franchises
provide that:
...The said grantee in consideration of the franchise
hereby granted, shall pay quarterly into the Provincial
Treasury of Pangasinan, one per centum of the gross
earnings obtained thru this privilege during the first twenty
years and two per centum during the remaining fifteen
years of the life of said franchise.
On February 24, 1948, the President of the Philippines
approved the franchises granted to the private
respondent.
On November 21, 1955, the Bureau of Internal Revenue
(BIR) assessed against and demanded from the private
respondent the total amount of P19,293.41 representing
deficiency franchise taxes and surcharges for the years
1946 to 1954 applying the franchise tax rate of 5% on
gross receipts from March 1, 1948 to December 31, 1954
as prescribed in Section 259 of the National Internal
Revenue Code, instead of the lower rates as provided in
the municipal franchises. On September 29, 1956, the
private respondent requested for a reinvestigation of the
case on the ground that instead of incurring a deficiency
liability, it made an overpayment of the franchise tax. On
April 30, 1957, the BIR through its regional director, denied
the private respondent's request for reinvestigation and
reiterated the demand for payment of the same. In its
letters dated July 2, and August 9, 1958 to the petitioner
Commissioner, the private respondent protested the said
assessment and requested for a conference with a view
to settling the liability amicably. In his letters dated July 25
and August 28, 1958, the Commissioner denied the
request of the private respondent. Thus, the appeal to
the respondent Court of Tax Appeals on September 19,
1958, docketed as C.T.A. Case No. 581.
In a letter dated August 21, 1962, the Commissioner
demanded from the private respondent the payment of
P3,616.86 representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again applying the
franchise tax rate of 5% on gross receipts as prescribed in
Section 259 of the National Internal Revenue Code. In a
letter dated October 5, 1962, the private respondent
protested the assessment and requested reconsideration
thereof The same was denied on November 9, 1962. Thus,
the appeal to the respondent Court of Appeals on
November 29, 1962, docketed as C.T.A. No. 1302.
Pending the hearing of the said cases, Republic Act
(R.A.) No. 3843 was passed on June 22, 1 963, granting to
the private respondent a legislative franchise for the
operation of the electric light, heat, and power system in
the same municipalities of Pangasinan. Section 4 thereof
provides that:
In consideration of the franchise and rights hereby
granted, the grantee shall pay into the Internal Revenue
office of each Municipality in which it is supplying electric
current to the public under this franchise, a tax equal to
two per centum of the gross receipts from electric current
sold or supplied under this franchise. Said tax shall be due
and payable quarterly and shall be in lieu of any and all
taxes and/or licenses of any kind, nature or description
levied, established, or collected by any authority
whatsoever, municipal, provincial or national, now or in
the future, on its poles, wires, insulator ... and on its
franchise, rights, privileges, receipts, revenues and profits,
from which taxes and/or licenses, the grantee is hereby
expressly exempted and effective further upon the date
the original franchise was granted, no other tax and/or
licenses other than the franchise tax of two per centum
on the gross receipts as provided for in the original
franchise shall be collected, any provision of law to the
contrary notwithstanding.
On September 15, 1964, the respondent court ruled that
the provisions of R.A. No. 3843 should apply and
accordingly dismissed the claim of the Commissioner of
Internal Revenue. The said ruling is now the subject of the
petition at bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax prescribed in
Section 259 of the National Internal Revenue Code
assessed against the private respondent on its gross
receipts realized before the effectivity of R.A- No. 3843 is
collectible.
2. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity and
equality of taxation" clause of the Constitution.
3. If the abovementioned Section 4 of R.A. No. 3843 is
valid, whether or not it could be given retroactive effect
so as to render uncollectible the taxes in question which
were assessed before its enactment.
4. Whether or not the respondent taxpayer is liable for the
fixed and deficiency percentage taxes in the amount of
P3,025.96 for the period from January 1, 1946 to February
29, 1948, the period before the approval of its municipal
franchises.
The first issue raised by the petitioner before us is whether
or not the five percent (5%) franchise tax prescribed in
Section 259 of the National Internal Revenue Code
(Commonwealth Act No. 466 as amended by R.A. No.
39) assessed against the private respondent on its gross
receipts realized before the effectivity of R.A- No. 3843 is
collectible. It is the contention of the petitioner
Commissioner of Internal Revenue that the private
respondent should have been held liable for the 5%
franchise tax on gross receipts prescribed in Section 259
of the Tax Code, instead of the lower franchise tax rates
provided in the municipal franchises (1% of gross earnings
for the first twenty years and 2% for the remaining fifteen
years of the life of the franchises) because Section 259 of
the Tax Code, as amended by RA No. 39 of October 1,
1946, applied to existing and future franchises. The
franchises of the private respondent were already in
existence at the time of the adoption of the said
amendment, since the franchises were accepted on
March 1, 1948 after approval by the President of the
Philippines on February 24, 1948. The private respondent's
original franchises did not contain the proviso that the tax
provided therein "shall be in lieu of all taxes;" moreover,
the franchises contained a reservation clause that they
shag be subject to amendment, alteration, or repeal, but
even in the absence of such cause, the power of the
Legislature to alter, amend, or repeal any franchise is
always deemed reserved. The franchise of the private
respondent have been modified or amended by Section
259 of the Tax Code, the petitioner submits.
We find no merit in petitioner's contention. R.A. No. 3843
granted the private respondent a legislative franchise in
June, 1963, amending, altering, or even repealing the
original municipal franchises, and providing that the
private respondent should pay only a 2% franchise tax on
its gross receipts, "in lieu of any and all taxes and/or
licenses of any kind, nature or description levied,
established, or collected by any authority whatsoever,
municipal, provincial, or national, now or in the future ...
and effective further upon the date the original franchise
was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts ...
shall be collected, any provision of law to the contrary
notwithstanding." Thus, by virtue of R.A- No. 3843, the
private respondent was liable to pay only the 2%
franchise tax, effective from the date the original
municipal franchise was granted.
On the question as to whether or not Section 4 of R.A. No.
3843 is unconstitutional for being violative of the
"uniformity and equality of taxation" clause of the
Constitution, and, if adjudged valid, whether or not it
should be given retroactive effect, the petitioner submits
that the said law is unconstitutional insofar as it provides
for the payment by the private respondent of a franchise
tax of 2% of its gross receipts, while other taxpayers
similarly situated were subject to the 5% franchise tax
imposed in Section 259 of the Tax Code, thereby
discriminatory and violative of the rule on uniformity and
equality of taxation.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
Uniformity means that all property belonging to the same
class shall be taxed alike The Legislature has the inherent
power not only to select the subjects of taxation but to
grant exemptions. Tax exemptions have never been
deemed violative of the equal protection clause. 1 It is
true that the private respondents municipal franchises
were obtained under Act No. 667 2 of the Philippine
Commission, but these original franchises have been
replaced by a new legislative franchise, i.e. R.A. No. 3843.
As correctly held by the respondent court, the latter was
granted subject to the terms and conditions established
in Act No. 3636, 3 as amended by C.A. No. 132. These
conditions Identify the private respondent's power plant
as falling within that class of power plants created by Act
No. 3636, as amended. The benefits of the tax reduction
provided by law (Act No. 3636 as amended by C.A. No.
132 and R.A. No. 3843) apply to the respondent's power
plant and others circumscribed within this class. R.A-No.
3843 merely transferred the petitioner's power plant from
that class provided for in Act No. 667, as amended, to
which it belonged until the approval of R.A- No. 3843,
and placed it within the class falling under Act No. 3636,
as amended. Thus, it only effected the transfer of a
taxable property from one class to another.
We do not have the authority to inquire into the wisdom
of such act. Furthermore, the 5% franchise tax rate
provided in Section 259 of the Tax Code was never
intended to have a universal application. 4 We note that
the said Section 259 of the Tax Code expressly allows the
payment of taxes at rates lower than 5% when the
charter granting the franchise of a grantee, like the one
granted to the private respondent under Section 4 of R.A.
No. 3843, precludes the imposition of a higher tax. R.A.
No. 3843 did not only fix and specify a franchise tax of 2%
on its gross receipts, but made it "in lieu of any and all
taxes, all laws to the contrary notwithstanding," thus,
leaving no room for doubt regarding the legislative intent.
"Charters or special laws granted and enacted by the
Legislature are in the nature of private contracts. They do
not constitute a part of the machinery of the general
government. They are usually adopted after careful
consideration of the private rights in relation with resultant
benefits to the State ... in passing a special charter the
attention of the Legislature is directed to the facts and
circumstances which the act or charter is intended to
meet. The Legislature consider (sic) and make (sic)
provision for all the circumstances of a particular
case." 5 In view of the foregoing, we find no reason to
disturb the respondent court's ruling upholding the
constitutionality of the law in question.
Given its validity, should the said law be applied
retroactively so as to render uncollectible the taxes in
question which were assessed before its enactment? The
question of whether a statute operates retrospectively or
only prospectively depends on the legislative intent. In
the instant case, Act No. 3843 provides that "effective ...
upon the date the original franchise was granted, no
other tax and/or licenses other than the franchise tax of
two per centum on the gross receipts ... shall be
collected, any provision to the contrary notwithstanding."
Republic Act No. 3843 therefore specifically provided for
the retroactive effect of the law.
The last issue to be resolved is whether or not the private
respondent is liable for the fixed and deficiency
percentage taxes in the amount of P3,025.96 (i.e. for the
period from January 1, 1946 to February 29, 1948) before
the approval of its municipal franchises. As aforestated,
the franchises were approved by the President only on
February 24, 1948. Therefore, before the said date, the
private respondent was liable for the payment of
percentage and fixed taxes as seller of light, heat, and
power — which as the petitioner claims, amounted to
P3,025.96. The legislative franchise (R.A. No. 3843)
exempted the grantee from all kinds of taxes other than
the 2% tax from the date the original franchise was
granted. The exemption, therefore, did not cover the
period before the franchise was granted, i.e. before
February 24, 1948. However, as pointed out by the
respondent court in its findings, during the period
covered by the instant case, that is from January 1, 1946
to December 31, 1961, the private respondent paid the
amount of P34,184.36, which was very much more than
the amount rightfully due from it. Hence, the private
respondent should no longer be made to pay for the
deficiency tax in the amount of P3,025.98 for the period
from January 1, 1946 to February 29, 1948.
WHEREFORE, the appealed decision of the respondent
Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs. SO ORDERED.
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.
Paragraph (c) of Section 145, 1 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 courts.28 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
In the early case of Kalalo v. Luz,31 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,33medium-
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,
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 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." 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'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. 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, 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." 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, 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.'"
Petitioner likewise invoked the kindred concept
of uniformity. According to the Constitution: "The
rule of taxation shall be uniform and equitable."
This requirement is met according to Justice
Laurel in Philippine Trust Company v. Yatco,
decided in 1940, when the tax "operates with the
same force and effect in every place where the
subject may be found." He likewise added: "The
rule of uniformity does not call for perfect
uniformity or perfect equality, because this is
hardly 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, . . . 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." 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."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 valoremtaxation 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
valoremcomparator. 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 previously
classified cigarette brands would be prevented from
moving either upward or downward their tax brackets
despite the changes in their net retail prices in the future
and, as a result, the amount of taxes due from them
would remain predictable. The classification freeze
provision would, thus, aid in the revenue planning of the
government.71
All in all, the classification freeze provision addressed
Congress’s administrative concerns in 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. Consequently, there can be no denial of the
equal protection of the laws since the rational-basis test is
amply satisfied.
Going now to the contention of petitioner that
the classification freeze provision unduly favors older
brands over newer brands, we must first contextualize the
basis of this claim. As previously discussed, the evidence
presented by the petitioner merely showed that in 2004,
Marlboro and Philip Morris, on the one hand, and Lucky
Strike, on the other, would have been taxed at the same
rate had the classification freeze provision been not in
place. But due to the operation of the classification
freeze provision, Lucky Strike was taxed higher. From here,
petitioner generalizes that this differential tax treatment
arising from the classification freeze provision adversely
impacts the fairness of the playing field in the industry,
particularly, between older and newer brands. Thus, it is
virtually impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate the
exact extent of such impact. It has not been shown that
the net retail prices of other older brands previously
classified under this classification system have already
pierced their tax brackets, and, if so, how this has
affected the overall competition in the market. Further, it
does not necessarily follow that newer brands cannot
compete against older brands because price is not the
only factor in the market as there are other factors like
consumer preference, brand loyalty, etc. In other words,
even if the newer brands are priced higher due to the
differential tax treatment, it does not mean that they
cannot compete in the market especially since
cigarettes contain addictive ingredients so that a
consumer may be willing to pay a higher price for a
particular brand solely due to its unique formulation. It
may also be noted that in 2003, the BIR surveyed 29 new
brands72 that were introduced in the market after the
effectivity of RA 8240 on January 1, 1997, thus negating
the sweeping generalization of petitioner that
the classification freeze provision has become an
insurmountable barrier to the entry of new brands. Verily,
where there is a claim of breach of the due process and
equal protection clauses, 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. Absent such a showing, the presumption of
validity must prevail.73
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:
(1) Section 4(B)(e)(c), 2nd 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 revenue
officers selected to conduct the survey shall be
clearly indicated opposite the names of the
establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on
January 1, 1997, the BIR issued Revenue Regulations No.
1-97, dated December 13, 1996, which mandates a one-
time classification only.79Upon their launch, new brands
shall be initially taxed based on their suggested net retail
price. Thereafter, a survey shall be conducted within
three (3) months to determine their current net retail
prices and, thus, fix their official tax classifications.
However, the BIR made a turnaround by issuing Revenue
Regulations No. 9-2003, dated February 17, 2003, which
partly amended Revenue Regulations No. 1-97, by
authorizing the BIR to periodically reclassify new brands
(i.e., every two years or earlier) based on their current net
retail prices. Thereafter, the BIR issued Revenue
Memorandum Order No. 6-2003, dated March 11, 2003,
prescribing the guidelines on the implementation of
Revenue Regulations No. 9-2003. This was patent error on
the part of the BIR for being contrary to the plain text and
legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue
Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Revenue Memorandum
Order No. 6-2003 unjustifiably emasculate the operation
of Section 145 of the NIRC because they authorize the
Commissioner of Internal Revenue to update the tax
classification of new brands every two years or earlier
subject only to its issuance of the appropriate Revenue
Regulations, when nowhere in Section 145 is such
authority granted to the Bureau. Unless expressly granted
to the BIR, the power to reclassify cigarette brands
remains a prerogative of the legislature which cannot be
usurped by the former.
More importantly, as previously discussed, the clear
legislative intent was for new brands to benefit from the
same freezing mechanism accorded to Annex "D"
brands. To reiterate, in enacting RA 8240, Congress
categorically rejected the DOF proposal and Senate
Version which would have empowered the DOF and BIR
to periodically adjust the excise tax rate and tax
brackets, and to periodically resurvey and reclassify
cigarette brands. (This resurvey and reclassification would
have naturally encompassed both old and new brands.)
It would thus, 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 while limiting the
freezing of the classification to Annex "D" brands.
Incidentally, Senator Ralph G. Recto expressed the
following views during the deliberations on RA 9334,
which later amended RA 8240:
Senator Recto: Because, like I said, when
Congress agreed to adopt a specific tax system
[under R.A. 8240], when Congress did not index
the brackets, and Congress did not index the
rates but only provided for a one rate increase in
the year 2000, we shifted from ad valoremwhich
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 21 81 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. 115455 August 25, 1994
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS,
INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC.,
PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO
TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.,
and ASSOCIATION OF PHILIPPINE BOOK-
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for
petitioners in G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for
petitioner R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in
G.R. No. 115754.
Salonga, Hernandez & Allado for Freedon From Debts
Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law
Offices for petitioners in G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No.
115931.
Reve A.V. Saguisag for MABINI.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale
or exchange of services. It is equivalent to 10% of the
gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic
Act No. 7716 seeks to widen the tax base of the existing
VAT system and enhance its administration by amending
the National Internal Revenue Code.
These are various suits for certiorari and prohibition,
challenging the constitutionality of Republic Act No. 7716
on various grounds summarized in the resolution of July 6,
1994 of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate
Art. VI, § 24 of the Constitution?
B. Does it violate Art. VI, § 26(2) of the
Constitution?
C. What is the extent of the power of the
Bicameral Conference Committee?
II. Substantive Issues:
A. Does the law violate the following
provisions in the Bill of Rights (Art. III)?
1. §1
2. § 4
3. § 5
4. § 10
B. Does the law violate the following
other provisions of the Constitution?
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated
above. As will presently be explained not all of these
questions are judicially cognizable, because not all
provisions of the Constitution are self executing and,
therefore, judicially enforceable. The other departments
of the government are equally charged with the
enforcement of the Constitution, especially the provisions
relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic
Act No. 7716, or the Expanded Value-Added Tax Law,
Congress violated the Constitution because, although H.
No. 11197 had originated in the House of Representatives,
it was not passed by the Senate but was simply
consolidated with the Senate version (S. No. 1630) in the
Conference Committee to produce the bill which the
President signed into law. The following provisions of the
Constitution are cited in support of the proposition that
because Republic Act No. 7716 was passed in this
manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, § 24: All appropriation, revenue or
tariff bills, bills authorizing increase of the
public debt, bills of local application,
and private bills shall originate exclusively
in the House of Representatives, but the
Senate may propose or concur with
amendments.
Id., § 26(2): No bill passed by either
House shall become a law unless it has
passed three readings on separate days,
and printed copies thereof in its final
form have been distributed to its
Members three days before its passage,
except when the President certifies to
the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a
bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the
Journal.
It appears that on various dates between July 22, 1992
and August 31, 1993, several bills 1 were introduced in the
House of Representatives seeking to amend certain
provisions of the National Internal Revenue Code relative
to the value-added tax or VAT. These bills were referred
to the House Ways and Means Committee which
recommended for approval a substitute measure, H. No.
11197, entitled
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM TO WIDEN ITS
TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 106, 107, 108 AND 110 OF TITLE
IV, 112, 115 AND 116 OF TITLE V, AND 236,
237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF
THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it
was approved by the House of Representatives after third
and final reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and
Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM TO WIDEN ITS
TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 107, 108, AND 110 OF TITLE IV,
112 OF TITLE V, AND 236, 237, AND 238 OF
TITLE IX, AND REPEALING SECTIONS 113,
114 and 116 OF TITLE V, ALL OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in
substitution of Senate Bill No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of
the bill (S. No. 1630). It finished debates on the bill and
approved it on second reading on March 24, 1994. On
the same day, it approved the bill on third reading by the
affirmative votes of 13 of its members, with one
abstention.
H. No. 11197 and its Senate version (S. No. 1630) were
then referred to a conference committee which, after
meeting four times (April 13, 19, 21 and 25, 1994),
recommended that "House Bill No. 11197, in consolidation
with Senate Bill No. 1630, be approved in accordance
with the attached copy of the bill as reconciled and
approved by the conferees."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES," was thereafter approved by the
House of Representatives on April 27, 1994 and by the
Senate on May 2, 1994. The enrolled bill was then
presented to the President of the Philippines who, on May
5, 1994, signed it. It became Republic Act No. 7716. On
May 12, 1994, Republic Act No. 7716 was published in two
newspapers of general circulation and, on May 28, 1994,
it took effect, although its implementation was
suspended until June 30, 1994 to allow time for the
registration of business entities. It would have been
enforced on July 1, 1994 but its enforcement was
stopped because the Court, by the vote of 11 to 4 of its
members, granted a temporary restraining order on June
30, 1994.
First. Petitioners' contention is that Republic Act No. 7716
did not "originate exclusively" in the House of
Representatives as required by Art. VI, §24 of the
Constitution, because it is in fact the result of the
consolidation of two distinct bills, H. No. 11197 and S. No.
1630. In this connection, petitioners point out that
although Art. VI, SS 24 was adopted from the American
Federal Constitution, 2 it is notable in two respects: the
verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as
on other bills" in the American version is omitted. This
means, according to them, that to be considered as
having originated in the House, Republic Act No. 7716
must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not
the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
rewriting of the whole. The possibility of a third version by
the conference committee will be discussed later. At this
point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist
that a revenue statute — and not only the bill which
initiated the legislative process culminating in the
enactment of the law — must substantially be the same
as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to
"propose amendments." It would be to violate the
coequality of legislative power of the two houses of
Congress and in fact make the House superior to the
Senate.
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-
ratifying power 3 and thereby equalize its powers and
those of the House overlooks the fact that the powers
being compared are different. We are dealing here with
the legislative power which under the Constitution is
vested not in any particular chamber but in the Congress
of the Philippines, consisting of "a Senate and a House of
Representatives." 4 The exercise of the treaty-ratifying
power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is,
therefore, no justification for comparing the legislative
powers of the House and of the Senate on the basis of
the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S.
Senate 5 has never been thought of as giving it more
legislative powers than the House of Representatives.
In the United States, the validity of a provision (§ 37)
imposing an ad valorem tax based on the weight of
vessels, which the U.S. Senate had inserted in the Tariff
Act of 1909, was upheld against the claim that the
provision was a revenue bill which originated in the
Senate in contravention of Art. I, § 7 of the U.S.
Constitution. 6 Nor is the power to amend limited to
adding a provision or two in a revenue bill emanating
from the House. The U.S. Senate has gone so far as
changing the whole of bills following the enacting clause
and substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff
bill and wrote in its place its own measure, and the House
subsequently accepted the amendment. The U.S. Senate
likewise added 847 amendments to what later became
the Payne-Aldrich Tariff Act of 1909; it dictated the
schedules of the Tariff Act of 1921; it rewrote an extensive
tax revision bill in the same year and recast most of the
tariff bill of 1922. 7 Given, then, the power of the Senate to
propose amendments, the Senate can propose its own
version even with respect to bills which are required by
the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S.
No. 1129) earlier filed and that what the Senate did was
merely to "take [H. No. 11197] into consideration" in
enacting S. No. 1630. There is really no difference
between the Senate preserving H. No. 11197 up to the
enacting clause and then writing its own version following
the enacting clause (which, it would seem, petitioners
admit is an amendment by substitution), and, on the
other hand, separately presenting a bill of its own on the
same subject matter. In either case the result are two bills
on the same subject.
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills
and bills of local application must come from the House
of Representatives on the theory that, elected as they
are from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the bill
from the House, so long as action by the Senate as a
body is withheld pending receipt of the House bill. The
Court cannot, therefore, understand the alarm expressed
over the fact that on March 1, 1993, eight months before
the House passed H. No. 11197, S. No. 1129 had been
filed in the Senate. After all it does not appear that the
Senate ever considered it. It was only after the Senate
had received H. No. 11197 on November 23, 1993 that
the process of legislation in respect of it began with the
referral to the Senate Committee on Ways and Means of
H. No. 11197 and the submission by the Committee on
February 7, 1994 of S. No. 1630. For that matter, if the
question were simply the priority in the time of filing of bills,
the fact is that it was in the House that a bill (H. No. 253)
to amend the VAT law was first filed on July 22, 1992.
Several other bills had been filed in the House before S.
No. 1129 was filed in the Senate, and H. No. 11197 was
only a substitute of those earlier bills.
Second. Enough has been said to show that it was within
the power of the Senate to propose S. No. 1630. We now
pass to the next argument of petitioners that S. No. 1630
did not pass three readings on separate days as required
by the Constitution 8 because the second and third
readings were done on the same day, March 24, 1994.
But this was because on February 24, 1994 9 and again on
March 22, 1994, 10 the President had certified S. No. 1630
as urgent. The presidential certification dispensed with
the requirement not only of printing but also that of
reading the bill on separate days. The phrase "except
when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, § 26(2) qualifies the
two stated conditions before a bill can become a law: (i)
the bill has passed three readings on separate days and
(ii) it has been printed in its final form and distributed
three days before it is finally approved.
In other words, the "unless" clause must be read in relation
to the "except" clause, because the two are really
coordinate clauses of the same sentence. To construe
the "except" clause as simply dispensing with the second
requirement in the "unless" clause (i.e., printing and
distribution three days before final approval) would not
only violate the rules of grammar. It would also negate
the very premise of the "except" clause: the necessity of
securing the immediate enactment of a bill which is
certified in order to meet a public calamity or
emergency. For if it is only the printing that is dispensed
with by presidential certification, the time saved would
be so negligible as to be of any use in insuring immediate
enactment. It may well be doubted whether doing away
with the necessity of printing and distributing copies of
the bill three days before the third reading would insure
speedy enactment of a law in the face of an emergency
requiring the calling of a special election for President
and Vice-President. Under the Constitution such a law is
required to be made within seven days of the convening
of Congress in emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of
printing and distribution can be dispensed with is
supported by the weight of legislative practice. For
example, the bill defining the certiorari jurisdiction of this
Court which, in consolidation with the Senate version,
became Republic Act No. 5440, was passed on second
and third readings in the House of Representatives on the
same day (May 14, 1968) after the bill had been certified
by the President as urgent. 12
There is, therefore, no merit in the contention that
presidential certification dispenses only with the
requirement for the printing of the bill and its distribution
three days before its passage but not with the
requirement of three readings on separate days, also.
It is nonetheless urged that the certification of the bill in
this case was invalid because there was no emergency,
the condition stated in the certification of a "growing
budget deficit" not being an unusual condition in this
country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the
certification. To the contrary, by passing S. No. 1630 on
second and third readings on March 24, 1994, the Senate
accepted the President's certification. Should such
certification be now reviewed by this Court, especially
when no evidence has been shown that, because S. No.
1630 was taken up on second and third readings on the
same day, the members of the Senate were deprived of
the time needed for the study of a vital piece of
legislation?
The sufficiency of the factual basis of the suspension of
the writ of habeas corpus or declaration of martial law
under Art. VII, § 18, or the existence of a national
emergency justifying the delegation of extraordinary
powers to the President under Art. VI, § 23(2), is subject to
judicial review because basic rights of individuals may be
at hazard. But the factual basis of presidential
certification of bills, which involves doing away with
procedural requirements designed to insure that bills are
duly considered by members of Congress, certainly
should elicit a different standard of review.
Petitioners also invite attention to the fact that the
President certified S. No. 1630 and not H. No. 11197. That
is because S. No. 1630 was what the Senate was
considering. When the matter was before the House, the
President likewise certified H. No. 9210 the pending in the
House.
Third. Finally it is contended that the bill which became
Republic Act No. 7716 is the bill which the Conference
Committee prepared by consolidating H. No. 11197 and
S. No. 1630. It is claimed that the Conference Committee
report included provisions not found in either the House
bill or the Senate bill and that these provisions were
"surreptitiously" inserted by the Conference Committee.
Much is made of the fact that in the last two days of its
session on April 21 and 25, 1994 the Committee met
behind closed doors. We are not told, however, whether
the provisions were not the result of the give and take
that often mark the proceedings of conference
committees.
Nor is there anything unusual or extraordinary about the
fact that the Conference Committee met in executive
sessions. Often the only way to reach agreement on
conflicting provisions is to meet behind closed doors, with
only the conferees present. Otherwise, no compromise is
likely to be made. The Court is not about to take the
suggestion of a cabal or sinister motive attributed to the
conferees on the basis solely of their "secret meetings" on
April 21 and 25, 1994, nor read anything into the
incomplete remarks of the members, marked in the
transcript of stenographic notes by ellipses. The
incomplete sentences are probably due to the
stenographer's own limitations or to the incoherence that
sometimes characterize conversations. William Safire
noted some such lapses in recorded talks even by recent
past Presidents of the United States.
In any event, in the United States conference committees
had been customarily held in executive sessions with only
the conferees and their staffs in attendance. 13 Only in
November 1975 was a new rule adopted requiring open
sessions. Even then a majority of either chamber's
conferees may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of
a Conference Committee, it has been explained:
Under congressional rules of procedure,
conference committees are not
expected to make any material change
in the measure at issue, either by
deleting provisions to which both houses
have already agreed or by inserting new
provisions. But this is a difficult provision to
enforce. Note the problem when one
house amends a proposal originating in
either house by striking out everything
following the enacting clause and
substituting provisions which make it an
entirely new bill. The versions are now
altogether different, permitting a
conference committee to draft
essentially a new bill. . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be
germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power
of a conference committee to include in its report an
entirely new provision that is not found either in the House
bill or in the Senate bill. 17 If the committee can propose
an amendment consisting of one or two provisions, there
is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature
of a substitute," so long as such amendment is germane
to the subject of the bills before the committee. After all,
its report was not final but needed the approval of both
houses of Congress to become valid as an act of the
legislative department. The charge that in this case the
Conference Committee acted as a third legislative
chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules
of the Senate and the House of Representatives a
conference committee can only act on the differing
provisions of a Senate bill and a House bill, and that
contrary to these Rules the Conference Committee
inserted provisions not found in the bills submitted to it.
The following provisions are cited in support of this
contention:
Rules of the Senate
Rule XII:
§ 26. In the event that the Senate does
not agree with the House of
Representatives on the provision of any
bill or joint resolution, the differences shall
be settled by a conference committee
of both Houses which shall meet within
ten days after their composition.
The President shall designate the
members of the conference committee
in accordance with subparagraph (c),
Section 3 of Rule III.
Each Conference Committee Report
shall contain a detailed and sufficiently
explicit statement of the changes in or
amendments to the subject
measure, and shall be signed by the
conferees.
The consideration of such report shall not
be in order unless the report has been
filed with the Secretary of the Senate
and copies thereof have been
distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ 85. Conference Committee Reports. —
In the event that the House does not
agree with the Senate on the
amendments to any bill or joint
resolution, the differences may be
settled by conference committees of
both Chambers.
The consideration of conference
committee reports shall always be in
order, except when the journal is being
read, while the roll is being called or the
House is dividing on any question. Each
of the pages of such reports shall be
signed by the conferees. Each report
shall contain a detailed, sufficiently
explicit statement of the changes in or
amendments to the subject measure.
The consideration of such report shall not
be in order unless copies thereof are
distributed to the Members: Provided,
That in the last fifteen days of each
session period it shall be deemed
sufficient that three copies of the report,
signed as above provided, are
deposited in the office of the Secretary
General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference
committee to a consideration of conflicting provisions.
But Rule XLIV, § 112 of the Rules of the Senate is cited to
the effect that "If there is no Rule applicable to a specific
case the precedents of the Legislative Department of the
Philippines shall be resorted to, and as a supplement of
these, the Rules contained in Jefferson's Manual." The
following is then quoted from the Jefferson's Manual:
The managers of a conference must
confine themselves to the differences
committed to them. . . and may not
include subjects not within
disagreements, even though germane to
a question in issue.
Note that, according to Rule XLIX, § 112, in case there is
no specific rule applicable, resort must be to the
legislative practice. The Jefferson's Manual is resorted to
only as supplement. It is common place in Congress that
conference committee reports include new matters
which, though germane, have not been committed to
the committee. This practice was admitted by Senator
Raul S. Roco, petitioner in G.R. No. 115543, during the oral
argument in these cases. Whatever, then, may be
provided in the Jefferson's Manual must be considered to
have been modified by the legislative practice. If a
change is desired in the practice it must be sought in
Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house. Thus, Art. VI, § 16(3) of the Constitution provides
that "Each House may determine the rules of its
proceedings. . . ."
This observation applies to the other contention that the
Rules of the two chambers were likewise disregarded in
the preparation of the Conference Committee Report
because the Report did not contain a "detailed and
sufficiently explicit statement of changes in, or
amendments to, the subject measure." The Report used
brackets and capital letters to indicate the changes. This
is a standard practice in bill-drafting. We cannot say that
in using these marks and symbols the Committee violated
the Rules of the Senate and the House. Moreover, this
Court is not the proper forum for the enforcement of
these internal Rules. To the contrary, as we have already
ruled, "parliamentary rules are merely procedural and
with their observance the courts have no concern." 19 Our
concern is with the procedural requirements of the
Constitution for the enactment of laws. As far as these
requirements are concerned, we are satisfied that they
have been faithfully observed in these cases.
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three
readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house
may seek modifications of the compromise bill. The
nature of the bill, therefore, requires that it be acted
upon by each house on a "take it or leave it" basis, with
the only alternative that if it is not approved by both
houses, another conference committee must be
appointed. But then again the result would still be a
compromise measure that may not be wholly satisfying to
both houses.
Art. VI, § 26(2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if
the purpose of requiring three readings is to give
members of Congress time to study bills, it cannot be
gainsaid that H. No. 11197 was passed in the House after
three readings; that in the Senate it was considered on
first reading and then referred to a committee of that
body; that although the Senate committee did not report
out the House bill, it submitted a version (S. No. 1630)
which it had prepared by "taking into consideration" the
House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise
version; that the Conference Committee Report was
thereafter approved by the House and the Senate,
presumably after appropriate study by their members.
We cannot say that, as a matter of fact, the members of
Congress were not fully informed of the provisions of the
bill. The allegation that the Conference Committee
usurped the legislative power of Congress is, in our view,
without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal
validity of Republic Act No. 7716 must be resolved in its
favor. Our cases 20 manifest firm adherence to the rule
that an enrolled copy of a bill is conclusive not only of its
provisions but also of its due enactment. Not even claims
that a proposed constitutional amendment was invalid
because the requisite votes for its approval had not been
obtained 21 or that certain provisions of a statute had
been "smuggled" in the printing of the bill 22 have moved
or persuaded us to look behind the proceedings of a
coequal branch of the government. There is no reason
now to depart from this rule.
No claim is here made that the "enrolled bill" rule is
absolute. In fact in one case 23 we "went behind" an
enrolled bill and consulted the Journal to determine
whether certain provisions of a statute had been
approved by the Senate in view of the fact that the
President of the Senate himself, who had signed the
enrolled bill, admitted a mistake and withdrew his
signature, so that in effect there was no longer an
enrolled bill to consider.
But where allegations that the constitutional procedures
for the passage of bills have not been observed have no
more basis than another allegation that the Conference
Committee "surreptitiously" inserted provisions into a bill
which it had prepared, we should decline the invitation
to go behind the enrolled copy of the bill. To disregard
the "enrolled bill" rule in such cases would be to disregard
the respect due the other two departments of our
government.
Fifth. An additional attack on the formal validity of
Republic Act No. 7716 is made by the Philippine Airlines,
Inc., petitioner in G.R. No. 11582, namely, that it violates
Art. VI, § 26(1) which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." It is contended that neither
H. No. 11197 nor S. No. 1630 provided for removal of
exemption of PAL transactions from the payment of the
VAT and that this was made only in the Conference
Committee bill which became Republic Act No. 7716
without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is § 103,
which originally read:
§ 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
....
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
Among the transactions exempted from
the VAT were those of PAL because it
was exempted under its franchise (P.D.
No. 1590) from the payment of all "other
taxes . . . now or in the near future," in
consideration of the payment by it either
of the corporate income tax or a
franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, §
103 of the NIRC now provides:
§ 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
....
(q) Transactions which are exempt under
special laws, except those granted
under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of § 103 of the
NIRC is fairly embraced in the title of Republic Act No.
7716, although no mention is made therein of P.D. No.
1590 as among those which the statute amends. We think
it is, since the title states that the purpose of the statute is
to expand the VAT system, and one way of doing this is to
widen its base by withdrawing some of the exemptions
granted before. To insist that P.D. No. 1590 be mentioned
in the title of the law, in addition to § 103 of the NIRC, in
which it is specifically referred to, would be to insist that
the title of a bill should be a complete index of its
content.
The constitutional requirement that every bill passed by
Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon
the members of Congress and to inform the people of
pending legislation so that, if they wish to, they can be
heard regarding it. If, in the case at bar, petitioner did not
know before that its exemption had been withdrawn, it is
not because of any defect in the title but perhaps for the
same reason other statutes, although published, pass
unnoticed until some event somehow calls attention to
their existence. Indeed, the title of Republic Act No. 7716
is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is
made of its tax exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO
PHILIPPINE AIRLINES, INC. TO ESTABLISH,
OPERATE, AND MAINTAIN AIR-TRANSPORT
SERVICES IN THE PHILIPPINES AND
BETWEEN THE PHILIPPINES AND OTHER
COUNTRIES.
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and
to consider it sufficient if the title expresses the general
subject of the statute and all its provisions are germane to
the general subject thus expressed. 24
It is further contended that amendment of petitioner's
franchise may only be made by special law, in view of §
24 of P.D. No. 1590 which provides:
This franchise, as amended, or any
section or provision hereof may only be
modified, amended, or repealed
expressly by a special law or decree that
shall specifically modify, amend, or
repeal this franchise or any section or
provision thereof.
This provision is evidently intended to prevent the
amendment of the franchise by mere implication
resulting from the enactment of a later inconsistent
statute, in consideration of the fact that a franchise is a
contract which can be altered only by consent of the
parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress,
which provided for the payment of tax on certain goods
and articles imported into the Philippines, did not amend
the franchise of plaintiff, which exempted it from all taxes
except those mentioned in its franchise. It was held that a
special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716
expressly amends PAL's franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from
the VAT PAL's exemption under P.D. No. 1590. This is within
the power of Congress to do under Art. XII, § 11 of the
Constitution, which provides that the grant of a franchise
for the operation of a public utility is subject to
amendment, alteration or repeal by Congress when the
common good so requires.
II. SUBSTANTIVE ISSUES
A.
Claims
of Press
Freedo
m,
Freedo
m of
Thought
and
Religiou
s . 27
Freedo
m The PPI does not dispute this point, either.
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper
publishers established for the improvement of journalism
in the Philippines. On the other hand, petitioner in G.R.
No. 115781, the Philippine Bible Society (PBS), is a
nonprofit organization engaged in the printing and
distribution of bibles and other religious articles. Both
petitioners claim violations of their rights under § § 4 and 5
of the Bill of Rights as a result of the enactment of the VAT
Law.
The PPI questions the law insofar as it has withdrawn the
exemption previously granted to the press under § 103 (f)
of the NIRC. Although the exemption was subsequently
restored by administrative regulation with respect to the
circulation income of newspapers, the PPI presses its
claim because of the possibility that the exemption may
still be removed by mere revocation of the regulation of
the Secretary of Finance. On the other hand, the PBS
goes so far as to question the Secretary's power to grant
exemption for two reasons: (1) The Secretary of Finance
has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote
of a majority of all its members 26 and (2) the Secretary's
duty is to execute the law.
§ 103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or
sale of books and any newspaper,
magazine, review, or bulletin which
appears at regular intervals with fixed
prices for subscription and sale and
which is devoted principally to the
publication of advertisements.
Republic Act No. 7716 amended § 103 by deleting ¶ (f)
with the result that print media became subject to the
VAT with respect to all aspects of their operations. Later,
however, based on a memorandum of the Secretary of
Justice, respondent Secretary of Finance issued Revenue
Regulations No. 11-94, dated June 27, 1994, exempting
the "circulation income of print media pursuant to § 4
Article III of the 1987 Philippine Constitution guaranteeing
against abridgment of freedom of the press, among
others." The exemption of "circulation income" has left
income from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the
Secretary of Finance to give, in view of PPI's contention
that even with the exemption of the circulation revenue
of print media there is still an unconstitutional abridgment
of press freedom because of the imposition of the VAT on
the gross receipts of newspapers from advertisements
and on their acquisition of paper, ink and services for
publication. Even on the assumption that no exemption
has effectively been granted to print media transactions,
we find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on
its face operates in the area of press freedom. The PPI's
claim is simply that, as applied to newspapers, the law
abridges press freedom. Even with due recognition of its
high estate and its importance in a democratic society,
however, the press is not immune from general regulation
by the State. It has been held:
The publisher of a newspaper has no
immunity from the application of general
laws. He has no special privilege to
invade the rights and liberties of others.
He must answer for libel. He may be
punished for contempt of court. . . . Like
others, he must pay equitable and
nondiscriminatory taxes on his business. . .
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving
broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a
differential treatment of the press by the law, much less
any censorial motivation for its enactment. If the press is
now required to pay a value-added tax on its
transactions, it is not because it is being singled out, much
less targeted, for special treatment but only because of
the removal of the exemption previously granted to it by
law. The withdrawal of exemption is all that is involved in
these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the
scheme to expand the base and the scope of the VAT
system. The law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn
had been that granted to the press. But that is not the
case.
The situation in the case at bar is indeed a far cry from
those cited by the PPI in support of its claim that Republic
Act No. 7716 subjects the press to discriminatory taxation.
In the cases cited, the discriminatory purpose was clear
either from the background of the law or from its
operation. For example, in Grosjean v. American Press
Co., 28 the law imposed a license tax equivalent to 2% of
the gross receipts derived from advertisements only on
newspapers which had a circulation of more than 20,000
copies per week. Because the tax was not based on the
volume of advertisement alone but was measured by the
extent of its circulation as well, the law applied only to
the thirteen large newspapers in Louisiana, leaving
untaxed four papers with circulation of only slightly less
than 20,000 copies a week and 120 weekly newspapers
which were in serious competition with the thirteen
newspapers in question. It was well known that the
thirteen newspapers had been critical of Senator Huey
Long, and the Long-dominated legislature of Louisiana
respondent by taxing what Long described as the "lying
newspapers" by imposing on them "a tax on lying." The
effect of the tax was to curtail both their revenue and
their circulation. As the U.S. Supreme Court noted, the tax
was "a deliberate and calculated device in the guise of a
tax to limit the circulation of information to which the
public is entitled in virtue of the constitutional
guaranties." 29 The case is a classic illustration of the
warning that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also
found to have been singled out because everything was
exempt from the "use tax" on ink and paper, except the
press. Minnesota imposed a tax on the sales of goods in
that state. To protect the sales tax, it enacted a
complementary tax on the privilege of "using, storing or
consuming in that state tangible personal property" by
eliminating the residents' incentive to get goods from
outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both
taxes from 1967 to 1971. In 1971, however, the state
legislature amended the tax scheme by imposing the
"use tax" on the cost of paper and ink used for
publication. The law was held to have singled out the
press because (1) there was no reason for imposing the
"use tax" since the press was exempt from the sales tax
and (2) the "use tax" was laid on an "intermediate
transaction rather than the ultimate retail sale."
Minnesota had a heavy burden of justifying the
differential treatment and it failed to do so. In addition,
the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of
paper and ink used, further narrowed the coverage of
the tax so that "only a handful of publishers pay any tax
at all and even fewer pay any significant amount of
tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v.
Ragland, 32 it was held that a law which taxed general
interest magazines but not newspapers and religious,
professional, trade and sports journals was discriminatory
because while the tax did not single out the press as a
whole, it targeted a small group within the press. What is
more, by differentiating on the basis of contents (i.e.,
between general interest and special interests such as
religion or sports) the law became "entirely incompatible
with the First Amendment's guarantee of freedom of the
press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of
suppression of expression. In contrast, in the cases at bar,
the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on
print media whose gross sales exceeds P480,000 but not
more than P750,000, the law discriminates 33 is without
merit since it has not been shown that as a result the class
subject to tax has been unreasonably narrowed. The fact
is that this limitation does not apply to the press along but
to all sales. Nor is impermissible motive shown by the fact
that print media and broadcast media are treated
differently. The press is taxed on its transactions involving
printing and publication, which are different from the
transactions of broadcast media. There is thus a
reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any
suggestion that "owners of newspapers are immune from
any forms of ordinary taxation." The license tax in
the Grosjean case was declared invalid because it was
"one single in kind, with a long history of hostile misuse
against the freedom of the
press." 34 On the other hand, Minneapolis
Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States
and the Federal Government can subject newspapers to
generally applicable economic regulations without
creating constitutional problems." 35
What has been said above also disposes of the
allegations of the PBS that the removal of the exemption
of printing, publication or importation of books and
religious articles, as well as their printing and publication,
likewise violates freedom of thought and of conscience.
For as the U.S. Supreme Court unanimously held in Jimmy
Swaggart Ministries v. Board of Equalization, 36 the Free
Exercise of Religion Clause does not prohibit imposing a
generally applicable sales and use tax on the sale of
religious materials by a religious organization.
This brings us to the question whether the registration
provision of the law, 37 although of general applicability,
nonetheless is invalid when applied to the press because
it lays a prior restraint on its essential freedom. The case
of American Bible Society v. City of Manila 38 is cited by
both the PBS and the PPI in support of their contention
that the law imposes censorship. There, this Court held
that an ordinance of the City of Manila, which imposed a
license fee on those engaged in the business of general
merchandise, could not be applied to the appellant's
sale of bibles and other religious literature. This Court
relied on Murdock v. Pennsylvania, 39 in which it was held
that, as a license fee is fixed in amount and unrelated to
the receipts of the taxpayer, the license fee, when
applied to a religious sect, was actually being imposed
as a condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee
"restrains in advance those constitutional liberties of press
and religion and inevitably tends to suppress their
exercise." 40
But, in this case, the fee in § 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but
only for the purpose of defraying part of the cost of
registration. The registration requirement is a central
feature of the VAT system. It is designed to provide a
record of tax credits because any person who is subject
to the payment of the VAT pays an input tax, even as he
collects an output tax on sales made or services
rendered. The registration fee is thus a mere
administrative fee, one not imposed on the exercise of a
privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic
Act No. 7716 on the ground that it offends the free
speech, press and freedom of religion guarantees of the
Constitution to be without merit. For the same reasons, we
find the claim of the Philippine Educational Publishers
Association (PEPA) in G.R. No. 115931 that the increase in
the price of books and other educational materials as a
result of the VAT would violate the constitutional
mandate to the government to give priority to
education, science and technology (Art. II, § 17) to be
untenable.
B.
Claims
of
Regressi
vity,
Denial
of Due
Process,
Equal
Protecti
on, and
Impairm
ent
of
Contra
cts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech,
press and religion. The possible "chilling effect" which it
may have on the essential freedom of the mind and
conscience and the need to assure that the channels of
communication are open and operating importunately
demand the exercise of this Court's power of review.
There is, however, no justification for passing upon the
claims that the law also violates the rule that taxation
must be progressive and that it denies petitioners' right to
due process and that equal protection of the laws. The
reason for this different treatment has been cogently
stated by an eminent authority on constitutional law thus:
"[W]hen freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when
property is imperiled it is the lawmakers' judgment that
commands respect. This dual standard may not precisely
reverse the presumption of constitutionality in civil liberties
cases, but obviously it does set up a hierarchy of values
within the due process clause." 41
Indeed, the absence of threat of immediate harm makes
the need for judicial intervention less evident and
underscores the essential nature of petitioners' attack on
the law on the grounds of regressivity, denial of due
process and equal protection and impairment of
contracts as a mere academic discussion of the merits of
the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims
so as to illuminate the actual operation of the law and
enable us to reach sound judgment regarding so
fundamental questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is
regressive and that it violates the requirement that "The
rule of taxation shall be uniform and equitable [and]
Congress shall evolve a progressive system of
taxation." 42 Petitioners in G.R. No. 115781 quote from a
paper, entitled "VAT Policy Issues: Structure, Regressivity,
Inflation and Exports" by Alan A. Tait of the International
Monetary Fund, that "VAT payment by low-income
households will be a higher proportion of their incomes
(and expenditures) than payments by higher-income
households. That is, the VAT will be regressive." Petitioners
contend that as a result of the uniform 10% VAT, the tax
on consumption goods of those who are in the higher-
income bracket, which before were taxed at a rate
higher than 10%, has been reduced, while basic
commodities, which before were taxed at rates ranging
from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive,
the opposite claim is pressed by respondents that in fact
it distributes the tax burden to as many goods and
services as possible particularly to those which are within
the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable.
The goods and properties subject to the VAT are those
used or consumed by higher-income groups. These
include real properties held primarily for sale to customers
or held for lease in the ordinary course of business, the
right or privilege to use industrial, commercial or scientific
equipment, hotels, restaurants and similar places, tourist
buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than
P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000
business establishments. On the other hand, an
occasional paper 43 of the Center for Research and
Communication cities a NEDA study that the VAT has
minimal impact on inflation and income distribution and
that while additional expenditure for the lowest income
class is only P301 or 1.49% a year, that for a family earning
P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the
VAT is regressive in the sense that it will hit the "poor" and
middle-income group in society harder than it will the
"rich," as the Cooperative Union of the Philippines (CUP)
claims in G.R. No. 115873, is largely an academic
exercise. On the other hand, the CUP's contention that
Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional
policy to promote cooperatives as instruments of social
justice (Art. XII, § 15) but also denies such cooperatives
the equal protection of the law is actually a policy
argument. The legislature is not required to adhere to a
policy of "all or none" in choosing the subject of
taxation. 44
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754,
that the VAT will reduce the mark up of its members by as
much as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the Philippine
Press Institute, petitioner in G.R. No. 115544, that the VAT
will drive some of its members out of circulation because
their profits from advertisements will not be enough to
pay for their tax liability, while purporting to be based on
the financial statements of the newspapers in question,
still falls short of the establishment of facts by evidence so
necessary for adjudicating the question whether the tax is
oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts
to enforce. What Congress is required by the Constitution
to do is to "evolve a progressive system of taxation." This is
a directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic
and political inequalities (Art. XIII, § 1), or for the
promotion of the right to "quality education" (Art. XIV, §
1). These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable
rights.
At all events, our 1988 decision in Kapatiran 45 should
have laid to rest the questions now raised against the
VAT. There similar arguments made against the original
VAT Law (Executive Order No. 273) were held to be
hypothetical, with no more basis than newspaper articles
which this Court found to be "hearsay and [without]
evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as
provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to
Congress.
Only slightly less abstract but nonetheless hypothetical is
the contention of CREBA that the imposition of the VAT
on the sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of the law
would violate the constitutional provision that "No law
impairing the obligation of contracts shall be passed." It is
enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations
as between parties, but the reservation of essential
attributes of sovereign power is also read into contracts
as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the
maintenance of a government which retains adequate
authority to secure the peace and good order of
society. 46
In truth, the Contract Clause has never been thought as
a limitation on the exercise of the State's power of
taxation save only where a tax exemption has been
granted for a valid consideration. 47 Such is not the case
of PAL in G.R. No. 115852, and we do not understand it to
make this claim. Rather, its position, as discussed above, is
that the removal of its tax exemption cannot be made by
a general, but only by a specific, law.
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the
lack of a concrete record. We accept that this Court
does not only adjudicate private cases; that public
actions by "non-Hohfeldian" 48 or ideological plaintiffs are
now cognizable provided they meet the standing
requirement of the Constitution; that under Art. VIII, § 1, ¶
2 the Court has a "special function" of vindicating
constitutional rights. Nonetheless the feeling cannot be
escaped that we do not have before us in these cases a
fully developed factual record that alone can impart to
our adjudication the impact of actuality 49 to insure that
decision-making is informed and well grounded. Needless
to say, we do not have power to render advisory opinions
or even jurisdiction over petitions for declaratory
judgment. In effect we are being asked to do what the
Conference Committee is precisely accused of having
done in these cases — to sit as a third legislative chamber
to review legislation.
We are told, however, that the power of judicial review is
not so much power as it is duty imposed on this Court by
the Constitution and that we would be remiss in the
performance of that duty if we decline to look behind the
barriers set by the principle of separation of powers. Art.
VIII, § 1, ¶ 2 is cited in support of this view:
 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.
To view the judicial power of review as a duty is nothing
new. Chief Justice Marshall said so in 1803, to justify the
assertion of this power in Marbury v. Madison:
It is emphatically the province and duty
of the judicial department to say what
the law is. Those who apply the rule to
particular cases must of necessity
expound and interpret that rule. If two
laws conflict with each other, the courts
must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v.
Electoral Commission:
And when the judiciary mediates to
allocate constitutional boundaries, it
does not assert any superiority over the
other departments; it does not in reality
nullify or invalidate an act of the
legislature, but only asserts the solemn
and sacred obligation assigned to it by
the Constitution to determine conflicting
claims of authority under the Constitution
and to establish for the parties in an
actual controversy the rights which that
instrument secures and guarantees to
them. 51
This conception of the judicial power has been affirmed
in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty"
to justify this Court's intervention in what is essentially a
case that at best is not ripe for adjudication. That duty
must still be performed in the context of a concrete case
or controversy, as Art. VIII, § 5(2) clearly defines our
jurisdiction in terms of "cases," and nothing but "cases."
That the other departments of the government may have
committed a grave abuse of discretion is not an
independent ground for exercising our power. Disregard
of the essential limits imposed by the case and
controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as
judges, what we are called upon to render is judgment
according to law, not according to what may appear to
be the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to
discuss, within limits, the validity of Republic Act No. 7716
in its formal and substantive aspects as this has been
raised in the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution
have been complied with by Congress in the enactment
of the statute;
(2) That judicial inquiry whether the formal requirements
for the enactment of statutes — beyond those prescribed
by the Constitution — have been observed is precluded
by the principle of separation of powers;
(3) That the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise
of religion, nor deny to any of the parties the right to an
education; and
(4) That, in view of the absence of a factual foundation
of record, claims that the law is regressive, oppressive
and confiscatory and that it violates vested rights
protected under the Contract Clause are prematurely
raised and do not justify the grant of prospective relief by
writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.
and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision
dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed
by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers
Association, Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed
a consolidated comment, to which the Philippine Airlines,
Inc., petitioner in G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544, and Juan T.
David, petitioner in G.R. No. 115525, each filed a reply. In
turn the Solicitor General filed on June 1, 1995 a rejoinder
to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to
revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by them that
R.A. No. 7716 did not "originate exclusively" in the House
of Representatives as required by Art. VI, §24 of the
Constitution. Although they admit that H. No. 11197 was
filed in the House of Representatives where it passed
three readings and that afterward it was sent to the
Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that
the Senate did not pass it on second and third readings.
Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994.
Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197
by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains
a House bill and the Senate version just becomes the text
(only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in
which the Senate proposed an amendment to a House
revenue bill by enacting its own version of a revenue bill.
On at least two occasions during the Eighth Congress, the
Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President on April 10, 1992.
This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S.
No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES) which was
approved by the President on May 22, 1992. This Act is a
consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate on October
21, 1991.
On the other hand, the Ninth Congress passed revenue
laws which were also the result of the consolidation of
House and Senate bills. These are the following, with
indications of the dates on which the laws were
approved by the President and dates the separate bills of
the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR
TAX EVASION, AMENDING FOR THIS
PURPOSE THE PERTINENT SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE
(December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE
COMMISSIONER OF INTERNAL REVENUE
TO REQUIRE THE PAYMENT OF THE VALUE-
ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO
SHARE IN VAT REVENUE, AMENDING FOR
THIS PURPOSE CERTAIN SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE
(December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE
COMMISSIONER OF INTERNAL REVENUE
TO PRESCRIBE THE PLACE FOR PAYMENT
OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT
OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES
INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCS)
TO DEDUCT AND WITHHOLD THE VALUE-
ADDED TAX DUE AT THE RATE OF THREE
PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX
 PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS
(April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-
OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS
UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR
OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE
STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING
FOR THE PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, ALLOCATING
FUNDS FOR SPECIFIC PROGRAMS, AND
FOR OTHER PURPOSES (December 23,
1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE,
BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE
LOCAL STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING, AMENDING
FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED,
BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS
THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance
in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the
House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S.
No. 1630, petitioners Tolentino and Roco, as members of
the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in
this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only
provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to
the original amendment shall be
considered.
No amendment by substitution shall be
entertained unless the text thereof is
submitted in writing.
Any of said amendments may be
withdrawn before a vote is taken
thereon.
§69. No amendment which seeks the
inclusion of a legislative provision foreign
to the subject matter of a bill (rider) shall
be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be
amended by substituting it with another
which covers a subject distinct from that
proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual
differences between constitutional provisions giving them
the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate
in the House of Representatives; but the
Senate may propose or concur with
amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and
private bills shall originate exclusively in
the House of Representatives, but the
Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to
petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose
amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were
not to be like other bills but must be treated as a special
kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional intent
are nothing but the relics of an unsuccessful attempt to
limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary
to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by
the National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the
Assembly's lawmaking powers, sought to curtail the
powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds,
revenue or tariff bills, bills of local
application, and private bills shall
originate exclusively in the Assembly, but
the Senate may propose or concur with
 amendments. In case of disapproval by
the Senate of any such bills, the
Assembly may repass the same by a
two-thirds vote of all its members, and
thereupon, the bill so repassed shall be
deemed enacted and may be
submitted to the President for
corresponding action. In the event that
the Senate should fail to finally act on
any such bills, the Assembly may, after
thirty days from the opening of the next
regular session of the same legislative
term, reapprove the same with a vote of
two-thirds of all the members of the
Assembly. And upon such reapproval,
the bill shall be deemed enacted and
may be submitted to the President for
corresponding action.
The special committee on the revision of laws of the
Second National Assembly vetoed the proposal. It
deleted everything after the first sentence. As rewritten,
the proposal was approved by the National Assembly
and embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed amendment
was submitted to the people and ratified by them in the
elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution,
from which Art. VI, §24 of the present Constitution was
derived. It explains why the word "exclusively" was added
to the American text from which the framers of the
Philippine Constitution borrowed and why the phrase "as
on other Bills" was not copied. Considering the defeat of
the proposal, the power of the Senate to propose
amendments must be understood to be full, plenary and
complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill
is passed and sent over to it by the House, however, the
Senate certainly can pass its own version on the same
subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the
scope of the Senate's power to concur is clear from the
following commentaries:
The power of the Senate to propose or
concur with amendments is apparently
without restriction. It would seem that by
virtue of this power, the Senate can
practically re-write a bill required to
come from the House and leave only a
trace of the original bill. For example, a
general revenue bill passed by the lower
house of the United States Congress
contained provisions for the imposition of
an inheritance tax . This was changed by
the Senate into a corporation tax. The
amending authority of the Senate was
declared by the United States Supreme
Court to be sufficiently broad to enable it
to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L. TAÑADA AND F. CARREON, POLITICAL
LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed
to be initiated by the House of
Representatives because it is more
numerous in membership and therefore
also more representative of the people.
Moreover, its members are presumed to
be more familiar with the needs of the
country in regard to the enactment of
the legislation involved.
The Senate is, however, allowed much
leeway in the exercise of its power to
propose or concur with amendments to
the bills initiated by the House of
Representatives. Thus, in one case, a bill
introduced in the U.S. House of
Representatives was changed by the
Senate to make a proposed inheritance
tax a corporation tax. It is also accepted
practice for the Senate to introduce
what is known as an amendment by
substitution, which may entirely replace
the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-
145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation,
revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills
must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of
this power, the Senate may propose an entirely new bill
as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred
may do any of the following:
(1) to endorse the bill without changes;
(2) to make changes in the bill omitting
or adding sections or altering its
language; (3) to make and endorse an
entirely new bill as a substitute, in which
case it will be known as a committee bill;
or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills
which are required to originate in the House by
prescribing that the number of the House bill and its other
parts up to the enacting clause must be preserved
although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute measure,
is therefore as much an amendment of H. No. 11197 as
any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No. 1630
is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different
between the reference to S. No. 1129 and the reference
to H. No. 11197. From this premise, they conclude that
R.A. No. 7716 originated both in the House and in the
Senate and that it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630 was passed
by both houses of Congress."
In point of fact, in several instances the provisions of S. No.
1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No.
1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between
the two bills, at the same time indicates that the
provisions of the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not have
enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original
form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on
first reading it was referred to the Senate Committee on
Ways and Means. Neither was it required that S. No. 1630
be passed by the House of Representatives before the
two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the
case of H. No. 11197 and S. No. 1630. When the House bill
and Senate bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank deposits), were referred
to a conference committee, the question was raised
whether the two bills could be the subject of such
conference, considering that the bill from one house had
not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this
question of order as to procedure: If a
House bill is passed by the House but not
passed by the Senate, and a Senate bill
of a similar nature is passed in the Senate
but never passed in the House, can the
two bills be the subject of a conference,
and can a law be enacted from these
two bills? I understand that the Senate
bill in this particular instance does not
refer to investments in government
securities, whereas the bill in the House,
which was introduced by the Speaker,
covers two subject matters: not only
investigation of deposits in banks but also
investigation of investments in
government securities. Now, since the
two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker
Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in order. It is
precisely in cases like this where a
conference should be had. If the House
bill had been approved by the Senate,
there would have been no need of a
conference; but precisely because the
Senate passed another bill on the same
subject matter, the conference
committee had to be created, and we
are now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp.
3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that
H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's
and PAL's) contention that because the President
separately certified to the need for the immediate
enactment of these measures, his certification was
ineffectual and void. The certification had to be made of
the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow
petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the
bill he has already certified. It is enough that he certifies
the bill which, at the time he makes the certification, is
under consideration. Since on March 22, 1994 the Senate
was considering S. No. 1630, it was that bill which had to
be certified. For that matter on June 1, 1993 the President
had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time
was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we
have already explained in the main decision that the
phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, §26
(2) qualifies not only the requirement that "printed copies
[of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the
requirement that before a bill can become a law it must
have passed "three readings on separate days." There is
not only textual support for such construction but
historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either
House unless it shall have been printed
and copies thereof in its final form
furnished its Members at least three
calendar days prior to its passage,
except when the President shall have
certified to the necessity of its immediate
enactment. Upon the last reading of a
bill, no amendment thereof shall be
allowed and the question upon its
passage shall be taken immediately
thereafter, and
the yeas and nays entered on the
Journal.
When the 1973 Constitution was adopted, it was
provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it
has passed three readings on separate
days, and printed copies thereof in its
final form have been distributed to the
Members three days before its passage,
except when the Prime Minister certifies
to the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a
bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the
Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall
become a law unless it has passed three
readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
reading of a bill, no amendment thereto
shall be allowed, and the vote thereon
shall be taken immediately thereafter,
and the yeas and nays entered in the
Journal.
The exception is based on the prudential consideration
that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it
can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or
public calamity which it is meant to address.
Petitioners further contend that a "growing budget
deficit" is not an emergency, especially in a country like
the Philippines where budget deficit is a chronic
condition. Even if this were the case, an enormous
budget deficit does not make the need for R.A. No. 7716
any less urgent or the situation calling for its enactment
any less an emergency.
Apparently, the members of the Senate (including some
of the petitioners in these cases) believed that there was
an urgent need for consideration of S. No. 1630, because
they responded to the call of the President by voting on
the bill on second and third readings on the same day.
While the judicial department is not bound by the
Senate's acceptance of the President's certification, the
respect due coequal departments of the government in
matters committed to them by the Constitution and the
absence of a clear showing of grave abuse of discretion
caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its
final printed form was actually dispensed with by holding
the voting on second and third readings on the same
day (March 24, 1994). Otherwise, sufficient time between
the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed
before it was finally voted on by the Senate on third
reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members
of Congress of what they must vote on and (2) to give
them notice that a measure is progressing through the
enacting process, thus enabling them and others
interested in the measure to prepare their positions with
reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These
purposes were substantially achieved in the case of R.A.
No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc.
(MABINI)) that in violation of the constitutional policy of
full public disclosure and the people's right to know (Art. II,
§28 and Art. III, §7) the Conference Committee met for
two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only
in 1975 when a new rule was adopted requiring open
sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open
hearings for conference committees.
It is nevertheless claimed that in the United States, before
the adoption of the rule in 1975, at least staff members
were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to
be their confidential men, not stenographers as in this
case who on the last two days of the conference were
excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as
to give petitioner Kilosbayan basis for claiming that even
in secret diplomatic negotiations involving state interests,
conferees keep notes of their meetings. Above all, the
public's right to know was fully served because the
Conference Committee in this case submitted a report
showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide
that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in
or other amendments." These changes are shown in the
bill attached to the Conference Committee Report. The
members of both houses could thus ascertain what
changes had been made in the original bills without the
need of a statement detailing the changes.
The same question now presented was raised when the
bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee.
Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it
is out of order to consider the report of
the conference committee
regarding House Bill No. 2557 by reason
of the provision of Section 11, Article XII,
of the Rules of this House which provides
specifically that the conference report
must be accompanied by a detailed
statement of the effects of the
amendment on the bill of the House. This
conference committee report is not
accompanied by that detailed
statement, Mr. Speaker. Therefore it is out
of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
MR. TOLENTINO. Mr. Speaker, I should just
like to say a few words in connection
with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision
of the Rule cited by the gentleman from
Pangasinan, but this provision applies to
those cases where only portions of the
bill have been amended. In this case
before us an entire bill is
presented; therefore, it can be easily
seen from the reading of the bill what
the provisions are. Besides, this
procedure has been an established
practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr.
Speaker, we have to look into the reason
for the provisions of the Rules, and the
reason for the requirement in the
provision cited by the gentleman from
Pangasinan is when there are only
certain words or phrases inserted in or
deleted from the provisions of the bill
included in the conference report, and
we cannot understand what those words
and phrases mean and their relation to
the bill. In that case, it is necessary to
make a detailed statement on how
those words and phrases will affect the
bill as a whole; but when the entire bill
itself is copied verbatim in the
conference report, that is not necessary.
So when the reason for the Rule does not
exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis
added))
Congressman Tolentino was sustained by the chair. The
record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House
was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227 SCRA
703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House.
It may propose an entirely new provision. What is
important is that its report is subsequently approved by
the respective houses of Congress. This Court ruled that it
would not entertain allegations that, because new
provisions had been added by the conference
committee, there was thereby a violation of the
constitutional injunction that "upon the last reading of a
bill, no amendment thereto shall be allowed."
Applying these principles, we
shall decline to look into the petitioners'
charges that an amendment was made
upon the last reading of the bill that
eventually became R.A. No. 7354 and
that copies thereof in its final form were
not distributed among the members of
each House. Both the enrolled bill and
the legislative journals certify that the
measure was duly enacted i.e., in
 accordance with Article VI, Sec. 26 (2) of
the Constitution. We are bound by such
official assurances from a coordinate
department of the government, to which
we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of
conference committees in the Philippines in a 1979 study:
Conference committees may be of two
types: free or instructed. These
committees may be given instructions by
their parent bodies or they may be left
without instructions. Normally the
conference committees are without
instructions, and this is why they are often
critically referred to as "the little
legislatures." Once bills have been sent
to them, the conferees have almost
unlimited authority to change the
clauses of the bills and in fact sometimes
introduce new measures that were not in
the original legislation. No minutes are
kept, and members' activities on
conference committees are difficult to
determine. One congressman known for
his idealism put it this way: "I killed a bill
on export incentives for my interest
group [copra] in the conference
committee but I could not have done so
anywhere else." The conference
committee submits a report to both
houses, and usually it is accepted. If the
report is not accepted, then the
committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine
Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).
In citing this study, we pass no judgment on the methods
of conference committees. We cite it only to say that
conference committees here are no different from their
counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At
all events, under Art. VI, §16(3) each house has the power
"to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method
and procedures of Congress or its committees must
therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains
that R.A. No. 7716 violates Art. VI, §26 (1) of the
Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the
law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax
of 2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges
of any kind, nature, or description, imposed, levied,
established, assessed or collected by any municipal, city,
provincial or national authority or government agency,
now or in the future."
PAL was exempted from the payment of the VAT along
with other entities by §103 of the National Internal
Revenue Code, which provides as follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions,
including that granted to PAL, by amending §103, as
follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws, except those granted
under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A.
No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE
VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which
stands in the way of accomplishing the purpose of the
law.
PAL asserts that the amendment of its franchise must be
reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to
comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is
§103(q), in order to widen the base of the VAT. Actually, it
is the bill which becomes a law that is required to express
in its title the subject of legislation. The titles of H. No.
11197 and S. No. 1630 in fact specifically referred to §103
of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had
been given of the pendency of these bills in Congress
before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar
argument as that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING THE PHILIPPINE
POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision
repealing all franking privileges. It was contended that
the withdrawal of franking privileges was not expressed in
the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including
the repeal of franking privileges, this Court held:
To require every end and means
necessary for the accomplishment of the
general objectives of the statute to be
expressed in its title would not only be
unreasonable but would actually render
legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297]
As has been correctly explained:
 The details of a
legislative act need not
be specifically stated in
its title, but matter
germane to the subject
as expressed in the title,
and adopted to the
accomplishment of the
object in view, may
properly be included in
the act. Thus, it is proper
to create in the same
act the machinery by
which the act is to be
enforced, to prescribe
the penalties for its
infraction, and to
remove obstacles in the
way of its execution. If
such matters are
properly connected
with the subject as
expressed in the title, it is
unnecessary that they
should also have special
mention in the title.
(Southern Pac. Co. v.
Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have
held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what
the constitutional guarantee of free press prohibits are
laws which single out the press or target a group
belonging to the press for special treatment or which in
any way discriminate against the press on the basis of the
content of the publication, and R.A. No. 7716 is none of
these.
Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against the
press. At any rate, it is averred, "even nondiscriminatory
taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say
that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to
the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S.
233, 80 L. Ed. 660 (1936) was found to be discriminatory
because it was laid on the gross advertising receipts only
of newspapers whose weekly circulation was over 20,000,
with the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature
which enacted the license tax. The censorial motivation
for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune
Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.
Ed. 2d 295 (1983), the tax was found to be discriminatory
because although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax on the
privilege of using, storing or consuming tangible goods,
the press was not. Instead, the press was exempted from
both taxes. It was, however, later made to pay
a special use tax on the cost of paper and ink which
made these items "the only items subject to the use tax
that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of
the press "suggests that the goal of regulation is not
related to suppression of expression, and such goal is
presumptively unconstitutional." It would therefore
appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in
that case)
Nor is it true that only two exemptions previously granted
by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from
the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the
Export Processing Zone Authority, and many more are
likewise totally withdrawn, in addition to exemptions
which are partially withdrawn, in an effort to broaden the
base of the tax.
The PPI says that the discriminatory treatment of the press
is highlighted by the fact that transactions, which are
profit oriented, continue to enjoy exemption under R.A.
No. 7716. An enumeration of some of these transactions
will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the
Solicitor General says, such exemptions are granted, in
some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user
rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services
to enhance agriculture (milling of palay,
corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) or for professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical,
dental, hospital and veterinary services,
and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
The PPI asserts that it does not really matter that the law
does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally
guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement
in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):
 The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First
Amendment is not so restricted. A license
tax certainly does not acquire
constitutional validity because it classifies
the privileges protected by the First
Amendment along with the wares and
merchandise of hucksters and peddlers
and treats them all alike. Such equality in
treatment does not save the ordinance.
Freedom of press, freedom of speech,
freedom of religion are in preferred
position.
The Court was speaking in that case of a license tax,
which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays
a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling
goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is
one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him
for delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license
fee on those engaged in the sale of general
merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible
Society without restraining the free exercise of its right to
propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general
regulation is not to violate its freedom under the
Constitution.
Additionally, the Philippine Bible Society, Inc. claims that
although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies
which are given free to those who cannot afford to pay
so that to tax the sales would be to increase the price,
while reducing the volume of sale. Granting that to be
the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that
might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay
an impermissible burden on the right of the preacher to
make a sermon.
On the other hand the registration fee of P1,000.00
imposed by §107 of the NIRC, as amended by §7 of R.A.
No. 7716, although fixed in amount, is really just to pay for
the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of
the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it
from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal
protection and contract clauses and the rule on taxation.
CREBA asserts that R.A. No. 7716 (1) impairs the
obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis
would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the
contract.
The short answer to this is the one given by this Court in an
early case: "Authorities from numerous sources are cited
by the plaintiffs, but none of them show that a lawful tax
on a new subject, or an increased tax on an old one,
interferes with a contract or impairs its obligation, within
the meaning of the Constitution. Even though such
taxation may affect particular contracts, as it may
increase the debt of one person and lessen the security
of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it
be said that it impairs the obligation of any existing
contract in its true legal sense." (La Insular v. Machuca
Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-
American Life Ins. Co. v. Auditor General, 22 SCRA 135,
147 (1968)) Contracts must be understood as having
been made in reference to the possible exercise of the
rightful authority of the government and no obligation of
contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716
exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of
real property which is equally essential. The sale of real
property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who
are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was
already exempt under §103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No. 7716. Petitioner is in
error in claiming that R.A. No. 7716 granted exemption to
these transactions, while subjecting those of petitioner to
the payment of the VAT. Moreover, there is a difference
between the "homeless poor" and the "homeless less
poor" in the example given by petitioner, because the
second group or middle class can afford to rent houses in
the meantime that they cannot yet buy their own homes.
The two social classes are thus differently situated in life. "It
is inherent in the power to tax that the 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.'" (Lutz v.
Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v.
De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130
SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371
(1988)).
Finally, it is contended, for the reasons already noted,
that R.A. No. 7716 also violates Art. VI, §28(1) which
provides that "The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system
of taxation."
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at
the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes
of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms
and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273
long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the
original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 383 (1988) on grounds similar to those made in
these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all
the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is
applied similarly on all goods and
services sold to the public, which are not
exempt, at the constant rate of 0% or
10%.
The disputed sales tax is also equitable. It
is imposed only on sales of goods or
services by persons engaged in business
with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from
its application. Likewise exempt from the
tax are sales of farm and marine
products, so that the costs of basic food
and other necessities, spared as they are
from the incidence of the VAT, are
expected to be relatively lower and
within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David
argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation
because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to
their ability to pay.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional
provision has been interpreted to mean simply that
"direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17(1) of the 1973 Constitution
from which the present Art. VI, §28(1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but
not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of
the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions.
(R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and
essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services
to enhance agriculture (milling of palay,
corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) and or professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical,
dental, hospital and veterinary services,
and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
On the other hand, the transactions which are subject to
the VAT are those which involve goods and services
which are used or availed of mainly by higher income
groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of
trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or
privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses,
and other common carriers, services of franchise
grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not
at retail but at wholesale and in the abstract. There is no
fully developed record which can impart to adjudication
the impact of actuality. There is no factual foundation to
show in the concrete the application of the law to actual
contracts and exemplify its effect on property rights. For
the fact is that petitioner's members have not even been
assessed the VAT. Petitioner's case is not made concrete
by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
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 on its
face, he has not made out a case. 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. Absent such a showing, the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a
multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A
test case, provided it is an actual case and not an
abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate
justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of
advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to
decide whenever a claim is made that "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." This duty can only arise if an actual
case or controversy is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and all that Art.
VIII, §1, ¶2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is
"judicial power," which is "the power of a court to hear
and decide cases pending between parties who have
the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive power. This
power cannot be directly appropriated until it is
apportioned among several courts either by the
Constitution, as in the case of Art. VIII, §5, or by statute, as
in the case of the Judiciary Act of 1948 (R.A. No. 296) and
the Judiciary Reorganization Act of 1980 (B.P. Blg. 129).
The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to
the exclusion of all others." (United States v. Arceo, 6 Phil.
29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation
of grave abuse of discretion by the other departments of
the government.
VIII. Alleged violation of policy towards cooperatives. On
the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of granting
tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to
infringe a constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and
sales taxes but in 1984, because of the crisis which
menaced the national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008
again granted cooperatives exemption from income and
sales taxes until December 31, 1991, but, in the same
year, E.O. No. 93 revoked the exemption; and that finally
in 1987 the framers of the Constitution "repudiated the
previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and
instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:
§1. The goals of the national economy
are a more equitable distribution of
opportunities, income, and wealth; a
sustained increase in the amount of
goods and services produced by the
nation for the benefit of the people; and
an expanding productivity as the key to
raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization
and full employment based on sound
agricultural development and agrarian
reform, through industries that make full
and efficient use of human and natural
resources, and which are competitive in
both domestic and foreign markets.
However, the State shall protect Filipino
enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of
the economy and all regions of the
country shall be given optimum
opportunity to develop. Private
enterprises, including corporations,
cooperatives, and similar collective
organizations, shall be encouraged to
broaden the base of their ownership.
§15. The Congress shall create an
agency to promote the viability and
growth of cooperatives as instruments for
social justice and economic
development.
Petitioner's contention has no merit. In the first place, it is
not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes
under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to
withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, §2 had
restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, §1, but
then again cooperatives were not the only ones whose
exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and
private entities. In the second place, the Constitution
does not really require that cooperatives be granted tax
exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one
of vacillation, as far as the grant of tax privileges was
concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were
adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives,
no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under
the Constitution cooperatives are exempt from taxation.
Such theory is contrary to the Constitution under which
only the following are exempt from taxation: charitable
institutions, churches and parsonages, by reason of Art.
VI, §28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A.
No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are
exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that
there is greater need to provide cheaper electric power
to as many people as possible, especially those living in
the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is
unreasonable.
We have carefully read the various arguments raised
against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its
enforcement pending resolution of these cases. We have
now come to the conclusion that the law suffers from
none of the infirmities attributed to it by petitioners and
that its enactment by the other branches of the
government does not constitute a grave abuse of
discretion. Any question as to its necessity, desirability or
expediency must be addressed to Congress as the body
which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate
guardians of the liberties and welfare of the people in
quite as great a degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed.
971, 973 (1904)). It is not right, as petitioner in G.R. No.
115543 does in arguing that we should enforce the public
accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress
should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit
as a third branch of the legislature, much less exercise a
veto power over legislation.
WHEREFORE, the motions for reconsideration are denied
with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
G.R. No. 168056 October 18, 2005
Agenda for Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson
S. Alcantara, et al. vs. The Hon. Executive Secretary
Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel,
Jr., et al. vs. Executive Secretary Eduardo R. Ermita, et al.);
G.R. No. 168461 (Association of Pilipinas Shell Dealers,
Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463
(Francis Joseph G. Escudero vs. Cesar V. Purisima, et al);
and G.R. No. 168730 (Bataan Governor Enrique T. Garcia,
Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for
reconsideration of the Court’s Decision dated September
1, 2005 upholding the constitutionality of Republic Act No.
9337 or the VAT Reform Act1:
1) Motion for Reconsideration filed by petitioners in G.R.
No. 168463, Escudero, et al., on the following grounds:
A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR
THE SALE OF PETROLEUM PRODUCTS AND POWER
GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION ON THE PART OF THE BICAMERAL
CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE
CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE ORIGINATION
OF REVENUE BILLS UNDER §24, ARTICLE VI, 1987 PHILIPPINE
CONSTITUTION.
C. REPUBLIC ACT NO. 9337’S STAND-BY AUTHORITY TO THE
EXECUTIVE TO INCREASE THE VAT RATE, ESPECIALLY ON
ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER
GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES
UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No.
168730, Bataan Governor Enrique T. Garcia, Jr., with the
argument that burdening the consumers with significantly
higher prices under a VAT regime vis-à-vis a 3% gross tax
renders the law unconstitutional for being arbitrary,
oppressive and inequitable.
and
3) Motion for Reconsideration by petitioners Association
of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the
grounds that:
I. This Honorable Court erred in upholding the
constitutionality of Section 110(A)(2) and Section 110(B)
of the NIRC, as amended by the EVAT Law, imposing
limitations on the amount of input VAT that may be
claimed as a credit against output VAT, as well as Section
114(C) of the NIRC, as amended by the EVAT Law,
requiring the government or any of its instrumentalities to
withhold a 5% final withholding VAT on their gross
payments on purchases of goods and services, and
finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to
amount to a deprivation of property without due process
of law in violation of Article III, Section 1 of the 1987
Philippine Constitution;
B. do not violate the equal protection clause prescribed
under Article III, Section 1 of the 1987 Philippine
Constitution; and
C. apply uniformly to all those belonging to the same
class and do not violate Article VI, Section 28(1) of the
1987 Philippine Constitution.
II. This Honorable Court erred in upholding the
constitutionality of Section 110(B) of the NIRC, as
amended by the EVAT Law, imposing a limitation on the
amount of input VAT that may be claimed as a credit
against output VAT notwithstanding the finding that the
tax is not progressive as exhorted by Article VI, Section
28(1) of the 1987 Philippine Constitution.
Respondents filed their Consolidated Comment.
Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral
conference committee should not even have acted on
the no pass-on provisions since there is no disagreement
between House Bill Nos. 3705 and 3555 on the one hand,
and Senate Bill No. 1950 on the other, with regard to
the no pass-on provision for the sale of service for power
generation because both the Senate and the House
were in agreement that the VAT burden for the sale of
such service shall not be passed on to the end-consumer.
As to the no pass-on provision for sale of petroleum
products, petitioners argue that the fact that the
presence of such a no pass-on provision in the House
version and the absence thereof in the Senate Bill means
there is no conflict because "a House provision cannot be
in conflict with something that does not exist."
Such argument is flawed. Note that the rules of both
houses of Congress provide that a conference
committee shall settle the "differences" in the respective
bills of each house. Verily, the fact that a no pass-
on provision is present in one version but absent in the
other, and one version intends two industries, i.e., power
generation companies and petroleum sellers, to bear the
burden of the tax, while the other version intended only
the industry of power generation, transmission and
distribution to be saddled with such burden, clearly shows
that there are indeed differences between the bills
coming from each house, which differences should be
acted upon by the bicameral conference committee. It
is incorrect to conclude that there is no clash between
two opposing forces with regard to the no pass-
on provision for VAT on the sale of petroleum products
merely because such provision exists in the House version
while it is absent in the Senate version. It is precisely the
absence of such provision in the Senate bill and the
presence thereof in the House bills that causes the
conflict. The absence of the provision in the Senate bill
shows the Senate’s disagreement to the intention of the
House of Representatives make the sellers of petroleum
bear the burden of the VAT. Thus, there are indeed two
opposing forces: on one side, the House of
Representatives which wants petroleum dealers to be
saddled with the burden of paying VAT and on the other,
the Senate which does not see it proper to make that
particular industry bear said burden. Clearly, such
conflicts and differences between the no pass-
on provisions in the Senate and House bills had to be
acted upon by the bicameral conference committee as
mandated by the rules of both houses of Congress.
Moreover, the deletion of the no pass-on provision made
the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision
promulgated on September 1, 2005, is a tax on spending
or consumption, thus, the burden thereof is ultimately
borne by the end-consumer.
Escudero, et al., then claim that there had been changes
introduced in the Rules of the House of Representatives
regarding the conduct of the House panel in a bicameral
conference committee, since the time of Tolentino vs.
Secretary of Finance2 to act as safeguards against
possible abuse of authority by the House members of the
bicameral conference committee. Even assuming that
the rule requiring the House panel to report back to the
House if there are substantial differences in the House
and Senate bills had indeed been introduced
after Tolentino, the Court stands by its ruling that the issue
of whether or not the House panel in the bicameral
conference committee complied with said internal rule
cannot be inquired into by the Court. To reiterate, "mere
failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body)
when the requisite number of members have agreed to a
particular measure."3
Escudero, et. al., also contend that Republic Act No. 9337
grossly violates the constitutional imperative on exclusive
origination of revenue bills under Section 24 of Article VI
of the Constitution when the Senate introduced
amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may
propose or concur with amendments.
Section 24 speaks of origination of certain bills from the
House of Representatives which has been interpreted in
the Tolentino case as follows:
… To begin with, it is not the law — but the revenue bill —
which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important
to emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole … At this point,
what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a
revenue statute — and not only the bill which initiated
the legislative process culminating in the enactment of
the law — must substantially be the same as the House
bill would be to deny the Senate's power not only to
"concur with amendments" but also to " propose
amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
… Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version
even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills
and bills of local application must come from the House
of Representatives on the theory that, elected as they
are from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.4
Clearly, after the House bills as approved on third reading
are duly transmitted to the Senate, the Constitution states
that the latter can propose or concur with amendments.
The Court finds that the subject provisions found in the
Senate bill are within the purview of such constitutional
provision as declared in the Tolentino case.
The intent of the House of Representatives in initiating
House Bill Nos. 3555 and 3705 was to solve the country’s
serious financial problems. It was stated in the respective
explanatory notes that there is a need for the
government to make significant expenditure savings and
a credible package of revenue measures. These
measures include improvement of tax administration and
control and leakages in revenues from income taxes and
value added tax. It is also stated that one opportunity
that could be beneficial to the overall status of our
economy is to review existing tax rates, evaluating the
relevance given our present conditions. Thus, with these
purposes in mind and to accomplish these purposes for
which the house bills were filed, i.e., to raise revenues for
the government, the Senate introduced amendments on
income taxes, which as admitted by Senator Ralph
Recto, would yield about ₱10.5 billion a year.
Moreover, since the objective of these house bills is to
raise revenues, the increase in corporate income taxes
would be a great help and would also soften the impact
of VAT measure on the consumers by distributing the
burden across all sectors instead of putting it entirely on
the shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC)
provisions found in Senate Bill No. 1950, i.e., percentage
taxes, franchise taxes, amusement and excise taxes,
these provisions are needed so as to cushion the effects
of VAT on consumers. As we said in our decision, certain
goods and services which were subject to percentage
tax and excise tax would no longer be VAT exempt, thus,
the consumer would be burdened more as they would
be paying the VAT in addition to these taxes. Thus, there is
a need to amend these sections to soften the impact of
VAT. The Court finds no reason to reverse the earlier ruling
that the Senate introduced amendments that are
germane to the subject matter and purposes of the
house bills.
Petitioners Escudero, et al., also reiterate that R.A. No.
9337’s stand- by authority to the Executive to increase the
VAT rate, especially on account of the recommendatory
power granted to the Secretary of Finance, constitutes
undue delegation of legislative power. They submit that
the recommendatory power given to the Secretary of
Finance in regard to the occurrence of either of two
events using the Gross Domestic Product (GDP) as a
benchmark necessarily and inherently required extended
analysis and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates
that in making his recommendation to the President on
the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. He is acting as the
agent of the legislative department, to determine and
declare the event upon which its expressed will is to take
effect. The Secretary of Finance becomes the means or
tool by which legislative policy is determined and
implemented, considering that he possesses all the
facilities to gather data and information and has a much
broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other
pertinent information and verify if any of the two
conditions laid out by Congress is present. Congress
granted the Secretary of Finance the authority to
ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a
percentage of GDP of the previous year exceeds two
and four-fifth percent (24/5%) or the national government
deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1½%). If either of
these two instances has occurred, the Secretary of
Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must
be imposed by the President effective January 1, 2006.
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be
done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the
only way in which the legislative process can go
forward. There is no undue delegation of legislative
power but only of the discretion as to the execution of a
law. This is constitutionally permissible. Congress did not
delegate the power to tax but the mere implementation
of the law. The intent and will to increase the VAT rate to
12% came from Congress and the task of the President is
to simply execute the legislative policy. That Congress
chose to use the GDP as a benchmark to determine
economic growth is not within the province of the Court
to inquire into, its task being to interpret the law.
With regard to petitioner Garcia’s arguments, the Court
also finds the same to be without merit. As stated in the
assailed Decision, the Court recognizes the burden that
the consumers will be bearing with the passage of R.A.
No. 9337. But as was also stated by the Court, it cannot
strike down the law as unconstitutional simply because of
its yokes. The legislature has spoken and the only role that
the Court plays in the picture is to determine whether the
law was passed with due regard to the mandates of the
Constitution. Inasmuch as the Court finds that there are
no constitutional infirmities with its passage, the validity of
the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers,
Inc. reiterated their arguments in the petition, citing this
time, the dissertation of Associate Justice Dante O. Tinga
in his Dissenting Opinion.
The glitch in petitioners’ arguments is that it presents
figures based on an event that is yet to happen. Their
illustration of the possible effects of the 70% limitation,
while seemingly concrete, still remains theoretical.
Theories have no place in this case as the Court must only
deal with an existing case or controversy that is
appropriate or ripe for judicial determination, not one that
is conjectural or merely anticipatory.5 The Court will not
intervene absent an actual and substantial controversy
admitting of specific relief through a decree conclusive in
nature, as distinguished from an opinion advising what
the law would be upon a hypothetical state of facts.6
The impact of the 70% limitation on the creditable input
tax will ultimately depend on how one manages and
operates its business. Market forces, strategy and
acumen will dictate their moves. With or without these
VAT provisions, an entrepreneur who does not have the
ken to adapt to economic variables will surely perish in
the competition. The arguments posed are within the
realm of business, and the solution lies also in business.
Petitioners also reiterate their argument that the input tax
is a property or a property right. In the same breath, the
Court reiterates its finding that it is not a property or a
property right, and a VAT-registered person’s entitlement
to the creditable input tax is a mere statutory privilege.
Petitioners also contend that even if the right to credit the
input VAT is merely a statutory privilege, it has already
evolved into a vested right that the State cannot remove.
As the Court stated in its Decision, the right to credit the
input tax is a mere creation of law. Prior to the enactment
of multi-stage sales taxation, the sales taxes paid at every
level of distribution are not recoverable from the taxes
payable. With the advent of Executive Order No. 273
imposing a 10% multi-stage tax on all sales, it was only
then that the crediting of the input tax paid on purchase
or importation of goods and services by VAT-registered
persons against the output tax was established. This
continued with the Expanded VAT Law (R.A. No. 7716),
and The Tax Reform Act of 1997 (R.A. No. 8424). The right
to credit input tax as against the output tax is clearly a
privilege created by law, a privilege that also the law can
limit. It should be stressed that a person has no vested
right in statutory privileges.7
The concept of "vested right" is a consequence of the
constitutional guaranty of due process that expresses a
present fixed interest which in right reason and natural
justice is protected against arbitrary state action; it
includes not only legal or equitable title to the
enforcement of a demand but also exemptions from new
obligations created after the right has become vested.
Rights are considered vested when the right to
enjoyment is a present interest, absolute, unconditional,
and perfect or fixed and irrefutable.8 As adeptly stated
by Associate Justice Minita V. Chico-Nazario in her
Concurring Opinion, which the Court adopts, petitioners’
right to the input VAT credits has not yet vested, thus –
It should be remembered that prior to Rep. Act No. 9337,
the petroleum dealers’ input VAT credits were inexistent –
they were unrecognized and disallowed by law. The
petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits
when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet
even been implemented, is that petroleum dealers’ right
to use their input VAT as credit against their output VAT
unlimitedly has not vested, being a mere expectancy of
a future benefit and being contingent on the
continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep.
Act No. 9337.
The elucidation of Associate Justice Artemio V.
Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted
accounting principles. These refer to accounting
concepts, measurement techniques, and standards of
presentation in a company’s financial statements, and
are not rooted in laws of nature, as are the laws of
physical science, for these are merely developed and
continually modified by local and international regulatory
accounting bodies. To state otherwise and recognize
such asset account as a vested right is to limit the taxing
power of the State. Unlimited, plenary, comprehensive
and supreme, this power cannot be unduly restricted by
mere creations of the State.
More importantly, the assailed provisions of R.A. No. 9337
already involve legislative policy and wisdom. So long as
there is a public end for which R.A. No. 9337 was passed,
the means through which such end shall be
accomplished is for the legislature to choose so long as it
is within constitutional bounds. As stated in Carmichael vs.
Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that
the legislature, in adopting the present scheme rather
than another, had no basis for its choice, or was arbitrary
or unreasonable in its action. But, as the state is free to
distribute the burden of a tax without regard to the
particular purpose for which it is to be used, there is no
warrant in the Constitution for setting the tax aside
because a court thinks that it could have distributed the
burden more wisely. Those are functions reserved for the
legislature.9
WHEREFORE, the Motions for Reconsideration are
hereby DENIED WITH FINALITY. The temporary restraining
order issued by the Court is LIFTED.
SO ORDERED.

G.R. No. L-19201 June 16, 1965
REV. FR. CASIMIRO LLADOC, petitioner,
vs.
The COMMISSIONER OF INTERNAL REVENUE and The
COURT of TAX APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.
PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then
parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a
new Catholic Church in the locality. The total amount
was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the
donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the Catholic Parish
of Victorias, Negros Occidental, of which petitioner was
the priest. The tax amounted to P1,370.00 including
surcharges, interests of 1% monthly from May 15, 1958 to
June 15, 1960, and the compromise for the late filing of
the return.
Petitioner lodged a protest to the assessment and
requested the withdrawal thereof. The protest and the
motion for reconsideration presented to the
Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on
November 2, 1960. In the petition for review, the Rev. Fr.
Casimiro Lladoc claimed, among others, that at the time
of the donation, he was not the parish priest in Victorias;
that there is no legal entity or juridical person known as
the "Catholic Parish Priest of Victorias," and, therefore, he
should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against
the Roman Catholic Church, would not be valid, for such
would be a clear violation of the provisions of the
Constitution.
After hearing, the CTA rendered judgment, the pertinent
portions of which are quoted below:
... . Parish priests of the Roman Catholic Church
under canon laws are similarly situated as its
Archbishops and Bishops with respect to the
properties of the church within their parish. They
are the guardians, superintendents or
administrators of these properties, with the right
of succession and may sue and be sued.
xxx xxx xxx
The petitioner impugns the, fairness of the
assessment with the argument that he should not
be held liable for gift taxes on donation which he
did not receive personally since he was not yet
the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that
if someone has to pay at all, it should be
petitioner's predecessor, the Rev. Fr. Crispin Ruiz,
who received the donation in behalf of the
Catholic parish of Victorias or the Roman
Catholic Church. Following petitioner's line of
thinking, we should be equally unfair to hold that
the assessment now in question should have
been addressed to, and collected from, the Rev.
Fr. Crispin Ruiz to be paid from income derived
from his present parish where ever it may be. It
does not seem right to indirectly burden the
present parishioners of Rev. Fr. Ruiz for donee's
gift tax on a donation to which they were not
benefited.
xxx xxx xxx
We saw no legal basis then as we see none now,
to include within the Constitutional exemption,
taxes which partake of the nature of an excise
upon the use made of the properties or upon the
exercise of the privilege of receiving the
properties. (Phipps vs. Commissioner of Internal
Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)
It is a cardinal rule in taxation that exemptions
from payment thereof are highly disfavored by
law, and the party claiming exemption must
justify his claim by a clear, positive, or express
grant of such privilege by law. (Collector vs.
Manila Jockey Club, G.R. No. L-8755, March 23,
1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed
in Section 22(3), Article VI of the Constitution of
the Philippines, should not be interpreted to
mean exemption from all kinds of taxes. Statutes
exempting charitable and religious property from
taxation should be construed fairly though strictly
and in such manner as to give effect to the main
intent of the lawmakers. (Roman Catholic
Church vs. Hastrings 5 Phil. 701.)
xxx xxx xxx
WHEREFORE, in view of the foregoing
considerations, the decision of the respondent
Commissioner of Internal Revenue appealed
from, is hereby affirmed except with regard to
the imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue
v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and
the petitioner, the Rev. Fr. Casimiro Lladoc is
hereby ordered to pay to the respondent the
amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad
valorem penalty under Section 119 (c) of the Tax
Code, and one per centum (1%) monthly interest
from May 15, 1958 to the date of actual
payment. The surcharge of 25% provided in
Section 120 for failure to file a return may not be
imposed as the failure to file a return was not due
to willful neglect.( ... ) No costs.
The above judgment is now before us on appeal,
petitioner assigning two (2) errors allegedly committed by
the Tax Court, all of which converge on the singular issue
of whether or not petitioner should be liable for the
assessed donee's gift tax on the P10,000.00 donated for
the construction of the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and
parsonages or convents, appurtenant thereto, and
all lands, buildings, and improvements used exclusively for
religious purposes. The exemption is only from the
payment of taxes assessed on such properties
enumerated, as property taxes, as contra distinguished
from excise taxes. In the present case, what the Collector
assessed was a donee's gift tax; the assessment was not
on the properties themselves. It did not rest upon general
ownership; it was an excise upon the use made of the
properties, upon the exercise of the privilege of receiving
the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627).
Manifestly, gift tax is not within the exempting provisions
of the section just mentioned. A gift tax is not a property
tax, but an excise tax imposed on the transfer of property
by way of gift inter vivos, the imposition of which on
property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well
observed by the learned respondent Court, the phrase
"exempt from taxation," as employed in the Constitution
(supra) should not be interpreted to mean exemption
from all kinds of taxes. And there being no clear, positive
or express grant of such privilege by law, in favor of
petitioner, the exemption herein must be denied.
The next issue which readily presents itself, in view of
petitioner's thesis, and Our finding that a tax liability exists,
is, who should be called upon to pay the gift tax?
Petitioner postulates that he should not be liable,
because at the time of the donation he was not the
priest of Victorias. We note the merit of the above claim,
and in order to put things in their proper light, this Court, in
its Resolution of March 15, 1965, ordered the parties to
show cause why the Head of the Diocese to which the
parish of Victorias pertains, should not be substituted in
lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing
that the Head of such Diocese is the real party in interest.
The Solicitor General, in representation of the
Commissioner of Internal Revenue, interposed no
objection to such a substitution. Counsel for the petitioner
did not also offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of
the Diocese to present whatever legal issues and/or
defenses he might wish to raise, to which resolution
counsel for petitioner, who also appeared as counsel for
the Head of the Diocese, the Roman Catholic Bishop of
Bacolod, manifested that it was submitting itself to the
jurisdiction and orders of this Court and that it was
presenting, by reference, the brief of petitioner Rev. Fr.
Casimiro Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated,
the assessment at bar had been properly made and the
imposition of the tax is not a violation of the constitutional
provision exempting churches, parsonages or convents,
etc. (Art VI, sec. 22 [3], Constitution), the Head of the
Diocese, to which the parish Victorias Pertains, is liable for
the payment thereof.
The decision appealed from should be, as it is hereby
affirmed insofar as tax liability is concerned; it is modified,
in the sense that petitioner herein is not personally liable
for the said gift tax, and that the Head of the Diocese,
herein substitute petitioner, should pay, as he is presently
ordered to pay, the said gift tax, without special,
pronouncement as to costs.
G.R. No. L-27588 December 31, 1927
THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as
representative of the Roman Catholic Apostolic
Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET
AL., defendants-appellants.
Vicente Llanes and Proceso Coloma for plaintiff-
appellant.
Provincial Fiscal Santos for defendant-appellants.
AVANCEÑA, J.:
The plaintiff, the Roman Catholic Apostolic Church,
represented by the Bishop of Nueva Segovia, possesses
and is the owner of a parcel of land in the municipality of
San Nicolas, Ilocos Norte, all four sides of which face on
public streets. On the south side is a part of the
churchyard, the convent and an adjacent lot used for a
vegetable garden, containing an area off 1,624 square
meters, in which there is a stable and a well for the use of
the convent. In the center is the remainder of the
churchyard and the church. On the north is an old
cemetery with two of its walls still standing, and a portion
where formerly stood a tower, the base of which still be
seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff
paid, under protest, the land tax on the lot adjoining the
convent and the lot which formerly was the cemetery
with the portion where the tower stood.
The plaintiff filed this action for the recovery of the sum
paid by to the defendants by way of land tax, alleging
that the collection of this tax is illegal. The lower court
absolved the defendants from the complaint in regard to
the lot adjoining convent and declared that the tax
collected on the lot, which formerly was the cemetery
and on the portion where the lower stood, was illegal.
Both parties appealed from this judgment.
The exemption in favor of the convent in the payment of
the land tax (sec. 344 [c] Administrative Code) refers to
the home of the parties who presides over the church
and who has to take care of himself in order to discharge
his duties. In therefore must, in the sense, include not only
the land actually occupied by the church, but also the
adjacent ground destined to the ordinary incidental uses
of man. Except in large cities where the density of the
population and the development of commerce require
the use of larger tracts of land for buildings, a vegetable
garden belongs to a house and, in the case of a
convent, it use is limited to the necessities of the priest,
which comes under the exemption.lawphi1.net
In regard to the lot which formerly was the cemetery,
while it is no longer used as such, neither is it used for
commercial purposes and, according to the evidence, is
now being used as a lodging house by the people who
participate in religious festivities, which constitutes an
incidental use in religious functions, which also comes
within the exemption.
The judgment appealed from is reversed in all it parts and
it is held that both lots are exempt from land tax and the
defendants are ordered to refund to plaintiff whatever
was paid as such tax, without any special
pronouncement as to costs. So ordered.
G.R. No. 144104 June 29, 2004
LUNG CENTER OF THE PHILIPPINES, petitioner,
vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of
the Rules of Court, as amended, of the Decision1 dated
July 17, 2000 of the Court of Appeals in CA-G.R. SP No.
57014 which affirmed the decision of the Central Board of
Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon
are subject to assessment for purposes of real property
tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-
stock and non-profit entity established on January 16,
1981 by virtue of Presidential Decree No. 1823.2 It is the
registered owner of a parcel of land, particularly
described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495,
located at Quezon Avenue corner Elliptical Road,
Central District, Quezon City. The lot has an area of
121,463 square meters and is covered by Transfer
Certificate of Title (TCT) No. 261320 of the Registry of
Deeds of Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of the
Philippines. A big space at the ground floor is being
leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners who
use the same as their private clinics for their patients
whom they charge for their professional services. Almost
one-half of the entire area on the left side of the building
along Quezon Avenue is vacant and idle, while a big
portion on the right side, at the corner of Quezon Avenue
and Elliptical Road, is being leased for commercial
purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying
and non-paying. Aside from its income from paying
patients, the petitioner receives annual subsidies from the
government.
On June 7, 1993, both the land and the hospital building
of the petitioner were assessed for real property taxes in
the amount of ₱4,554,860 by the City Assessor of Quezon
City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-
2518) and C-021-01231 (15-2518-A) were issued for the
land and the hospital building, respectively.4 On August
25, 1993, the petitioner filed a Claim for Exemption5 from
real property taxes with the City Assessor, predicated on
its claim that it is a charitable institution. The petitioner’s
request was denied, and a petition was, thereafter, filed
before the Local Board of Assessment Appeals of Quezon
City (QC-LBAA, for brevity) for the reversal of the
resolution of the City Assessor. The petitioner alleged that
under Section 28, paragraph 3 of the 1987 Constitution,
the property is exempt from real property taxes. It averred
that a minimum of 60% of its hospital beds are exclusively
used for charity patients and that the major thrust of its
hospital operation is to serve charity patients. The
petitioner contends that it is a charitable institution and,
as such, is exempt from real property taxes. The QC-LBAA
rendered judgment dismissing the petition and holding
the petitioner liable for real property taxes.6
The QC-LBAA’s decision was, likewise, affirmed on appeal
by the Central Board of Assessment Appeals of Quezon
City (CBAA, for brevity)7 which ruled that the petitioner
was not a charitable institution and that its real properties
were not actually, directly and exclusively used for
charitable purposes; hence, it was not entitled to real
property tax exemption under the constitution and the
law. The petitioner sought relief from the Court of
Appeals, which rendered judgment affirming the decision
of the CBAA.8
Undaunted, the petitioner filed its petition in this Court
contending that:
A. THE COURT A QUO ERRED IN DECLARING
PETITIONER AS NOT ENTITLED TO REALTY TAX
EXEMPTIONS ON THE GROUND THAT ITS LAND,
BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND
EXCLUSIVELY DEVOTED FOR CHARITABLE
PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL
PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD
1823, SAID EXEMPTION MAY NEVERTHELESS BE
EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within
the context of Section 28(3), Article VI of the 1987
Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits paying
patients and renders medical services to them, leases
portions of the land to private parties, and rents out
portions of the hospital to private medical practitioners
from which it derives income to be used for operational
expenses. The petitioner points out that for the years 1995
to 1999, 100% of its out-patients were charity patients and
of the hospital’s 282-bed capacity, 60% thereof, or 170
beds, is allotted to charity patients. It asserts that the fact
that it receives subsidies from the government attests to
its character as a charitable institution. It contends that
the "exclusivity" required in the Constitution does not
necessarily mean "solely." Hence, even if a portion of its
real estate is leased out to private individuals from whom
it derives income, it does not lose its character as a
charitable institution, and its exemption from the
payment of real estate taxes on its real property. The
petitioner cited our ruling in Herrera v. QC-BAA9 to bolster
its pose. The petitioner further contends that even if P.D.
No. 1823 does not exempt it from the payment of real
estate taxes, it is not precluded from seeking tax
exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver
that the petitioner is not a charitable entity. The
petitioner’s real property is not exempt from the payment
of real estate taxes under P.D. No. 1823 and even under
the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is
actually, directly and exclusively used for charitable
purposes. The respondents noted that in a newspaper
report, it appears that graft charges were filed with the
Sandiganbayan against the director of the petitioner, its
administrative officer, and Zenaida Rivera, the
proprietress of the Elliptical Orchids and Garden Center,
for entering into a lease contract over 7,663.13 square
meters of the property in 1990 for only ₱20,000 a month,
when the monthly rental should be ₱357,000 a month as
determined by the Commission on Audit; and that
instead of complying with the directive of the COA for
the cancellation of the contract for being grossly
prejudicial to the government, the petitioner renewed
the same on March 13, 1995 for a monthly rental of only
₱24,000. They assert that the petitioner uses the subsidies
granted by the government for charity patients and uses
the rest of its income from the property for the benefit of
paying patients, among other purposes. They aver that
the petitioner failed to adduce substantial evidence that
100% of its out-patients and 170 beds in the hospital are
reserved for indigent patients. The respondents further
assert, thus:
13. That the claims/allegations of the Petitioner
LCP do not speak well of its record of service.
That before a patient is admitted for treatment in
the Center, first impression is that it is pay-patient
and required to pay a certain amount as
deposit. That even if a patient is living below the
poverty line, he is charged with high hospital bills.
And, without these bills being first settled, the
poor patient cannot be allowed to leave the
hospital or be discharged without first paying the
hospital bills or issue a promissory note
guaranteed and indorsed by an influential
agency or person known only to the Center; that
even the remains of deceased poor patients
suffered the same fate. Moreover, before a
patient is admitted for treatment as free or
charity patient, one must undergo a series of
interviews and must submit all the requirements
needed by the Center, usually accompanied by
endorsement by an influential agency or person
known only to the Center. These facts were
heard and admitted by the Petitioner LCP during
the hearings before the Honorable QC-BAA and
Honorable CBAA. These are the reasons of
indigent patients, instead of seeking treatment
with the Center, they prefer to be treated at the
Quezon Institute. Can such practice by the
Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the
petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No.
7160; and (b) whether the real properties of the petitioner
are exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a
charitable institution within the context of the 1973 and
1987 Constitutions. To determine whether an enterprise is
a charitable institution/entity or not, the elements which
should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and by-
laws, the methods of administration, the nature of the
actual work performed, the character of the services
rendered, the indefiniteness of the beneficiaries, and the
use and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift,
to be applied consistently with existing laws, for the
benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of
education or religion, by assisting them to establish
themselves in life or otherwise lessening the burden of
government.12 It may be applied to almost anything that
tend to promote the well-doing and well-being of social
man. It embraces the improvement and promotion of the
happiness of man.13 The word "charitable" is not restricted
to relief of the poor or sick.14 The test of a charity and a
charitable organization are in law the same. The test
whether an enterprise is charitable or not is whether it
exists to carry out a purpose reorganized in law as
charitable or whether it is maintained for gain, profit, or
private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and
non-stock corporation which, subject to the provisions of
the decree, is to be administered by the Office of the
President of the Philippines with the Ministry of Health and
the Ministry of Human Settlements. It was organized for
the welfare and benefit of the Filipino people principally
to help combat the high incidence of lung and
pulmonary diseases in the Philippines. The raison d’etre for
the creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have
been a priority concern, having been the
leading cause of illness and death in the
Philippines, comprising more than 45% of the total
annual deaths from all causes, thus, exacting a
tremendous toll on human resources, which
ailments are likely to increase and degenerate
into serious lung diseases on account of
unabated pollution, industrialization and
unchecked cigarette smoking in the
country;lavvph!l.net
Whereas, the more common lung diseases are,
to a great extent, preventable, and curable with
early and adequate medical care, immunization
and through prompt and intensive prevention
and health education programs;
Whereas, there is an urgent need to consolidate
and reinforce existing programs, strategies and
efforts at preventing, treating and rehabilitating
people affected by lung diseases, and to
undertake research and training on the cure and
prevention of lung diseases, through a Lung
Center which will house and nurture the above
and related activities and provide tertiary-level
care for more difficult and problematical cases;
Whereas, to achieve this purpose, the
Government intends to provide material and
financial support towards the establishment and
maintenance of a Lung Center for the welfare
and benefit of the Filipino people.15
The purposes for which the petitioner was created are
spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such
corporation is formed are as follows:
1. To construct, establish, equip,
maintain, administer and conduct an
integrated medical institution which shall
specialize in the treatment, care,
rehabilitation and/or relief of lung and
allied diseases in line with the concern of
the government to assist and provide
material and financial support in the
establishment and maintenance of a
lung center primarily to benefit the
people of the Philippines and in
pursuance of the policy of the State to
secure the well-being of the people by
providing them specialized health and
medical services and by minimizing the
incidence of lung diseases in the country
and elsewhere.
2. To promote the noble undertaking of
scientific research related to the
prevention of lung or pulmonary ailments
and the care of lung patients, including
the holding of a series of relevant
congresses, conventions, seminars and
conferences;
3. To stimulate and, whenever possible,
underwrite scientific researches on the
biological, demographic, social,
economic, eugenic and physiological
aspects of lung or pulmonary diseases
and their control; and to collect and
publish the findings of such research for
public consumption;
4. To facilitate the dissemination of ideas
and public acceptance of information
on lung consciousness or awareness, and
the development of fact-finding,
information and reporting facilities for
and in aid of the general purposes or
objects aforesaid, especially in human
lung requirements, general health and
physical fitness, and other relevant or
related fields;
5. To encourage the training of
physicians, nurses, health officers, social
workers and medical and technical
personnel in the practical and scientific
implementation of services to lung
patients;
6. To assist universities and research
institutions in their studies about lung
diseases, to encourage advanced
training in matters of the lung and
related fields and to support educational
programs of value to general health;
7. To encourage the formation of other
organizations on the national, provincial
and/or city and local levels; and to
coordinate their various efforts and
activities for the purpose of achieving a
more effective programmatic approach
on the common problems relative to the
objectives enumerated herein;
8. To seek and obtain assistance in any
form from both international and local
foundations and organizations; and to
administer grants and funds that may be
given to the organization;
9. To extend, whenever possible and
expedient, medical services to the
public and, in general, to promote and
protect the health of the masses of our
people, which has long been recognized
as an economic asset and a social
blessing;
10. To help prevent, relieve and alleviate
the lung or pulmonary afflictions and
maladies of the people in any and all
walks of life, including those who are
poor and needy, all without regard to or
discrimination, because of race, creed,
color or political belief of the persons
helped; and to enable them to obtain
treatment when such disorders occur;
 11. To participate, as circumstances may
warrant, in any activity designed and
carried on to promote the general
health of the community;
12. To acquire and/or borrow funds and
to own all funds or equipment,
educational materials and supplies by
purchase, donation, or otherwise and to
dispose of and distribute the same in
such manner, and, on such basis as the
Center shall, from time to time, deem
proper and best, under the particular
circumstances, to serve its general and
non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own,
lease, hold, sell, exchange, transfer and
dispose of properties, whether real or
personal, for purposes herein mentioned;
and
14. To do everything necessary, proper,
advisable or convenient for the
accomplishment of any of the powers
herein set forth and to do every other
act and thing incidental thereto or
connected therewith.16
Hence, the medical services of the petitioner are to be
rendered to the public in general in any and all walks of
life including those who are poor and the needy without
discrimination. After all, any person, the rich as well as the
poor, may fall sick or be injured or wounded and
become a subject of charity.17
As a general principle, a charitable institution does not
lose its character as such and its exemption from taxes
simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the
money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no
money inures to the private benefit of the persons
managing or operating the
institution.18 In Congregational Sunday School, etc. v.
Board of Review,19 the State Supreme Court of Illinois
held, thus:
… [A]n institution does not lose its charitable
character, and consequent exemption from
taxation, by reason of the fact that those
recipients of its benefits who are able to pay are
required to do so, where no profit is made by the
institution and the amounts so received are
applied in furthering its charitable purposes, and
those benefits are refused to none on account of
inability to pay therefor. The fundamental ground
upon which all exemptions in favor of charitable
institutions are based is the benefit conferred
upon the public by them, and a consequent
relief, to some extent, of the burden upon the
state to care for and advance the interests of its
citizens.20
As aptly stated by the State Supreme Court of South
Dakota in Lutheran Hospital Association of South Dakota
v. Baker:21
… [T]he fact that paying patients are taken, the
profits derived from attendance upon these
patients being exclusively devoted to the
maintenance of the charity, seems rather to
enhance the usefulness of the institution to the
poor; for it is a matter of common observation
amongst those who have gone about at all
amongst the suffering classes, that the deserving
poor can with difficulty be persuaded to enter an
asylum of any kind confined to the reception of
objects of charity; and that their honest pride is
much less wounded by being placed in an
institution in which paying patients are also
received. The fact of receiving money from some
of the patients does not, we think, at all impair
the character of the charity, so long as the
money thus received is devoted altogether to
the charitable object which the institution is
intended to further.22
The money received by the petitioner becomes a part of
the trust fund and must be devoted to public trust
purposes and cannot be diverted to private profit or
benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donation
is in the form of subsidies granted by the government. As
held by the State Supreme Court of Utah in Yorgason v.
County Board of Equalization of Salt Lake County:24
Second, the … government subsidy payments
are provided to the project. Thus, those
payments are like a gift or donation of any other
kind except they come from the government. In
both Intermountain Health Careand the present
case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this
analysis that the government, rather than a
private benefactor, chose to make up the deficit
resulting from the exchange between St. Mark’s
Tower and the tenants by making a contribution
to the landlord, just as it would have been
irrelevant in Intermountain Health Care if the
patients’ income supplements had come from
private individuals rather than the government.
Therefore, the fact that subsidization of part of
the cost of furnishing such housing is by the
government rather than private charitable
contributions does not dictate the denial of a
charitable exemption if the facts otherwise
support such an exemption, as they do here.25
In this case, the petitioner adduced substantial evidence
that it spent its income, including the subsidies from the
government for 1991 and 1992 for its patients and for the
operation of the hospital. It even incurred a net loss in
1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable
institution, we hold, anent the second issue, that those
portions of its real property that are leased to private
entities are not exempt from real property taxes as these
are not actually, directly and exclusively used for
charitable purposes.
The settled rule in this jurisdiction is that laws granting
exemption from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The
effect of an exemption is equivalent to an appropriation.
Hence, a claim for exemption from tax payments must be
clearly shown and based on language in the law too
plain to be mistaken.26 As held in Salvation Army v.
Hoehn:27
An intention on the part of the legislature to grant
an exemption from the taxing power of the state
will never be implied from language which will
admit of any other reasonable construction. Such
an intention must be expressed in clear and
unmistakable terms, or must appear by
necessary implication from the language used,
for it is a well settled principle that, when a
special privilege or exemption is claimed under a
statute, charter or act of incorporation, it is to be
construed strictly against the property owner and
in favor of the public. This principle applies with
peculiar force to a claim of exemption from
taxation . …28
Section 2 of Presidential Decree No. 1823, relied upon by
the petitioner, specifically provides that the petitioner
shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a
non-profit, non-stock corporation organized
primarily to help combat the high incidence of
lung and pulmonary diseases in the Philippines,
all donations, contributions, endowments and
equipment and supplies to be imported by
authorized entities or persons and by the Board
of Trustees of the Lung Center of the Philippines,
Inc., for the actual use and benefit of the Lung
Center, shall be exempt from income and gift
taxes, the same further deductible in full for the
purpose of determining the maximum deductible
amount under Section 30, paragraph (h), of the
National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be
exempt from the payment of taxes, charges and
fees imposed by the Government or any political
subdivision or instrumentality thereof with respect
to equipment purchases made by, or for the
Lung Center.29
It is plain as day that under the decree, the petitioner
does not enjoy any property tax exemption privileges for
its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should
have been among the enumeration of tax exempt
privileges under Section 2:
It is a settled rule of statutory construction that
the express mention of one person, thing, or
consequence implies the exclusion of all others.
The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is
formulated in a number of ways. One variation of
the rule is the principle that what is expressed
puts an end to that which is implied. Expressium
facit cessare tacitum. Thus, where a statute, by its
terms, is expressly limited to certain matters, it
may not, by interpretation or construction, be
extended to other matters.
...
The rule of expressio unius est exclusio alterius and
its variations are canons of restrictive
interpretation. They are based on the rules of
logic and the natural workings of the human
mind. They are predicated upon one’s own
voluntary act and not upon that of others. They
proceed from the premise that the legislature
would not have made specified enumeration in
a statute had the intention been not to restrict its
meaning and confine its terms to those expressly
mentioned.30
The exemption must not be so enlarged by construction
since the reasonable presumption is that the State has
granted in express terms all it intended to grant at all, and
that unless the privilege is limited to the very terms of the
statute the favor would be intended beyond what was
meant.31
Section 28(3), Article VI of the 1987 Philippine Constitution
provides, thus:
(3) Charitable institutions, churches and
parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands,
buildings, and
improvements, actually, directly and exclusively u
sed for religious, charitable or educational
purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision
covers property taxes only.33 As Chief Justice Hilario G.
Davide, Jr., then a member of the 1986 Constitutional
Commission, explained: ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes
are lands, buildings and improvements actually, directly
and exclusively used for religious, charitable or
educational purposes."34
Consequently, the constitutional provision is implemented
by Section 234(b) of Republic Act No. 7160 (otherwise
known as the Local Government Code of 1991) as
follows:
SECTION 234. Exemptions from Real Property Tax.
– The following are exempted from payment of
the real property tax:
...
(b) Charitable institutions, churches,
parsonages or convents appurtenant
thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and
improvements actually, directly,
and exclusivelyused for religious,
charitable or educational purposes.35
We note that under the 1935 Constitution, "... all lands,
buildings, and improvements used ‘exclusively’ for …
charitable … purposes shall be exempt from
taxation."36 However, under the 1973 and the present
Constitutions, for "lands, buildings, and improvements" of
the charitable institution to be considered exempt, the
same should not only be "exclusively" used for charitable
purposes; it is required that such property be used
"actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the
Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment
Appeals which was promulgated on September 30, 1961
before the 1973 and 1987 Constitutions took effect.38 As
this Court held in Province of Abra v. Hernando:39
… Under the 1935 Constitution: "Cemeteries,
churches, and parsonages or convents
appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious,
charitable, or educational purposes shall be
exempt from taxation." The present Constitution
added "charitable institutions, mosques, and non-
profit cemeteries" and required that for the
exemption of "lands, buildings, and
improvements," they should not only be
"exclusively" but also "actually" and "directly" used
for religious or charitable purposes. The
Constitution is worded differently. The change
should not be ignored. It must be duly taken into
consideration. Reliance on past decisions would
have sufficed were the words "actually" as well as
"directly" not added. There must be proof
therefore of the actual and direct use of the
lands, buildings, and improvements for religious
or charitable purposes to be exempt from
taxation. …
Under the 1973 and 1987 Constitutions and Rep. Act No.
7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution;
and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as possessed
and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined,
"in a manner to exclude; as enjoying a privilege
exclusively."40 If real property is used for one or more
commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation.41 The words
"dominant use" or "principal use" cannot be substituted for
the words "used exclusively" without doing violence to the
Constitutions and the law.42 Solely is synonymous with
exclusively.43
What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and
immediate and actual application of the property itself
to the purposes for which the charitable institution is
organized. It is not the use of the income from the real
property that is determinative of whether the property is
used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that
the entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions of
the hospital are used for the treatment of patients and
the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being
leased to private individuals for their clinics and a
canteen. Further, a portion of the land is being leased to
a private individual for her business enterprise under the
business name "Elliptical Orchids and Garden Center."
Indeed, the petitioner’s evidence shows that it collected
₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 for 1992
from the said lessees.
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.45 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.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The respondent Quezon City Assessor is
hereby DIRECTED to determine, after due hearing, the
precise portions of the land and the area thereof which
are leased to private persons, and to compute the real
property taxes due thereon as provided for by law.
SO ORDERED.
G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG
MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES,
INC., respondents.
PANGANIBAN, J.:
Is the income derived from rentals of real property owned
by the Young Men's Christian Association of the
Philippines, Inc. (YMCA) — established as "a welfare,
educational and charitable non-profit corporation" —
subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for
review on certiorari challenging two Resolutions issued by
the Court of Appeals1 on September 28, 19952 and
February 29, 19963 in CA-GR SP No. 32007. Both
Resolutions affirmed the Decision of the Court of Tax
Appeals (CTA) allowing the YMCA to claim tax
exemption on the latter's income from the lease of its real
property.
The Facts
The facts are undisputed.4 Private Respondent YMCA is a
non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious,
educational and charitable objectives.
In 1980, private respondent earned, among others, an
income of P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and
canteen operators, and P44,259.00 from parking fees
collected from non-members. On July 2, 1984, the
commissioner of internal revenue (CIR) issued an
assessment to private respondent, in the total amount of
P415,615.01 including surcharge and interest, for
deficiency income tax, deficiency expanded withholding
taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally
protested the assessment and, as a supplement to its
basic protest, filed a letter dated October 8, 1985. In
reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a
petition for review at the Court of Tax Appeals (CTA) on
March 14, 1989. In due course, the CTA issued this ruling
in favor of the YMCA:
. . . [T]he leasing of [private respondent's]
facilities to small shop owners, to
restaurant and canteen operators and
the operation of the parking lot are
reasonably incidental to and reasonably
necessary for the accomplishment of the
objectives of the [private respondents]. It
appears from the testimonies of the
witnesses for the [private respondent]
particularly Mr. James C. Delote, former
accountant of YMCA, that these facilities
were leased to members and that they
have to service the needs of its members
and their guests. The rentals were
minimal as for example, the barbershop
was only charged P300 per month. He
also testified that there was actually no
lot devoted for parking space but the
parking was done at the sides of the
building. The parking was primarily for
members with stickers on the windshields
of their cars and they charged P.50 for
non-members. The rentals and parking
fees were just enough to cover the costs
of operation and maintenance only. The
earning[s] from these rentals and parking
charges including those from lodging
and other charges for the use of the
recreational facilities constitute [the] bulk
of its income which [is] channeled to
support its many activities and
attainment of its objectives. As pointed
out earlier, the membership dues are
very insufficient to support its program.
We find it reasonably necessary
therefore for [private respondent] to
make [the] most out [of] its existing
facilities to earn some income. It would
have been different if under the
circumstances, [private respondent] will
purchase a lot and convert it to a
parking lot to cater to the needs of the
general public for a fee, or construct a
building and lease it out to the highest
bidder or at the market rate for
commercial purposes, or should it invest
its funds in the buy and sell of properties,
real or personal. Under these
circumstances, we could conclude that
the activities are already profit oriented,
not incidental and reasonably necessary
to the pursuit of the objectives of the
association and therefore, will fall under
the last paragraph of Section 27 of the
Tax Code and any income derived
therefrom shall be taxable.
Considering our findings that [private
respondent] was not engaged in the
business of operating or contracting [a]
 parking lot, we find no legal basis also for
the imposition of [a] deficiency fixed tax
and [a] contractor's tax in the amount[s]
of P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing,
the following assessments are hereby
dismissed for lack of merit:
1980 Deficiency Fixed Tax — P353,15;
1980 Deficiency Contractor's Tax —
P3,129.23;
1980 Deficiency Income Tax —
P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding
Tax — P1,798.93;
1980 Deficiency Withholding Tax on
Wages — P33,058.82
plus 10% surcharge and 20% interest per
annum from July 2, 1984 until fully paid
but not to exceed three (3) years
pursuant to Section 51(e)(2) & (3) of the
National Internal Revenue Code
effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case
to the Court of Appeals (CA). In its Decision of February
16, 1994, the CA6 initially decided in favor of the CIR and
disposed of the appeal in the following manner:
Following the ruling in the afore-cited
cases of Province of Abra vs.
Hernando and Abra Valley College Inc.
vs. Aquino, the ruling of the respondent
Court of Tax Appeals that "the leasing of
petitioner's (herein respondent's) facilities
to small shop owners, to restaurant and
canteen operators and the operation of
the parking lot are reasonably incidental
to and reasonably necessary for the
accomplishment of the objectives of the
petitioners, and the income derived
therefrom are tax exempt, must be
reversed.
WHEREFORE, the appealed decision is
hereby REVERSED in so far as it dismissed
the assessment for:
1980 Deficiency Income
Tax P 353.15
1980 Deficiency
Contractor's Tax P
3,129.23, &
1980 Deficiency Income
Tax P 372,578.20
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration based
on the following grounds:
I First Issue:
The findings of facts of the Public
Respondent Court of Tax Appeals being
supported by substantial evidence [are]
final and conclusive.
II
The conclusions of law of [p]ublic
[r]espondent exempting [p]rivate
[r]espondent from the income on rentals
of small shops and parking fees [are] in
accord with the applicable law and
jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by
the YMCA, the CA reversed itself and promulgated on
September 28, 1995 its first assailed Resolution which, in
part, reads:
The Court cannot depart from the CTA's
findings of fact, as they are supported by
evidence beyond what is considered as
substantial.
xxx xxx xxx
The second ground raised is that the
respondent CTA did not err in saying that
the rental from small shops and parking
fees do not result in the loss of the
exemption. Not even the petitioner
would hazard the suggestion that YMCA
is designed for profit. Consequently, the
little income from small shops and
parking fees help[s] to keep its head
above the water, so to speak, and allow
it to continue with its laudable work.
The Court, therefore, finds the second
ground of the motion to be meritorious
and in accord with law and
jurisprudence.
WHEREFORE, the motion for
reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED in
toto.9
The internal revenue commissioner's own Motion for
Reconsideration was denied by Respondent Court in its
second assailed Resolution of February 29, 1996. Hence,
this petition for review under Rule 45 of the Rules of
Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the
following errors:
I
In holding that it had departed from the
findings of fact of Respondent Court of
Tax Appeals when it rendered its
Decision dated February 16, 1994; and
II
In affirming the conclusion of Respondent
Court of Tax Appeals that the income of
private respondent from rentals of small
shops and parking fees [is] exempt from
taxation. 11
This Court's Ruling
The petition is meritorious.
Factual Findings of the CTA
Private respondent contends that the February 16, 1994
CA Decision reversed the factual findings of the CTA. On
the other hand, petitioner argues that the CA merely
reversed the "ruling of the CTA that the leasing of private
respondent's facilities to small shop owners, to restaurant
and canteen operators and the operation of parking lots
are reasonably incidental to and reasonably necessary
for the accomplishment of the objectives of the private
respondent and that the income derived therefrom are
tax exempt." 12 Petitioner insists that what the appellate
court reversed was the legal conclusion, not the factual
finding, of the CTA. 13The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual
findings of the CTA, when supported by substantial
evidence, will be disturbed on appeal unless it is shown
that the said court committed gross error in the
appreciation of facts. 14 In the present case, this Court
finds that the February 16, 1994 Decision of the CA did not
deviate from this rule. The latter merely applied the law to
the facts as found by the CTA and ruled on the issue
raised by the CIR: "Whether or not the collection or
earnings of rental income from the lease of certain
premises and income earned from parking fees shall fall
under the last paragraph of Section 27 of the National
Internal Revenue Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It
merely resolved the aforementioned issue, as indeed it
was expected to. That it did so in a manner different from
that of the CTA did not necessarily imply a reversal of
factual findings.
The distinction between a question of law and a question
of fact is clear-cut. It has been held that "[t]here is a
question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of
facts; there is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged
facts." 16 In the present case, the CA did not doubt, much
less change, the facts narrated by the CTA. It merely
applied the law to the facts. That its interpretation or
conclusion is different from that of the CTA is not irregular
or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of
the YMCA from its real estate subject to tax? At the outset,
we set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on
corporations. — The following
organizations shall not be taxed under
this Title in respect to income received
by them as such —
xxx xxx xxx
(g) Civic league or organization not
organized for profit but operated
exclusively for the promotion of social
welfare;
(h) Club organized and operated
exclusively for pleasure, recreation, and
other non-profitable purposes, no part of
the net income of which inures to the
benefit of any private stockholder or
member;
xxx xxx xxx
Notwithstanding the provisions in the
preceding paragraphs, the income of
whatever kind and character of the
foregoing organizations from any of their
properties, real or personal, or from any
of their activities conducted for profit,
regardless of the disposition made of
such income, shall be subject to the tax
imposed under this Code. (as amended
by Pres. Decree No. 1457)
Petitioner argues that while the income received by the
organizations enumerated in Section 27 (now Section 26)
of the NIRC is, as a rule, exempted from the payment of
tax "in respect to income received by them as such," the
exemption does not apply to income derived ". . . from
any of their properties, real or personal, or from any of
their activities conducted for profit, regardless of the
disposition made of such income . . . ."
Petitioner adds that "rental income derived by a tax-
exempt organization from the lease of its properties, real
or personal, [is] not, therefore, exempt from income
taxation, even if such income [is] exclusively used for the
accomplishment of its objectives." 17 We agree with the
commissioner.
Because taxes are the lifeblood of the nation, the Court
has always applied the doctrine of strict in interpretation
in construing tax exemptions. 18 Furthermore, a claim of
statutory exemption from taxation should be manifest.
and unmistakable from the language of the law on which
it is based. Thus, the claimed exemption "must expressly
be granted in a statute stated in a language too clear to
be mistaken." 19
In the instant case, the exemption claimed by the YMCA
is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which
mandates that the income of exempt organizations (such
as the YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the same
Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the
YMCA from its real property, 20 the Court is duty-bound to
abide strictly by its literal meaning and to refrain from
resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear
and unambiguous, its express terms must be
applied. 21 Parenthetically, a consideration of the
question of construction must not even begin, particularly
when such question is on whether to apply a strict
construction or a liberal one on statutes that grant tax
exemptions to "religious, charitable and educational
propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues,
should be "subject to the qualification that the income
from the properties must arise from activities 'conducted
for profit' before it may be considered taxable." 23This
argument is erroneous. As previously stated, a reading of
said paragraph ineludibly shows that the income from
any property of exempt organizations, as well as that
arising from any activity it conducts for profit, is taxable.
The phrase "any of their activities conducted for profit"
does not qualify the word "properties." This makes from
the property of the organization taxable, regardless of
how that income is used — whether for profit or for lofty
non-profit purposes.
Verba legis non est recedendum. Hence, Respondent
Court of Appeals committed reversible error when it
allowed, on reconsideration, the tax exemption claimed
by YMCA on income it derived from renting out its real
property, on the solitary but unconvincing ground that the
said income is not collected for profit but is merely
incidental to its operation. The law does not make a
distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or
disposed of. Where the law does not distinguish, neither
should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law,
private respondent submits that Article VI, Section 28 of
par. 3 of the 1987 Constitution, 24 exempts "charitable
institutions" from the payment not only of property taxes
but also of income tax from any source. 25 In support of its
novel theory, it compares the use of the words "charitable
institutions," "actually" and "directly" in the 1973 and the
1987 Constitutions, on the one hand; and in Article VI,
Section 22, par. 3 of the 1935 Constitution, on the other
hand. 26
Private respondent enunciates three points. First, the
present provision is divisible into two categories: (1)
"[c]haritable institutions, churches and parsonages or
convents appurtenant thereto, mosques and non-profit
cemeteries," the incomes of which are, from whatever
source, all tax-exempt; 27 and (2) "[a]ll lands, buildings
and improvements actually and directly used for
religious, charitable or educational purposes," which are
exempt only from property taxes. 28 Second, Lladoc v.
Commissioner of Internal Revenue, 29which limited the
exemption only to the payment of property taxes,
referred to the provision of the 1935 Constitution and not
to its counterparts in the 1973 and the 1987
Constitutions. 30 Third, the phrase "actually, directly and
exclusively used for religious, charitable or educational
purposes" refers not only to "all lands, buildings and
improvements," but also to the above-quoted first
category which includes charitable institutions like the
private respondent. 31
The Court is not persuaded. The debates, interpellations
and expressions of opinion of the framers of the
Constitution reveal their intent which, in turn, may have
guided the people in ratifying the Charter. 32 Such intent
must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former
constitutional commissioner, who is now a member of this
Court, stressed during the Concom debates that ". . . what
is exempted is not the institution itself . . .; those exempted
from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for
religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent
authority on the Constitution and also a member of the
Concom, adhered to the same view that the exemption
created by said provision pertained only to property
taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug
concurs, stating that "[t]he tax exemption
coversproperty taxes only." 35 Indeed, the income tax
exemption claimed by private respondent finds no basis
in Article VI, Section 26, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4,
par. 3 of the Character, 36 claiming that the YMCA "is a
non-stock, non-profit educational institution whose
revenues and assets are used actually, directly and
exclusively for educational purposes so it is exempt from
taxes on its properties and income." 37 We reiterate that
private respondent is exempt from the payment of
property tax, but not income tax on the rentals from its
property. The bare allegation alone that it is a non-stock,
non-profit educational institution is insufficient to justify its
exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are
construed strictissimi juris. Hence, for the YMCA to be
granted the exemption it claims under the aforecited
provision, it must prove with substantial evidence that (1)
it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes. However, the Court
notes that not a scintilla of evidence was submitted by
private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview
of Article XIV, Section 4, par. 3 of the Constitution? We rule
that it is not. The term "educational institution" or
"institution of learning" has acquired a well-known
technical meaning, of which the members of the
Constitutional Commission are deemed
cognizant. 38 Under the Education Act of 1982, such term
refers to schools. 39 The school system is synonymous with
formal education, 40 which "refers to the hierarchically
structured and chronologically graded learnings
organized and provided by the formal school system and
for which certification is required in order for the learner to
progress through the grades or move to the higher
levels." 41 The Court has examined the "Amended Articles
of Incorporation" and "By-Laws"43 of the YMCA, but found
nothing in them that even hints that it is a school or an
educational institution. 44
Furthermore, under the Education Act of 1982, even non-
formal education is understood to be school-based and
"private auspices such as foundations and civic-spirited
organizations" are ruled out. 45 It is settled that the term
"educational institution," when used in laws granting tax
exemptions, refers to a ". . . school seminary, college or
educational establishment . . . ." 46 Therefore, the private
respondent cannot be deemed one of the educational
institutions covered by the constitutional provision under
consideration.
. . . Words used in the Constitution are to
be taken in their ordinary acceptation.
While in its broadest and best sense
education embraces all forms and
phases of instruction, improvement and
development of mind and body, and as
well of religious and moral sentiments,
yet in the common understanding and
application it means a place where
systematic instruction in any or all of the
useful branches of learning is given by
methods common to schools and
institutions of learning. That we conceive
to be the true intent and scope of the
term [educational institutions,] as used in
the
Constitution. 47
Moreover, without conceding that Private Respondent
YMCA is an educational institution, the Court also notes
that the former did not submit proof of the proportionate
amount of the subject income that was actually, directly
and exclusively used for educational purposes. Article
XIII, Section 5 of the YMCA by-laws, which formed part of
the evidence submitted, is patently insufficient, since the
same merely signified that "[t]he net income derived from
the rentals of the commercial buildings shall be
apportioned to the Federation and Member Associations
as the National Board may decide." 48 In sum, we find no
basis for granting the YMCA exemption from income tax
under the constitutional provision invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not
support its cause. YMCA of Manila v. Collector of Internal
Revenue 50 and Abra Valley College, Inc. v. Aquino 51 are
not applicable, because the controversy in both cases
involved exemption from the payment of property tax,
not income tax. Hospital de San Juan de Dios, Inc. v.
Pasay City 52 is not in point either, because it involves a
claim for exemption from the payment of regulatory fees,
specifically electrical inspection fees, imposed by an
ordinance of Pasay City — an issue not at all related to
that involved in a claimed exemption from the payment
of income taxes imposed on property leases. In Jesus
Sacred Heart College v. Com. of Internal Revenue, 53 the
party therein, which claimed an exemption from the
payment of income tax, was an educational institution
which submitted substantial evidence that the income
subject of the controversy had been devoted or used
solely for educational purposes. On the other hand, the
private respondent in the present case has not given any
proof that it is an educational institution, or that part of its
rent income is actually, directly and exclusively used for
educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its
sympathy with private respondent. It appreciates the
nobility of its cause. However, the Court's power and
function are limited merely to applying the law fairly and
objectively. It cannot change the law or bend it to suit its
sympathies and appreciations. Otherwise, it would be
overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help
and the encouragement of the government. It needs laws
that can facilitate, and not frustrate, its humanitarian
tasks. But the Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom or
propriety of legislation. That prerogative belongs to the
political departments of government. Indeed, some of the
members of the Court may even believe in the wisdom
and prudence of granting more tax exemptions to private
respondent. But such belief, however well-meaning and
sincere, cannot bestow upon the Court the power to
change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of
the Court of Appeals dated September 28, 1995 and
February 29, 1996 are hereby REVERSED and SET ASIDE.
The Decision of the Court of Appeals dated February 16,
1995 is REINSTATED, insofar as it ruled that the income
derived by petitioner from rentals of its real property is
subject to income tax. No pronouncement as to costs.
SO ORDERED.
G.R. No. 196596
COMMISSIONER OF INTERNAL REVENUE, Petitioner
vs.
DE LA SALLE UNIVERSITY, INC., Respondent
x-----------------------x
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 198941
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
DE LA SALLE UNIVERSITY, INC., Respondent.
DECISION
BRION, J.:
Before the Court are consolidated petitions for review
on certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal
Revenue (Commissioner) to assail the December 10, 2010
decision and March 29, 2011 resolution of the Court of Tax
Appeals (CTA) in En Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University,
Inc. (DLSU) to assail the June 8, 2011 decision and
October 4, 2011 resolution in CTA En Banc Case No.
671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail the
June 8, 2011 decision and October 4, 2011 resolution in
CTA En Banc Case No. 671.4
G.R. Nos. 196596, 198841 and 198941 all originated from
CTA Special First Division (CTA Division) Case No.
7303. G.R. No. 196596 stemmed from CTA En Banc Case
No. 622 filed by the Commissioner to challenge CTA Case
No. 7303. G.R. No. 198841 and 198941 both stemmed
from CTA En Banc Case No. 671 filed by DLSU to also
challenge CTA Case No. 7303.
The Factual Antecedents
Sometime in 2004, the Bureau of Internal
Revenue (BIR) issued to DLSU Letter of Authority (LOA) No.
2794 authorizing its revenue officers to examine the
latter's books of accounts and other accounting records
for all internal revenue taxes for the period Fiscal Year
Ending 2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment
Notice to DLSU.6
Subsequently on August 18, 2004, the BIR through
a Formal Letter of Demand assessed DLSU the following
deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within
the campus; (2) value-added tax (VAI) on business
income; and (3) documentary stamp tax (DSI) on loans
and lease contracts. The BIR demanded the payment
of ₱17,303,001.12, inclusive of surcharge, interest and
penalty for taxable years 2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner failed
to act on the protest; thus, DLSU filed on August 3, 2005 a
petition for review with the CTA Division.8
DLSU, a non-stock, non-profit educational
institution, principally anchored its petition on Article XIV,
Section 4 (3)of the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from
taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted
DLSU's petition for review. The dispositive portion of the
decision reads:
WHEREFORE, the Petition for Review is PARTIALLY
GRANTED. The DST assessment on the loan transactions of
[DLSU] in the amount of ₱1,1681,774.00 is
hereby CANCELLED. However, [DLSU] is ORDERED TO
PAY deficiency income tax, VAT and DST on its lease
contracts, plus 25% surcharge for the fiscal years 2001,
2002 and 2003 in the total amount of ₱18,421,363.53 ...
xxx.
In addition, [DLSU] is hereby held liable to pay 20%
delinquency interest on the total amount due computed
from September 30, 2004 until full payment thereof
pursuant to Section 249(C)(3) of the [National Internal
Revenue Code]. Further, the compromise penalties
imposed by [the Commissioner] were excluded, there
being no compromise agreement between the parties.
SO ORDERED.9
Both the Commissioner and DLSU moved for the
reconsideration of the January 5, 2010 decision.10 On April
6, 2010, the CTA Division denied the Commissioner's
motion for reconsideration while it held in abeyance the
resolution on DLSU's motion for reconsideration.11
On May 13, 2010, the Commissioner appealed to the
CTA En Banc (CTA En Banc Case No. 622) arguing that
DLSU's use of its revenues and assets for non-educational
or commercial purposes removed these items from the
exemption coverage under the Constitution.12
On May 18, 2010, DLSU formally offered to the CTA
Division supplemental pieces of documentary evidence
to prove that its rental income was used actually, directly
and exclusively for educational purposes.13 The
Commissioner did not promptly object to the formal offer
of supplemental evidence despite notice.14
On July 29, 2010, the CTA Division, in view of the
supplemental evidence submitted, reduced the amount
of DLSU's tax deficiencies. The dispositive portion of
the amended decision reads:
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is
hereby PARTIALLY GRANTED. [DLSU] is hereby ORDERED TO
PAY for deficiency income tax, VAT and DST plus 25%
surcharge for the fiscal years 2001, 2002 and 2003 in the
total adjusted amount of ₱5,506,456.71 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% per
annum deficiency interest on the ... basic deficiency
taxes ... until full payment thereof pursuant to Section
249(B) of the [National Internal Revenue Code] ... xxx.
Further, [DLSU] is hereby held liable to pay 20% per
annum delinquency interest on the deficiency taxes,
surcharge and deficiency interest which have accrued ...
from September 30, 2004 until fully paid.15
Consequently, the Commissioner supplemented its
petition with the CTA En Banc and argued that the CTA
Division erred in admitting DLSU's additional evidence.16
Dissatisfied with the partial reduction of its tax liabilities,
DLSU filed a separate petition for review with the CTA En
Banc (CTA En Banc Case No. 671) on the following
grounds: (1) the entire assessment should have been
cancelled because it was based on an invalid LOA; (2)
assuming the LOA was valid, the CTA Division should still
have cancelled the entire assessment because DLSU
submitted evidence similar to those submitted by Ateneo
De Manila University (Ateneo) in a separate case where
the CTA cancelled Ateneo's tax assessment;17 and (3) the
CTA Division erred in finding that a portion of DLSU's rental
income was not proved to have been used actually,
directly and exclusively for educational purposes.18
The CTA En Banc Rulings
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for
review and sustained the findings of the CTA Division.19
Tax on rental income
Relying on the findings of the court-commissioned
Independent Certified Public Accountant (Independent
CPA), the CTA En Banc found that DLSU was able to
prove that a portion of the assessed rental income was
used actually, directly and exclusively for educational
purposes; hence, exempt from tax.20 The CTA En
Banc was satisfied with DLSU's supporting evidence
confirming that part of its rental income had indeed
been used to pay the loan it obtained to build the
university's Physical Education – Sports Complex.21
Parenthetically, DLSU's unsubstantiated claim for
exemption, i.e., the part of its income that was not shown
by supporting documents to have been actually, directly
and exclusively used for educational purposes, must be
subjected to income tax and VAT.22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention,
DLSU froved its remittance of the DST due on its loan and
mortgage documents.23 The CTA En Banc found that
DLSU's DST payments had been remitted to the BIR,
evidenced by the stamp on the documents made by a
DST imprinting machine, which is allowed under Section
200 (D) of the National Internal Revenue Code (Tax
Code)24 and Section 2 of Revenue Regulations (RR) No.
15-2001.25
Admissibility of DLSU's supplemental evidence
The CTA En Banc held that the supplemental pieces of
documentary evidence were admissible even if DLSU
formally offered them only when it moved for
reconsideration of the CTA Division's original decision.
Notably, the law creating the CTA provides that
proceedings before it shall not be governed strictly by the
technical rules of evidence.26
The Commissioner moved but failed to obtain a
reconsideration of the CTA En Banc's December 10, 2010
decision.27 Thus, she came to this court for relief through a
petition for review on certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for
review and further reduced its tax liabilities
to ₱2,554,825.47inclusive of surcharge.28
On the validity of the Letter of Authority
The issue of the LOA' s validity was raised during
trial;29 hence, the issue was deemed properly submitted
for decision and reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA
should cover only one taxable period and that the
practice of issuing a LOA covering audit of unverified
prior years is prohibited.30 The prohibition is consistent with
Revenue Memorandum Order (RMO) No. 43-90, which
provides that if the audit includes more than one taxable
period, the other periods or years shall be specifically
indicated in the LOA.31
In the present case, the LOA issued to DLSU is for Fiscal
Year Ending 2003 and Unverified Prior Years. Hence, the
assessments for deficiency income tax, VAT and DST for
taxable years 2001 and 2002 are void, but the assessment
for taxable year 2003 is valid.32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid
precedent because it involved different parties, factual
settings, bases of assessments, sets of evidence, and
defenses.33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation
of DLSU' s evidence. It held that while DLSU successfully
proved that a portion of its rental income was transmitted
and used to pay the loan obtained to fund the
construction of the Sports Complex, the rental income
from other sources were not shown to have been
actually, directly and exclusively used for educational
purposes.34
Not pleased with the CTA En Banc's ruling, both DLSU
(G.R. No. 198841) and the Commissioner (G.R. No.
198941) came to this Court for relief.
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First, DLSU's rental income is taxable regardless of how
such income is derived, used or disposed of.35 DLSU's
operations of canteens and bookstores within its campus
even though exclusively serving the university community
do not negate income tax liability.36
The Commissioner contends that Article XIV, Section 4 (3)
of the Constitution must be harmonized with Section 30
(H) of the Tax Code, which states among others, that the
income of whatever kind and character of [a non-stock
and non-profit educational institution] from any of [its]
properties, real or personal, or from any of [its] activities
conducted for profit regardless of the disposition made of
such income, shall be subject to tax imposed by this
Code.37
The Commissioner argues that the CTA En Banc misread
and misapplied the case of Commissioner of Internal
Revenue v. YMCA38 to support its conclusion that
revenues however generated are covered by the
constitutional exemption, provided that, the revenues will
be used for educational purposes or will be held in
reserve for such purposes.39
On the contrary, the Commissioner posits that a tax-
exempt organization like DLSU is exempt only from
property tax but not from income tax on the rentals
earned from property.40 Thus, DLSU's income from the
leases of its real properties is not exempt from taxation
even if the income would be used for educational
purposes.41
Second, the Commissioner insists that DLSU did not prove
the fact of DST payment42 and that it is not qualified to
use the On-Line Electronic DST Imprinting Machine, which
is available only to certain classes of taxpayers under RR
No. 9-2000.43
Finally, the Commissioner objects to the admission of
DLSU's supplemental offer of evidence. The belated
submission of supplemental evidence reopened the case
for trial, and worse, DLSU offered the supplemental
evidence only after it received the unfavorable CTA
Division's original decision.44 In any case, DLSU's submission
of supplemental documentary evidence was
unnecessary since its rental income was taxable
regardless of its disposition.45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA
with any indication of unverified prior years. A LOA issued
contrary to RMO No. 43-90 is void, thus, an assessment
issued based on such defective LOA must also be void.46
DLSU points out that the LOA issued to it covered
the Fiscal Year Ending 2003 and Unverified Prior Years. On
the basis of this defective LOA, the Commissioner
assessed DLSU for deficiency income tax, VAT and DST for
taxable years 2001, 2002 and 2003.47 DLSU objects to the
CTA En Banc's conclusion that the LOA is valid for taxable
year 2003. According to DLSU, when RMO No. 43-90
provides that:
The practice of issuing [LOAs] covering audit of 'unverified
prior years' is hereby prohibited.
it refers to the LOA which has the format "Base
Year + Unverified Prior Years." Since the LOA issued to
DLSU follows this format, then any assessment arising from
it must be entirely voided.48
Second, DLSU invokes the principle of uniformity in
taxation, which mandates that for similarly situated
parties, the same set of evidence should be appreciated
and weighed in the same manner.49 The CTA En
Banc erred when it did not similarly appreciate DLSU' s
evidence as it did to the pieces of evidence submitted
by Ateneo, also a non-stock, non-profit educational
institution.50
G.R. No. 198941
The issues and arguments raised by the Commissioner in
G.R. No. 198941 petition are exactly the same as those
she raised in her: (1) petition docketed as G.R. No. 196596
and (2) comment on DLSU's petition docketed as G.R.
No. 198841.51
Counter-arguments
DLSU's Comment on G.R. No. 196596
First, DLSU questions the defective verification attached
to the petition.52
Second, DLSU stresses that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of non-
stock, non-profit educational institutions used actually,
directly and exclusively for educational purposes are
exempt from taxes and duties.53
On this point, DLSU explains that: (1) the tax exemption of
non-stock, non-profit educational institutions is novel to
the 1987 Constitution and that Section 30 (H) of the 1997
Tax Code cannot amend the 1987 Constitution;54 (2)
Section 30 of the 1997 Tax Code is almost an exact
replica of Section 26 of the 1977 Tax Code -with the
addition of non-stock, non-profit educational institutions
to the list of tax-exempt entities; and (3) that the 1977 Tax
Code was promulgated when the 1973 Constitution was
still in place.
DLSU elaborates that the tax exemption granted to a
private educational institution under the 1973 Constitution
was only for real property tax. Back then, the special tax
treatment on income of private educational institutions
only emanates from statute, i.e., the 1977 Tax Code. Only
under the 1987 Constitution that exemption from tax of all
the assets and revenues of non-stock, non-profit
educational institutions used actually, directly and
exclusively for educational purposes, was expressly and
categorically enshrined.55
DLSU thus invokes the doctrine of constitutional
supremacy, which renders any subsequent law that is
contrary to the Constitution void and without any force
and effect.56 Section 30 (H) of the 1997 Tax Code insofar
as it subjects to tax the income of whatever kind and
character of a non-stock and non-profit educational
institution from any of its properties, real or personal, or
from any of its activities conducted for profit regardless of
the disposition made of such income, should be
declared without force and effect in view of the
constitutionally granted tax exemption on "all revenues
and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational
purposes."57
DLSU further submits that it complies with the
requirements enunciated in the YMCA case, that for an
exemption to be granted under Article XIV, Section 4 (3)
of the Constitution, the taxpayer must prove that: (1) it
falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly and
exclusively for educational purposes.58 Unlike YMCA,
which is not an educational institution, DLSU is
undisputedly a non-stock, non-profit educational
institution. It had also submitted evidence to prove that it
actually, directly and exclusively used its income for
educational purposes.59
DLSU also cites the deliberations of the 1986 Constitutional
Commission where they recognized that the tax
exemption was granted "to incentivize private
educational institutions to share with the State the
responsibility of educating the youth."60
Third, DLSU highlights that both the CTA En Banc and
Division found that the bank that handled DLSU' s loan
and mortgage transactions had remitted to the BIR the
DST through an imprinting machine, a method allowed
under RR No. 15-2001.61 In any case, DLSU argues that it
cannot be held liable for DST owing to the exemption
granted under the Constitution.62
Finally, DLSU underscores that the Commissioner, despite
notice, did not oppose the formal offer of supplemental
evidence. Because of the Commissioner's failure to timely
object, she became bound by the results of the
submission of such supplemental evidence.63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from
questioning the LOA's validity because it failed to raise
this issue in both the administrative and judicial
proceedings.64 That it was asked on cross-examination
during the trial does not make it an issue that the CTA
could resolve.65 The Commissioner also maintains that
DLSU's rental income is not tax-exempt because an
educational institution is only exempt from property tax
but not from tax on the income earned from the
property.66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments
discussed above.67 In addition, DLSU prays that the Court
award attorney's fees in its favor because it was
constrained to unnecessarily retain the services of
counsel in this separate petition.68
Issues
Although the parties raised a number of issues, the Court
shall decide only the pivotal issues, which we summarize
as follows:
I. Whether DLSU' s income and revenues proved
to have been used actually, directly and
exclusively for educational purposes are exempt
from duties and taxes;
II. Whether the entire assessment should be
voided because of the defective LOA;
III. Whether the CTA correctly admitted DLSU's
supplemental pieces of evidence; and
IV. Whether the CTA's appreciation of the
sufficiency of DLSU's evidence may be disturbed
by the Court.
Our Ruling
As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock,
non-profit educational institutions proved to have
been used actually, directly and exclusively for
educational purposes are exempt from duties
and taxes.
II. The LOA issued to DLSU is not entirely void. The
assessment for taxable year 2003 is valid.
III. The CTA correctly admitted DLSU's formal offer
of supplemental evidence; and
IV. The CTA's appreciation of evidence is
conclusive unless the CTA is shown to have
manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly
considered, would justify a different conclusion.
The parties failed to convince the Court that the CTA
overlooked or failed to consider relevant facts. We thus
sustain the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income
was used actually, directly and exclusively for
educational purposes; and
b. DLSU proved the payment of the DST through
its bank's on-line imprinting machine.
I. The revenues and assets of non-stock,
non-profit educational institutions
proved to have been used actually,
directly, and exclusively for educational
purposes are exempt from duties and
taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987
Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall
be exempt from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided
by law.
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
exemptions subject to
the limitations provided by law including restrictions on
dividends and provisions for reinvestment. [underscoring
and emphasis supplied]
Before fully discussing the merits of the case, we observe
that:
First, the constitutional provision refers to two kinds of
educational institutions: (1) non-stock, non-profit
educational institutions and (2) proprietary educational
institutions.69
Second, DLSU falls under the first category. Even the
Commissioner admits the status of DLSU as a non-stock,
non-profit educational institution.70
Third, while DLSU's claim for tax exemption arises from and
is based on the Constitution, the Constitution, in the same
provision, also imposes certain conditions to avail of the
exemption. We discuss below the import of the
constitutional text vis-a-vis the Commissioner's counter-
arguments.
Fourth, there is a marked distinction between the
treatment of non-stock, non-profit educational institutions
and proprietary educational institutions. The tax
exemption granted to non-stock, non-profit educational
institutions is conditioned only on the actual, direct and
exclusive use of their revenues and assets for educational
purposes. While tax exemptions may also be granted to
proprietary educational institutions, these exemptions
may be subject to limitations imposed by Congress.
As we explain below, the marked distinction between a
non-stock, non-profit and a proprietary educational
institution is crucial in determining the nature and extent
of the tax exemption granted to non-stock, non-profit
educational institutions.
The Commissioner opposes DLSU's claim for tax
exemption on the basis of Section 30 (H) of the Tax Code.
The relevant text reads:
The following organizations shall not be taxed under this
Title [Tax on
Income] in respect to income received by them as such:
xxxx
(H) A non-stock and non-profit educational institution
xxxx
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities
conducted for
profit regardless of the disposition made of such income s
hall be subject to tax imposed under this
Code. [underscoring and emphasis supplied]
The Commissioner posits that the 1997 Tax Code qualified
the tax exemption granted to non-stock, non-profit
educational institutions such that the revenues and
income they derived from their assets, or from any of their
activities conducted for profit, are taxable even if these
revenues and income are used for educational purposes.
Did the 1997 Tax Code qualify the tax
exemption constitutionally-granted to non-stock, non-
profit educational institutions?
We answer in the negative.
While the present petition appears to be a case of first
impression,71 the Court in the YMCA case had in fact
already analyzed and explained the meaning of Article
XIV, Section 4 (3) of the Constitution. The Court in that
case made doctrinal pronouncements that are relevant
to the present case.
The issue in YMCA was whether the income derived from
rentals of real property owned by the YMCA, established
as a "welfare, educational and charitable non-profit
corporation," was subject to income tax under the Tax
Code and the Constitution.72
The Court denied YMCA's claim for exemption on the
ground that as a charitable institution falling under Article
VI, Section 28 (3) of the Constitution,73 the YMCA is not
tax-exempt per se; " what is exempted is not the
institution itself... those exempted from real estate
taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or
educational purposes."74
The Court held that the exemption claimed by the YMCA
is expressly disallowed by the last paragraph of then
Section 27 (now Section 30) of the Tax Code, which
mandates that the income of exempt organizations from
any of their properties, real or personal, are subject to the
same tax imposed by the Tax Code, regardless of how
that income is used. The Court ruled that the last
paragraph of Section 27 unequivocally subjects to tax
the rent income of the YMCA from its property.75
In short, the YMCA is exempt only from property tax but
not from income tax.
As a last ditch effort to avoid paying the taxes on its
rental income, the YMCA invoked the tax privilege
granted under Article XIV, Section 4 (3) of the
Constitution.
The Court denied YMCA's claim that it falls under Article
XIV, Section 4 (3) of the Constitution holding that the
term educational institution, when used in laws granting
tax exemptions, refers to the school system (synonymous
with formal education); it includes a college or an
educational establishment; it refers to the hierarchically
structured and chronologically graded learnings
organized and provided by the formal school system.76
The Court then significantly laid down the requisites for
availing the tax exemption under Article XIV, Section 4
(3), namely: (1) the taxpayer falls under the
classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted
from taxation is used actually, directly and exclusively for
educational purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is
without force and effect with respect to non-stock, non-
profit educational institutions, provided, that the non-
stock, non-profit educational institutions prove that its
assets and revenues are used actually, directly and
exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-
stock, non-profit educational institutions, is not subject to
limitations imposed by law.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions is conditioned only
on the actual, direct and exclusive use of
their assets, revenues and income78 for
educational purposes.
We find that unlike Article VI, Section 28 (3) of the
Constitution (pertaining to charitable institutions,
churches, parsonages or convents, mosques, and non-
profit cemeteries), which exempts from
tax only the assets,
i.e., "all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or
educational purposes ... ," Article XIV, Section 4
(3) categorically states that "[a]ll revenues and assets ...
used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties."
The addition and express use of the word revenues in
Article XIV, Section 4 (3) of the Constitution is not without
significance.
We find that the text demonstrates the policy of the 1987
Constitution, discernible from the records of the 1986
Constitutional Commission79 to provide broader tax
privilege to non-stock, non-profit educational institutions
as recognition of their role in assisting the State provide a
public good. The tax exemption was seen as beneficial to
students who may otherwise be charged unreasonable
tuition fees if not for the tax exemption extended
to all revenues and assets of non-stock, non-profit
educational institutions.80
Further, a plain reading of the Constitution would show
that Article XIV, Section 4 (3) does not require that the
revenues and income must have also been sourced from
educational activities or activities related to the purposes
of an educational institution. The phrase all revenues is
unqualified by any reference to the source of revenues.
Thus, so long as the revenues and income are used
actually, directly and exclusively for educational
purposes, then said revenues and income shall be
exempt from taxes and duties.81
We find it helpful to discuss at this point the taxation
of revenues versus the taxation of assets.
Revenues consist of the amounts earned by a person or
entity from the conduct of business operations.82 It may
refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the
tax base in income tax,83 VAT,84 and local business
tax (LBT).85
Assets, on the other hand, are the tangible and
intangible properties owned by a person or entity.86 It
may refer to real estate, cash deposit in a bank,
investment in the stocks of a corporation, inventory of
goods, or any property from which the person or entity
may derive income or use to generate the same. In
Philippine taxation, the fair market value of real property
is a component of the tax base in real property
tax (RPT).87 Also, the landed cost of imported goods is a
component of the tax base in VAT on importation88 and
tariff duties.89
Thus, when a non-stock, non-profit educational institution
proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted
from income tax, VAT, and LBT. On the other hand, when
it also shows that it uses its assets in the form of real
property for educational purposes, it shall be exempted
from RPT.
To be clear, proving the actual use of the taxable item
will result in an exemption, but the specific tax from which
the entity shall be exempted from shall depend on
whether the item is an item of revenue or asset.
To illustrate, if a university leases a portion of its school
building to a bookstore or cafeteria, the leased portion
is not actually, directly and exclusively used for
educational purposes, even if the bookstore or canteen
caters only to university students, faculty and staff.
The leased portion of the building may be subject to real
property tax, as held in Abra Valley College, Inc. v.
Aquino.90 We ruled in that case that the test of exemption
from taxation is the use of the property for purposes
mentioned in the Constitution. We also held that the
exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of the
main purposes.
In concrete terms, the lease of a portion of a school
building for commercial purposes, removes
such asset from the property tax exemption granted
under the Constitution.91 There is no exemption because
the asset is not used actually, directly and exclusively for
educational purposes. The commercial use of the
property is also not incidental to and reasonably
necessary for the accomplishment of the main purpose
of a university, which is to educate its students.
However, if the university actually, directly and exclusively
uses for educational purposes the revenues earned from
the lease of its school building, such revenues shall be
exempt from taxes and duties. The tax exemption no
longer hinges on the use of the asset from which the
revenues were earned, but on the actual, direct and
exclusive use of the revenues for educational purposes.
Parenthetically, income and revenues of non-stock, non-
profit educational institution not used actually, directly
and exclusively for educational purposes are not exempt
from duties and taxes. To avail of the exemption, the
taxpayer must factually prove that it used actually,
directly and exclusively for educational purposes the
revenues or income sought to be exempted.
The crucial point of inquiry then is on the use of the
assets or on the use of the revenues. These are two things
that must be viewed and treated separately. But so long
as the assets or revenues are used actually, directly and
exclusively for educational purposes, they are exempt
from duties and taxes.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.
That the Constitution treats non-stock, non-profit
educational institutions differently from proprietary
educational institutions cannot be doubted. As discussed,
the privilege granted to the former is conditioned only on
the actual, direct and exclusive use of their revenues and
assets for educational purposes. In clear contrast, the tax
privilege granted to the latter may be subject to
limitations imposed by law.
We spell out below the difference in treatment if only to
highlight the privileged status of non-stock, non-profit
educational institutions compared with their proprietary
counterparts.
While a non-stock, non-profit educational institution is
classified as a tax-exempt entity under Section
30 (Exemptions from Tax on Corporations) of the Tax
Code, a proprietary educational institution is covered by
Section 27 (Rates of Income Tax on Domestic
Corporations).
To be specific, Section 30 provides that exempt
organizations like non-stock, non-profit educational
institutions shall not be taxed on income received by
them as such.
Section 27 (B), on the other hand, states that
"[p]roprietary educational institutions ... which are
nonprofit shall pay a tax of ten percent (10%) on their
taxable income .. . Provided, that if the gross income
from unrelated trade, business or other activity exceeds
fifty percent (50%) of the total gross income derived by
such educational institutions ... [the regular corporate
income tax of 30%] shall be imposed on the entire
taxable income ... "92
By the Tax Code's clear terms, a proprietary educational
institution is entitled only to the reduced rate of 10%
corporate income tax. The reduced rate is applicable
only if: (1) the proprietary educational institution is
nonprofit and (2) its gross income from unrelated trade,
business or activity does not exceed 50% of its total gross
income.
Consistent with Article XIV, Section 4 (3) of the
Constitution, these limitations do not apply to non-stock,
non-profit educational institutions.
Thus, we declare the last paragraph of Section 30 of the
Tax Code without force and effect for being contrary to
the Constitution insofar as it subjects to tax the income
and revenues of non-stock, non-profit educational
institutions used actually, directly and exclusively for
educational purpose. We make this declaration in the
exercise of and consistent with our duty93 to uphold the
primacy of the Constitution.94
Finally, we stress that our holding here pertains only to
non-stock, non-profit educational institutions and does
not cover the other exempt organizations under Section
30 of the Tax Code.
For all these reasons, we hold that the income and
revenues of DLSU proven to have been used actually,
directly and exclusively for educational purposes are
exempt from duties and taxes.
II. The LOA issued to DLSU is
not entirely void. The
assessment for taxable year
2003 is valid.
DLSU objects to the CTA En Banc 's conclusion that the
LOA is valid for taxable year 2003 and insists that the
entire LOA should be voided for being contrary to RMO
No. 43-90, which provides that if tax audit includes more
than one taxable period, the other periods or years shall
be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue
officer to examine the books of account and other
accounting records of the taxpayer in order to determine
the taxpayer's correct internal revenue liabilities 95 and for
the purpose of collecting the correct amount of tax,96 in
accordance with Section 5 of the Tax Code, which gives
the CIR the power to obtain information, to
summon/examine, and take testimony of persons. The
LOA commences the audit process97 and informs the
taxpayer that it is under audit for possible deficiency tax
assessment.
Given the purposes of a LOA, is there basis to completely
nullify the LOA issued to DLSU, and consequently,
disregard the BIR and the CTA's findings of tax deficiency
for taxable year 2003?
We answer in the negative.
The relevant provision is Section C of RMO No. 43-90, the
pertinent portion of which reads:
3. A Letter of Authority [LOA] should cover a taxable
period not exceeding one taxable year. The practice of
issuing [LO As] covering audit of unverified prior years is
hereby prohibited. If the audit of a taxpayer shall include
more than one taxable period, the other periods or years
shall be specifically indicated in the [LOA].98
What this provision clearly prohibits is the practice of
issuing LOAs covering audit of unverified prior years. RMO
43-90 does not say that a LOA which contains unverified
prior years is void. It merely prescribes that if the audit
includes more than one taxable period, the other periods
or years must be specified. The provision read as a whole
requires that if a taxpayer is audited for more than one
taxable year, the BIR must specify each taxable year or
taxable period on separate LOAs.
Read in this light, the requirement to specify the taxable
period covered by the LOA is simply to inform the
taxpayer of the extent of the audit and the scope of the
revenue officer's authority. Without this rule, a revenue
officer can unduly burden the taxpayer by demanding
random accounting records from random unverified
years, which may include documents from as far back as
ten years in cases of fraud audit.99
In the present case, the LOA issued to DLSU is for Fiscal
Year Ending 2003 and Unverified Prior Years. The LOA
does not strictly comply with RMO 43-90 because it
includes unverified prior years. This does not mean,
however, that the entire LOA is void.
As the CTA correctly held, the assessment for taxable
year 2003 is valid because this taxable period is specified
in the LOA. DLSU was fully apprised that it was being
audited for taxable year 2003. Corollarily, the assessments
for taxable years 2001 and 2002 are void for having
been unspecified on separate LOAs as required under
RMO No. 43-90.
Lastly, the Commissioner's claim that DLSU failed to raise
the issue of the LOA' s validity at the CTA Division, and
thus, should not have been entertained on appeal, is not
accurate.
On the contrary, the CTA En Banc found that the issue of
the LOA's validity came up during the trial.100 DLSU then
raised the issue in its memorandum and motion for partial
reconsideration with the CTA Division. DLSU raised it again
on appeal to the CTA En Banc. Thus, the CTA En
Banc could, as it did, pass upon the validity of the
LOA.101Besides, the Commissioner had the opportunity to
argue for the validity of the LOA at the CTA En Banc but
she chose not to file her comment and memorandum
despite notice.102
III.The CTA correctly admitted
the supplemental evidence
formally offered by DLSU.
The Commissioner objects to the CTA Division's admission
of DLSU's supplemental pieces of documentary evidence.
To recall, DLSU formally offered its supplemental evidence
upon filing its motion for reconsideration with the CTA
Division.103 The CTA Division admitted the supplemental
evidence, which proved that a portion of DLSU's rental
income was used actually, directly and exclusively for
educational purposes. Consequently, the CTA Division
reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the
supplemental evidence on distinct but mutually
reinforcing grounds, to wit: (1) the Commissioner failed to
timely object to the formal offer of supplemental
evidence; and (2) the CTA is not governed strictly by the
technical rules of evidence.
First, the failure to object to the offered evidence renders
it admissible, and the court cannot, on its own, disregard
such evidence.104
The Court has held that if a party desires the court to
reject the evidence offered, it must so state in the form of
a timely objection and it cannot raise the objection to
the evidence for the first time on appeal.105 Because of a
party's failure to timely object, the evidence offered
becomes part of the evidence in the case. As a
consequence, all the parties are considered bound by
any outcome arising from the offer of evidence properly
presented.106
As disclosed by DLSU, the Commissioner did not oppose
the supplemental formal offer of evidence despite
notice.107 The Commissioner objected to the admission of
the supplemental evidence only when the case was on
appeal to the CTA En Banc. By the time the
Commissioner raised her objection, it was too late;
the formal offer, admission and evaluation of the
supplemental evidence were all fait accompli.
We clarify that while the Commissioner's failure to
promptly object had no bearing on the materiality or
sufficiency of the supplemental evidence admitted, she
was bound by the outcome of the CTA Division's
assessment of the evidence.108
Second, the CTA is not governed strictly by the technical
rules of evidence. The CTA Division's admission of the
formal offer of supplemental evidence, without prompt
objection from the Commissioner, was thus justified.
Notably, this Court had in the past admitted and
considered evidence attached to the taxpayers' motion
for reconsideration.1âwphi1
In the case of BPI-Family Savings Bank v. Court of
Appeals,109 the tax refund claimant attached to its
motion for reconsideration with the CT A its Final
Adjustment Return. The Commissioner, as in the present
case, did not oppose the taxpayer's motion for
reconsideration and the admission of the Final
Adjustment Return.110 We thus admitted and gave weight
to the Final Adjustment Return although it was only
submitted upon motion for reconsideration.
We held that while it is true that strict procedural rules
generally frown upon the submission of documents after
the trial, the law creating the CTA specifically provides
that proceedings before it shall not be governed strictly
by the technical rules of evidence111 and that the
paramount consideration remains the ascertainment of
truth. We ruled that procedural rules should not bar courts
from considering undisputed facts to arrive at a just
determination of a controversy.112
We applied the same reasoning in the subsequent cases
of Filinvest Development Corporation v. Commissioner of
Internal Revenue113 and Commissioner of Internal
Revenue v. PERF Realty Corporation, 114 where the
taxpayers also submitted the supplemental supporting
document only upon filing their motions for
reconsideration.
Although the cited cases involved claims for tax
refunds, we also dispense with the strict application of the
technical rules of evidence in the present tax
assessment case. If anything, the liberal application of
the rules assumes greater force and significance in the
case of a taxpayer who claims a constitutionally granted
tax exemption. While the taxpayers in the cited cases
claimed refund of excess tax payments based on the Tax
Code,115 DLSU is claiming tax exemption based on the
Constitution. If liberality is afforded to taxpayers who paid
more than they should have under a statute, then with
more reason that we should allow a taxpayer to prove its
exemption from tax based on the Constitution.
Hence, we sustain the CTA's admission of DLSU's
supplemental offer of evidence not only because the
Commissioner failed to promptly object, but more so
because the strict application of the technical rules of
evidence may defeat the intent of the Constitution.
IV. The CTA's appreciation of
evidence is generally binding on
the Court unless compelling
reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the
conclusions reached by the CTA which, by the very
nature of its function of being dedicated exclusively to
the resolution of tax problems, has developed an
expertise on the subject, unless there has been an abuse
or improvident exercise of authority.116 We thus accord
the findings of fact by the CTA with the highest respect.
These findings of facts can only be disturbed on appeal if
they are not supported by substantial evidence or there is
a showing of gross error or abuse on the part of the CTA.
In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered
a decision which is valid in every respect.117
We sustain the factual findings of the CTA.
The parties failed to raise credible basis for us to disturb
the CTA's findings that DLSU had used actually, directly
and exclusively for educational purposes a portion of its
assessed income and that it had remitted the DST
payments though an online imprinting machine.
a. DLSU used actually, directly, and exclusively for
educational purposes a portion of its assessed income.
To see how the CTA arrived at its factual findings, we
review the process undertaken, from which it deduced
that DLSU successfully proved that it used actually,
directly and exclusively for educational purposes
a portion of its rental income.
The CTA reduced DLSU' s deficiency income tax and VAT
liabilities in view of the submission of the supplemental
evidence, which consisted of statement of receipts,
statement of disbursement and fund
balance and statement of fund changes.118
These documents showed that DLSU borrowed ₱93.86
Million,119 which was used to build the university's Sports
Complex. Based on these pieces of evidence, the CTA
found that DLSU' s rental income from its concessionaires
were indeed transmitted and used for the payment of this
loan. The CTA held that the degree of preponderance of
evidence was sufficiently met to prove actual, direct and
exclusive use for educational purposes.
The CTA also found that DLSU's rental income
from other concessionaires, which were allegedly
deposited to a fund (CF-CPA Account),120 intended for
the university's capital projects, was not proved to have
been used actually, directly and exclusively for
educational purposes. The CTA observed that "[DLSU] ...
failed to fully account for and substantiate all the
disbursements from the [fund]." Thus, the CTA "cannot
ascertain whether rental income from the [other]
concessionaires was indeed used for educational
purposes."121
To stress, the CTA's factual findings were based on and
supported by the report of the Independent CPA who
reviewed, audited and examined the voluminous
documents submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's
functions include: (a) examination and verification of
receipts, invoices, vouchers and other long accounts; (b)
reproduction of, and comparison of such reproduction
with, and certification that the same are faithful copies of
original documents, and pre-marking of documentary
exhibits consisting of voluminous documents; (c)
preparation of schedules or summaries containing a
chronological listing of the numbers, dates and amounts
covered by receipts or invoices or other relevant
documents and the amount(s) of taxes paid; (d) making
findings as to compliance with substantiation
requirements under pertinent tax laws, regulations and
jurisprudence; (e) submission of a formal report with
certification of authenticity and veracity of findings and
conclusions in the performance of the audit; (f) testifying
on such formal report; and (g) performing such other
functions as the CTA may direct.122
Based on the Independent CPA's report and on its own
appreciation of the evidence, the CTA held that only
the portion of the rental income pertaining to
the substantiated disbursements (i.e., proved by receipts,
vouchers, etc.) from the CF-CPA Account was
considered as used actually, directly and exclusively for
educational purposes. Consequently, the unaccounted
and unsubstantiated disbursements must be subjected to
income tax and VAT.123
The CTA then further reduced DLSU's tax liabilities by
cancelling the assessments for taxable years 2001 and
2002 due to the defective LOA.124
The Court finds that the above fact-finding process
undertaken by the CTA shows that it based its ruling on
the evidence on record, which we reiterate, were
examined and verified by the Independent CPA. Thus,
we see no persuasive reason to deviate from these
factual findings.
However, while we generally respect the factual
findings of the CTA, it does not mean that we are bound
by its conclusions. In the present case, we do not agree
with the method used by the CTA to arrive at DLSU' s
unsubstantiated rental income (i.e., income not proved
to have been actually, directly and exclusively used for
educational purposes).
To recall, the CTA found that DLSU earned a rental
income of ₱l0,610,379.00 in taxable year 2003.125 DLSU
earned this income from leasing a portion of its premises
to: 1) MTG-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4)
Zaide Food Corp., 5) Capri International, and 6) MTO
Bookstore.126
To prove that its rental income was used for educational
purposes, DLSU identified the transactions where the
rental income was
expended, viz.: 1) ₱4,007,724.00127 used to pay the loan
obtained by DLSU to build the Sports Complex; and
2) ₱6,602,655.00 transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA
to prove that the ₱6,602,655.00 transferred to the CF-CPA
Account was used actually, directly and exclusively for
educational purposes. According to the Independent
CPA' findings, DLSU was able to substantiate
disbursements from the CF-CPA Account amounting
to ₱6,259,078.30.
Contradicting the findings of the Independent CPA, the
CTA concluded that out of the ₱l0,610,379.00 rental
income, ₱4,841,066.65 was unsubstantiated, and thus,
subject to income tax and VAT.129
The CTA then concluded that the ratio of substantiated
disbursements to the total disbursements from the CF-CPA
Account for taxable year 2003 is only 26.68%.130 The CTA
held as follows:
However, as regards petitioner's rental income from
Alarey, Inc., Zaide Food Corp., Capri International and
MTO Bookstore, which were transmitted to the CF-CPA
Account, petitioner again failed to fully account for and
substantiate all the disbursements from the CF-CPA
Account; thus failing to prove that the rental income
derived therein were actually, directly and exclusively
used for educational purposes. Likewise, the findings of
the Court-Commissioned Independent CPA show that
the disbursements from the CF-CPA Account for fiscal
year 2003 amounts to ₱6,259,078.30 only. Hence, this
portion of the rental income, being the substantiated
disbursements of the CF-CPA Account, was considered
by the Special First Division as used actually, directly and
exclusively for educational purposes. Since for fiscal year
2003, the total disbursements per voucher is ₱6,259,078.3
(Exhibit "LL-25-C"), and the total disbursements per
subsidiary ledger amounts to ₱23,463,543.02 (Exhibit "LL-
29-C"), the ratio of substantiated disbursements for fiscal
year 2003 is 26.68% (₱6,259,078.30/₱23,463,543.02). Thus,
the substantiated portion of CF-CPA Disbursements for
fiscal year 2003, arrived at by multiplying the ratio of
26.68% with the total rent income added to and used in
the CF-CPA Account in the amount of ₱6,602,655.00 is
₱1,761,588.35.131 (emphasis supplied)
For better understanding, we summarize the CTA's
computation as follows:
1. The CTA subtracted the rent income used in the
construction of the Sports Complex (₱4,007,724.00) from
the rental income (₱10,610,379.00) earned from the
abovementioned concessionaries. The difference
(₱6,602,655.00) was the portion claimed to have been
deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated
portion of CF-CPA disbursements (₱1,761,308.37) from the
₱6,602,655.00 to arrive at the supposed
unsubstantiated portion of the rental income
(₱4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements
(₱l,761,308.37)133 was derived by multiplying the rental
income claimed to have been added to the CF-CPA
Account (₱6,602,655.00) by 26.68% or the ratio
of substantiated disbursements to total
disbursements (₱23,463,543.02).
4. The 26.68% ratio134 was the result of dividing the
substantiated disbursements from the CF-CPA Account as
found by the Independent CPA (₱6,259,078.30) by the
total disbursements (₱23,463,543.02) from the same
account.
We find that this system of calculation is incorrect and
does not truly give effect to the constitutional grant of tax
exemption to non-stock, non-profit educational
institutions. The CTA's reasoning is flawed because it
required DLSU to substantiate an amount that is greater
than the rental income deposited in the CF-CPA Account
in 2003.
To reiterate, to be exempt from tax, DLSU has the burden
of proving that the proceeds of its rental income (which
amounted to a total of ₱10.61 million)135 were used for
educational purposes. This amount was divided Rental
intoincome
two
parts: (a) the ₱4.0l million, which was used to pay the
loan obtained for the construction of the Sports Complex;
Less: Rent
and (b) the ₱6.60 million,136 which was transferred income used in construction of the Sports
to the
CF-CPA account. Complex
For year 2003, the total disbursement from the CF-CPA
account amounted to ₱23 .46 million.137 These figures,
read in light of the constitutional exemption, raises the
question: does DLSU claim that the whole total CF-CPA
disbursement of ₱23.46 million is tax-exemptRental
so thatincome
it is deposited to the CF-CPA Account
required to prove that all these disbursements had been
made for educational purposes?
We answer in the negative.
The records show that DLSU never claimed that the total
Less: Substantiated
CF-CPA disbursements of ₱23.46 million had been for
educational purposes and should thus be tax-exempt;
DLSU only claimed ₱10.61 million for tax-exemption and
should thus be required to prove that this amount had
been used as claimed.
Of this amount, ₱4.01 had been proven to have beenfor deficiency income tax and VAT
Tax base
used for educational purposes, as confirmed by the
Independent CPA. The amount in issue is therefore the
balance of ₱6.60 million which was transferred to the CF-
CPA which in turn made disbursements of ₱23.46 million
for various general purposes, among them the ₱6.60
million transferred by DLSU.
Significantly, the Independent CPA confirmed that the
CF-CPA made disbursements for educational purposes in
year 2003 in the amount ₱6.26 million. Based on these
given figures, the CT A concluded that the expenses for
educational purposes that had been coursed through
the CF-CPA should be prorated so that only the portion
that ₱6.26 million bears to the total CF-CPA disbursements
should be credited to DLSU for tax exemption.
This approach, in our view, is flawed given the
constitutional requirement that revenues actually and
directly used for educational purposes should be tax-
exempt. As already mentioned above, DLSU is not
claiming that the whole ₱23.46 million CF-CPA
disbursement had been used for educational purposes; it
only claims that ₱6.60 million transferred to CF-CPA had
been used for educational purposes. This was what DLSU
needed to prove to have actually and directly used for
educational purposes.
That this fund had been first deposited into a separate
fund (the CF -CPA established to fund capital projects)
lends peculiarity to the facts of this case, but does not
detract from the fact that the deposited funds were DLSU
revenue funds that had been confirmed and proven to
have been actually and directly used for educational
purposes via the CF-CPA. That the CF-CPA might have
had other sources of funding is irrelevant because the
assessment in the present case pertains only to the rental
income which DLSU indisputably earned as revenue in
2003. That the proven CF-CPA funds used for educational
purposes should not be prorated as part of its total CF-
CPA disbursements for purposes of crediting to DLSU is
also logical because no claim whatsoever had been
made that the totality of the CF-CPA disbursements had
been for educational purposes. No prorating is necessary;
to state the obvious, exemption is based on actual and
direct use and this DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be
liable only for the difference between what it claimed
and what it has proven. In more concrete terms,
DLSU only had to prove that its rental income for taxable
year 2003 (₱10,610,379.00) was used for educational
purposes. Hence, while the total disbursements from the
CF-CPA Account amounted to ₱23,463,543.02, DLSU only
had to substantiate its Pl0.6 million rental income, part of
which was the ₱6,602,655.00 transferred to the CF-CPA
account. Of this latter amount, ₱6.259 million was
substantiated to have been used for educational
purposes.
To summarize, we thus revise the tax base for deficiency
income tax and VAT for taxable year 2003 as follows:
CTA
Decision138 Revise
10,610,379.00 10,610
4,007,724.00 4,007,
6,602,655.00 6,602,
1,761,588.35 6,259,
portion of CF-CPA disbursements
4,841,066.65 343.57
On DLSU' s argument that the CTA should have
appreciated its evidence in the same way as it did with
the evidence submitted by Ateneo in another
separate case, the CTA explained that the issue in the
Ateneo case was not the same as the issue in the present
case.
The issue in the Ateneo case was whether or not Ateneo
could be held liable to pay income taxes and VAT under
certain BIR and Department of Finance issuances139 that
required the educational institution to own and
operate the canteens, or other commercial enterprises
within its campus, as condition for tax exemption. The
CTA held that the Constitution does not require the
educational institution to own or operate these
commercial establishments to avail of the exemption.140
Given the lack of complete identity of the issues involved,
the CTA held that it had to evaluate the separate sets of
evidence differently. The CTA likewise stressed that DLSU
and Ateneo gave distinct defenses and that its wisdom
"cannot be equated on its decision on two different
cases with two different issues."141
DLSU disagrees with the CTA and argues that the entire
assessment must be cancelled because it submitted
similar, if not stronger sets of evidence, as Ateneo. We
reject DLSU's argument for being non sequitur. Its reliance
on the concept of uniformity of taxation is also incorrect.
First, even granting that Ateneo and DLSU
submitted similar evidence, the sufficiency and
materiality of the evidence supporting their respective
claims for tax exemption would necessarily differ because
their attendant issues and facts differ.
To state the obvious, the amount of income received by
DLSU and by Ateneo during the taxable years they were
assessed varied. The amount of tax assessment
also varied. The amount of income proven to have been
used for educational purposes
also varied because the amount substantiated varied.142
Thus, the amount of tax assessment cancelled by the
CTA varied.
On the one hand, the BIR assessed DLSU a total tax
deficiency of ₱17,303,001.12 for taxable years 2001, 2002
and 2003. On the other hand, the BIR assessed Ateneo a
total deficiency tax of ₱8,864,042.35 for the same period.
Notably, DLSU was assessed deficiency DST, while Ateneo
was not.143
Thus, although both Ateneo and DLSU claimed that they
used their rental income actually, directly and exclusively
for educational purposes by submitting similar
evidence, e.g., the testimony of their employees on the
use of university revenues, the report of the Independent
CPA, their income summaries, financial statements,
vouchers, etc., the fact remains that DLSU failed to prove
that a portion of its income and revenues had indeed
been used for educational purposes.
The CTA significantly found that some documents that
could have fully supported DLSU's claim were not
produced in court. Indeed, the Independent CPA
testified that some disbursements had not been proven
to have been used actually, directly and exclusively for
educational purposes.144
The final nail on the question of evidence is DLSU's
own admission that the original of these documents had
not in fact been produced before the CTA although it
claimed that there was no bad faith on its part.145 To our
mind, this admission is a good indicator of how the
Ateneo and the DLSU cases varied, resulting in DLSU's
failure to substantiate a portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the
Revised
Rules on Evidence, that the contents of the missing
supporting documents were proven by its recital in
some other authentic documents on record,146 can no
longer be entertained at this late stage of the
proceeding. The CTA did not rule on this particular claim.
The CTA also made no finding on DLSU' s assertion of lack
of bad faith. Besides, it is not our duty to go over these
documents to test the truthfulness of their contents, this
Court not being a trier of facts.
Second, DLSU misunderstands the concept of uniformity
of taxation.
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class shall be
taxed at the same rate.147 A tax is uniform when it
operates with the same force and effect in every place
where the subject of it is found.148 The concept requires
that all subjects of taxation similarly situated should
be treated alike and placed in equal footing.149
In our view, the CTA placed Ateneo and DLSU in equal
footing. The CTA treated them alike because their
income proved to have been used actually, directly and
exclusively for educational purposes were exempted
from taxes. The CTA equally applied the requirements in
the YMCA case to test if they indeed used their revenues
for educational purposes.
DLSU can only assert that the CTA violated the rule on
uniformity if it can show that, despite proving that it used
actually, directly and exclusively for educational
purposes its income and revenues, the CTA still affirmed
the imposition of taxes. That the DLSU secured a different
result happened because it failed to fully prove that it
used actually, directly and exclusively for educational
purposes its revenues and income.
On this point, we remind DLSU that the rule on uniformity
of taxation does not mean that subjects of taxation
similarly situated are treated in literally the same way in all
and every occasion. The fact that the Ateneo and DLSU
are both non-stock, non-profit educational institutions,
does not mean that the CTA or this Court would similarly
decide every case for (or against) both universities.
Success in tax litigation, like in any other litigation,
depends to a large extent on the sufficiency of evidence.
DLSU's evidence was wanting, thus, the CTA was correct
in not fully cancelling its tax liabilities.
b. DLSU proved its payment of the DST
The CTA affirmed DLSU's claim that the DST due on its
mortgage and loan transactions were paid and remitted
through its bank's On-Line Electronic DST Imprinting
Machine. The Commissioner argues that DLSU is not
allowed to use this method of payment because an
educational institution is excluded from the class of
taxpayers who can use the On-Line Electronic DST
Imprinting Machine.
We sustain the findings of the CTA. The Commissioner's
argument lacks basis in both the Tax Code and the
relevant revenue regulations.
DST on documents, loan agreements, and papers shall
be levied, collected and paid for by the person making,
signing, issuing, accepting, or transferring the same.150 The
Tax Code provides that whenever one party to the
document enjoys exemption from DST, the other party
not exempt from DST shall be directly liable for the tax.
Thus, it is clear that DST shall be payable by any party to
the document, such that the payment and compliance
by one shall mean the full settlement of the DST due on
the document.
In the present case, DLSU entered into mortgage and
loan agreements with banks. These agreements are
subject to DST.151 For the purpose of showing that the DST
on the loan agreement has been paid, DLSU presented
its agreements bearing the imprint showing that DST on
the document has been paid by the bank, its
counterparty. The imprint should be sufficient proof that
DST has been paid. Thus, DLSU cannot be further assessed
for deficiency DST on the said documents.
Finally, it is true that educational institutions are not
included in the class of taxpayers who can pay and remit
DST through the On-Line Electronic DST Imprinting
Machine under RR No. 9-2000. As correctly held by the
CTA, this is irrelevant because it was not DLSU who used
the On-Line Electronic DST Imprinting Machine but the
bank that handled its mortgage and loan transactions.
RR No. 9-2000 expressly includes banks in the class of
taxpayers that can use the On-Line Electronic DST
Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU
proved the
payment of the assessed DST deficiency, except for the
unpaid balance of
₱13,265.48.152
WHEREFORE, premises considered, we DENY the petition
of the Commissioner of Internal Revenue in G.R. No.
196596 and AFFIRM the December 10, 2010 decision and
March 29, 2011 resolution of the Court of Tax Appeals En
Banc in CTA En Banc Case No. 622, except for the total
amount of deficiency tax liabilities of De La Salle
University, Inc., which had been reduced.
We also DENY both the petition of De La Salle University,
Inc. in G.R. No. 198841 and the petition of the
Commissioner of Internal Revenue in G.R. No. 198941 and
thus AFFIRM the June 8, 2011 decision and October 4,
2011 resolution of the Court of Tax Appeals En Banc in
CTA En Banc Case No. 671, with the MODIFICATION that
the base for the deficiency income tax and VAT for
taxable year 2003 is ₱343,576.70.
SO ORDERED.
d. Votes Required for tax-exemption Sec 28(4). Art. VI
G. R. No. 119775 October 24, 2003
JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO
CARIÑO FOUNDATION INC., CENTER FOR ALTERNATIVE
SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN
REPRESENTED AND JOINED BY HER MOTHER MRS. ELISA
BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY
HER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE
REPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G.
PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS
"KEVAB," BETTY I. STRASSER, RUBY C. GIRON, URSULA C.
PEREZ ALIAS "BA-YAY," EDILBERTO T. CLARAVALL, CARMEN
CAROMINA, LILIA G. YARANON, DIANE
MONDOC, Petitioners,
vs.
VICTOR LIM, PRESIDENT, BASES CONVERSION
DEVELOPMENT AUTHORITY; JOHN HAY PORO POINT
DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX
(B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP,
INC., DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES,Respondents.
DECISION
CARPIO MORALES, J.:
By the present petition for prohibition, mandamus and
declaratory relief with prayer for a temporary restraining
order (TRO) and/or writ of preliminary injunction,
petitioners assail, in the main, the constitutionality of
Presidential Proclamation No. 420, Series of 1994,
"CREATING AND DESIGNATING a portion of the area
covered by the former Camp John [Hay] as THE JOHN
HAY Special Economic Zone pursuant to R.A. No. 7227."
R.A. No. 7227, AN ACT ACCELERATING THE CONVERSION
OF MILITARY RESERVATIONS INTO OTHER PRODUCTIVE
USES, CREATING THE BASES CONVERSION AND
DEVELOPMENT AUTHORITY FOR THIS PURPOSE, PROVIDING
FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise
known as the "Bases Conversion and Development Act of
1992," which was enacted on March 13, 1992, set out the
policy of the government to accelerate the sound and
balanced conversion into alternative productive uses of
the former military bases under the 1947 Philippines-
United States of America Military Bases Agreement,
namely, the Clark and Subic military reservations as well
as their extensions including the John Hay Station (Camp
John Hay or the camp) in the City of Baguio.1
As noted in its title, R.A. No. 7227 created public
respondent Bases Conversion and Development
Authority2(BCDA), vesting it with powers pertaining to the
multifarious aspects of carrying out the ultimate objective
of utilizing the base areas in accordance with the
declared government policy.
R.A. No. 7227 likewise created the Subic Special
Economic [and Free Port] Zone (Subic SEZ) the metes and
bounds of which were to be delineated in a
proclamation to be issued by the President of the
Philippines.3
R.A. No. 7227 granted the Subic SEZ incentives ranging
from tax and duty-free importations, exemption of
businesses therein from local and national taxes, to other
hallmarks of a liberalized financial and business climate.4
And R.A. No. 7227 expressly gave authority to the
President to create through executive proclamation,
subject to the concurrence of the local government units
directly affected, other Special Economic Zones (SEZ) in
the areas covered respectively by the Clark military
reservation, the Wallace Air Station in San Fernando, La
Union, and Camp John Hay.5
On August 16, 1993, BCDA entered into a Memorandum
of Agreement and Escrow Agreement with private
respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and
Asiaworld Internationale Group, Inc. (ASIAWORLD),
private corporations registered under the laws of the
British Virgin Islands, preparatory to the formation of a
joint venture for the development of Poro Point in La
Union and Camp John Hay as premier tourist destinations
and recreation centers. Four months later or on
December 16, 1993, BCDA, TUNTEX and ASIAWORD
executed a Joint Venture Agreement6 whereby they
bound themselves to put up a joint venture company
known as the Baguio International Development and
Management Corporation which would lease areas
within Camp John Hay and Poro Point for the purpose of
turning such places into principal tourist and recreation
spots, as originally envisioned by the parties under their
Memorandum of Agreement.
The Baguio City government meanwhile passed a
number of resolutions in response to the actions taken by
BCDA as owner and administrator of Camp John Hay.
By Resolution7 of September 29, 1993, the Sangguniang
Panlungsod of Baguio City (the sanggunian) officially
asked BCDA to exclude all the barangays partly or totally
located within Camp John Hay from the reach or
coverage of any plan or program for its development.
By a subsequent Resolution8 dated January 19, 1994,
the sanggunian sought from BCDA an abdication, waiver
or quitclaim of its ownership over the home lots being
occupied by residents of nine (9) barangays surrounding
the military reservation.
Still by another resolution passed on February 21, 1994,
the sanggunian adopted and submitted to BCDA a 15-
point concept for the development of Camp John
Hay.9 The sanggunian's vision expressed, among other
things, a kind of development that affords protection to
the environment, the making of a family-oriented type of
tourist destination, priority in employment opportunities for
Baguio residents and free access to the base area,
guaranteed participation of the city government in the
management and operation of the camp, exclusion of
the previously named nine barangays from the area for
development, and liability for local taxes of businesses to
be established within the camp.10
BCDA, Tuntex and AsiaWorld agreed to some, but
rejected or modified the other proposals of
the sanggunian.11They stressed the need to declare
Camp John Hay a SEZ as a condition precedent to its full
development in accordance with the mandate of R.A.
No. 7227.12
On May 11, 1994, the sanggunian passed a resolution
requesting the Mayor to order the determination of realty
taxes which may otherwise be collected from real
properties of Camp John Hay.13 The resolution was
intended to intelligently guide the sanggunian in
determining its position on whether Camp John Hay be
declared a SEZ, it (the sanggunian) being of the view that
such declaration would exempt the camp's property and
the economic activity therein from local or national
taxation.
More than a month later, however,
the sanggunian passed Resolution No. 255, (Series of
1994),14 seeking and supporting, subject to its
concurrence, the issuance by then President Ramos of a
presidential proclamation declaring an area of 288.1
hectares of the camp as a SEZ in accordance with the
provisions of R.A. No. 7227. Together with this resolution
was submitted a draft of the proposed proclamation for
consideration by the President.15
On July 5, 1994 then President Ramos issued Proclamation
No. 420,16 the title of which was earlier indicated, which
established a SEZ on a portion of Camp John Hay and
which reads as follows:
xxx
Pursuant to the powers vested in me by the law and the
resolution of concurrence by the City Council of Baguio, I,
FIDEL V. RAMOS, President of the Philippines, do hereby
create and designate a portion of the area covered by
the former John Hay reservation as embraced, covered,
and defined by the 1947 Military Bases Agreement
between the Philippines and the United States of
America, as amended, as the John Hay Special
Economic Zone, and accordingly order:
SECTION 1. Coverage of John Hay Special Economic
Zone. - The John Hay Special Economic Zone shall cover
the area consisting of Two Hundred Eighty Eight and
one/tenth (288.1) hectares, more or less, of the total of Six
Hundred Seventy-Seven (677) hectares of the John Hay
Reservation, more or less, which have been surveyed and
verified by the Department of Environment and Natural
Resources (DENR) as defined by the following technical
description:
A parcel of land, situated in the City of Baguio, Province
of Benguet, Island of Luzon, and particularly described in
survey plans Psd-131102-002639 and Ccs-131102-000030
as approved on 16 August 1993 and 26 August 1993,
respectively, by the Department of Environment and
Natural Resources, in detail containing:
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14,
Lot 15, and Lot 20 of Ccs-131102-000030
-and-
Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11,
Lot 14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd-131102-
002639 being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT
AND ONE/TENTH HECTARES (288.1 hectares); Provided
that the area consisting of approximately Six and
two/tenth (6.2) hectares, more or less, presently occupied
by the VOA and the residence of the Ambassador of the
United States, shall be considered as part of the SEZ only
upon turnover of the properties to the government of the
Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special
Economic Zone. - Pursuant to Section 15 of R.A. No. 7227,
the Bases Conversion and Development Authority is
hereby established as the governing body of the John
Hay Special Economic Zone and, as such, authorized to
determine the utilization and disposition of the lands
comprising it, subject to private rights, if any, and in
consultation and coordination with the City Government
of Baguio after consultation with its inhabitants, and to
promulgate the necessary policies, rules, and regulations
to govern and regulate the zone thru the John Hay Poro
Point Development Corporation, which is its
implementing arm for its economic development and
optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic
Zone. - Pursuant to Section 5(m) and Section 15 of R.A.
No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules,
and regulations governing the zone, including investment
incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the
applicable incentives of the Special Economic Zone
under Section 12 of R.A. No. 7227 and those applicable
incentives granted in the Export Processing Zones, the
Omnibus Investment Code of 1987, the Foreign
Investment Act of 1991, and new investment laws that
may hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies
and Instrumentalities. - All Heads of departments,
bureaus, offices, agencies, and instrumentalities of the
government are hereby directed to give full support to
Bases Conversion and Development Authority and/or its
implementing subsidiary or joint venture to facilitate the
necessary approvals to expedite the implementation of
various projects of the conversion program.
Sec. 5. Local Authority. - Except as herein provided, the
affected local government units shall retain their basic
autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and
regulations, or parts thereof, which are inconsistent with
the provisions of this Proclamation, are hereby repealed,
amended, or modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect
immediately.
Done in the City of Manila, this 5th day of July, in the year
of Our Lord, nineteen hundred and ninety-four.
The issuance of Proclamation No. 420 spawned the
present petition17 for prohibition, mandamus and
declaratory relief which was filed on April 25, 1995
challenging, in the main, its constitutionality or validity as
well as the legality of the Memorandum of Agreement
and Joint Venture Agreement between public
respondent BCDA and private respondents Tuntex and
AsiaWorld.
Petitioners allege as grounds for the allowance of the
petition the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990
(sic) IN SO FAR AS IT GRANTS TAX EXEMPTIONS IS INVALID
AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL EXERCISE BY
THE PRESIDENT OF A POWER GRANTED ONLY TO THE
LEGISLATURE.
II .PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT
LIMITS THE POWERS AND INTERFERES WITH THE AUTONOMY
OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND
UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994
IS UNCONSTITUTIONAL IN THAT IT VIOLATES THE RULE THAT
ALL TAXES SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY
AND BETWEEN PRIVATE AND PUBLIC RESPONDENTS BASES
CONVERSION DEVELOPMENT AUTHORITY HAVING BEEN
ENTERED INTO ONLY BY DIRECT NEGOTIATION IS ILLEGAL.
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM
OF AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE
AND PUBLIC RESPONDENT BASES CONVERSION
DEVELOPMENT AUTHORITY IS (sic) ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF
RESPONDENTS NOT HAVING UNDERGONE
ENVIRONMENTAL IMPACT ASSESSMENT IS BEING ILLEGALLY
CONSIDERED WITHOUT A VALID ENVIRONMENTAL IMPACT
ASSESSMENT.
A temporary restraining order and/or writ of preliminary
injunction was prayed for to enjoin BCDA, John Hay Poro
Point Development Corporation and the city government
from implementing Proclamation No. 420, and Tuntex
and AsiaWorld from proceeding with their plan
respecting Camp John Hay's development pursuant to
their Joint Venture Agreement with BCDA.18
Public respondents, by their separate Comments, allege
as moot and academic the issues raised by the petition,
the questioned Memorandum of Agreement and Joint
Venture Agreement having already been deemed
abandoned by the inaction of the parties thereto prior to
the filing of the petition as in fact, by letter of November
21, 1995, BCDA formally notified Tuntex and AsiaWorld of
the revocation of their said agreements.19
In maintaining the validity of Proclamation No. 420,
respondents contend that by extending to the John Hay
SEZ economic incentives similar to those enjoyed by the
Subic SEZ which was established under R.A. No. 7227, the
proclamation is merely implementing the legislative intent
of said law to turn the US military bases into hubs of
business activity or investment. They underscore the point
that the government's policy of bases conversion can not
be achieved without extending the same tax exemptions
granted by R.A. No. 7227 to Subic SEZ to other SEZs.
Denying that Proclamation No. 420 is in derogation of the
local autonomy of Baguio City or that it is violative of the
constitutional guarantee of equal protection,
respondents assail petitioners' lack of standing to bring
the present suit even as taxpayers and in the absence of
any actual case or controversy to warrant this Court's
exercise of its power of judicial review over the
proclamation.
Finally, respondents seek the outright dismissal of the
petition for having been filed in disregard of the hierarchy
of courts and of the doctrine of exhaustion of
administrative remedies.
Replying,20 petitioners aver that the doctrine of
exhaustion of administrative remedies finds no
application herein since they are invoking the exclusive
authority of this Court under Section 21 of R.A. No. 7227 to
enjoin or restrain implementation of projects for
conversion of the base areas; that the established
exceptions to the aforesaid doctrine obtain in the present
petition; and that they possess the standing to bring the
petition which is a taxpayer's suit.
Public respondents have filed their Rejoinder21 and the
parties have filed their respective memoranda.
Before dwelling on the core issues, this Court shall first
address the preliminary procedural questions confronting
the petition.
The judicial policy is and has always been that this Court
will not entertain direct resort to it except 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 this Court's primary jurisdiction.22 Neither will it
entertain an action for declaratory relief, which is partly
the nature of this petition, over which it has no original
jurisdiction.
Nonetheless, as it is only this Court which has the power
under Section 2123 of R.A. No. 7227 to enjoin
implementation of projects for the development of the
former US military reservations, the issuance of which
injunction petitioners pray for, petitioners' direct filing of
the present petition with it is allowed. Over and above
this procedural objection to the present suit, this Court
retains full discretionary power to take cognizance of a
petition filed directly to it if compelling reasons, or the
nature and importance of the issues raised,
warrant.24 Besides, remanding the case to the lower
courts now would just unduly prolong adjudication of the
issues.
The transformation of a portion of the area covered by
Camp John Hay into a SEZ is not simply a re-classification
of an area, a mere ascription of a status to a place. It
involves turning the former US military reservation into a
focal point for investments by both local and foreign
entities. It is to be made a site of vigorous business
activity, ultimately serving as a spur to the country's long
awaited economic growth. For, as R.A. No. 7227
unequivocally declares, it is the government's policy to
enhance the benefits to be derived from the base areas
in order to promote the economic and social
development of Central Luzon in particular and the
country in general.25 Like the Subic SEZ, the John Hay SEZ
should also be turned into a "self-sustaining, industrial,
commercial, financial and investment center."26
More than the economic interests at stake, the
development of Camp John Hay as well as of the other
base areas unquestionably has critical links to a host of
environmental and social concerns. Whatever use to
which these lands will be devoted will set a chain of
events that can affect one way or another the social and
economic way of life of the communities where the
bases are located, and ultimately the nation in general.
Underscoring the fragility of Baguio City's ecology with its
problem on the scarcity of its water supply, petitioners
point out that the local and national government are
faced with the challenge of how to provide for an
ecologically sustainable, environmentally sound,
equitable transition for the city in the wake of Camp John
Hay's reversion to the mass of government property.27 But
that is why R.A. No. 7227 emphasizes the "sound and
balanced conversion of the Clark and Subic military
reservations and their extensions consistent with
ecological and environmental standards."28 It cannot thus
be gainsaid that the matter of conversion of the US bases
into SEZs, in this case Camp John Hay, assumes
importance of a national magnitude.
Convinced then that the present petition embodies
crucial issues, this Court assumes jurisdiction over the
petition.
As far as the questioned agreements between BCDA and
Tuntex and AsiaWorld are concerned, the legal questions
being raised thereon by petitioners have indeed been
rendered moot and academic by the revocation of such
agreements. There are, however, other issues posed by
the petition, those which center on the constitutionality of
Proclamation No. 420, which have not been mooted by
the said supervening event upon application of the rules
for the judicial scrutiny of constitutional cases. The issues
boil down to:
(1) Whether the present petition complies with the requirements purposely
over constitutional issues;
(2) Whether Proclamation No. 420 is constitutional by providing for national and local
within and granting other economic incentives to the John Hay
(3) Whether Proclamation No. 420 is constitutional for limiting or interfering
Baguio City;
It is settled that when questions of constitutional
significance are raised, the court can exercise its power
of judicial review only if the following requisites are
present: (1) the existence of an actual and appropriate
case; (2) a personal and substantial interest of the party
raising the constitutional question; (3) the exercise of
judicial review is pleaded at the earliest opportunity; and
(4) the constitutional question is the lis mota of the case.29
An actual case or controversy refers to an existing case or
controversy that is appropriate or ripe for determination,
not conjectural or anticipatory.30 The controversy needs
to be definite and concrete, bearing upon the legal
relations of parties who are pitted against each other
due to their adverse legal interests.31 There is in the
present case a real clash of interests and rights between
petitioners and respondents arising from the issuance of a
presidential proclamation that converts a portion of the
area covered by Camp John Hay into a SEZ, the former
insisting that such proclamation contains unconstitutional
provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the
affected local government units to the creation of SEZs
out of all the base areas in the country.32 The grant by the
law on local government units of the right of concurrence
on the bases' conversion is equivalent to vesting a legal
standing on them, for it is in effect a recognition of the
real interests that communities nearby or surrounding a
particular base area have in its utilization. Thus, the
interest of petitioners, being inhabitants of Baguio, in
assailing the legality of Proclamation No. 420, is personal
and substantial such that they have sustained or will
sustain direct injury as a result of the government act
being challenged.33Theirs is a material interest, an interest
in issue affected by the proclamation and not merely an
interest in the question involved or an incidental
interest,34 for what is at stake in the enforcement of
Proclamation No. 420 is the very economic and social
existence of the people of Baguio City.
Petitioners' locus standi parallels that of the petitioner and
other residents of Bataan, specially of the town of Limay,
in Garcia v. Board of Investments35 where this Court
characterized their interest in the establishment of a
petrochemical plant in their place as actual, real, vital
and legal, for it would affect not only their economic life
but even the air they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G.
Yaranon were duly elected councilors of Baguio at the
time, engaged in the local governance of Baguio City
and whose duties included deciding for and on behalf of
their constituents the question of whether to concur with
the declaration of a portion of the area covered by
Camp John Hay as a SEZ. Certainly then, petitioners
Claravall and Yaranon, as city officials who voted
against36 the sanggunian Resolution No. 255 (Series of
1994) supporting the issuance of the now challenged
Proclamation No. 420, have legal standing to bring the
present petition.
That there is herein a dispute on legal rights and interests
is thus beyond doubt. The mootness of the issues
concerning the questioned agreements between public
and private respondents is of no moment.
"By the mere enactment of the questioned law or the
approval of the challenged act, the dispute is deemed
to have ripened into a judicial controversy even without
any other overt act. Indeed, even a singular violation of
the Constitution and/or the law is enough to awaken
judicial duty."37
As to the third and fourth requisites of a judicial inquiry,
there is likewise no question that they have been
complied with in the case at bar. This is an action filed
to bring
for this Court's forth of
exercise constitutional
jurisdiction issues, ruling on
which this Court must take up. Besides, respondents never
raised issues with respect to these requisites, hence, they
are deemed waived.
Having cleared the way for judicial review, the
constitutionality tax exemption
of Proclamation No. 420, as framed in the
Special
second and Economic Zone;
third issues andmust now be addressed
above,
squarely.
The second issue refers to petitioners' objection against
the creationwith
bythe local autonomy
Proclamation of of a regime of tax
No. 420
exemption within the John Hay SEZ. Petitioners argue that
nowhere in R. A. No. 7227 is there a grant of tax
exemption to SEZs yet to be established in base areas,
unlike the grant under Section 12 thereof of tax
exemption and investment incentives to the therein
established Subic SEZ. The grant of tax exemption to the
John Hay SEZ, petitioners conclude, thus contravenes
Article VI, Section 28 (4) of the Constitution which
provides that "No law granting any tax exemption shall
be passed without the concurrence of a majority of all
the members of Congress."
Section 3 of Proclamation No. 420, the challenged
provision, reads:
Sec. 3. Investment Climate in John Hay Special Economic
Zone. - Pursuant to Section 5(m) and Section 15 of R.A.
No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules,
and regulations governing the zone, including investment
incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the
applicable incentives of the Special Economic Zone
under Section 12 of R.A. No. 7227 and those applicable
incentives granted in the Export Processing Zones, the
Omnibus Investment Code of 1987, the Foreign
Investment Act of 1991, and new investment laws that
may hereinafter be enacted. (Emphasis and underscoring
supplied)
Upon the other hand, Section 12 of R.A. No. 7227
provides:
xxx
(a) Within the framework and subject to the mandate
and limitations of the Constitution and the pertinent
provisions of the Local Government Code, the Subic
Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments;
b) The Subic Special Economic Zone shall be operated
and managed as a separate customs territory ensuring
free flow or movement of goods and capital within, into
and exported out of the Subic Special Economic Zone, as
well as provide incentives such as tax and duty free
importations of raw materials, capital and equipment.
However, exportation or removal of goods from the
territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to
the contrary notwithstanding, no taxes, local and
national, shall be imposed within the Subic Special
Economic Zone. In lieu of paying taxes, three percent
(3%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone shall
be remitted to the National Government, one percent
(1%) each to the local government units affected by the
declaration of the zone in proportion to their population
area, and other factors. In addition, there is hereby
established a development fund of one percent (1%) of
the gross income earned by all businesses and enterprises
within the Subic Special Economic Zone to be utilized for
the Municipality of Subic, and other municipalities
contiguous to be base areas. In case of conflict between
national and local laws with respect to tax exemption
privileges in the Subic Special Economic Zone, the same
shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free
markets for foreign exchange, gold, securities and futures
shall be allowed and maintained in the Subic Special
Economic Zone;
(e) The Central Bank, through the Monetary Board, shall
supervise and regulate the operations of banks and other
financial institutions within the Subic Special Economic
Zone;
(f) Banking and Finance shall be liberalized with the
establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign
banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic
Zone whose continuing investment shall not be less than
Two Hundred fifty thousand dollars ($250,000), his/her
spouse and dependent children under twenty-one (21)
years of age, shall be granted permanent resident status
within the Subic Special Economic Zone. They shall have
freedom of ingress and egress to and from the Subic
Special Economic Zone without any need of special
authorization from the Bureau of Immigration and
Deportation. The Subic Bay Metropolitan Authority
referred to in Section 13 of this Act may also issue working
visas renewable every two (2) years to foreign executives
and other aliens possessing highly-technical skills which
no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and
Employment. The names of aliens granted permanent
residence status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after
issuance thereof;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only
the Subic SEZ which was granted by Congress with tax
exemption, investment incentives and the like. There is no
express extension of the aforesaid benefits to other
SEZs still to be created at the time via presidential
proclamation.
The deliberations of the Senate confirm the exclusivity to
Subic SEZ of the tax and investment privileges accorded it
under the law, as the following exchanges between our
lawmakers show during the second reading of the
precursor bill of R.A. No. 7227 with respect to the
investment policies that would govern Subic SEZ which
are now embodied in the aforesaid Section 12 thereof:
xxx
Senator Maceda: This is what I was talking about. We get
into problems here because all of these following policies
are centered around the concept of free port. And in the
main paragraph above, we have declared both Clark
and Subic as special economic zones, subject to these
policies which are, in effect, a free-port arrangement.
Senator Angara: The Gentleman is absolutely correct, Mr.
President. So we must confine these policies only to Subic.
May I withdraw then my amendment, and instead
provide that "THE SPECIAL ECONOMIC ZONE OF SUBIC
SHALL BE ESTABLISHED IN ACCORDANCE WITH THE
FOLLOWING POLICIES." Subject to style, Mr. President.
Thus, it is very clear that these principles and policies are
applicable only to Subic as a free port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment suggested
by Senator Angara would then prevent the establishment
of other special economic zones observing these policies.
Senator Angara: No, Mr. President, because during our
short caucus, Senator Laurel raised the point that if we
give this delegation to the President to establish other
economic zones, that may be an unwarranted
delegation.
So we agreed that we will simply limit the definition of
powers and description of the zone to Subic, but that
does not exclude the possibility of creating other
economic zones within the baselands.
Senator Paterno: But if that amendment is followed, no
other special economic zone may be created under
authority of this particular bill. Is that correct, Mr.
President?
Senator Angara: Under this specific provision, yes, Mr.
President. This provision now will be confined only to
Subic.38
x x x (Underscoring supplied).
As gathered from the earlier-quoted Section 12 of R.A.
No. 7227, the privileges given to Subic SEZ consist
principally of exemption from tariff or customs duties,
national and local taxes of business entities therein
(paragraphs (b) and (c)), free market and trade of
specified goods or properties (paragraph d), liberalized
banking and finance (paragraph f), and relaxed
immigration rules for foreign investors (paragraph g). Yet,
apart from these, Proclamation No. 420 also makes
available to the John Hay SEZ benefits existing in other
laws such as the privilege of export processing zone-
based businesses of importing capital equipment and
raw materials free from taxes, duties and other
restrictions;39 tax and duty exemptions, tax holiday, tax
credit, and other incentives under the Omnibus
Investments Code of 1987;40 and the applicability to the
subject zone of rules governing foreign investments in the
Philippines.41
While the grant of economic incentives may be essential
to the creation and success of SEZs, free trade zones and
the like, the grant thereof to the John Hay SEZ cannot be
sustained. The incentives under R.A. No. 7227
are exclusive only to the Subic SEZ, hence, the extension
of the same to the John Hay SEZ finds no support therein.
Neither does the same grant of privileges to the John Hay
SEZ find support in the other laws specified under Section
3 of Proclamation No. 420, which laws were already
extant before the issuance of the proclamation or the
enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed
privileges is one of tax exemption. It is the legislature,
unless limited by a provision of the state constitution, that
has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being
as broad as its power to tax.42 Other than Congress, the
Constitution may itself provide for specific tax
exemptions,43 or local governments may pass ordinances
on exemption only from local taxes.44
The challenged grant of tax exemption would circumvent
the Constitution's imposition that a law granting any tax
exemption must have the concurrence of a majority of all
the members of Congress.45 In the same vein, the other
kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
Contrary to public respondents' suggestions, the claimed
statutory exemption of the John Hay SEZ from taxation
should be manifest and unmistakable from the language
of the law on which it is based; it must be expressly
granted in a statute stated in a language too clear to be
mistaken.46 Tax exemption cannot be implied as it must
be categorically and unmistakably expressed.47
If it were the intent of the legislature to grant to the John
Hay SEZ the same tax exemption and incentives given to
the Subic SEZ, it would have so expressly provided in the
R.A. No. 7227.
This Court no doubt can void an act or policy of the
political departments of the government on either of two
grounds-infringement of the Constitution or grave abuse
of discretion.48
This Court then declares that the grant by Proclamation
No. 420 of tax exemption and other privileges to the John
Hay SEZ is void for being violative of the Constitution. This
renders it unnecessary to still dwell on petitioners' claim
that the same grant violates the equal protection
guarantee.
With respect to the final issue raised by petitioners -- that
Proclamation No. 420 is unconstitutional for being in
derogation of Baguio City's local autonomy, objection is
specifically mounted against Section 2 thereof in which
BCDA is set up as the governing body of the John Hay
SEZ.49
Petitioners argue that there is no authority of the President
to subject the John Hay SEZ to the governance of BCDA
which has just oversight functions over SEZ; and that to do
so is to diminish the city government's power over an area
within its jurisdiction, hence, Proclamation No. 420
unlawfully gives the President power of control over the
local government instead of just mere supervision.
Petitioners' arguments are bereft of merit. Under R.A. No.
7227, the BCDA is entrusted with, among other things, the
following purpose:50
xxx
(a) To own, hold and/or administer the military
reservations of John Hay Air Station, Wallace Air Station,
O'Donnell Transmitter Station, San Miguel Naval
Communications Station, Mt. Sta. Rita Station (Hermosa,
Bataan) and those portions of Metro Manila Camps
which may be transferred to it by the President;
x x x (Underscoring supplied)
With such broad rights of ownership and administration
vested in BCDA over Camp John Hay, BCDA virtually has
control over it, subject to certain limitations provided for
by law. By designating BCDA as the governing agency of
the John Hay SEZ, the law merely emphasizes or reiterates
the statutory role or functions it has been granted.
The unconstitutionality of the grant of tax immunity and
financial incentives as contained in the second sentence
of Section 3 of Proclamation No. 420 notwithstanding, the
entire assailed proclamation cannot be declared
unconstitutional, the other parts thereof not being
repugnant to law or the Constitution. The delineation and
declaration of a portion of the area covered by Camp
John Hay as a SEZ was well within the powers of the
President to do so by means of a proclamation.51 The
requisite prior concurrence by the Baguio City
government to such proclamation appears to have been
given in the form of a duly enacted resolution by
the sanggunian. The other provisions of the proclamation
had been proven to be consistent with R.A. No. 7227.
Where part of a statute is void as contrary to the
Constitution, while another part is valid, the valid portion,
if separable from the invalid, may stand and be
enforced.52 This Court finds that the other provisions in
Proclamation No. 420 converting a delineated portion of
Camp John Hay into the John Hay SEZ are separable
from the invalid second sentence of Section 3 thereof,
hence they stand.
WHEREFORE, the second sentence of Section 3 of
Proclamation No. 420 is hereby declared NULL AND VOID
and is accordingly declared of no legal force and effect.
Public respondents are hereby enjoined from
implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion,
remains valid and effective.
SO ORDERED.
G.R. No. 132527. July 29, 2005
COCONUT OIL REFINERS ASSOCIATION, INC. represented
by its President, JESUS L. ARRANZA, PHILIPPINE
ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI),
represented by its Secretary, ROMEO G. HIDALGO,
FEDERATION OF FREE FARMERS (FFF), represented by its
President, JEREMIAS U. MONTEMAYOR, and BUKLURAN NG
MANGGAGAWANG PILIPINO (BMP), represented by its
Chairperson, FELIMON C. LAGMAN, Petitioners,
vs.
HON. RUBEN TORRES, in his capacity as Executive
Secretary; BASES CONVERSION AND DEVELOPMENT
AUTHORITY, CLARK DEVELOPMENT CORPORATION, SUBIC
BAY METROPOLITAN AUTHORITY, 88 MART DUTY FREE,
FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE,
ROYAL DUTY FREE SHOPS, INC., DFS SPORTS, ASIA PACIFIC,
MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI
RESOURCES, CORP.), PARK & SHOP, DUTY FREE
COMMODITIES, L. FURNISHING, SHAMBURGH, SUBIC DFS,
ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC.,
PX CLUB, CLARK TRADING, DEMAGUS TRADING CORP.,
D.F.S. SPORTS UNLIMITED, INC., DUTY FREE FIRST
SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC.
(formerly 88 Mart [Clark] Duty Free Corp.), LILLY HILL
CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL DFS
and ZAXXON PHILIPPINES, INC., Respondents.
DECISION
AZCUNA, J.:
This is a Petition for Prohibition and Injunction seeking to
enjoin and prohibit the Executive Branch, through the
public respondents Ruben Torres in his capacity as
Executive Secretary, the Bases Conversion Development
Authority (BCDA), the Clark Development Corporation
(CDC) and the Subic Bay Metropolitan Authority (SBMA),
from allowing, and the private respondents from
continuing with, the operation of tax and duty-free shops
located at the Subic Special Economic Zone (SSEZ) and
the Clark Special Economic Zone (CSEZ), and to declare
the following issuances as unconstitutional, illegal, and
void:
1. Section 5 of Executive Order No. 80,1 dated April 3,
1993, regarding the CSEZ.
2. Executive Order No. 97-A, dated June 19, 1993,
pertaining to the SSEZ.
3. Section 4 of BCDA Board Resolution No. 93-05-
034,2 dated May 18, 1993, pertaining to the CSEZ.
Petitioners contend that the aforecited issuances are
unconstitutional and void as they constitute executive
lawmaking, and that they are contrary to Republic Act
No. 72273 and in violation of the Constitution, particularly
Section 1, Article III (equal protection clause), Section 19,
Article XII (prohibition of unfair competition and
combinations in restraint of trade), and Section 12, Article
XII (preferential use of Filipino labor, domestic materials
and locally produced goods).
The facts are as follows:
On March 13, 1992, Republic Act No. 7227 was enacted,
providing for, among other things, the sound and
balanced conversion of the Clark and Subic military
reservations and their extensions into alternative
productive uses in the form of special economic zones in
order to promote the economic and social development
of Central Luzon in particular and the country in general.
Among the salient provisions are as follows:
SECTION 12. Subic Special Economic Zone. —
...
The abovementioned zone shall be subject to the
following policies:
(a) Within the framework and subject to the mandate
and limitations of the Constitution and the pertinent
provisions of the Local Government Code, the Subic
Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments;
(b) The Subic Special Economic Zone shall be operated
and managed as a separate customs territory
ensuring free flow or movement of goods and capital
within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax
and duty-free importations of raw materials, capital and
equipment. However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to
the other parts of the Philippine territory shall be subject
to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines;4
(c) The provision of existing laws, rules and regulations to
the contrary notwithstanding, no taxes, local and
national, shall be imposed within the Subic Special
Economic Zone. In lieu of paying taxes, three percent
(3%) of the gross income earned by all businesses and
enterprises within the Subic Special Ecoomic Zone shall
be remitted to the National Government, one percent
(1%) each to the local government units affected by the
declaration of the zone in proportion to their population
area, and other factors. In addition, there is hereby
established a development fund of one percent (1%) of
the gross income earned by all businesses and enterprises
within the Subic Special Economic Zone to be utilized for
the development of municipalities outside the City of
Olangapo and the Municipality of Subic, and other
municipalities contiguous to the base areas.
...
SECTION 15. Clark and Other Special Economic Zones. —
Subject to the concurrence by resolution of the local
government units directly affected, the President is
hereby authorized to create by executive proclamation
a Special Economic Zone covering the lands occupied
by the Clark military reservations and its contiguous
extensions as embraced, covered and defined by the
1947 Military Bases Agreement between the Philippines
and the United States of America, as amended, located
within the territorial jurisdiction of Angeles City,
Municipalities of Mabalacat and Porac, Province of
Pampanga and the Municipality of Capas, Province of
Tarlac, in accordance with the policies as herein
provided insofar as applicable to the Clark military
reservations.
The governing body of the Clark Special Economic Zone
shall likewise be established by executive proclamation
with such powers and functions exercised by the Export
Processing Zone Authority pursuant to Presidential Decree
No. 66 as amended.
The policies to govern and regulate the Clark Special
Economic Zone shall be determined upon consultation
with the inhabitants of the local government units directly
affected which shall be conducted within six (6) months
upon approval of this Act.
Similarly, subject to the concurrence by resolution of the
local government units directly affected, the President
shall create other Special Economic Zones, in the base
areas of Wallace Air Station in San Fernando, La Union
(excluding areas designated for communications,
advance warning and radar requirements of the
Philippine Air Force to be determined by the Conversion
Authority) and Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the
President is likewise authorized to create Special
Economic Zones covering the Municipalities of Morong,
Hermosa, Dinalupihan, Castillejos and San Marcelino.
On April 3, 1993, President Fidel V. Ramos issued Executive
Order No. 80, which declared, among others, that Clark
shall have all the applicable incentives granted to the
Subic Special Economic and Free Port Zone under
Republic Act No. 7227. The pertinent provision assailed
therein is as follows:
SECTION 5. Investments Climate in the CSEZ. — Pursuant
to Section 5(m) and Section 15 of RA 7227, the BCDA shall
promulgate all necessary policies, rules and regulations
governing the CSEZ, including investment incentives, in
consultation with the local government units and
pertinent government departments for implementation
by the CDC.
Among others, the CSEZ shall have all the applicable
incentives in the Subic Special Economic and Free Port
Zone under RA 7227 and those applicable incentives
granted in the Export Processing Zones, the Omnibus
Investments Code of 1987, the Foreign Investments Act of
1991 and new investments laws which may hereinafter be
enacted.
The CSEZ Main Zone covering the Clark Air Base proper
shall have all the aforecited investment incentives, while
the CSEZ Sub-Zone covering the rest of the CSEZ shall
have limited incentives. The full incentives in the Clark SEZ
Main Zone and the limited incentives in the Clark SEZ Sub-
Zone shall be determined by the BCDA.
Pursuant to the directive under Executive Order No. 80,
the BCDA passed Board Resolution No. 93-05-034 on May
18, 1993, allowing the tax and duty-free sale at retail of
consumer goods imported via Clark for consumption
outside the CSEZ. The assailed provisions of said resolution
read, as follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. –
The CSEZ-registered enterprises/businesses shall be
entitled to all the incentives available under R.A. No.
7227, E.O. No. 226 and R.A. No. 7042 which shall include,
but not limited to, the following:
I. As in Subic Economic and Free Port Zone:
A. Customs:
...
4. Tax and duty-free purchase and consumption of
goods/articles (duty free shopping) within the CSEZ Main
Zone.
5. For individuals, duty-free consumer goods may be
brought out of the CSEZ Main Zone into the Philippine
Customs territory but not to exceed US$200.00 per month
per CDC-registered person, similar to the limits imposed in
the Subic SEZ. This privilege shall be enjoyed only once a
month. Any excess shall be levied taxes and duties by the
Bureau of Customs.
On June 10, 1993, the President issued Executive Order
No. 97, "Clarifying the Tax and Duty Free Incentive Within
the Subic Special Economic Zone Pursuant to R.A. No.
7227." Said issuance in part states, thus:
SECTION 1. On Import Taxes and Duties – Tax and duty-
free importations shall apply only to raw materials, capital
goods and equipment brought in by business enterprises
into the SSEZ. Except for these items, importations of other
goods into the SSEZ, whether by business enterprises or
resident individuals, are subject to taxes and duties under
relevant Philippine laws.
The exportation or removal of tax and duty-free goods
from the territory of the SSEZ to other parts of the
Philippine territory shall be subject to duties and taxes
under relevant Philippine laws.
Nine days after, on June 19, 1993, Executive Order No. 97-
A was issued, "Further Clarifying the Tax and Duty-Free
Privilege Within the Subic Special Economic and Free Port
Zone." The relevant provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax
and duty-free privilege within the Secured Area of the
Subic Special Economic and Free Port Zone:
1.1 The Secured Area consisting of the presently fenced-
in former Subic Naval Base shall be the only completely
tax and duty-free area in the SSEFPZ. Business enterprises
and individuals (Filipinos and foreigners) residing within
the Secured Area are free to import raw materials,
capital goods, equipment, and consumer items tax and
duty-free. Consumption items, however, must be
consumed within the Secured Area. Removal of raw
materials, capital goods, equipment and consumer items
out of the Secured Area for sale to non-SSEFPZ registered
enterprises shall be subject to the usual taxes and duties,
except as may be provided herein.
1.2. Residents of the SSEFPZ living outside the Secured
Area can enter the Secured Area and consume any
quantity of consumption items in hotels and restaurants
within the Secured Area. However, these residents can
purchase and bring out of the Secured Area to other
parts of the Philippine territory consumer items worth not
exceeding US$100 per month per person. Only residents
age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the
Secured Area and consume any quantity of consumption
items in hotels and restaurants within the Secured Area.
However, they can purchase and bring out [of] the
Secured Area to other parts of the Philippine territory
consumer items worth not exceeding US$200 per year per
person. Only Filipinos age 15 and over are entitled to this
privilege.
Petitioners assail the $100 monthly and $200 yearly tax-
free shopping privileges granted by the aforecited
provisions respectively to SSEZ residents living outside the
Secured Area of the SSEZ and to Filipinos aged 15 and
over residing outside the SSEZ.
On February 23, 1998, petitioners thus filed the instant
petition, seeking the declaration of nullity of the assailed
issuances on the following grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE
ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR]
BEING AN EXERCISE OF EXECUTIVE LAWMAKING.
II.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE
ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR
BEING VIOLATIVE OF THE EQUAL PROTECTION CLAUSE
AND THE PROHIBITION AGAINST UNFAIR COMPETITION
AND PRACTICES IN RESTRAINT OF TRADE.
III.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE
ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR]
BEING VIOLATIVE OF REPUBLIC ACT NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE CHALLENGED
ISSUANCES IF NOT RESTRAINED WILL CONTINUE TO CAUSE
PETITIONERS TO SUFFER GRAVE AND IRREPARABLE INJURY.5
In their Comments, respondents point out procedural
issues, alleging lack of petitioners’ legal standing, the
unreasonable delay in the filing of the petition, laches,
and the propriety of the remedy of prohibition.
Anent the claim on lack of legal standing, respondents
argue that petitioners, being mere suppliers of the local
retailers operating outside the special economic zones,
do not stand to suffer direct injury in the enforcement of
the issuances being assailed herein. Assuming this is true,
this Court has nevertheless held that in cases of
paramount importance where serious constitutional
questions are involved, the standing requirements may
be relaxed and a suit may be allowed to prosper even
where there is no direct injury to the party claiming the
right of judicial review.6
In the same vein, with respect to the other alleged
procedural flaws, even assuming the existence of such
defects, this Court, in the exercise of its discretion, brushes
aside these technicalities and takes cognizance of the
petition considering the importance to the public of the
present case and in keeping with the duty to determine
whether the other branches of the government have
kept themselves within the limits of the Constitution.7
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the
validity of an act of a co-equal and coordinate branch
of the Government, it bears emphasis that deeply
ingrained in our jurisprudence is the time-honored
principle that a statute is presumed to be valid.8 This
presumption is rooted in the doctrine of separation of
powers which enjoins upon the three coordinate
departments of the Government a becoming courtesy
for each other’s acts.9 Hence, to doubt is to sustain. The
theory is that before the act was done or the law was
enacted, earnest studies were made by Congress, or the
President, or both, to insure that the Constitution would
not be breached.10 This Court, however, may declare a
law, or portions thereof, unconstitutional where a
petitioner has shown a clear and unequivocal breach of
the Constitution, not merely a doubtful or argumentative
one.11 In other words, before a statute or a portion
thereof may be declared unconstitutional, it must be
shown that the statute or issuance violates the
Constitution clearly, palpably and plainly, and in such a
manner as to leave no doubt or hesitation in the mind of
the Court.12
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive
Order No. 97-A; Section 5 of Executive Order No. 80; and
Section 4 of BCDA Board Resolution No. 93-05-034)
constitute executive legislation, in violation of the rule on
separation of powers. Petitioners argue that the Executive
Department, by allowing through the questioned
issuances the setting up of tax and duty-free shops and
the removal of consumer goods and items from the zones
without payment of corresponding duties and taxes,
arbitrarily provided additional exemptions to the
limitations imposed by Republic Act No. 7227, which
limitations petitioners identify as follows:
(1) [Republic Act No. 7227] allowed only tax and duty-
free importation of raw materials, capital and equipment.
(2) It provides that any exportation or removal of goods
from the territory of the Subic Special Economic Zone to
other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines.
Anent the first alleged limitation, petitioners contend that
the wording of Republic Act No. 7227 clearly limits the
grant of tax incentives to the importation of raw
materials, capital and equipment only. Hence, they claim
that the assailed issuances constitute executive
legislation for invalidly granting tax incentives in the
importation of consumer goods such as those being sold
in the duty-free shops, in violation of the letter and intent
of Republic Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227,
which pertains to the SSEZ, would show that it does not
restrict the duty-free importation only to "raw materials,
capital and equipment." Section 12 of the cited law is
partly reproduced, as follows:
SECTION 12. Subic Special Economic Zone. —
...
The abovementioned zone shall be subject to the
following policies:
...
(b) The Subic Special Economic Zone shall be operated
and managed as a separate customs territory ensuring
free flow or movement of goods and capital within, into
and exported out of the Subic Special Economic Zone, as
well as provide incentives such as tax and duty-free
importations of raw materials, capital and
equipment. However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to
the other parts of the Philippine territory shall be subject
to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines.13
While it is true that Section 12 (b) of Republic Act No. 7227
mentions only raw materials, capital and equipment, this
does not necessarily mean that the tax and duty-free
buying privilege is limited to these types of articles to the
exclusion of consumer goods. It must be remembered
that in construing statutes, the proper course is to start out
and follow the true intent of the Legislature and to adopt
that sense which harmonizes best with the context and
promotes in the fullest manner the policy and objects of
the Legislature.14
In the present case, there appears to be no logic in
following the narrow interpretation petitioners urge. To
limit the tax-free importation privilege of enterprises
located inside the special economic zone only to raw
materials, capital and equipment clearly runs counter to
the intention of the Legislature to create a free port
where the "free flow of goods or capital within, into, and
out of the zones" is insured.
The phrase "tax and duty-free importations of raw
materials, capital and equipment" was merely cited as
an example of incentives that may be given to entities
operating within the zone. Public respondent SBMA
correctly argued that the maxim expressio unius est
exclusio alterius, on which petitioners impliedly rely to
support their restrictive interpretation, does not apply
when words are mentioned by way of example.15 It is
obvious from the wording of Republic Act No. 7227,
particularly the use of the phrase "such as," that the
enumeration only meant to illustrate incentives that the
SSEZ is authorized to grant, in line with its being a free port
zone.
Furthermore, said legal maxim should be applied only as
a means of discovering legislative intent which is not
otherwise manifest, and should not be permitted to
defeat the plainly indicated purpose of the Legislature.16
The records of the Senate containing the discussion of the
concept of "special economic zone" in Section 12 (a) of
Republic Act No. 7227 show the legislative intent that
consumer goods entering the SSEZ which satisfy the
needs of the zone and are consumed there are not
subject to duties and taxes in accordance with Philippine
laws, thus:
Senator Guingona. . . . The concept of Special Economic
Zone is one that really includes the concept of a free
port, but it is broader. While a free port is necessarily
included in the Special Economic Zone, the reverse is not
true that a free port would include a special economic
zone.
Special Economic Zone, Mr. President, would include not
only the incoming and outgoing of vessels, duty-free and
tax-free, but it would involve also tourism, servicing,
financing and all the appurtenances of an investment
center. So, that is the concept, Mr. President. It is broader.
It includes the free port concept and would cater to the
greater needs of Olangapo City, Subic Bay and the
surrounding municipalities.
Senator Enrile. May I know then if a factory located within
the jurisdiction of Morong, Bataan that was originally a
part of the Subic Naval reservation, be entitled to a free
port treatment or just a special economic zone
treatment?
Senator Guingona. As far as the goods required for
manufacture is concerned, Mr. President, it would have
privileges of duty-free and tax-free. But in addition, the
Special Economic Zone could embrace the needs of
tourism, could embrace the needs of servicing, could
embrace the needs of financing and other investment
aspects.
Senator Enrile. When a hotel is constructed, Mr. President,
in this geographical unit which we call a special
economic zone, will the goods entering to be consumed
by the customers or guests of the hotel be subject to
duties?
Senator Guingona. That is the concept that we are
crafting, Mr. President.
Senator Enrile. No. I am asking whether those goods will
be duty-free, because it is constructed within a free port.
Senator Guingona. For as long as it services the needs of
the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the
zone, whether we call it an economic zone or a free port,
for as long as we say in this law that all goods entering this
particular territory will be duty-free and tax-free, for as
long as they remain there, consumed there or reexported
or destroyed in that place, then they are not subject to
the duties and taxes in accordance with the laws of the
Philippines?
Senator Guingona. Yes.17
Petitioners rely on Committee Report No. 1206 submitted
by the Ad Hoc Oversight Committee on Bases Conversion
on June 26, 1995. Petitioners put emphasis on the report’s
finding that the setting up of duty-free stores never
figured in the minds of the authors of Republic Act No.
7227 in attracting foreign investors to the former military
baselands. They maintain that said law aimed to attract
manufacturing and service enterprises that will employ
the dislocated former military base workers, but not
investors who would buy consumer goods from duty-free
stores.
The Court is not persuaded. Indeed, it is well-established
that opinions expressed in the debates and proceedings
of the Legislature, steps taken in the enactment of a law,
or the history of the passage of the law through the
Legislature, may be resorted to as aids in the
interpretation of a statute with a doubtful
meaning.18 Petitioners’ posture, however, overlooks the
fact that the 1995 Committee Report they are referring to
came into being well after the enactment of Republic
Act No. 7227 in 1993. Hence, as pointed out by
respondent Executive Secretary Torres, the
aforementioned report cannot be said to form part of
Republic Act No. 7227’s legislative history.
Section 12 of Republic Act No. 7227, provides in part,
thus:
SEC. 12. Subic Special Economic Zone. -- . . .
The abovementioned zone shall be subject to the
following policies:
(a) Within the framework and subject to the mandate
and limitations of the Constitution and the pertinent
provisions of the Local Government Code, the Subic
Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments. 19
The aforecited policy was mentioned as a basis for the
issuance of Executive Order No. 97-A, thus:
WHEREAS, Republic Act No. 7227 provides that within the
framework and subject to the mandate and limitations of
the Constitution and the pertinent provisions of the Local
Government Code, the Subic Special Economic and Free
Port Zone (SSEFPZ) shall be developed into a self-
sustaining industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a
Secured Area in the SSEFPZ subject, to existing laws has
been determined necessary to attract local and foreign
visitors to the zone.
Executive Order No. 97-A provides guidelines to govern
the "tax and duty-free privileges within the Secured Area
of the Subic Special Economic and Free Port Zone."
Paragraph 1.6 thereof states that "(t)he sale of tax and
duty-free consumer items in the Secured Area shall only
be allowed in duly authorized duty-free shops."
The Court finds that the setting up of such commercial
establishments which are the only ones duly authorized to
sell consumer items tax and duty-free is still well within the
policy enunciated in Section 12 of Republic Act No. 7227
that ". . .the Subic Special Economic Zone shall be
developed into a self-sustaining, industrial,
commercial,financial and investment center to generate
employment opportunities in and around the zone and to
attract and promote productive foreign investments."
(Emphasis supplied.)
However, the Court reiterates that the second sentences
of paragraphs 1.2 and 1.3 of Executive Order No. 97-A,
allowing tax and duty-free removal of goods to certain
individuals, even in a limited amount, from the Secured
Area of the SSEZ, are null and void for being contrary to
Section 12 of Republic Act No. 7227. Said Section clearly
provides that "exportation or removal of goods from the
territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines."
On the other hand, insofar as the CSEZ is concerned, the
case for an invalid exercise of executive legislation is
tenable.
In John Hay Peoples Alternative Coalition, et al. v. Victor
Lim, et al.,20 this Court resolved an issue, very much like
the one herein, concerning the legality of the tax
exemption benefits given to the John Hay Economic
Zone under Presidential Proclamation No. 420, Series of
1994, "CREATING AND DESIGNATING A PORTION OF THE
AREA COVERED BY THE FORMER CAMP JOHN AS THE
JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO
REPUBLIC ACT NO. 7227."
In that case, among the arguments raised was that the
granting of tax exemptions to John Hay was an invalid
and illegal exercise by the President of the powers
granted only to the Legislature. Petitioners therein argued
that Republic Act No. 7227 expressly granted tax
exemption only to Subic and not to the other economic
zones yet to be established. Thus, the grant of tax
exemption to John Hay by Presidential Proclamation
contravenes the constitutional mandate that "[n]o law
granting any tax exemption shall be passed without the
concurrence of a majority of all the members of
Congress."21
This Court sustained the argument and ruled that the
incentives under Republic Act No. 7227 are exclusive only
to the SSEZ. The President, therefore, had no authority to
extend their application to John Hay. To quote from the
Decision:
More importantly, the nature of most of the assailed
privileges is one of tax exemption. It is the legislature,
unless limited by a provision of a state constitution, that
has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being
as broad as its power to tax. Other than Congress, the
Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances
on exemption only from local taxes.
The challenged grant of tax exemption would circumvent
the Constitution’s imposition that a law granting any tax
exemption must have the concurrence of a majority of all
the members of Congress. In the same vein, the other
kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
Contrary to public respondents’ suggestions, the claimed
statutory exemption of the John Hay SEZ from taxation
should be manifest and unmistakable from the language
of the law on which it is based; it must be expressly
granted in a statute stated in a language too clear to be
mistaken. Tax exemption cannot be implied as it must be
categorically and unmistakably expressed.
If it were the intent of the legislature to grant to John Hay
SEZ the same tax exemption and incentives given to the
Subic SEZ, it would have so expressly provided in R.A. No.
7227.22
In the present case, while Section 12 of Republic Act No.
7227 expressly provides for the grant of incentives to the
SSEZ, it fails to make any similar grant in favor of other
economic zones, including the CSEZ. Tax and duty-free
incentives being in the nature of tax exemptions, the
basis thereof should be categorically and unmistakably
expressed from the language of the statute.
Consequently, in the absence of any express grant of tax
and duty-free privileges to the CSEZ in Republic Act No.
7227, there would be no legal basis to uphold the
questioned portions of two issuances: Section 5 of
Executive Order No. 80 and Section 4 of BCDA Board
Resolution No. 93-05-034, which both pertain to the CSEZ.
Petitioners also contend that the questioned issuances
constitute executive legislation for allowing the removal
of consumer goods and items from the zones without
payment of corresponding duties and taxes in violation of
Republic Act No. 7227 as Section 12 thereof provides for
the taxation of goods that are exported or removed from
the SSEZ to other parts of the Philippine territory.
On September 26, 1997, Executive Order No. 444 was
issued, curtailing the duty-free shopping privileges in the
SSEZ and the CSEZ "to prevent abuse of duty-free
privilege and to protect local industries from unfair
competition." The pertinent provisions of said issuance
state, as follows:
SECTION 3. Special Shopping Privileges Granted During
the Year-round Centennial Anniversary Celebration in
1998. — Upon effectivity of this Order and up to the
Centennial Year 1998, in addition to the permanent
residents, locators and employees of the fenced-in areas
of the Subic Special Economic and Freeport Zone and
the Clark Special Economic Zone who are allowed
unlimited duty free purchases, provided these are
consumed within said fenced-in areas of the Zones, the
residents of the municipalities adjacent to Subic and
Clark as respectively provided in R.A. 7227 (1992) and
E.O. 97-A s. 1993 shall continue to be allowed One
Hundred US Dollars (US$100) monthly shopping
privilege until 31 December 1998. Domestic tourists visiting
Subic and Clark shall be allowed a shopping privilege of
US$25 for consumable goods which shall be consumed
only in the fenced-in area during their visit therein.
SECTION 4. Grant of Duty Free Shopping Privileges Limited
Only To Individuals Allowed by Law. — Starting 1 January
1999, only the following persons shall continue to be
eligible to shop in duty free shops/outlets with their
corresponding purchase limits:
a. Tourists and Filipinos traveling to or returning from
foreign destinations under E.O. 97-A s. 1993 — One
Thousand US Dollars (US$1,000) but not to exceed Ten
Thousand US Dollars (US$10,000) in any given year;
b. Overseas Filipino Workers (OFWs) and Balikbayans
defined under R.A. 6768 dated 3 November 1989 — Two
Thousand US Dollars (US$2,000);
c. Residents, eighteen (18) years old and above, of the
fenced-in areas of the freeports under R.A. 7227 (1992)
and E.O. 97-A s. 1993 — Unlimited purchase as long as
these are for consumption within these freeports.
The term "Residents" mentioned in item c above shall refer
to individuals who, by virtue of domicile or employment,
reside on permanent basis within the freeport area. The
term excludes (1) non-residents who have entered into
short- or long-term property lease inside the freeport, (2)
outsiders engaged in doing business within the freeport,
and (3) members of private clubs (e.g., yacht and golf
clubs) based or located within the freeport. In this regard,
duty free privileges granted to any of the above
individuals (e.g., unlimited shopping privilege, tax-free
importation of cars, etc.) are hereby revoked.23
A perusal of the above provisions indicates that effective
January 1, 1999, the grant of duty-free shopping
privileges to domestic tourists and to residents living
adjacent to SSEZ and the CSEZ had been revoked.
Residents of the fenced-in area of the free port are still
allowed unlimited purchase of consumer goods, "as long
as these are for consumption within these freeports."
Hence, the only individuals allowed by law to shop in the
duty-free outlets and remove consumer goods out of the
free ports tax-free are tourists and Filipinos traveling to or
returning from foreign destinations, and Overseas Filipino
Workers and Balikbayans as defined under Republic Act
No. 6768.24
Subsequently, on October 20, 2000, Executive Order No.
303 was issued, amending Executive Order No. 444.
Pursuant to the limited duration of the privileges granted
under the preceding issuance, Section 2 of Executive
Order No. 303 declared that "[a]ll special shopping
privileges as granted under Section 3 of Executive Order
444, s. 1997, are hereby deemed terminated. The grant of
duty free shopping privileges shall be restricted to
qualified individuals as provided by law."
It bears noting at this point that the shopping privileges
currently being enjoyed by Overseas Filipino Workers,
Balikbayans, and tourists traveling to and from foreign
destinations, draw authority not from the issuances being
assailed herein, but from Executive Order No. 46 25 and
Republic Act No. 6768, both enacted prior to the
promulgation of Republic Act No. 7227.
From the foregoing, it appears that petitioners’ objection
to the allowance of tax-free removal of goods from the
special economic zones as previously authorized by the
questioned issuances has become moot and academic.
In any event, Republic Act No. 7227, specifically Section
12 (b) thereof, clearly provides that "exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine
territory shall be subject to customs duties and taxes
under the Customs and Tariff Code and other relevant
tax laws of the Philippines."
Thus, the removal of goods from the SSEZ to other parts of
the Philippine territory without payment of said customs
duties and taxes is not authorized by the Act.
Consequently, the following italicized provisions found in
the second sentences of paragraphs 1.2 and 1.3, Section
1 of Executive Order No. 97-A are null and void:
1.2 Residents of the SSEFPZ living outside the Secured
Area can enter and consume any quantity of
consumption items in hotels and restaurants within the
Secured Area. However, these residents can purchase
and bring out of the Secured Area to other parts of the
Philippine territory consumer items worth not exceeding
US $100 per month per person. Only residents age 15 and
over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the
Secured Area and consume any quantity of consumption
items in hotels and restaurants within the Secured
Area. However, they can purchase and bring out of the
Secured Area to other parts of the Philippine territory
consumer items worth not exceeding US $200 per year
per person. Only Filipinos age 15 and over are entitled to
this privilege.26
A similar provision found in paragraph 5, Section 4(A) of
BCDA Board Resolution No. 93-05-034 is also null and void.
Said Resolution applied the incentives given to the SSEZ
under Republic Act No. 7227 to the CSEZ, which, as
aforestated, is without legal basis.
Having concluded earlier that the CSEZ is excluded from
the tax and duty-free incentives provided under Republic
Act No. 7227, this Court will resolve the remaining
arguments only with regard to the operations of the SSEZ.
Thus, the assailed issuance that will be discussed is solely
Executive Order No. 97-A, since it is the only one among
the three questioned issuances which pertains to the
SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance (Executive
Order No. 97-A) is violative of their right to equal
protection of the laws, as enshrined in Section 1, Article III
of the Constitution. To support this argument, they assert
that private respondents operating inside the SSEZ are not
different from the retail establishments located outside,
the products sold being essentially the same. The only
distinction, they claim, lies in the products’ variety and
source, and the fact that private respondents import their
items tax-free, to the prejudice of the retailers and
manufacturers located outside the zone.
Petitioners’ contention cannot be sustained. It is an
established principle of constitutional law that the
guaranty of the equal protection of the laws is not
violated by a legislation based on a reasonable
classification.27 Classification, to be valid, must (1) rest on
substantial distinction, (2) be germane to the purpose of
the law, (3) not be limited to existing conditions only, and
(4) apply equally to all members of the same class.28
Applying the foregoing test to the present case, this Court
finds no violation of the right to equal protection of the
laws. First, contrary to petitioners’ claim, substantial
distinctions lie between the establishments inside and
outside the zone, justifying the difference in their
treatment. In Tiu v. Court of Appeals,29 the
constitutionality of Executive Order No. 97-A was
challenged for being violative of the equal protection
clause. In that case, petitioners claimed that Executive
Order No. 97-A was discriminatory in confining the
application of Republic Act No. 7227 within a secured
area of the SSEZ, to the exclusion of those outside but are,
nevertheless, still within the economic zone.
Upholding the constitutionality of Executive Order No. 97-
A, this Court therein found substantial differences
between the retailers inside and outside the secured
area, thereby justifying a valid and reasonable
classification:
Certainly, there are substantial differences between the
big investors who are being lured to establish and
operate their industries in the so-called "secured area"
and the present business operators outside the area. On
the one hand, we are talking of billion-peso investments
and thousands of new jobs. On the other hand, definitely
none of such magnitude. In the first, the economic
impact will be national; in the second, only local. Even
more important, at this time the business activities outside
the "secured area" are not likely to have any impact in
achieving the purpose of the law, which is to turn the
former military base to productive use for the benefit of
the Philippine economy. There is, then, hardly any
reasonable basis to extend to them the benefits and
incentives accorded in R.A. 7227. Additionally, as the
Court of Appeals pointed out, it will be easier to manage
and monitor the activities within the "secured area,"
which is already fenced off, to prevent "fraudulent
importation of merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does
not require territorial uniformity of laws. As long as there
are actual and material differences between territories,
there is no violation of the constitutional clause. And of
course, anyone, including the petitioners, possessing the
requisite investment capital can always avail of the same
benefits by channeling his or her resources or business
operations into the fenced-off free port zone.30
The Court in Tiu found real and substantial distinctions
between residents within the secured area and those
living within the economic zone but outside the fenced-
off area. Similarly, real and substantial differences exist
between the establishments herein involved. A significant
distinction between the two groups is that enterprises
outside the zones maintain their businesses within
Philippine customs territory, while private respondents and
the other duly-registered zone enterprises operate within
the so-called "separate customs territory." To grant the
same tax incentives given to enterprises within the zones
to businesses operating outside the zones, as petitioners
insist, would clearly defeat the statute’s intent to carve a
territory out of the military reservations in Subic Bay where
free flow of goods and capital is maintained.
The classification is germane to the purpose of Republic
Act No. 7227. As held in Tiu, the real concern of Republic
Act No. 7227 is to convert the lands formerly occupied by
the US military bases into economic or industrial areas. In
furtherance of such objective, Congress deemed it
necessary to extend economic incentives to the
establishments within the zone to attract and encourage
foreign and local investors. This is the very rationale
behind Republic Act No. 7227 and other similar special
economic zone laws which grant a complete package
of tax incentives and other benefits.
The classification, moreover, is not limited to the existing
conditions when the law was promulgated, but to future
conditions as well, inasmuch as the law envisioned the
former military reservation to ultimately develop into a
self-sustaining investment center.
And, lastly, the classification applies equally to all retailers
found within the "secured area." As ruled in Tiu, the
individuals and businesses within the "secured area,"
being in like circumstances or contributing directly to the
achievement of the end purpose of the law, are not
categorized further. They are all similarly treated, both in
privileges granted and in obligations required.
With all the four requisites for a reasonable classification
present, there is no ground to invalidate Executive Order
No. 97-A for being violative of the equal protection
clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax
exemptions and privileges gave the private respondents
undue advantage over local enterprises which do not
operate inside the SSEZ, thereby creating unfair
competition in violation of the constitutional prohibition
against unfair competition and practices in restraint of
trade.
The argument is without merit. Just how the assailed
issuance is violative of the prohibition against unfair
competition and practices in restraint of trade is not
clearly explained in the petition. Republic Act No. 7227,
and consequently Executive Order No. 97-A, cannot be
said to be distinctively arbitrary against the welfare of
businesses outside the zones. The mere fact that
incentives and privileges are granted to certain
enterprises to the exclusion of others does not render the
issuance unconstitutional for espousing unfair
competition. Said constitutional prohibition cannot hinder
the Legislature from using tax incentives as a tool to
pursue its policies.
Suffice it to say that Congress had justifiable reasons in
granting incentives to the private respondents, in
accordance with Republic Act No. 7227’s policy of
developing the SSEZ into a self-sustaining entity that will
generate employment and attract foreign and local
investment. If petitioners had wanted to avoid any
alleged unfavorable consequences on their profits, they
should upgrade their standards of quality so as to
effectively compete in the market. In the alternative, if
petitioners really wanted the preferential treatment
accorded to the private respondents, they could have
opted to register with SSEZ in order to operate within the
special economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned issuance
(Executive Order No. 97-A) openly violated the State
policy of promoting the preferential use of Filipino labor,
domestic materials and locally produced goods and
adopting measures to help make them competitive.
Again, the argument lacks merit. This Court notes that
petitioners failed to substantiate their sweeping
conclusion that the issuance has violated the State policy
of giving preference to Filipino goods and labor. The
mere fact that said issuance authorizes the importation
and trade of foreign goods does not suffice to declare it
unconstitutional on this ground.
Petitioners cite Manila Prince Hotel v. GSIS31 which,
however, does not apply. That case dealt with the policy
enunciated under the second paragraph of Section 10,
Article XII of the Constitution,32 applicable to the grant of
rights, privileges, and concessions "covering the national
economy and patrimony," which is different from the
policy invoked in this petition, specifically that of giving
preference to Filipino materials and labor found under
Section 12 of the same Article of the Constitution.
(Emphasis supplied).
In Tañada v. Angara,33 this Court elaborated on the
meaning of Section 12, Article XII of the Constitution in this
wise:
[W]hile the Constitution indeed mandates a bias in favor
of Filipino goods, services, labor and enterprises, at the
same time, it recognizes the need for business exchange
with the rest of the world on the bases of equality and
reciprocity and limits protection of Filipino enterprises only
against foreign competition and trade practices that are
unfair. In other words, the Constitution did not intend to
pursue an isolationist policy. It did not shut out foreign
investments, goods and services in the development of
the Philippine economy. While the Constitution does not
encourage the unlimited entry of foreign goods, services
and investments into the country, it does not prohibit
them either. In fact, it allows an exchange on the basis of
equality and reciprocity, frowning only on foreign
competition that is unfair.34
This Court notes that the Executive Department, with its
subsequent issuance of Executive Order Nos. 444 and
303, has provided certain measures to prevent unfair
competition. In particular, Executive Order Nos. 444 and
303 have restricted the special shopping privileges to
certain individuals.35 Executive Order No. 303 has limited
the range of items that may be sold in the duty-free
outlets,36 and imposed sanctions to curb abuses of duty-
free privileges.37With these measures, this Court finds no
reason to strike down Executive Order No. 97-A for
allegedly being prejudicial to Filipino labor, domestic
materials and locally produced goods.
WHEREFORE, the petition is PARTLY GRANTED. Section 5 of
Executive Order No. 80 and Section 4 of BCDA Board
Resolution No. 93-05-034 are hereby declared NULL and
VOID and are accordingly declared of no legal force
and effect. Respondents are hereby enjoined from
implementing the aforesaid void provisions. All portions of
Executive Order No. 97-A are valid and effective, except
the second sentences in paragraphs 1.2 and 1.3 of said
Executive Order, which are hereby declared INVALID.
No costs.
SO ORDERED.
G.R. No. L-23794 February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD
OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of
Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and
Teehankee, Carreon & Tañada for plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc
City passed 1 Ordinance No. 4, Series of 1964, imposing
"on any and all productions of centrifugal sugar milled at
the Ormoc Sugar Company, Inc., in Ormoc City a
municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other
foreign countries." 2
Payments for said tax were made, under protest, by
Ormoc Sugar Company, Inc. on March 20, 1964 for
P7,087.50 and on April 20, 1964 for P5,000, or a total of
P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed
before the Court of First Instance of Leyte, with service of
a copy upon the Solicitor General, a complaint 3 against
the City of Ormoc as well as its Treasurer, Municipal Board
and Mayor, alleging that the afore-stated ordinance is
unconstitutional for being violative of the equal
protection clause (Sec. 1[1], Art. III, Constitution) and the
rule of uniformity of taxation (Sec. 22[1]), Art. VI,
Constitution), aside from being an export tax forbidden
under Section 2287 of the Revised Administrative Code. It
further alleged that the tax is neither a production nor a
license tax which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act 2264,
otherwise known as the Local Autonomy Act, is
authorized to impose; and that the tax amounts to a
customs duty, fee or charge in violation of paragraph 1
of Section 2 of Republic Act 2264 because the tax is on
both the sale and export of sugar.
Answering, the defendants asserted that the tax
ordinance was within defendant city's power to enact
under the Local Autonomy Act and that the same did
not violate the afore-cited constitutional limitations. After
pre-trial and submission of the case on memoranda, the
Court of First Instance, on August 6, 1964, rendered a
decision that upheld the constitutionality of the
ordinance and declared the taxing power of defendant
chartered city broadened by the Local Autonomy Act to
include all other forms of taxes, licenses or fees not
excluded in its charter.
Appeal therefrom was directly taken to Us by
plaintiff Ormoc Sugar Company, Inc. Appellant alleges
the same statutory and constitutional violations in the
aforesaid taxing ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be
paid to the City Treasurer on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Company,
Incorporated, in Ormoc City, a municipal tax equivalent
to one per centum (1%) per export sale to the United
States of America and other foreign countries." Though
referred to as a tax on the export of centrifugal sugar
produced at Ormoc Sugar Company, Inc. For production
of sugar alone is not taxable; the only time the tax applies
is when the sugar produced is exported.
Appellant questions the authority of the defendant
Municipal Board to levy such an export tax, in view of
Section 2287 of the Revised Administrative Code which
denies from municipal councils the power to impose an
export tax. Section 2287 in part states: "It shall not be in
the power of the municipal council to impose a tax in any
form whatever, upon goods and merchandise carried
into the municipality, or out of the same, and any
attempt to impose an import or export tax upon such
goods in the guise of an unreasonable charge for
wharfage use of bridges or otherwise, shall be void."
Subsequently, however, Section 2 of Republic Act
2264 effective June 19, 1959, gave chartered cities,
municipalities and municipal districts authority to levy for
public purposes just and uniform taxes, licenses or fees.
Anent the inconsistency between Section 2287 of the
Revised Administrative Code and Section 2 of Republic
Act 2264, this Court, in Nin Bay Mining Co. v. Municipality
of Roxas 4 held the former to have been repealed by the
latter. And expressing Our awareness of the
transcendental effects that municipal export or import
taxes or licenses will have on the national economy, due
to Section 2 of Republic Act 2264, We stated that there
was no other alternative until Congress acts to provide
remedial measures to forestall any unfavorable results.
The point remains to be determined, however,
whether constitutional limits on the power of taxation,
specifically the equal protection clause and rule of
uniformity of taxation, were infringed.
 The Constitution in the bill of rights provides: ". . . nor
shall any person be denied the equal protection of the
laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that
the equal protection clause applies only to persons or
things identically situated and does not bar a reasonable
classification of the subject of legislation, and a
classification is reasonable where (1) it is based on
substantial distinctions which make real differences; (2)
these are germane to the purpose of the law; (3) the
classification applies not only to present conditions but
also to future conditions which are substantially identical
to those of the present; (4) the classification applies only
to those who belong to the same class.
A perusal of the requisites instantly shows that the
questioned ordinance does not meet them, for it taxes
only centrifugal sugar produced and exported by the
Ormoc Sugar Company, Inc. and none other. At the time
of the taxing ordinance's enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar central in the
city of Ormoc. Still, the classification, to be reasonable,
should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established
sugar central, of the same class as plaintiff, for the
coverage of the tax. As it is now, even if later a similar
company is set up, it cannot be subject to the tax
because the ordinance expressly points only to Ormoc
City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on
the refund because the taxes were not arbitrarily
collected (Collector of Internal Revenue v.
Binalbagan). 6 At the time of collection, the ordinance
provided a sufficient basis to preclude arbitrariness, the
same being then presumed constitutional until declared
otherwise.
WHEREFORE, the decision appealed from is hereby
reversed, the challenged ordinance is declared
unconstitutional and the defendants-appellees are
hereby ordered to refund the P12,087.50 plaintiff-
appellant paid under protest. No costs. So ordered.
e. Origination Clause Sec 24, Art VI
G.R. No. 115455 August 25, 1994
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS,
INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC.,
PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO
TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.,
and ASSOCIATION OF PHILIPPINE BOOK-
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for
petitioners in G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for
petitioner R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in
G.R. No. 115754.
Salonga, Hernandez & Allado for Freedon From Debts
Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law
Offices for petitioners in G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No.
115931.
Reve A.V. Saguisag for MABINI.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale
or exchange of services. It is equivalent to 10% of the
gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic
Act No. 7716 seeks to widen the tax base of the existing
VAT system and enhance its administration by amending
the National Internal Revenue Code.
These are various suits for certiorari and prohibition,
challenging the constitutionality of Republic Act No. 7716
on various grounds summarized in the resolution of July 6,
1994 of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate
Art. VI, § 24 of the Constitution?
B. Does it violate Art. VI, § 26(2) of the
Constitution?
C. What is the extent of the power of the
Bicameral Conference Committee?
II. Substantive Issues:
 A. Does the law violate the following
provisions in the Bill of Rights (Art. III)?
1. §1
2. § 4
3. § 5
4. § 10
B. Does the law violate the following
other provisions of the Constitution?
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated
above. As will presently be explained not all of these
questions are judicially cognizable, because not all
provisions of the Constitution are self executing and,
therefore, judicially enforceable. The other departments
of the government are equally charged with the
enforcement of the Constitution, especially the provisions
relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic
Act No. 7716, or the Expanded Value-Added Tax Law,
Congress violated the Constitution because, although H.
No. 11197 had originated in the House of Representatives,
it was not passed by the Senate but was simply
consolidated with the Senate version (S. No. 1630) in the
Conference Committee to produce the bill which the
President signed into law. The following provisions of the
Constitution are cited in support of the proposition that
because Republic Act No. 7716 was passed in this
manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, § 24: All appropriation, revenue or
tariff bills, bills authorizing increase of the
public debt, bills of local application,
and private bills shall originate exclusively
in the House of Representatives, but the
Senate may propose or concur with
amendments.
Id., § 26(2): No bill passed by either
House shall become a law unless it has
passed three readings on separate days,
and printed copies thereof in its final
form have been distributed to its
Members three days before its passage,
except when the President certifies to
the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a
bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the
Journal.
It appears that on various dates between July 22, 1992
and August 31, 1993, several bills 1 were introduced in the
House of Representatives seeking to amend certain
provisions of the National Internal Revenue Code relative
to the value-added tax or VAT. These bills were referred
to the House Ways and Means Committee which
recommended for approval a substitute measure, H. No.
11197, entitled
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM TO WIDEN ITS
TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 106, 107, 108 AND 110 OF TITLE
IV, 112, 115 AND 116 OF TITLE V, AND 236,
237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF
THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it
was approved by the House of Representatives after third
and final reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and
Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM TO WIDEN ITS
TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 107, 108, AND 110 OF TITLE IV,
112 OF TITLE V, AND 236, 237, AND 238 OF
TITLE IX, AND REPEALING SECTIONS 113,
114 and 116 OF TITLE V, ALL OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in
substitution of Senate Bill No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of
the bill (S. No. 1630). It finished debates on the bill and
approved it on second reading on March 24, 1994. On
the same day, it approved the bill on third reading by the
affirmative votes of 13 of its members, with one
abstention.
H. No. 11197 and its Senate version (S. No. 1630) were
then referred to a conference committee which, after
meeting four times (April 13, 19, 21 and 25, 1994),
recommended that "House Bill No. 11197, in consolidation
with Senate Bill No. 1630, be approved in accordance
with the attached copy of the bill as reconciled and
approved by the conferees."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES," was thereafter approved by the
House of Representatives on April 27, 1994 and by the
Senate on May 2, 1994. The enrolled bill was then
presented to the President of the Philippines who, on May
5, 1994, signed it. It became Republic Act No. 7716. On
May 12, 1994, Republic Act No. 7716 was published in two
newspapers of general circulation and, on May 28, 1994,
it took effect, although its implementation was
suspended until June 30, 1994 to allow time for the
registration of business entities. It would have been
enforced on July 1, 1994 but its enforcement was
stopped because the Court, by the vote of 11 to 4 of its
members, granted a temporary restraining order on June
30, 1994.
First. Petitioners' contention is that Republic Act No. 7716
did not "originate exclusively" in the House of
Representatives as required by Art. VI, §24 of the
Constitution, because it is in fact the result of the
consolidation of two distinct bills, H. No. 11197 and S. No.
1630. In this connection, petitioners point out that
although Art. VI, SS 24 was adopted from the American
Federal Constitution, 2 it is notable in two respects: the
verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as
on other bills" in the American version is omitted. This
means, according to them, that to be considered as
having originated in the House, Republic Act No. 7716
must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not
the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
rewriting of the whole. The possibility of a third version by
the conference committee will be discussed later. At this
point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist
that a revenue statute — and not only the bill which
initiated the legislative process culminating in the
enactment of the law — must substantially be the same
as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to
"propose amendments." It would be to violate the
coequality of legislative power of the two houses of
Congress and in fact make the House superior to the
Senate.
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-
ratifying power 3 and thereby equalize its powers and
those of the House overlooks the fact that the powers
being compared are different. We are dealing here with
the legislative power which under the Constitution is
vested not in any particular chamber but in the Congress
of the Philippines, consisting of "a Senate and a House of
Representatives." 4 The exercise of the treaty-ratifying
power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is,
therefore, no justification for comparing the legislative
powers of the House and of the Senate on the basis of
the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S.
Senate 5 has never been thought of as giving it more
legislative powers than the House of Representatives.
In the United States, the validity of a provision (§ 37)
imposing an ad valorem tax based on the weight of
vessels, which the U.S. Senate had inserted in the Tariff
Act of 1909, was upheld against the claim that the
provision was a revenue bill which originated in the
Senate in contravention of Art. I, § 7 of the U.S.
Constitution. 6 Nor is the power to amend limited to
adding a provision or two in a revenue bill emanating
from the House. The U.S. Senate has gone so far as
changing the whole of bills following the enacting clause
and substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff
bill and wrote in its place its own measure, and the House
subsequently accepted the amendment. The U.S. Senate
likewise added 847 amendments to what later became
the Payne-Aldrich Tariff Act of 1909; it dictated the
schedules of the Tariff Act of 1921; it rewrote an extensive
tax revision bill in the same year and recast most of the
tariff bill of 1922. 7 Given, then, the power of the Senate to
propose amendments, the Senate can propose its own
version even with respect to bills which are required by
the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S.
No. 1129) earlier filed and that what the Senate did was
merely to "take [H. No. 11197] into consideration" in
enacting S. No. 1630. There is really no difference
between the Senate preserving H. No. 11197 up to the
enacting clause and then writing its own version following
the enacting clause (which, it would seem, petitioners
admit is an amendment by substitution), and, on the
other hand, separately presenting a bill of its own on the
same subject matter. In either case the result are two bills
on the same subject.
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills
and bills of local application must come from the House
of Representatives on the theory that, elected as they
are from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the bill
from the House, so long as action by the Senate as a
body is withheld pending receipt of the House bill. The
Court cannot, therefore, understand the alarm expressed
over the fact that on March 1, 1993, eight months before
the House passed H. No. 11197, S. No. 1129 had been
filed in the Senate. After all it does not appear that the
Senate ever considered it. It was only after the Senate
had received H. No. 11197 on November 23, 1993 that
the process of legislation in respect of it began with the
referral to the Senate Committee on Ways and Means of
H. No. 11197 and the submission by the Committee on
February 7, 1994 of S. No. 1630. For that matter, if the
question were simply the priority in the time of filing of bills,
the fact is that it was in the House that a bill (H. No. 253)
to amend the VAT law was first filed on July 22, 1992.
Several other bills had been filed in the House before S.
No. 1129 was filed in the Senate, and H. No. 11197 was
only a substitute of those earlier bills.
Second. Enough has been said to show that it was within
the power of the Senate to propose S. No. 1630. We now
pass to the next argument of petitioners that S. No. 1630
did not pass three readings on separate days as required
by the Constitution 8 because the second and third
readings were done on the same day, March 24, 1994.
But this was because on February 24, 1994 9 and again on
March 22, 1994, 10 the President had certified S. No. 1630
as urgent. The presidential certification dispensed with
the requirement not only of printing but also that of
reading the bill on separate days. The phrase "except
when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, § 26(2) qualifies the
two stated conditions before a bill can become a law: (i)
the bill has passed three readings on separate days and
(ii) it has been printed in its final form and distributed
three days before it is finally approved.
In other words, the "unless" clause must be read in relation
to the "except" clause, because the two are really
coordinate clauses of the same sentence. To construe
the "except" clause as simply dispensing with the second
requirement in the "unless" clause (i.e., printing and
distribution three days before final approval) would not
only violate the rules of grammar. It would also negate
the very premise of the "except" clause: the necessity of
securing the immediate enactment of a bill which is
certified in order to meet a public calamity or
emergency. For if it is only the printing that is dispensed
with by presidential certification, the time saved would
be so negligible as to be of any use in insuring immediate
enactment. It may well be doubted whether doing away
with the necessity of printing and distributing copies of
the bill three days before the third reading would insure
speedy enactment of a law in the face of an emergency
requiring the calling of a special election for President
and Vice-President. Under the Constitution such a law is
required to be made within seven days of the convening
of Congress in emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of
printing and distribution can be dispensed with is
supported by the weight of legislative practice. For
example, the bill defining the certiorari jurisdiction of this
Court which, in consolidation with the Senate version,
became Republic Act No. 5440, was passed on second
and third readings in the House of Representatives on the
same day (May 14, 1968) after the bill had been certified
by the President as urgent. 12
There is, therefore, no merit in the contention that
presidential certification dispenses only with the
requirement for the printing of the bill and its distribution
three days before its passage but not with the
requirement of three readings on separate days, also.
It is nonetheless urged that the certification of the bill in
this case was invalid because there was no emergency,
the condition stated in the certification of a "growing
budget deficit" not being an unusual condition in this
country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the
certification. To the contrary, by passing S. No. 1630 on
second and third readings on March 24, 1994, the Senate
accepted the President's certification. Should such
certification be now reviewed by this Court, especially
when no evidence has been shown that, because S. No.
1630 was taken up on second and third readings on the
same day, the members of the Senate were deprived of
the time needed for the study of a vital piece of
legislation?
The sufficiency of the factual basis of the suspension of
the writ of habeas corpus or declaration of martial law
under Art. VII, § 18, or the existence of a national
emergency justifying the delegation of extraordinary
powers to the President under Art. VI, § 23(2), is subject to
judicial review because basic rights of individuals may be
at hazard. But the factual basis of presidential
certification of bills, which involves doing away with
procedural requirements designed to insure that bills are
duly considered by members of Congress, certainly
should elicit a different standard of review.
Petitioners also invite attention to the fact that the
President certified S. No. 1630 and not H. No. 11197. That
is because S. No. 1630 was what the Senate was
considering. When the matter was before the House, the
President likewise certified H. No. 9210 the pending in the
House.
Third. Finally it is contended that the bill which became
Republic Act No. 7716 is the bill which the Conference
Committee prepared by consolidating H. No. 11197 and
S. No. 1630. It is claimed that the Conference Committee
report included provisions not found in either the House
bill or the Senate bill and that these provisions were
"surreptitiously" inserted by the Conference Committee.
Much is made of the fact that in the last two days of its
session on April 21 and 25, 1994 the Committee met
behind closed doors. We are not told, however, whether
the provisions were not the result of the give and take
that often mark the proceedings of conference
committees.
Nor is there anything unusual or extraordinary about the
fact that the Conference Committee met in executive
sessions. Often the only way to reach agreement on
conflicting provisions is to meet behind closed doors, with
only the conferees present. Otherwise, no compromise is
likely to be made. The Court is not about to take the
suggestion of a cabal or sinister motive attributed to the
conferees on the basis solely of their "secret meetings" on
April 21 and 25, 1994, nor read anything into the
incomplete remarks of the members, marked in the
transcript of stenographic notes by ellipses. The
incomplete sentences are probably due to the
stenographer's own limitations or to the incoherence that
sometimes characterize conversations. William Safire
noted some such lapses in recorded talks even by recent
past Presidents of the United States.
In any event, in the United States conference committees
had been customarily held in executive sessions with only
the conferees and their staffs in attendance. 13 Only in
November 1975 was a new rule adopted requiring open
sessions. Even then a majority of either chamber's
conferees may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of
a Conference Committee, it has been explained:
Under congressional rules of procedure,
conference committees are not
expected to make any material change
in the measure at issue, either by
deleting provisions to which both houses
have already agreed or by inserting new
provisions. But this is a difficult provision to
enforce. Note the problem when one
house amends a proposal originating in
either house by striking out everything
following the enacting clause and
substituting provisions which make it an
entirely new bill. The versions are now
altogether different, permitting a
conference committee to draft
essentially a new bill. . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be
germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power
of a conference committee to include in its report an
entirely new provision that is not found either in the House
bill or in the Senate bill. 17 If the committee can propose
an amendment consisting of one or two provisions, there
is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature
of a substitute," so long as such amendment is germane
to the subject of the bills before the committee. After all,
its report was not final but needed the approval of both
houses of Congress to become valid as an act of the
legislative department. The charge that in this case the
Conference Committee acted as a third legislative
chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules
of the Senate and the House of Representatives a
conference committee can only act on the differing
provisions of a Senate bill and a House bill, and that
contrary to these Rules the Conference Committee
inserted provisions not found in the bills submitted to it.
The following provisions are cited in support of this
contention:
Rules of the Senate
Rule XII:
§ 26. In the event that the Senate does
not agree with the House of
Representatives on the provision of any
bill or joint resolution, the differences shall
be settled by a conference committee
of both Houses which shall meet within
ten days after their composition.
The President shall designate the
members of the conference committee
in accordance with subparagraph (c),
Section 3 of Rule III.
Each Conference Committee Report
shall contain a detailed and sufficiently
explicit statement of the changes in or
amendments to the subject
measure, and shall be signed by the
conferees.
The consideration of such report shall not
be in order unless the report has been
filed with the Secretary of the Senate
and copies thereof have been
distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ 85. Conference Committee Reports. —
In the event that the House does not
agree with the Senate on the
amendments to any bill or joint
resolution, the differences may be
settled by conference committees of
both Chambers.
The consideration of conference
committee reports shall always be in
order, except when the journal is being
read, while the roll is being called or the
House is dividing on any question. Each
of the pages of such reports shall be
signed by the conferees. Each report
shall contain a detailed, sufficiently
explicit statement of the changes in or
amendments to the subject measure.
The consideration of such report shall not
be in order unless copies thereof are
distributed to the Members: Provided,
That in the last fifteen days of each
session period it shall be deemed
sufficient that three copies of the report,
signed as above provided, are
deposited in the office of the Secretary
General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference
committee to a consideration of conflicting provisions.
But Rule XLIV, § 112 of the Rules of the Senate is cited to
the effect that "If there is no Rule applicable to a specific
case the precedents of the Legislative Department of the
Philippines shall be resorted to, and as a supplement of
these, the Rules contained in Jefferson's Manual." The
following is then quoted from the Jefferson's Manual:
The managers of a conference must
confine themselves to the differences
committed to them. . . and may not
include subjects not within
disagreements, even though germane to
a question in issue.
Note that, according to Rule XLIX, § 112, in case there is
no specific rule applicable, resort must be to the
legislative practice. The Jefferson's Manual is resorted to
only as supplement. It is common place in Congress that
conference committee reports include new matters
which, though germane, have not been committed to
the committee. This practice was admitted by Senator
Raul S. Roco, petitioner in G.R. No. 115543, during the oral
argument in these cases. Whatever, then, may be
provided in the Jefferson's Manual must be considered to
have been modified by the legislative practice. If a
change is desired in the practice it must be sought in
Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house. Thus, Art. VI, § 16(3) of the Constitution provides
that "Each House may determine the rules of its
proceedings. . . ."
This observation applies to the other contention that the
Rules of the two chambers were likewise disregarded in
the preparation of the Conference Committee Report
because the Report did not contain a "detailed and
sufficiently explicit statement of changes in, or
amendments to, the subject measure." The Report used
brackets and capital letters to indicate the changes. This
is a standard practice in bill-drafting. We cannot say that
in using these marks and symbols the Committee violated
the Rules of the Senate and the House. Moreover, this
Court is not the proper forum for the enforcement of
these internal Rules. To the contrary, as we have already
ruled, "parliamentary rules are merely procedural and
with their observance the courts have no concern." 19 Our
concern is with the procedural requirements of the
Constitution for the enactment of laws. As far as these
requirements are concerned, we are satisfied that they
have been faithfully observed in these cases.
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three
readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house
may seek modifications of the compromise bill. The
nature of the bill, therefore, requires that it be acted
upon by each house on a "take it or leave it" basis, with
the only alternative that if it is not approved by both
houses, another conference committee must be
appointed. But then again the result would still be a
compromise measure that may not be wholly satisfying to
both houses.
Art. VI, § 26(2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if
the purpose of requiring three readings is to give
members of Congress time to study bills, it cannot be
gainsaid that H. No. 11197 was passed in the House after
three readings; that in the Senate it was considered on
first reading and then referred to a committee of that
body; that although the Senate committee did not report
out the House bill, it submitted a version (S. No. 1630)
which it had prepared by "taking into consideration" the
House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise
version; that the Conference Committee Report was
thereafter approved by the House and the Senate,
presumably after appropriate study by their members.
We cannot say that, as a matter of fact, the members of
Congress were not fully informed of the provisions of the
bill. The allegation that the Conference Committee
usurped the legislative power of Congress is, in our view,
without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal
validity of Republic Act No. 7716 must be resolved in its
favor. Our cases 20 manifest firm adherence to the rule
that an enrolled copy of a bill is conclusive not only of its
provisions but also of its due enactment. Not even claims
that a proposed constitutional amendment was invalid
because the requisite votes for its approval had not been
obtained 21 or that certain provisions of a statute had
been "smuggled" in the printing of the bill 22 have moved
or persuaded us to look behind the proceedings of a
coequal branch of the government. There is no reason
now to depart from this rule.
No claim is here made that the "enrolled bill" rule is
absolute. In fact in one case 23 we "went behind" an
enrolled bill and consulted the Journal to determine
whether certain provisions of a statute had been
approved by the Senate in view of the fact that the
President of the Senate himself, who had signed the
enrolled bill, admitted a mistake and withdrew his
signature, so that in effect there was no longer an
enrolled bill to consider.
But where allegations that the constitutional procedures
for the passage of bills have not been observed have no
more basis than another allegation that the Conference
Committee "surreptitiously" inserted provisions into a bill
which it had prepared, we should decline the invitation
to go behind the enrolled copy of the bill. To disregard
the "enrolled bill" rule in such cases would be to disregard
the respect due the other two departments of our
government.
Fifth. An additional attack on the formal validity of
Republic Act No. 7716 is made by the Philippine Airlines,
Inc., petitioner in G.R. No. 11582, namely, that it violates
Art. VI, § 26(1) which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." It is contended that neither
H. No. 11197 nor S. No. 1630 provided for removal of
exemption of PAL transactions from the payment of the
VAT and that this was made only in the Conference
Committee bill which became Republic Act No. 7716
without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is § 103,
which originally read:
§ 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
....
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
Among the transactions exempted from
the VAT were those of PAL because it
was exempted under its franchise (P.D.
No. 1590) from the payment of all "other
taxes . . . now or in the near future," in
consideration of the payment by it either
of the corporate income tax or a
franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, §
103 of the NIRC now provides:
§ 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
....
(q) Transactions which are exempt under
special laws, except those granted
under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of § 103 of the
NIRC is fairly embraced in the title of Republic Act No.
7716, although no mention is made therein of P.D. No.
1590 as among those which the statute amends. We think
it is, since the title states that the purpose of the statute is
to expand the VAT system, and one way of doing this is to
widen its base by withdrawing some of the exemptions
granted before. To insist that P.D. No. 1590 be mentioned
in the title of the law, in addition to § 103 of the NIRC, in
which it is specifically referred to, would be to insist that
the title of a bill should be a complete index of its
content.
The constitutional requirement that every bill passed by
Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon
the members of Congress and to inform the people of
pending legislation so that, if they wish to, they can be
heard regarding it. If, in the case at bar, petitioner did not
know before that its exemption had been withdrawn, it is
not because of any defect in the title but perhaps for the
same reason other statutes, although published, pass
unnoticed until some event somehow calls attention to
their existence. Indeed, the title of Republic Act No. 7716
is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is
made of its tax exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO
PHILIPPINE AIRLINES, INC. TO ESTABLISH,
OPERATE, AND MAINTAIN AIR-TRANSPORT
SERVICES IN THE PHILIPPINES AND
BETWEEN THE PHILIPPINES AND OTHER
COUNTRIES.
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and
to consider it sufficient if the title expresses the general
subject of the statute and all its provisions are germane to
the general subject thus expressed. 24
It is further contended that amendment of petitioner's
franchise may only be made by special law, in view of §
24 of P.D. No. 1590 which provides:
This franchise, as amended, or any
section or provision hereof may only be
modified, amended, or repealed
expressly by a special law or decree that
shall specifically modify, amend, or
repeal this franchise or any section or
provision thereof.
This provision is evidently intended to prevent the
amendment of the franchise by mere implication
resulting from the enactment of a later inconsistent
statute, in consideration of the fact that a franchise is a
contract which can be altered only by consent of the
parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress,
which provided for the payment of tax on certain goods
and articles imported into the Philippines, did not amend
the franchise of plaintiff, which exempted it from all taxes
except those mentioned in its franchise. It was held that a
special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716
expressly amends PAL's franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from
the VAT PAL's exemption under P.D. No. 1590. This is within
the power of Congress to do under Art. XII, § 11 of the
Constitution, which provides that the grant of a franchise
for the operation of a public utility is subject to
amendment, alteration or repeal by Congress when the
common good so requires.
II. SUBSTANTIVE ISSUES
A.
Claims
of Press
Freedo
m,
Freedo
m of
Thought
and
Religiou
s media the law discriminates against print media by giving
Freedo
m examined this argument, but we are unable to find a
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper
publishers established for the improvement of journalism
in the Philippines. On the other hand, petitioner in G.R.
No. 115781, the Philippine Bible Society (PBS), is a
nonprofit organization engaged in the printing and
distribution of bibles and other religious articles. Both
petitioners claim violations of their rights under § § 4 and 5
of the Bill of Rights as a result of the enactment of the VAT
Law.
The PPI questions the law insofar as it has withdrawn the
exemption previously granted to the press under § 103 (f)
of the NIRC. Although the exemption was subsequently
restored by administrative regulation with respect to the
circulation income of newspapers, the PPI presses its
claim because of the possibility that the exemption may
still be removed by mere revocation of the regulation of
the Secretary of Finance. On the other hand, the PBS
goes so far as to question the Secretary's power to grant
exemption for two reasons: (1) The Secretary of Finance
has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote
of a majority of all its members 26 and (2) the Secretary's
duty is to execute the law.
§ 103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or
sale of books and any newspaper,
magazine, review, or bulletin which
appears at regular intervals with fixed
prices for subscription and sale and
which is devoted principally to the
publication of advertisements.
Republic Act No. 7716 amended § 103 by deleting ¶ (f)
with the result that print media became subject to the
VAT with respect to all aspects of their operations. Later,
however, based on a memorandum of the Secretary of
Justice, respondent Secretary of Finance issued Revenue
Regulations No. 11-94, dated June 27, 1994, exempting
the "circulation income of print media pursuant to § 4
Article III of the 1987 Philippine Constitution guaranteeing
against abridgment of freedom of the press, among
others." The exemption of "circulation income" has left
income from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the
Secretary of Finance to give, in view of PPI's contention
that even with the exemption of the circulation revenue
of print media there is still an unconstitutional abridgment
of press freedom because of the imposition of the VAT on
the gross receipts of newspapers from advertisements
and on their acquisition of paper, ink and services for
publication. Even on the assumption that no exemption
has effectively been granted to print media transactions,
we find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on
its face operates in the area of press freedom. The PPI's
claim is simply that, as applied to newspapers, the law
abridges press freedom. Even with due recognition of its
high estate and its importance in a democratic society,
however, the press is not immune from general regulation
by the State. It has been held:
The publisher of a newspaper has no
immunity from the application of general
laws. He has no special privilege to
invade the rights and liberties of others.
He must answer for libel. He may be
punished for contempt of court. . . . Like
others, he must pay equitable and
nondiscriminatory taxes on his business. . .
. 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
broadcast media favored treatment. We have carefully
differential treatment of the press by the law, much less
any censorial motivation for its enactment. If the press is
now required to pay a value-added tax on its
transactions, it is not because it is being singled out, much
less targeted, for special treatment but only because of
the removal of the exemption previously granted to it by
law. The withdrawal of exemption is all that is involved in
these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the
scheme to expand the base and the scope of the VAT
system. The law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn
had been that granted to the press. But that is not the
case.
The situation in the case at bar is indeed a far cry from
those cited by the PPI in support of its claim that Republic
Act No. 7716 subjects the press to discriminatory taxation.
In the cases cited, the discriminatory purpose was clear
either from the background of the law or from its
operation. For example, in Grosjean v. American Press
Co., 28 the law imposed a license tax equivalent to 2% of
the gross receipts derived from advertisements only on
newspapers which had a circulation of more than 20,000
copies per week. Because the tax was not based on the
volume of advertisement alone but was measured by the
extent of its circulation as well, the law applied only to
the thirteen large newspapers in Louisiana, leaving
untaxed four papers with circulation of only slightly less
than 20,000 copies a week and 120 weekly newspapers
which were in serious competition with the thirteen
newspapers in question. It was well known that the
thirteen newspapers had been critical of Senator Huey
Long, and the Long-dominated legislature of Louisiana
respondent by taxing what Long described as the "lying
newspapers" by imposing on them "a tax on lying." The
effect of the tax was to curtail both their revenue and
their circulation. As the U.S. Supreme Court noted, the tax
was "a deliberate and calculated device in the guise of a
tax to limit the circulation of information to which the
public is entitled in virtue of the constitutional
guaranties." 29 The case is a classic illustration of the
warning that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also
found to have been singled out because everything was
exempt from the "use tax" on ink and paper, except the
press. Minnesota imposed a tax on the sales of goods in
that state. To protect the sales tax, it enacted a
complementary tax on the privilege of "using, storing or
consuming in that state tangible personal property" by
eliminating the residents' incentive to get goods from
outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both
taxes from 1967 to 1971. In 1971, however, the state
legislature amended the tax scheme by imposing the
"use tax" on the cost of paper and ink used for
publication. The law was held to have singled out the
press because (1) there was no reason for imposing the
"use tax" since the press was exempt from the sales tax
and (2) the "use tax" was laid on an "intermediate
transaction rather than the ultimate retail sale."
Minnesota had a heavy burden of justifying the
differential treatment and it failed to do so. In addition,
the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of
paper and ink used, further narrowed the coverage of
the tax so that "only a handful of publishers pay any tax
at all and even fewer pay any significant amount of
tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v.
Ragland, 32 it was held that a law which taxed general
interest magazines but not newspapers and religious,
professional, trade and sports journals was discriminatory
because while the tax did not single out the press as a
whole, it targeted a small group within the press. What is
more, by differentiating on the basis of contents (i.e.,
between general interest and special interests such as
religion or sports) the law became "entirely incompatible
with the First Amendment's guarantee of freedom of the
press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of
suppression of expression. In contrast, in the cases at bar,
the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on
print media whose gross sales exceeds P480,000 but not
more than P750,000, the law discriminates 33 is without
merit since it has not been shown that as a result the class
subject to tax has been unreasonably narrowed. The fact
is that this limitation does not apply to the press along but
to all sales. Nor is impermissible motive shown by the fact
that print media and broadcast media are treated
differently. The press is taxed on its transactions involving
printing and publication, which are different from the
transactions of broadcast media. There is thus a
reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any
suggestion that "owners of newspapers are immune from
any forms of ordinary taxation." The license tax in
the Grosjean case was declared invalid because it was
"one single in kind, with a long history of hostile misuse
against the freedom of the
press." 34 On the other hand, Minneapolis
Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States
and the Federal Government can subject newspapers to
generally applicable economic regulations without
creating constitutional problems." 35
What has been said above also disposes of the
allegations of the PBS that the removal of the exemption
of printing, publication or importation of books and
religious articles, as well as their printing and publication,
likewise violates freedom of thought and of conscience.
For as the U.S. Supreme Court unanimously held in Jimmy
Swaggart Ministries v. Board of Equalization, 36 the Free
Exercise of Religion Clause does not prohibit imposing a
generally applicable sales and use tax on the sale of
religious materials by a religious organization.
This brings us to the question whether the registration
provision of the law, 37 although of general applicability,
nonetheless is invalid when applied to the press because
it lays a prior restraint on its essential freedom. The case
of American Bible Society v. City of Manila 38 is cited by
both the PBS and the PPI in support of their contention
that the law imposes censorship. There, this Court held
that an ordinance of the City of Manila, which imposed a
license fee on those engaged in the business of general
merchandise, could not be applied to the appellant's
sale of bibles and other religious literature. This Court
relied on Murdock v. Pennsylvania, 39 in which it was held
that, as a license fee is fixed in amount and unrelated to
the receipts of the taxpayer, the license fee, when
applied to a religious sect, was actually being imposed
as a condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee
"restrains in advance those constitutional liberties of press
and religion and inevitably tends to suppress their
exercise." 40
But, in this case, the fee in § 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but
only for the purpose of defraying part of the cost of
registration. The registration requirement is a central
feature of the VAT system. It is designed to provide a
record of tax credits because any person who is subject
to the payment of the VAT pays an input tax, even as he
collects an output tax on sales made or services
rendered. The registration fee is thus a mere
administrative fee, one not imposed on the exercise of a
privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic
Act No. 7716 on the ground that it offends the free
speech, press and freedom of religion guarantees of the
Constitution to be without merit. For the same reasons, we
find the claim of the Philippine Educational Publishers
Association (PEPA) in G.R. No. 115931 that the increase in
the price of books and other educational materials as a
result of the VAT would violate the constitutional
mandate to the government to give priority to
education, science and technology (Art. II, § 17) to be
untenable.
B.
Claims
of
Regressi
vity,
Denial
of Due
Process,
Equal
Protecti
on, and
Impairm
ent
of
Contra
cts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech,
press and religion. The possible "chilling effect" which it
may have on the essential freedom of the mind and
conscience and the need to assure that the channels of
communication are open and operating importunately
demand the exercise of this Court's power of review.
There is, however, no justification for passing upon the
claims that the law also violates the rule that taxation
must be progressive and that it denies petitioners' right to
due process and that equal protection of the laws. The
reason for this different treatment has been cogently
stated by an eminent authority on constitutional law thus:
"[W]hen freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when
property is imperiled it is the lawmakers' judgment that
commands respect. This dual standard may not precisely
reverse the presumption of constitutionality in civil liberties
cases, but obviously it does set up a hierarchy of values
within the due process clause." 41
Indeed, the absence of threat of immediate harm makes
the need for judicial intervention less evident and
underscores the essential nature of petitioners' attack on
the law on the grounds of regressivity, denial of due
process and equal protection and impairment of
contracts as a mere academic discussion of the merits of
the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims
so as to illuminate the actual operation of the law and
enable us to reach sound judgment regarding so
fundamental questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is
regressive and that it violates the requirement that "The
rule of taxation shall be uniform and equitable [and]
Congress shall evolve a progressive system of
taxation." 42 Petitioners in G.R. No. 115781 quote from a
paper, entitled "VAT Policy Issues: Structure, Regressivity,
Inflation and Exports" by Alan A. Tait of the International
Monetary Fund, that "VAT payment by low-income
households will be a higher proportion of their incomes
(and expenditures) than payments by higher-income
households. That is, the VAT will be regressive." Petitioners
contend that as a result of the uniform 10% VAT, the tax
on consumption goods of those who are in the higher-
income bracket, which before were taxed at a rate
higher than 10%, has been reduced, while basic
commodities, which before were taxed at rates ranging
from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive,
the opposite claim is pressed by respondents that in fact
it distributes the tax burden to as many goods and
services as possible particularly to those which are within
the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable.
The goods and properties subject to the VAT are those
used or consumed by higher-income groups. These
include real properties held primarily for sale to customers
or held for lease in the ordinary course of business, the
right or privilege to use industrial, commercial or scientific
equipment, hotels, restaurants and similar places, tourist
buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than
P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000
business establishments. On the other hand, an
occasional paper 43 of the Center for Research and
Communication cities a NEDA study that the VAT has
minimal impact on inflation and income distribution and
that while additional expenditure for the lowest income
class is only P301 or 1.49% a year, that for a family earning
P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the
VAT is regressive in the sense that it will hit the "poor" and
middle-income group in society harder than it will the
"rich," as the Cooperative Union of the Philippines (CUP)
claims in G.R. No. 115873, is largely an academic
exercise. On the other hand, the CUP's contention that
Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional
policy to promote cooperatives as instruments of social
justice (Art. XII, § 15) but also denies such cooperatives
the equal protection of the law is actually a policy
argument. The legislature is not required to adhere to a
policy of "all or none" in choosing the subject of
taxation. 44
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754,
that the VAT will reduce the mark up of its members by as
much as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the Philippine
Press Institute, petitioner in G.R. No. 115544, that the VAT
will drive some of its members out of circulation because
their profits from advertisements will not be enough to
pay for their tax liability, while purporting to be based on
the financial statements of the newspapers in question,
still falls short of the establishment of facts by evidence so
necessary for adjudicating the question whether the tax is
oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts
to enforce. What Congress is required by the Constitution
to do is to "evolve a progressive system of taxation." This is
a directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic
and political inequalities (Art. XIII, § 1), or for the
promotion of the right to "quality education" (Art. XIV, §
1). These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable
rights.
At all events, our 1988 decision in Kapatiran 45 should
have laid to rest the questions now raised against the
VAT. There similar arguments made against the original
VAT Law (Executive Order No. 273) were held to be
hypothetical, with no more basis than newspaper articles
which this Court found to be "hearsay and [without]
evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as
provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to
Congress.
Only slightly less abstract but nonetheless hypothetical is
the contention of CREBA that the imposition of the VAT
on the sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of the law
would violate the constitutional provision that "No law
impairing the obligation of contracts shall be passed." It is
enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations
as between parties, but the reservation of essential
attributes of sovereign power is also read into contracts
as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the
maintenance of a government which retains adequate
authority to secure the peace and good order of
society. 46
In truth, the Contract Clause has never been thought as
a limitation on the exercise of the State's power of
taxation save only where a tax exemption has been
granted for a valid consideration. 47 Such is not the case
of PAL in G.R. No. 115852, and we do not understand it to
make this claim. Rather, its position, as discussed above, is
that the removal of its tax exemption cannot be made by
a general, but only by a specific, law.
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the
lack of a concrete record. We accept that this Court
does not only adjudicate private cases; that public
actions by "non-Hohfeldian" 48 or ideological plaintiffs are
now cognizable provided they meet the standing
requirement of the Constitution; that under Art. VIII, § 1, ¶
2 the Court has a "special function" of vindicating
constitutional rights. Nonetheless the feeling cannot be
escaped that we do not have before us in these cases a
fully developed factual record that alone can impart to
our adjudication the impact of actuality 49 to insure that
decision-making is informed and well grounded. Needless
to say, we do not have power to render advisory opinions
or even jurisdiction over petitions for declaratory
judgment. In effect we are being asked to do what the
Conference Committee is precisely accused of having
done in these cases — to sit as a third legislative chamber
to review legislation.
We are told, however, that the power of judicial review is
not so much power as it is duty imposed on this Court by
the Constitution and that we would be remiss in the
performance of that duty if we decline to look behind the
barriers set by the principle of separation of powers. Art.
VIII, § 1, ¶ 2 is cited in support of this view:
 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.
To view the judicial power of review as a duty is nothing
new. Chief Justice Marshall said so in 1803, to justify the
assertion of this power in Marbury v. Madison:
It is emphatically the province and duty
of the judicial department to say what
the law is. Those who apply the rule to
particular cases must of necessity
expound and interpret that rule. If two
laws conflict with each other, the courts
must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v.
Electoral Commission:
And when the judiciary mediates to
allocate constitutional boundaries, it
does not assert any superiority over the
other departments; it does not in reality
nullify or invalidate an act of the
legislature, but only asserts the solemn
and sacred obligation assigned to it by
the Constitution to determine conflicting
claims of authority under the Constitution
and to establish for the parties in an
actual controversy the rights which that
instrument secures and guarantees to
them. 51
This conception of the judicial power has been affirmed
in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty"
to justify this Court's intervention in what is essentially a
case that at best is not ripe for adjudication. That duty
must still be performed in the context of a concrete case
or controversy, as Art. VIII, § 5(2) clearly defines our
jurisdiction in terms of "cases," and nothing but "cases."
That the other departments of the government may have
committed a grave abuse of discretion is not an
independent ground for exercising our power. Disregard
of the essential limits imposed by the case and
controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as
judges, what we are called upon to render is judgment
according to law, not according to what may appear to
be the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to
discuss, within limits, the validity of Republic Act No. 7716
in its formal and substantive aspects as this has been
raised in the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution
have been complied with by Congress in the enactment
of the statute;
(2) That judicial inquiry whether the formal requirements
for the enactment of statutes — beyond those prescribed
by the Constitution — have been observed is precluded
by the principle of separation of powers;
(3) That the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise
of religion, nor deny to any of the parties the right to an
education; and
(4) That, in view of the absence of a factual foundation
of record, claims that the law is regressive, oppressive
and confiscatory and that it violates vested rights
protected under the Contract Clause are prematurely
raised and do not justify the grant of prospective relief by
writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE
CESAR PURISIMA; and HONORABLE COMMISSIONER OF
INTERNAL REVENUE GUILLERMO PARAYNO,
JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA,
JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S.
LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III,
Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V.
PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.
represented by its President, ROSARIO ANTONIO; PETRON
DEALERS’ ASSOCIATION represented by its President, RUTH
E. BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF THE
PHILIPPINES represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under the
name and style of "ANB NORTH SHELL SERVICE STATION";
LOURDES MARTINEZ doing business under the name and
style of "SHELL GATE – N. DOMINGO"; BETHZAIDA TAN
doing business under the name and style of "ADVANCE
SHELL STATION"; REYNALDO P. MONTOYA doing business
under the name and style of "NEW LAMUAN SHELL
SERVICE STATION"; EFREN SOTTO doing business under the
name and style of "RED FIELD SHELL SERVICE STATION";
DONICA CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business under the
name and style of "R&R PETRON STATION"; PETER M.
UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN
SHEILA A. LEE doing business under the name and style of
"NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing
business under the name and style of "CMA MOTORISTS
CENTER"; SUSAN M. ENTRATA doing business under the
name and style of "LEONA’S GASOLINE STATION and
SERVICE CENTER"; CARMELITA BALDONADO doing
business under the name and style of "FIRST CHOICE
SERVICE CENTER"; MERCEDITAS A. GARCIA doing business
under the name and style of "LORPED SERVICE CENTER";
RHEAMAR A. RAMOS doing business under the name and
style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO
doing business under the name and style of "VIOLAGO-
PTT SERVICE CENTER"; MOTORISTS’ HEART CORPORATION
represented by its Vice-President for Operations, JOSELITO
F. FLORDELIZA; MOTORISTS’ HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO
F. FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION
represented by its Vice-President for Operations, JOSELITO
F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations, JOSELITO
F. FLORDELIZA; ROMEO MANUEL doing business under the
name and style of "ROMMAN GASOLINE STATION";
ANTHONY ALBERT CRUZ III doing business under the name
and style of "TRUE SERVICE STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the
Department of Finance and GUILLERMO L. PARAYNO, JR.,
in his capacity as Commissioner of Internal
Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,
EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN,
BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO,
Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and EDUARDO R.
ERMITA, in his capacity as Executive
Secretary,Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the
Executive Secretary; HON. MARGARITO TEVES, in his
capacity as Secretary of Finance; HON. JOSE MARIO
BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON. ALEXANDER
AREVALO, in his capacity as the OIC Commissioner of the
Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the
interest of all, should be borne by everyone, and the
more man enjoys the advantages of society, the more he
ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation,
inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for
full value-added tax benefits … these are the reasons
why Republic Act No. 9337 (R.A. No. 9337)1 was enacted.
Reasons, the wisdom of which, the Court even with its
extensive constitutional power of review, cannot probe.
The petitioners in these cases, however, question not only
the wisdom of the law, but also perceived constitutional
infirmities in its passage.
Every law enjoys in its favor the presumption of
constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the
law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills
namely, House Bill Nos. 3555 and 3705, and Senate Bill No.
1950.
House Bill No. 35552 was introduced on first reading on
January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No.
1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the
bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved
the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House
Bill No. 3105 introduced by Rep. Salacnib F. Baterina, and
House Bill No. 3381 introduced by Rep. Jacinto V. Paras.
Its "mother bill" is House Bill No. 3555. The House
Committee on Ways and Means approved the bill on
February 2, 2005. The President also certified it as urgent
on February 8, 2005. The House of Representatives
approved the bill on second and third reading on
February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means
approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking
into consideration House Bill Nos. 3555 and 3705." Senator
Ralph G. Recto sponsored Senate Bill No. 1337, while
Senate Bill Nos. 1838 and 1873 were both sponsored by
Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.
Pangilinan. The President certified the bill on March 11,
2005, and was approved by the Senate on second and
third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to
the request of the House of Representatives for a
committee conference on the disagreeing provisions of
the proposed bills.
Before long, the Conference Committee on the
Disagreeing Provisions of House Bill No. 3555, House Bill No.
3705, and Senate Bill No. 1950, "after having met and
discussed in full free and conference," recommended the
approval of its report, which the Senate did on May 10,
2005, and with the House of Representatives agreeing
thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated
House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005.
Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When
said date came, the Court issued a temporary restraining
order, effective immediately and continuing until further
orders, enjoining respondents from enforcing and
implementing the law.
Oral arguments were held on July 14, 2005. Significantly,
during the hearing, the Court speaking through Mr.
Justice Artemio V. Panganiban, voiced the rationale for
its issuance of the temporary restraining order on July 1,
2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of
your presentation, let me just tell you a little background.
You know when the law took effect on July 1, 2005, the
Court issued a TRO at about 5 o’clock in the afternoon.
But before that, there was a lot of complaints aired on
television and on radio. Some people in a gas station
were complaining that the gas prices went up by 10%.
Some people were complaining that their electric bill will
go up by 10%. Other times people riding in domestic air
carrier were complaining that the prices that they’ll have
to pay would have to go up by 10%. While all that was
being aired, per your presentation and per our own
understanding of the law, that’s not true. It’s not true that
the e-vat law necessarily increased prices by 10%
uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is
an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to
temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the
mitigating measures would be the elimination of the
Excise Tax and the import duties. That is why, it is not
correct to say that the VAT as to petroleum dealers
increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification
for increasing the retail price by 10% to cover the E-Vat
tax. If you consider the excise tax and the import duties,
the Net Tax would probably be in the neighborhood of
7%? We are not going into exact figures I am just trying to
deliver a point that different industries, different products,
different services are hit differently. So it’s not correct to
say that all prices must go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline
companies, Mr. Counsel, are at present imposed a Sales
Tax of 3%. When this E-Vat law took effect the Sales Tax
was also removed as a mitigating measure. So, therefore,
there is no justification to increase the fares by 10% at
best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the
people were complaining on that first day, were being
increased arbitrarily by 10%. And that’s one reason
among many others this Court had to issue TRO because
of the confusion in the implementation. That’s why we
added as an issue in this case, even if it’s tangentially
taken up by the pleadings of the parties, the confusion in
the implementation of the E-vat. Our people were
subjected to the mercy of that confusion of an across the
board increase of 10%, which you yourself now admit
and I think even the Government will admit is incorrect. In
some cases, it should be 3% only, in some cases it should
be 6% depending on these mitigating measures and the
location and situation of each product, of each service,
of each company, isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So that’s one reason why we
had to issue a TRO pending the clarification of all these
and we wish the government will take time to clarify all
these by means of a more detailed implementing rules, in
case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective
Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA
GURO Party List, et al., filed a petition for prohibition on
May 27, 2005. They question the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National Internal
Revenue Code (NIRC). Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes a 10%
VAT on importation of goods, and Section 6 imposes a
10% VAT on sale of services and use or lease of properties.
These questioned provisions contain a
uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006, after any of
the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed
a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of
the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of
legislative power, petitioners also contend that the
increase in the VAT rate to 12% contingent on any of the
two conditions being satisfied violates the due process
clause embodied in Article III, Section 1 of the
Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be
returned to the original 10% if the conditions are no longer
satisfied; (2) the rate is unfair and unreasonable, as the
people are unsure of the applicable VAT rate from year
to year; and (3) the increase in the VAT rate, which is
supposed to be an incentive to the President to raise the
VAT collection to at least 2 4/5 of the GDP of the previous
year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by
authority granted to the President by the Bicameral
Conference Committee is a violation of the "no-
amendment rule" upon last reading of a bill laid down in
Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29,
2005, by the Association of Pilipinas Shell Dealers, Inc., et
al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million
Pesos (₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including
GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to
10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are
unconstitutional for being arbitrary, oppressive, excessive,
and confiscatory.
Petitioners’ argument is premised on the constitutional
right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax
that may be claimed. Petitioners also argue that the
input tax partakes the nature of a property that may not
be confiscated, appropriated, or limited without due
process of law. Petitioners further contend that like any
other property or property right, the input tax credit may
be transferred or disposed of, and that by limiting the
same, the government gets to tax a profit or value-
added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the
constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the
limitation on the creditable input tax if: (1) the entity has a
high ratio of input tax; or (2) invests in capital equipment;
or (3) has several transactions with the government, is not
based on real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is anything
but progressive, violative of Article VI, Section 28(1) of the
Constitution, and that it is the smaller businesses with
higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager
margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by
Rep. Francis Joseph G. Escudero filed this petition
for certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an
undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without
jurisdiction in deleting the no pass on provisions present in
Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of
Sections 27, 28, 34, 116, 117, 119, 121, 125,7 148, 151, 236,
237 and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which
provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a
petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that
the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the
taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for
public purposes and expenditures. Petitioner Garcia
further claims that allowing these establishments to pass
on the tax to the consumers is inequitable, in violation of
Article VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a
Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the
presumption of constitutionality and petitioners failed to
cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance,
235 SCRA
630 (1994), respondents argue that the procedural issues
raised by petitioners, i.e., legality of the bicameral
proceedings, exclusive origination of revenue measures
and the power of the Senate concomitant thereto, have
already been settled. With regard to the issue of undue
delegation of legislative power to the President,
respondents contend that the law is complete and
leaves no discretion to the President but to increase the
rate to 12% once any of the two conditions provided
therein arise.
Respondents also refute petitioners’ argument that the
increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the
purchase or importation of capital goods exceeding
₱1,000,000.00, and the 5% final withholding tax by
government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the
anchor of the government’s fiscal reform agenda. A
reform in the value-added system of taxation is the core
revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for
economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of
the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A.
No. 9337, amending Section 114(C) of the NIRC, violate
the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the
general principles and concepts of value-added tax
(VAT), as the confusion and inevitably, litigation, breeds
from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied
on the sale, barter, exchange or lease of goods or
properties and services.8 Being an indirect tax on
expenditure, the seller of goods or services may pass on
the amount of tax paid to the buyer,9 with the seller
acting merely as a tax collector.10 The burden of VAT is
intended to fall on the immediate buyers and ultimately,
the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is
directly liable on the transaction or business it engages in,
without transferring the burden to someone
else.11 Examples are individual and corporate income
taxes, transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales
taxation has long been in existence, albeit in a different
mode. Prior to 1978, the system was a single-stage tax
computed under the "cost deduction method" and was
payable only by the original sellers. The single-stage
system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was
used to determine the value-added tax payable.13 Under
the "tax credit method," an entity can credit against or
subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino
issued Executive Order No. 273, that the VAT system was
rationalized by imposing a multi-stage tax rate of 0% or
10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the
Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT
Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and
finally, the presently beleaguered R.A. No. 9337, also
referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of
the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege
that the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the President
in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in
both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the
amount of input tax to be credited against the output
tax; and
4) Including the amendments introduced only by Senate
Bill No. 1950 regarding other kinds of taxes in addition to
the value-added tax.
Petitioners now beseech the Court to define the powers
of the Bicameral Conference Committee.
It should be borne in mind that the power of internal
regulation and discipline are intrinsic in any legislative
body for, as unerringly elucidated by Justice Story, "[i]f the
power did not exist, it would be utterly impracticable to
transact the business of the nation, either at all, or at least
with decency, deliberation, and order."19 Thus, Article VI,
Section 16 (3) of the Constitution provides that "each
House may determine the rules of its proceedings."
Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure,
the respective rules of each house of Congress provided
for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the
House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences
may be settled by the conference committees of both
chambers.
In resolving the differences with the Senate, the House
panel shall, as much as possible, adhere to and support
the House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the
panel shall report such fact to the House for the latter’s
appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each
report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the
subject measure.
...
The Chairman of the House panel may be interpellated
on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference
Committee Report in the same manner and procedure
as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with
the House of Representatives on the provision of any bill
or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet
within ten (10) days after their composition. The President
shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a
detailed and sufficiently explicit statement of the
changes in, or amendments to the subject measure, and
shall be signed by a majority of the members of each
House panel, voting separately.
A comparative presentation of the conflicting House and
Senate provisions and a reconciled version thereof with
the explanatory statement of the conference committee
shall be attached to the report.
...
The creation of such conference committee was
apparently in response to a problem, not addressed by
any constitutional provision, where the two houses of
Congress find themselves in disagreement over changes said members violated any of its rules of proceedings.
or amendments introduced by the other house in a Even the expanded jurisdiction of this Court cannot apply
legislative bill. Given that one of the most basic powers of to questions regarding only the internal operation of
the legislative branch is to formulate and implement its Congress, thus, the Court is wont to deny a review of the
own rules of proceedings and to discipline its members, internal proceedings of a co-equal branch of
may the Court then delve into the details of how government.
Congress complies with its internal rules or how it Moreover, as far back as 1994 or more than ten years
conducts its business of passing legislation? Note that in ago, in the case of Tolentino vs. Secretary of
the present petitions, the issue is not whether provisions of Finance,23 the Court already made the pronouncement
the rules of both houses creating the bicameral that "[i]f a change is desired in the practice [of the
conference committee are unconstitutional, but whether Bicameral Conference Committee] it must be sought in
the bicameral conference committee has strictly Congress since this question is not covered by any
complied with the rules of both houses, thereby constitutional provision but is only an internal rule of each
remaining within the jurisdiction conferred upon it by house." 24 To date, Congress has not seen it fit to make
Congress. such changes adverted to by the Court. It seems,
In the recent case of Fariñas vs. The Executive therefore, that Congress finds the practices of the
Secretary,20 the Court En Banc, unanimously reiterated bicameral conference committee to be very useful for
and emphasized its adherence to the "enrolled bill purposes of prompt and efficient legislative action.
doctrine," thus, declining therein petitioners’ plea for the Nevertheless, just to put minds at ease that no blatant
Court to go behind the enrolled copy of the bill. Assailed irregularities tainted the proceedings of the bicameral
in said case was Congress’s creation of two sets of conference committees, the Court deems it necessary to
bicameral conference committees, the lack of records of dwell on the issue. The Court observes that there was a
said committees’ proceedings, the alleged violation of necessity for a conference committee because a
said committees of the rules of both houses, and the comparison of the provisions of House Bill Nos. 3555 and
disappearance or deletion of one of the provisions in the 3705 on one hand, and Senate Bill No. 1950 on the other,
compromise bill submitted by the bicameral conference reveals that there were indeed disagreements. As
committee. It was argued that such irregularities in the pointed out in the petitions, said disagreements were as
passage of the law nullified R.A. No. 9006, or the Fair follows:
Election Act.
Striking down such argument, the Court held thus: House Bill No. House Bill No.3705 Senate Bill No.
3555 1950
Under the "enrolled bill doctrine," the signing of a bill by
the Speaker of the House and the Senate President and With regard to "Stand-By Authority" in favor of President
the certification of the Secretaries of both Houses of
Congress that it was passed are conclusive of its due Provides for 12% Provides for 12% Provides for a
enactment. A review of cases reveals the Court’s VAT on every VAT in general on single rate of
consistent adherence to the rule. The Court finds no sale of goods or sales of goods or 10% VAT on sale
reason to deviate from the salutary rule in this case where properties properties and of goods or
the irregularities alleged by the petitioners mostly (amending Sec. reduced rates for properties
involved the internal rules of Congress, e.g., creation of 106 of NIRC); sale of certain (amending Sec.
the 2nd or 3rd Bicameral Conference Committee by the 12% VAT on locally 106 of NIRC),
House. This Court is not the proper forum for the importation of manufactured 10% VAT on sale
enforcement of these internal rules of Congress, whether goods goods and of services
House or Senate. Parliamentary rules are merely (amending Sec. petroleum including sale of
procedural and with their observance the courts have no 107 of NIRC); products and raw electricity by
concern. Whatever doubts there may be as to the formal and 12% VAT on materials to be generation
validity of Rep. Act No. 9006 must be resolved in its sale of services used in the companies,
favor.The Court reiterates its ruling in Arroyo vs. De and use or manufacture transmission and
Venecia, viz.: lease of thereof distribution
But the cases, both here and abroad, in varying forms of properties (amending Sec. companies, and
expression, all deny to the courts the power to inquire into (amending Sec. 106 of NIRC); 12% use or lease of
allegations that, in enacting a law, a House of Congress 108 of NIRC) VAT on properties
failed to comply with its own rules, in the absence of importation of (amending Sec.
showing that there was a violation of a constitutional goods and 108 of NIRC)
provision or the rights of private individuals. In Osmeña v. reduced rates for
Pendatun, it was held: "At any rate, courts have declared certain imported
that ‘the rules adopted by deliberative bodies are products including
subject to revocation, modification or waiver at the petroleum
pleasure of the body adopting them.’ And it has been products
said that "Parliamentary rules are merely procedural, and (amending Sec.
with their observance, the courts have no concern. They 107 of NIRC); and
may be waived or disregarded by the legislative body." 12% VAT on sale of
Consequently, "mere failure to conform to parliamentary services and use
usage will not invalidate the action (taken by a or lease of
deliberative body) when the requisite number of properties and a
members have agreed to a particular reduced rate for
measure."21 (Emphasis supplied) certain services
including power
The foregoing declaration is exactly in point with the generation
present cases, where petitioners allege irregularities (amending Sec.
committed by the conference committee in introducing 108 of NIRC)
changes or deleting provisions in the House and Senate
bills. Akin to the Fariñas case,22 the present petitions also With regard to the "no pass-on" provision
raise an issue regarding the actions taken by the
conference committee on matters regarding Congress’ No similar Provides that the Provides that the
compliance with its own internal rules. As stated earlier, provision VAT imposed on VAT imposed on
one of the most basic and inherent power of the power generation sales of
legislature is the power to formulate rules for its and on the sale of electricity by
proceedings and the discipline of its members. Congress petroleum generation
is the best judge of how it should conduct its own business products shall be companies and
expeditiously and in the most orderly manner. It is also the absorbed by services of
sole generation transmission
companies or companies and
concern of Congress to instill discipline among the
sellers, distribution
members of its conference committee if it believes that
respectively, and companies, as
 shall not be well as those of the various rates with 12% as the highest VAT rate
passed on to franchise proposed by the House, by striking a compromise
consumers grantees of whereby the present 10% VAT rate would be retained
electric utilities until certain conditions arise, i.e., the value-added tax
shall not apply collection as a percentage of gross domestic product
to residential (GDP) of the previous year exceeds 2 4/5%, or National
end-users. VAT Government deficit as a percentage of GDP of the
shall be previous year exceeds 1½%, when the President, upon
absorbed by recommendation of the Secretary of Finance shall raise
generation, the rate of VAT to 12% effective January 1, 2006.
transmission, and 2. With regard to the disagreement on whether only the
distribution VAT imposed on electricity generation, transmission and
companies. distribution companies should not be passed on to
consumers or whether both the VAT imposed on
With regard to 70% limit on input tax credit electricity generation, transmission and distribution
companies and the VAT imposed on sale of petroleum
Provides that No similar Provides that the products may be passed on to consumers, the Bicameral
the input tax provision input tax credit Conference Committee chose to settle such
credit for for capital disagreement by altogether deleting from its Report
capital goods goods on which any no pass-on provision.
on which a VAT a VAT has been
has been paid paid shall be 3. With regard to the disagreement on whether input tax
shall be equally equally credits should be limited or not, the Bicameral
distributed over distributed over Conference Committee decided to adopt the position of
5 years or the 5 years or the the House by putting a limitation on the amount of input
depreciable life depreciable life tax that may be credited against the output tax,
of such capital of such capital although it crafted its own language as to the amount of
goods; the input goods; the input the limitation on input tax credits and the manner of
tax credit for tax credit for computing the same by providing thus:
goods and goods and (A) Creditable Input Tax. – . . .
services other services other ...
than capital than capital
goods shall not goods shall not Provided, The input tax on goods purchased or imported
exceed 5% of exceed 90% of in a calendar month for use in trade or business for which
the total the output VAT. deduction for depreciation is allowed under this Code,
amount of such shall be spread evenly over the month of acquisition and
goods and the fifty-nine (59) succeeding months if the aggregate
services; and for acquisition cost for such goods, excluding the VAT
persons component thereof, exceeds one million Pesos
engaged in (₱1,000,000.00): PROVIDED, however, that if the estimated
retail trading of useful life of the capital good is less than five (5) years, as
goods, the used for depreciation purposes, then the input VAT shall
allowable input be spread over such shorter period: . . .
tax credit shall (B) Excess Output or Input Tax. – If at the end of any
not exceed 11% taxable quarter the output tax exceeds the input tax, the
of the total excess shall be paid by the VAT-registered person. If the
amount of input tax exceeds the output tax, the excess shall be
goods carried over to the succeeding quarter or quarters:
purchased. PROVIDED that the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in
With regard to amendments to be made to NIRC provisions regarding
everyincome and
quarter excise
shall taxes seventy percent (70%) of
not exceed
the output VAT: PROVIDED, HOWEVER, THAT any input tax
No similar provision No similar provision Provided for amendments to
attributable to zero-rated sales by a VAT-registered
several NIRC provisions
person may at his option be refunded or credited against
regarding corporate income,
other internal revenue taxes, . . .
percentage, franchise and
4. With regard
excisetotaxes
the amendments to other provisions of
the NIRC on corporate income tax, franchise,
The disagreements between the provisions in the House percentage and excise taxes, the conference
bills and the Senate bill were with regard to (1) what rate committee decided to include such amendments and
of VAT is to be imposed; (2) whether only the VAT basically adopted the provisions found in Senate Bill No.
imposed on electricity generation, transmission and 1950, with some changes as to the rate of the tax to be
distribution companies should not be passed on to imposed.
consumers, as proposed in the Senate bill, or both the Under the provisions of both the Rules of the House of
VAT imposed on electricity generation, transmission and Representatives and Senate Rules, the Bicameral
distribution companies and the VAT imposed on sale of Conference Committee is mandated to settle the
petroleum products should not be passed on to differences between the disagreeing provisions in the
consumers, as proposed in the House bill; (3) in what House bill and the Senate bill. The term "settle" is
manner input tax credits should be limited; (4) and synonymous to "reconcile" and "harmonize."25 To
whether the NIRC provisions on corporate income taxes, reconcile or harmonize disagreeing provisions, the
percentage, franchise and excise taxes should be Bicameral Conference Committee may then (a) adopt
amended. the specific provisions of either the House bill or Senate
There being differences and/or disagreements on the bill, (b) decide that neither provisions in the House bill or
foregoing provisions of the House and Senate bills, the the provisions in the Senate bill would
Bicameral Conference Committee was mandated by the be carried into the final form of the bill, and/or (c) try to
rules of both houses of Congress to act on the same by arrive at a compromise between the disagreeing
settling said differences and/or disagreements. The provisions.
Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes: In the present case, the changes introduced by the
Bicameral Conference Committee on disagreeing
1. With regard to the disagreement on the rate of VAT to provisions were meant only to reconcile and harmonize
be imposed, it would appear from the Conference the disagreeing provisions for it did not inject any idea or
Committee Report that the Bicameral Conference intent that is wholly foreign to the subject embraced by
Committee tried to bridge the gap in the difference the original provisions.
between the 10% VAT rate proposed by the Senate, and
The so-called stand-by authority in favor of the President,
whereby the rate of 10% VAT wanted by the Senate is
retained until such time that certain conditions arise when
the 12% VAT wanted by the House shall be imposed,
appears to be a compromise to try to bridge the
difference in the rate of VAT proposed by the two houses
of Congress. Nevertheless, such compromise is still totally
within the subject of what rate of VAT should be imposed
on taxpayers.
The no pass-on provision was deleted altogether. In the
transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph
Recto, Chairman of the Senate Panel, explained the
reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT
bill simple. And we were thinking that no sector should be
a beneficiary of legislative grace, neither should any
sector be discriminated on. The VAT is an indirect tax. It is
a pass on-tax. And let’s keep it plain and simple. Let’s not
confuse the bill and put a no pass-on provision. Two-thirds
of the world have a VAT system and in this two-thirds of
the globe, I have yet to see a VAT with a no pass-though
provision. So, the thinking of the Senate is basically simple,
let’s keep the VAT simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that
the no pass-on provision "never really enjoyed the support
of either House."27
With regard to the amount of input tax to be credited
against output tax, the Bicameral Conference
Committee came to a compromise on the percentage
rate of the limitation or cap on such input tax credit, but
again, the change introduced by the Bicameral
Conference Committee was totally within the intent of
both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the
subject revenue bill in the House of Representatives, one
of the major objectives was to "plug a glaring loophole in
the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ."
and "[b]y introducing limitations on the claiming of tax
credit, we are capping a major leakage that has placed
our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other
than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to
it, the conference committee had to act on the same
and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the
Bicameral Conference Committee were germane to
subjects of the provisions referred
to it for reconciliation. Such being the case, the Court
does not see any grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine
Judges Association vs. Prado29 and Tolentino vs. Secretary
of Finance,30 the Court recognized the long-standing
legislative practice of giving said conference committee
ample latitude for compromising differences between
the Senate and the House. Thus, in the Tolentino case, it
was held that:
. . . it is within the power of a conference committee to
include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the
committee can propose an amendment consisting of
one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as
such amendment is germane to the subject of the bills
before the committee. After all, its report was not final but
needed the approval of both houses of Congress to
become valid as an act of the legislative
department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus
without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2)
of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless
it has passed three readings on separate days, and
printed copies thereof in its final form have been
distributed to its Members three days before its passage,
except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the
yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a
bicameral conference committee is allowed to add or
delete provisions in the House bill and the Senate bill after
these had passed three readings is in effect a
circumvention of the "no amendment rule" (Sec. 26 (2),
Art. VI of the 1987 Constitution), fails to convince the
Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee’s
Report in these cases must have undergone three
readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house
may seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee
report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule"
refers only to the procedure to be followed by each
house of Congress with regard to bills initiated in each of
said respective houses, before said bill is transmitted to
the other house for its concurrence or amendment. Verily,
to construe said provision in a way as to proscribe any
further changes to a bill after one house has voted on it
would lead to absurdity as this would mean that the other
house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill. Thus,
Art. VI, Sec. 26 (2) of the Constitution cannot be taken to
mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon
by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of
the Constitution on Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments
made regarding the NIRC provisions on corporate
income taxes and percentage, excise taxes. Petitioners
refer to the following provisions, to wit:
Section 27 Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediari
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoice
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions
of the NIRC did not at all originate from the House. They
aver that House Bill No. 3555 proposed amendments only
regarding Sections 106, 107, 108, 110 and 114 of the NIRC,
while House Bill No. 3705 proposed amendments only to
Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus,
the other sections of the NIRC which the Senate
amended but which amendments were not found in the
House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since
the proposed amendments did not originate from the
House, such amendments are a violation of Article VI,
Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in
the House of Representatives but the Senate may
propose or concur with amendments.
In the present cases, petitioners admit that it was indeed
House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to
the Senate, the Senate came out with Senate Bill No.
1950 proposing amendments not only to NIRC provisions
on the value-added tax but also amendments to NIRC
provisions on other kinds of taxes. Is the introduction by
the Senate of provisions not dealing directly with the
value- added tax, which is the only kind of tax being
amended in the House bills, still within the purview of the
constitutional provision authorizing the Senate to propose
or concur with amendments to a revenue bill that
originated from the House?
The foregoing question had been squarely answered in
the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill –
which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important
to emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole. . . . At this
point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist
that a revenue statute – and not only the bill which
initiated the legislative process culminating in the
enactment of the law – must substantially be the same as
the House bill would be to deny the Senate’s power not
only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
… corporation were included is worth quoting:
…Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version
even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff or tax bills, bills authorizing
an increase of the public debt, private bills and bills of
local application must come from the House of
Representatives on the theory that, elected as they are
from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such
laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate
was acting within its
constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage,
excise and franchise taxes. Verily, Article VI, Section 24 of
the Constitution does not contain any prohibition or
limitation on the extent of the amendments that may be
introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate
to the NIRC provisions that had not been touched in the
House bills are still in furtherance of the intent of the
House in initiating the subject revenue bills. The
Explanatory Note of House Bill No. 1468, the very first
House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present
administration is the urgent and daunting task of solving
the country’s serious financial problems. To do this,
government expenditures must be strictly monitored and
controlled and revenues must be significantly increased.
This may be easier said than done, but our fiscal
authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In
fact, several measures that will result to significant
expenditure savings have been identified by the
administration. It is supported with a credible package of
revenue measures that include measures to improve tax
administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis
supplied)
Rep. Eric D. Singson, in his sponsorship speech for House
Bill No. 3555, declared that:
In the budget message of our President in the year 2005,
she reiterated that we all acknowledged that on top of
our agenda must be the restoration of the health of our
fiscal system.
In order to considerably lower the consolidated public
sector deficit and eventually achieve a balanced
budget by the year 2009, we need to seize windows of
opportunities which might seem poignant in the
beginning, but in the long run prove effective and
beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating
the relevance given our present conditions.34 (Emphasis
supplied)
Notably therefore, the main purpose of the bills
emanating from the House of Representatives is to bring
in sizeable revenues for the government
to supplement our country’s serious financial problems,
and improve tax administration and control of the
leakages in revenues from income taxes and value-
added taxes. As these house bills were transmitted to the
Senate, the latter, approaching the measures from the
point of national perspective, can introduce
amendments within the purposes of those bills. It can
provide for ways that would soften the impact of the VAT
measure on the consumer, i.e., by distributing the burden
across all sectors instead of putting it entirely on the
shoulders of the consumers. The sponsorship speech of
Sen. Ralph Recto on why the provisions on income tax on
All in all, the proposal of the Senate Committee on Ways
and Means will raise ₱64.3 billion in additional revenues
annually even while by mitigating prices of power,
services and petroleum products.
However, not all of this will be wrung out of VAT. In fact,
only ₱48.7 billion amount is from the VAT on twelve goods
and services. The rest of the tab – ₱10.5 billion- will be
picked by corporations.
What we therefore prescribe is a burden sharing between
corporate Philippines and the consumer. Why should the
latter bear all the pain? Why should the fiscal salvation be
only on the burden of the consumer?
The corporate world’s equity is in form of the increase in
the corporate income tax from 32 to 35 percent, but up
to 2008 only. This will raise ₱10.5 billion a year. After that,
the rate will slide back, not to its old rate of 32 percent,
but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that
will be in effect for 1,200 days, while we put our fiscal
house in order. This fiscal medicine will have an expiry
date.
For their assistance, a reward of tax reduction awaits
them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a
light at the end of the tunnel, this government will keep
on making the tunnel long.
The responsibility will not rest solely on the weary shoulders
of the small man. Big business will be there to share the
burden.35
As the Court has said, the Senate can propose
amendments and in fact, the amendments made on
provisions in the tax on income of corporations are
germane to the purpose of the house bills which is to raise
revenues for the government.
Likewise, the Court finds the sections referring to other
percentage and excise taxes germane to the reforms to
the VAT system, as these sections would cushion the
effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage
tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be
paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of
VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce
to zero the present excise tax on bunker fuel, to lessen the
effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the
franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT
on oil products, so as not to destroy the VAT chain, we will
however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not
contortions of giving to the left hand what was taken
from the right. Rather, these sprang from our concern of
softening the impact of VAT, so that the people can
cushion the blow of higher prices they will have to pay as
a result of VAT.36
The other sections amended by the Senate pertained to
matters of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are
germane to the subject matter and purposes of the
house bills, which is to supplement our country’s fiscal
deficit, among others. Thus, the Senate acted within its
power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel,
Jr., et al., and Escudero, et al. contend in common that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from
10% to 12% when a certain condition is met, constitutes
undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is
hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or
Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed
and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is
hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and
collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total
value used by the Bureau of Customs in determining tariff
and customs duties, plus customs duties, excise taxes, if
any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs
custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the
landed cost plus excise taxes, if any: provided, further,
that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%)
after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is
hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed
and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or
exchange of services: provided, that the President, upon
the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by
authority to the President to increase the VAT rate is a
virtual abdication by Congress of its exclusive power to
tax because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which
provides:
The Congress may, by law, authorize the President to fix
within specified limits, and may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter
or exchange of goods and properties as well as on the
sale or exchange of services, which cannot be included
within the purview of tariffs under the exempted
delegation as the latter refers to customs duties, tolls or
tribute payable upon merchandise to the government
and usually imposed on goods or merchandise imported
or exported.
Petitioners ABAKADA GURO Party List, et al., further
contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that
accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass
to the President the decision to impose taxes. They also
argue that the law also effectively nullified the President’s
power of control, which includes the authority to set aside
and nullify the acts of her subordinates like the Secretary
of Finance, by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of
Finance.
Petitioners Pimentel, et al. aver that the President has
ample powers to cause, influence or create the
conditions provided by the law to bring about either or
both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre
and revolting the situation that the imposition of the 12%
rate would be subject to the whim of the Secretary of
Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They
submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even
give his recommendation. Moreover, they allege that no
guiding standards are provided in the law on what basis
and as to how he will make his recommendation. They
claim, nonetheless, that any recommendation of the
Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the
latter, such that, ultimately, it is the President who decides
whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of
powers is instructive.
The principle of separation of powers ordains that each
of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the
principle of non-delegation of powers, as expressed in
the Latin maxim: potestas delegata non
delegari potest which means "what has been delegated,
cannot be delegated."38 This doctrine is based on the
ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by
the delegate through the instrumentality of his own
judgment and not through the intervening mind of
another.39
With respect to the Legislature, Section 1 of Article VI of
the Constitution provides that "the Legislative power shall
be vested in the Congress of the Philippines which shall
consist of a Senate and a House of Representatives." The
powers which Congress is prohibited from delegating are
those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be
delegated, has been described as the authority to make
a complete law – complete as to the time when it shall
take effect and as to whom it shall be applicable – and to
determine the expediency of its enactment.40 Thus, the
rule is that in order that a court may be justified in holding
a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely
legislative in nature – that is, one appertaining exclusively
to the legislative department. It is the nature of the
power, and not the liability of its use or the manner of its
exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of
legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under
Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a
showing that the delegation itself is valid. It is valid only if
the law (a) is complete in itself, setting forth therein the
policy to be executed, carried out, or implemented by
the delegate;41 and (b) fixes a standard — the limits of
which are sufficiently determinate and determinable —
to which the delegate must conform in the performance
of his functions.42 A sufficient standard is one which
defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative
command is to be effected.43 Both tests are intended to
prevent a total transference of legislative authority to the
delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice
Jose P. Laurel, expounded on the concept and extent of
delegation of power in this wise:
In testing whether a statute constitutes an undue
delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and
provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee
or delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the
delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring
an authority or discretion as to its execution, to be
exercised under and in pursuance of the law. The first
cannot be done; to the latter no valid objection can be
made.’
...
It is contended, however, that a legislative act may be
made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on
certain contingencies, as by proclamation of the
executive or the adoption by the people of a particular
community. In Wayman vs. Southard, the Supreme Court
of the United States ruled that the legislature may
delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a
power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of
facts or conditions as the basis of the taking into effect of
a law. That is a mental process common to all branches
of the government. Notwithstanding the apparent
tendency, however, to relax the rule prohibiting
delegation of legislative authority on account of the
complexity arising from social and economic forces at
work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United
States in the following language — speaking of
declaration of legislative power to administrative
agencies: The principle which permits the legislature to
provide that the administrative agent may determine
when the circumstances are such as require the
application of a law is defended upon the ground that at
the time this authority is granted, the rule of public policy,
which is the essence of the legislative act, is determined
by the legislature. In other words, the legislature, as it is its
duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken,
and that, under other circumstances, different or no
action at all is to be taken. What is thus left to the
administrative official is not the legislative determination
of what public policy demands, but simply the
ascertainment of what the facts of the case require to be
done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but
the ascertainment of the contingency upon which the Act
shall take effect may be left to such agencies as it may
designate. The legislature, then, may provide that a law
shall take effect upon the happening of future specified
contingencies leaving to some other person or body the
power to determine when the specified contingency has
arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the
Constitution to make laws and to alter and repeal them;
the test is the completeness of the statute in all its terms
and provisions when it leaves the hands of the legislature.
To determine whether or not there is an undue
delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure
enacted. The legislative does not abdicate its functions
when it describes what job must be done, who is to do it,
and what is the scope of his authority. For a complex
economy, that may be the only way in which the
legislative process can go forward. A distinction has
rightfully been made between delegation of power to
make the laws which necessarily involves a discretion as
to what it shall be, which constitutionally may not be
done, and delegation of authority or discretion as to its
execution to be exercised under and in pursuance of the
law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive
officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which
the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient
standards, policies or limitations on their authority.49 While
the power to tax cannot be delegated to executive
agencies, details as to the enforcement and
administration of an exercise of such power may be left
to them, including the power to determine the existence
of facts on which its operation depends.50
The rationale for this is that the preliminary ascertainment
of facts as basis for the enactment of legislation is not of
itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating information and
making recommendations is the kind of subsidiary activity
which the legislature may perform through its members,
or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern
society is impossible in the absence of accurate
information on the part of the legislators, and any
reasonable method of securing such information is
proper.51 The Constitution as a continuously operative
charter of government does not require that Congress
find for itself
every fact upon which it desires to base legislative action
or that it make for itself detailed determinations which it
has declared to be prerequisite to application of
legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No.
9337 is the common proviso in Sections 4, 5 and 6 which
reads as follows:
That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
The case before the Court is not a delegation of
legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and
administration of the increase rate under the law is
contingent. The legislature has made the operation of the
12% rate effective January 1, 2006, contingent upon a
specified fact or condition. It leaves the entire operation
or non-operation of the 12% rate upon factual matters
outside of the control of the executive.
No discretion would be exercised by the President.
Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is
inconsistent with the idea of discretion.53 Where the law is
clear and unambiguous, it must be taken to mean
exactly what it says, and courts have no choice but to
see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to
immediately impose the 12% rate upon the existence of
any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as
the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the
specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of
a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person
or body other than the legislature itself.
The Court finds no merit to the contention of
petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over
the Secretary of Finance by mandating the fixing of the
tax rate by the President upon the recommendation of
the Secretary of Finance. The Court cannot also subscribe
to the position of petitioners
Pimentel, et al. that the word shall should be interpreted
to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither
does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by
the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the
latter.
When one speaks of the Secretary of Finance as the alter
ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of
the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are
performed by and through the executive departments,
and the acts of the secretaries of such departments, such
as the Department of Finance, performed and
promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political
position and holds office in an advisory capacity, and, in
the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of
Attorney-General Cushing, is "subject to the direction of
the President."55
In the present case, in making his recommendation to the
President on the existence of either of the two conditions,
the Secretary of Finance is not acting as the alter ego of
the President or even her subordinate. In such instance,
he is not subject to the power of control and direction of
the President. He is acting as the agent of the legislative
department, to determine and declare the event upon
which its expressed will is to take effect.56 The Secretary of
Finance becomes the means or tool by which legislative
policy is determined and implemented, considering that
he possesses all the facilities to gather data and
information and has a much broader perspective to
properly evaluate them. His function is to gather and
collate statistical data and other pertinent information
and verify if any of the two conditions laid out by
Congress is present. His personality in such instance is in
reality but a projection of that of Congress. Thus, being
the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the
findings of the Secretary of Finance and to substitute the
judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the
authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax
collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth
percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one
and one-half percent (1½%). If either of these two
instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion
as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or
unduly delegate power when it describes what job must
be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the
only way in which the legislative process can go
forward.58
As to the argument of petitioners ABAKADA GURO Party
List, et al. that delegating to the President the legislative
power to tax is contrary to the principle of republicanism,
the same deserves scant consideration. Congress did not
delegate the power to tax but the mere implementation
of the law. The intent and will to increase the VAT rate to
12% came from Congress and the task of the President is
to simply execute the legislative policy. That Congress
chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to
interpret the law.59
The insinuation by petitioners Pimentel, et al. that the
President has ample powers to cause, influence or create
the conditions to bring about either or both the
conditions precedent does not deserve any merit as this
argument is highly speculative. The Court does not rule on
allegations which are manifestly conjectural, as these
may not exist at all. The Court deals with facts, not
fancies; on realities, not appearances. When the Court
acts on appearances instead of realities, justice and law
will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair
and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in
the VAT rate imposes an unfair and additional tax burden
on the people. Petitioners also argue that the 12%
increase, dependent on any of the 2 conditions set forth
in the contested provisions, is ambiguous because it does
not state if the VAT rate would be returned to the original
10% if the rates are no longer satisfied. Petitioners also
argue that such rate is unfair and unreasonable, as the
people are unsure of the applicable VAT rate from year
to year.
Under the common provisos of Sections 4, 5 and 6 of R.A.
No. 9337, if any of the two conditions set forth therein are
satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for
a return to the 10% rate nor does it empower the
President to so revert if, after the rate is increased to 12%,
the VAT collection goes below the 24/5 of the GDP of the
previous year or that the national government deficit as a
percentage of GDP of the previous year does not
exceed 1½%.
Therefore, no statutory construction or interpretation is
needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law
is a forbidden ground that only Congress may tread
upon.60
Thus, in the absence of any provision providing for a
return to the 10% rate, which in this case the Court finds
none, petitioners’ argument is, at best, purely speculative.
There is no basis for petitioners’ fear of a fluctuating VAT
rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in
Sections 4, 5 and 6 are no longer present. The rule is that
where the provision of the law is clear and unambiguous,
so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate,
which was allegedly an incentive to the President to raise
the VAT collection to at least 2 4/5 of the GDP of the
previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT
collection is not the only condition. There is another
condition, i.e., the national government deficit as a
percentage of GDP of the previous year exceeds one
and one-half percent (1 ½%).
Respondents explained the philosophy behind these
alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have
economic or fiscal meaning. If VAT/GDP is less than 2.8%,
it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value
to increase it to 12% because such action will also be
ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is
1.5% or less means the fiscal condition of government has
reached a relatively sound position or is towards the
direction of a balanced budget position. Therefore, there
is no need to increase the VAT rate since the fiscal house
is in a relatively healthy position. Otherwise stated, if the
ratio is more than 1.5%, there is indeed a need to
increase the VAT rate.62
That the first condition amounts to an incentive to the
President to increase the VAT collection does not render
it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to
raise revenue. In fact, fiscal adequacy dictated the need
for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a
sound tax system was originally stated by Adam Smith in
his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out
and to keep out of the pockets of the people as little as
possible over and above what it brings into the public
treasury of the state.63
It simply means that sources of revenues must be
adequate to meet government expenditures and their
variations.64
The dire need for revenue cannot be ignored. Our
country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the country’s gloomy
state of economic affairs, thus:
First, let me explain the position that the Philippines finds
itself in right now. We are in a position where 90 percent
of our revenue is used for debt service. So, for every peso
of revenue that we currently raise, 90 goes to debt
service. That’s interest plus amortization of our debt. So
clearly, this is not a sustainable situation. That’s the first
fact.
The second fact is that our debt to GDP level is way out
of line compared to other peer countries that borrow
money from that international financial markets. Our debt
to GDP is approximately equal to our GDP. Again, that
shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment
that we are presently operating in is not as benign as
what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we
were operating in a period of basically global growth
and low interest rates. The past few months, we have
seen an inching up, in fact, a rapid increase in the
interest rates in the leading economies of the world. And,
therefore, our ability to borrow at reasonable prices is
going to be challenged. In fact, ultimately, the question is
our ability to access the financial markets.
When the President made her speech in July last year,
the environment was not as bad as it is now, at least
based on the forecast of most financial institutions. So, we
were assuming that raising 80 billion would put us in a
position where we can then convince them to improve
our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up.
In fact, just within this room, we tried to access the market
for a billion dollars because for this year alone, the
Philippines will have to borrow 4 billion dollars. Of that
amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were
trying to access last week and the market was not as
favorable and up to now we have not accessed and we
might pull back because the conditions are not very
good.
So given this situation, we at the Department of Finance
believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase
of the debt and we are in what we call a debt spiral. The
more debt you have, the more deficit you have because
interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the
only way, I think, we can get out of this debt spiral is really
have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law
hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the state’s
economic dilemma is not for the Court to judge. In
the Fariñas case, the Court refused to consider the
various arguments raised therein that dwelt on the
wisdom of Section 14 of R.A. No. 9006 (The Fair Election
Act), pronouncing that:
. . . policy matters are not the concern of the Court.
Government policy is within the exclusive dominion of the
political branches of the government. It is not for this
Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired
results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular
manner are matters for the judgment of the legislature,
and the serious conflict of opinions does not suffice to
bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on
the purpose of Congress or the executive policy, given
that it is not for the judiciary to "pass upon questions of
wisdom, justice or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A.
No. 9337, amending Section 114(C) of the NIRC, violate
the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et
al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No.
9337, amending Section 114 (C) of the NIRC are arbitrary,
oppressive, excessive and confiscatory. Their argument is
premised on the constitutional right against deprivation of
life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the
constitutional guarantee of equal protection of the law.
The doctrine is 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. Absent such a showing, the
presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of
the NIRC imposes a limitation on the amount of input tax
that may be credited against the output tax. It states, in
part: "[P]rovided, that the input tax inclusive of the input
VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as
amended, as the value-added tax due from or paid by a
VAT-registered person on the importation of goods or
local purchase of good and services, including lease or
use of property, in the course of trade or business, from a
VAT-registered person, and Output Tax is the value-
added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required
to register under the law.
Petitioners claim that the contested sections impose
limitations on the amount of input tax that may be
claimed. In effect, a portion of the input tax that has
already been paid cannot now be credited against the
output tax.
Petitioners’ argument is not absolute. It assumes that the
input tax exceeds 70% of the output tax, and therefore,
the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70%
of the output tax, then 100% of such input tax is still
creditable.
More importantly, the excess input tax, if any, is retained
in a business’s books of accounts and remains creditable
in the succeeding quarter/s. This is explicitly allowed by
Section 110(B), which provides that "if the input tax
exceeds the output tax, the excess shall be carried over
to the succeeding quarter or quarters." In addition,
Section 112(B) allows a VAT-registered person to apply for
the issuance of a tax credit certificate or refund for any
unused input taxes, to the extent that such input taxes
have not been applied against the output taxes. Such
unused input tax may be used in payment of his other
internal revenue taxes.
The non-application of the unutilized input tax in a given
quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation
is incomplete and one-sided. It ends at the net effect
that there will be unapplied/unutilized inputs VAT for a
given quarter. It does not proceed further to the fact that
such unapplied/unutilized input tax may be credited in
the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be
refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia
failed to comprehend the operation of the 70% limitation
on the input tax. According to petitioner, the limitation on
the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they
collect, which violates the principle that tax collection
and revenue should be for public purposes and
expenditures
As earlier stated, the input tax is the tax paid by a person,
passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when
he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes
charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is
required;
Second, when the output taxes exceed the input taxes,
the person shall be liable for the excess, which has to be
paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess over the
output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes, at the
taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70%
limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In
layman’s term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller
can only be credited up to 70% of the value-added taxes
that is due to him on a taxable transaction. There is no
retention of any tax collection because the
person/taxpayer has already previously paid the input tax
to a seller, and the seller will subsequently remit such input
tax to the BIR. The party directly liable for the payment of
the tax is the seller.71 What only needs to be done is for
the person/taxpayer to apply or credit these input taxes,
as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et
al. also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or
limited without due process of law.
The input tax is not a property or a property right within
the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable
input tax is a mere statutory privilege.
The distinction between statutory privileges and vested
rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or
take away rights, which were created by the law of the
state, although it may not take away property, which was
vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes
paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the
cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-
stage tax on all sales, it was then that the crediting of the
input tax paid on purchase or importation of goods and
services by VAT-registered persons against the output tax
was introduced.73 This was adopted by the Expanded
VAT Law (R.A. No. 7716),74 and The Tax Reform Act of
1997 (R.A. No. 8424).75 The right to credit input tax as
against the output tax is clearly a privilege created by
law, a privilege that also the law can remove, or in this
case, limit.
Petitioners also contest as arbitrary, oppressive, excessive
and confiscatory, Section 8 of R.A. No. 9337, amending
Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or
imported in a calendar month for use in trade or business
for which deduction for depreciation is allowed under this
Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos
(₱1,000,000.00): Provided, however, That if the estimated
useful life of the capital goods is less than five (5) years, as
used for depreciation purposes, then the input VAT shall
be spread over such a shorter period: Provided, finally,
That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within
which to amortize the creditable input tax on purchase or
importation of capital goods with acquisition cost of ₱1
Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input
tax. Petitioners’ argument is without basis because the
taxpayer is not permanently deprived of his privilege to
credit the input tax.
It is worth mentioning that Congress admitted that the
spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the
government.76 In the same breath, Congress also justified
its move by saying that the provision was designed to
raise an annual revenue of 22.6 billion.77 The legislature
also dispelled the fear that the provision will fend off
foreign investments, saying that foreign investors have
other tax incentives provided by law, and citing the case
of China, where despite a 17.5% non-creditable VAT,
foreign investments were not deterred.78 Again, for
whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative
wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed
on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended
Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government
or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which
are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold a final
value-added tax at the rate of five percent (5%) of the
gross payment thereof: Provided, That the payment for
lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For purposes of this Section,
the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the
month the withholding was made.
Section 114(C) merely provides a method of collection, or
as stated by respondents, a more simplified VAT
withholding system. The government in this case is
constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for
different rates of value-added taxes to be withheld -- 3%
on gross payments for purchases of goods; 6% on gross
payments for services supplied by contractors other than
by public works contractors; 8.5% on gross payments for
services supplied by public work contractors; or 10% on
payment for the lease or use of properties or property
rights to nonresident owners. Under the present Section
114(C), these different rates, except for the 10% on lease
or property rights payment to nonresidents, were deleted,
and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the
word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): "final
value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No.
8424 (The Tax Reform Act of 1997), the concept of final
withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax
system the amount of income tax withheld by the
withholding agent is constituted as full and final
payment of the income tax due from the payee on the
said income. The liability for payment of the tax rests
primarily on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected
from the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable
withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate
the tax due of the payee on said income. … Taxes
withheld on income payments covered by the expanded
withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in
Sec. 2.78 also of these regulations) are creditable in
nature.
As applied to value-added tax, this means that taxable
transactions with the government are subject to a 5%
rate, which constitutes as full payment of the tax payable
on the transaction. This represents the net VAT payable of
the seller. The other 5% effectively accounts for the
standard input VAT (deemed input VAT), in lieu of the
actual input VAT directly or attributable to the taxable
transaction.79
The Court need not explore the rationale behind the
provision. It is clear that Congress intended to treat
differently taxable transactions with the
government.80 This is supported by the fact that under the
old provision, the 5% tax withheld by the government
remains creditable against the tax liability of the seller or
contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The
Government or any of its political subdivisions,
instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods
from sellers and services rendered by contractors which
are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold the
value-added tax due at the rate of three percent (3%) of
the gross payment for the purchase of goods and six
percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which
shall be creditable against the value-added tax liability of
the seller or contractor: Provided, however, That in the
case of government public works contractors, the
withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or
use of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax at
the time of payment. For this purpose, the payor or
person in control of the payment shall be considered as
the withholding agent.
The valued-added tax withheld under this Section shall
be remitted within ten (10) days following the end of the
month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion
of the word creditable exhibits Congress’s intention to
treat transactions with the government differently. Since it
has not been shown that the class subject to the 5% final
withholding tax has been unreasonably narrowed, there
is no reason to invalidate the provision. Petitioners, as
petroleum dealers, are not the only ones subjected to the
5% final withholding tax. It applies to all those who deal
with the government.
Moreover, the actual input tax is not totally lost or
uncreditable, as petitioners believe. Revenue Regulations
No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should
the actual input tax exceed 5% of gross payments, the
excess may form part of the cost. Equally, should the
actual input tax be less than 5%, the difference is treated
as income.81
Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit
or value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative,
and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes
life in Macbeth,82 "full of sound and fury, signifying
nothing."
What’s more, petitioners’ contention assumes the
proposition that there is no profit or value-added. It need
not take an astute businessman to know that it is a matter
of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed
that a business is created precisely for profit.
The equal protection clause under the Constitution
means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed
by other persons or other classes in the same place and
in like circumstances."83
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation,
the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment,
valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not
interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable
input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions
with the government, is not based on real and substantial
differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law
does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or
the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners’ alleged distinctions
are based on variables that bear different
consequences. While the implementation of the law may
yield varying end results depending on one’s profit
margin and value-added, the Court cannot go beyond
what the legislature has laid down and interfere with the
affairs of business.
The equal protection clause does not require the
universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality
among equals as determined according to a valid
classification. By classification is meant the grouping of
persons or things similar to each other in certain
particulars and different from all others in these same
particulars.85
Petitioners brought to the Court’s attention the
introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña
III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by
increasing the same to 90%. This, according to petitioners,
supports their stance that the 70% limitation is arbitrary
and confiscatory. On this score, suffice it to say that these
are still proposed legislations. Until Congress amends the
law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different
amounts provided that the rate is uniform on the same
class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a
standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and
use or lease of properties. These same sections also
provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type
of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid
on purchase of capital goods or the 5% final withholding
tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power
to classify subjects of taxation, and only demands
uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does
not apply to sales of goods or services with gross annual
sales or receipts not exceeding ₱1,500,000.00.88 Also, basic
marine and agricultural food products in their original
state are still not subject to the tax,89 thus ensuring that
prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only
on sales of goods or services by persons engaged in
business with an aggregate gross annual sales exceeding
₱200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs
of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general
public.
It is admitted that R.A. No. 9337 puts a premium on
businesses with low profit margins, and unduly favors
those with high profit margins. Congress was not oblivious
to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3%
percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or
receipts not exceeding ₱1.5 Million. This acts as a
equalizer because in effect, bigger businesses that qualify
for VAT coverage and VAT-exempt taxpayers stand on
equal-footing.
Moreover, Congress provided mitigating measures to
cushion the impact of the imposition of the tax on those
previously exempt. Excise taxes on petroleum
products91 and natural gas92 were reduced. Percentage
tax on domestic carriers was removed.93 Power producers
are now exempt from paying franchise tax.94
Aside from these, Congress also increased the income
tax rates of corporations, in order to distribute the burden
of taxation. Domestic, foreign, and non-resident
corporations are now subject to a 35% income tax rate,
from a previous 32%.95 Intercorporate dividends of non-
resident foreign corporations are still subject to 15% final
withholding tax but the tax credit allowed on the
corporation’s domicile was increased to 20%.96 The
Philippine Amusement and Gaming Corporation
(PAGCOR) is not exempt from income taxes
anymore.97 Even the sale by an artist of his works or
services performed for the production of such works was
not spared.
All these were designed to ease, as well as spread out,
the burden of taxation, which would otherwise rest
largely on the consumers. It cannot therefore be gainsaid
that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the
creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that
will suffer the consequences.
Progressive taxation is built on the principle of the
taxpayer’s ability to pay. This principle was also lifted from
Adam Smith’s Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards
the support of the government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion
to the revenue which they respectively enjoy under the
protection of the state.
Taxation is progressive when its rate goes up depending
on the resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as
the VAT paid by the consumer or business for every goods
bought or services enjoyed is the same regardless of
income. In
other words, the VAT paid eats the same portion of an
income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a
business, such that the higher the income or profit margin,
the smaller the portion of the income or profit that is
eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At
the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest
hit.
Nevertheless, the Constitution does not really prohibit the
imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall "evolve a progressive
system of taxation." The Court stated in the Tolentino
case, thus:
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall ‘evolve a
progressive system of taxation.’ The constitutional
provision has been interpreted to mean simply that
‘direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized.’ (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. 1977)) Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17 (1) of the 1973 Constitution
from which the present Art. VI, §28 (1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, §4
amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the
government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court
is neither blind nor is it turning a deaf ear on the plight of
the masses. But it does not have the panacea for the
malady that the law seeks to remedy. As in other cases,
the Court cannot strike down a law as unconstitutional
simply because of its yokes.
Let us not be overly influenced by the plea that for every
wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many
wrongs the judicature may not correct, for instance,
those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or
social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three
distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the
prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing,
each may be brought to account, either by
impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true
then, as it still holds true now. All things considered, there
is no raison d'être for the unconstitutionality of R.A. No.
9337.
WHEREFORE, Republic Act No. 9337 not being
unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full
enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1,
2005 is LIFTED upon finality of herein decision.
SO ORDERED.
g. Non-Appropriation for the benefit of Any religion Sec
29(2) Art VI
G.R. No. L-45459 March 13, 1937
GREGORIO AGLIPAY, petitioner,
vs.
JUAN RUIZ, respondent.
Vicente Sotto for petitioner.
Office of the Solicitor-General Tuason for respondent.
LAUREL, J.:
The petitioner, Mons. Gregorio Aglipay, Supreme Head of
the Philippine Independent Church, seeks the issuance
from this court of a writ of prohibition to prevent the
respondent Director of Posts from issuing and selling
postage stamps commemorative of the Thirty-third
International Eucharistic Congress.
In May, 1936, the Director of Posts announced in the
dailies of Manila that he would order the issues of
postage stamps commemorating the celebration in the
City of Manila of the Thirty-third international Eucharistic
Congress, organized by the Roman Catholic Church. The
petitioner, in the fulfillment of what he considers to be a
civic duty, requested Vicente Sotto, Esq., member of the
Philippine Bar, to denounce the matter to the President of
the Philippines. In spite of the protest of the petitioner's
attorney, the respondent publicly announced having
sent to the United States the designs of the postage
stamps for printing as follows:
"In the center is chalice, with grape vine and stalks of
wheat as border design. The stamps are blue, green,
brown, cardinal red, violet and orange, 1 inch by 1,094
inches. The denominations are for 2, 6, 16, 20, 36 and 50
centavos." The said stamps were actually issued and sold
though the greater part thereof, to this day, remains
unsold. The further sale of the stamps is sought to be
prevented by the petitioner herein.
The Solicitor-General contends that the writ of prohibition
is not the proper legal remedy in the instant case,
although he admits that the writ may properly restrain
ministerial functions. While, generally, prohibition as an
extraordinary legal writ will not issue to restrain or control
the performance of other than judicial or quasi-judicial
functions (50 C. J., 6580, its issuance and enforcement
are regulated by statute and in this jurisdiction may issue
to . . . inferior tribunals, corporations, boards, or persons,
whether excercising functions judicial or ministerial, which
are without or in excess of the jurisdiction of such tribunal,
corporation, board, or person, . . . ." (Secs. 516 and 226,
Code of Civil Procedure.) The terms "judicial" and
"ministerial" used with reference to "functions" in the
statute are undoubtedly comprehensive and include the
challenged act of the respondent Director of Posts in the
present case, which act because alleged to be violative
of the Constitution is a fortiorari "without or in excess of . . .
jurisdiction." The statutory rule, therefore, in the jurisdiction
is that the writ of prohibition is not confined exclusively to
courts or tribunals to keep them within the limits of their
own jurisdiction and to prevent them from encroaching
upon the jurisdiction of other tribunals, but will issue, in
appropriate cases, to an officer or person whose acts are
without or in excess of his authority. Not infrequently, "the
writ is granted, where it is necessary for the orderly
administration of justice, or to prevent the use of the
strong arm of the law in an oppressive or vindictive
manner, or a multiplicity of actions." (Dimayuga and
Fajardo vs. Fernandez [1923], 43 Phil., 304, 307.)
The more important question raised refers to the alleged
violation of the Constitution by the respondent in issuing
and selling postage stamps commemorative of the Thirty-
third International Eucharistic Congress. It is alleged that
this action of the respondent is violative of the provisions
of section 23, subsection 3, Article VI, of the Constitution
of the Philippines, which provides as follows:
No public money or property shall ever be
appropriated, applied, or used, directly or
indirectly, for the use, benefit, or support of any
sect, church, denomination, secretarian,
institution, or system of religion, or for the use,
benefit, or support of any priest, preacher,
minister, or other religious teacher or dignitary as
such, except when such priest, preacher,
minister, or dignitary is assigned to the armed
forces or to any penal institution, orphanage, or
leprosarium.
The prohibition herein expressed is a direct corollary of
the principle of separation of church and state. Without
the necessity of adverting to the historical background of
this principle in our country, it is sufficient to say that our
history, not to speak of the history of mankind, has taught
us that the union of church and state is prejudicial to
both, for ocassions might arise when the estate will use
the church, and the church the state, as a weapon in the
furtherance of their recognized this principle of
separation of church and state in the early stages of our
constitutional development; it was inserted in the Treaty
of Paris between the United States and Spain of
December 10, 1898, reiterated in President McKinley's
Instructions of the Philippine Commission, reaffirmed in the
Philippine Bill of 1902 and in the autonomy Act of August
29, 1916, and finally embodied in the constitution of the
Philippines as the supreme expression of the Filipino
people. It is almost trite to say now that in this country we
enjoy both religious and civil freedom. All the officers of
the Government, from the highest to the lowest, in taking
their oath to support and defend the constitution, bind
themselves to recognize and respect the constitutional
guarantee of religious freedom, with its inherent
limitations and recognized implications. It should be
stated that what is guaranteed by our Constitution is
religious liberty, not mere religious toleration.
Religious freedom, however, as a constitutional mandate
is not inhibition of profound reverence for religion and is
not denial of its influence in human affairs. Religion as a
profession of faith to an active power that binds and
elevates man to his Creator is recognized. And, in so far
as it instills into the minds the purest principles of morality,
its influence is deeply felt and highly appreciated. When
the Filipino people, in the preamble of their Constitution,
implored "the aid of Divine Providence, in order to
establish a government that shall embody their ideals,
conserve and develop the patrimony of the nation,
promote the general welfare, and secure to themselves
and their posterity the blessings of independence under a
regime of justice, liberty and democracy," they thereby
manifested reliance upon Him who guides the destinies of
men and nations. The elevating influence of religion in
human society is recognized here as elsewhere. In fact,
certain general concessions are indiscriminately
accorded to religious sects and denominations. Our
Constitution and laws exempt from taxation properties
devoted exclusively to religious purposes (sec. 14, subsec.
3, Art. VI, Constitution of the Philippines and sec. 1,
subsec. 4, Ordinance appended thereto; Assessment
Law, sec. 344, par. [c]. Adm. Code). Sectarian aid is not
prohibited when a priest, preacher, minister or other
religious teacher or dignitary as such is assigned to the
armed forces or to any penal institution, orphanage or
leprosarium 9 sec. 13, subsec. 3, Art. VI, Constitution of the
Philippines). Optional religious instruction in the public
schools is by constitutional mandate allowed (sec. 5, Art.
XIII, Constitution of the Philippines, in relation to sec. 928,
Adm. Code). Thursday and Friday of Holy Week,
Thanksgiving Day, Christmas Day, and Sundays and
made legal holidays (sec. 29, Adm. Code) because of
the secular idea that their observance is conclusive to
beneficial moral results. The law allows divorce but
punishes polygamy and bigamy; and certain crimes
against religious worship are considered crimes against
the fundamental laws of the state (see arts. 132 and 133,
Revised Penal Code).
In the case at bar, it appears that the respondent
Director of Posts issued the postage stamps in question
under the provisions of Act No. 4052 of the Philippine
Legislature. This Act is as follows:
No. 4052. — AN ACT APPROPRIATING THE SUM OF
SIXTY THOUSAND PESOS AND MAKING THE SAME
AVAILABLE OUT OF ANY FUNDS IN THE INSULAR
TREASURY NOT OTHERWISE APPROPRIATED FOR
THE COST OF PLATES AND PRINTING OF POSTAGE
STAMPS WITH NEW DESIGNS, AND FOR OTHER
PURPOSES.
Be it enacted by the Senate and House of
Representatives of the Philippines in Legislature
assembled and by the authority of the same:
SECTION 1. The sum of sixty thousand pesos is hereby
appropriated and made immediately available out of
any funds in the Insular Treasury not otherwise
appropriated, for the costs of plates and printing of
postage stamps with new designs, and other expenses
incident thereto.
SEC. 2. The Director of Posts, with the approval of the
Secretary of Public Works and Communications, is hereby
authorized to dispose of the whole or any portion of the
amount herein appropriated in the manner indicated
and as often as may be deemed advantageous to the
Government.
SEC. 3. This amount or any portion thereof not otherwise
expended shall not revert to the Treasury.
SEC. 4. This act shall take effect on its approval.
Approved, February 21, 1933.
It will be seen that the Act appropriates the sum of sixty
thousand pesos for the costs of plates and printing of
postage stamps with new designs and other expenses
incident thereto, and authorizes the Director of Posts, with
the approval of the Secretary of Public Works and
Communications, to dispose of the amount appropriated
in the manner indicated and "as often as may be
deemed advantageous to the Government". The printing
and issuance of the postage stamps in question appears
to have been approved by authority of the President of
the Philippines in a letter dated September 1, 1936, made
part of the respondent's memorandum as Exhibit A. The
respondent alleges that the Government of the
Philippines would suffer losses if the writ prayed for is
granted. He estimates the revenue to be derived from
the sale of the postage stamps in question at P1,618,17.10
and states that there still remain to be sold stamps worth
P1,402,279.02.
Act No. 4052 contemplates no religious purpose in view.
What it gives the Director of Posts is the discretionary
power to determine when the issuance of special
postage stamps would be "advantageous to the
Government." Of course, the phrase "advantageous to
the Government" does not authorize the violation of the
Constitution. It does not authorize the appropriation, use
or application of public money or property for the use,
benefit or support of a particular sect or church. In the
present case, however, the issuance of the postage
stamps in question by the Director of Posts and the
Secretary of Public Works and Communications was not
inspired by any sectarian denomination. The stamps were
not issue and sold for the benefit of the Roman Catholic
Church. Nor were money derived from the sale of the
stamps given to that church. On the contrary, it appears
from the latter of the Director of Posts of June 5, 1936,
incorporated on page 2 of the petitioner's complaint,
that the only purpose in issuing and selling the stamps
was "to advertise the Philippines and attract more tourist
to this country." The officials concerned merely, took
advantage of an event considered of international
importance "to give publicity to the Philippines and its
people" (Letter of the Undersecretary of Public Works and
Communications to the President of the Philippines, June
9, 1936; p. 3, petitioner's complaint). It is significant to note
that the stamps as actually designed and printed (Exhibit
2), instead of showing a Catholic Church chalice as
originally planned, contains a map of the Philippines and
the location of the City of Manila, and an inscription as
follows: "Seat XXXIII International Eucharistic Congress,
Feb. 3-7,1937." What is emphasized is not the Eucharistic
Congress itself but Manila, the capital of the Philippines,
as the seat of that congress. It is obvious that while the
issuance and sale of the stamps in question may be said
to be inseparably linked with an event of a religious
character, the resulting propaganda, if any, received by
the Roman Catholic Church, was not the aim and
purpose of the Government. We are of the opinion that
the Government should not be embarassed in its
activities simply because of incidental results, more or less
religious in character, if the purpose had in view is one
which could legitimately be undertaken by appropriate
legislation. The main purpose should not be frustrated by
its subordinate to mere incidental results not
contemplated. (Vide Bradfield vs. Roberts, 175 U. S., 295;
20 Sup. Ct. Rep., 121; 44 Law. ed., 168.)
We are much impressed with the vehement appeal of
counsel for the petitioner to maintain inviolate the
complete separation of church and state and curb any
attempt to infringe by indirection a constitutional
inhibition. Indeed, in the Philippines, once the scene of
religious intolerance and prescription, care should be
taken that at this stage of our political development
nothing is done by the Government or its officials that
may lead to the belief that the Government is taking
sides or favoring a particular religious sect or institution.
But, upon very serious reflection, examination of Act No.
4052, and scrutiny of the attending circumstances, we
have come to the conclusion that there has been no
constitutional infraction in the case at bar, Act No. 4052
grants the Director of Posts, with the approval of the
Secretary of Public Works and Communications,
discretion to misuse postage stamps with new designs "as
often as may be deemed advantageous to the
Government." Even if we were to assume that these
officials made use of a poor judgment in issuing and
selling the postage stamps in question still, the case of the
petitioner would fail to take in weight. Between the
exercise of a poor judgment and the unconstitutionality
of the step taken, a gap exists which is yet to be filled to
justify the court in setting aside the official act assailed as
coming within a constitutional inhibition.
The petition for a writ of prohibition is hereby denied,
without pronouncement as to costs. So ordered.
h. Specific use of Tax levied for special purpose, Sec.
29(3), Art VI
G.R. No. 217965
CONFEDERATION OF COCONUT FARMERS
ORGANIZATIONS OF THE PHILIPPINES, INC.
(CCFOP),Petitioner,
vs.
HIS EXCELLENCY PRESIDENT BENIGNO SIMEON C. AQUINO
III, ACTING COMMISSIONER RICHARD ROGERAMURAO of
the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG), CHAIRMAN CESAR L. VILLANUEVA of the
GOVERNANCE COMMISSION FOR GOCCs (GCG), and
SECRETARY LEILA M. DE LIMA of the DEPARTMENT OF
JUSTICE, Respondents,
DECISION
MENDOZA, J.:
Through the subject Petition for Prohibition under Rule 65
of the Rules of Court (Petition), the controversy
surrounding the utilization of the contentious "coco levy
funds" is once again put into the fore.
Before the Court proceeds, a brief restatement of the
factual antecedents leading up to the present petition is
in order.
The collection of what is known as the coconut levy funds
all began on June 19, 1971, following the passage of
Republic Act (R.A) No. 6260,1 for the purpose of providing
the necessary funds for the development of the coconut
industry. The imposition, which was pooled to what was
called the Coconut Investment Fund (CIF), consisted of a
sum equivalent to fifty-five centavos (₱0.55) on the first
domestic sale by a coconut farmer for every 100
kilograms of copra or other coconut products. In
exchange for the levy, the coconut farmer was to be
issued a receipt which shall be converted into shares of
stock of the Coconut Investment Company (CIC).
Playing key roles in the collection, administration and/or
use of the coconut levy funds were the Philippine
Coconut Authority (PCA), formerly the Philippine Coconut
Administration (PHILCOA), United Coconut Planters
Bank (UCPB),and Philippine Coconut Producers
Federation, Inc., or the COCOFED. By legal mandate,
COCOFED once received allocations from the coconut
levy funds to finance its projects. Among the assets
allegedly acquired thru the direct or indirect use of the
Fund was a block of San Miguel
Corporation (SMC) shares of stock.2
The declaration of martial law in September 1972 saw the
issuance of several presidential
decrees (PDs.),purportedly designed to improve the
coconut industry through the collection and use of the
coconut levy funds. Among those issued included: [l] P.D.
No. 276 which established the Coconut Consumers
Stabilization Fund (CCSF)and declared the proceeds
thereof as trust fund to be utilized to subsidize the sale of
coconut-based products, thus, stabilizing the price of
edible oil; [2] P.D. No. 582 which created the Coconut
Industry Development Fund (CIDF) to finance the
operation of a hybrid coconut seed farm; [3] P.D. No. 755
which approved the acquisition of a commercial
bank (UCPB) for the benefit of the coconut farmers to
enable such bank to promptly and efficiently realize the
industry's credit policy; and [4] P.D. No. 961 (Coconut
Industry Code), which codified and consolidated all
existing laws and decrees relative to the coconut
industry.
Apropos to the current controversy are the provisions in
P.D. No. 755 and P.D. No. 961, which decreed that the
coconut levy funds were not to be construed or
interpreted as special and/or fiduciary funds, or as part of
the general funds of the national government, the
intention being that said funds and the disbursements
thereof would be owned by the coconut farmers in their
private capacities.
On November 8, 1977, P.D. No. 1234 was enacted. It
decreed that all income and collections for special and
fiduciary funds authorized by law, including the CCSF and
the CIDF, shall be remitted to the Treasury and be treated
as Special Accounts in the General Fund (SAGF).
Then, on June 11, 1978, P.D. No. 1468 (Revised Coconut
Industry Code) was issued. It brought back the
declarations made in P.D. Nos. 755 and 961 that the
CCSF and the CIDF shall not form part of the SAGF or as
part of the general funds of the national government, but
shall be owned by the coconut farmers in their private
capacities.
Through the years, a part of the coconut levy funds went
directly or indirectly to various projects and/or was
converted into different assets or investments.3 Among
these projects was the Sagip Niyugan
Program, established sometime in November 2000 via
Executive Order (E. 0.) Nos.312 and 313. It created a ₱1
billion trust fund by disposing of assets acquired using
coconut levy funds or assets of entities supported by
those funds.
On January 24, 2012, in COCOFED v.
Republic (COCOFED),4 the Court struck down the
provisions of P.D. Nos. 755, 961, and 1468 which declared
the coconut levy funds as private assets. In doing so, the
Court explained:
In sum, not only were the challenged presidential
issuances unconstitutional for decreeing the distribution
of the shares of stock for free to the coconut farmers and,
therefore, negating the public purpose declared by P.D.
No. 276, i.e., to stabilize the price of edible oil and to
protect the coconut industry. They likewise reclassified,
nay treated, the coconut levy fund as private fund to be
disbursed and/or invested for the benefit of private
individuals in their private capacities, contrary to the
original purpose for which the fund was created. To
compound the situation, the offending provisions
effectively removed the coconut levy fund away from
the cavil of public funds which normally can be paid out
only pursuant to an appropriation made by law. The
conversion of public funds into private assets was illegally
allowed, in fact mandated, by these provisions. Clearly
therefore, the pertinent provisions of P.D. Nos. 755,
961 and 1468 are unconstitutional for violating Article VI,
Section 29 (3) of the Constitution. In this context, the
distribution by PCA of the UCPB shares purchased by
means of the coconut levy fund a special fund of the
government to the coconut farmers, is therefore
void.5[Emphasis supplied]
Reiterating the character of the coconut levy funds as
public in character, the Court, in Pambansang Koalisyon
ng mga Samahang Magsasaka at Manggagawa sa
Niyugan v. Executive Secretary (PKSMMN),6 struck down
E.0. Nos.312 and 313, for being violative, among others,
of, Section 29 (3), Article VI of the Constitution.
On March 18, 2015, then President Benigno S. Aquino
III (President Aquino) issued E.O. Nos. 1797 and
180.8Essentially, E.O. No. 179 calls for the inventory and
privatization of all coco levy assets. E.0. No. 180, on the
other hand, mandates the reconveyance and utilization
of these assets for the benefit of coconut farmers and the
development of the coconut industry. Believing that the
twin executive orders are invalid, petitioner
Confederation of Coconut Farmers Organizations of the
Philippines, Inc. (CCFOP) proceeded with the subject
petition with this Court.
Hence, this petition raising the following issues:
ISSUES
I
WHETHER THE PRESIDENT, IN THE GUISE OF IMPLEMENTING
THE LAWS RELATIVE TO COCONUT LEVY FUNDS AND
ASSETS, GRAVELY ABUSED HIS DISCRETION IN ISSUING THE
ASSAILED EXECUTIVE ORDERS WITHOUT PRIOR
LEGISLATION;
II
WHETHER THE PRESIDENT GRAVELY ABUSED HIS DISCRETION
WHEN HE ARROGATED UNTO HIMSELF, WITHOUT
LEGISLATIVE AUTHORITY, THE POWER TO ALLOCATE, USE
AND ADMINISTER THE SUBJECT COCONUT LEVY FUNDS AND
ASSETS, WHICH POWERS IS EXCLUSIVELY LODGED WITH THE
PCA; AND
III
WHETHER THE PRESIDENT GRAVELY ABUSED HIS DISCRETION
WHEN HE ARROGATED UNTO HIMSELF THE EXCLUSIVE
AUTHORITY OF THE JUDICIARY TO EXECUTE ITS FINAL AND
EXECUTORY DECISISION, IN VIOLATION OF THE PRINCIPLE
OF SEPARATION OF POWERS.9
Arguments of the Petitioner
Violation of the Constitution
Similar to the controversy laid down in PKSMMN, petitioner
assails the constitutionality of E.O. Nos. 179 and 180 on the
argument that the presidential issuances violated Section
29(1) and (3), Article VI 10 of the Constitution. In this
iteration, petitioner explains that the assailed executive
orders were made without authority of law because they
were based on P.D. No. 1234, a law that had ceased to
exist when P.D. No. 1468 re-enacted provisions of the
earlier P.D. No. 755 and 961, retaining the character of
the funds as not part of the general funds of the
government. According to petitioner, with the passage of
P.D. No. 1468, it became evident that it was the intention
of the legislature to no longer retain the character of the
coconut levy funds as special public funds as mandated
under P.D. No. 1234, but rather, treat the same as private
funds which are owned by the coconut farmers in their
private capacities. To further its argument, petitioner
points out that P.D. No. 1234 expressly limits its application
to "all other income accruing to the PCA under existing
laws." Thus, it argues that because the CCSF and CIDF
were covered by P.D. No. 1468, a law passed after P.D.
No. 1234, the same cannot be considered as covered by
P.D. 1234.
Although petitioner concedes that COCOFED11 and
Republic v. COCOFED, et. al. (Republic)12 [1] annulled
Section 5, Article 3 of P.D. No. 1468, Section 2 of P.D. No.
755, as well as Section 3, Article 5 of P.D. No. 961; and [2]
declared that coco-levy funds are public funds for a
special purpose, petitioner opines the foregoing decisions
of the Court: (a) did nothing more than invalidate the
offending provisions of law; (b) did not ipso facto direct
the transfer of the CCSF and CIDF to the SAGF pursuant
to P.D. No. 1234; and (c) did not authorize the President
to create a special account in the general fund.
Petitioner, thus, posits that the President assumed a
legislative function when he issued the assailed executive
orders directing the transfer of the CCSF and CIDF to the
special account in the general law. Citing several bills
pending in Congress, petitioner posits that Congress saw
the need to pass a law in order to properly place the
coconut levy funds in SAGF.
Violation of the mandate
of the PCA
Petitioner also contends that E.O. Nos. 179 and 180
violate the mandate of the PCA under P.D. No. 232 to
administer and utilize coconut levy funds, inasmuch as it
directs the PCA, together with the Governance
Commission for Government-Owned and Controlled
Corporations (GCG), the Department of
Finance (DOF) and the Presidential Assistant for Food
Security and Agricultural Modernization (PAFSAM), to
make recommendations to the President for approval of
all non-cash coconut levy assets that will be divested,
sold, alienated or disposed. Petitioner explains that, in
effect, the questioned executive issuances would
diminish the powers of the PCA by relegating it to only
one of the recommendatory bodies for the privatization
and utilization of coconut funds and assets.
On this point, petitioner, citing PKSMMN, averred that
similar executive issuances empowering the President to
allocate, use and dispose of coconut levy assets were
struck down by the Court for being without legislative
authorization and for being violative of P.D. No. 232.
Violation of the authority
of the Judiciary
Finally, petitioner asserts that the questioned executive
orders violate the Court's authority to execute its final and
executory decisions. It insists that with the finality
of COCOFED, the release, transfer and deposit of the
government shares in UCPB to the Bureau of Treasury
could only be done by the Sandiganbayan which has
the exclusive jurisdiction to execute the final judgment in
the said case.
On June 30, 2015, the Court granted petitioner's prayer
and issued a Temporary Restraining Order enjoining the
respondents from implementing the assailed E.O. Nos. 179
and 180 and from using, disbursing and dispersing the
subject coconut levy assets and funds.13
Arguments of the Respondents
Traversing the challenge mounted by petitioner, the
respondents, through the Office of the Solicitor
General (OSG), first question the propriety of the filing of
the subject suit on procedural grounds. First, on the
improper inclusion of the President as a respondent, they
claimed that the President, who was then in power at the
time this case was initiated, enjoyed immunity pursuant to
the principle of separation of powers.14 The respondents
likewise challenge petitioner's standing to bring the
instant suit, not only because it had failed to establish any
direct injury, but also because the questioned orders do
not involve tax measures, negating any challenge via a
taxpayer's suit.15 They also point out that despite
petitioner's claim that the twin executive orders had
infringed on the powers of Congress, no member of
Congress had joined petitioner in the filing of the present
suit. Finally, the respondents assert that because
members of Congress have "a more direct and specific
interest in raising the questions being raised,"16 the
doctrine of transcendental importance cannot be used
to justify petitioner's standing.17
As for the issues raised in the petition, the respondents
counter that when the Court, in COCOFED, struck down
P.D. No. 1468, as well as P.D. Nos. 755 and 961, the result
was as if the aforementioned laws did not exist at all.
Consequently, they argue that, as declared
in COCOFED, P.D. No. 1234 should be considered the
operative law and that "coconut levies are special funds
to be remitted to the Treasury in the General Fund of the
State but treated as Special Accounts."18
As for petitioner's claim that there are pending bills in
Congress providing for the disposition of the coconut levy
funds, the respondents assert that until such bills become
law, P.D. No. 1234 should be made to apply in treating
the coconut levy funds as part of SAGF.
The Court's Ruling
Before delving on the substantial issues of this case, a
resolution of procedural matters is in order.
Petitioners legal standing
The Court upholds petitioner's assertion that it has legal
standing to institute the present case. In PKSMMN, the
Court recognized petitioner organization as among those
representing coconut farmers on whom the burden of
the coco levies attached. Considering that that the
coconut levies were imposed primarily for the benefit of
petitioner's members,19 it behooves the Court to accord
standing to petitioner to ensure that the subject
grievance is given its due.
With the procedural issues settled, the Court finds that the
present petition is partially meritorious.
Nature of Coco Levy Funds
Petitioner believes that notwithstanding P.D. No. 1234 and
the Court's pronouncements
in COCOFEDandRepublic,the CCSF and the CIDF
remained to be private funds in nature. It insists that the
legislative intent to treat the CIDF and the CCSF as
private funds is evident with the passage of P.D. No. 1468
because it was a later law.
Section l (a) of P.D. No. 1234 reads:
SECTION 1. All income and collections for Special or
Fiduciary Funds authorized by law shall be remitted to the
Treasury and treated as Special Accounts in the General
Fund, including the following:
a. Philippine Coconut Authority - Coconut Development
Fund, including all income derived therefrom under
Sections 13 and 14 of Republic Act No. 1145; Coconut
Investment Fund under Section 8 of Republic Act No.
6260, including earnings, profits, proceeds and interests
derived therefrom; Coconut Consumers Stabilization Fund
under Section 3-A of PD No. 232, as inserted by Section 3
of P.D. No. 414 and under paragraph l(a) of P.D. No. 276;
Coconut Industry Development Fund under Section 3-B of
P.D. No. 232, as inserted by Section 2 of P.D. No. 582; and
all other fees accruing to the Philippine Coconut
Authority under the provisions of Section 19 of Republic
Act No. 1365, in accordance with Section 2 of P.D. No.
755 and all other income accruing to the Philippine
Coconut Authority under existing laws. [Emphasis
supplied]
The above-cited provision clearly characterizes the CCSF
and the CIDF as public funds, which shall be remitted to
the Treasury as Special Accounts in the General Fund.
Petitioner, however, insists that pursuant to P.D. No. 1468,
the CIDF and the CCSF were excluded from the
provisions of P.D. No. 1234. It noted Section 5 thereof
which states that both the CIDF and the CCSF shall not
be construed as special funds or part of the general
funds of the national government. As such, petitioner
concluded that P.D. No. 1468 takes precedence over
P.D. No. 1234, it being the later law.
Petitioner's continuous reliance on Section 5, Article III of
P.D. No. 1468 is gravely erroneous.
In the landmark cases of COCOFED and Republic, the
Court, in no uncertain terms, declared Section 5, Article III
of P.D. No. 1468 unconstitutional and categorized
coconut levy funds to be public in nature.
In Republic, the Court expounded on why coconut levy
funds are public in nature, viz:
To avoid misunderstanding and confusion, this Court will
even be more categorical and positive than its earlier
pronouncements: the coconut levy funds are not only
affected with public interest; they are, in fact, prima
facie public funds.
Public funds are those moneys belonging to the State or
to any political subdivision of the State; more specifically,
taxes, customs duties and moneys raised by operation of
law for the support of the government or for the
discharge of its obligations. Undeniably, coconut levy
funds satisfy this general definition of public funds,
because of the following reasons:
1. Coconut levy funds are raised with the use of
the police and taxing powers of the State.
2. They are levies imposed by the State for the
benefit of the coconut industry and its farmers.
3. Respondents have judicially admitted that the
sequestered shares were purchased with public
funds.
4. The Commission on Audit (COA) reviews the
use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the
acquiescence of private respondents, has
treated them as public funds.
6. The very laws governing coconut levies
recognize their public character.
xxxx
1. Coconut Levy Funds Are Raised Through the State's
Police and Taxing Powers.
Indeed, coconut levy funds partake of the nature of
taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by
the State by virtue of its sovereignty for the support of
government and for all public needs.
xxxx
Court takes judicial notice of the fact that the coconut
industry is one of the great economic pillars of our nation,
and coconuts and their byproducts occupy a leading
position among the country's export products; that it
gives employment to thousands of Filipinos; that it is a
great source of the State's wealth; and that it is one of
the important sources of foreign exchange needed by
our country and, thus, pivotal in the plans of a
government committed to a policy of currency stability.
Taxation is done not merely to raise revenues to support
the government, but also to provide means for the
rehabilitation and the stabilization of a threatened
industry, which is so affected with public interest as to be
within the police power of the State, as held in Caltex
Philippines v. COA and Osmefia v. Orbos.
Even if the money is allocated for a special purpose and
raised by special means, it is still public in character. In
the case before us, the funds were even used to organize
and finance State offices. In Cocofed v. PCGG, the Court
observed that certain agencies or enterprises "were
organized and financed with revenues derived from
coconut levies imposed under a succession of laws of the
late dictatorship ... with deposed Ferdinand Marcos and
his cronies as the suspected authors and chief
beneficiaries of the resulting coconut industry monopoly.
The Court continued: " .... It cannot be denied that the
coconut industry is one of the major industries supporting
the national economy. It is, therefore, the State's concern
to make it a strong and secure source not only of the
livelihood of a significant segment of the population, but
also of export earnings the sustained growth of which is
one of the imperatives of economic stability.
2. Coconut Funds Are Levied for the Benefit of the
Coconut Industry and Its Farmers.
Just like the sugar levy funds, the coconut levy funds
constitute state funds even though they may be held for
a special public purpose.
xxxx
Thus, the coconut levy funds - like the sugar levy and the
oil stabilization funds, as well as the monies generated by
the On-line Lottery System - are funds exacted by the
State. Being enforced contributions, they are prima
facie public funds.
xxxx
6. Laws Governing Coconut Levies Recognize Their Public
Nature.
Finally and tellingly, the very laws governing the coconut
levies recognize their public character. Thus, the third
Whereas clause of P.D. No. 276 treats them as special
funds for a specific public purpose. Furthermore, P.O. No.
711 transferred to the general funds of the State all
existing special and fiduciary funds including the CCSF.
On the other hand, P.D. No. 1234 specifically declared
the CCSF as a special fund for a special purpose, which
should be treated as a special account in the National
Treasury.
Moreover, even President Marcos himself, as the sole
legislative/executive authority during the martial law
years, struck off the phrase which is a private fund of the
coconut farmers from the original copy of Executive
Order No. 504 dated May 31, 1978, and we quote:
"WHEREAS, by means of the Coconut Consumers
Stabilization Fund CCCSF'), which is the private fund of
the coconut farmers (deleted), essential coconut-based
products are made available to household consumers at
socialized prices. (Italics supplied)
The phrase in bold face - which is the private fund of the
coconut farmers - was crossed out and duly initialed by its
author, former President Marcos. This deletion, clearly
visible in "Attachment C of petitioner's Memorandum, was
a categorical legislative intent to regard the CCSF as
public, not private, funds.20 [Emphasis supplied]
On the other hand, in COCOFED, the Court categorically
struck down Section 5, Article III of P.D. No. 1468 for being
unconstitutional because it converted the coconut levy
funds into private funds, which may then be
appropriated even without an enabling law, to wit:
In sum, not only were the challenged presidential
issuances unconstitutional for decreeing the distribution
of the shares of stock for free to the coconut farmers and,
therefore, negating the public purpose declared by P.D.
No. 276, i.e., to stabilize the price of edible oil and to
protect the coconut industry. They likewise reclassified,
nay treated, the coconut levy fund as private fund to be
disbursed and/or invested for the benefit of private
individuals in their private capacities, contrary to the
original purpose for which the fund was created. To
compound the situation, the offending provisions
effectively removed the coconut levy fund away from
the cavil of public funds which normally can be paid out
only pursuant to an appropriation made by law. The
conversion of public funds into private assets was illegally
allowed, in fact mandated, by these provisions. Clearly
therefore, the pertinent provisions of P.D. Nos. 755, 961
and 1468 are unconstitutional for violating Article VI,
Section 29 (3) of the Constitution. In this context, the
distribution by PCA of the UCPB shares purchased by
means of the coconut levy fund - a special fund of the
government - to the coconut farmers, is therefore
void.21 [Emphasis supplied]
Clearly, both cases had definitely settled the public
nature of coconut levy funds, which included the CCSF
and the CIDF. The most compelling reasons to treat
coconut levy funds as public funds are the fact that it
was raised through the State's taxing power and it was for
the development of the coconut industry as a whole and
not merely to benefit individual farmers.
In addition, petitioner cannot use Article III, Section 5 of
P.D. No. 1468 as basis to classify the CCSF and the CIDF as
private funds because it was struck down as
unconstitutional. It must be remembered that as a rule,
an unconstitutional act is not a law to such an extent that
it is inoperative as if it has not been passed at
all.22Consequently, the perceived legislative intent
espoused by Section 5, Article III of P.D. No. 1468 is
inoperative because it is unconstitutional. Hence, the
characterization of P.D. No. 1234 of coconut levy funds,
including the CCSF and the CIDF, as public funds stands.
No usurpation of judicial
power to execute its own
decision
Petitioner also argues that the release of coconut levy
assets held by the UCPB is in the nature of an execution.
Thus, it surmises that there must be a writ of execution
from the Sandiganbayan before the government may
cause the release of the said assets.
Execution has been defined as a remedy afforded by
law for the enforcement of a judgment, its object being
to obtain satisfaction of the judgment on which the writ is
issued.23 Being a remedy, it is thus optional on the winning
litigant and may avail it in case the judgment cannot be
enforced. In other words, a party litigant may choose to
have a judgment enforced and if for some reason he
cannot do so, he may decide to avail of the coercive
measure of execution in order for the judgment to be
realized. A writ of execution was never meant to be a
prerequisite before a judgment may be enforced.
With the finality of the decision in COCOFED, there is no
question that the coconut levy assets are public funds.
Thus, the government may take the necessary steps to
preserve them and to be able to utilize them. It does not
deprive the courts with its power to issue writs of
execution because the government may resort to it in
case it encounters obstacles in the enforcement of the
decision.
Existing appropriation
law treating coconut levy
funds as special funds
The power of the purse lies with Congress. 24 This power is
categorically and explicitly stated by the fundamental
law itself. Article VI, Section 29 of the Constitution reads:
SECTION 29. (1) No money shall be paid out of the
Treasury except in pursuance of an appropriation made
by law.
(2) No public money or property shall be
appropriated, applied, paid, or employed,
directly or indirectly, for the use, benefit, or
support of any sect, church, denomination,
sectarian institution, or system of religion, or of
any priest, preacher, minister, or other religious
teacher, or dignitary as such, except when such
priest, preacher, minister, or dignitary is assigned
to the armed forces, or to any penal institution, or
government orphanage or leprosarium.
(3) All money collected on any tax levied for a
special purpose shall be treated as a special
fund and paid out for such purpose only. If the
purpose for which a special fund was created
has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of
the Government.
The said provision provides for two classification of
appropriation measures-general and special
appropriation. A general appropriation law is one passed
annually to provide for the financial operations of the
entire government during one fiscal period, whereas a
special appropriation is designed for a specific
purpose.25 The revenue collected for a special purpose
shall be treated as a special fund to be used exclusively
for the stated purpose. This serves as a deterrent for
abuse in the disposition of special funds.26 The coconut
levy funds are special funds allocated for a specific
purpose and can never be used for purposes other than
for the benefit of the coconut farmers or the
development of the coconut industry. Any attempt to
appropriate the said funds for another reason, no matter
how noble or beneficial, would be struck down as
unconstitutional.
An appropriation measure may be defined as a statute
the primary and specific purpose of which is to authorize
the release of public funds.27 The assailed issuances,
however, did not create a new special fund. They were
issued pursuant to previous laws and jurisprudence which
declared coconut levy funds such as the CCSF and the
CIDF as public funds for a special purpose. In fact, P.D.
No. 1234 recognized that all funds collected and
accruing to the SAGF shall be considered automatically
appropriated for purposes authorized by law creating
such fund.
Sections l (a) and 2 of P.D. No. 1234 expressly provide:
SECTION 1. All income and collections for Special or
Fiduciary Funds authorized by law shall be remitted to the
Treasury and treated as Special Accounts in the General
Fund, including the following:
a. Philippine Coconut Authority - Coconut
Development Fund, including all income derived
therefrom under Sections 13 and 14 of Republic
Act No. 1145; Coconut Investment Fund under
Section 8 of Republic Act No. 6260, including
earnings, profits, proceeds and interests derived
therefrom; Coconut Consumers Stabilization Fund
under Section 3-A of PD No. 232, as inserted by
Section 3 of P.D. No. 414 and under paragraph
1(a) of P.D. No. 276; Coconut Industry
Development Fund under Section 3-B of P.D. No.
232, as inserted by Section 2 of P.D. No. 582; and
all other fees accruing to the Philippine Coconut
Authority under the provisions of Section 19 of
Republic Act No. 1365, in accordance with
Section 2 of P.D. No. 755 and all other income
accruing to the Philippine Coconut Authority
under existing laws.
xxx
SECTION 2. The amounts collected and accruing to
Special or Fiduciary Funds shall be considered as being
automatically appropriated for the purposes authorized
by law creating the said Funds, except as may be
otherwise provided in the General Appropriations
Decree.
Accordingly, in COCOFED,28 the Court emphasized that
the coconut levy funds were special funds which do not
form part of the general fund, to wit:
If only to stress the point, P.D. No. 1234 expressly stated
that coconut levies are special funds to be remitted to
the Treasury in the General Fund of the State, but treated
as Special Accounts:
Section 1. All income and collections for Special or
Fiduciary Funds authorized by law shall be remitted to the
Treasury and treated as Special Accounts in the General
Fund, including the following:
(a) [PCA] Development Fund, including all income
derived therefrom under Sections 13 and 14 of [RAJ No.
1145; Coconut Investments Fund under Section 8 of [RAJ
No. 6260, including earnings, profits, proceeds and
interests derived therefrom; Coconut Consumers
Stabilization Funds under Section 3-A of PD No. 232, as
inserted by Section 3 of P.D. No. 232, as inserted by
Section 2 of P.D. No. 583; and all other fees accruing to
the [PCAJ under the provisions of Section 19 of [RAJ No.
1365, in accordance ' with Section 2 of P.D. No. 755 and
all other income accruing to the [PCA] under existing
laws.
Moreover, the Court, in Gaston, stated the observation
that the character of a stabilization fund as a special
fund "is emphasized by the fact that the funds are
deposited in the Philippine National Bank [PNB] and not in
the Philippine Treasury, moneys from which may be paid
out only in pursuance of an appropriation made by law."
Similarly in this case, Sec. 1 (a) of P.D. No. 276 states that
the proceeds from the coconut levy shall be deposited
with the PNB, then a government bank, or any other
government bank under the account of the CCSF, as a
separate trust fund, which shall not form part of the
government's general fund. And even assuming
arguendo that the coconut levy funds were transferred
to the general fund pursuant to P.D. No. 1234, it was with
the specific directive that the same be treated as special
accounts in the general fund.29 [Emphasis in the original]
Thus, E.O. No. 179 does not create a new special fund but
merely reiterates that revenues arising out of or in
connection with the privatization of coconut levy funds
shall be deposited in the SAGF. An automatic
appropriation law is not necessarily unconstitutional for as
long as there are clear legislative parameters on how the
amounts appropriated are to be disbursed.30 The
president should not have unlimited discretion as to its
disbursement31 since the funds are allocated for a
specific purpose. In Edu v. Ericta,32 the Court explained
when a valid delegation of legislative power may be
done, viz:
It is a fundamental principle flowing from the doctrine of
separation of powers that Congress may not delegate its
legislative power to the two other branches of the
government, subject to the exception that local
governments may over local affairs participate in its
exercise. What cannot be delegated is the authority
under the Constitution to make laws and to alter and
repeal them; the test is the completeness of the statute in
all its term and provisions when it leaves the hands of the
legislature. To determine whether or not there is an undue
delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure
enacted. The legislature does not abdicate its functions
when it describes what job must be done, who is to do it,
and what is the scope of his authority. For a complex
economy, that may indeed be the only way in which the
legislative process can go forward. A distinction has
rightfully been made between delegation of power to
make the laws which necessarily involves a discretion as
to what it shall be, which constitutionally may not be
done, and delegation of authority or discretion as to its
execution to be exercised under and in pursuance of the
law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and
practicability.33
COCOFED held that the CCSF and the CIDF are to be
utilized for the benefit of coconut farmers and for the
development of the coconut industry.1âwphi1 Pursuant
to this, E.O. 180 provides:
SECTION 1. Reiteration of Policy. - All Coco Levy Funds
and Coco Levy Assets reconveyed to the Government,
whether voluntarily or through lawful order from a
competent court, and all proceeds of any privatization of
the Coco Levy Assets, shall be used solely and exclusively
for the benefit of all the coconut farmers and for the
development of the coconut industry.
Any disposition and utilization shall be guided by the
following objectives:
a. Improving coconut farm productivity, developing
coconut based enterprises, and increasing the income of
coconut farmers;
b. Strengthening coconut farmers' organizations; and
c. Attaining a balanced, equitable, integrated, and
sustainable growth, rehabilitation and development of
the coconut industry.
On its own, E.O. Nos. 179 and 180 appears to have been
executed within the legislative parameters set
by COCOFED. P.D. No. 1234, however, does not actually
provide a mechanism for how the SAGF is to be
disbursed. Thus, the assailed issuances do not just
implement P.D. No. 1234- it implements P.D. No. 755 and
P.D. No. 1468 as well.
Article III, Sections 2 and 3 of P.D. No. 1468, in particular,
provides the specific purpose for how the CCSF and the
CIDF should be utilized, to wit:
SECTION 2. Utilization of Fund. - All collections of the
Coconut Consumers Stabilization Fund Levy shall be
utilized by the Authority for the following purposes:
a) When the national interest so requires, to
provide a subsidy for coconut-based products
the amount of which subsidy shall be determined
on the basis of the base price of copra or its
equivalent as fixed by the Authority and the
prices of coconut-based products as fixed by the
Price Control Council; Provided, however, that
when the coconut farmers, who in effect
shoulder the burden of the levies herein imposed,
shall have owned or controlled, under Section 9
and 10 hereof, oil mills and/or refineries which
manufacture coconut-based consumer
products, only such oil mills and/or refineries shall
be entitled to the subsidy herein authorized;
b) To refund wholly or in part any premium duty
collected on copra or its equivalent sold prior to
February 17, 1974;
c) To finance the developmental and operating
expenses of the Philippine Coconut Producers
Federation including projects such as
scholarships for the benefit of deserving children
of the coconut farmers; and
d) To finance the establishment and operation of
industries and commercial enterprises relating to
the coconut and other palm oil industry as
described in Section 9 hereof; and
e) To finance the Coconut Farmers Refund which
is hereby constituted as the pooled savings of the
coconut farmers, to be utilized for their mutual
assistance, protection and relief in the form of
social benefits, such as life and accident
insurance coverage of the farmers.
SECTION 3. Coconut Industry Development Fund. - There
is hereby created a permanent fund to be known as the
Coconut Industry Development Fund, which shall be
administered and utilized by the bank acquired for the
benefit of the coconut farmers under PD 755 for the
following purposes:
a) To finance the establishment, operation and
maintenance of a hybrid coconut seednut farm
under such terms and conditions that may be
negotiated by the National Investment and
Development Corporation (NIDC) with any
private person, corporation, firm or entity as
would insure that the country shall have, at the
earliest possible time, a proper, adequate and
continuous supply of selected high-yielding
hybrid as well as indigenous precocious seednuts
and, for this purpose, the contract, including the
amendments and supplements thereto as
provided for herein, entered into by NIDC as
herein authorized is hereby confirmed and
ratified, and the bank acquired for the benefit of
the coconut farmers under the PD 755 shall
administer the said contract, including its
amendments and supplements, and perform all
the rights and obligations of NIDC thereunder,
utilizing for that purpose the Coconut Industry
Development Fund;
b) To purchase all of the seednuts produced by
the hybrid coconut seednut farm which shall be
distributed, for free, by the Authority to coconut
farmers on a voluntary basis as well as for new
areas opened for coconut planting in
accordance with, and in the manner prescribed
in, the nationwide coconut replanting program,
provided, that farmers who have been paying
the levy herein authorized shall be given priority;
c) To defray the cost of implementing the
nationwide replanting program which, including
the activities described in sub-paragraphs (b)
and (d) of this Section, shall upon prior approval
of the President of the Philippines, be
implemented by the Authority through a private
non-profit foundation owned by the coconut
farmers in the manner prescribed by Sections 9
and 10 hereof;
 d) To finance the establishment, operation and
maintenance of extension services, model
plantations and other activities as would insure
that the coconut farmers shall be informed of the
proper methods of replanting; and
e) The balance, if any, shall be utilized for
investments for the benefit of the coconut farmers
as prescribed in Section 9 hereof. [Emphasis
supplied]
While most of the provisions are aligned with the avowed
purpose to benefit the coconut Industry, Section 3(e),
Article III provides that any remaining balance may be
used by UCPB to purchase shares and stocks in
corporations related to the coconut industry, viz:
SECTION 9. Investments For the Benefit of the Coconut
Farmers. - Notwithstanding any law to the contrary, the
bank acquired for the benefit of the coconut farmers
under PD 755 is hereby given full power and authority to
make investments in the form of shares of stock in
corporations organized for the purpose of engaging in
the establishment and the operation of industries and
commercial activities and other allied business
undertakings relating to the coconut and other palm oils
industry in all its aspects and the establishment of a
research into the commercial and industrial uses of
coconut and other oil industry. For that purpose, the
Authority shall, from time to time, ascertain how much of
the collections of the Coconut Consumers Stabilization
Fund and/ or the Coconut Industry Development Fund is
not required to finance the replanting program and other
purposes herein authorized and such ascertained surplus
shall be utilized by the bank for the investments herein
authorized.
The surplus created by this particular Section of P.D. No.
1468 eventually became known as the Coconut Industry
Investment Fund (CIIF). With the use of the CIIF, UCPB
acquired coconut oil mills corporation, 14 holding
companies, and San Miguel Corporation shares.34 In
short, Section 9 of P.D. No. 1468 allowed Marcos cronies
to grow their wealth - to the detriment of the coconut
industry.
A law which provides this kind of open-ended provision
cannot be considered a law which provides clear
legislative parameters. Too much unbridled discretion is
given for any surplus or balance that remains unutilized
from the CIDF.
The provision of P.D. No. 1468 are simply too broad to limit
the amount of spending that may be done by the
implementing authority. Considering that no statute
provides for specific parameters on how the SAGF may
be spent, Congress must first provide a law for the
disbursements of the funds, in line with its constitutional
authority.35The absence of the requisite legislative
authority in the disbursement of public funds cannot be
remedied by executive fiat.
For this reason, Sections 6, 7, 8, and 936 of E.O. No. 180 are
declared void because they are not in conformity with
the law. Through these sections, the President went
beyond the authority delegated by law in the
disbursement of the coconut levy funds.
WHEREFORE, the Petition for Prohibition
is PARTIALLYGRANTED. The Court finds, and declares, that
Section 6, Section 7, Section 8 and Section 9 of Executive
Order No. 180, series of 2015, are not in conformity with
law.
In accordance with the foregoing, it is hereby reiterated
that the coconut levy funds are to be deposited in the
Special Accounts in the General Fund and are to be
appropriated only for the benefit of the coconut farmers
and for the development of the coconut industry.
The Temporary Restraining Order issued by the Court on
June 30, 2015 is LIFTED effective immediately.
SO ORDERED.
I. Power to tax of local government units. Sec 5, Art
XI
[G.R. No. 120082. September 11, 1996]
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. OSMEA, and EUSTAQUIO B.
CESA, respondents.
DECISION
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
1995[1] 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 1995[2]denying the motion to reconsider
the decision.
We resolved to give due course to this petition for it
raises issues dwelling on the scope of the taxing power of
local government units and the limits of tax exemption
privileges of 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, x x
x and such other airports as may be established in the
Province of Cebu x x x (Sec. 3, 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 x x x.
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 exempts it from
payment of realty taxes. It was 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:
Section 133. Common Limitations on the Taxing Powers of
Local Government Units. -- Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
a) x x x
xxx
o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units. (underscoring supplied)
Respondent City refused to cancel and set aside
petitioners 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 Government Code that
took effect on January 1, 1992:
Section 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. (underscoring supplied)
xxx
Section 234. Exemptions from Real Property Taxes. x x x
(a) x x x
xxx
(e) x x x
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 by the very
nature of its powers and functions.
Respondent City, however, asserted that MCIAA 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, decrees [sic], executive
orders, proclamations and administrative regulations, or
part of 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 Courts 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. Toward 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. x x
x[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 or
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 charter,
PD 1869. All of its shares of stock are owned by the
National Government. . . .
PAGCOR has a dual role, to operate and regulate
gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality
of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere
Local government.
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 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)
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. (underscoring 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
government corporation performing governmental
functions 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 powers of the local government units.
In its comment, respondent City of Cebu alleges
that as a local 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 Constitution[10] 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 petitioners 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 or controlled corporations performing
governmental and purely proprietary
functions. Respondent City of Cebu urges this Court to
apply by analogy its ruling that the Manila International
Airport Authority is a government-owned
corporation,[12] and to reject the application
of Basco because it was promulgated . . . before the
enactment and the signing 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 rights of the
people and takes from them a portion of their 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
taxpayer and liberally in favor of the taxing authority.[18] A
claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be
mistaken.[19] Elsewise stated, taxation is the rule,
exemption therefrom is the exception.[20] 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 exemptions 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 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 Cooperatives 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. (emphasis supplied)
Needless to say, the last item (item o) is pertinent to 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 light of the
above enumeration. The term fees means charges fixed
by law or ordinance for the regulation or inspection of
business or activity,[24] while charges are pecuniary
liabilities such as rents or fees against persons 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 an annual ad valorem tax on real property such
as land, building, machinery, and other improvements
not hereafter specifically exempted.
Section 234 of the 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 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.
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 directly
and exclusively used for religious, charitable
or educational purposes; (ii) all machineries
and equipment actually, directly and
exclusively used 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 institutions, 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 speak 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 or provisos in these sections, 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 are explicitly indicated in the
next. For instance, in item (a) which excepts income
taxes when levied on banks and other financial
institutions; item (d) which excepts wharfage on wharves
constructed and maintained by the local government
unit concerned; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses
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 provided in this
Code in item (j). These clauses would be obviously
unnecessary or mere surplusages 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 Sections 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 on the National
Government, its agencies and instrumentalities, and local
government units; however, pursuant to Section 232,
provinces, cities, and municipalities in the Metropolitan
Manila Area may impose the real property tax except
on, inter alia, real property owned by the Republic of the
Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person, as
provided in 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 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 insofar as real property
taxes are concerned by limiting the retention only to
those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property 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 a taxable
person for consideration or otherwise.
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. 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
Sections 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.
It 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
none exists. In light of the petitioners theory that it is an
instrumentality of the Government, it could only be within
the first item of the first paragraph of the section by
expanding the scope of the term Republic of the
Philippines to embrace its instrumentalities and agencies.
For expediency, we quote:
(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.
This view does not persuade us. In the first place, the
petitioners 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
subdivisions in Section 234(a).
The terms Republic of the Philippines and National
Government are not interchangeable. The former is
broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code
of 1987 defines as the corporate governmental entity
through which the functions of government are exercised
throughout the Philippines, including, save as the contrary
appears from the context, the various arms through
which political authority is made affective in the
Philippines, whether pertaining to the autonomous
regions, the provincial, city, municipal or barangay
subdivisions or other forms of local government.[27] These
autonomous regions, provincial, city, municipal or
barangay subdivisions are the political subdivisions.[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. 464, otherwise known as The Real
Property Tax Code, which reads:
SEC. 40. Exemptions 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 corporation so exempt
by its 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 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,
especially in light of the general provision on withdrawal
of tax exemption privileges in Section 193 and the special
provision on withdrawal of exemption from payment of
real property taxes in the last paragraph of Section
234.These policy considerations are consistent with the
State policy to ensure autonomy to local
governments[33] 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 these entities to
share in the requirements of 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 petitioners 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, aerodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control
of all equipment necessary for the operation of radio aids
to air navigation, airways communication, the approach
control office, and the area control center shall be
retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation
Office from Mactan without the concurrence of the
Authority. The Authority may assist in the maintenance of
the Air Transportation Office equipment.
The airports referred to are the Lahug Air Port in
Cebu City and the Mactan International Airport in the
Province of Cebu,[36] which belonged to the Republic of
the Philippines, then under the Air Transportation Office
(ATO).[37]
It may be reasonable to assume that the term lands
refer to lands in Cebu City then administered by the
Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real property
taxes. This section involves a transfer of the lands, among
other things, to the petitioner and not just the transfer of
the beneficial use thereof, with the ownership being
retained by the Republic of the Philippines.
This transfer is actually an absolute conveyance of
the ownership thereof because the petitioners authorized
capital stock consists of, inter alia, the value of such real
estate owned and/or administered by the
airports.[38] Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of
the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was
never a taxable person under its Charter. It was only
exempted from the payment of real property taxes. The
grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property
tax.
Finally, even if the petitioner was originally not a
taxable person for purposes of real property tax, in light of
the foregoing disquisitions, it had already become, even
if it be conceded to be an agency or instrumentality of
the Government, a taxable person for such purpose in
view of the withdrawal in the last paragraph of Section
234 of exemptions from the payment of real property
taxes, which, as earlier adverted to, applies to the
petitioner.
Accordingly, the position taken by the petitioner is
untenable. Reliance on Basco vs. Philippine Amusement
and Gaming Corporation[39] is unavailing since it was
decided before the effectivity of the LGC. 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.
WHEREFORE, the instant petition is DENIED. The
challenged decision and order of the Regional Trial Court
of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the
Resolution3 of the Court of Appeals dated March 12, 2001
and July 10, 2001, respectively, finding petitioner National
Power Corporation (NPC) liable to pay franchise tax to
respondent City of Cabanatuan.
Petitioner is a government-owned and controlled
corporation created under Commonwealth Act No. 120,
as amended.4 It is tasked to undertake the "development
of hydroelectric generations of power and the
production of electricity from nuclear, geothermal and
other sources, as well as, the transmission of electric
power on a nationwide basis."5 Concomitant to its
mandated duty, petitioner has, among others, the power
to construct, operate and maintain power plants,
auxiliary plants, power stations and substations for the
purpose of developing hydraulic power and supplying
such power to the inhabitants.6
For many years now, petitioner sells electric power to the
residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of
Ordinance No. 165-92,8 the respondent assessed the
petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the
preceding year.9
Petitioner, whose capital stock was subscribed and paid
wholly by the Philippine Government,10 refused to pay the
tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner
also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes,
charges, duties or fees11 in accordance with sec. 13 of
Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation;
Exemption from all Taxes, Duties, Fees, Imposts
and Other Charges by Government and
Governmental Instrumentalities.- The Corporation
shall be non-profit and shall devote all its return
from its capital investment, as well as excess
revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness
and obligations and in furtherance and effective
implementation of the policy enunciated in
Section one of this Act, the Corporation is hereby
exempt:
(a) From the payment of all taxes, duties, fees,
imposts, charges, costs and service fees in any
court or administrative proceedings in which it
may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities,
municipalities and other government agencies
and instrumentalities;
(b) From all income taxes, franchise taxes and
realty taxes to be paid to the National
Government, its provinces, cities, municipalities
and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes
and advanced sales tax, and wharfage fees on
 import of foreign goods required for its operations
and projects; and
(d) From all taxes, duties, fees, imposts, and all
other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and
other government agencies and
instrumentalities, on all petroleum products used
by the Corporation in the generation,
transmission, utilization, and sale of electric
power."12
The respondent filed a collection suit in the Regional Trial
Court of Cabanatuan City, demanding that petitioner
pay the assessed tax due, plus a surcharge equivalent to
25% of the amount of tax, and 2% monthly
interest.13Respondent alleged that petitioner's exemption
from local taxes has been repealed by section 193 of
Rep. Act No. 7160,14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption
Privileges.- Unless otherwise provided in this
Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether
natural or juridical, including government owned
or controlled corporations, except local water
districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn
upon the effectivity of this Code."
On January 25, 1996, the trial court issued an
Order15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite
the passage of Rep. Act No. 7160 for the following
reasons: (1) Rep. Act No. 6395 is a particular law and it
may not be repealed by Rep. Act No. 7160 which is a
general law; (2) section 193 of Rep. Act No. 7160 is in the
nature of an implied repeal which is not favored; and (3)
local governments have no power to tax instrumentalities
of the national government. Pertinent portion of the
Order reads:
"The question of whether a particular law has
been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may
expressly repeal a law by incorporating therein
repealing provisions which expressly and
specifically cite(s) the particular law or laws, and
portions thereof, that are intended to be
repealed. A declaration in a statute, usually in its
repealing clause, that a particular and specific
law, identified by its number or title is repealed is
an express repeal; all others are implied repeal.
Sec. 193 of R.A. No. 7160 is an implied repealing
clause because it fails to identify the act or acts
that are intended to be repealed. It is a well-
settled rule of statutory construction that repeals
of statutes by implication are not favored. The
presumption is against inconsistency and
repugnancy for the legislative is presumed to
know the existing laws on the subject and not to
have enacted inconsistent or conflicting statutes.
It is also a well-settled rule that, generally, general
law does not repeal a special law unless it clearly
appears that the legislative has intended by the
latter general act to modify or repeal the earlier
special law. Thus, despite the passage of R.A. No.
7160 from which the questioned Ordinance No.
165-92 was based, the tax exemption privileges
of defendant NPC remain.
Another point going against plaintiff in this case is
the ruling of the Supreme Court in the case
of Basco vs. Philippine Amusement and Gaming
Corporation, 197 SCRA 52, where it was held that:
'Local governments have 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. xxx 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 mere local government.'
Like PAGCOR, NPC, being a government owned
and controlled corporation with an original
charter and its shares of stocks owned by the
National Government, is beyond the taxing
power of the Local Government. Corollary to this,
it should be noted here that in the NPC Charter's
declaration of Policy, Congress declared that:
'xxx (2) the total electrification of the Philippines
through the development of power from all
services to meet the needs of industrial
development and dispersal and needs of rural
electrification are primary objectives of the
nations which shall be pursued coordinately and
supported by all instrumentalities and agencies
of the government, including its financial
institutions.' (underscoring supplied). To allow
plaintiff to subject defendant to its tax-ordinance
would be to impede the avowed goal of this
government instrumentality.
Unlike the State, a city or municipality has no
inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter
or other statute. Any grant of taxing power is to
be construed strictly, with doubts resolved
against its existence.
From the existing law and the rulings of the
Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the
defendant."16
On appeal, the Court of Appeals reversed the trial court's
Order17 on the ground that section 193, in relation to
sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.18 It ordered the
petitioner to pay the respondent city government the
following: (a) the sum of P808,606.41 representing the
franchise tax due based on gross receipts for the year
1992, (b) the tax due every year thereafter based in the
gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the
sum of P 10,000.00 as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for
Reconsideration on the Court of Appeal's Decision. This
was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for
reconsideration. Its arguments reiterated therein
that the taxing power of the province under Art.
137 (sic) of the Local Government Code refers
merely to private persons or corporations in
which category it (NPC) does not belong, and
that the LGC (RA 7160) which is a general law
may not impliedly repeal the NPC Charter which
is a special law—finds the answer in Section 193
of the LGC to the effect that '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 xxx are hereby
withdrawn.' The repeal is direct and unequivocal,
not implied.
IN VIEW WHEREOF, the motion for reconsideration
is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following
issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE
TAX AS IT FAILED TO CONSIDER THAT SECTION 137
OF THE LOCAL GOVERNMENT CODE IN RELATION
TO SECTION 131 APPLIES ONLY TO PRIVATE
PERSONS OR CORPORATIONS ENJOYING A
FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT NPC'S EXEMPTION FROM ALL
FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE
AS THE ENACTMENT OF A LATER LEGISLATION,
WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN
NOT CONSIDERING THAT AN EXERCISE OF POLICE
 POWER THROUGH TAX EXEMPTION SHOULD
PREVAIL OVER THE LOCAL GOVERNMENT
CODE."21
It is beyond dispute that the respondent city government
has the authority to issue Ordinance No. 165-92 and
impose an annual tax on "businesses enjoying a
franchise," pursuant to section 151 in relation to section
137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any
exemption granted by any law or other special
law, the province may impose a tax on
businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the
preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax
shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when
the business started to operate, the tax shall be
based on the gross receipts for the preceding
calendar year, or any fraction thereof, as
provided herein." (emphasis supplied)
x x x 254 US 51) and it can be agreed that no
Sec. 151. Scope of Taxing Powers.- Except as
otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the
province or municipality may impose: Provided,
however, That the taxes, fees and charges levied
and collected by highly urbanized and
independent component cities shall accrue to
them and distributed in accordance with the
provisions of this Code.
The rates of taxes that the city may levy may
exceed the maximum rates allowed for the
province or municipality by not more than fifty
percent (50%) except the rates of professional
and amusement taxes."
Petitioner, however, submits that it is not liable to pay an
annual franchise tax to the respondent city government.
It contends that sections 137 and 151 of the LGC in
relation to section 131, limit the taxing power of the
respondent city government to private entities that are
engaged in trade or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a
right or privilege, affected with public interest which is
conferred upon private persons or corporations, under
such terms and conditions as the government and its
political subdivisions may impose in the interest of the
public welfare, security and safety." From the
phraseology of this provision, the petitioner claims that
the word "private" modifies the terms "persons" and
"corporations." Hence, when the LGC uses the term
"franchise," petitioner submits that it should refer
specifically to franchises granted to private natural
persons and to private corporations.23 Ergo, its charter
should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines
"business" as "trade or commercial activity regularly
engaged in as means of livelihood or with a view to
profit." Petitioner claims that it is not engaged in an
activity for profit, in as much as its charter specifically
provides that it is a "non-profit organization." In any case,
petitioner argues that the accumulation of profit is merely
incidental to its operation; all these profits are required by
law to be channeled for expansion and improvement of
its facilities and services.24
Petitioner also alleges that it is an instrumentality of the
National Government,25 and as such, may not be taxed
by the respondent city government. It cites the doctrine
in Basco vs. Philippine Amusement and Gaming
Corporation26where this Court held that local
governments have no power to tax instrumentalities of
the National Government, viz:
"Local governments have no power to tax
instrumentalities of the National Government.
PAGCOR has a dual role, to operate and
regulate gambling casinos. The latter role is
governmental, which places it in the category of
an agency or instrumentality of the Government.
Being an instrumentality of the Government,
PAGCOR should be and actually is exempt from
local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a
mere local government.
'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,
state or political subdivision can regulate
a federal instrumentality in such a way as
to prevent it from consummating its
federal responsibilities, or even seriously
burden it from accomplishment of them.'
(Antieau, Modern Constitutional Law,
Vol. 2, p. 140, italics supplied)
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 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."27
Petitioner contends that section 193 of Rep. Act No. 7160,
withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied
repeal. A special law, its charter cannot be amended or
modified impliedly by the local government code which
is a general law. Consequently, petitioner claims that its
exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction
that repeals of statutes by implication are not
favored and as much as possible, effect must be
given to all enactments of the legislature.
Moreover, it has to be conceded that the
charter of the NPC constitutes a special law.
Republic Act No. 7160, is a general law. It is a
basic rule in statutory construction that the
enactment of a later legislation which is a
general law cannot be construed to have
repealed a special law. Where there is a conflict
between a general law and a special statute,
the special statute should prevail since it evinces
the legislative intent more clearly than the
general statute."28
Finally, petitioner submits that the charter of the NPC,
being a valid exercise of police power, should prevail
over the LGC. It alleges that the power of the local
government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being
the most pervasive, the least limitable and most
demanding of all powers, including the power of
taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without
taxes, the government can neither exist nor endure. A
principal attribute of sovereignty,31 the exercise of taxing
power derives its source from the very existence of the
state whose social contract with its citizens obliges it to
promote public interest and common good. The theory
behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-
being of the people.
In recent years, the increasing social challenges of the
times expanded the scope of state activity, and taxation
has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare
and similar objectives.33 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
charges34 pursuant to Article X, section 5 of the 1987
Constitution, viz:
"Section 5.- Each Local Government unit shall
have the power to create its own sources of
revenue, to levy taxes, fees and charges subject
to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges
shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that
genuine development can be achieved only by
strengthening local autonomy and promoting
decentralization of governance. For a long time, the
country's highly centralized government structure has
bred a culture of dependence among local government
leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on
the part of local government leaders."35 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, viz:
"Section 3. The Congress shall enact a local
government code which shall provide for a more
responsive and accountable local government
structure instituted through a system of
decentralization with effective mechanisms of
recall, initiative, and referendum, allocate
among the different local government units their
powers, responsibilities, and resources, and
provide for the qualifications, election,
appointment and removal, term, salaries, powers
and functions and duties of local officials, and all
other matters relating to the organization and
operation of the local units."
To recall, prior to the enactment of the Rep. Act No.
7160,36 also known as the Local Government Code of
1991 (LGC), various measures have been enacted to
promote local autonomy. These include the Barrio
Charter of 1959,37 the Local Autonomy Act of 1959,38 the
Decentralization Act of 196739 and the Local Government
Code of 1983.40 Despite these initiatives, however, the
shackles of dependence on the national government
remained. Local government units were faced with the
same problems that hamper their capabilities to
participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b)
lack of fiscal control over external sources of income, (c)
limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of
income, and (e) limited supervisory control over
personnel of national line agencies.41
Considered as the most revolutionary piece of legislation
on local autonomy,42 the LGC effectively deals with the
fiscal constraints faced by LGUs. It widens the tax base of
LGUs to include taxes which were prohibited by previous
laws such as the imposition of taxes on forest products,
forest concessionaires, mineral products, mining
operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with
their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum
and maximum tax rates and leaves the determination of
the actual rates to the respective sanggunian.43
One of the most significant provisions of the LGC is the
removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage
of local taxation. Although as a general rule, LGUs
cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities,
this rule now admits an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes,
fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing
Powers of the Local Government Units.- Unless
otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the
following:
x x x
(o) Taxes, fees, or charges of any kind on the
National Government, its agencies and
instrumentalities, and local government units."
(emphasis supplied)
In view of the afore-quoted provision of the LGC, the
doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its
claim no longer applies. To emphasize, the Basco case
was decided prior to the effectivity of the LGC, when no
law empowering the local government units to tax
instrumentalities of the National Government was in
effect. However, as this Court ruled in the case of Mactan
Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that
even instrumentalities or agencies of the government
performing governmental functions may be subject to
tax.46 In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of
government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA,
although an instrumentality of the national government,
was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234
of the LGC, we conclude that as a general rule,
as laid down in section 133, the taxing power of
local governments cannot extend to the levy
of inter alia, 'taxes, fees and charges of any kind
on the national government, its agencies and
instrumentalities, and local government units';
however, pursuant to section 232, provinces,
cities and municipalities in the Metropolitan
Manila Area may impose the real property tax
except on, inter alia, 'real property owned by the
Republic of the Philippines or any of its political
subdivisions except when the beneficial use
thereof has been granted for consideration or
otherwise, to a taxable person as provided in the
item (a) of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of
the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax
in question.
In its general signification, a franchise is a privilege
conferred by government authority, which does not
belong to citizens of the country generally as a matter of
common right.48 In its specific sense, a franchise may refer
to a general or primary franchise, or to a special or
secondary franchise. The former relates to the right to
exist as a corporation, by virtue of duly approved articles
of incorporation, or a charter pursuant to a special law
creating the corporation.49 The right under a primary or
general franchise is vested in the individuals who
compose the corporation and not in the corporation
itself.50 On the other hand, the latter refers to the right or
privileges conferred upon an existing corporation such as
the right to use the streets of a municipality to lay pipes of
tracks, erect poles or string wires.51 The rights under a
secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or
mortgaged under a general power granted to a
corporation to dispose of its property, except such
special or secondary franchises as are charged with a
public use.52
In section 131 (m) of the LGC, Congress unmistakably
defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word
franchise is used in the context of taxation. As commonly
used, a franchise tax is "a tax on the privilege of
transacting business in the state and exercising corporate
franchises granted by the state."53 It is not levied on the
corporation simply for existing as a corporation, upon its
property54 or its income,55 but on its exercise of the rights
or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it
ceased to do business and exercise its franchise.56 It is
within this context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether
the petitioner is covered by the franchise tax in question,
the following requisites should concur: (1) that petitioner
has a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent
city government.
Petitioner fulfills the first requisite. Commonwealth Act No.
120, as amended by Rep. Act No. 7395, constitutes
petitioner's primary and secondary franchises. It serves as
the petitioner's charter, defining its composition,
capitalization, the appointment and the specific duties of
its corporate officers, and its corporate life span.57 As its
secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner the following powers
which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the
development of water power in any part of the
Philippines;
(f) To take water from any public stream, river,
creek, lake, spring or waterfall in the Philippines,
for the purposes specified in this Act; to intercept
and divert the flow of waters from lands of
riparian owners and from persons owning or
interested in waters which are or may be
necessary for said purposes, upon payment of
just compensation therefor; to alter, straighten,
obstruct or increase the flow of water in streams
or water channels intersecting or connecting
therewith or contiguous to its works or any part
thereof: Provided, That just compensation shall
be paid to any person or persons whose property
is, directly or indirectly, adversely affected or
damaged thereby;
(g) To construct, operate and maintain power
plants, auxiliary plants, dams, reservoirs, pipes,
mains, transmission lines, power stations and
substations, and other works for the purpose of
developing hydraulic power from any river,
creek, lake, spring and waterfall in the Philippines
and supplying such power to the inhabitants
thereof; to acquire, construct, install, maintain,
operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and
machinery in plants and/or auxiliary plants for the
production of electric power; to establish,
develop, operate, maintain and administer
power and lighting systems for the transmission
and utilization of its power generation; to sell
electric power in bulk to (1) industrial enterprises,
(2) city, municipal or provincial systems and other
government institutions, (3) electric cooperatives,
(4) franchise holders, and (5) real estate
subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease,
rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary,
convenient or proper to carry out the purposes
for which the Corporation was created:
Provided, That in case a right of way is necessary
for its transmission lines, easement of right of way
shall only be sought: Provided, however, That in
case the property itself shall be acquired by
purchase, the cost thereof shall be the fair
market value at the time of the taking of such
property;
(i) To construct works across, or otherwise, any
stream, watercourse, canal, ditch, flume, street,
avenue, highway or railway of private and public
ownership, as the location of said works may
require xxx;
(j) To exercise the right of eminent domain for the
purpose of this Act in the manner provided by
law for instituting condemnation proceedings by
the national, provincial and municipal
governments;
x x x
(m) To cooperate with, and to coordinate its
operations with those of the National
Electrification Administration and public service
entities;
(n) To exercise complete jurisdiction and control
over watersheds surrounding the reservoirs of
plants and/or projects constructed or proposed
to be constructed by the Corporation. Upon
determination by the Corporation of the areas
required for watersheds for a specific project, the
Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall,
upon written advice by the Corporation,
forthwith surrender jurisdiction to the Corporation
of all areas embraced within the watersheds,
subject to existing private rights, the needs of
waterworks systems, and the requirements of
domestic water supply;
(o) In the prosecution and maintenance of its
projects, the Corporation shall adopt measures
to prevent environmental pollution and promote
the conservation, development and maximum
utilization of natural resources xxx "58
With these powers, petitioner eventually had the
monopoly in the generation and distribution of electricity.
This monopoly was strengthened with the issuance of
Pres. Decree No. 40,59 nationalizing the electric power
industry. Although Exec. Order No. 21560 thereafter
allowed private sector participation in the generation of
electricity, the transmission of electricity remains the
monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating
within the respondent city government's territorial
jurisdiction pursuant to the powers granted to it by
Commonwealth Act No. 120, as amended. From its
operations in the City of Cabanatuan, petitioner realized
a gross income of P107,814,187.96 in 1992. Fulfilling both
requisites, petitioner is, and ought to be, subject of the
franchise tax in question.
Petitioner, however, insists that it is excluded from the
coverage of the franchise tax simply because its stocks
are wholly owned by the National Government, and its
charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity from the
National Government. It can sue and be sued under its
own name,61 and can exercise all the powers of a
corporation under the Corporation Code.62
To be sure, the ownership by the National Government of
its entire capital stock does not necessarily imply that
petitioner is not engaged in business. Section 2 of Pres.
Decree No. 202963 classifies government-owned or
controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary
functions, viz:
"A government-owned or controlled corporation
is a stock or a non-stock corporation, whether
performing governmental or proprietary
functions, which is directly chartered by special
law or if organized under the general corporation
law is owned or controlled by the government
directly, or indirectly through a parent
corporation or subsidiary corporation, to the
 extent of at least a majority of its outstanding
voting capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the
administration of government, and as such, are treated
as absolute obligation on the part of the state to perform
while proprietary functions are those that are undertaken
only by way of advancing the general interest of society,
and are merely optional on the government.64 Included
in the class of GOCCs performing proprietary functions
are "business-like" entities such as the National Steel
Corporation (NSC), the National Development
Corporation (NDC), the Social Security System (SSS), the
Government Service Insurance System (GSIS), and the
National Water Sewerage Authority (NAWASA),65 among
others.
Petitioner was created to "undertake the development of
hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources,
as well as the transmission of electric power on a
nationwide basis."66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly,
these activities do not partake of the sovereign functions
of the government. They are purely private and
commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities,
however, does not distract from the true nature of the
petitioner as a commercial enterprise, in the same
league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply
and irrigation companies, gas, coal or light companies,
power plants, ice plant among others; all of which are
declared by this Court as ministrant or proprietary
functions of government aimed at advancing the
general interest of society.67
A closer reading of its charter reveals that even the
legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's
profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration
of its corporate affairs or necessary for the proper
transaction of its business or to carry out the
purposes for which it was organized, to contract
indebtedness and issue bonds subject to
approval of the President upon recommendation
of the Secretary of Finance;
(o) To exercise such powers and do such things
as may be reasonably necessary to carry out
the business and purposes for which it was
organized, or which, from time to time, may be
declared by the Board to be necessary, useful,
incidental or auxiliary to accomplish the said
purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders
receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the
cap of twelve percent (12%) on profits.69 The main
difference is that the petitioner is mandated to devote
"all its returns from its capital investment, as well as excess
revenues from its operation, for expansion"70 while other
franchise holders have the option to distribute their profits
to its stockholders by declaring dividends. We do not see
why this fact can be a source of difference in tax
treatment. In both instances, the taxable entity is the
corporation, which exercises the franchise, and not the
individual stockholders.
We also do not find merit in the petitioner's contention
that its tax exemptions under its charter subsist despite the
passage of the LGC.
As a rule, tax exemptions are construed strongly against
the claimant. Exemptions must be shown to exist clearly
and categorically, and supported by clear legal
provisions.71 In the case at bar, the petitioner's sole refuge
is section 13 of Rep. Act No. 6395 exempting from,
among others, "all income taxes, franchise taxes and
realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government
agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the
sweeping tax privileges previously enjoyed by private and
public corporations. Contrary to the contention of
petitioner, section 193 of the LGC is an express, albeit
general, repeal of all statutes granting tax exemptions
from local taxes.72 It reads:
"Sec. 193. Withdrawal of Tax Exemption
Privileges.- Unless otherwise provided in this
Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether
natural or juridical, including government-owned
or controlled corporations, except local water
districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn
upon the effectivity of this Code." (emphases
supplied)
It is a basic precept of statutory construction that the
express mention of one person, thing, act, or
consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius.73 Not
being a local water district, a cooperative registered
under R.A. No. 6938, or a non-stock and non-profit
hospital or educational institution, petitioner clearly does
not belong to the exception. It is therefore incumbent
upon the petitioner to point to some provisions of the LGC
that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the
LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or
other special law." This particular provision of the LGC
does not admit any exception. In City Government of San
Pablo, Laguna v. Reyes,74 MERALCO's exemption from the
payment of franchise taxes was brought as an issue
before this Court. The same issue was involved in the
subsequent case of Manila Electric Company v. Province
of Laguna.75 Ruling in favor of the local government in
both instances, we ruled that the franchise tax in question
is imposable despite any exemption enjoyed by
MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on
provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO's tax
exemption has been withdrawn. The explicit
language of section 137 which authorizes the
province to impose franchise tax
'notwithstanding any exemption granted by any
law or other special law' is all-encompassing and
clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant
tax exemption privileges. By stating that unless
otherwise provided in this Code, tax exemptions
or incentives granted to or presently enjoyed by
all persons, whether natural or juridical, including
government-owned or controlled corporations
except (1) local water districts, (2) cooperatives
duly registered under R.A. 6938, (3) non-stock
and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of
this code, the obvious import is to limit the
exemptions to the three enumerated entities. It is
a basic precept of statutory construction that the
express mention of one person, thing, act, or
consequence excludes all others as expressed in
the familiar maxim expressio unius est exclusio
alterius. In the absence of any provision of the
Code to the contrary, and we find no other
provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing
law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the
LGC, we conclude that under the LGC the local
government unit may now impose a local tax at
a rate not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar
based on the incoming receipts realized within its
territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing
law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193
categorically withdrawing such exemption
subject only to the exceptions enumerated.
Since it would be not only tedious and
impractical to attempt to enumerate all the
existing statutes providing for special tax
 exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal
language could have been used."76(emphases
supplied).
It is worth mentioning that section 192 of the LGC
empowers the LGUs, through ordinances duly approved,
to grant tax exemptions, initiatives or reliefs.77 But in
enacting section 37 of Ordinance No. 165-92 which
imposes an annual franchise tax "notwithstanding any
exemption granted by law or other special law," the
respondent city government clearly did not intend to
exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective
instrument to raise needed revenues to finance and
support myriad activities of the local government units for
the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court
observed in the Mactan case, "the original reasons for the
withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all
other units of government were that such privilege
resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises."78 With the
added burden of devolution, it is even more imperative
for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or
other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the
assailed Decision and Resolution of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, are
hereby AFFIRMED.
SO ORDERED.
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR
OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino International Airport (NAIA)
Complex in Parañaque City under Executive Order No.
903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter").
Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently,
Executive Order Nos. 9091 and 2982 amended the MIAA
Charter.
As operator of the international airport, MIAA administers
the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the
runways and buildings ("Airport Lands and Buildings") then
under the Bureau of Air Transportation.4 The MIAA Charter
further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other
mode unless specifically approved by the President of
the Philippines.5
On 21 March 1997, the Office of the Government
Corporate Counsel (OGCC) issued Opinion No. 061. The
OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to
MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay
the real estate tax imposed by the City. MIAA then paid
some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real
Estate Tax Delinquency from the City of Parañaque for
the taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:
TAX DECLARATION TAXABLE YEAR TAX DUE
E-016-01370 1992-2001 19,558,160.00
E-016-01374 1992-2001 111,689,424.90
E-016-01375 1992-2001 20,276,058.00
E-016-01376 1992-2001 58,144,028.00
E-016-01377 1992-2001 18,134,614.65
E-016-01378 1992-2001 111,107,950.40
E-016-01379 1992-2001 4,322,340.00
E-016-01380 1992-2001 7,776,436.00
*E-016-013-85 1998-2001 6,444,810.00
*E-016-01387 1998-2001 34,876,800.00
*E-016-01396 1998-2001 75,240.00
GRAND TOTAL P392,435,861.95
1992-1997 RPT was paid on Dec. 24, 1997 as per
O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City
Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency. MIAA thus sought a
clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147
clarifying OGCC Opinion No. 061. The OGCC pointed out
that Section 206 of the Local Government Code requires
persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the
MIAA Charter is the proof that MIAA is exempt from real
estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals
an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining
order. The petition sought to restrain the City of
Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands
and Buildings. The petition was docketed as CA-G.R. SP
No. 66878.
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
PENALTY order (TRO)TOTAL
effective immediately. The Court
ordered respondents to cease and desist from selling at
public auction the Airport
11,201,083.20 Lands and Buildings.
30,789,243.20
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 follows:
SEC. 2. General Terms Defined. – x 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. (Emphasis supplied)
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. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the
Authority to be contributed by the National
Government shall be increased from Two and
One-half Billion (P2,500,000,000.00) Pesos to Ten
Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport
facilities, runways and equipment and such other
properties, movable and immovable[,] which
may be contributed by the National Government
or transferred by it from any of its agencies, the
valuation of which shall be determined jointly
with the Department of Budget and
Management and the Commission on Audit on
the date of such contribution or transfer after
making due allowances for depreciation and
other deductions taking into account the loans
and other liabilities of the Authority at the time of
the takeover of the assets and other properties;
(b) That the amount of P605 million as of
December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the
National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for
in Section 11 of E. O. No. 903 as amended, shall
be converted into the equity of the National
Government in the Authority. Thereafter, the
Government contribution to the capital of the
Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital
stock that is divided into shares.
Section 3 of the Corporation Code10 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.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
domain,12 police authority13 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
instrumentalitiesand 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 private constructions.24 (Emphasis
supplied)
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the
subject of an auction sale.25
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 encumber26 the Airport Lands and
Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law
governing the classification and disposition of lands of the
public domain other than timber and mineral
lands,"27 provide:
SECTION 83. Upon the recommendation of the
Secretary of Agriculture and Natural Resources,
the President may designate by proclamation
any tract or tracts of land of the public domain
as reservations for the use of the Republic of the
Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for
quasi-public uses or purposes when the public
interest requires it, including reservations for
highways, rights of way for railroads, hydraulic
power sites, irrigation systems, communal
pastures or lequas communales, public parks,
public quarries, public fishponds, working men's
village and other improvements for the public
benefit.
SECTION 88. The tract or tracts of land reserved
under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other
disposition until again declared alienable under
the provisions of this Act or by proclamation of
the President. (Emphasis and underscoring
supplied)
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;
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 instrumentalitiesx 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,31Laguna Lake
Development Authority,32 Fisheries Development
Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro
Port Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local
governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not
distinguish between national government
instrumentalities with or without juridical personalities.
Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government
instrumentality under Section 133(o) of the Local
Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from
imposing any kind of tax on the national government, its
agencies and instrumentalities.
Section 133 of the Local Government Code starts with the
saving clause "[u]nless otherwise provided in this Code."
This means that unless the Local Government Code
grants an express authorization, local governments have
no power to tax the national government, its agencies
and instrumentalities. Clearly, the rule is local
governments have no power to tax the national
government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the
national government, its agencies and instrumentalities
only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to
the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government
Code 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)
Under Section 234(a), real property owned by the
Republic is exempt from real estate tax. The exception to
this exemption is when the government gives the
beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the
only instance when the national government, its
agencies and instrumentalities are subject to any kind of
tax by local governments. The exception to the
exemption applies only to real estate tax and not to any
other tax. The justification for the exception to the
exemption is that the real property, although owned by
the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable
person.
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 Limitations on
the Taxing Powers of Local Government Units." Section
133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to
tax. Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of
tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the
taxing power than this.
Since Section 133 prescribes the "common limitations" on
the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning
and purpose, the "common limitations" on the taxing
power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing
power in Section 133, then local governments can
impose any kind of tax on the national government, its
agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national
government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception
— which is an exception to the exemption of the
Republic from real estate tax imposed by local
governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects
real property owned by the Republic, whether titled in
the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of
such property is given to a taxable entity.
The minority also claims that the definition in the
Administrative Code of the phrase "government-owned
or controlled corporation" is not controlling. The minority
points out that Section 2 of the Introductory Provisions of
the Administrative Code admits that its definitions are not
controlling when it provides:
SEC. 2. General Terms Defined. — Unless the
specific words of the text, or the context as a
whole, or a particular statute, shall require a
different meaning:
xxxx
The minority then concludes that reliance on the
Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2
of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the
Administrative Code. However, this does not
automatically mean that the definition in the
Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code
clearly states that "unless the specific words x x x of a
particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall
apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-
owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the
Administrative Code prevails.
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
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.
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 Airport Lands and Buildings of the
Manila International Airport Authority EXEMPT from the
real estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments,
including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the
Airport Lands and Buildings of the Manila International
Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale,
and all its effects, of the Airport Lands and Buildings of the
Manila International Airport Authority.
No costs.
SO ORDERED.
k. Due Process, Sec 1. Art. III
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL
MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial
Fiscal Bonifacio R Matol and Assistant Solicitor General
Conrado T. Limcaoco & Solicitor Enrique M. Reyes for
appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First
Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6,
1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under
the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola
Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of
First Instance of Leyte for that court to declare Section 2
of Republic Act No. 2264.1 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, series of 1962, of the municipality of Tanauan,
Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of
Facts, the material portions of which state that, first, both
Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed
therein are practically the same, and second, that on
January 17, 1963, the acting Municipal Treasurer of
Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter
of the provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which
was approved on September 25, 1962, levies and collects
"from soft drinks producers and manufacturers a tai of
one-sixteenth (1/16) of a centavo for every bottle of soft
drink corked." 2 For the purpose of computing the taxes
due, the person, firm, company or corporation producing
soft drinks shall submit to the Municipal Treasurer a
monthly report, of the total number of bottles produced
and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which
was approved on October 28, 1962, 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." 4 For the purpose of computing the
taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to
the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the
month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is
denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte
rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act
No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due
under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling
Company appealed to the Court of Appeals, which, in
turn, elevated the case to Us pursuant to Section 31 of
the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264
an undue delegation of power,
confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27
constitute double taxation and impose
percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27
unjust and unfair?
1. 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. 6 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. 7 This is sanctioned by immemorial practice. 8 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. 9 Under
the New Constitution, local governments are granted the
autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides:
"Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to
such limitations as may be provided by law." Withal, it
cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power
of local taxation.
The plenary nature of the taxing power thus delegated,
contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by
itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to
impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has
not deemed wise to tax for more general purposes. 10 This
is not to say though that the constitutional injunction
against deprivation of property without due process of
law may be passed over under the guise of the taxing
power, except when the taking of the property is in the
lawful exercise of the taxing power, as when (1) the tax is
for a public purpose; (2) the rule on uniformity of taxation
is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax;
and (4) in the assessment and collection of certain kinds
of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax
imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes. But, a
tax does not violate the due process clause, as applied
to a particular taxpayer, although the purpose of the tax
will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised
should be determined by judicial inquiry, and a notice
and hearing as to the amount of the tax and the manner
in which it shall be apportioned are generally not
necessary to due process of law. 12
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. 13 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, since We have not adopted as
part thereof the injunction against double taxation found
in the Constitution of the United States and some states of
the Union.14 Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the
same governmental entity 15 or by the same jurisdiction
for the same purpose, 16 but not in a case where one tax
is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23
and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose
practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally
enforceable. This is not so. As earlier quoted, Ordinance
No. 23, which was approved on September 25, 1962,
levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo
for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that
the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the
Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo
for every bottle corked; in Ordinance No. 27, it is one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus clear: it
was intended as a plain substitute for the prior Ordinance
No. 23, and operates as a repeal of the latter, even
without words to that effect. 18 Plaintiff-appellant in its
brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even
the stipulation of facts confirms the fact that the Acting
Municipal Treasurer of Tanauan, Leyte sought t6 compel
compliance by the plaintiff-appellant of the provisions of
said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance
No. 27, series of 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals
Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining
Ordinance No. 27 imposes a percentage or a specific
tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything,
accepting those which are mentioned therein." As long
as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of
the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the
prohibition against municipalities and municipal districts
to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject
to specific tax except gasoline, under the provisions of
the National Internal Revenue Code." For purposes of this
particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and
the volume of sale of the taxpayer imposes a sales tax
and is null and void for being outside the power of the
municipality to enact. 20 But, the imposition of "a tax of
one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does 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.21
Nor can the tax levied be treated as a specific tax.
Specific taxes are those imposed on specified articles,
such as distilled spirits, wines, fermented liquors, products
of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal,
bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-
forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1-½ centavos per
case, 23 cannot be considered unjust and unfair. 24 an
increase in the tax alone would not support the claim
that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line
with the constutional policy of according the widest
possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the
amount is so excessive as to be prohibitive, courts will go
slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the
law to further strengthen local autonomy were to be
realized. 28
Finally, the municipal license tax of P1,000.00 per corking
machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners
imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under
Ordinance No. 54, series of 1964, as amended by
Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the
validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes
upon persons engaged in any business or occupation but
also to levy for public purposes, just and uniform taxes.
The ordinance in question (Ordinance No. 27) comes
within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of
Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of
Tanauan, Leyte, series of 1962, re-pealing Municipal
Ordinance No. 23, same series, is hereby declared of
valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
G.R. No. 119761 August 29, 1996
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS
and FORTUNE TOBACCO CORPORATION, respondents.
VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the
decision, dated 31 March 1995, of respondent Court of
Appeals 1 affirming the 10th August 1994 decision and the
11th October 1994 resolution of the Court of Tax
Appeals 2 ("CTA") in C.T.A. Case No. 5015, entitled
"Fortune Tobacco Corporation vs. Liwayway Vinzons-
Chato in her capacity as Commissioner of Internal
Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is
engaged in the manufacture of different brands of
cigarettes.
On various dates, the Philippine Patent Office issued to
the corporation separate certificates of trademark
registration over "Champion," "Hope," and "More"
cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr.,
to Deputy Minister Ramon Diaz of the Presidential
Commission on Good Government, "the initial position of
the Commission was to classify 'Champion,' 'Hope,' and
'More' as foreign brands since they were listed in the
World Tobacco Directory as belonging to foreign
companies. However, Fortune Tobacco changed the
names of 'Hope' to 'Hope Luxury' and 'More' to
'Premium More,' thereby removing the said brands from
the foreign brand category. Proof was also submitted to
the Bureau (of Internal Revenue ['BIR']) that 'Champion'
was an original Fortune Tobacco Corporation register
and therefore a local brand." 3 Ad Valorem taxes were
imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA")
No. 7654, 6 was enacted, on 10 June 1993, by the
legislature and signed into law, on 14 June 1993,
by the President of the Philippines. The new law
became effective on 03 July 1993. It amended
Section 142(c)(1) of the National Internal
Revenue Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes. —
xxx xxx xxx
(c) Cigarettes packed by machine. —
There shall be levied, assessed and
collected on cigarettes packed by
machine a tax at the rates prescribed
below based on the constructive
manufacturer's wholesale price or the
actual manufacturer's wholesale price,
whichever is higher:
(1) On locally manufactured cigarettes
which are currently classified and taxed
at fifty-five percent (55%) or the
exportation of which is not authorized by
contract or otherwise, fifty-five (55%)
provided that the minimum tax shall not
be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured
cigarettes, forty-five percent
(45%) provided that the minimum tax
shall not be less than Three Pesos (P3.00)
per pack.
xxx xxx xxx
When the registered manufacturer's
wholesale price or the actual
manufacturer's wholesale price
whichever is higher of existing brands of
cigarettes, including the amounts
intended to cover the taxes, of
cigarettes packed in twenties does not
exceed Four Pesos and eighty centavos
(P4.80) per pack, the rate shall be twenty
percent (20%). 7 (Emphasis supplied)
About a month after the enactment and two (2)
days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"),
was issued by the BIR the full text of which
expressed:
REPUBLIKA NG PILIPINAS registered in the said directory as being
KAGAWARAN NG PANANALAPI manufactured by (a) Commonwealth
KAWANIHAN NG RENTAS INTERNAS Bangladesh; (b) Sudan, Brazil; (c) Japan
Tobacco, Japan; (d) Fortune Tobacco,
J
Philippines; (e) Haggar, Sudan; andu (f)
Tabac Reunies, Switzerland. l
Since there is no showing who among y
the above-listed manufacturers of1 the
cigarettes bearing the said brands , are
the real owner/s thereof, then it follows
1
that the same shall be considered9
foreign brand for purposes of 9
determining the ad valorem tax pursuant
3
REVENUE MEMORANDUM CIRCULAR NO. to Section 142 of the National Internal
37-93 Revenue Code. As held in BIR Ruling No.
410-88, dated August 24, 1988, "in cases
SUBJECT: Reclassification of Cigarettes where it cannot be established or there is
Subject to Excise Tax dearth of evidence as to whether a
TO: All Internal Revenue Officers and brand is foreign or not, resort to the
Others Concerned. World Tobacco Directory should be
In view of the issues raised on whether made."
"HOPE," "MORE" and "CHAMPION" In view of the foregoing, the aforesaid
cigarettes which are locally brands of cigarettes, viz: "HOPE," "MORE"
manufactured are appropriately and "CHAMPION" being manufactured
considered as locally manufactured by Fortune Tobacco Corporation are
cigarettes bearing a foreign brand, this hereby considered locally manufactured
Office is compelled to review the cigarettes bearing a foreign brand
previous rulings on the matter. subject to the 55% ad valorem tax on
Section 142 (c)(1) National Internal cigarettes.
Revenue Code, as amended by R.A. No. Any ruling inconsistent herewith is
6956, provides: revoked or modified accordingly.
On locally
manufactured
cigarettes bearing a
foreign brand, fifty-five
percent (55%) Provided,
That this rate shall apply
regardless of whether or
not the right to use or
title to the foreign brand
was sold or transferred
by its owner to the local
manufacturer.
Whenever it has to be
determined whether or
not a cigarette bears a
foreign brand, the listing
of brands manufactured
in foreign countries
appearing in the current
World Tobacco
Directory shall govern.
Under the foregoing, the test for
imposition of the 55% ad valorem tax on
cigarettes is that the locally
manufactured cigarettes bear a foreign
brand regardless of whether or not the
right to use or title to the foreign brand
was sold or transferred by its owner to
the local manufacturer. The brand must
be originally owned by a foreign
manufacturer or producer. If ownership
of the cigarette brand is, however, not
definitely determinable, ". . . the listing of
brands manufactured in foreign
countries appearing in the current World
Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco
Directory as being manufactured by (a)
Japan Tobacco, Japan and (b) Fortune On 02 July 1993, at about 17:50 hours, BIR Deputy
Tobacco, Philippines. "MORE" is listed in Commissioner Victor A. Deoferio, Jr., sent via
the said directory as being telefax a copy of RMC 37-93 to Fortune Tobacco
manufactured by: (a) Fills de Julia Reig, but it was addressed to no one in particular. On
Andorra; (b) Rothmans, Australia; (c) RJR- 15 July 1993, Fortune Tobacco received, by
Macdonald Canada; (d) Rettig- ordinary mail, a certified xerox copy of RMC 37-
Strenberg, Finland; (e) Karellas, Greece; 93.
(f) R.J. Reynolds, Malaysia; (g) Rothmans, In a letter, dated 19 July 1993, addressed to the
New Zealand; (h) Fortune Tobacco, appellate division of the BIR, Fortune Tobacco
Philippines; (i) R.J. Reynolds, Puerto Rico; requested for a review, reconsideration and
(j) R.J. Reynolds, Spain; (k) Tabacalera, recall of RMC 37-93. The request was denied on
Spain; (l) R.J. Reynolds, Switzerland; and 29 July 1993. The following day, or on 30 July
(m) R.J. Reynolds, USA. "Champion" is 1993, the CIR assessed Fortune Tobacco for ad
valorem tax deficiency amounting to
P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a
petition for review with the CTA. 8
On 10 August 1994, the CTA upheld the position
of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum
Circular No. 37-93 reclassifying the
brands of cigarettes, viz: "HOPE," "MORE"
and "CHAMPION" being manufactured
by Fortune Tobacco Corporation as
locally manufactured cigarettes bearing
a foreign brand subject to the 55% ad
valorem tax on cigarettes is found to be
defective, invalid and unenforceable,
such that when R.A. No. 7654 took effect
on July 3, 1993, the brands in question
were not CURRENTLY CLASSIFIED AND
TAXED at 55% pursuant to Section
1142(c)(1) of the Tax Code, as amended
by R.A. No. 7654 and were therefore still
classified as other locally manufactured
cigarettes and taxed at 45% or 20% as
the case may be.
Accordingly, the deficiency ad
valorem tax assessment issued on
petitioner Fortune Tobacco Corporation
in the amount of P9,598,334.00, exclusive
of surcharge and interest, is hereby
canceled for lack of legal basis.
Respondent Commissioner of Internal
Revenue is hereby enjoined from
collecting the deficiency tax assessment
made and issued on petitioner in relation
to the implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA
dismissed for lack of merit the motion for
reconsideration.
The CIR forthwith filed a petition for review with
the Court of Appeals, questioning the CTA's 10th
August 1994 decision and 11th October 1994
resolution. On 31 March 1993, the appellate
court's Special Thirteenth Division affirmed in all
respects the assailed decision and resolution.
In the instant petition, the Solicitor General
argues: That —
I. RMC 37-93 IS A RULING
OR OPINION OF THE
COMMISSIONER OF
INTERNAL REVENUE
INTERPRETING THE
PROVISIONS OF THE TAX
CODE.
II. BEING AN
INTERPRETATIVE RULING
OR OPINION, THE
PUBLICATION OF RMC
37-93, FILING OF COPIES
THEREOF WITH THE UP
LAW CENTER AND PRIOR
HEARING ARE NOT
NECESSARY TO ITS
VALIDITY, EFFECTIVITY
AND ENFORCEABILITY.
III. PRIVATE RESPONDENT
IS DEEMED TO HAVE
BEEN NOTIFIED OR RMC
37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT
DISCRIMINATORY SINCE
IT APPLIES TO ALL
LOCALLY
MANUFACTURED
CIGARETTES SIMILARLY
SITUATED AS "HOPE,"
"MORE" AND
"CHAMPION"
CIGARETTES.
V. PETITIONER WAS NOT
LEGALLY PROSCRIBED
FROM RECLASSIFYING
"HOPE," "MORE" AND
"CHAMPION"
CIGARETTES BEFORE THE
EFFECTIVITY OF R.A. NO.
7654.
VI. SINCE RMC 37-93 IS
AN INTERPRETATIVE RULE,
THE INQUIRY IS NOT INTO
ITS VALIDITY, EFFECTIVITY
OR ENFORCEABILITY BUT
INTO ITS CORRECTNESS
OR PROPRIETY; RMC 37-
93 IS CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely
an interpretative ruling of the BIR which can thus
become effective without any prior need for
notice and hearing, nor publication, and that its
issuance is not discriminatory since it would apply
under similar circumstances to all locally
manufactured cigarettes.
The Court must sustain both the appellate court
and the tax court.
Petitioner stresses on the wide and ample
authority of the BIR in the issuance of rulings for
the effective implementation of the provisions of
the National Internal Revenue Code. Let it be
made clear that such authority of the
Commissioner is not here doubted. Like any other
government agency, however, the CIR may not
disregard legal requirements or applicable
principles in the exercise of its quasi-legislative
powers.
Let us first distinguish between two kinds of
administrative issuances — a legislative rule and
an interpretative rule.
In Misamis Oriental Association of Coco Traders,
Inc., vs. Department of Finance Secretary, 11 the
Court expressed:
. . . a legislative rule is in the nature of
subordinate legislation, designed to
implement a primary legislation by
providing the details thereof . In the
same way that laws must have the
benefit of public hearing, it is generally
required that before a legislative rule is
adopted there must be hearing. In this
connection, the Administrative Code of
1987 provides:
Public Participation. — If not otherwise
required by law, an agency shall, as far
as practicable, publish or circulate
notices of proposed rules and afford
interested parties the opportunity to
submit their views prior to the adoption
of any rule.
(2) In the fixing of rates, no rule or final
order shall be valid unless the proposed
rates shall have been published in a
newspaper of general circulation at least
two (2) weeks before the first hearing
thereon.
(3) In case of opposition, the rules on
contested cases shall be observed.
In addition such rule must be published.
On the other hand, interpretative rules
are designed to provide guidelines to
the law which the administrative agency
is in charge of enforcing. 12
It should be understandable that when an
administrative rule is merely interpretative in
nature, its applicability needs nothing further
than its bare issuance for it gives no real
consequence more than what the law itself has
already prescribed. When, upon the other hand,
the administrative rule goes beyond merely
providing for the means that can facilitate or
render least cumbersome the implementation of
the law but substantially adds to or increases the provides, the aforesaid
burden of those governed, it behooves the internal revenue tax
agency to accord at least to those directly issuances shall not begin
affected a chance to be heard, and thereafter to be operative until
to be duly informed, before that new issuance is after due notice thereof
given the force and effect of law. may be fairly presumed.
A reading of RMC 37-93, particularly considering Due notice of the said
the circumstances under which it has been issuances may be fairly
issued, convinces us that the circular cannot be presumed only after the
viewed simply as a corrective measure (revoking following procedures
in the process the previous holdings of past have been taken;
Commissioners) or merely as construing Section xxx xxx xxx
142(c)(1) of the NIRC, as amended, but has, in
fact and most importantly, been made in order (5) Strict compliance
to place "Hope Luxury," "Premium More" and with the foregoing
"Champion" within the classification of locally procedures is
manufactured cigarettes bearing foreign brands enjoined. 13
and to thereby have them covered by RA 7654. Nothing on record could tell us that it was either
Specifically, the new law would have its impossible or impracticable for the BIR to observe
amendatory provisions applied to locally and comply with the above requirements before
manufactured cigarettes which at the time of its giving effect to its questioned circular.
effectivity were not so classified as bearing Not insignificantly, RMC 37-93 might have likewise
foreign brands. Prior to the issuance of the infringed on uniformity of taxation.
questioned circular, "Hope Luxury," "Premium
More," and "Champion" cigarettes were in the Article VI, Section 28, paragraph 1, of the 1987
category of locally manufactured Constitution mandates taxation to be uniform
cigarettes not bearing foreign brand subject to and equitable. Uniformity requires that all
45% ad valorem tax. Hence, without RMC 37-93, subjects or objects of taxation, similarly situated,
the enactment of RA 7654, would have had no are to be treated alike or put on equal footing
new tax rate consequence on private both in privileges and liabilities. 14 Thus, all taxable
respondent's products. Evidently, in order to articles or kinds of property of the same class
place "Hope Luxury," "Premium More," and must be taxed at the same rate 15 and the tax
"Champion" cigarettes within the scope of the must operate with the same force and effect in
amendatory law and subject them to an every place where the subject may be found.
increased tax rate, the now disputed RMC 37-93 Apparently, RMC 37-93 would only apply to
had to be issued. In so doing, the BIR not simply "Hope Luxury," "Premium More" and "Champion"
intrepreted the law; verily, it legislated under its cigarettes and, unless petitioner would be willing
quasi-legislative authority. The due observance of to concede to the submission of private
the requirements of notice, of hearing, and of respondent that the circular should, as in fact my
publication should not have been then ignored. esteemed colleague Mr. Justice Bellosillo so
Indeed, the BIR itself, in its RMC 10-86, has expresses in his separate opinion, be
observed and provided: considered adjudicatory in nature and thus
violative of due process following the Ang
RMC NO. 10-86 Tibay 16 doctrine, the measure suffers from lack of
Effectivity of Internal Revenue Rules and uniformity of taxation. In its decision, the CTA has
Regulations keenly noted that other cigarettes bearing
It has been observed that one of the foreign brands have not been similarly included
problem areas bearing on compliance within the scope of the circular, such as —
with Internal Revenue Tax rules and 1. Locally manufactured by ALHAMBRA
regulations is lack or insufficiency of due INDUSTRIES, INC.
notice to the tax paying public. Unless
there is due notice, due compliance (a) "PALM TREE" is listed
therewith may not be reasonably as manufactured by
expected. And most importantly, their office of Monopoly,
strict enforcement could possibly suffer Korea (Exhibit "R")
from legal infirmity in the light of the 2. Locally manufactured by LA SUERTE
constitutional provision on "due process CIGAR and CIGARETTE COMPANY
of law" and the essence of the Civil (a) "GOLDEN KEY" is
Code provision concerning effectivity of listed being
laws, whereby due notice is a basic manufactured by United
requirement (Sec. 1, Art. IV, Constitution; Tobacco, Pakistan
Art. 2, New Civil Code). (Exhibit "S")
In order that there shall be a just (b) "CANNON" is listed as
enforcement of rules and regulations, in being manufactured by
conformity with the basic element of due Alpha Tobacco,
process, the following procedures are Bangladesh (Exhibit "T")
hereby prescribed for the drafting,
issuance and implementation of the said 3. Locally manufactured by LA PERLA
Revenue Tax Issuances: INDUSTRIES, INC.

(1) This Circular shall (a) "WHITE HORSE" is

apply only to (a) listed as being
Revenue Regulations; manufactured by
(b) Revenue Audit Rothman's, Malaysia
Memorandum Orders; (Exhibit "U")
and (c) Revenue (b) "RIGHT" is listed as
Memorandum Circulars being manufactured by
and Revenue SVENSKA, Tobaks,
Memorandum Orders Sweden (Exhibit "V-1")
bearing on internal 4. Locally manufactured by MIGHTY
revenue tax rules and CORPORATION
regulations.
(a) "WHITE HORSE" is
(2) Except when the law listed as being
otherwise expressly manufactured by
 Rothman's, Malaysia
(Exhibit "U-1")
5. Locally manufactured by STERLING
TOBACCO CORPORATION
(a) "UNION" is listed as
being manufactured by
Sumatra Tobacco,
Indonesia and Brown
and Williamson, USA
(Exhibit "U-3")
(b) "WINNER" is listed as
being manufactured by
Alpha Tobacco,
Bangladesh; Nangyang,
Hongkong; Joo Lan,
Malaysia; Pakistan
Tobacco Co., Pakistan;
Premier Tobacco,
Pakistan and Haggar,
Sudan (Exhibit "U-4"). 17
The court quoted at length from the transcript of
the hearing conducted on 10 August 1993 by the
Committee on Ways and Means of the House of
Representatives; viz:
THE CHAIRMAN. So you have specific
information on Fortune Tobacco alone.
You don't have specific information on
other tobacco manufacturers. Now,
there are other brands which are similarly
situated. They are locally manufactured
bearing foreign brands. And may I
enumerate to you all these brands,
which are also listed in the World
Tobacco Directory . . . Why were these
brand not reclassified at 55 if your want
to give a level playing filed to foreign
manufacturers?
MS. CHATO. Mr. Chairman, in fact, we
have already prepared a Revenue
Memorandum Circular that was
supposed to come after RMC No. 37-93
which have really named specifically the
list of locally manufactured cigarettes
bearing a foreign brand for excise tax
purposes and includes all these brands
that you mentioned at 55
percent except that at that time, when
we had to come up with this, we were
forced to study the brands of Hope,
More and Champion because we were
given documents that would indicate
the that these brands were actually
being claimed or patented in other
countries because we went by Revenue
Memorandum Circular 1488 and we
wanted to give some rationality to how it
came about but we couldn't find the
rationale there. And we really found
based on our own interpretation that the
only test that is given by that existing law
would be registration in the World
Tobacco Directory. So we came out with
this proposed revenue memorandum
circular which we forwarded to the
Secretary of Finance except that at that
point in time, we went by the Republic
Act 7654 in Section 1 which amended
Section 142, C-1, it said, that on locally
manufactured cigarettes which are
currently classified and taxed at 55
percent. So we were saying that when
this law took effect in July 3 and if we are
going to come up with this revenue
circular thereafter, then I think our action
would really be subject to question but
we feel that . . . Memorandum Circular
Number 37-93 would really cover even
similarly situated brands. And in fact, it
was really because of the study, the
short time that we were given to study
the matter that we could not include all
the rest of the other brands that would
have been really classified as foreign
brand if we went by the law itself. I am
sure that by the reading of the law, you
would without that ruling by
Commissioner Tan they would really
have been included in the definition or in
the classification of foregoing brands.
These brands that you referred to or just
read to us and in fact just for your
information, we really came out with a
proposed revenue memorandum
circular for those brands. (Emphasis
supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-
3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you
now that it cannot and in fact that is why
I felt that we . . . I wanted to come up
with a more extensive coverage and
precisely why I asked that revenue
memorandum circular that would cover
all those similarly situated would be
prepared but because of the lack of
time and I came out with a study of RA
7654, it would not have been possible to
really come up with the reclassification
or the proper classification of all brands
that are listed there. . . (emphasis
supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that
there are similarly situated?
MS. CHATO. That is precisely why, Sir,
after we have come up with this
Revenue Memorandum Circular No. 37-
93, the other brands came about the
would have also clarified RMC 37-93 by I
was saying really because of the fact
that I was just recently appointed and
the lack of time, the period that was
allotted to us to come up with the right
actions on the matter, we were really
caught by the July 3 deadline. But in
fact, We have already prepared a
revenue memorandum circular clarifying
with the other . . . does not yet, would
have been a list of locally manufactured
cigarettes bearing a foreign brand for
excise tax purposes which would include
all the other brands that were mentioned
by the Honorable Chairman. (Emphasis
supplied) (Exhibit "FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily
promulgated RMC 37-93 has fallen short of a valid and
effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals,
sustaining that of the Court of Tax Appeals, is AFFIRMED.
No costs.
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-
visthose 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. 8The 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 attainable." 27 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 case of the
gross income taxation embodied in 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,
WHEREFORE, the petition is dismissed. Costs against
petitioner.
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO,
in their capacities as appointed and Acting Members of
the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in
their capacities as appointed and Acting Members of the
BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of
Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for
petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the
June 10, 1977 decision of the Central Board of Assessment
Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes,
Edmundo Reyes, et al. v. Board of Assessment Appeals of
Manila and City Assessor of Manila" which affirmed the
March 29, 1976 decision of the Board of Tax Assessment
Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
"Jose Reyes, et al. v. City Assessor of Manila" and
"Edmundo Reyes and Milagros Reyes v. City Assessor of
Manila" upholding the classification and assessments
made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are
owners of parcels of land situated in Tondo and Sta. Cruz
Districts, City of Manila, which are leased and entirely
occupied as dwelling sites by tenants. Said tenants were
paying monthly rentals not exceeding three hundred
pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units or of lands on which
another's dwelling is located, where such rentals do not
exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of
Article 1673 of the Civil Code for two years from its
effectivity thereby disallowing the ejectment of lessees
upon the expiration of the usual legal period of lease. On
October 12, 1972, Presidential Decree No. 20 amended
R.A. No. 6359 by making absolute the prohibition to
increase monthly rentals below P300.00 and by
indefinitely suspending the aforementioned provision of
the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-
classified and reassessed the value of the subject
properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as
expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals.
They averred that the reassessments made were
"excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed
upon them greatly exceeded the annual income derived
from their properties. They argued that the income
approach should have been used in determining the
land values instead of the comparable sales approach
which the City Assessor adopted (Rollo, pp. 9-10-A). The
Board of Tax Assessment Appeals, however, considered
the assessments valid, holding thus:
WHEREFORE, and considering that the appellants
have failed to submit concrete evidence which
could overcome the presumptive regularity of
the classification and assessments appear to be
in accordance with the base schedule of market
values and of the base schedule of building unit
values, as approved by the Secretary of Finance,
the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax
Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of
Assessment Appeals.1âwphi1 They submitted, among
others, the summary of the yearly rentals to show the
income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of
sale showing the different market values of the real
property situated in the same vicinity where the subject
properties of petitioners are located. To better
appreciate the locational and physical features of the
land, the Board of Hearing Commissioners conducted an
ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of
the case. Neither the owners nor their authorized
representatives were present during the said ocular
inspection despite proper notices served them. It was
found that certain parcels of land were below street level
and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment
Appeals rendered its decision, the dispositive portion of
which reads:
WHEREFORE, the appealed decision insofar as
the valuation and assessment of the lots covered
by Tax Declaration Nos. (5835) PD-5847, (5839),
(5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos.
(1430) PD-1432, PD-1509, 146 and (1) PD-266, the
appealed Decision is modified by allowing a 20%
 reduction in their respective market values and
applying therein the assessment level of 30% to
arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of
Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was
denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE
"COMPARABLE SALES APPROACH" METHOD IN
FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax
assessment of the properties in question. Petitioners
maintain that the "Income Approach" method would
have been more realistic for in disregarding the effect of
the restrictions imposed by P.D. 20 on the market value of
the properties affected, respondent Assessor of the City
of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the
resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or
payable by the dweller tenants under P.D. 20. Hence,
petitioners protested against the levels of the values
assigned to their properties as revised and increased on
the ground that they were arbitrarily excessive,
unwarranted, inequitable, confiscatory and
unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax
Assessment Appeals admits in its decision that the income
approach is used in determining land values in some
vicinities, it maintains that when income is affected by
some sort of price control, the same is rejected in the
consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do
not project the true market value in the open market
(Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the
value estimate of the properties predicated upon prices
paid in actual, market transactions would be a uniform
and a more credible standards to use especially in case
of mass appraisal of properties (Ibid.). Otherwise stated,
public respondents would have this Court completely
ignore the effects of the restrictions of P.D. No. 20 on the
market value of properties within its coverage. In any
event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are
generally acceptable methods of appraisal for taxation
purposes (The Law on Transfer and Business Taxation by
Hector S. De Leon, 1988 Edition). However, it is conceded
that the propriety of one as against the other would of
course depend on several factors. Hence, as early as
1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has
been stressed that the assessors, in finding the value of
the property, have to consider all the circumstances and
elements of value and must exercise a prudent discretion
in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then
enforced, the rule of taxation must not only be uniform,
but must also be equitable and progressive.
Uniformity has been defined as that principle by which all
taxable articles or kinds of property of the same class shall
be taxed at the same rate (Churchill v. Concepcion, 34
Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of
the equitable or progressive aspects of taxation required
in the 1973 Charter (Fernando "The Constitution of the
Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of
the Constitution.
Taxation is said to be equitable when its burden falls on
those better able to pay. Taxation is progressive when its
rate goes up depending on the resources of the person
affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it
is the strongest of all the powers of government. But for all
its plenitude the power to tax is not unconfined as there
are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses
of the Constitution may properly be invoked to invalidate
in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of
Chief Justice Marshall that "the power to tax involves the
power to destroy." The web or unreality spun from
Marshall's famous dictum was brushed away by one
stroke of Mr. Justice Holmes pen, thus: "The power to tax is
not the power to destroy while this Court sits. So it is in the
Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA
439 [1985]).
In the same vein, 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 confiscation of property.
That would be a clear abuse of power (Sison v.
Ancheta, supra).
The taxing power has the authority to make a reasonable
and natural classification for purposes of taxation but the
government's act must not be prompted by a 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 (Ibid.,
p. 662).
Finally under the Real Property Tax Code (P.D. 464 as
amended), it is declared that the first Fundamental
Principle to guide the appraisal and assessment of real
property for taxation purposes is that the property must
be "appraised at its current and fair market value."
By no strength of the imagination can the market value
of properties covered by P.D. No. 20 be equated with the
market value of properties not so covered. The former
has naturally a much lesser market value in view of the
rental restrictions.
Ironically, in the case at bar, not even the factors
determinant of the assessed value of subject properties
under the "comparable sales approach" were presented
by the public respondents, namely: (1) that the sale must
represent a bonafide arm's length transaction between a
willing seller and a willing buyer and (2) the property must
be comparable property (Rollo, p. 27). Nothing can justify
or support their view as it is of judicial notice that for
properties covered by P.D. 20 especially during the time
in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be
no reasonable basis for the conclusion that these
properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the
given circumstances be nonchalantly dismissed by public
respondents as imposed under distressed conditions
clearly implying that the same were merely temporary in
character. At this point in time, the falsity of such premises
cannot be more convincingly demonstrated by the fact
that the law has existed for around twenty (20) years with
no end to it in sight.
Verily, taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance.
However, such collection should be made in
accordance with law as any arbitrariness will negate the
very reason for government itself It is therefore necessary
to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of
taxations, which is the promotion of the common good,
may be achieved (Commissioner of Internal Revenue v.
Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it
stands to reason that petitioners who are burdened by
the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government
by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their
properties.
By the public respondents' own computation the
assessment by income approach would amount to only
P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b)
the assailed decisions of public respondents are
REVERSED and SET ASIDE; and (e) the respondent Board
of Assessment Appeals of Manila and the City Assessor of Net Income (Loss) (P25,317,288.00)
Manila are ordered to make a new assessment by the (P14,129,602.00)
income approach method to guarantee a fairer and Tax Due NIL NIL
more realistic basis of computation (Rollo, p. 71).
Quarterly tax.
SO ORDERED.
Payments Made 5,016,954.00 —
G.R. No. 112024 January 28, 1999
Tax Withheld at Source 282,795.50
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, 234,077.69
vs.
———————— ———————
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX
APPEALS and COURT OF APPEALS, respondent. Excess Tax Payments P5,299,749.50*
P234,077.69
=============== =============
QUISUMBING, J.:
* CTA's decision reflects
This petition for review assails the Resolution 1 of the Court
PBCom's 1985 tax claim
of Appeals dated September 22, 1993 affirming the
as P5,299,749.95. A forty
Decision2 and a Resolution 3 of the Court Of Tax Appeals
five centavo difference
which denied the claims of the petitioner for tax refund
was noted.
and tax credits, and disposing as follows:
On May 20, 1993, the CTA rendered a decision which, as
IN VIEW OF ALL, THE FOREGOING, the
stated on the outset, denied the request of petitioner for
instant petition for review, is DENIED due
a tax refund or credit in the sum amount of P5,299,749.95,
course. The Decision of the Court of Tax
on the ground that it was filed beyond the two-year
Appeals dated May 20, 1993 and its
reglementary period provided for by law. The petitioner's
resolution dated July 20, 1993, are
claim for refund in 1986 amounting to P234,077.69 was
hereby AFFIRMED in toto.
likewise denied on the assumption that it was
SO ORDERED.4 automatically credited by PBCom against its tax
The Court of Tax Appeals earlier ruled as follows: payment in the succeeding year.
WHEREFORE, Petitioner's claim for On June 22, 1993, petitioner filed a Motion for
refund/tax credits of overpaid income Reconsideration of the CTA's decision but the same was
tax for 1985 in the amount of denied due course for lack of merit. 6
P5,299,749.95 is hereby denied for having Thereafter, PBCom filed a petition for review of said
been filed beyond the reglementary decision and resolution of the CTA with the Court of
period. The 1986 claim for refund Appeals. However on September 22, 1993, the Court of
amounting to P234,077.69 is likewise Appeals affirmed in toto the CTA's resolution dated July
denied since petitioner has opted and in 20, 1993. Hence this petition now before us.
all likelihood automatically credited the
The issues raised by the petitioner are:
same to the succeeding year. The
petition for review is dismissed for lack of I. Whether taxpayer
merit. PBCom — which relied
in good faith on the
SO ORDERED.5
formal assurances of BIR
The facts on record show the antecedent circumstances in RMC No. 7-85 and did
pertinent to this case. not immediately file with
Petitioner, Philippine Bank of Communications (PBCom), a the CTA a petition for
commercial banking corporation duly organized under review asking for the
Philippine laws, filed its quarterly income tax returns for refund/tax credit of its
the first and second quarters of 1985, reported profits, 1985-86 excess quarterly
and paid the total income tax of P5,016,954.00. The taxes income tax payments —
due were settled by applying PBCom's tax credit memos can be prejudiced by
and accordingly, the Bureau of Internal Revenue (BIR) the subsequent BIR
issued Tax Debit Memo Nos. 0746-85 and 0747-85 for rejection, applied
P3,401,701.00 and P1,615,253.00, respectively. retroactivity, of its
assurances in RMC No.
Subsequently, however, PBCom suffered losses so that
7-85 that the prescriptive
when it filed its Annual Income Tax Returns for the year-
period for the refund/tax
ended December 31, 1986, the petitioner likewise
credit of excess
reported a net loss of P14,129,602.00, and thus declared
quarterly income tax
no tax payable for the year.
payments is not two
But during these two years, PBCom earned rental income years but ten (10).7
from leased properties. The lessees withheld and remitted
II. Whether the Court of
to the BIR withholding creditable taxes of P282,795.50 in
Appeals seriously erred
1985 and P234,077.69 in 1986.
in affirming the CTA
On August 7, 1987, petitioner requested the decision which denied
Commissioner of Internal Revenue, among others, for a PBCom's claim for the
tax credit of P5,016,954.00 representing the overpayment refund of P234,077.69
of taxes in the first and second quarters of 1985. income tax overpaid in
Thereafter, on July 25, 1988, petitioner filed a claim for 1986 on the mere
refund of creditable taxes withheld by their lessees from speculation, without
property rentals in 1985 for P282,795.50 and in 1986 for proof, that there were
P234,077.69. taxes due in 1987 and
that PBCom availed of
Pending the investigation of the respondent
tax-crediting that year.8
Commissioner of Internal Revenue, petitioner instituted a
Petition for Review on November 18, 1988 before the Simply stated, the main question is: Whether or not the
Court of Tax Appeals (CTA). The petition was docketed as Court of Appeals erred in denying the plea for tax refund
CTA Case No. 4309 entitled: "Philippine Bank of or tax credits on the ground of prescription, despite
Communications vs. Commissioner of Internal Revenue." petitioner's reliance on RMC No. 7-85, changing the
prescriptive period of two years to ten years?
The losses petitioner incurred as per the summary of
petitioner's claims for refund and tax credit for 1985 and Petitioner argues that its claims for refund and tax credits
1986, filed before the Court of Tax Appeals, are as follows: are not yet barred by prescription relying on the
applicability of Revenue Memorandum Circular No. 7-85
1985 1986
issued on April 1, 1985. The circular states that overpaid
——— ——— income taxes are not covered by the two-year
prescriptive period under the tax Code and that income tax returns. Moreover, a
taxpayers may claim refund or tax credits for the excess taxpayer may recover from the Bureau
quarterly income tax with the BIR within ten (10) years of Internal Revenue excess income tax
under Article 1144 of the Civil Code. The pertinent paid under the provisions of Section 86 of
portions of the circular reads: the Tax Code within 10 years from the
REVENUE MEMORANDUM CIRCULAR NO. date of payment considering that it is an
7-85 obligation created by law (Article 1144
of the Civil Code).9 (Emphasis supplied.)
SUBJECT
: Petitioner argues that the government is barred from
PROCES asserting a position contrary to its declared circular if it
SING OF would result to injustice to taxpayers. Citing ABS CBN
REFUND Broadcasting Corporation vs. Court of Tax
OR TAX Appeals 10 petitioner claims that rulings or circulars
CREDIT promulgated by the Commissioner of Internal Revenue
OF have no retroactive effect if it would be prejudicial to
EXCESS taxpayers, In ABS-CBN case, the Court held that the
CORPO government is precluded from adopting a position
RATE inconsistent with one previously taken where injustice
INCOM would result therefrom or where there has been a
E TAX misrepresentation to the taxpayer.
RESULTI Petitioner contends that Sec. 246 of the National Internal
NG Revenue Code explicitly provides for this rules as follows:
FROM Sec. 246 Non-retroactivity of
THE rulings— Any revocation, modification or
FILING reversal of any of the rules and
OF THE regulations promulgated in accordance
FINAL with the preceding section or any of the
ADJUST rulings or circulars promulgated by the
MENT Commissioner shall not be given
RETURN. retroactive application if the revocation,
TO: All Internal Revenue Officers and modification or reversal will be
Others Concerned. prejudicial to the taxpayers except in the
Sec. 85 And 86 Of the National Internal following cases:
Revenue Code provide: a).
xxx xxx xxx where
the
The foregoing provisions are taxpay
implemented by Section 7 of Revenue er
Regulations Nos. 10-77 which provide; deliber
xxx xxx xxx ately
It has been observed, however, that misstate
because of the excess tax payments, s or
corporations file claims for recovery of omits
overpaid income tax with the Court of material
Tax Appeals within the two-year period facts
from the date of payment, in from his
accordance with sections 292 and 295 of return
the National Internal Revenue Code. It is or in
obvious that the filing of the case in any
court is to preserve the judicial right of docum
the corporation to claim the refund or ent
tax credit. require
d of him
It should he noted, however, that this is by the
not a case of erroneously or illegally paid Bureau
tax under the provisions of Sections 292 of
and 295 of the Tax Code. Internal
In the above provision of the Regulations Revenu
the corporation may request for the e;
refund of the overpaid income tax or b).
claim for automatic tax credit. To insure where
prompt action on corporate annual the
income tax returns showing refundable facts
amounts arising from overpaid quarterly subseq
income taxes, this Office has uently
promulgated Revenue Memorandum gathere
Order No. 32-76 dated June 11, 1976, d by
containing the procedure in processing the
said returns. Under these procedures, the Bureau
returns are merely pre-audited which of
consist mainly of checking mathematical Internal
accuracy of the figures of the return. Revenu
After which, the refund or tax credit is e are
granted, and, this procedure was material
adopted to facilitate immediate action ly
on cases like this. differen
In this regard, therefore, there is no need t from
to file petitions for review in the Court of the
Tax Appeals in order to preserve the right facts on
to claim refund or tax credit the two year which
period. As already stated, actions the
hereon by the Bureau are immediate ruling is
after only a cursory pre-audit of the based;
 c).
where
the
taxpay
er
acted
in bad
faith.
Respondent Commissioner of Internal Revenue, through
Solicitor General, argues that the two-year prescriptive
period for filing tax cases in court concerning income tax
payments of Corporations is reckoned from the date of
filing the Final Adjusted Income Tax Return, which is
generally done on April 15 following the close of the
calendar year. As precedents, respondent Commissioner
cited cases which adhered to this principle, to wit ACCRA
Investments Corp. vs. Court of Appeals, et
al., 11 and Commissioner of Internal Revenue vs. TMX
Sales, Inc., et al.. 12 Respondent Commissioner also states
that since the Final Adjusted Income Tax Return of the
petitioner for the taxable year 1985 was supposed to be
filed on April 15, 1986, the latter had only until April 15,
1988 to seek relief from the court. Further, respondent
Commissioner stresses that when the petitioner filed the
case before the CTA on November 18, 1988, the same
was filed beyond the time fixed by law, and such failure is
fatal to petitioner's cause of action.
After a careful study of the records and applicable
jurisprudence on the matter, we find that, contrary to the
petitioner's contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards
the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the
nation." The primary purpose is to generate funds for the
State to finance the needs of the citizenry and to
advance the common weal. 13 Due process of law under
the Constitution does not require judicial proceedings in
tax cases. This must necessarily be so because it is upon
taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the
collection of taxes levied should be summary and
interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit
should be exercised within the time fixed by law because
the BIR being an administrative body enforced to collect
taxes, its functions should not be unduly delayed or
hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of
1977 (now Sec. 229, NIRC of 1997) provides for the
prescriptive period for filing a court proceeding for the
recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or
illegally collected. — No suit or
proceeding shall be maintained in any
court for the recovery of any national
internal revenue tax hereafter alleged to
have been erroneously or illegally
assessed or collected, or of any penalty
claimed to have been collected without
authority, or of any sum alleged to have
been excessive or in any manner
wrongfully collected, until a claim for
refund or credit has been duly filed with
the Commissioner; but such suit or
proceeding may be maintained,
whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceedings
shall begun after the expiration of two
years from the date of payment of the
tax or penalty regardless of any
supervening cause that may arise after
payment; Provided however, That the
Commissioner may, even without a
written claim therefor, refund or credit
any tax, where on the face of the return
upon which payment was made, such
payment appears clearly to have been
erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for
refund or credit with the Commissioner of Internal
Revenue, within two (2) years after payment of tax,
before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from
the time of filing the Adjustment Return and final
payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine
American Life Insurance Co., 15 this Court explained the
application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two
years should commence to run only from
the time that the refund is ascertained,
which can only be determined after a
final adjustment return is accomplished.
In the present case, this date is April 16,
1984, and two years from this date would
be April 16, 1986. . . . As we have earlier
said in the TMX Sales case, Sections
68. 16 69, 17 and 70 18 on Quarterly
Corporate Income Tax Payment and
Section 321 should be considered in
conjunction with it 19
When the Acting Commissioner of Internal Revenue
issued RMC 7-85, changing the prescriptive period of two
years to ten years on claims of excess quarterly income
tax payments, such circular created a clear inconsistency
with the provision of Sec. 230 of 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars
are considered administrative rulings (in the sense of
more specific and less general interpretations of tax laws)
which are issued from time to time by the Commissioner
of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such interpretation is
not conclusive and will be ignored if judicially found to be
erroneous. 20 Thus, courts will not countenance
administrative issuances that override, instead of
remaining consistent and in harmony with the law they
seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and
regulations issued by administrative officials to implement
a law cannot go beyond the terms and provisions of the
latter.
Appellant contends that Section 2 of
FAO No. 37-1 is void because it is not only
inconsistent with but is contrary to the
provisions and spirit of Act. No 4003 as
amended, because whereas the
prohibition prescribed in said Fisheries
Act was for any single period of time not
exceeding five years duration, FAO No
37-1 fixed no period, that is to say, it
establishes an absolute ban for all time.
This discrepancy between Act No. 4003
and FAO No. 37-1 was probably due to
an oversight on the part of Secretary of
Agriculture and Natural Resources. Of
course, in case of discrepancy, the basic
Act prevails, for the reason that the
regulation or rule issued to implement a
law cannot go beyond the terms and
provisions of the
latter. . . . In this connection, the
attention of the technical men in the
offices of Department Heads who draft
rules and regulation is called to the
importance and necessity of closely
following the terms and provisions of the
law which they intended to implement,
this to avoid any possible
misunderstanding or confusion as in the
present case.23
Further, fundamental is the rule that the State cannot be
put in estoppel by the mistakes or errors of its officials or
agents. 24 As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of
1977 NIRC. for being contrary to the express provision of a
statute. Hence, his interpretation could not be given income tax return for taxable year 1986,
weight for to do so would, in effect, amend the statute. found out that petitioner opted to apply
It is likewise argued that the for automatic tax credit. This was the
Commissioner of Internal Revenue, after basis used (vis-avis the fact that the 1987
promulgating RMC No. 7-85, is estopped annual corporate tax return was not
by the principle of non-retroactively of offered by the petitioner as evidence) by
BIR rulings. Again We do not agree. The the CTA in concluding that petitioner
Memorandum Circular, stating that a had indeed availed of and applied the
taxpayer may recover the excess automatic tax credit to the succeeding
income tax paid within 10 years from year, hence it can no longer ask for
date of payment because this is an refund, as to [sic] the two remedies of
obligation created by law, was issued by refund and tax credit are alternative. 30
the Acting Commissioner of Internal That the petitioner opted for an automatic tax credit in
Revenue. On the other hand, the accordance with Sec. 69 of the 1977 NIRC, as specified in
decision, stating that the taxpayer should its 1986 Final Adjusted Income Tax Return, is a finding of
still file a claim for a refund or tax credit fact which we must respect. Moreover, the 1987 annual
and corresponding petition fro review corporate tax return of the petitioner was not offered as
within the evidence to contovert said fact. Thus, we are bound by
two-year prescription period, and that the findings of fact by respondent courts, there being no
the lengthening of the period of showing of gross error or abuse on their part to disturb our
limitation on refund from two to ten years reliance thereon. 31
would be adverse to public policy and WHEREFORE, the, petition is hereby DENIED, The decision
run counter to the positive mandate of of the Court of Appeals appealed from is AFFIRMED, with
Sec. 230, NIRC, - was the ruling and COSTS against the petitioner.1âwphi1.nêt
judicial interpretation of the Court of Tax
Appeals. Estoppel has no application in SO ORDERED.
the case at bar because it was not the
Commissioner of Internal Revenue who
denied petitioner's claim of refund or tax
credit. Rather, it was the Court of Tax
Appeals who denied (albeit correctly)
the claim and in effect, ruled that the
RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an
administrative interpretation which is out
of harmony with or contrary to the
express provision of a statute (specifically
Sec. 230, NIRC), hence, cannot be given
weight for to do so would in effect
amend the statute.25
Art. 8 of the Civil Code 26 recognizes judicial decisions,
applying or interpreting statutes as part of the legal
system of the country. But administrative decisions do not
enjoy that level of recognition. A memorandum-circular
of a bureau head could not operate to vest a taxpayer
with shield against judicial action. For there are no vested
rights to speak of respecting a wrong construction of the
law by the administrative officials and such wrong
interpretation could not place the Government in
estoppel to correct or overrule the same. 27 Moreover, the
non-retroactivity of rulings by the Commissioner of Internal
Revenue is not applicable in this case because the nullity
of RMC No. 7-85 was declared by respondent courts and
not by the Commissioner of Internal Revenue. Lastly, it
must be noted that, as repeatedly held by this Court, a
claim for refund is in the nature of a claim for exemption
and should be construed in strictissimi juris against the
taxpayer.28
On the second issue, the petitioner alleges that the Court
of Appeals seriously erred in affirming CTA's decision
denying its claim for refund of P234,077.69 (tax overpaid
in 1986), based on mere speculation, without proof, that
PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC)
provides that any excess of the total quarterly payments
over the actual income tax computed in the adjustment
or final corporate income tax return, shall either(a) be
refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for
the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate
adjustment return (by marking the option box provided in
the BIR form) its intention, whether to request for a refund
or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection,
these remedies are in the alternative, and the choice of
one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of
income tax over-paid in 1986 — the
Court of Tax Appeals, after examining
the adjusted final corporate annual
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 9. Nothing can be clearer, therefore, than that the
equal protection clause is, of course, inspired by the petition is without merit, considering the (1) lack of
noble concept of approximating the Ideal of the laws factual foundation to show the arbitrary character of the
benefits being available to all and the affairs of men assailed provision; 31 (2) the force of controlling doctrines
being governed by that serene and impartial uniformity, on due process, equal protection, and uniformity in
which is of the very essence of the Idea of law. There is, taxation and (3) the reasonableness of the distinction
however, wisdom, as well as realism in these words of between compensation and taxable net income of
Justice Frankfurter: "The equality at which the 'equal professionals and businessman certainly not a suspect
protection' clause aims is not a disembodied equality. classification,
The Fourteenth Amendment enjoins 'the equal protection
of the laws,' and laws are not abstract propositions. They WHEREFORE, the petition is dismissed. Costs against
do not relate to abstract units A, B and C, but are petitioner.
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 attainable." 27 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 case of the
gross income taxation embodied in 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.
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO,
in their capacities as appointed and Acting Members of
the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in
their capacities as appointed and Acting Members of the
BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of
Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for
petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the
June 10, 1977 decision of the Central Board of Assessment
Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes,
Edmundo Reyes, et al. v. Board of Assessment Appeals of
Manila and City Assessor of Manila" which affirmed the
March 29, 1976 decision of the Board of Tax Assessment
Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
"Jose Reyes, et al. v. City Assessor of Manila" and
"Edmundo Reyes and Milagros Reyes v. City Assessor of
Manila" upholding the classification and assessments
made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are
owners of parcels of land situated in Tondo and Sta. Cruz
Districts, City of Manila, which are leased and entirely
occupied as dwelling sites by tenants. Said tenants were
paying monthly rentals not exceeding three hundred
pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units or of lands on which
another's dwelling is located, where such rentals do not
exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of
Article 1673 of the Civil Code for two years from its
effectivity thereby disallowing the ejectment of lessees
upon the expiration of the usual legal period of lease. On
October 12, 1972, Presidential Decree No. 20 amended
R.A. No. 6359 by making absolute the prohibition to
increase monthly rentals below P300.00 and by
indefinitely suspending the aforementioned provision of
the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-
classified and reassessed the value of the subject
properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as
expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals.
They averred that the reassessments made were
"excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed
upon them greatly exceeded the annual income derived
from their properties. They argued that the income
approach should have been used in determining the
land values instead of the comparable sales approach
which the City Assessor adopted (Rollo, pp. 9-10-A). The
Board of Tax Assessment Appeals, however, considered
the assessments valid, holding thus:
WHEREFORE, and considering that the appellants
have failed to submit concrete evidence which
could overcome the presumptive regularity of
the classification and assessments appear to be
in accordance with the base schedule of market
values and of the base schedule of building unit
values, as approved by the Secretary of Finance,
the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax
Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of
Assessment Appeals.1âwphi1 They submitted, among
others, the summary of the yearly rentals to show the
income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of
sale showing the different market values of the real
property situated in the same vicinity where the subject
properties of petitioners are located. To better
appreciate the locational and physical features of the
land, the Board of Hearing Commissioners conducted an
ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of
the case. Neither the owners nor their authorized
representatives were present during the said ocular
inspection despite proper notices served them. It was
found that certain parcels of land were below street level
and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment
Appeals rendered its decision, the dispositive portion of
which reads:
WHEREFORE, the appealed decision insofar as
the valuation and assessment of the lots covered
by Tax Declaration Nos. (5835) PD-5847, (5839),
(5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos.
(1430) PD-1432, PD-1509, 146 and (1) PD-266, the
appealed Decision is modified by allowing a 20%
reduction in their respective market values and
applying therein the assessment level of 30% to
arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of
Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was
denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE
"COMPARABLE SALES APPROACH" METHOD IN
FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax
assessment of the properties in question. Petitioners
maintain that the "Income Approach" method would
have been more realistic for in disregarding the effect of
the restrictions imposed by P.D. 20 on the market value of
the properties affected, respondent Assessor of the City
of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the
resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or
payable by the dweller tenants under P.D. 20. Hence,
petitioners protested against the levels of the values
assigned to their properties as revised and increased on
the ground that they were arbitrarily excessive,
unwarranted, inequitable, confiscatory and
unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax
Assessment Appeals admits in its decision that the income
approach is used in determining land values in some
vicinities, it maintains that when income is affected by
some sort of price control, the same is rejected in the
consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do
not project the true market value in the open market
(Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the
value estimate of the properties predicated upon prices
paid in actual, market transactions would be a uniform
and a more credible standards to use especially in case
of mass appraisal of properties (Ibid.). Otherwise stated,
public respondents would have this Court completely
ignore the effects of the restrictions of P.D. No. 20 on the
market value of properties within its coverage. In any
event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are
generally acceptable methods of appraisal for taxation
purposes (The Law on Transfer and Business Taxation by
Hector S. De Leon, 1988 Edition). However, it is conceded
that the propriety of one as against the other would of
course depend on several factors. Hence, as early as
1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has
been stressed that the assessors, in finding the value of
the property, have to consider all the circumstances and
elements of value and must exercise a prudent discretion
in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then
enforced, the rule of taxation must not only be uniform,
but must also be equitable and progressive.
Uniformity has been defined as that principle by which all
taxable articles or kinds of property of the same class shall
be taxed at the same rate (Churchill v. Concepcion, 34
Phil. 969 [1916]).
property for taxation purposes is that the property must
be "appraised at its current and fair market value."
By no strength of the imagination can the market value
of properties covered by P.D. No. 20 be equated with the
market value of properties not so covered. The former
has naturally a much lesser market value in view of the
rental restrictions.
Ironically, in the case at bar, not even the factors
determinant of the assessed value of subject properties
under the "comparable sales approach" were presented
by the public respondents, namely: (1) that the sale must
represent a bonafide arm's length transaction between a
willing seller and a willing buyer and (2) the property must
be comparable property (Rollo, p. 27). Nothing can justify
or support their view as it is of judicial notice that for
properties covered by P.D. 20 especially during the time
in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be
no reasonable basis for the conclusion that these
properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the
given circumstances be nonchalantly dismissed by public
respondents as imposed under distressed conditions
clearly implying that the same were merely temporary in
character. At this point in time, the falsity of such premises
cannot be more convincingly demonstrated by the fact
that the law has existed for around twenty (20) years with
no end to it in sight.

Notably in the 1935 Constitution, there was no mention of
the equitable or progressive aspects of taxation required
in the 1973 Charter (Fernando "The Constitution of the
Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of
the Constitution.
Taxation is said to be equitable when its burden falls on
those better able to pay. Taxation is progressive when its
rate goes up depending on the resources of the person
affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it
is the strongest of all the powers of government. But for all
its plenitude the power to tax is not unconfined as there
are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses
of the Constitution may properly be invoked to invalidate
in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of
Chief Justice Marshall that "the power to tax involves the
power to destroy." The web or unreality spun from
Marshall's famous dictum was brushed away by one
stroke of Mr. Justice Holmes pen, thus: "The power to tax is
not the power to destroy while this Court sits. So it is in the
Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA
439 [1985]).
In the same vein, 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 confiscation of property.
That would be a clear abuse of power (Sison v.
Ancheta, supra).
Verily, taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance.
However, such collection should be made in
accordance with law as any arbitrariness will negate the
very reason for government itself It is therefore necessary
to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of
taxations, which is the promotion of the common good,
may be achieved (Commissioner of Internal Revenue v.
Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it
stands to reason that petitioners who are burdened by
the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government
by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their
properties.
By the public respondents' own computation the
assessment by income approach would amount to only
P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b)
the assailed decisions of public respondents are
REVERSED and SET ASIDE; and (e) the respondent Board
of Assessment Appeals of Manila and the City Assessor of
Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and
more realistic basis of computation (Rollo, p. 71).
SO ORDERED.

The taxing power has the authority to make a reasonable

and natural classification for purposes of taxation but the
government's act must not be prompted by a 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 (Ibid.,
p. 662).

Finally under the Real Property Tax Code (P.D. 464 as

amended), it is declared that the first Fundamental
Principle to guide the appraisal and assessment of real
[G.R. No. 112024. January 28, 1999]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, COURT
OF TAX APPEALS and COURT OF
APPEALS, respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Resolution[1] of the
Court of Appeals dated September 22,
1993, affirming the Decision[2] and Resolution[3] of the
Court of Tax Appeals which denied the claims of the
petitioner for tax refund and tax credits, and disposing as
follows:
IN VIEW OF ALL THE FOREGOING, the instant petition for
review is DENIED due course. The Decision of the Court of
Tax Appeals dated May 20, 1993 and its resolution dated
July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED.[4]
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, petitioners claim for refund/tax credit of
overpaid income tax for 1985 in the amount
of P5,299,749.95 is hereby denied for having been filed
beyond the reglementary period. The 1986 claim for
refund amounting to P234,077.69 is likewise denied since
petitioner has opted and in all likelihood automatically
credited the same to the succeeding year. The petition
for review is dismissed for lack of merit.
SO ORDERED.[5]
The facts on record show the antecedent
circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications
(PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income
tax returns for the first and second quarters of 1985,
reported profits, and paid the total income tax
of P5,016,954.00. The taxes due were settled by applying
PBComs tax credit memos and accordingly, the Bureau
of Internal Revenue (BIR) issued Tax Debit Memo Nos.
0746-85 and 0747-85 for P3,401,701.00 and P1, 615,253.00,
respectively.
Subsequently, however, PBCom suffered losses so
that when it filed its Annual Income Tax Returns for the
year-ended December 31, 1985, it declared a net loss
of P25,317,228.00, thereby showing no income tax
liability. For the succeeding year, ending December 31,
1986, the petitioner likewise reported a net loss
of P14,129,602.00, and thus declared no tax payable for
the year.
But during these two years, PBCom earned rental
income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes
of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the
Commissioner of Internal Revenue, among others, for a
tax credit of P5,016,954.00 representing the overpayment
of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim
for refund of creditable taxes withheld by their lessees
from property rentals in 1985 for P282,795.50 and in 1986
for P234,077.69.
Pending the investigation of the respondent
Commissioner of Internal Revenue, petitioner instituted a
Petition for Review on November 18, 1988 before the
Court of Tax Appeals (CTA). The petition was docketed as
CTA Case No. 4309 entitled: Philippine Bank of
Communications vs. Commissioner of Internal Revenue.
The losses petitioner incurred as per the summary of
petitioners claims for refund and tax credit for 1985 and
1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
Net (P25,317,228.00) (P14,129,602.00)
Incom
e
(Loss)
Tax NIL NIL
Due
Quart
erly
tax
Paym 5,016,954.00 ---
ents
Made
Tax 282,795.50 234,077.69
Withh
eld at
Sourc
e
Ex P5,299,749.50*=== P234,077.69===
cess =========== ===========
Tax
Paym
ents
*CTAs decision reflects PBComs 1985 tax claim
as P5,299,749.95. A forty-five centavo difference was
noted.
On May 20, 1993, the CTA rendered a decision
which, as stated on the outset, denied the request of
petitioner for a tax refund or credit in the sum amount
of P5,299,749.95, on the ground that it was filed beyond
the two-year reglementary period provided for by
law. The petitioners claim for refund in 1986 amounting
to P234,077.69 was likewise denied on the assumption
that it was automatically credited by PBCom against its
tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for
Reconsideration of the CTAs decision but the same was
denied due course for lack of merit.[6]
Thereafter, PBCom filed a petition for review of said
decision and resolution of the CTA with the Court of
Appeals. However on September 22, 1993, the Court of
Appeals affirmed in toto the CTAs resolution dated July
20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in
good faith on the formal assurances of BIR in
RMC No. 7-85 and did not immediately file
with the CTA a petition for review asking for
the refund/tax credit of its 1985-86 excess
quarterly income tax payments -- can be
prejudiced by the subsequent BIR rejection,
applied retroactively, of its assurances in
RMC No. 7-85 that the prescriptive period for
the refund/tax credit of excess quarterly
income tax payments is not two years but
ten (10).[7]
II. Whether the Court of Appeals seriously erred
in affirming the CTA decision which denied
PBComs claim for the refund of P234,077.69
income tax overpaid in 1986 on the mere
speculation, without proof, that there were
taxes due in 1987 and that PBCom availed
of tax-crediting that year.[8]
Simply stated, the main question is: Whether or not
the Court of Appeals erred in denying the plea for tax
refund or tax credits on the ground of prescription,
despite petitioners reliance on RMC No. 7-85, changing
the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax
credits are not yet barred by prescription relying on the
applicability of Revenue Memorandum Circular No. 7-85
issued on April 1, 1985. The circular states that overpaid
income taxes are not covered by the two-year
prescriptive period under the tax Code and that
taxpayers may claim refund or tax credits for the excess
quarterly income tax with the BIR within ten (10) years
under Article 1144 of the Civil Code. The pertinent
portions of the circular reads:
REVENUE MEMORANDUM
CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF
EXCESS CORPORATE INCOME
TAX RESULTING FROM THE FILING
OF THE FINAL ADJUSTMENT
RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue
Code provide:
xxxxxxxxx
The foregoing provisions are implemented by Section 7 of
Revenue Regulations Nos. 10-77 which provide:
xxxxxxxxx
It has been observed, however, that because of the
excess tax payments, corporations file claims for recovery
of overpaid income tax with the Court of Tax Appeals
within the two-year period from the date of payment, in
accordance with Sections 292 and 295 of the National
Internal Revenue Code. It is obvious that the filing of the
case in court is to preserve the judicial right of the
corporation to claim the refund or tax credit.
It should be noted, however, that this is not a case of
erroneously or illegally paid tax under the provisions of
Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation
may request for the refund of the overpaid income tax or
claim for automatic tax credit. To insure prompt action on
corporate annual income tax returns showing refundable
amounts arising from overpaid quarterly income taxes,
this Office has promulgated Revenue Memorandum
Order No. 32-76 dated June 11, 1976, containing the
procedure in processing said returns. Under these
procedures, the returns are merely pre-audited which
consist mainly of checking mathematical accuracy of
the figures of the return. After which, the refund or tax
credit is granted, and, this procedure was adopted to
facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions
for review in the Court of Tax Appeals in order to preserve
the right to claim refund or tax credit within the two-year
period. As already stated, actions hereon by the Bureau
are immediate after only a cursory pre-audit of the
income tax returns. Moreover, a taxpayer may recover
from the Bureau of Internal Revenue excess income tax
paid under the provisions of Section 86 of the Tax Code
within 10 years from the date of payment considering
that it is an obligation created by law (Article 1144 of the
Civil Code).[9] (Emphasis supplied.)
Petitioner argues that the government is barred from
asserting a position contrary to its declared circular if it
would result to injustice to taxpayers. Citing ABS-CBN
Broadcasting Corporation vs. Court of Tax
Appeals[10] petitioner claims that rulings or circulars
promulgated by the Commissioner of Internal Revenue
have no retroactive effect if it would be prejudicial to
taxpayers. In ABS-CBN case, the Court held that the
government is precluded from adopting a position
inconsistent with one previously taken where injustice
would result therefrom or where there has been a
misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National
Internal Revenue Code explicitly provides for this rule as
follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation,
modification or reversal of any of the rules and
regulations promulgated in accordance with the
preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification, or
reversal will be prejudicial to the taxpayers except in the
following cases:
a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required
of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts
on which the ruling is based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue,
through the Solicitor General, argues that the two-year
prescriptive period for filing tax cases in court concerning
income tax payments of Corporations is reckoned from
the date of filing the Final Adjusted Income Tax Return,
which is generally done on April 15 following the close of
the calendar year. As precedents, respondent
Commissioner cited cases which adhered to this
principle, to wit: ACCRA Investments Corp. vs. Court of
Appeals, et al.,[11] and Commissioner of Internal Revenue
vs. TMX Sales, Inc., et al..[12] Respondent Commissioner
also states that since the Final Adjusted Income Tax
Return of the petitioner for the taxable year 1985 was
supposed to be filed on April 15, 1986, the latter had only
until April 15, 1988 to seek relief from the court.Further,
respondent Commissioner stresses that when the
petitioner filed the case before the CTA on November 18,
1988, the same was filed beyond the time fixed by law,
and such failure is fatal to petitioners cause of action.
After a careful study of the records and applicable
jurisprudence on the matter, we find that, contrary to the
petitioners contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards
the two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of
the nation. The primary purpose is to generate funds for
the State to finance the needs of the citizenry and to
advance the common weal.[13] Due process of law under
the Constitution does not require judicial proceedings in
tax cases. This must necessarily be so because it is upon
taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the
collection of taxes levied should be summary and
interfered with as little as possible.[14]
From the same perspective, claims for refund or tax
credit should be exercised within the time fixed by law
because the BIR being an administrative body enforced
to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code
(NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for
the prescriptive period for filing a court proceeding for
the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally
collected. -- No suit or proceeding shall be maintained in
any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of
any sum alleged to have been excessive or in any
manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be begun
after the expiration of two years from the date of
payment of the tax or penalty regardless of any
supervening cause that may arise after payment;
Provided however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment
was made, such payment appears clearly to have been
erroneously paid. (Italics supplied)
The rule states that the taxpayer may file a claim for
refund or credit with the Commissioner of Internal
Revenue, within two (2) years after payment of tax,
before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from
the time of filing the Adjustment Return and final
payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine
American Life Insurance Co.,[15] this Court explained the
application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should
commence to run only from the time that the refund is
ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case,
this date is April 16, 1984, and two years from this date
would be April 16, 1986. x x x As we have earlier said in
the TMX Sales case, Sections 68,[16] 69,[17] and 70[18] on
Quarterly Corporate Income Tax Payment and Section
321 should be considered in conjunction with it.[19]
When the Acting Commissioner of Internal Revenue
issued RMC 7-85, changing the prescriptive period of two
years to ten years on claims of excess quarterly income
tax payments, such circular created a clear inconsistency
with the provision of Sec. 230 of 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-
circulars are considered administrative rulings (in the
sense of more specific and less general interpretations of
tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted
that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled
to great respect by the courts.Nevertheless, such
interpretation is not conclusive and will be ignored if
judicially found to be erroneous.[20] Thus, courts will not
countenance administrative issuances that override,
instead of remaining consistent and in harmony with, the
law they seek to apply and implement.[21]
In the case of People vs. Lim,[22] it was held that rules
and regulations issued by administrative officials to
implement a law cannot go beyond the terms and
provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void
because it is not only inconsistent with but is contrary to
the provisions and spirit of Act. No. 4003 as amended,
because whereas the prohibition prescribed in said
Fisheries Act was for any single period of time not
exceeding five years duration, FAO No. 37-1 fixed no
period, that is to say, it establishes an absolute ban for all
time. This discrepancy between Act No. 4003 and FAO
No. 37-1 was probably due to an oversight on the part of
Secretary of Agriculture and Natural Resources. Of
course, in case of discrepancy, the basic Act prevails, for
the reason that the regulation or rule issued to implement
a law cannot go beyond the terms and provisions of the
latter. x x x In this connection, the attention of the
technical men in the offices of Department Heads who
draft rules and regulation is called to the importance and
necessity of closely following the terms and provisions of
the law which they intended to implement, this to avoid
any possible misunderstanding or confusion as in the
present case.[23]
Further, fundamental is the rule that the State
cannot be put in estoppel by the mistakes or errors of its
officials or agents.[24] As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the
Acting Commissioner of Internal Revenue is an
administrative interpretation which is not in harmony with
Sec. 230 of 1977 NIRC, for being contrary to the express
provision of a statute. Hence, his interpretation could not
be given weight for to do so would, in effect, amend the
statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal
Revenue, after promulgating RMC No. 7-85, is estopped
by the principle of non-retroactivity of BIR rulings. Again
We do not agree. The Memorandum Circular, stating that
a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an
obligation created by law, was issued by the Acting
Commissioner of Internal Revenue. On the other hand,
the decision, stating that the taxpayer should still file a
claim for a refund or tax credit and the corresponding
petition for review within the two-year prescription period,
and that the lengthening of the period of limitation on
refund from two to ten years would be adverse to public
policy and run counter to the positive mandate of Sec.
230, NIRC, - was the ruling and judicial interpretation of
the Court of Tax Appeals. Estoppel has no application in
the case at bar because it was not the Commissioner of
Internal Revenue who denied petitioners claim of refund
or tax credit. Rather, it was the Court of Tax Appeals who
denied (albeit correctly) the claim and in effect, ruled
that the RMC No. 7-85 issued by the Commissioner of
Internal Revenue is an administrative interpretation which
is out of harmony with or contrary to the express provision
of a statute (specifically Sec. 230, NIRC), hence, cannot
be given weight for to do so would in effect amend the
statute.[25]
Article 8 of the Civil Code[26] recognizes judicial
decisions, applying or interpreting statutes as part of the
legal system of the country. But administrative decisions
do not enjoy that level of recognition.A memorandum-
circular of a bureau head could not operate to vest a
taxpayer with a shield against judicial action. For there
are no vested rights to speak of respecting a wrong
construction of the law by the administrative officials and
such wrong interpretation could not place the
Government in estoppel to correct or overrule the
same.[27] Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this
case because the nullity of RMC No. 7-85 was declared
by respondent courts and not by the Commissioner of
Internal Revenue. Lastly, it must be noted that, as
repeatedly held by this Court, a claim for refund is in the
nature of a claim for exemption and should be construed
in strictissimi juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the
Court of Appeals seriously erred in affirming CTAs decision
denying its claim for refund of P 234,077.69 (tax overpaid
in 1986), based on mere speculation, without proof, that
PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997
NIRC) provides that any excess of the total quarterly
payments over the actual income tax computed in the
adjustment or final corporate income tax return, shall
either (a) be refunded to the corporation, or (b) may be
credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate
adjustment return (by marking the option box provided in
the BIR form) its intention, whether to request for a refund
or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection,
these remedies are in the alternative, and the choice of
one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid
in 1986 - the Court of Tax Appeals, after examining the
adjusted final corporate annual income tax return for
taxable year 1986, found out that petitioner opted to
apply for automatic tax credit. This was the basis used
(vis-avis the fact that the 1987 annual corporate tax
return was not offered by the petitioner as evidence) by
the CTA in concluding that petitioner had indeed availed
of and applied the automatic tax credit to the
succeeding year, hence it can no longer ask for refund,
as to [sic] the two remedies of refund and tax credit are
alternative.[30]

That the petitioner opted for an automatic tax credit

in accordance with Sec. 69 of the 1977 NIRC, as specified
in its 1986 Final Adjusted Income Tax Return, is a finding of
fact which we must respect.Moreover, the 1987 annual
corporate tax return of the petitioner was not offered as
evidence to controvert said fact. Thus, we are bound by
the findings of fact by respondent courts, there being no
showing of gross error or abuse on their part to disturb our
reliance thereon.[31]

WHEREFORE, the petition is hereby DENIED. The

decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.

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 9. Nothing can be clearer, therefore, than that the
equal protection clause is, of course, inspired by the petition is without merit, considering the (1) lack of
noble concept of approximating the Ideal of the laws factual foundation to show the arbitrary character of the
benefits being available to all and the affairs of men assailed provision; 31 (2) the force of controlling doctrines
being governed by that serene and impartial uniformity, on due process, equal protection, and uniformity in
which is of the very essence of the Idea of law. There is, taxation and (3) the reasonableness of the distinction
however, wisdom, as well as realism in these words of between compensation and taxable net income of
Justice Frankfurter: "The equality at which the 'equal professionals and businessman certainly not a suspect
protection' clause aims is not a disembodied equality. classification,
The Fourteenth Amendment enjoins 'the equal protection
of the laws,' and laws are not abstract propositions. They WHEREFORE, the petition is dismissed. Costs against
do not relate to abstract units A, B and C, but are petitioner.
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 attainable." 27 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 case of the
gross income taxation embodied in 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.
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate
Estate of the deceased Antonio Jayme Ledesma, plaintiff-
appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First
Assistant Solicitor General Guillermo E. Torres and Solicitor
Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of
Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise
known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section
1) with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes
upon sugar as provided in the Tydings-McDuffe Act, and
the "eventual loss of its preferential position in the United
States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component
elements thereof" and "to stabilize the sugar industry so as
to prepare it for the eventuality of the loss of its
preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an
increase of the existing tax on the manufacture of sugar,
on a graduated basis, on each picul of sugar
manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of
sugar cane and ceded to others for a consideration, on
lease or otherwise —
a tax equivalent to the difference between the
money value of the rental or consideration
collected and the amount representing 12 per
centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall
accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment
and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to
attain any or all of the following objectives, as
may be provided by law.
First, to place the sugar industry in a position to
maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the
United States market, and ultimately to insure its
continued existence notwithstanding the loss of
that market and the consequent necessity of
meeting competition in the free markets of the
world;
Second, to readjust the benefits derived from the
sugar industry by all of the component elements
thereof — the mill, the landowner, the planter of
the sugar cane, and the laborers in the factory
and in the field — so that all might continue
profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas
more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a
living wage and to improve their living and
working conditions: Provided, That the President
of the Philippines may, until the adjourment of
the next regular session of the National Assembly,
make the necessary disbursements from the fund
herein created (1) for the establishment and
operation of sugar experiment station or stations
and the undertaking of researchers (a) to
increase the recoveries of the centrifugal sugar
factories with the view of reducing
manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane
more adaptable to different district conditions in
the Philippines, (c) to lower the costs of raising
sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel,
(e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine
what crop or crops are suitable for rotation and
for the utilization of excess cane lands, and (g)
on other problems the solution of which would
help rehabilitate and stabilize the industry, and
(2) for the improvement of living and working
conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary
agency or agencies to take charge of the
expenditure and allocation of said funds to carry
out the purpose hereinbefore enumerated, and,
likewise, authorizing the disbursement from the
fund herein created of the necessary amount or
amounts needed for salaries, wages, travelling
expenses, equipment, and other sundry expenses
of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-
1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff's
opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed
by the Court of First Instance, the plaintifs appealed the
case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption
that the tax provided for in Commonwealth Act No. 567 is
a pure exercise of the taxing power. Analysis of the Act,
and particularly of section 6 (heretofore quoted in full),
will show that the tax is levied with a regulatory purpose,
to provide means for the rehabilitation and stabilization of
the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation,
sugar occupying a leading position among its export
products; that it gives employment to thousands of
laborers in fields and factories; that it is a great source of
the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general
welfare. Hence it was competent for the legislature to
find that the general welfare demanded that the sugar
industry should be stabilized in turn; and in the wide field
of its police power, the lawmaking body could provide
that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added
strain of the increase in taxes that it had to sustain (Sligh
vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State
ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs.
Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with
reference to the citrus industry in Florida —
The protection of a large industry constituting
one of the great sources of the state's wealth
 and therefore directly or indirectly affecting the
welfare of so great a portion of the population of
the State is affected to such an extent by public
interests as to be within the police power of the
sovereign. (128 Sp. 857).

Once it is conceded, as it must, that the protection and

promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine
within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the
legislative discretion must be allowed fully play, subject
only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the
law (above quoted) bear no relation to the objective
pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the
implement of the state's police power (Great Atl. & Pac.
Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs.
Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar

producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited
from the expenditure of the funds derived from it. 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"
(Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495,
81 L. Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no

moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively
spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other
industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to
a policy of "all or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if
the law presumably hits the evil where it is most felt, it is
not to be overthrown because there are other instances
to which it might have been applied;" and that "the
legislative authority, exerted within its proper field, need
not embrace all the evils within its reach" (N. L. R. B. vs.
Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax

measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products
and solution of allied problems, as well as to the
improvements of living and working conditions in sugar
mills or plantations, without any part of such money being
channeled directly to private persons, constitutes
expenditure of tax money for private purposes, (compare
Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR
1392, 1400).

The decision appealed from is affirmed, with costs against

appellant. So ordered.
BRITISH AMERICAN TOBACCO, G.R. No. 163583 L
Petitioner, e
Present: o
n
Puno, C.J., a
Quisumbing, r
Ynares-Santiago, d
Carpio, o
- versus - Austria-Martinez, -
C D
o e
r C
o a
n s
a t
, r
C o
a ,
r a
p n
i d
o B
M r
o i
r o
a n
l ,
e
s J
, J
A .
z JOSE ISIDRO N. CAMACHO,
c in his capacity as Secretary of
u the Department of Finance and
n GUILLERMO L. PARAYNO, JR.,
a in his capacity as Commissioner of
, the Bureau of Internal Revenue,
T Respondents.
i PHILIP MORRIS PHILIPPINES
n MANUFACTURING, INC.,
g FORTUNE TOBACCO, CORP., Promulgated:
a MIGHTY CORPORATION, and
, JT INTERNATIONAL, S.A.,
C Respondents-in-Intervention. August 20, 2008
h
i x ----------------------------------------------------------------
c ------------------------ x
o
-
N
a
z DECISION
a
r
i YNARES-SANTIAGO, J.:
o
,
V This petition for review assails the validity of: (1) Section
e 145 of the National Internal Revenue Code (NIRC), as
l
recodified by Republic Act (RA) 8424; (2) RA 9334, which
a
s further amended Section 145 of the NIRC on January 1,
c 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-
o
2003; and (4) Revenue Memorandum Order No. 6-
,
J 2003.Petitioner argues that the said provisions are
r violative of the equal protection and uniformity clauses of
.
, the Constitution.
N
a RA 8240, entitled An Act Amending Sections 138, 139, 140,
c
h and 142 of the NIRC, as Amended and For Other
u Purposes, took effect on January 1, 1997. In the same
r year, Congress passed RA 8424 or The Tax Reform Act of
a
, 1997, re-codifying the NIRC. Section 142 was renumbered
R as Section 145 of the NIRC.
e
y
e Paragraph (c) of Section 145 provides for four
s 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.
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

Paragraph (c) of Section 145, [1] states
of cigarettes based on its average net
retail price as of October 1, 1996, as set
SEC. 145. Cigars and cigarettes.
forth in Annex D of this Act, shall remain
in force until revised by
xxxx
Congress. (Emphasis supplied)
(c) Cigarettes packed by machine.
There shall be levied, assessed and
collected on cigarettes packed by As such, new brands of cigarettes shall be taxed
machine a tax at the rates prescribed according to their current net retail price while existing or
below:
old brands shall be taxed based on their net retail price
(1) If the net retail price as ofOctober 1, 1996.
(excluding the excise
tax and the value-
added tax) is above Ten To implement RA 8240, the Bureau of Internal
pesos (P10.00) per pack, Revenue (BIR) issued Revenue Regulations No. 1-
the tax shall be Thirteen 97,[2] which classified the existing brands of cigarettes as
pesos and forty-four
centavos (P13.44) per those duly registered or active brands prior to January 1,
pack; 1997. New brands, or those registered after January 1,
1997, shall be initially assessed at their suggested retail
(2) If the net retail price
(excluding the excise price until such time that the appropriate survey to
tax and the value- determine their current net retail price is
added tax) exceeds Six
conducted. Pertinent portion of the regulations reads
pesos and fifty centavos
(P6.50) but does not
SECTION 2. Definition of Terms.
exceed Ten pesos
(10.00) per pack, the tax
xxxx
shall be Eight pesos and
3. Duly registered or existing
ninety-six centavos
brand of cigarettes shall include duly
(P8.96) per pack;
registered, existing or active brands of
(3) If the net retail price
cigarettes, prior to January 1, 1997.
(excluding the excise
tax and the value-
xxxx
added tax) is Five pesos
(P5.00) but does not
6. New Brands shall mean brands duly
exceed Six pesos and
registered after January 1, 1997 and shall
fifty centavos (P6.50) per
include duly registered, inactive brands
pack, the tax shall be
of cigarette not sold in commercial
Five pesos and sixty
quantity before January 1, 1997.
centavos (P5.60) per
pack;
SECTION 4. Classification and Manner of
Taxation of Existing Brands, New Brands
(4) If the net
and Variant of Existing Brands.
retail price (excluding
the excise tax and the
xxxx
value-added tax) is
below Five pesos (P5.00)
B. New Brand
per pack, the tax shall
be One peso and
New brands shall be classified according
twelve centavos (P1.12)
to their current net retail price. In the
per pack.
meantime that the current net retail
price has not yet been established, the
Variants of existing brands of
suggested net retail price shall be used
cigarettes which are introduced in the
to determine the specific tax
domestic market after the effectivity of
classification. Thereafter, a survey shall
this Act shall be taxed under the highest
be conducted in 20 major supermarkets
classification of any variant of that
or retail outlets in Metro Manila (for
brand.
brands of cigarette marketed nationally)
or in five (5) major supermarkets or retail
xxxx
outlets in the region (for brands which
are marketed only outside Metro Manila)
New brands shall be classified
at which the cigarette is sold on retail in
according to their current net retail
reams/cartons, three (3) months after the
price.
initial removal of the new brand to
determine the actual net retail price
For the above purpose, net retail
excluding the excise tax and value
price shall mean the price at which the
added tax which shall then be the basis
cigarette is sold on retail in 20 major
in determining the specific tax
supermarkets in Metro Manila (for brands
classification. In case the current net
of cigarettes marketed nationally),
retail price is higher than the suggested
excluding the amount intended to cover
net retail price, the former shall
the applicable excise tax and the value-
prevail. Any difference in specific tax
added tax. For brands which are
 due shall be assessed and collected TRO. On September 4, 2003, the trial court denied the
inclusive of increments as provided for by
the National Internal Revenue Code, as application for TRO, holding that the courts have no
amended. 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
In June 2001, petitioner British American Tobacco
lack of an actual controversy or urgent necessity to justify
introduced into the market Lucky Strike Filter, Lucky Strike
judicial intervention.
Lights and Lucky Strike Menthol Lights cigarettes, with a
suggested retail price of P9.90 per pack.[3] Pursuant to
In an Order dated March 4, 2004, the trial court denied
Sec. 145 (c) quoted above, the Lucky Strike brands were
the motion to dismiss and issued a writ of preliminary
initially assessed the excise tax at P8.96 per pack.
injunction to enjoin the implementation of Revenue
Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
On February 17, 2003, Revenue Regulations No. 9-
Memorandum Order No. 6-2003.[11] Respondents filed a
2003,[4] amended Revenue Regulations No. 1-97 by
Motion for Reconsideration[12] and Supplemental Motion
providing, among others, a periodic review every two
for Reconsideration.[13] At the hearing on the said
years or earlier of the current net retail price of new
motions, petitioner and respondent Commissioner of
brands and variants thereof for the purpose of
Internal Revenue stipulated that the only issue in this case
establishing and updating their tax classification, thus:
is the constitutionality of the assailed law, order, and
For the purpose of establishing or regulations.[14]
updating the tax classification of new
brands and variant(s) thereof, their
On May 12, 2004, the trial court rendered a
current net retail price shall be reviewed
periodically through the conduct of decision[15] upholding the constitutionality of Section 145
survey or any other appropriate activity, of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-
as mentioned above, every two (2) years
unless earlier ordered by the 2003 and Revenue Memorandum Order No. 6-2003. The
Commissioner. However, notwithstanding trial court also lifted the writ of preliminary injunction. The
any increase in the current net retail dispositive portion of the decision reads:
price, the tax classification of such new
brands shall remain in force until the WHEREFORE, premises considered, the
same is altered or changed through the instant Petition is hereby DISMISSED for
issuance of an appropriate Revenue lack of merit. The Writ of Preliminary
Regulations. Injunction previously issued is hereby
lifted and dissolved.
Pursuant thereto, Revenue Memorandum Order No. 6-
SO ORDERED.[16]
2003[5] was issued on March 11, 2003, prescribing the
guidelines and procedures in establishing current net
retail prices of new brands of cigarettes and alcohol Petitioner brought the instant petition for review
products. directly with this Court on a pure question of law.
Subsequently, Revenue Regulations No. 22-
2003[6] was issued on August 8, 2003 to implement the While the petition was pending, RA 9334 (An Act
revised tax classification of certain new brands Increasing The Excise Tax Rates Imposed on Alcohol And
introduced in the market after January 1, 1997, based on Tobacco Products, Amending For The Purpose Sections
the survey of their current net retail price. The survey 131, 141, 143, 144, 145 and 288 of the NIRC of 1997, As
revealed that Lucky Strike Filter, Lucky Strike Lights, and Amended), took effect on January 1, 2005. The statute,
Lucky Strike Menthol Lights, are sold at the current net among others,
retail price of P22.54, P22.61 and P21.23, per pack,
(1) increased the excise tax rates
respectively.[7] Respondent Commissioner of the Bureau
provided in paragraph (c) of Section
of Internal Revenue thus recommended the applicable
145;
tax rate of P13.44 per pack inasmuch as Lucky Strikes
average net retail price is above P10.00 per pack.
(2) mandated that new brands
Thus, on September 1, 2003, petitioner filed before the
of cigarettes shall initially be classified
Regional Trial Court (RTC) of Makati, Branch 61, a petition
according to their suggested net retail
for injunction with prayer for the issuance of a temporary
price, until such time that their correct
restraining order (TRO) and/or writ of preliminary
tax bracket is finally determined under a
injunction, docketed as Civil Case No. 03-1032. Said
specified period and, after which, their
petition sought to enjoin the implementation of Section
classification shall remain in force until
145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003,
revised by Congress;
22-2003 and Revenue Memorandum Order No. 6-2003 on
the ground that they discriminate against new brands of
(3) retained Annex D as tax base
cigarettes, in violation of the equal protection and
of those surveyed as of October 1, 1996
uniformity provisions of the Constitution.
including the classification of brands for
the same products which, although not
Respondent Commissioner of Internal Revenue filed an
set forth in said Annex D, were registered
Opposition[8] to the application for the issuance of a
on or before January 1, 1997 and were
being commercially produced and (P6.35) per
pack;
marketed on or after October 1, 1996,
and which continue to be commercially Effective
on January 1,
produced and marketed after the
2007, Six pesos
effectivity of this Act. Said classification and seventy-
shall remain in force until revised by four centavos
(P6.74) per
Congress; and
pack;

(4) provided a legislative freeze Effective

on January 1,
on brands of cigarettes introduced 2009, Seven
between the period January 2, pesos and
1997[17] to December 31, 2003, such that fourteen
centavos
said cigarettesshall remain in the (P7.14) per
classification under which the BIR has pack; and
determined them to belong as
Effective
of December 31, 2003, until revised by on January 1,
Congress. 2011, Seven
pesos and fifty-
six centavos
Pertinent portions, of RA 9334, provides: (P7.56) per
pack.
SEC. 145. Cigars and Cigarettes.
(3) If the net retail price
xxxx (excluding the excise tax and the value-
added tax) exceeds Six pesos and fifty
(C) Cigarettes Packed by centavos (P6.50) but does not exceed
Machine. There shall be levied, assessed Ten pesos (P10.00) per pack, the tax shall
and collected on cigarettes packed by be:
machine a tax at the rates prescribed
below: Effective
on January 1,
(1) If the net retail price 2005, Ten pesos
(excluding the excise tax and the value- and thirty-five
added tax) is below Five pesos (P5.00) centavos
per pack, the tax shall be: (10.35) per
pack;
Effective
on January 1, Effective
2005, Two pesos on January 1,
(P2.00) per 2007, Ten pesos
pack; and eighty-
eight centavos
Effective (P10.88) per
on January 1, pack;
2007, Two pesos
and twenty- Effective
three centavos on January 1,
(P2.23) per 2009, Eleven
pack; pesos and forty-
three centavos
Effective (P11.43) per
on January 1, pack; and
2009, Two pesos
and forty-seven Effective
centavos on January 1,
(P2.47) per 2011, Twelve
pack; and pesos (P12.00)
per pack.
Effective
on January 1, (4) If the net retail price
2011, Two pesos (excluding the excise tax and the value-
and seventy- added tax) is above Ten pesos (P10.00)
two centavos per pack, the tax shall be:
(P2.72) per
pack. Effective
on January 1,
(2) If the net retail price (excluding the 2005, Twenty-
excise tax and the value-added tax) is five pesos
Five pesos (P5.00) but does not exceed (P25.00) per
Six pesos and fifty centavos (P6.50) per pack;
pack, the tax shall be:
Effective
Effective on January 1,
on January 1, 2007, Twenty-six
2005, Six pesos pesos and six
and thirty-five centavos
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 petitioners
products was increased to P25.00 per pack. In the
implementation thereof, respondent Commissioner
assessed petitioners 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 Supplement[19] and a Supplement[20] 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, petitioners 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 a. Exclusive appellate jurisdiction to
review by appeal, as herein
respective Comments-in-Intervention. The Intervenors provided:
claim that they are parties-in-interest who stand to be
1. Decisions of the Commissioner of
affected by the ruling of the Court on the constitutionality
Internal Revenue in cases
of Section 145 of the NIRC and its Annex D because they involving disputed assessments,
are manufacturers of cigarette brands which are refunds of internal revenue
taxes, fees or other charges,
included in the said Annex. Hence, their intervention is
penalties in relation thereto, or
proper since the protection of their interest cannot be other matters arising under the
addressed in a separate proceeding. National Internal Revenue or
other laws administered by the
Bureau of Internal Revenue;
According to the Intervenors, no inequality exists
because cigarettes classified by the BIR based on their 2. Inaction by the Commissioner of
Internal Revenue in cases
net retail price as of December 31, 2003 now enjoy the involving disputed assessments,
samestatus quo provision that prevents the BIR from refunds of internal revenue
reclassifying cigarettes included in Annex D. It added taxes, fees or other charges,
penalties in relations thereto, or
that the Court has no power to pass upon the wisdom of other matters arising under the
the legislature in retaining Annex D in RA 9334; and that National Internal Revenue Code
or other laws administered by
the nullification of said Annex would bring about
the Bureau of Internal Revenue,
tremendous loss of revenue to the government, chaos in where the National Internal
the collection of taxes, illicit trade of cigarettes, and Revenue Code provides a
specific period of action, in
cause decline in cigarette demand to the detriment of
which case the inaction shall be
the farmers who depend on the tobacco industry. deemed a denial; xxx.[25]

Intervenor Fortune Tobacco further contends that

While the above statute confers on the CTA
petitioner is estopped from questioning the
jurisdiction to resolve tax disputes in general, this does not
constitutionality of Section 145 and its implementing rules
include cases where the constitutionality of a law or rule is
and regulations because it entered into the cigarette
challenged. Where what is assailed is the validity or
industry fully aware of the existing tax system and its
constitutionality of a law, or a rule or regulation issued by
consequences. Petitioner imported cigarettes into the
the administrative agency in the performance of its
country knowing that its suggested retail price, which will
quasi-legislative function, the regular courts have
be the initial basis of its tax classification, will be
jurisdiction to pass upon the same. The determination of
confirmed and validated through a survey by the BIR to
whether a specific rule or set of rules issued by an
determine the correct tax that would be levied on its
administrative agency contravenes the law or the
cigarettes.
constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial
Moreover, Fortune Tobacco claims that the
review or the power to declare a law, treaty,
challenge to the validity of the BIR issuances should have
international or executive agreement, presidential
been brought by petitioner before the Court of Tax
decree, order, instruction, ordinance, or regulation in the
Appeals (CTA) and not the RTC because it is the CTA
courts, including the regional trial courts. This is within the
which has exclusive appellate jurisdiction over decisions
scope of judicial power, which includes the authority of
of the BIR in tax disputes.
the courts to determine in an appropriate action the
validity of the acts of the political departments. Judicial
On August 7, 2006, the OSG manifested that it
power includes the duty of the courts of justice to settle
interposes no objection to the motions for
actual controversies involving rights which are legally
intervention.[24] Therefore, considering the substantial
demandable and enforceable, and to determine
interest of the intervenors, and in the higher interest of
whether or not there has been a grave abuse of
justice, the Court admits their intervention.
discretion amounting to lack or excess of jurisdiction on
Before going into the substantive issues of this
the part of any branch or instrumentality of the
case, we must first address the matter of jurisdiction, in
Government.[26]
light of Fortune Tobaccos contention that petitioner
should have brought its petition before the Court of Tax
In Drilon v. Lim,[27] it was held:
Appeals rather than the regional trial court.
We stress at the outset that the
The jurisdiction of the Court of Tax Appeals is lower court had jurisdiction to consider
the constitutionality of Section 187, this
defined in Republic Act No. 1125, as amended by authority being embraced in the general
Republic Act No. 9282. Section 7 thereof states, in definition of the judicial power to
determine what are the valid and
pertinent part:
binding laws by the criterion of their
conformity to the fundamental
Sec. 7. Jurisdiction. The CTA shall law. Specifically, B.P. 129 vests in the
exercise: 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 courts.[28] 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]
In the early case of Kalalo v. Luz,[31] 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 added tax) exceeds Six pesos and fifty
centavos (P6.50) but does not exceed
(C) Cigarettes Packed by Ten pesos (P10.00) per pack, the tax shall
Machine. There shall be levied, assessed be:
and collected on cigarettes packed by
machine a tax at the rates prescribed Effective
below: on January 1,
2005, Ten pesos
(1) If the net retail price and thirty-five
(excluding the excise tax and the value- centavos
added tax) is below Five pesos (P5.00) (10.35) per
per pack, the tax shall be: pack;

Effective Effective
on January 1, on January 1,
2005, Two pesos 2007, Ten pesos
(P2.00) per and eighty-
pack; eight centavos
(P10.88) per
Effective pack;
on January 1,
2007, Two pesos Effective
and twenty- on January 1,
three centavos 2009, Eleven
(P2.23) per pesos and forty-
pack; three centavos
(P11.43) per
Effective pack; and
on January 1,
2009, Two pesos Effective
and forty-seven on January 1,
centavos 2011, Twelve
(P2.47) per pesos (P12.00)
pack; and per pack.

Effective (4) If the net retail price

on January 1, (excluding the excise tax and the value-
2011, Two pesos added tax) is above Ten pesos (P10.00)
and seventy- per pack, the tax shall be:
two centavos
(P2.72) per Effective
pack. on January 1,
2005, Twenty-
(2) If the net retail price (excluding the five pesos
excise tax and the value-added tax) is (P25.00) per
Five pesos (P5.00) but does not exceed pack;
Six pesos and fifty centavos (P6.50) per
pack, the tax shall be: Effective
on January 1,
Effective 2007, Twenty-six
on January 1, pesos and six
2005, Six pesos centavos
and thirty-five (P26.06) per
centavos pack;
(P6.35) per
pack; Effective
on January 1,
Effective 2009, Twenty-
on January 1, seven pesos
2007, Six pesos and sixteen
and seventy- centavos
four centavos (P27.16) per
(P6.74) per pack; and
pack;
Effective
Effective on January 1,
on January 1, 2011, Twenty-
2009, Seven eight pesos and
pesos and thirty centavos
fourteen (P28.30) per
centavos pack.
(P7.14) per
pack; and xxxx

Effective New brands, as defined in the

on January 1, immediately following paragraph, shall
2011, Seven initially be classified according to their
pesos and fifty- suggested net retail price.
six centavos
(P7.56) per New brands shall mean a brand
pack. registered after the date of effectivity of
R.A. No. 8240.
(3) If the net retail price
(excluding the excise tax and the value-
 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-priced[36] 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, manufacturers
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,
Marlboros 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
petitioners 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 petitioners 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
petitioners newly introduced brands
arose only because the former were classified based on
their current net retail price as of October 1,
1996 and petitioners newly introduced brands were
classified based on their current net retail price as of
2003. Without this corresponding freezing of the
classification of petitioners 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 petitioners
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,
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 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." 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'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. 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, 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." 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, 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.'"
Petitioner likewise invoked the
kindred concept of uniformity.
According to the Constitution: "The rule
of taxation shall be uniform and
equitable." This requirement is met
according to Justice Laurel in Philippine
Trust Company v. Yatco, decided in
1940, when the tax "operates with the
same force and effect in every place
where the subject may be found." He
likewise added: "The rule of uniformity
does not call for perfect uniformity or
perfect equality, because this is hardly
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, . . . 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."
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."[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 manufacturers or
importers 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 manufacturers or
importers 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 manufacturers or
importers 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 Houses 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. x x x
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 consumers 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 consumers
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 governments policy of
dismantling monopolies and
combinations in restraint of trade.[56]
For its part, the Senates 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
valoremcomparator. 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
x[60] (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 Senates 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 Congresss 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 Congresss 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
previously classified cigarette brands would be
prevented from moving either upward or downward their
tax brackets despite the changes in their net retail prices
in the future and, as a result, the amount of taxes due
from them would remain predictable. The classification
freeze provision would, thus, aid in the revenue planning
of the government.[71]
All in all, the classification freeze
provision addressed Congresss administrative concerns in
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. Consequently, there
can be no denial of the equal protection of the laws
since the rational-basis test is amply satisfied.
Going now to the contention of petitioner that
the classification freeze provision unduly favors older
brands over newer brands, we must first contextualize the
basis of this claim. As previously discussed, the evidence
presented by the petitioner merely showed that in 2004,
Marlboro and Philip Morris, on the one hand, and Lucky
Strike, on the other, would have been taxed at the same
rate had the classification freeze provision been not in
place. But due to the operation of the classification
freeze provision, Lucky Strike was taxed higher. From here,
petitioner generalizes that this differential tax treatment
arising from the classification freeze provision adversely
impacts the fairness of the playing field in the industry,
particularly, between older and newer brands. Thus, it is
virtually impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate
the exact extent of such impact. It has not been shown
that the net retail prices of other older brands previously
classified under this classification system have already
pierced their tax brackets, and, if so, how this has
affected the overall competition in the market. Further, it
does not necessarily follow that newer brands cannot
compete against older brands because price is not the
only factor in the market as there are other factors like
consumer preference, brand loyalty, etc. In other words,
even if the newer brands are priced higher due to the
differential tax treatment, it does not mean that they
cannot compete in the market especially since
cigarettes contain addictive ingredients so that a
consumer may be willing to pay a higher price for a
particular brand solely due to its unique formulation. It
may also be noted that in 2003, the BIR surveyed 29 new
brands[72] that were introduced in the market after the
effectivity of RA 8240 on January 1, 1997, thus negating
the sweeping generalization of petitioner that
the classification freeze provision has become an
insurmountable barrier to the entry of new brands. Verily,
where there is a claim of breach of the due process and
equal protection clauses, 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. Absent such a showing, the presumption of
validity must prevail.[73]
Be that as it may, petitioners 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--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 states 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 states 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 Congresss
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 states 1. The conduct of survey
covered by this Order, for
objectives. purposes of determining the
current retail prices of new
brands of cigarettes and alcohol
In fine, petitioner may have valid reasons to
products introduced in the
disagree with the policy decision of Congress and the market on or after January 1,
method by which the latter sought to achieve the 1997, shall be undertaken in the
following instances:
same. But its remedy is with Congress and not this
Court. As succinctly articulated in Vance v. Bradley:[77] xxxx

The Constitution presumes that, absent b. For reclassification of new

some reason to infer antipathy, even brands of said excisable
improvident decisions will eventually be products that were introduced
rectified by the democratic process, and in the market after January 1,
that judicial intervention is generally 1997.
unwarranted no matter how unwisely we
may think a political branch has acted. xxxx
Thus, we will not overturn such a statute
unless the varying treatment of different 4. The determination of the
groups or persons is so unrelated to the current retail prices of new
achievement of any combination of brands of the aforesaid
legitimate purposes that we can only excisable products shall be
conclude that the legislature's actions initiated as follows:
were irrational.[78]
xxxx

We now tackle the second issue. b. After the lapse of the

prescribed two-year period or as
the Commissioner may otherwise
Petitioner asserts that Revenue Regulations No. 1- direct, the appropriate tax
97, as amended by Revenue Regulations No. 9-2003, reclassification of these brands
Revenue Regulations No. 22-2003 and Revenue based on the current net retail
prices thereof shall be
Memorandum Order No. 6-2003, are invalid insofar as determined by a survey to be
they empower the BIR to reclassify or update the conducted upon a written
directive by the Commissioner.
classification of new brands of cigarettes based on their
current net retail prices every two years or earlier. It claims For this purpose, a
that RA 8240, even prior to its amendment by RA 9334, memorandum order to the
Assistant Commissioner, Large
did not authorize the BIR to conduct said periodic
Taxpayers Service, Heads, Excise
resurvey and reclassification. Tax Areas, and Regional
Directors of all Revenue Regions,
except Revenue Region Nos. 4,
The questioned provisions are found in the 5, 6, 7, 8 and 9, shall be issued by
following sections of the assailed issuances: the Commissioner for the
submission of the list of major
supermarkets/retail outlets
(1) Section 4(B)(e)(c), 2nd paragraph of where the above excisable
Revenue Regulations No. 1-97, as products are being sold, as well
as the list of selected revenue
amended by Section 2 of Revenue
officers who shall be designated
Regulations 9-2003, viz: to conduct the said activity(ies).

For the purpose of establishing or xxxx

updating the tax classification of new
brands and variant(s) thereof, their 6. The results of the survey
current net retail price shall be reviewed conducted in Revenue Region
periodically through the conduct of Nos. 4 to 9 shall be submitted
survey or any other appropriate activity, directly to the Chief, LT
as mentioned above, every two (2) years Assistance Division II (LTAD II),
unless earlier ordered by the National Office for
Commissioner. However, notwithstanding consolidation. On the other
any increase in the current net retail hand, the results of the survey
price, the tax classification of such new conducted in Revenue Regions
brands shall remain in force until the other than Revenue Region Nos.
same is altered or changed through the 4 to 9, shall be submitted to the
issuance of an appropriate Revenue Office of the Regional Director
Regulations. for regional consolidation. The
consolidated regional survey,
together with the accomplished
survey forms shall be transmitted
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III to the Chief, LTAD II for national
(Large Tax Payers Assistance Division consolidation within three (3)
days from date of actual receipt
II) II(b) of Revenue Memorandum Order
from the survey teams. The LTAD
No. 6-2003, insofar as pertinent to II shall be responsible for the
cigarettes packed by machine, viz: evaluation and analysis of the
submitted survey forms and the
preparation of the
II. POLICIES AND GUIDELINES 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 revenue officers
selected to conduct the survey
shall be clearly indicated
opposite the names of the
establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its
effectivity on January 1, 1997, the BIR issued Revenue
Regulations No. 1-97, dated December 13, 1996, which
mandates a one-time classification only.[79] Upon their
launch, new brands shall be initially taxed based on their
suggested net retail price. Thereafter, a survey shall be
conducted within three (3) months to determine their
current net retail prices and, thus, fix their official tax
classifications. However, the BIR made a turnaround by
issuing Revenue Regulations No. 9-2003, dated February
17, 2003, which partly amended Revenue Regulations No.
1-97, by authorizing the BIR to periodically reclassify new
brands (i.e., every two years or earlier) based on their
current net retail prices. Thereafter, the BIR issued
Revenue Memorandum Order No. 6-2003, dated March
11, 2003, prescribing the guidelines on the
implementation of Revenue Regulations No. 9-2003. This
was patent error on the part of the BIR for being contrary
to the plain text and legislative intent of RA 8240.
It is clear that the afore-quoted portions of
Revenue Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, and Revenue
Memorandum Order No. 6-2003 unjustifiably emasculate
the operation of Section 145 of the NIRC because they
authorize the Commissioner of Internal Revenue to
update the tax classification of new brands every two
years or earlier subject only to its issuance of the
appropriate Revenue Regulations, when nowhere in
Section 145 is such authority granted to the Bureau. Unless
expressly granted to the BIR, the power to reclassify
cigarette brands remains a prerogative of the legislature
which cannot be usurped by the former.
More importantly, as previously discussed, the
clear legislative intent was for new brands to benefit from
the same freezing mechanism accorded to Annex D
brands. To reiterate, in enacting RA 8240, Congress
categorically rejected the DOF proposal and Senate
Version which would have empowered the DOF and BIR
to periodically adjust the excise tax rate and tax
brackets, and to periodically resurvey and reclassify
cigarette brands. (This resurvey and reclassification would
have naturally encompassed both old and new brands.)
It would thus, 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 while limiting the
freezing of the classification to Annex D brands.
Incidentally, Senator Ralph G. Recto expressed the
following views during the deliberations on RA 9334,
which later amended RA 8240:
Senator Recto: Because, like I
said, when Congress agreed to adopt a
specific tax system [under R.A. 8240],
when Congress did not index the
brackets, and Congress did not index the
rates but only provided for a one rate
increase in the year 2000, we shifted
from ad 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 x[80] (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 Strikes 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 petitioners
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 Constitution. Thus, any conflict between
contracting party imported into the the provisions of R.A. No. 6734 and the
territory of any other contracting party provisions of the Tripoli Agreement will
shall not be subject, directly or indirectly, not have the effect of enjoining the
to internal taxes or other internal charges implementation of the Organic
of any kind in excess of those applied, Act. Assuming for the sake of argument
directly or indirectly, to like domestic that the Tripoli Agreement is a binding
products. Moreover, no contracting treaty or international agreement, it
party shall otherwise apply internal taxes would then constitute part of the law of
or other internal charges to imported or the land. But as internal law it would not
domestic products in a manner contrary be superior to R.A. No. 6734, an
to the principles set forth in paragraph 1. enactment of the Congress of the
Philippines, rather it would be in the
same class as the latter [SALONGA,
It claims that it is the duty of this Court to correct, in favor PUBLIC INTERNATIONAL LAW 320 (4th ed.,
of the GATT, whatever inconsistency exists between the 1974), citing Head Money Cases, 112 U.S.
580 (1884) and Foster v. Nelson, 2 Pet.
assailed law and the GATT in order to prevent triggering
253 (1829)]. Thus, if at all, R.A. No. 6734
the international dispute settlement mechanism under would be amendatory of
the GATT-WTO Agreement. the Tripoli Agreement, being a
subsequent law. Only a determination by
this Court that R.A. No. 6734 contravenes
We disagree. the Constitution would result in the
granting of the reliefs sought. (Emphasis
supplied)
The classification freeze provision uniformly
applies to all newly introduced brands in the market,
WHEREFORE, the petition is PARTIALLY
whether imported or locally manufactured. It does not
GRANTED and the decision of the Regional Trial Court of
purport to single out imported cigarettes in order to
Makati, Branch 61, in Civil Case No. 03-1032,
unduly favor locally produced ones. Further, petitioners
is AFFIRMEDwith MODIFICATION. As modified, this Court
evidence was anchored on the alleged unequal tax
declares that:
treatment between old and new brands which involves a
different frame of reference vis--vis local and imported
(1) Section 145 of the NIRC, as amended by
products. Petitioner has, therefore, failed to clearly prove
Republic Act No. 9334, is CONSTITUTIONAL; and that
its case, both factually and legally, within the parameters
of the GATT.
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue
Regulations No. 1-97, as amended by Section 2 of
At any rate, even assuming arguendo that
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b),
petitioner was able to prove that the classification freeze
II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
provision violates the GATT, the outcome would still be
Revenue Memorandum Order No. 6-2003, insofar as
the same. The GATT is a treaty duly ratified by the
pertinent to cigarettes packed by machine,
Philippine Senate and under Article VII, Section 21 [81] of
are INVALID insofar as they grant the BIR the power to
the Constitution, it merely acquired the status of a
reclassify or update the classification of new brands every
statute.[82] Applying the basic principles of statutory
two years or earlier.
construction in case of irreconcilable conflict between
statutes, RA 8240, as amended by RA 9334, would prevail
SO ORDERED.
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
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General,
HON. BRIGIDO R. VALENCIA, in his capacity as Secretary
of Public Works and Communications, and DOMINGO
GOPEZ, in his capacity as Acting Postmaster of San
Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for
petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant
Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic
Act 1635,1 as amended by Republic Act 2631,2 which
provides as follows:
To help raise funds for the Philippine Tuberculosis
Society, the Director of Posts shall order for the
period from August nineteen to September thirty
every year the printing and issue of semi-postal
stamps of different denominations with face
value showing the regular postage charge plus
the additional amount of five centavos for the
said purpose, and during the said period, no mail
matter shall be accepted in the mails unless it
bears such semi-postal stamps: Provided, That no
such additional charge of five centavos shall be
imposed on newspapers. The additional
proceeds realized from the sale of the semi-
postal stamps shall constitute a special fund and
be deposited with the National Treasury to be
expended by the Philippine Tuberculosis Society
in carrying out its noble work to prevent and
eradicate tuberculosis.
The respondent Postmaster General, in implementation of
the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August
28, 1958), and 10 (July 15, 1960). All these administrative
orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made
available during the period from August 19 to
September 30, 1957, for lack of time. However,
two denominations of such stamps, one at "5 + 5"
centavos and another at "10 + 5" centavos, will
soon be released for use by the public on their
mails to be posted during the same period
starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September
30 each year starting in 1958, no mail matter of
whatever class, and whether domestic or foreign,
posted at any Philippine Post Office and
addressed for delivery in this country or abroad,
shall be accepted for mailing unless it bears at
least one such semi-postal stamp showing the
additional value of five centavos intended for
the Philippine Tuberculosis Society.
In the case of second-class mails and mails
prepaid by means of mail permits or impressions
of postage meters, each piece of such mail shall
bear at least one such semi-postal stamp if
posted during the period above stated starting
with the year 1958, in addition to being charged
the usual postage prescribed by existing
regulations. In the case of business reply
envelopes and cards mailed during said period,
such stamp should be collected from the
addressees at the time of delivery. Mails entitled
to franking privilege like those from the office of
the President, members of Congress, and other
offices to which such privilege has been granted,
shall each also bear one such semi-postal stamp
if posted during the said period.
Mails posted during the said period starting in
1958, which are found in street or post-office mail
boxes without the required semi-postal stamp,
shall be returned to the sender, if known, with a
notation calling for the affixing of such stamp. If
the sender is unknown, the mail matter shall be
treated as nonmailable and forwarded to the
Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm.
Order 3, reads as follows:
In the case of the following categories of mail
matter and mails entitled to franking privilege
which are not exempted from the payment of
the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be
collected in cash, for which official receipt
(General Form No. 13, A) shall be issued, instead
of affixing the semi-postal stamp in the manner
hereinafter indicated:
1. Second-class mail. — Aside from the postage
at the second-class rate, the extra charge of five
centavos for the Philippine Tuberculosis Society
shall be collected on each separately-addressed
piece of second-class mail matter, and the total
sum thus collected shall be entered in the same
official receipt to be issued for the postage at the
second-class rate. In making such entry, the total
number of pieces of second-class mail posted
shall be stated, thus: "Total charge for TB Fund on
100 pieces . .. P5.00." The extra charge shall be
entered separate from the postage in both of
the official receipt and the Record of Collections.
2. First-class and third-class mail permits. — Mails
to be posted without postage affixed under
permits issued by this Bureau shall each be
charged the usual postage, in addition to the
five-centavo extra charge intended for said
society. The total extra charge thus received shall
be entered in the same official receipt to be
issued for the postage collected, as in
subparagraph 1.
3. Metered mail. — For each piece of mail matter
impressed by postage meter under metered mail
permit issued by this Bureau, the extra charge of
five centavos for said society shall be collected in
cash and an official receipt issued for the total
sum thus received, in the manner indicated in
subparagraph 1.
4. Business reply cards and envelopes. — Upon
delivery of business reply cards and envelopes to
holders of business reply permits, the five-centavo
charge intended for said society shall be
collected in cash on each reply card or
envelope delivered, in addition to the required
postage which may also be paid in cash. An
official receipt shall be issued for the total
postage and total extra charge received, in the
manner shown in subparagraph 1.
5. Mails entitled to franking privilege. —
Government agencies, officials, and other
persons entitled to the franking privilege under
existing laws may pay in cash such extra charge
intended for said society, instead of affixing the
semi-postal stamps to their mails, provided that
such mails are presented at the post-office
window, where the five-centavo extra charge for
said society shall be collected on each piece of
such mail matter. In such case, an official receipt
 shall be issued for the total sum thus collected, in
the manner stated in subparagraph 1.
Mail under permits, metered mails and franked
mails not presented at the post-office window
shall be affixed with the necessary semi-postal
stamps. If found in mail boxes without such
stamps, they shall be treated in the same way as
herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended,
exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions."
Adm. Order 10, amending Adm. Order 3, as amended,
exempts "copies of periodical publications received for
mailing under any class of mail matter, including
newspapers and magazines admitted as second-class
mail."
The FACTS. On September l5, 1963 the petitioner Benjamin
P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a
certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp
required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for
declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as
well as the implementing administrative orders issued,
contending that it violates the equal protection clause of
the Constitution as well as the rule of uniformity and
equality of taxation. The lower court declared the statute
and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
For the reasons set out in this opinion, the judgment
appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to
dispose of the respondents' contention that declaratory
relief is unavailing because this suit was filed after the
petitioner had committed a breach of the statute. While
conceding that the mailing by the petitioner of a letter
without the additional anti-TB stamp was a violation of
Republic Act 1635, as amended, the trial court
nevertheless refused to dismiss the action on the ground
that under section 6 of Rule 64 of the Rules of Court, "If
before the final termination of the case a breach or
violation of ... a statute ... should take place, the action
may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief
is that it must be brought "before breach or violation" of
the statute has been committed. Rule 64, section 1 so
provides. Section 6 of the same rule, which allows the
court to treat an action for declaratory relief as an
ordinary action, applies only if the breach or violation
occurs after the filing of the action but before the
termination thereof.3
Hence, if, as the trial court itself admitted, there had
been a breach of the statute before the firing of this
action, then indeed the remedy of declaratory relief
cannot be availed of, much less can the suit be
converted into an ordinary action.
Nor is there merit in the petitioner's argument that the
mailing of the letter in question did not constitute a
breach of the statute because the statute appears to be
addressed only to postal authorities. The statute, it is true,
in terms provides that "no mail matter shall be accepted
in the mails unless it bears such semi-postal stamps." It
does not follow, however, that only postal authorities can
be guilty of violating it by accepting mails without the
payment of the anti-TB stamp. It is obvious that they can
be guilty of violating the statute only if there are people
who use the mails without paying for the additional anti-
TB stamp. Just as in bribery the mere offer constitutes a
breach of the law, so in the matter of the anti-TB stamp
the mere attempt to use the mails without the stamp
constitutes a violation of the statute. It is not required that
the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the
liability of postal officials.
Nevertheless, we are of the view that the petitioner's
choice of remedy is correct because this suit was filed not
only with respect to the letter which he mailed on
September 15, 1963, but also with regard to any other
mail that he might send in the future. Thus, in his
complaint, the petitioner prayed that due course be
given to "other mails without the semi-postal stamps
which he may deliver for mailing ... if any, during the
period covered by Republic Act 1635, as amended, as
well as other mails hereafter to be sent by or to other
mailers which bear the required postage, without
collection of additional charge of five centavos
prescribed by the same Republic Act." As one whose mail
was returned, the petitioner is certainly interested in a
ruling on the validity of the statute requiring the use of
additional stamps.
II.
We now consider the constitutional objections raised
against the statute and the implementing orders.
1. It is said that the statute is violative of the equal
protection clause of the Constitution. More specifically
the claim is made that it constitutes mail users into a class
for the purpose of the tax while leaving untaxed the rest
of the population and that even among postal patrons
the statute discriminatorily grants exemption to
newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar
exemption to offices performing governmental functions.
.
The five centavo charge levied by Republic Act 1635, as
amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the
mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the
inherent power to select the subjects of taxation and to
grant exemptions.4 This power has aptly been described
as "of wide range and flexibility."5 Indeed, it is said that in
the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in
classification.6 The reason for this is that traditionally,
classification has been a device for fitting tax programs
to local needs and usages in order to achieve an
equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of
course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some
reasonable relationship to the end sought to be attained,
and that absent such relationship the selection of mail
users is constitutionally impermissible. This is altogether a
different proposition. As explained in Commonwealth v.
Life Assurance Co.:8
While the principle that there must be a
reasonable relationship between classification
made by the legislation and its purpose is
undoubtedly true in some contexts, it has no
application to a measure whose sole purpose is
to raise revenue ... So long as the classification
imposed is based upon some standard capable
of reasonable comprehension, be that standard
based upon ability to produce revenue or some
other legitimate distinction, equal protection of
the law has been afforded. See Allied Stores of
Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S.
Ct. at 441; Brown Forman Co. v. Commonwealth
of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580
(1910).
We are not wont to invalidate legislation on equal
protection grounds except by the clearest demonstration
that it sanctions invidious discrimination, which is all that
the Constitution forbids. The remedy for unwise legislation
must be sought in the legislature. Now, the classification
of mail users is not without any reason. It is based on
ability to pay, let alone the enjoyment of a privilege, and
on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the
contribution to the anti-TB fund can be assured by those
whose who can afford the use of the mails.
The classification is likewise based on considerations of
administrative convenience. For it is now a settled
principle of law that "consideration of practical
administrative convenience and cost in the
administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined
class."9 In the case of the anti-TB stamps, undoubtedly,
the single most important and influential consideration
that led the legislature to select mail users as subjects of
the tax is the relative ease and convenienceof collecting
the tax through the post offices. The small amount of five
centavos does not justify the great expense and
inconvenience of collecting through the regular means
of collection. On the other hand, by placing the duty of
collection on postal authorities the tax was made almost
self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the
statute constituted mail users into a class. Mail users were
already a class by themselves even before the
enactment of the statue and all that the legislature did
was merely to select their class. Legislation is essentially
empiric and Republic Act 1635, as amended, no more
than reflects a distinction that exists in fact. As Mr. Justice
Frankfurter said, "to recognize differences that exist in fact
is living law; to disregard [them] and concentrate on
some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the
State's power to grant exemption must likewise be
conceded as a necessary corollary. Tax exemptions are
too common in the law; they have never been thought
of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because
certain mail users are exempted from the levy the law
and administrative officials have sanctioned an invidious
discrimination offensive to the Constitution. The
application of the lower courts theory would require all
mail users to be taxed, a conclusion that is hardly tenable
in the light of differences in status of mail users. The
Constitution does not require this kind of equality.
As the United States Supreme Court has said, the
legislature may withhold the burden of the tax in order to
foster what it conceives to be a beneficent
enterprise.11 This is the case of newspapers which, under
the amendment introduced by Republic Act 2631, are
exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their
exemption rests on the State's sovereign immunity from
taxation. The State cannot be taxed without its consent
and such consent, being in derogation of its sovereignty,
is to be strictly construed.12 Administrative Order 9 of the
respondent Postmaster General, which lists the various
offices and instrumentalities of the Government exempt
from the payment of the anti-TB stamp, is but a
restatement of this well-known principle of constitutional
law.
The trial court likewise held the law invalid on the ground
that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public
health. But it is never a requirement of equal protection
that all evils of the same genus be eradicated or none at
all.13 As this Court has had occasion to say, "if the law
presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it
might have been applied."14
2. The petitioner further argues that the tax in question is
invalid, first, because it is not levied for a public purpose
as no special benefits accrue to mail users as taxpayers,
and second, because it violates the rule of uniformity in
taxation.
The eradication of a dreaded disease is a public purpose,
but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer
is constitutionally entitled is that derived from his
enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of
taxes to public purposes. Any other view would preclude
the levying of taxes except as they are used to
compensate for the burden on those who pay them and
would involve the abandonment of the most
fundamental principle of government — that it exists
primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation
infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the
weight of the mail or the extent of the service rendered.
We have said that considerations of administrative
convenience and cost afford an adequate ground for
classification. The same considerations may induce the
legislature to impose a flat tax which in effect is a charge
for the transaction, operating equally on all persons within
the class regardless of the amount involved.16 As Mr.
Justice Holmes said in sustaining the validity of a stamp
act which imposed a flat rate of two cents on every $100
face value of stock transferred:
One of the stocks was worth $30.75 a share of the
face value of $100, the other $172. The inequality
of the tax, so far as actual values are concerned,
is manifest. But, here again equality in this sense
has to yield to practical considerations and
usage. There must be a fixed and indisputable
mode of ascertaining a stamp tax. In another
sense, moreover, there is equality. When the
taxes on two sales are equal, the same number
of shares is sold in each case; that is to say, the
same privilege is used to the same extent.
Valuation is not the only thing to be considered.
As was pointed out by the court of appeals, the
familiar stamp tax of 2 cents on checks,
irrespective of income or earning capacity, and
many others, illustrate the necessity and practice
of sometimes substituting count for weight ...17
According to the trial court, the money raised from the
sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization,
without appropriation by law. But as the Solicitor General
points out, the Society is not really the beneficiary but
only the agency through which the State acts in carrying
out what is essentially a public function. The money is
treated as a special fund and as such need not be
appropriated by law.18
3. Finally, the claim is made that the statute is so broadly
drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed,
this is one of the grounds on which the lower court
invalidated Republic Act 1631, as amended, namely,
that it constitutes an undue delegation of legislative
power.
Administrative Order 3, as amended by Administrative
Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business
reply cards, etc.), the five-centavo charge may be paid
in cash instead of the purchase of the anti-TB stamp. It
further states that mails deposited during the period
August 19 to September 30 of each year in mail boxes
without the stamp should be returned to the sender, if
known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the
collection of five centavos except through the sale of
anti-TB stamps, but such authority may be implied in so far
as it may be necessary to prevent a failure of the
undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally
construed, consistent with the principle that where the
end is required the appropriate means are given.19

The anti-TB stamp is a distinctive stamp which shows on its

face not only the amount of the additional charge but
also that of the regular postage. In the case of business
reply cards, for instance, it is obvious that to require
mailers to affix the anti-TB stamp on their cards would be
to make them pay much more because the cards
likewise bear the amount of the regular postage.

It is likewise true that the statute does not provide for the
disposition of mails which do not bear the anti-TB stamp,
but a declaration therein that "no mail matter shall be
accepted in the mails unless it bears such semi-postal
stamp" is a declaration that such mail matter is
nonmailable within the meaning of section 1952 of the
Administrative Code. Administrative Order 7 of the
Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for
Administrative Order 9, we have already said that in
listing the offices and entities of the Government exempt
from the payment of the stamp, the respondent
Postmaster General merely observed an established
principle, namely, that the Government is exempt from
taxation.

ACCORDINGLY, the judgment a quo is reversed, and the

complaint is dismissed, without pronouncement as to
costs.
G.R. No. 127410 January 20, 1999
CONRADO L. TIU, JUAN T. MONTELIBANO JR. and ISAGANI
M. JUNGCO, petitioners,
vs.
COURT OF APPEALS, HON. TEOFISTO T. GUINGONA JR.,
BASES CONVERSION AND DEVELOPMENT AUTHORITY,
SUBIC BAY METROPOLITAN AUTHORITY, BUREAU OF
INTERNAL REVENUE, CITY TREASURER OF OLONGAPO and
MUNICIPAL TREASURER OF SUBIC, ZAMBALES, respondents.
PANGANIBAN, J.:
The constituttional rights to equal protection of the law is
not violated by an executive order, issued pursuant to
law, granting tax and duty incentives only to the bussiness
and residents within the "secured area" of the Subic
Special Econimic Zone and denying them to those who
live within the Zone but outside such "fenced-in" territory.
The Constitution does not require absolute equality
among residents. It is enough that all persons under like
circumstances or conditions are given the same
privileges and required to follow the same obligations. In
short, a classification based on valid and reasonable
standards does not violate the equal protection clause.
The Case
Before us is a petition for review under Rule 45 of the Rules
of Court, seeking the reversal of the Court of Appeals'
Decision1 promulgated on August 29, 1996, and
Resolution2 dated November 13, 1996, in CA-GR SP No.
37788. 3 The challenged Decision upheld the
constitutionality and validity of Executive Order No. 97-A
(EO 97-A), according to which the grant and enjoyment
of the tax and duty incentives authorized under Republic
Act No. 7227 (RA 7227) were limited to the business
enterprises and residents within the fenced-in area of the
Subic Special Economic Zone (SSEZ).
The assailed Resolution denied the petitioners' motion for
reconsideration.
On March 13, 1992, Congress, with the approval of the
President, passed into law RA 7227 entitled "An Act
Accelerating the Conversion of Military Reservations Into
Other Productive Uses, Creating the Bases Conversion
and Development Authority for this Purpose, Providing
Funds Therefor and for Other Purposes." Section 12 thereof
created the Subic Special Economic Zone and granted
there to special privileges, as follows:
Sec. 12. Subic Special Economic Zone. —
Subject to the concurrence by resolution
of thesangguniang panlungsod of the
City of Olongapo and the sangguniang
bayan of the Municipalities of Subic,
Morong and Hermosa, there is hereby
created a Special Economic and Free-
port Zone consisting of the City of
Olongapo and the Municipality of Subic,
Province of Zambales, the lands
occupied by the Subic Naval Base and
its contiguous extensions as embraced,
covered, and defined by the 1947
Military Bases Agreement between the
Philippines and the United States of
America as amended, and within the
territorial jurisdiction of the Municipalities
of Morong and Hermosa, Province of
Bataan, hereinafter referred to as the
Subic Special Economic Zone whose
metes and bounds shall be delineated in
a proclamation to be issued by the
President of the Philippines. Within thirty
(30) days after the approval of this Act,
each local government unit shall submit
its resolution of concurrence to join the
Subic Special Economic Zone to the
Office of the President. Thereafter, the
President of the Philippines shall issue a
proclamation defining the metes and
bounds of the zone as provided herein.
The abovementioned zone shall be
subject to the following policies:
(a) Within the framework and subject to
the mandate and limitations of the
Constitution and the pertinent provisions
of the Local Government Code, the
Subic Special Economic Zone shall be
developed into a self-sustaining,
industrial, commercial, financial and
investment center to generate
employment opportunities in and around
the zone and to attract and promote
productive foreign investments;
(b) The Subic Special Economic Zone
shall be operated and managed as a
separate customs territory ensuring free
flow or movement of goods and capital
within, into and exported out of the
Subic Special Economic Zone, as well as
provide incentives such as tax and duty-
free importations of raw materials,
capital and equipment. However,
exportation or removal of goods from
the territory of the Subic Special
Economic Zone to the other parts of the
Philippine territory shall be subject to
customs duties and taxes under the
Customs and Tariff Code and other
relevant tax laws of the Philippines;
(c) The provision of existing laws, rules
and regulations to the contrary
notwithstanding, no taxes, local and
national, shall be imposed within the
Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the
gross income earned by all businesses
and enterprises within the Subic Special
Economic Zone shall be remitted to the
National Government, one percent (1%)
each to the local government units
affected by the declaration of the zone
in proportion to their population area,
and other factors. In addition, there is
hereby established a development fund
of one percent (1%) of the gross income
earned by all businesses and enterprises
within the Subic Special Economic Zone
to be utilized for the development of
municipalities outside the City of
Olongapo and the Municipality of Subic,
and other municipalities contiguous to
the base areas.
In case of conflict between national and
local laws with respect to tax exemption
privileges in the Subic Special Economic
Zone, the same shall be resolved in favor
of the latter;
(d) No exchange control policy shall be
applied and free markets for foreign
exchange, gold, securities and future
shall be allowed and maintained in the
Subic Special Economic Zone;
(e) The Central Bank, through the
Monetary Board, shall supervise and
regulate the operations of banks and
other financial institutions within the Subic
Special Economic Zone;
(f) Banking and finance shall be
liberalized with the establishment of
foreign currency depository units of local
 commercial banks and offshore banking
units of foreign banks with minimum
Central Bank regulation;
(g) Any investor within the Subic Special
Economic Zone whose continuing
investment shall not be less than two
hundred fifty thousand dollars ($250,000),
his/her spouse and dependent children
under twenty-one (21) years of age, shall
be granted permanent resident status
within the Subic Special Economic Zone.
They shall have the freedom of ingress
and egress to and from the Subic Special
Economic Zone without any need of
special authorization form the Bureau of
Immigration and Deportation. The Subic
Bay Metropolitan Authority referred to in
Section 13 of this Act may also issue
working visas renewable every two (2)
years to foreign executives and other
aliens possessing highly technical skills
which no Filipino within the Subic Special
Economic Zone possesses, as certified by
the Department of Labor and
Employment. The names of aliens
granted permanent residence status
and working visas by the Subic Bay
Metropolitan Authority shall be reported
to the Bureau of Immigration and
Deportation within thirty (30) days after
issuance thereof;
(h) The defense of the zone and the
security of its perimeters shall be the
responsibility of the National Government
in coordination with the Subic Bay
Metropolitan Authority. The Subic Bay
Metropolitan Authority shall provide and
establish its own security and fire-fighting
forces; and
(i) Except as herein provided, the local
government units comprising the Subic
Special Economic Zone shall retain their
basic autonomy and identity. The cities
shall be governed by their respective
charters and the municipalities shall
operate and function in accordance
with Republic Act No. 7160, otherwise
known as the Local Government Code
of 1991.
On June 10, 1993, then President Fidel V. Ramos issued
Executive Order No. 97 (EO 97), clarifying the application
of the tax and duty incentives thus:
Sec. 1. On Import Taxes and
Duties. — Tax and duty-free importations
shall apply only to raw materials, capital
goods and equipment brought in by
business enterprises into the SSEZ. Except
for these items, importations of other
goods into the SSEZ, whether by business
enterprises or resident individuals, are
subject to taxes and duties under
relevant Philippine laws.
The exportation or removal of tax and
duty-free goods from the territory of the
SSEZ to other parts of the Philippine
territory shall be subject to duties and
taxes under relevant Philippine laws.
Sec. 2. On All Other Taxes. — In lieu of all
local and national taxes (except import
taxes and duties), all business enterprises
in the SSEZ shall be required to pay the
tax specified in Section 12(c) of R.A. No.
7227.
Nine days after, on June 19, 1993, the President issued
Executive Order No. 97-A (EO 97-A), specifying the area
within which the tax-and-duty-free privilege was
operative, viz.:
Sec. 1.1. The Secured Area consisting of
the presently fenced-in former Subic
Naval Base shall be the only completely
tax and duty-free area in the SSEFPZ
[Subic Special Economic and Free Port
Zone]. Business enterprises and
individuals (Filipinos and foreigners)
residing within the Secured Area are free
to import raw materials, capital goods,
equipment, and consumer items tax and
duty-free. Consumption items, however,
must be consumed within the Secured
Area. Removal of raw materials, capital
goods, equipment and consumer items
out of the Secured Area for sale to non-
SSEFPZ registered enterprises shall be
subject to the usual taxes and duties,
except as may be provided herein.
On October 26, 1994, the petitioners challenged before
this Court the constitutionality of EO 97-A for allegedly
being violative of their right to equal protection of the
laws. In a Resolution dated June 27, 1995, this Court
referred the matter to the Court of Appeals, pursuant to
Revised Administrative Circular No. 1-95.
Incidentally, on February 1, 1995, Proclamation No. 532
was issued by President Ramos. It delineated the exact
metes and bounds of the Subic Special Economic and
Free Port Zone, pursuant to Section 12 of RA 7227.
Ruling of the Court of Appeals
Respondent Court held that "there is no substantial
difference between the provisions of EO 97-A and
Section 12 of RA 7227. In both, the 'Secured Area' is
precise and well-defined as '. . . the lands occupied by
the Subic Naval Base and its contiguous extensions as
embraced, covered and defined by the 1947 Military
Bases Agreement between the Philippines and the United
States of America, as amended . . .'" The appellate court
concluded that such being the case, petitioners could
not claim that EO 97-A is unconstitutional, while at the
same time maintaining the validity of RA 7227.
The court a quo also explained that the intention of
Congress was to confine the coverage of the SSEZ to the
"secured area" and not to include the "entire Olongapo
City and other areas mentioned in Section 12 of the law."
It relied on the following deliberarions in the Senate:
Senator Paterno. Thank you, Mr.
President. My first question is the extent of
the economic zone. Since this will be a
free port, in effect, I believe that it is
important to delineate or make sure that
the delineation will be quite precise[. M]y
question is: Is it the intention that the
entire of Olongapo City, the Municipality
of Subic and the Municipality of
Dinalupihan will be covered by the
special economic zone or only portions
thereof?
Senator Shahani. Only portions, Mr.
President. In other words, where the
actual operations of the free port will
take place.
Senator Paterno. I see. So, we should say,
"COVERING THE DESIGNATED PORTIONS
OR CERTAIN PORTIONS OF OLONGAPO
CITY, SUBIC AND DINALUPIHAN" to make
it clear that it is not supposed to cover
the entire area of all of these territories.
 Senator Shahani. So, the Gentleman is
proposing that the words "CERTAIN
AREAS". . .
The President. The Chair would want to
invite the attention of the Sponsor and
Senator Paterno to letter "C," which says:
"THE PRESIDENT OF THE PHILIPPINES IS
HEREBY AUTHORIZED TO PROCLAIM,
DELINEATE AND SPECIFY THE METES AND
BOUNDS OF OTHER SPECIAL ECONOMIC
ZONES WHICH MAY BE CREATED IN THE
CLARK MILITARY RESERVATIONS AND ITS
EXTENSIONS."
Probably, this provision can be
expanded since, apparently, the
intention is that what is referred to in
Olongapo as Metro Olongapo is not by
itself ipso jure already a special
economic zone.
Senator Paterno. That is correct.
The President. Someone, some authority
must declare which portions of the same
shall be the economic zone. Is it the
intention of the author that it is the
President of the Philippines who will make
such delineation?
Senator Shahani. Yes Mr. President.
The Court of Appeals further justified the limited
application of the tax incentives as being within the
prerogative of the legislature, pursuant to its "avowed
purpose [of serving] some public benefit or interest." It
ruled that "EO 97-A merely implements the legislative
purpose of [RA 7227]."
Disagreeing, petitioners now seek before us a review of
the aforecited Court of Appeals Decision and Resolution.
The Issue
Petitioners submit the following issue for the resolution of
the Court:
[W]hether or not Executive Order No. 97-
A violates the equal protection clause of
the Constitution. Specifically the issue is
whether the provisions of Executive
Order No. 97-A confining the application
of R.A. 7227 within the secured area and
excluding the residents of the zone
outside of the secured area is
discriminatory or not.4
The Court's Ruling
The petition 5 is bereft of merit.
Main Issue:
The Constitionality of EO 37-A
Citing Section 12 of RA 7227, petitioners contend that the
SSEZ encompasses (1) the City of Olongapo, (2) the
Municipality of Subic in Zambales, and (3) the area
formerly occupied by the Subic Naval Base. However, EO
97-A, according to them, narrowed down the area within
which the special privileges granted to the entire zone
would apply to the present "fenced-in former Subic Naval
Base" only. It has thereby excluded the residents of the
first two components of the zone from enjoying the
benefits granted by the law. It has effectively
discriminated against them without reasonable or valid
standards, in contravention of the equal protection
guarantee.
On the other hand, the solicitor general defends, on
behalf of respondents, the validity of EO 97-A, arguing
that Section 12 of RA 7227 clearly vests in the President
the authority to delineate the metes and bounds of the
SSEZ. He adds that the issuance fully complies with the
requiretnents of a valid classification.
We rule in favor of the constitutionality and validity of the
assailed EO. Said Order is not violative of the equal
protection clause; neither is it discriminatory. Rather, than
we find real and substantive distinctions between the
circumstances obtain;ng inside and those outside the
Subic Naval Base, thereby justifying a valid and
reasonable classification.
The fundamental right of equal protection of the laws is
not absolute, but is subject to reasonable classification. If
the groupings are characterized by substantial
distinctions that make real differences, one class may be
treated and regulated differently from another. 6 The
classification must also be germane to the purpose of the
law and must apply to all those belonging to the same
class. Explaining the nature of the equal protection
guarantee, the Court in Ichong v. Hernandez 8 said:
The equal protection of the law clause is
against undue favor and individual or
class privilege, as well as hostile
discrimination or the oppression of
inequality. It is not intended to prohibit
legislation which is limited either [by] the
object to which it is directed or by [the]
territory within which it is to operate. It
does not demand absolute equality
among residents; it merely requires that
all persons shall be treated alike, under
like circumstances and conditions both
as to privileges conferred and liabilities
enforced. The equal protection clause is
not infringed by legislation which applies
only to those persons falling within a
specified class, if it applies alike to all
persons within such class, and
reasonable. grounds exist for making a
distinction between those who fall within
such class and those who do not.
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law, (3)
not be limited to existing conditions only, and (4) apply
equally to all members of the same class. 9
We first determine the purpose of the law. From the very
title itself, it is clear that RA 7227 aims primarily
toaccelerate the conversion of military reservations into
productive uses. Obviously, the "lands covered under the
1947 Military Bases Agreement" are its object. Thus, the
law avows this policy:
Sec. 2. Declaration of Policies. — It is
hereby declared the policy of the
Government to accelerate the sound
and balanced conversion into
alternative productive uses of the Clark
and Subic military reservations and their
extensions (John Hay Station, Wallace Air
Station, O'Donnell Transmitter Station,
San Miguel Naval Communications
Station and Capas Relay Station), to
raise funds by the sale of portions of
Metro Manila military camps, and to
apply said funds as provided herein for
the development and conversion to
productive civilian use of the lands
covered under the 1947 Military Bases
Agreement between the Philippines and
the United States of America, as
amended.
To undertake the above objectives, the same law
created the Bases Conversion and Development
Authority, some of whose relevant defined purposes are:
 (b) To adopt, prepare and implement a
comprehensive and detailed
development plan embodying a list of
projects including but not limited to
those provided in the Legislative-
Executive Bases Council (LEBC)
framework plan for the sound and
balanced conversion of the Clark and
Subic military reservations and their
extensions consistent with ecological
and environmental standards, into other
productive uses to promote the
economic and social development of
Central Luzon in particular and the
country in general;
(c). To encourage the active
participation of the private sector in
transforming the Clark and Subic military
reservations and their extensions into
other productive uses;
Further, in creating the SSEZ, the law declared it a policy
to develop the zone into a "self-sustaining, industrial,
commercial, financial and investment center."10
From the above provisions of the law, it can easily be
deduced that the real concern of RA 7227 is to convert
the lands formerly occupied by the US military bases into
economic or industrial areas. In furtherance of such
objective, Congress deemed it necessary to extend
economic incentives to attract and encourage investors,
both local and foreign. Among such enticements
are:11 (1) a separate customs territory within the zone, (2)
tax-and-duty-free importation's, (3) restructured income
tax rates on business enterprises within the zone, (4) no
foreign exchange control, (5) liberalized regulations on
banking and finance, and (6) the grant of resident status
to certain investors and of working visas to certain foreign
executives and workers .
requisite investment capital can always avail of the same
benefits by channeling his or her resources or business
operations into the fenced-off free port zone.
We believe that the classification set forth by the
executive issuance does not apply merely to existing
conditions. As laid down in RA 7227, the objective is to
establish a "self-sustaining, industrial, commercial,
financial and investment center" in the area. There will,
therefore, be a long-term difference between such
investment center and the areas outside it.
Lastly, the classification applies equally to all the resident
individuals and businesses within the "secured area." The
residents, being in like circumstances or contributing
directly to the achievement of the end purpose of the
law, are not categorized further. Instead, they are all
similarly treated, both in privileges granted and in
obligations required.
All told, the Court holds that no undue favor or privilege
was extended. The classification occasioned by EO 97-A
was not unreasonable, capricious or unfounded. To
repeat, it was based, rather, on fair and substantive
considerations that were germane to the legislative
purpose.
WHEREFORE, the petition is DENIED for lack of merit. The
assailed Decision and Resolution are hereby AFFIRMED.
Costs against petitioners.1âwphi1.nêt
SO ORDERED.

We believe it was reasonable for the President to have

delimited the application of some incentives to the
confines of the former Subic military base. It is this specific
area which the government intends to transform and
develop from its status quo ante as an abandoned naval
facility into a self-sustaining industrial and commercial
zone, particularly for big foreign and local investors to use
as operational bases for their businesses and industries.
Why the seeming bias for the big investors? Undeniably,
they are the ones who can pour huge investments to spur
economic growth in the country and to generate
employment opportunities for the Filipinos, the ultimate
goals of the government for such conversion. The
classification is, therefore, germane to the purposes of the
law. And as the legal maxim goes, "The intent of a statute
is the law."12

Certainly, there are substantial differences between the

big investors who are being lured to establish and
operate their industries in the so-called "secured area"
and the present business operators outside the area. On
the one hand, we are talking of billion-peso investments
and thousands of new, jobs. On the other hand, definitely
none of such magnitude. In the first, the economic
impact will be national; in the second, only local. Even
more important, at this time the business activities outside
the "secured area" are not likely to have any impact in
achieving the purpose of the law, which is to turn the
former military base to productive use for the benefit of
the Philippine economy. There is, then, hardly any
reasonable basis to extend to them the benefits and
incentives accorded in RA 7227. Additionally, as the
Court of Appeals pointed out, it will be easier to manage
and monitor the activities within the "secured area,"
which is already fenced off, to prevent "fraudulent
importation of merchandise" or smuggling.

It is well-settled that the equal-protection guarantee does

not require territorial uniformity of laws.13 As long as there
are actual and material differences between territories,
there is no violation of the constitutional clause. And of
course, anyone, including the petitioners, possessing the
G.R. No. L-3538 May 28, 1952
JUAN LUNA SUBDIVISION, INC., plaintiff-appellee,
vs.
M. SARMIENTO, ET AL., defendants-appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellee.
City Fiscal Eugenio Angeles and Assistant Fiscal Cornelio
S. Ruperto for appellant.
La O and Feria for defendant Philippine Trust Co.
TUASON, J.:
This is an appeal by the City Treasure of the City of Manila
from the following judgment handed down in the above-
entitled cause:
POR TODAS CONSIDERACIONES, el Jugado dicta
sentencia ordenado: que el demandado
Tesorero de la Ciudad de Manila pague a la
demandante la cantidad de P2,210.52 sin
intereses; que la demandada Philippine Trust
Companypague a la demandante la suma de
P105 sin intereses.
The Philippine Trust Company did not appeal.
The facts of the case, in so far as they are not in
controversy, are these: The plaintiff was a corporation
duly organized and existing under the laws of the
Philippines with principal office in Manila. On December
29, 1941 it issued to the City Treasurer of Manila, and the
City Treasurer accepted checks No. 628334 for P2,210.52
drawn upon the Philippine Trust Company with which it
had a credit balance of P4,940.17 on its account. This
check was to be applied to plaintiff's land tax for the
second semester of 1941 the exact amount of which was
yet undetermine and so it was entered in the ledger,
Exhibit "F", as deposit by the taxpayer. On February 20,
1942, presumably after the exact amount had been
verified, which was P341.60, the balance of P1,868.92,
covered by voucher No. 1487 of the City Treasure's office,
was noted in the ledger as a credit to the Juan Luna
Subdivision, Inc.
Further than this, the records of the City Treasurer's office
do not show what was done with the check. But the
books of the Philippine Trust Company do reveal that it
was deposited with the Philippine National Bank, the City
Treasurer's sole depository, on December 29, 1941, and
that it was presented by that Bank to the Philippine Trust
Company on May 1, 1944 and was cashed by the
drawee. Manuel F. Garcia, Assistant Treasurer of the
Philippine Trust Company, testified that soon after his
bank was authorized in March, 1942, to reopen for
business (it had been closed by order of the Japanese
military authorities,) it received from the Philippine
National Bank a bundle of checks, including appellees
check No. 628334, drawn upon the Philippine Trust
Company before the Japanese occupation and held in
abeyance by the Philippine National Bank pending
resumption of operation by the Philippine Trust Company;
that these checks, including the appellee's check, were
accepted and the amounts thereof debited against the
respective drawer's accounts; that with respect to check
No. 628334, the operation was effected on May 1, 1944.
The City refused after liberation to refund the plaintiff's
deposit or apply it to such future taxes as might be found
due, while the Philippine Trust Company was unwilling to
reverse its debit entry against the Juan Luna Subdivision,
Inc. It was upon this predicament that the Juan Luna
Subdivision, Inc. brought this suit against the City Treasurer
and the Philippine Trust Company as defendants in the
alternative. The purpose of the action is determine which
of the two defendants is liable for plaintiff's check. There is
a separate cause of action which concerns the plaintiff
and the City Treasurer alone.
On the main cause of action the burden of the City
Treasurer's defense is that his office was not benefited
why the check. He denies that the said check was
cashed "or rather there was no proof that it was." It is
pointed out that Mr. Gibbs, testifying in open court,
admitted that he had never received nor could he have
received the cancelled checks;" that "the courts finding
that sum P2,210.52 was in fact and in truth added to the
actual cash of the Treasurer of the City of Manila is based
on conjectures and surprises without any support of
pertinent and competent proof;" that "special ledger
sheet of the City Treasurer . . . simply showed that some
accounting transaction in the book value was done or
accomplished but these accounting processes did not
show that actual payment had been made (by the
Philippine National Bank) to the City Treasurer, and that
the City Treasurer had in effect received said amount
represented by said checks;" that "the burden of proving
that the check in question was in fact paid rest on the
defendant Philippine Trust Company." It is further argued
that "there is a lot of difference between the book value
and the cash value of this check," that the acceptance
by the City Treasurer and the issuance of the Official
Receipt No. 755402 on December 29, 1941 in favor of
Juan Luna Subdivision, Inc. did not simultaneously and
automatically place in the hands of the City Treasurer the
cash value represented by the said checks in the amount
of P2,210.52".
That the plaintiff's check was deposited by the City
Treasurer with the Philippine National Bank, and the latter
was paid the cash equivalent thereof by the Philippine
Trust Company, admits of no doubt. The entries in the
books of the latter bank are not in the least impugned.
Whether the City Treasurer was paid that amount by the
Philippine National Bank or given credit for it, the City
Treasurer would neither admit nor deny. He said:
A. Not that I am not willing (to admit); I am
willing, but I am not the right party to admit that
the check was actually collected by the City of
Manila from the Philippine Trust Company, The
Philippine Trust Company never submitted any
financial statement. To my knowledge, the City
Treasurer of Manila has never been informed by
the Philippine Trust Company or by the Philippine
National Bank, which is the depository of the City
of Manila, that same check was collected by the
City Manila from the Philippine National Bank; by
that I am not trying to say that the check was not
actually collected by the City.
xxx xxx xxx
Q. This particular check in question pertains to
the revenue account of the City of Manila, is that
right?
A. Yes, sir.
Q. Ordinarily it would be deposited with the
Philippine National Bank, is that right?
A. That is right.
Q. And the Philippine National Bank has not
rendered you any account of its collections?
A. I would not say that; they probably gave us
statement, but as we have lost our records
pertaining to the occupation and the pre-war
years, I could not make a categorial statement.
From the fact that the Philippine National Bank was open
throughout the Japanese occupation and the other facts
heretofore admitted or not denied, it is to be presumed
that the Philippine National Bank credited the City
Treasurer with the amount of the check in question, and
that the City Treasurer, taking ordinary care of his
concerns, withdrew that amount. This is in accordance
with the presumption that things happened according to
the ordinary course of business and habits. The burden is
on the City Treasurer, not on the plaintiff, to rebut these
presumptions.
But the point is not material at all as far as the plaintiff is
concerned. What became of the check or where the
money went is a matter between the City Treasurer and
the Philippine National Bank. The drawer of the check
had funds on deposit to meet it; the City Treasurer
accepted it and deposited it with the Philippine National
Bank, and the Philippine National Bank, collected the
equivalent amount from the drawee Bank. In the light of
these circumstances, the City Treasurer became the
Philippine National Bank's creditor and the Juan Luna
Subdivision, Inc. was released from liability on its checks. If
the City Treasurer did not collect his credit from the
Philippine National Bank or otherwise make use of it, he
alone was to blame and should suffer the consequences
of his neglect. That the City Treasurer held the check
merely in trust for plaintiff does not alter the situation as
far as his branch of the case goes.
The amount to be refunded to the plaintiff is the subject
of another disagreement between the Juan Luna
Subdivision, Inc. and the City Treasurer. This is the ground
of other cause of action heretofore referred to.
The plaintiff claims the whole amount of the check
contending that taxes for the last semester of 1941 have
been remitted by Commonwealth Act No. 703.
Section 1 of this Act, which was approved on November
1, 1945, provides:
prompted the passage of Commonwealth Act No. 703.
But it is also true that the taxpayers who had been in
arrears in their obligation would have to satisfy their
liability with genuine currency, while the taxes paid during
the occupation had been satisfied in Japanese military
notes, many of them at a time when those notes were
well-nigh worthless. To refund those taxes with the
restored currency, even if the Government could afford
to do so, would be unduly to enrich many of the payers
at a greater expense to the people at large. What is
more, the process of refunding would entail a
tremendous amount of work and difficulties, what with
the destruction of tax records and the great number of
claimants who would take advantage of such grace.
It is said that the plaintiff's check was in the nature of
deposit, held trust by the City Treasurer, and that for this
reason, plaintiff's taxes are to be regarded as still due and
payable. This argument is well taken but only to the
extent of P1,868.92. The amount of P341.60 as early as
February 20, 1942, had been applied to the second half
of plaintiff's 1941 tax and become part of the general
funds of the city treasury. From that date that tax was
legally and actually paid and settled.
The appealed judgment should, therefore, be modified
so that the defendant City Treasurer shall refund to the
plaintiff the sum of P1,868.92 instead P2,210.52, without
costs. It is so ordered.

All land taxes and penalties due and payable for

the years nineteen hundred and forty-two
nineteen hundred and forty-three nineteen
hundred and forty-four and fifty per cent of the
tax due for nineteen hundred and forty-five, are
hereby remitted. The land taxes and penalties
due and payable for the second semester of the
year nineteen hundred and forty-one shall also
be remitted the if the remaining fifty per cent
corresponding to the year nineteen hundred and
forty-five shall been paid on or before December
thirty-first, nineteen hundred and forty-five.

Does this provision cover taxes paid before its enactment

as the plaintiff maintains and the court below held, or
does it refer, as the City Treasurer believes, only to taxes
which were still unpaid?

There is no ambiguity in the language of the law. It says

"taxes and penalties due and payable," the literal
meaning of which taxes owned or owing. (See Webster's
New International Dictionary) Note that the provision
speaks of penalties, and note that penalties accrue only
when taxes are not paid on time. The word "remit"
underlined by the appellant does not help its theory, for
to remit to desist or refrain from exacting, inflicting, or
enforcing something as well as to restore what has
already been taken. (Webster's New International
Dictionary.)

We do not see that literal interpretation of

Commonwealth Act No. 703 runs counter and does
violence to its spirit and intention , nor do we think that
such interpretation would be "constitutionally bad" in that
"it would unduly discriminate against taxpayers who had
paid in favor of delinquent taxpayers."

The remission of taxes due and payable to the exclusion

of taxes already collected does not constitute unfair
discrimination. Each set of taxes is a class by itself, and
the law would be open to attack as class legislation only
if all taxpayers belonging to one class were not treated
alike. They are not.

As to the justice of the measure, the confinement of the

condonation to deliquent taxes was not without good
reason. The property owners who had paid their taxes
before liberation and those who had not were not on the
same footing on the need of material relief. It is true that
the ravages and devastations wrought by was operations
had rendered the bulk of the people destitute or
impoverished and that it was this situation which
G.R. No. L-23794 February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD
OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of
Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and
Teehankee, Carreon & Tañada for plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc
City passed 1 Ordinance No. 4, Series of 1964, imposing
"on any and all productions of centrifugal sugar milled at
the Ormoc Sugar Company, Inc., in Ormoc City a
municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other
foreign countries." 2
Payments for said tax were made, under protest, by
Ormoc Sugar Company, Inc. on March 20, 1964 for
P7,087.50 and on April 20, 1964 for P5,000, or a total of
P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed
before the Court of First Instance of Leyte, with service of
a copy upon the Solicitor General, a complaint 3 against
the City of Ormoc as well as its Treasurer, Municipal Board
and Mayor, alleging that the afore-stated ordinance is
unconstitutional for being violative of the equal
protection clause (Sec. 1[1], Art. III, Constitution) and the
rule of uniformity of taxation (Sec. 22[1]), Art. VI,
Constitution), aside from being an export tax forbidden
under Section 2287 of the Revised Administrative Code. It
further alleged that the tax is neither a production nor a
license tax which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act 2264,
otherwise known as the Local Autonomy Act, is
authorized to impose; and that the tax amounts to a
customs duty, fee or charge in violation of paragraph 1
of Section 2 of Republic Act 2264 because the tax is on
both the sale and export of sugar.
Answering, the defendants asserted that the tax
ordinance was within defendant city's power to enact
under the Local Autonomy Act and that the same did
not violate the afore-cited constitutional limitations. After
pre-trial and submission of the case on memoranda, the
Court of First Instance, on August 6, 1964, rendered a
decision that upheld the constitutionality of the
ordinance and declared the taxing power of defendant
chartered city broadened by the Local Autonomy Act to
include all other forms of taxes, licenses or fees not
excluded in its charter.
Appeal therefrom was directly taken to Us by
plaintiff Ormoc Sugar Company, Inc. Appellant alleges
the same statutory and constitutional violations in the
aforesaid taxing ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be
paid to the City Treasurer on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Company,
Incorporated, in Ormoc City, a municipal tax equivalent
to one per centum (1%) per export sale to the United
States of America and other foreign countries." Though
referred to as a tax on the export of centrifugal sugar
produced at Ormoc Sugar Company, Inc. For production
of sugar alone is not taxable; the only time the tax applies
is when the sugar produced is exported.
attempt to impose an import or export tax upon such
goods in the guise of an unreasonable charge for
wharfage use of bridges or otherwise, shall be void."
Subsequently, however, Section 2 of Republic Act
2264 effective June 19, 1959, gave chartered cities,
municipalities and municipal districts authority to levy for
public purposes just and uniform taxes, licenses or fees.
Anent the inconsistency between Section 2287 of the
Revised Administrative Code and Section 2 of Republic
Act 2264, this Court, in Nin Bay Mining Co. v. Municipality
of Roxas 4 held the former to have been repealed by the
latter. And expressing Our awareness of the
transcendental effects that municipal export or import
taxes or licenses will have on the national economy, due
to Section 2 of Republic Act 2264, We stated that there
was no other alternative until Congress acts to provide
remedial measures to forestall any unfavorable results.
The point remains to be determined, however,
whether constitutional limits on the power of taxation,
specifically the equal protection clause and rule of
uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor
shall any person be denied the equal protection of the
laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that
the equal protection clause applies only to persons or
things identically situated and does not bar a reasonable
classification of the subject of legislation, and a
classification is reasonable where (1) it is based on
substantial distinctions which make real differences; (2)
these are germane to the purpose of the law; (3) the
classification applies not only to present conditions but
also to future conditions which are substantially identical
to those of the present; (4) the classification applies only
to those who belong to the same class.
A perusal of the requisites instantly shows that the
questioned ordinance does not meet them, for it taxes
only centrifugal sugar produced and exported by the
Ormoc Sugar Company, Inc. and none other. At the time
of the taxing ordinance's enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar central in the
city of Ormoc. Still, the classification, to be reasonable,
should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established
sugar central, of the same class as plaintiff, for the
coverage of the tax. As it is now, even if later a similar
company is set up, it cannot be subject to the tax
because the ordinance expressly points only to Ormoc
City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on
the refund because the taxes were not arbitrarily
collected (Collector of Internal Revenue v.
Binalbagan). 6 At the time of collection, the ordinance
provided a sufficient basis to preclude arbitrariness, the
same being then presumed constitutional until declared
otherwise.
WHEREFORE, the decision appealed from is hereby
reversed, the challenged ordinance is declared
unconstitutional and the defendants-appellees are
hereby ordered to refund the P12,087.50 plaintiff-
appellant paid under protest. No costs. So ordered.

Appellant questions the authority of the defendant

Municipal Board to levy such an export tax, in view of
Section 2287 of the Revised Administrative Code which
denies from municipal councils the power to impose an
export tax. Section 2287 in part states: "It shall not be in
the power of the municipal council to impose a tax in any
form whatever, upon goods and merchandise carried
into the municipality, or out of the same, and any
G.R. No. L-9637 April 30, 1957 1. That the plaintiff sold for the use of the
purchasers at its principal office at 636 Isaac
AMERICAN BIBLE SOCIETY, plaintiff-appellant, Peral, Manila, Bibles, New Testaments, bible
vs. portions and bible concordance in English and
CITY OF MANILA, defendant-appellee. other foreign languages imported by it from the
United States as well as Bibles, New Testaments
and bible portions in the local dialects imported
City Fiscal Eugenio Angeles and Juan Nabong for
and/or purchased locally; that from the fourth
appellant.
quarter of 1945 to the first quarter of 1953
Assistant City Fiscal Arsenio Nañawa for appellee.
inclusive the sales made by the plaintiff were as
follows:
FELIX, J.:

Plaintiff-appellant is a foreign, non-stock, non-profit, Quarter Amount of Sales

religious, missionary corporation duly registered and
doing business in the Philippines through its Philippine 4th quarter 1945 P1,244.21
agency established in Manila in November, 1898, with its
1st quarter 1946 2,206.85
principal office at 636 Isaac Peral in said City. The
defendant appellee is a municipal corporation with
2nd quarter 1946 1,950.38
powers that are to be exercised in conformity with the
provisions of Republic Act No. 409, known as the Revised
3rd quarter 1946 2,235.99
Charter of the City of Manila.
4th quarter 1946 3,256.04
In the course of its ministry, plaintiff's Philippine agency
has been distributing and selling bibles and/or gospel 1st quarter 1947 13,241.07
portions thereof (except during the Japanese
occupation) throughout the Philippines and translating 2nd quarter 1947 15,774.55
the same into several Philippine dialects. On May 29 1953,
the acting City Treasurer of the City of Manila informed 3rd quarter 1947 14,654.13
plaintiff that it was conducting the business of general
merchandise since November, 1945, without providing 4th quarter 1947 12,590.94
itself with the necessary Mayor's permit and municipal
license, in violation of Ordinance No. 3000, as amended, 1st quarter 1948 11,143.90
and Ordinances Nos. 2529, 3028 and 3364, and required
plaintiff to secure, within three days, the corresponding 2nd quarter 1948 14,715.26
permit and license fees, together with compromise
covering the period from the 4th quarter of 1945 to the 3rd quarter 1948 38,333.83
2nd quarter of 1953, in the total sum of P5,821.45 (Annex
A). 4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

Plaintiff protested against this requirement, but the City
Treasurer demanded that plaintiff deposit and pay under
2nd quarter 1949 17,802.08
protest the sum of P5,891.45, if suit was to be taken in
court regarding the same (Annex B). To avoid the closing 3rd quarter 1949 16,640.79
of its business as well as further fines and penalties in the
premises on October 24, 1953, plaintiff paid to the 4th quarter 1949 15,961.38
defendant under protest the said permit and license fees
in the aforementioned amount, giving at the same time 1st quarter 1950 18,562.46
notice to the City Treasurer that suit would be taken in
court to question the legality of the ordinances under 2nd quarter 1950 21,816.32
which, the said fees were being collected (Annex C),
which was done on the same date by filing the 3rd quarter 1950 25,004.55
complaint that gave rise to this action. In its complaint
plaintiff prays that judgment be rendered declaring the 4th quarter 1950 45,287.92
said Municipal Ordinance No. 3000, as amended, and
Ordinances Nos. 2529, 3028 and 3364 illegal and 1st quarter 1951 37,841.21
unconstitutional, and that the defendant be ordered to
refund to the plaintiff the sum of P5,891.45 paid under 2nd quarter 1951 29,103.98
protest, together with legal interest thereon, and the
costs, plaintiff further praying for such other relief and 3rd quarter 1951 20,181.10
remedy as the court may deem just equitable.
4th quarter 1951 22,968.91
Defendant answered the complaint, maintaining in turn
that said ordinances were enacted by the Municipal 1st quarter 1952 23,002.65
Board of the City of Manila by virtue of the power
2nd quarter 1952 17,626.96
granted to it by section 2444, subsection (m-2) of the
Revised Administrative Code, superseded on June 18,
3rd quarter 1952 17,921.01
1949, by section 18, subsection (1) of Republic Act No.
409, known as the Revised Charter of the City of Manila,
4th quarter 1952 24,180.72
and praying that the complaint be dismissed, with costs
against plaintiff. This answer was replied by the plaintiff
1st quarter 1953 29,516.21
reiterating the unconstitutionality of the often-repeated
ordinances.
2. That the parties hereby reserve the right to
Before trial the parties submitted the following stipulation present evidence of other facts not herein
of facts: stipulated.

COME NOW the parties in the above-entitled WHEREFORE, it is respectfully prayed that this
case, thru their undersigned attorneys and case be set for hearing so that the parties may
respectfully submit the following stipulation of present further evidence on their behalf. (Record
facts: on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved,
among other things, that it has been in existence in the
Philippines since 1899, and that its parent society is in New
York, United States of America; that its, contiguous real
properties located at Isaac Peral are exempt from real
estate taxes; and that it was never required to pay any
municipal license fee or tax before the war, nor does the
American Bible Society in the United States pay any
license fee or sales tax for the sale of bible therein.
Plaintiff further tried to establish that it never made any
profit from the sale of its bibles, which are disposed of for
as low as one third of the cost, and that in order to
maintain its operating cost it obtains substantial
remittances from its New York office and voluntary
contributions and gifts from certain churches, both in the
United States and in the Philippines, which are interested
in its missionary work. Regarding plaintiff's contention of
lack of profit in the sale of bibles, defendant retorts that
the admissions of plaintiff-appellant's lone witness who
testified on cross-examination that bibles bearing the
price of 70 cents each from plaintiff-appellant's New York
office are sold here by plaintiff-appellant at P1.30 each;
those bearing the price of $4.50 each are sold here at
P10 each; those bearing the price of $7 each are sold
here at P15 each; and those bearing the price of $11
each are sold here at P22 each, clearly show that
plaintiff's contention that it never makes any profit from
the sale of its bible, is evidently untenable.
After hearing the Court rendered judgment, the last part
of which is as follows:
As may be seen from the repealed section (m-2)
of the Revised Administrative Code and the
repealing portions (o) of section 18 of Republic
Act No. 409, although they seemingly differ in the
way the legislative intent is expressed, yet their
meaning is practically the same for the purpose
of taxing the merchandise mentioned in said
legal provisions, and that the taxes to be levied
by said ordinances is in the nature of percentage
graduated taxes (Sec. 3 of Ordinance No. 3000,
as amended, and Sec. 1, Group 2, of Ordinance
No. 2529, as amended by Ordinance No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS,
this Court is of the opinion and so holds that this
case should be dismissed, as it is hereby
dismissed, for lack of merits, with costs against the
plaintiff.
Not satisfied with this verdict plaintiff took up the matter
to the Court of Appeals which certified the case to Us for
the reason that the errors assigned to the lower Court
involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000,
as respectively amended, are not
unconstitutional;
2. In holding that subsection m-2 of Section 2444
of the Revised Administrative Code under which
Ordinances Nos. 2592 and 3000 were
promulgated, was not repealed by Section 18 of
Republic Act No. 409;
3. In not holding that an ordinance providing for
taxes based on gross sales or receipts, in order to
be valid under the new Charter of the City of
Manila, must first be approved by the President
of the Philippines; and
4. In holding that, as the sales made by the
plaintiff-appellant have assumed commercial
proportions, it cannot escape from the operation
of said municipal ordinances under the cloak of
religious privilege.
The issues. — As may be seen from the proceeding
statement of the case, the issues involved in the present
controversy may be reduced to the following: (1)
whether or not the ordinances of the City of Manila, Nos.
3000, as amended, and 2529, 3028 and 3364, are
constitutional and valid; and (2) whether the provisions of
said ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of
the Republic of the Philippines, provides that:
(7) No law shall be made respecting an
establishment of religion, or prohibiting the free
exercise thereof, and the free exercise and
enjoyment of religious profession and worship,
without discrimination or preference, shall forever
be allowed. No religion test shall be required for
the exercise of civil or political rights.
Predicated on this constitutional mandate, plaintiff-
appellant contends that Ordinances Nos. 2529 and 3000,
as respectively amended, are unconstitutional and illegal
in so far as its society is concerned, because they provide
for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the distribution
and sale of bibles and other religious literature to the
people of the Philippines.
Before entering into a discussion of the constitutional
aspect of the case, We shall first consider the provisions of
the questioned ordinances in relation to their application
to the sale of bibles, etc. by appellant. The records, show
that by letter of May 29, 1953 (Annex A), the City
Treasurer required plaintiff to secure a Mayor's permit in
connection with the society's alleged business of
distributing and selling bibles, etc. and to pay permit dues
in the sum of P35 for the period covered in this litigation,
plus the sum of P35 for compromise on account of
plaintiff's failure to secure the permit required by
Ordinance No. 3000 of the City of Manila, as amended.
This Ordinance is of general application and not
particularly directed against institutions like the plaintiff,
and it does not contain any provisions whatever
prescribing religious censorship nor restraining the free
exercise and enjoyment of any religious profession.
Section 1 of Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. — It shall be unlawful
for any person or entity to conduct or engage in
any of the businesses, trades, or
occupations enumerated in Section 3 of this
Ordinance or other businesses, trades, or
occupations for which a permit is required for the
proper supervision and enforcement of existing
laws and ordinances governing the sanitation,
security, and welfare of the public and the
health of the employees engaged in the business
specified in said section 3 hereof, WITHOUT FIRST
HAVING OBTAINED A PERMIT THEREFOR FROM THE
MAYOR AND THE NECESSARY LICENSE FROM THE
CITY TREASURER.
The business, trade or occupation of the plaintiff involved
in this case is not particularly mentioned in Section 3 of
the Ordinance, and the record does not show that a
permit is required therefor under existing laws and
ordinances for the proper supervision and enforcement
of their provisions governing the sanitation, security and
welfare of the public and the health of the employees
engaged in the business of the plaintiff. However,
sections 3 of Ordinance 3000 contains item No. 79, which
reads as follows:
79. All other businesses, trades or occupations
not
mentioned in this Ordinance, except those upon
which the
City is not empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend
upon the power of the City to license or tax said business,
trade or occupation.
As to the license fees that the Treasurer of the City of
Manila required the society to pay from the 4th quarter of
1945 to the 1st quarter of 1953 in the sum of P5,821.45,
including the sum of P50 as compromise, Ordinance No.
2529, as amended by Ordinances Nos. 2779, 2821 and
3028 prescribes the following:
SEC. 1. FEES. — Subject to the provisions of
section 578 of the Revised Ordinances of the City
of Manila, as amended, there shall be paid to
the City Treasurer for engaging in any of the
businesses or occupations below enumerated,
quarterly, license fees based on gross sales or
receipts realized during the preceding quarter in
accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in
any businesses or occupation for the first time
shall pay the initial license fee based on the
probable gross sales or receipts for the first
quarter beginning from the date of the opening
of the business as indicated herein for the
corresponding business or occupation.
xxx xxx xxx
GROUP 2. — Retail dealers in new (not yet used)
merchandise, which dealers are not yet subject
to the payment of any municipal tax, such as
(1) retail dealers in general merchandise; (2)
retail dealers exclusively engaged in the sale of .
. . books, including stationery.
xxx xxx xxx
As may be seen, the license fees required to be paid
quarterly in Section 1 of said Ordinance No. 2529, as
amended, are not imposed directly upon any religious
institution but upon those engaged in any of the business
or occupations therein enumerated, such as retail
"dealers in general merchandise" which, it is alleged,
cover the business or occupation of selling bibles, books,
etc.
Chapter 60 of the Revised Administrative Code which
includes section 2444, subsection (m-2) of said legal
body, as amended by Act No. 3659, approved on
December 8, 1929, empowers the Municipal Board of the
City of Manila:
(M-2) To tax and fix the license fee on (a) dealers
in new automobiles or accessories or both, and
(b) retail dealers in new (not yet used)
merchandise, which dealers are not yet subject
to the payment of any municipal tax.
For the purpose of taxation, these retail dealers
shall be classified as (1) retail dealers in general
merchandise, and (2) retail dealers exclusively
engaged in the sale of (a) textiles . . . (e) books,
including stationery, paper and office supplies, . .
.: PROVIDED, HOWEVER, That the combined total
tax of any debtor or manufacturer, or both,
enumerated under these subsections (m-1) and
(m-2), whether dealing in one or all of the articles
mentioned herein, SHALL NOT BE IN EXCESS OF
FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances
Nos. 2529 and 3000, as amended, were enacted in virtue
of the power that said Act No. 3669 conferred upon the
City of Manila. Appellant, however, contends that said
ordinances are longer in force and effect as the law
under which they were promulgated has been expressly
repealed by Section 102 of Republic Act No. 409 passed
on June 18, 1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically
stated that Republic Act No. 409 expressly repealed the
provisions of Chapter 60 of the Revised Administrative
Code but in the opinion of the trial Judge, although
Section 2444 (m-2) of the former Manila Charter and
section 18 (o) of the new seemingly differ in the way the
legislative intent was expressed, yet their meaning is
practically the same for the purpose of taxing the
merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as
amended, are to be considered as still in full force and
effect uninterruptedly up to the present.
Often the legislature, instead of simply amending
the pre-existing statute, will repeal the old statute
in its entirety and by the same enactment re-
enact all or certain portions of the preexisting
law. Of course, the problem created by this sort
of legislative action involves mainly the effect of
the repeal upon rights and liabilities which
accrued under the original statute. Are those
rights and liabilities destroyed or preserved? The
authorities are divided as to the effect of
simultaneous repeals and re-enactments. Some
adhere to the view that the rights and liabilities
accrued under the repealed act are destroyed,
since the statutes from which they sprang are
actually terminated, even though for only a very
short period of time. Others, and they seem to be
in the majority, refuse to accept this view of the
situation, and consequently maintain that all
rights an liabilities which have accrued under the
original statute are preserved and may be
enforced, since the re-enactment neutralizes the
repeal, therefore, continuing the law in force
without interruption. (Crawford-Statutory
Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic
Act No, 409 introduces a new and wider concept of
taxation and is different from the provisions of Section
2444(m-2) that the former cannot be considered as a
substantial re-enactment of the provisions of the latter.
We have quoted above the provisions of section 2444(m-
2) of the Revised Administrative Code and We shall now
copy hereunder the provisions of Section 18, subdivision
(o) of Republic Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in
general merchandise, including importers and
indentors, except those dealers who may be
expressly subject to the payment of some other
municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified
as (a) wholesale dealers and (b) retail dealers.
For purposes of the tax on retail dealers, general
merchandise shall be classified into four main
classes: namely (1) luxury articles, (2) semi-luxury
articles, (3) essential commodities, and (4)
miscellaneous articles. A separate license shall
be prescribed for each class but where
commodities of different classes are sold in the
same establishment, it shall not be compulsory for
the owner to secure more than one license if he
pays the higher or highest rate of tax prescribed
by ordinance. Wholesale dealers shall pay the
license tax as such, as may be provided by
ordinance.
For purposes of this section, the term "General
merchandise" shall include poultry and livestock,
agricultural products, fish and other allied
products.
The only essential difference that We find between these
two provisions that may have any bearing on the case at
bar, is that, while subsection (m-2) prescribes that the
combined total tax of any dealer or manufacturer, or
both, enumerated under subsections (m-1) and (m-2),
whether dealing in one or all of the articles mentioned
therein,shall not be in excess of P500 per annum, the
corresponding section 18, subsection (o) of Republic Act
No. 409, does not contain any limitation as to the amount
of tax or license fee that the retail dealer has to pay per
annum. Hence, and in accordance with the weight of
the authorities above referred to that maintain that "all
rights and liabilities which have accrued under the
original statute are preserved and may be enforced,
since the reenactment neutralizes the repeal, therefore
continuing the law in force without interruption", We hold
that the questioned ordinances of the City of Manila are
still in force and effect.
Plaintiff, however, argues that the questioned ordinances,
to be valid, must first be approved by the President of the
Philippines as per section 18, subsection (ii) of Republic
Act No. 409, which reads as follows:
(ii) To tax, license and regulate any business,
trade or occupation being conducted within the
City of Manila,not otherwise enumerated in the
preceding subsections, including percentage
taxes based on gross sales or receipts, subject to
the approval of the PRESIDENT, except
amusement taxes.
but this requirement of the President's approval was not
contained in section 2444 of the former Charter of the
City of Manila under which Ordinance No. 2529 was
promulgated. Anyway, as stated by appellee's counsel,
the business of "retail dealers in general merchandise" is
expressly enumerated in subsection (o), section 18 of
Republic Act No. 409; hence, an ordinance prescribing a
municipal tax on said business does not have to be
approved by the President to be effective, as it is not
among those referred to in said subsection (ii). Moreover,
the questioned ordinances are still in force, having been
promulgated by the Municipal Board of the City of
Manila under the authority granted to it by law.
The question that now remains to be determined is
whether said ordinances are inapplicable, invalid or
unconstitutional if applied to the alleged business of
distribution and sale of bibles to the people of the
Philippines by a religious corporation like the American
Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by
Ordinances Nos. 2779, 2821 and 3028, appellant
contends that it is unconstitutional and illegal because it
restrains the free exercise and enjoyment of the religious
profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the
Philippines aforequoted, guarantees the freedom of
religious profession and worship. "Religion has been
spoken of as a profession of faith to an active power that
binds and elevates man to its Creator" (Aglipay vs. Ruiz,
64 Phil., 201).It has reference to one's views of his relations
to His Creator and to the obligations they impose of
reverence to His being and character, and obedience to
His Will (Davis vs. Beason, 133 U.S., 342). The constitutional
guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to
disseminate religious information. Any restraints of such
right can only be justified like other restraints of freedom
of expression on the grounds that there is a clear and
present danger of any substantive evil which the State
has the right to prevent". (Tañada and Fernando on the
Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In
the case at bar the license fee herein involved is imposed
upon appellant for its distribution and sale of bibles and
other religious literature:
In the case of Murdock vs. Pennsylvania, it was
held that an ordinance requiring that a license
be obtained before a person could canvass or
solicit orders for goods, paintings, pictures, wares
or merchandise cannot be made to apply to
members of Jehovah's Witnesses who went
about from door to door distributing literature
and soliciting people to "purchase" certain
religious books and pamphlets, all published by
the Watch Tower Bible & Tract Society. The "price"
of the books was twenty-five cents each, the
"price" of the pamphlets five cents each. It was
shown that in making the solicitations there was a
request for additional "contribution" of twenty-five
cents each for the books and five cents each for
the pamphlets. Lesser sum were accepted,
however, and books were even donated in case
interested persons were without funds.
On the above facts the Supreme Court held that
it could not be said that petitioners were
engaged in commercial rather than a religious
venture. Their activities could not be described
as embraced in the occupation of selling books
and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and
the press are free from all financial burdens of
government. See Grosjean vs. American Press
Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct.
444. We have here something quite different, for
example, from a tax on the income of one who
engages in religious activities or a tax on property
used or employed in connection with activities. It
is one thing to impose a tax on the income or
property of a preacher. It is quite another to
exact a tax from him for the privilege of
delivering a sermon. The tax imposed by the City
of Jeannette is a flat license tax, payment of
which is a condition of the exercise of these
constitutional privileges. The power to tax the
exercise of a privilege is the power to control or
suppress its enjoyment. . . . Those who can tax the
exercise of this religious practice can make its
exercise so costly as to deprive it of the resources
necessary for its maintenance. Those who can
tax the privilege of engaging in this form of
missionary evangelism can close all its doors to all
those who do not have a full purse. Spreading
religious beliefs in this ancient and honorable
manner would thus be denied the needy. . . .
It is contended however that the fact that the
license tax can suppress or control this activity is
unimportant if it does not do so. But that is to
disregard the nature of this tax. It is a license tax
— a flat tax imposed on the exercise of a
privilege granted by the Bill of Rights . . . The
power to impose a license tax on the exercise of
these freedom is indeed as potent as the power
of censorship which this Court has repeatedly
struck down. . . . It is not a nominal fee imposed
as a regulatory measure to defray the expenses
of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and
collected as a condition to the pursuit of
activities whose enjoyment is guaranteed by the
constitutional liberties of press and religion and
inevitably tends to suppress their exercise. That is
almost uniformly recognized as the inherent vice
and evil of this flat license tax."
Nor could dissemination of religious information
be conditioned upon the approval of an official
or manager even if the town were owned by a
corporation as held in the case of Marsh vs. State
of Alabama (326 U.S. 501), or by the United States
itself as held in the case of Tucker vs. Texas (326
U.S. 517). In the former case the Supreme Court
expressed the opinion that the right to enjoy
freedom of the press and religion occupies a
preferred position as against the constitutional
right of property owners.
"When we balance the constitutional rights of
owners of property against those of the people
to enjoy freedom of press and religion, as we
must here, we remain mindful of the fact that the
latter occupy a preferred position. . . . In our view
the circumstance that the property rights to the
premises where the deprivation of property here
involved, took place, were held by others than
the public, is not sufficient to justify the State's
permitting a corporation to govern a community
of citizens so as to restrict their fundamental
liberties and the enforcement of such restraint by
the application of a State statute." (Tañada and
Fernando on the Constitution of the Philippines,
Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise
known as the National Internal Revenue Code, provides:

SEC. 27. EXEMPTIONS FROM TAX ON

CORPORATIONS. — The following organizations
shall not be taxed under this Title in respect to
income received by them as such —

(e) Corporations or associations organized and

operated exclusively for religious, charitable, . . .
or educational purposes, . . .: Provided, however,
That the income of whatever kind and character
from any of its properties, real or personal, or from
any activity conducted for profit, regardless of
the disposition made of such income, shall be
liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal

Revenue has exempted the plaintiff from this tax and says
that such exemption clearly indicates that the act of
distributing and selling bibles, etc. is purely religious and
does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for
the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the
same but this cannot mean that appellant was engaged
in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that
the provisions of City of Manila Ordinance No. 2529, as
amended, cannot be applied to appellant, for in doing
so it would impair its free exercise and enjoyment of its
religious profession and worship as well as its rights of
dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which

requires the obtention the Mayor's permit before any
person can engage in any of the businesses, trades or
occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right
granted by the Constitution, nor tax the exercise of
religious practices. In the case of Coleman vs. City of
Griffin, 189 S.E. 427, this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that

the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or
literature of any kind, whether said articles are
being delivered free, or whether same are being
sold within the city limits of the City of Griffin,
without first obtaining written permission from the
city manager of the City of Griffin, shall be
deemed a nuisance and punishable as an
offense against the City of Griffin, does not
deprive defendant of his constitutional right of
the free exercise and enjoyment of religious
profession and worship, even though it prohibits
him from introducing and carrying out a scheme
or purpose which he sees fit to claim as a part of
his religious system.

It seems clear, therefore, that Ordinance No. 3000 cannot

be considered unconstitutional, even if applied to
plaintiff Society. But as Ordinance No. 2529 of the City of
Manila, as amended, is not applicable to plaintiff-
appellant and defendant-appellee is powerless to license
or tax the business of plaintiff Society involved herein for,
as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and
worship, as well as its rights of dissemination of religious
beliefs, We find that Ordinance No. 3000, as amended is
also inapplicable to said business, trade or occupation of
the plaintiff.

Wherefore, and on the strength of the foregoing

considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff
the sum of P5,891.45 unduly collected from it. Without
pronouncement as to costs. It is so ordered.
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAÑADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.
and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision
dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed
by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers
Association, Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed
a consolidated comment, to which the Philippine Airlines,
Inc., petitioner in G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544, and Juan T.
David, petitioner in G.R. No. 115525, each filed a reply. In
turn the Solicitor General filed on June 1, 1995 a rejoinder
to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to
revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by them that
R.A. No. 7716 did not "originate exclusively" in the House
of Representatives as required by Art. VI, §24 of the
Constitution. Although they admit that H. No. 11197 was
filed in the House of Representatives where it passed
three readings and that afterward it was sent to the
Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that
the Senate did not pass it on second and third readings.
Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994.
Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197
by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains
a House bill and the Senate version just becomes the text
(only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in
which the Senate proposed an amendment to a House
revenue bill by enacting its own version of a revenue bill.
On at least two occasions during the Eighth Congress, the
Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President on April 10, 1992.
This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S.
No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES) which was
approved by the President on May 22, 1992. This Act is a
consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate on October
21, 1991.
On the other hand, the Ninth Congress passed revenue
laws which were also the result of the consolidation of
House and Senate bills. These are the following, with
indications of the dates on which the laws were
approved by the President and dates the separate bills of
the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR
TAX EVASION, AMENDING FOR THIS
PURPOSE THE PERTINENT SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE
(December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE
COMMISSIONER OF INTERNAL REVENUE
TO REQUIRE THE PAYMENT OF THE VALUE-
ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO
SHARE IN VAT REVENUE, AMENDING FOR
THIS PURPOSE CERTAIN SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE
(December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE
COMMISSIONER OF INTERNAL REVENUE
TO PRESCRIBE THE PLACE FOR PAYMENT
OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT
OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES
INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCS)
TO DEDUCT AND WITHHOLD THE VALUE-
ADDED TAX DUE AT THE RATE OF THREE
PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX
PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS
(April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-
OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS
UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR
OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE
STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING
FOR THE PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, ALLOCATING
FUNDS FOR SPECIFIC PROGRAMS, AND
FOR OTHER PURPOSES (December 23,
1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE,
BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE
LOCAL STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING, AMENDING
FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED,
BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS
THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance
in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the
House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S.
No. 1630, petitioners Tolentino and Roco, as members of
the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in
this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only
provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to
the original amendment shall be
considered.
No amendment by substitution shall be
entertained unless the text thereof is
submitted in writing.
 Any of said amendments may be
withdrawn before a vote is taken
thereon.
§69. No amendment which seeks the
inclusion of a legislative provision foreign
to the subject matter of a bill (rider) shall
be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be
amended by substituting it with another
which covers a subject distinct from that
proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual
differences between constitutional provisions giving them
the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate
in the House of Representatives; but the
Senate may propose or concur with
amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and
private bills shall originate exclusively in
the House of Representatives, but the
Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to
petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose
amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were
not to be like other bills but must be treated as a special
kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional intent
are nothing but the relics of an unsuccessful attempt to
limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary
to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by
the National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the
Assembly's lawmaking powers, sought to curtail the
powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds,
revenue or tariff bills, bills of local
application, and private bills shall
originate exclusively in the Assembly, but
the Senate may propose or concur with
amendments. In case of disapproval by
the Senate of any such bills, the
Assembly may repass the same by a
two-thirds vote of all its members, and
thereupon, the bill so repassed shall be
deemed enacted and may be
submitted to the President for
corresponding action. In the event that
the Senate should fail to finally act on
any such bills, the Assembly may, after
thirty days from the opening of the next
regular session of the same legislative
term, reapprove the same with a vote of
two-thirds of all the members of the
Assembly. And upon such reapproval,
the bill shall be deemed enacted and
may be submitted to the President for
corresponding action.
The special committee on the revision of laws of the
Second National Assembly vetoed the proposal. It
deleted everything after the first sentence. As rewritten,
the proposal was approved by the National Assembly
and embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed amendment
was submitted to the people and ratified by them in the
elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution,
from which Art. VI, §24 of the present Constitution was
derived. It explains why the word "exclusively" was added
to the American text from which the framers of the
Philippine Constitution borrowed and why the phrase "as
on other Bills" was not copied. Considering the defeat of
the proposal, the power of the Senate to propose
amendments must be understood to be full, plenary and
complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill
is passed and sent over to it by the House, however, the
Senate certainly can pass its own version on the same
subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the
scope of the Senate's power to concur is clear from the
following commentaries:
The power of the Senate to propose or
concur with amendments is apparently
without restriction. It would seem that by
virtue of this power, the Senate can
practically re-write a bill required to
come from the House and leave only a
trace of the original bill. For example, a
general revenue bill passed by the lower
house of the United States Congress
contained provisions for the imposition of
an inheritance tax . This was changed by
the Senate into a corporation tax. The
amending authority of the Senate was
declared by the United States Supreme
Court to be sufficiently broad to enable it
to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L. TAÑADA AND F. CARREON, POLITICAL
LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed
to be initiated by the House of
Representatives because it is more
numerous in membership and therefore
also more representative of the people.
Moreover, its members are presumed to
be more familiar with the needs of the
country in regard to the enactment of
the legislation involved.
The Senate is, however, allowed much
leeway in the exercise of its power to
propose or concur with amendments to
the bills initiated by the House of
Representatives. Thus, in one case, a bill
introduced in the U.S. House of
Representatives was changed by the
Senate to make a proposed inheritance
 tax a corporation tax. It is also accepted
practice for the Senate to introduce
what is known as an amendment by
substitution, which may entirely replace
the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-
145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation,
revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills
must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of
this power, the Senate may propose an entirely new bill
as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred
may do any of the following:
(1) to endorse the bill without changes;
(2) to make changes in the bill omitting
or adding sections or altering its
language; (3) to make and endorse an
entirely new bill as a substitute, in which
case it will be known as a committee bill;
or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills
which are required to originate in the House by
prescribing that the number of the House bill and its other
parts up to the enacting clause must be preserved
although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute measure,
is therefore as much an amendment of H. No. 11197 as
any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No. 1630
is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different
between the reference to S. No. 1129 and the reference
to H. No. 11197. From this premise, they conclude that
R.A. No. 7716 originated both in the House and in the
Senate and that it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630 was passed
by both houses of Congress."
In point of fact, in several instances the provisions of S. No.
1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No.
1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between
the two bills, at the same time indicates that the
provisions of the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not have
enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original
form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on
first reading it was referred to the Senate Committee on
Ways and Means. Neither was it required that S. No. 1630
be passed by the House of Representatives before the
two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the
case of H. No. 11197 and S. No. 1630. When the House bill
and Senate bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank deposits), were referred
to a conference committee, the question was raised
whether the two bills could be the subject of such
conference, considering that the bill from one house had
not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this
question of order as to procedure: If a
House bill is passed by the House but not
passed by the Senate, and a Senate bill
of a similar nature is passed in the Senate
but never passed in the House, can the
two bills be the subject of a conference,
and can a law be enacted from these
two bills? I understand that the Senate
bill in this particular instance does not
refer to investments in government
securities, whereas the bill in the House,
which was introduced by the Speaker,
covers two subject matters: not only
investigation of deposits in banks but also
investigation of investments in
government securities. Now, since the
two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker
Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in order. It is
precisely in cases like this where a
conference should be had. If the House
bill had been approved by the Senate,
there would have been no need of a
conference; but precisely because the
Senate passed another bill on the same
subject matter, the conference
committee had to be created, and we
are now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp.
3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that
H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's
and PAL's) contention that because the President
separately certified to the need for the immediate
enactment of these measures, his certification was
ineffectual and void. The certification had to be made of
the version of the same revenue bill which at the
momentwas being considered. Otherwise, to follow
petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the
bill he has already certified. It is enough that he certifies
the bill which, at the time he makes the certification, is
under consideration. Since on March 22, 1994 the Senate
was considering S. No. 1630, it was that bill which had to
be certified. For that matter on June 1, 1993 the President
had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time
was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we
have already explained in the main decision that the
phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, §26
(2) qualifies not only the requirement that "printed copies
[of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the
requirement that before a bill can become a law it must
have passed "three readings on separate days." There is
not only textual support for such construction but
historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either
House unless it shall have been printed
 and copies thereof in its final form
furnished its Members at least three
calendar days prior to its passage,
except when the President shall have
certified to the necessity of its immediate
enactment. Upon the last reading of a
bill, no amendment thereof shall be
allowed and the question upon its
passage shall be taken immediately
thereafter, and
the yeas and nays entered on the
Journal.
When the 1973 Constitution was adopted, it was
provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it
has passed three readings on separate
days, and printed copies thereof in its
final form have been distributed to the
Members three days before its passage,
except when the Prime Minister certifies
to the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a
bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the
Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall
become a law unless it has passed three
readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
reading of a bill, no amendment thereto
shall be allowed, and the vote thereon
shall be taken immediately thereafter,
and the yeasand nays entered in the
Journal.
The exception is based on the prudential consideration
that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it
can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or
public calamity which it is meant to address.
Petitioners further contend that a "growing budget
deficit" is not an emergency, especially in a country like
the Philippines where budget deficit is a chronic
condition. Even if this were the case, an enormous
budget deficit does not make the need for R.A. No. 7716
any less urgent or the situation calling for its enactment
any less an emergency.
Apparently, the members of the Senate (including some
of the petitioners in these cases) believed that there was
an urgent need for consideration of S. No. 1630, because
they responded to the call of the President by voting on
the bill on second and third readings on the same day.
While the judicial department is not bound by the
Senate's acceptance of the President's certification, the
respect due coequal departments of the government in
matters committed to them by the Constitution and the
absence of a clear showing of grave abuse of discretion
caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its
final printed form was actually dispensed with by holding
the voting on second and third readings on the same
day (March 24, 1994). Otherwise, sufficient time between
the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed
before it was finally voted on by the Senate on third
reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members
of Congress of what they must vote on and (2) to give
them notice that a measure is progressing through the
enacting process, thus enabling them and others
interested in the measure to prepare their positions with
reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These
purposes were substantially achieved in the case of R.A.
No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc.
(MABINI)) that in violation of the constitutional policy of
full public disclosure and the people's right to know (Art. II,
§28 and Art. III, §7) the Conference Committee met for
two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only
in 1975 when a new rule was adopted requiring open
sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open
hearings for conference committees.
It is nevertheless claimed that in the United States, before
the adoption of the rule in 1975, at least staff members
were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to
be their confidential men, not stenographers as in this
case who on the last two days of the conference were
excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as
to give petitioner Kilosbayan basis for claiming that even
in secret diplomatic negotiations involving state interests,
conferees keep notes of their meetings. Above all, the
public's right to know was fully served because the
Conference Committee in this case submitted a report
showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide
that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in
or other amendments." These changes are shown in the
bill attached to the Conference Committee Report. The
members of both houses could thus ascertain what
changes had been made in the original bills without the
need of a statement detailing the changes.
The same question now presented was raised when the
bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee.
Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it
is out of order to consider the report of
the conference committee
regarding House Bill No. 2557 by reason
of the provision of Section 11, Article XII,
of the Rules of this House which provides
specifically that the conference report
must be accompanied by a detailed
statement of the effects of the
amendment on the bill of the House. This
conference committee report is not
accompanied by that detailed
statement, Mr. Speaker. Therefore it is out
of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
 MR. TOLENTINO. Mr. Speaker, I should just
like to say a few words in connection
with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision
of the Rule cited by the gentleman from
Pangasinan, butthis provision applies to
those cases where only portions of the
bill have been amended. In this case
before us an entire bill is
presented; therefore, it can be easily
seen from the reading of the bill what
the provisions are. Besides, this
procedure has been an established
practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr.
Speaker, we have to look into the reason
for the provisions of the Rules, and the
reason for the requirement in the
provision cited by the gentleman from
Pangasinan is when there are only
certain words or phrases inserted in or
deleted from the provisions of the bill
included in the conference report, and
we cannot understand what those words
and phrases mean and their relation to
the bill. In that case, it is necessary to
make a detailed statement on how
those words and phrases will affect the
bill as a whole; but when the entire bill
itself is copied verbatim in the
conference report, that is not necessary.
So when the reason for the Rule does not
exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis
added))
Congressman Tolentino was sustained by the chair. The
record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House
was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227 SCRA
703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House.
It may propose an entirely new provision. What is
important is that its report is subsequently approved by
the respective houses of Congress. This Court ruled that it
would not entertain allegations that, because new
provisions had been added by the conference
committee, there was thereby a violation of the
constitutional injunction that "upon the last reading of a
bill, no amendment thereto shall be allowed."
Applying these principles, we
shall decline to look into the petitioners'
charges that an amendment was made
upon the last reading of the bill that
eventually became R.A. No. 7354 and
that copiesthereof in its final form were
not distributed among the members of
each House. Both the enrolled bill and
the legislative journals certify that the
measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of
the Constitution. We are bound by such
official assurances from a coordinate
department of the government, to which
we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of
conference committees in the Philippines in a 1979 study:
Conference committees may be of two
types: free or instructed. These
committees may be given instructions by
their parent bodies or they may be left
without instructions. Normally the
conference committees are without
instructions, and this is why they are often
critically referred to as "the little
legislatures." Once bills have been sent
to them, the conferees have almost
unlimited authority to change the
clauses of the bills and in fact sometimes
introduce new measures that were not in
the original legislation. No minutes are
kept, and members' activities on
conference committees are difficult to
determine. One congressman known for
his idealism put it this way: "I killed a bill
on export incentives for my interest
group [copra] in the conference
committee but I could not have done so
anywhere else." The conference
committee submits a report to both
houses, and usually it is accepted. If the
report is not accepted, then the
committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine
Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).
In citing this study, we pass no judgment on the methods
of conference committees. We cite it only to say that
conference committees here are no different from their
counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At
all events, under Art. VI, §16(3) each house has the power
"to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method
and procedures of Congress or its committees must
therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains
that R.A. No. 7716 violates Art. VI, §26 (1) of the
Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the
law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax
of 2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges
of any kind, nature, or description, imposed, levied,
established, assessed or collected by any municipal, city,
provincial or national authority or government agency,
now or in the future."
PAL was exempted from the payment of the VAT along
with other entities by §103 of the National Internal
Revenue Code, which provides as follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions,
including that granted to PAL, by amending §103, as
follows:
 §103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws, except those granted
under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A.
No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE
VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which
stands in the way of accomplishing the purpose of the
law.
PAL asserts that the amendment of its franchise must be
reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to
comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is
§103(q), in order to widen the base of the VAT. Actually, it
is the bill which becomes a law that is required to express
in its title the subject of legislation. The titles of H. No.
11197 and S. No. 1630 in fact specifically referred to §103
of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had
been given of the pendency of these bills in Congress
before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar
argument as that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING THE PHILIPPINE
POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision
repealing all franking privileges. It was contended that
the withdrawal of franking privileges was not expressed in
the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including
the repeal of franking privileges, this Court held:
To require every end and means
necessary for the accomplishment of the
general objectives of the statute to be
expressed in its title would not only be
unreasonable but would actually render
legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297]
As has been correctly explained:
The details of a
legislative act need not
be specifically stated in
its title, but matter
germane to the subject
as expressed in the title,
and adopted to the
accomplishment of the
object in view, may
properly be included in
the act. Thus, it is proper
to create in the same
act the machinery by
which the act is to be
enforced, to prescribe
the penalties for its
infraction, and to
remove obstacles in the
way of its execution. If
such matters are
properly connected
with the subject as
expressed in the title, it is
unnecessary that they
should also have special
mention in the title.
(Southern Pac. Co. v.
Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have
held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what
the constitutional guarantee of free press prohibits are
laws which single out the press or target a group
belonging to the press for special treatment or which in
any way discriminate against the press on the basis of the
content of the publication, and R.A. No. 7716 is none of
these.
Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against the
press. At any rate, it is averred, "even nondiscriminatory
taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say
that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to
the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S.
233, 80 L. Ed. 660 (1936) was found to be discriminatory
because it was laid on the gross advertising receipts only
of newspapers whose weekly circulation was over 20,000,
with the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature
which enacted the license tax. The censorial motivation
for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune
Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.
Ed. 2d 295 (1983), the tax was found to be discriminatory
because although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax on the
privilege of using, storing or consuming tangible goods,
the press was not. Instead, the press was exempted from
both taxes. It was, however, later made to pay
a specialuse tax on the cost of paper and ink which
made these items "the only items subject to the use tax
that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of
the press "suggests that the goal of regulation is not
related to suppression of expression, and such goal is
presumptively unconstitutional." It would therefore
appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in
that case)
Nor is it true that only two exemptions previously granted
by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from
the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the
Export Processing Zone Authority, and many more are
likewise totally withdrawn, in addition to exemptions
which are partially withdrawn, in an effort to broaden the
base of the tax.
The PPI says that the discriminatory treatment of the press
is highlighted by the fact that transactions, which are
profit oriented, continue to enjoy exemption under R.A.
No. 7716. An enumeration of some of these transactions
will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the
Solicitor General says, such exemptions are granted, in
some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user
rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services
to enhance agriculture (milling of palay,
corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) or for professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical,
dental, hospital and veterinary services,
and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
The PPI asserts that it does not really matter that the law
does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally
guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement
in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):
The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First
Amendment is not so restricted. A license
tax certainly does not acquire
constitutional validity because it classifies
the privileges protected by the First
Amendment along with the wares and
merchandise of hucksters and peddlers
and treats them all alike. Such equality in
treatment does not save the ordinance.
Freedom of press, freedom of speech,
freedom of religion are in preferred
position.
The Court was speaking in that case of a license tax,
which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays
a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling
goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is
one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him
for delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license
fee on those engaged in the sale of general
merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible
Society without restraining the free exercise of its right to
propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general
regulation is not to violate its freedom under the
Constitution.
Additionally, the Philippine Bible Society, Inc. claims that
although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies
which are given free to those who cannot afford to pay
so that to tax the sales would be to increase the price,
while reducing the volume of sale. Granting that to be
the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that
might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay
an impermissible burden on the right of the preacher to
make a sermon.
On the other hand the registration fee of P1,000.00
imposed by §107 of the NIRC, as amended by §7 of R.A.
No. 7716, although fixed in amount, is really just to pay for
the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of
the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it
from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal
protection and contract clauses and the rule on taxation.
CREBA asserts that R.A. No. 7716 (1) impairs the
obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis
would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the
contract.
The short answer to this is the one given by this Court in an
early case: "Authorities from numerous sources are cited
by the plaintiffs, but none of them show that a lawful tax
on a new subject, or an increased tax on an old one,
interferes with a contract or impairs its obligation, within
the meaning of the Constitution. Even though such
taxation may affect particular contracts, as it may
increase the debt of one person and lessen the security
of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it
be said that it impairs the obligation of any existing
contract in its true legal sense." (La Insular v. Machuca
Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-
American Life Ins. Co. v. Auditor General, 22 SCRA 135,
147 (1968)) Contracts must be understood as having
been made in reference to the possible exercise of the
rightful authority of the government and no obligation of
contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716
exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of
real property which is equally essential. The sale of real
property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who
are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was
already exempt under §103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No. 7716. Petitioner is in
error in claiming that R.A. No. 7716 granted exemption to
these transactions, while subjecting those of petitioner to
the payment of the VAT. Moreover, there is a difference
between the "homeless poor" and the "homeless less
poor" in the example given by petitioner, because the
second group or middle class can afford to rent houses in
the meantime that they cannot yet buy their own homes.
The two social classes are thus differently situated in life. "It
is inherent in the power to tax that the 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.'" (Lutz v.
Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v.
De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130
SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371
(1988)).
Finally, it is contended, for the reasons already noted,
that R.A. No. 7716 also violates Art. VI, §28(1) which
provides that "The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system
of taxation."
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at
the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes
of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms
and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273
long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the
original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 383 (1988) on grounds similar to those made in
these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all
the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is
applied similarly on all goods and
services sold to the public, which are not
exempt, at the constant rate of 0% or
10%.
The disputed sales tax is also equitable. It
is imposed only on sales of goods or
services by persons engaged in business
with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from
its application. Likewise exempt from the
tax are sales of farm and marine
products, so that the costs of basic food
and other necessities, spared as they are
from the incidence of the VAT, are
expected to be relatively lower and
within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David
argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation
because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to
their ability to pay.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional
provision has been interpreted to mean simply that
"direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17(1) of the 1973 Constitution
from which the present Art. VI, §28(1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but
not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of
the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions.
(R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and
essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services
to enhance agriculture (milling of palay,
corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
 personal effects of citizens returning to
the Philippines) and or professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical,
dental, hospital and veterinary services,
and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
On the other hand, the transactions which are subject to
the VAT are those which involve goods and services
which are used or availed of mainly by higher income
groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of
trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or
privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses,
and other common carriers, services of franchise
grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not
at retail but at wholesale and in the abstract. There is no
fully developed record which can impart to adjudication
the impact of actuality. There is no factual foundation to
show in the concrete the application of the law to actual
contracts and exemplify its effect on property rights. For
the fact is that petitioner's members have not even been
assessed the VAT. Petitioner's case is not made concrete
by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
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 on its
face, he has not made out a case. 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. Absent such a showing, the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a
multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A
test case, provided it is an actual case and not an
abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate
justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of
advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to
decide whenever a claim is made that "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." This duty can only arise if an actual
case or controversy is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and all that Art.
VIII, §1, ¶2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is
"judicial power," which is "the power of a court to hear
and decide cases pending between parties who have
the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive power. This
power cannot be directly appropriated until it is
apportioned among several courts either by the
Constitution, as in the case of Art. VIII, §5, or by statute, as
in the case of the Judiciary Act of 1948 (R.A. No. 296) and
the Judiciary Reorganization Act of 1980 (B.P. Blg. 129).
The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to
the exclusion of all others." (United States v. Arceo, 6 Phil.
29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation
of grave abuse of discretion by the other departments of
the government.
VIII. Alleged violation of policy towards cooperatives. On
the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of granting
tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to
infringe a constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and
sales taxes but in 1984, because of the crisis which
menaced the national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008
again granted cooperatives exemption from income and
sales taxes until December 31, 1991, but, in the same
year, E.O. No. 93 revoked the exemption; and that finally
in 1987 the framers of the Constitution "repudiated the
previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and
instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:
§1. The goals of the national economy
are a more equitable distribution of
opportunities, income, and wealth; a
sustained increase in the amount of
goods and services produced by the
nation for the benefit of the people; and
an expanding productivity as the key to
raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization
and full employment based on sound
agricultural development and agrarian
reform, through industries that make full
 and efficient use of human and natural
resources, and which are competitive in
both domestic and foreign markets.
However, the State shall protect Filipino
enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of
the economy and all regions of the
country shall be given optimum
opportunity to develop. Private
enterprises, including corporations,
cooperatives, and similar collective
organizations, shall be encouraged to
broaden the base of their ownership.
§15. The Congress shall create an
agency to promote the viability and
growth of cooperatives as instruments for
social justice and economic
development.
quite as great a degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed.
971, 973 (1904)). It is not right, as petitioner in G.R. No.
115543 does in arguing that we should enforce the public
accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress
should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit
as a third branch of the legislature, much less exercise a
veto power over legislation.
WHEREFORE, the motions for reconsideration are denied
with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.

Petitioner's contention has no merit. In the first place, it is

not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes
under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to
withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, §2 had
restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, §1, but
then again cooperatives were not the only ones whose
exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and
private entities. In the second place, the Constitution
does not really require that cooperatives be granted tax
exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one
of vacillation, as far as the grant of tax privileges was
concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were
adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives,
no violation of any constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under

the Constitution cooperatives are exempt from taxation.
Such theory is contrary to the Constitution under which
only the following are exempt from taxation: charitable
institutions, churches and parsonages, by reason of Art.
VI, §28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, §4 (3).

CUP's further ground for seeking the invalidation of R.A.

No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are
exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that
there is greater need to provide cheaper electric power
to as many people as possible, especially those living in
the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is
unreasonable.

We have carefully read the various arguments raised

against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its
enforcement pending resolution of these cases. We have
now come to the conclusion that the law suffers from
none of the infirmities attributed to it by petitioners and
that its enactment by the other branches of the
government does not constitute a grave abuse of
discretion. Any question as to its necessity, desirability or
expediency must be addressed to Congress as the body
which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate
guardians of the liberties and welfare of the people in
[G.R. No. 131359. May 5, 1999]
MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF
LAGUNA and BENITO R. BALAZO, in his capacity
as Provincial Treasurer of Laguna, respondents.
DECISION
VITUG, J.:
On various dates, certain municipalities of the
Province of Laguna including, Bian, 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 petitioner 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 No. 7160,
otherwise known as the Local Government Code of 1991,
was enacted to take effect on 01 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, respondent province enacted Laguna Provincial
Ordinance No. 01-92, effective 01 January 1993,
providing, in part, as follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on
businesses enjoying a franchise, at a rate of fifty percent
(50%) of one percent (1%) of the gross annual receipts,
which shall include both cash sales and sales on account
realized during the preceding calendar year within this
province, including the territorial limits on any city located
in the province[1]
On the basis of the above ordinance, respondent
Provincial Treasurer sent a demand letter to MERALCO for
the corresponding tax payment. Petitioner MERALCO
paid the tax, which then amounted to P19,520,628.42,
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 P.D. 551
already included the franchise tax imposed by the
Provincial Tax Ordinance. MERALCO contended that the
imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as it concerned
MERALCO, contravened the provisions of Section 1 of
P.D. 551 which read:
Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell
electric current for light, heat and power shall be two per
cent (2%) of their gross receipts received from the sale of
electric current and from transactions incident to the
generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner
of Internal Revenue or his duly authorized representative
on or before the twentieth day of the month following the
end of each calendar quarter or month, as may be
provided in the respective franchise or pertinent
municipal regulation and shall, any provision of the Local
Tax Code or any other law to the contrary
notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local
authority on earnings, receipts, income and privilege of
generation, distribution and sale of electric current.
On 28 August 1995, the claim for refund of petitioner
was denied in a letter signed by Governor Jose D. Lina. In
denying the claim, respondents relied on a more recent
law, i.e., Republic Act No. 7160 or the Local Government
Code of 1991, than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with
the Regional Trial Court of Sta Cruz, Laguna, a complaint
for refund, with a prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order,
against the Province of Laguna and also Benito R. Balazo
in his capacity as the Provincial Treasurer of
Laguna. Aside from the amount of P19,520,628.42 for
which petitioner MERALCO had priority made a formal
request for refund, petitioner thereafter likewise made
additional payments under protest on various dates
totaling P27,669,566.91.
The trial court, in its assailed decision of 30
September 1997, dismissed the complaint and
concluded:
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING
CONSIDERATIONS, JUDGMENT is hereby rendered in favor
of the defendants and against the plaintiff, by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92
as valid, binding, reasonable and enforceable.[2]
In the instant petition, MERALCO assails the above
ruling and brings up the following issues; viz:
1. Whether the imposition of a franchise tax under Section
2.09 of Laguna Provincial Ordinance No. 01-92, insofar as
petitioner is concerned, is violative of the non-impairment
clause of the Constitution and Section 1 of Presidential
Decree No. 551.
2. Whether Republic Act. No. 7160, otherwise known as
the Local Government Code of 1991, has repealed,
amended or modified Presidential Decree No. 551.
3. Whether the doctrine of exhaustion of administrative
remedies is applicable in this case.[3]
The petition lacks merit.
Prefatorily, it might be well to recall that local
governments do not have the inherent power to
tax[4] except to the extent that such power might
be delegated to them either by the basic law or by
statute.Presently, under Article X of the 1987 Constitution,
a general delegation of that power has been given in
favor of local government units. Thus:
Sec. 3. The Congress shall enact a local government
code which shall provide for a more responsive and
accountable local government structure instituted
through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers,
responsibilities, and resources, and provide for the
qualifications, election, appointment and removal, term,
salaries, powers and functions, and duties of local
officials, and all other matters relating to the organization
and operation of the local units.
xxxxxxxxx
Sec. 5. Each local government shall have the power to
create its own sources of revenues and 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.
The 1987 Constitution has a counterpart provision in the
1973 Constitution which did come out with a similar
delegation of revenue making powers to local
governments.[5]
 Under the regime of the 1935 Constitution no similar
delegation of tax powers was provided, and local
government units instead derived their tax powers under
a limited statutory authority. Whereas, then, the
delegation of tax powers granted at that time by statute
to local governments was confined and defined (outside
of which the power was deemed withheld), the present
constitutional rule (starting with the 1973 Constitution),
however, would broadly confer such tax powers subject
only to specific exceptions that the law might prescribe.
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,[6] 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.
The Local Government Code of 1991 has
incorporated and adopted, by and large the provisions
of the now repealed Local Tax Code, which had been in
effect since 01 July 1973, promulgated into law by
Presidential Decree No. 231[7] pursuant to the then
provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes
provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose
a tax on businesses enjoying a franchise. Section 137
thereof provides:
Sec. 137. Franchise Tax Notwithstanding any exemption
granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at
a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction. In the case of a
newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless
of when the business started to operate, the tax shall be
based on the gross receipts for the preceding calendar
year, or any fraction thereof, as provided
herein. (Underscoring supplied for emphasis)
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 under Section 193 thereof, tax
exemptions or incentives theretofore enjoyed by certain
entities. This law states:
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. (Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing
clause in its Section 534; thus:
Section 534. Repealing Clause. x x x.
(f) All general and special laws, acts, city charters,
decrees, 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. (Underscoring
supplied for emphasis)[8]
To exemplify, in Mactan Cebu International Airport
Authority vs. Marcos,[9] the Court upheld the withdrawal
of the real estate tax exemption previously enjoyed by
Mactan Cebu International Airport Authority. The Court
ratiocinated:
x x x These policy considerations are consistent with the
State policy to ensure autonomy to local governments
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. 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 service 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 these entities to share in the requirements
of development, fiscal or otherwise, by paying the taxes
and other charges due from them.[10]
Petitioner in its complaint before the Regional Trial
Court cited the ruling of this Court in Province of Misamis
Oriental vs. Cagayan Electric Power and Light Company,
Inc.;[11] thus:
In an earlier case, the phrase shall be in lieu of all taxes
and at any time levied, established by, or collected by
any authority found in the franchise of the Visayan
Electric Company was held to exempt the company from
payment of the 5% tax on corporate franchise provided
in Section 259 of the Internal Revenue Code (Visayan
Electric Co. vs. David, 49 O.G. [No. 4] 1385)
Similarly, we ruled that the provision: shall be in lieu of all
taxes of every name and nature in the franchise of the
Manila Railroad (Subsection 12, Section 1, Act No. 1510)
exempts the Manila Railroad from payment of internal
revenue tax for its importations of coal and oil under Act
No. 2432 and the Amendatory Acts of the Philippine
Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine
Railway Co. (Sec. 13, Act No. 1497) justified the
exemption of the Philippine Railway Company from
payment of the tax on its corporate franchise under
Section 259 of the Internal Revenue Code, as amended
by R.A. No. 39 (Philippine Railway Co vs. Collector of
Internal Revenue, 91 Phil. 35).
Those magic words, shall be in lieu of all taxes also
excused the Cotabato Light and Ice Plant Company
from the payment of the tax imposed by Ordinance No. 7
of the City of Cotabato (Cotabato Light and Power Co.
vs. City of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the Carcar
Electric and Ice Plant Company when it was required to
pay the corporate franchise tax under Section 259 of the
Internal Revenue Code as amended by R.A. No. 39
(Carcar Electric & Ice Plant vs. Collector of Internal
Revenue, 53 O.G. [No. 4] 1068). This Court pointed out
that such exemption is part of the inducement for the
acceptance of the franchise and the rendition of public
service by the grantee.[12]
In the recent case of the City Government of San
Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et
al.,[13] the Court has held that the phrase in lieu of all
taxes have to give way to the peremptory language of
the Local Government Code specifically providing for the
withdrawal of such exemptions, privileges, and that upon
the effectivity of the Local Government Code all
exemptions except only as provided therein can no
longer be invoked by MERALCO to disclaim liability for the
local tax. In fine, the Court has viewed its previous rulings
as laying stress more on the legislative intent of the
amendatory law whether the tax exemption privilege is to
be withdrawn or not rather than on whether the law can
withdraw, without violating the Constitution, the tax
exemption or not.

While the Court has, not too infrequently, referred to

tax exemptions contained in special franchises as being
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.[14] 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.[15] 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.

WHEREFORE, the instant petition is hereby

DISMISSED. No costs.

SO ORDERED.
G.R. No. 168584 October 15, 2007
REPUBLIC OF THE PHILIPPINES, represented by THE
HONORABLE SECRETARY OF FINANCE, THE HONORABLE
COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE
HONORABLE COMMISSIONER OF CUSTOMS, and THE
COLLECTOR OF CUSTOMS OF THE PORT OF
SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74,
RTC, Third Judicial Region, Olongapo City, INDIGO
DISTRIBUTION CORP., herein represented by ARIEL G.
CONSOLACION, W STAR TRADING AND WAREHOUSING
CORP., herein represented by HIERYN R. ECLARINAL,
FREEDOM BRANDS PHILS., CORP., herein represented by
ANA LISA RAMAT, BRANDED WAREHOUSE, INC., herein
represented by MARY AILEEN S. GOZUN, ALTASIA INC.,
herein represented by ALAN HARROW, TAINAN TRADE
(TAIWAN), INC., herein represented by ELENA RANULLO,
SUBIC PARK N’ SHOP, herein represented by NORMA
MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL
PHILS., herein represented by MA. CHARINA FE C.
RODOLFO, DUTY FREE SUPERSTORE (DFS), herein
represented by RAJESH R. SADHWANI, CHJIMES TRADING
INC., herein represented by ANGELO MARK M. PICARDAL,
PREMIER FREEPORT, INC., herein represented by ROMMEL
P. GABALDON, FUTURE TRADE SUBIC FREEPORT, INC., herein
represented by WILLIE S. VERIDIANO, GRAND COMTRADE
INTERNATIONAL CORP., herein represented by JULIUS
MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC.,
herein represented by ISIDRO M. MUÑOZ,respondents.
DECISION
CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition
to annul (1) the May 4, 2005 Order1 issued by public
respondent Judge Ramon S. Caguioa of the Regional
Trial Court (RTC), Branch 74, Olongapo City, granting
private respondents’ application for the issuance of a writ
of preliminary injunction and (2) the Writ of Preliminary
Injunction2 that was issued pursuant to such Order, which
stayed the implementation of Republic Act (R.A.) No.
9334, AN ACT INCREASING THE EXCISE TAX RATES IMPOSED
ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING
FOR THE PURPOSE SECTIONS 131, 141, 142, 143, 144, 145
AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF
1997, AS AMENDED.
Petitioners likewise seek to enjoin, restrain and inhibit
public respondent from enforcing the impugned
issuances and from further proceeding with the trial of
Civil Case No. 102-0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No.
72273 or the Bases Conversion and Development Act of
1992 which, among other things, created the Subic
Special Economic and Freeport Zone (SBF4) and the Subic
Bay Metropolitan Authority (SBMA).
R.A. No. 7227 envisioned the SBF to be developed into a
"self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments."5 In line with this vision,
Section 12 of the law provided:
(b) The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of goods
and capital within, into and exported out of the
Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations
of raw materials, capital and equipment.
However, exportation or removal of goods from
the territory of the Subic Special Economic Zone
to the other parts of the Philippine territory shall
be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax
laws of the Philippines;
(c) The provisions of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within
the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross
income earned by all businesses and enterprises
within the Subic Special Economic Zone shall be
remitted to the National Government, one
percent (1%) each to the local government units
affected by the declaration of the zone in
proportion to their population area, and other
factors. In addition, there is hereby established a
development fund of one percent (1%) of the
gross income earned by all businesses and
enterprises within the Subic Special Economic
Zone to be utilized for the development of
municipalities outside the City of Olongapo and
the Municipality of Subic, and other
municipalities contiguous to be base areas.
In case of conflict between national and local
laws with respect to tax exemption privileges in
the Subic Special Economic Zone, the same shall
be resolved in favor of the latter;
(d) No exchange control policy shall be applied
and free markets for foreign exchange, gold,
securities and future shall be allowed and
maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary
Board, shall supervise and regulate the
operations of banks and other financial
institutions within the Subic Special Economic
Zone;
(f) Banking and finance shall be liberalized with
the establishment of foreign currency depository
units of local commercial banks and offshore
banking units of foreign banks with minimum
Central Bank regulation;
(g) Any investor within the Subic Special
Economic Zone whose continuing investment
shall not be less than Two hundred fifty thousand
dollars ($250,000), his/her spouse and dependent
children under twenty-one (21) years of age, shall
be granted permanent resident status within the
Subic Special Economic Zone. They shall have
freedom of ingress and egress to and from the
Subic Special Economic Zone without any need
of special authorization from the Bureau of
Immigration and Deportation. The Subic Bay
Metropolitan Authority referred to in Section 13 of
this Act may also issue working visas renewal
every two (2) years to foreign executives and
other aliens possessing highly-technical skills
which no Filipino within the Subic Special
Economic Zone possesses, as certified by the
Department of Labor and Employment. The
names of aliens granted permanent residence
status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the
Bureau of Immigration and Deportation within
thirty (30) days after issuance thereof;
x x x x. (Emphasis supplied)
Pursuant to the law, private respondents Indigo
Distribution Corporation, W Star Trading and Warehousing
Corporation, Freedom Brands Philippines Corporation,
Branded Warehouse, Inc., Altasia, Inc., Tainan Trade
(Taiwan) Inc., Subic Park ‘N Shop, Incorporated, Trading
Gateways International Philipines, Inc., Duty Free
Superstore (DFS) Inc., Chijmes Trading, Inc., Premier
Freeport, Inc., Future Trade Subic Freeport, Inc., Grand
Comtrade Int’l., Corp., and First Platinum International,
Inc., which are all domestic corporations doing business
at the SBF, applied for and were granted Certificates of
Registration and Tax Exemption6 by the SBMA.
These certificates allowed them to engage in the business
either of trading, retailing or wholesaling, import and
export, warehousing, distribution and/or transshipment of
general merchandise, including alcohol and tobacco
products, and uniformly granted them tax exemptions for
such importations as contained in the following provision
of their respective Certificates:
ARTICLE IV. The Company shall be entitled to tax
and duty-free importation of raw materials,
capital equipment, and household and personal
items for use solely within the Subic Bay Freeport
Zonepursuant to Sections 12(b) and 12(c) of the
Act and Sections 43, 45, 46 and 49 of the
Implementing Rules. All importations by the
Company are exempt from inspection by
the Societe Generale de Surveillance if such
importations are delivered immediately to and
for use solely within the Subic Bay Freeport Zone.
(Emphasis supplied)
Congress subsequently passed R.A. No. 9334, however,
effective on January 1, 2005,7 Section 6 of which
provides:
Sec. 6. Section 131 of the National Internal
Revenue Code of 1977, as amended, is hereby
amended to read as follows:
Sec. 131. Payment of Excise Taxes on Imported
Articles. –
(A) Persons Liable. – Excise taxes on imported
articles shall be paid by the owner or importer to
the Customs Officers, conformably with the
regulations of the Department of Finance and
before the release of such articles from the
customshouse or by the person who is found in
possession of articles which are exempt from
excise taxes other than those legally entitled to
exemption.
In the case of tax-free articles brought or
imported into the Philippines by persons, entities
or agencies exempt from tax which are
subsequently sold, transferred or exchanged in
the Philippines to non-exempt persons or entities,
the purchasers or recipients shall be considered
the importers thereof, and shall be liable for the
duty and internal revenue tax due on such
importation.
The provision of any special or general law to the
contrary notwithstanding, the importation of
cigars and cigarettes, distilled spirits, fermented
liquors and wines into the Philippines, even if
destined for tax and duty free shops, shall be
subject to all applicable taxes, duties, charges,
including excise taxes due thereon. This shall
apply to cigars and cigarettes, distilled spirits,
fermented liquors and wines brought directly into
the duly chartered or legislated freeports of the
Subic Economic Freeport Zone, created under
Republic Act No. 7227; x x x and such other
freeports as may hereafter be established or
created by law: Provided, further, That
importations of cigars and cigarettes, distilled
spirits, fermented liquors and wines made directly
by a government-owned and operated duty-
free shop, like the Duty Free Philippines (DFP),
shall be exempted from all applicable duties
only: x x x Provided, finally, That the removal and
transfer of tax and duty-free goods, products,
machinery, equipment and other similar articles
other than cigars and cigarettes, distilled spirits,
fermented liquors and wines, from one Freeport
to another Freeport, shall not be deemed an
introduction into the Philippine customs territory. x
x x. (Emphasis and underscoring supplied)
On the basis of Section 6 of R.A. No. 9334, SBMA issued on
January 10, 2005 a Memorandum8 declaring that
effective January 1, 2005, all importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines
into the SBF, including those intended to be transshipped
to other free ports in the Philippines, shall be treated as
ordinary importations subject to all applicable taxes,
duties and charges, including excise taxes.
Meanwhile, on February 3, 2005, former Bureau of Internal
Revenue (BIR) Commissioner Guillermo L. Parayno, Jr.
requested then Customs Commissioner George M. Jereos
to immediately collect the excise tax due on imported
alcohol and tobacco products brought to the Duty Free
Philippines (DFP) and Freeport zones.9
Accordingly, the Collector of Customs of the port of Subic
directed the SBMA Administrator to require payment of all
appropriate duties and taxes on all importations of cigars
and cigarettes, distilled spirits, fermented liquors and
wines; and for all transactions involving the said items to
be covered from then on by a consumption entry and no
longer by a warehousing entry.10
On February 7, 2005, SBMA issued a
Memorandum11 directing the departments concerned to
require locators/importers in the SBF to pay the
corresponding duties and taxes on their importations of
cigars, cigarettes, liquors and wines before said items are
cleared and released from the freeport. However, certain
SBF locators which were "exclusively engaged in the
transshipment of cigarette products for foreign
destinations" were allowed by the SBMA to process their
import documents subject to their submission of an
Undertaking with the Bureau of Customs.12
On February 15, 2005, private respondents wrote the
offices of respondent Collector of Customs and the SBMA
Administrator requesting for a reconsideration of the
directives on the imposition of duties and taxes,
particularly excise taxes, on their shipments of cigars,
cigarettes, wines and liquors.13 Despite these letters,
however, they were not allowed to file any warehousing
entry for their shipments.
Thus, private respondent enterprises, through their
representatives, brought before the RTC of Olongapo
City a special civil action for declaratory relief14 to have
certain provisions of R.A. No. 9334 declared as
unconstitutional, which case was docketed as Civil Case
No. 102-0-05.
In the main, private respondents submitted that (1) R.A.
No. 9334 should not be interpreted as altering, modifying
or amending the provisions of R.A. No. 7227 because
repeals by implication are not favored; (2) a general law
like R.A. No. 9334 cannot amend R.A. No. 7727, which is a
special law; and (3) the assailed law violates the one bill-
one subject rule embodied in Section 26(1), Article VI 15 of
the Constitution as well as the constitutional proscription
against the impairment of the obligation of contracts.16
Alleging that great and irreparable loss and injury would
befall them as a consequence of the imposition of taxes
on alcohol and tobacco products brought into the SBF,
private respondents prayed for the issuance of a writ of
preliminary injunction and/or Temporary Restraining Order
(TRO) and preliminary mandatory injunction to enjoin the
directives of herein petitioners.
Petitioners duly opposed the private respondents’ prayer
for the issuance of a writ of preliminary injunction and/or
TRO, arguing that (1) tax exemptions are not presumed
and even when granted, are strictly construed against
the grantee; (2) an increase in business expense is not the
injury contemplated by law, it being a case of damnum
absque injuria; and (3) the drawback mechanism
established in the law clearly negates the possibility of the
feared injury.17
Petitioners moreover pointed out that courts are enjoined
from issuing a writ of injunction and/or TRO on the
grounds of an alleged nullity of a law, ordinance or
administrative regulation or circular or in a manner that
would effectively dispose of the main case. Taxes, they
stressed, are the lifeblood of the government and their
prompt and certain availability is an imperious need. They
maintained that greater injury would be inflicted on the
public should the writ be granted.
On May 4, 2005, the court a quo granted private
respondents’ application for the issuance of a writ of
preliminary injunction, after it found that the essential
requisites for the issuance of a preliminary injunction were
present.
As investors duly licensed to operate inside the SBF, the
trial court declared that private respondents were
entitled to enjoy the benefits of tax incentives under R.A.
No. 7227, particularly the exemption from local and
national taxes under Section 12(c); the aforecited
provision of R.A. No. 7227, coupled with private
respondents’ Certificates of Registration and Tax
Exemption from the SBMA, vested in them a clear and
unmistakable right or right in esse that would be violated
should R.A. No. 9334 be implemented; and the invasion
of such right is substantial and material as private
respondents would be compelled to pay more than what
they should by way of taxes to the national government.
The trial court thereafter ruled that the prima
facie presumption of validity of R.A. No. 9334 had been
overcome by private respondents, it holding that as a
partial amendment of the National Internal Revenue
Code (NIRC) of 1997,18 as amended, R.A. No. 9334 is a
general law that could not prevail over a special statute
like R.A. No. 7227 notwithstanding the fact that the
assailed law is of later effectivity.
The trial court went on to hold that the repealing
provision of Section 10 of R.A. No. 9334 does not expressly
mention the repeal of R. A. No. 7227, hence, its repeal
can only be an implied repeal, which is not favored; and
since R.A. No. 9334 imposes new tax burdens, whatever
doubts arising therefrom should be resolved against the
taxing authority and in favor of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates
the terms and conditions of private respondents’
subsisting contracts with SBMA, which are embodied in
their Certificates of Registration and Exemptions in
contravention of the constitutional guarantee against the
impairment of contractual obligations; that greater
damage would be inflicted on private respondents if the
writ of injunction is not issued as compared to the injury
that the government and the general public would suffer
from its issuance; and that the damage that private
respondents are bound to suffer once the assailed statute
is implemented – including the loss of confidence of their
foreign principals, loss of business opportunity and
unrealized income, and the danger of closing down their
businesses due to uncertainty of continued viability –
cannot be measured accurately by any standard.
With regard to the rule that injunction is improper to
restrain the collection of taxes under Section 21819 of the
NIRC, the trial court held that what is sought to be
enjoined is not per se the collection of taxes, but the
implementation of a statute that has been found
preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private
respondents’ taxes have not yet been assessed, as they
have not filed consumption entries on all their imported
tobacco and alcohol products, hence, their duty to pay
the corresponding excise taxes and the concomitant
right of the government to collect the same have not yet
materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary
Injunction directing petitioners and the SBMA
Administrator as well as all persons assisting or acting for
and in their behalf "1) to allow the operations of [private
respondents] in accordance with R.A. No. 7227; 2) to
allow [them] to file warehousing entries instead of
consumption entries as regards their importation of
tobacco and alcohol products; and 3) to cease and
desist from implementing the pertinent provisions of R.A.
No. 9334 by not compelling [private respondents] to
immediately pay duties and taxes on said alcohol and
tobacco products as a condition to their removal from
the port area for transfer to the warehouses of [private
respondents]."20
The injunction bond was approved at One Million pesos
(P1,000,000).21
Without moving for reconsideration, petitioners have
come directly to this Court to question the May 4, 2005
Order and the Writ of Preliminary Injunction which, they
submit, were issued by public respondent with grave
abuse of discretion amounting to lack or excess of
jurisdiction.
In particular, petitioners contend that public respondent
peremptorily and unjustly issued the injunctive writ despite
the absence of the legal requisites for its issuance,
resulting in heavy government revenue losses.22 They
emphatically argue that since the tax exemption
previously enjoyed by private respondents has clearly
been withdrawn by R.A. No. 9334, private respondents do
not have any right in esse nor can they invoke legal injury
to stymie the enforcement of R.A. No. 9334.
Furthermore, petitioners maintain that in issuing the
injunctive writ, public respondent showed manifest bias
and prejudice and prejudged the merits of the case in
utter disregard of the caveat issued by this Court in Searth
Commodities Corporation, et al. v. Court of
Appeals23 and Vera v. Arca.24
Regarding the P1 million injunction bond fixed by public
respondent, petitioners argue that the same is grossly
disproportionate to the damages that have been and
continue to be sustained by the Republic.
In their Reply25 to private respondents’ Comment,
petitioners additionally plead public respondent’s bias
and partiality in allowing the motions for intervention of a
number of corporations26 without notice to them and in
disregard of their present pending petition for certiorari
and prohibition before this Court. The injunction bond
filed by private respondent Indigo Distribution
Corporation, they stress, is not even sufficient to cover all
the original private respondents, much less, intervenor-
corporations.
The petition is partly meritorious.
At the outset, it bears emphasis that only questions
relating to the propriety of the issuance of the May 4,
2005 Order and the Writ of Preliminary Injunction are
properly within the scope of the present petition and shall
be so addressed in order to determine if public
respondent committed grave abuse of discretion. The
arguments raised by private respondents which pertain to
the constitutionality of R.A. No. 9334 subject matter of the
case pending litigation before the trial court have no
bearing in resolving the present petition.
Section 3 of Rule 58 of the Revised Rules of Court
provides:
SEC. 3. Grounds for issuance of preliminary
injunction. – A preliminary injunction may be
granted when it is established.
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such relief
consists in restraining the commission or
continuance of the act or acts complained of, or
in requiring the performance of an act or acts,
either for a limited period or perpetually;
 (b) That the commission, continuance or non- brought directly into the duly chartered or direc
performance of the act or acts complained of legislated freeports of the Subic Economic freep
during the litigation would probably work injustice Freeport Zone, created under Republic Act Zone,
to the applicant; or No. 7227; the Cagayan Special Economic the C
Zone and Freeport, created under Republic Freep
(c) That a party, court, agency or a person is Act No. 7922; and the Zamboanga City 7922;
doing, threatening, or is attempting to do, or is Special Economic Zone, created under Econ
procuring or suffering to be done, some act or Republic Act No. 7903, and are not Act N
acts probably in violation of the rights of the transshipped to any other port in the may
applicant respecting the subject of the action or Philippines: Provided, further, That law: P
proceeding, and tending to render the judgment importations of cigars and cigarettes, cigar
ineffectual. distilled spirits, fermented liquors and wines ferme
made directly by a government-owned by a
and operated duty-free shop, like the Duty duty-
For a writ of preliminary injunction to issue, the plaintiff
Free Philippines (DFP), shall be exempted (DFP)
must be able to establish that (1) there is a clear and
from all applicable duties, charges, appli
unmistakable right to be protected, (2) the invasion of
including excise tax due thereon; Provided That s
the right sought to be protected is material and
still further, That such articles directly gove
substantial, and (3) there is an urgent and paramount
imported by a government-owned and free s
necessity for the writ to prevent serious damage.27
operated duty-free shop, like the Duty-Free shall b
Philippines, shall be labeled "tax and duty- "not f
Conversely, failure to establish either the existence of a free" and "not for resale": Provided, still remo
clear and positive right which should be judicially further, That if such articles brought into the good
protected through the writ of injunction, or of the acts or duly chartered or legislated freeports under and o
attempts to commit any act which endangers or tends to Republic Acts Nos. 7227, 7922 and 7903 are and c
endanger the existence of said right, or of the urgent subsequently introduced into the Philippine liquor
need to prevent serious damage, is a sufficient ground for customs territory, then such articles shall, anoth
denying the preliminary injunction.28 upon such introduction, be deemed introd
imported into the Philippines and shall be territo
It is beyond cavil that R.A. No. 7227 granted private subject to all imposts and excise taxes
respondents exemption from local and national taxes, provided herein and other statutes: xxxx
including excise taxes, on their importations of general Provided, finally, That the removal and
merchandise, for which reason they enjoyed tax-exempt transfer of tax and duty-free goods,
status until the effectivity of R.A. No. 9334. products, machinery, equipment and other
similar articles, from one freeport to another
By subsequently enacting R.A. No. 9334, however, freeport, shall not be deemed an
Congress expressed its intention to withdraw private introduction into the Philippine customs
respondents’ tax exemption privilege on their territory.
importations of cigars, cigarettes, distilled spirits,
fermented liquors and wines. Juxtaposed to show this x x x x.
intention are the respective provisions of Section 131 of
the NIRC before and after its amendment by R.A. No. (Emphasis and underscoring supplied)
9334:
To note, the old Section 131 of the NIRC expressly
x x x x. provided that all taxes, duties, charges, including excise
taxes shall not apply to importations of cigars, cigarettes,
Sec. 131 of NIRC before R.A. No. 9334 Sec. 131,
fermented
as amended
spirits and
by R.A.
winesNo. brought
9334 directly into the duly
Sec. 131. Payment of Excise Taxes on chartered
Sec. 131. Paymentor legislated freeports
of Excise Taxes on of the SBF.
Imported Articles. – Imported Articles. –
On the other hand, Section 131, as amended by R.A. No.
(A) Persons Liable. – Excise taxes on 9334, now
(A) Persons provides
Liable. – Excisethat such
taxes ontaxes, duties and charges,
imported articles shall be paid by the owner importedincluding excise
articles shalltaxes,
be paidshallbyapply to importation of cigars
the owner
or importer to the Customs Officers, and cigarettes,
or importer distilled
to the Customs spirits, fermented liquors and
Officers,
conformably with the regulations of the wines into
conformably thethe
with SBF.
regulations of the
Department of Finance and before the Department of Finance and before the
release of such articles from the customs release of such
Without articles from
necessarily the customs
passing upon the validity of the
house or by the person who is found in house or by the person
withdrawal who
of the tax is found inprivileges of private
exemption
possession of articles which are exempt possession of articles
respondents, which arethis
it behooves exempt
Court to state certain basic
from excise taxes other than those legally from principles
excise taxes andother than those
observations legally
that should throw light on the
entitled to exemption. entitled to exemption.
propriety of the issuance of the writ of preliminary
injunction in this case.
In the case of tax-free articles brought or In the case of tax-free articles brought or
imported into the Philippines by persons, imported into the
First. Every Philippines must
presumption by persons,
be indulged in favor of the
entities or agencies exempt from tax which entities or agencies exempt
constitutionality from 29
of a statute. tax which
The burden of proving the
are subsequently sold, transferred or are subsequently sold, transferred
unconstitutionality of a law rests or on the party assailing the
exchanged in the Philippines to non- exchanged
law.30 Ininpassing
the Philippines
upon the tovalidity
non- of an act of a co-equal
exempt persons or entities, the purchasers exempt andpersons or entities,
coordinate branch the ofpurchasers
the government, courts must
or recipients shall be considered the or recipients
ever beshall be considered
mindful the
of the time-honored principle that a
importers thereof, and shall be liable for the importers
statutethereof, and shall
is presumed liable for the
to be valid.
duty and internal revenue tax due on such duty and internal revenue tax due on such
importation. importation.
Second. There is no vested right in a tax exemption, more
so when the latest expression of legislative intent renders
The provision of any special or general law The provision of any special
its continuance doubtful. or Being
general law statutory
a mere
to the contrary notwithstanding, the to theprivilege,
contrary31notwithstanding,
a tax exemptionthe may be modified or
importation of cigars and cigarettes, importation
withdrawn of cigars
at willand cigarettes,
by the granting authority.32
distilled spirits, fermented liquors and wines distilled spirits, fermented liquors and wines
into the Philippines, even if destined for tax into the Philippines,
To state even
otherwise if destined
is to for tax power of the State,
limit the taxing
and duty free shops, shall be subject to all and duty free shops, shall be subject to all
which is unlimited, plenary, comprehensive and supreme.
applicable taxes, duties, charges, including applicable taxes, duties, charges, including
The power to impose taxes is one so unlimited in force
excise taxes due thereon. Provided, excise taxes due thereon. This shall applyto
and so searching in extent, it is subject only to restrictions
however, Thatthis shall not apply to cigars cigars and cigarettes, distilled spirits,
which rest on the discretion of the authority exercising it.33
and cigarettes, fermented spirits and wines fermented liquors and wines brought
Third. As a general rule, tax exemptions are
construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.34 The burden of
proof rests upon the party claiming exemption to prove
that it is in fact covered by the exemption so claimed.35 In
case of doubt, non-exemption is favored.36
Fourth. A tax exemption cannot be grounded upon the
continued existence of a statute which precludes its
change or repeal.37 Flowing from the basic precept of
constitutional law that no law is irrepealable, Congress, in
the legitimate exercise of its lawmaking powers, can
enact a law withdrawing a tax exemption just as
efficaciously as it may grant the same under Section
28(4) of Article VI 38 of the Constitution. There is no
gainsaying therefore that Congress can amend Section
131 of the NIRC in a manner it sees fit, as it did when it
passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of
Registration and Tax Exemption of private respondents
are not absolute and unconditional as to constitute rights
in esse – those clearly founded on or granted by law or is
enforceable as a matter of law.39
These certificates granting private respondents a "permit
to operate" their respective businesses are in the nature
of licenses, which the bulk of jurisprudence considers as
neither a property nor a property right.40 The licensee
takes his license subject to such conditions as the grantor
sees fit to impose, including its revocation at pleasure.41 A
license can thus be revoked at any time since it does not
confer an absolute right.42
While the tax exemption contained in the Certificates of
Registration of private respondents may have been part
of the inducement for carrying on their businesses in the
SBF, this exemption, nevertheless, is far from being
contractual in nature in the sense that the non-
impairment clause of the Constitution can rightly be
invoked.43
Sixth. Whatever right may have been acquired on the
basis of the Certificates of Registration and Tax Exemption
must yield to the State’s valid exercise of police
power.44 It is well to remember that taxes may be made
the implement of the police power.45
It is not difficult to recognize that public welfare and
necessity underlie the enactment of R.A. No. 9334. As
petitioners point out, the now assailed provision was
passed to curb the pernicious practice of some
unscrupulous business enterprises inside the SBF of using
their tax exemption privileges for smuggling purposes.
Smuggling in whatever form is bad enough; it is worse
when the same is allegedly perpetrated, condoned or
facilitated by enterprises hiding behind the cloak of their
tax exemption privileges.
Seventh. As a rule, courts should avoid issuing a writ of
preliminary injunction which would in effect dispose of
the main case without trial.46 This rule is intended to
preclude a prejudgment of the main case and a reversal
of the rule on the burden of proof since by issuing the
injunctive writ, the court would assume the proposition
that petitioners are inceptively duty bound to prove.47
Eighth. A court may issue a writ of preliminary injunction
only when the petitioner assailing a statute has made out
a case of unconstitutionality or invalidity strong enough,
in the mind of the judge, to overcome the presumption of
validity, in addition to a showing of a clear legal right to
the remedy sought.48
Thus, it is not enough that petitioners make out a case of
unconstitutionality or invalidity to overcome the prima
facie presumption of validity of a statute; they must also
be able to show a clear legal right that ought to be
protected by the court. The issuance of the writ is
therefore not proper when the complainant’s right is
doubtful or disputed.49
Ninth. The feared injurious effects of the imposition of
duties, charges and taxes on imported cigars, cigarettes,
distilled spirits, fermented liquors and wines on private
respondents’ businesses cannot possibly outweigh the
dire consequences that the non-collection of taxes, not
to mention the unabated smuggling inside the SBF, would
wreak on the government. Whatever damage would
befall private respondents must perforce take a back
seat to the pressing need to curb smuggling and raise
revenues for governmental functions.
All told, while the grant or denial of an injunction
generally rests on the sound discretion of the lower court,
this Court may and should intervene in a clear case of
abuse.50
One such case of grave abuse obtained in this case
when public respondent issued his Order of May 4, 2005
and the Writ of Preliminary Injunction on May 11,
200551 despite the absence of a clear and unquestioned
legal rightof private respondents.
In holding that the presumption of constitutionality and
validity of R.A. No. 9334 was overcome by private
respondents for the reasons public respondent cited in his
May 4, 2005 Order, he disregarded the fact that as a
condition sine qua non to the issuance of a writ of
preliminary injunction, private respondents needed also
to show a clear legal right that ought to be protected.
That requirement is not satisfied in this case.
To stress, the possibility of irreparable damage without
proof of an actual existing right would not justify an
injunctive relief.52
Besides, private respondents are not altogether lacking
an appropriate relief under the law. As petitioners point
out in their Petition53 before this Court, private
respondents may avail themselves of a tax refund or tax
credit should R.A. No. 9334 be finally declared invalid.
Indeed, Sections 20454 and 22955 of the NIRC provide for
the recovery of erroneously or illegally collected taxes
which would be the nature of the excise taxes paid by
private respondents should Section 6 of R.A. No. 9334 be
declared unconstitutional or invalid.
It may not be amiss to add that private respondents can
also opt not to import, or to import less of, those items
which no longer enjoy tax exemption under R.A. No. 9334
to avoid the payment of taxes thereon.
The Court finds that public respondent had also ventured
into the delicate area which courts are cautioned from
taking when deciding applications for the issuance of the
writ of preliminary injunction. Having ruled preliminarily
against the prima facie validity of R.A. No. 9334, he
assumed in effect the proposition that private
respondents in their petition for declaratory relief were
duty bound to prove, thereby shifting to petitioners the
burden of proving that R.A. No. 9334 is not
unconstitutional or invalid.
In the same vein, the Court finds public respondent to
have overstepped his discretion when he arbitrarily fixed
the injunction bond of the SBF enterprises at
only P1million.
The alleged sparseness of the testimony of Indigo
Corporation’s representative56 on the injury to be suffered
by private respondents may be excused because
evidence for a preliminary injunction need not be
conclusive or complete. Nonetheless, considering the
number of private respondent enterprises and the
volume of their businesses, the injunction bond is
undoubtedly not sufficient to answer for the damages
that the government was bound to suffer as a
consequence of the suspension of the implementation of
the assailed provisions of R.A. No. 9334.
Rule 58, Section 4(b) provides that a bond is executed in
favor of the party enjoined to answer for all damages
which it may sustain by reason of the injunction. The
purpose of the injunction bond is to protect the
defendant against loss or damage by reason of the
injunction in case the court finally decides that the
plaintiff was not entitled to it, and the bond is usually
conditioned accordingly.57

Recalling this Court’s pronouncements in Olalia v.

Hizon58 that:

x x x [T]here is no power the exercise of which is

more delicate, which requires greater caution,
deliberation and sound discretion, or more
dangerous in a doubtful case, than the issuance
of an injunction. It is the strong arm of equity that
should never be extended unless to cases of
great injury, where courts of law cannot afford
an adequate or commensurate remedy in
damages.

Every court should remember that an injunction is

a limitation upon the freedom of action of the
defendant and should not be granted lightly or
precipitately. It should be granted only when the
court is fully satisfied that the law permits it and
the emergency demands it,

it cannot be overemphasized that any injunction that

restrains the collection of taxes, which is the inevitable
result of the suspension of the implementation of the
assailed Section 6 of R.A. No. 9334, is a limitation upon the
right of the government to its lifeline and wherewithal.

The power to tax emanates from necessity; without taxes,

government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.59 That the
enforcement of tax laws and the collection of taxes are
of paramount importance for the sustenance of
government has been repeatedly observed. Taxes being
the lifeblood of the government that should be collected
without unnecessary hindrance,60 every precaution must
be taken not to unduly suppress it.

Whether this Court must issue the writ of prohibition,

suffice it to stress that being possessed of the power to
act on the petition for declaratory relief, public
respondent can proceed to determine the merits of the
main case. To halt the proceedings at this point may be
acting too prematurely and would not be in keeping with
the policy that courts must decide controversies on the
merits.

Moreover, lacking the requisite proof of public

respondent’s alleged partiality, this Court has no ground
to prohibit him from proceeding with the case for
declaratory relief. For these reasons, prohibition does not
lie.

WHEREFORE, the Petition is PARTLY GRANTED. The writ of

certiorari to nullify and set aside the Order of May 4, 2005
as well as the Writ of Preliminary Injunction issued by
respondent Judge Caguioa on May 11, 2005 isGRANTED.
The assailed Order and Writ of Preliminary Injunction are
hereby declared NULL AND VOID and accordingly SET
ASIDE. The writ of prohibition prayed for is,
however, DENIED.

SO ORDERED.
[G.R. No. 120082. September 11, 1996]
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. OSMEA, and EUSTAQUIO B.
CESA,respondents.
DECISION
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
1995[1] 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 1995[2]denying the motion to reconsider
the decision.
We resolved to give due course to this petition for it
raises issues dwelling on the scope of the taxing power of
local government units and the limits of tax exemption
privileges of 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, x x
x and such other airports as may be established in the
Province of Cebu x x x (Sec. 3, 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 x x x.
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 exempts it from
payment of realty taxes. It was 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:
Section 133. Common Limitations on the Taxing Powers of
Local Government Units. -- Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
a) x x x
xxx
o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units. (underscoring supplied)
Respondent City refused to cancel and set aside
petitioners 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 Government Code that
took effect on January 1, 1992:
Section 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. (underscoring supplied)
xxx
Section 234. Exemptions from Real Property Taxes. x x x
(a) x x x
xxx
(e) x x x
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 by the very
nature of its powers and functions.
Respondent City, however, asserted that MCIAA 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, decrees [sic], executive
orders, proclamations and administrative regulations, or
part of 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 Courts 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. Toward 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. x x
x[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 or
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 charter,
PD 1869. All of its shares of stock are owned by the
National Government. . . .
PAGCOR has a dual role, to operate and regulate
gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality
of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere
Local government.
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 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)
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. (underscoring 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
government corporation performing governmental
functions 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 powers of the local government units.
In its comment, respondent City of Cebu alleges
that as a local 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 Constitution[10] 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 petitioners 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 or controlled corporations performing
governmental and purely proprietary
functions. Respondent City of Cebu urges this Court to
apply by analogy its ruling that the Manila International
Airport Authority is a government-owned
corporation,[12]and to reject the application
of Basco because it was promulgated . . . before the
enactment and the signing 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 rights of the
people and takes from them a portion of their 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
taxpayer and liberally in favor of the taxing authority.[18] A
claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be
mistaken.[19] Elsewise stated, taxation is the rule,
exemption therefrom is the exception.[20] 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 exemptions 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 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 Cooperatives 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. (emphasis supplied)
Needless to say, the last item (item o) is pertinent to 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 light of the
above enumeration. The term fees means charges fixed
by law or ordinance for the regulation or inspection of
business or activity,[24] while charges are pecuniary
liabilities such as rents or fees against persons 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 an annual ad valorem tax on real property such
as land, building, machinery, and other improvements
not hereafter specifically exempted.
Section 234 of the 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 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.
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 directly
and exclusively used for religious, charitable
or educational purposes; (ii) all machineries
and equipment actually, directly and
exclusively used 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 institutions, 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 speak 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 or provisos in these sections, 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 are explicitly indicated in the
next. For instance, in item (a) which excepts income
taxes when levied on banks and other financial
institutions; item (d) which excepts wharfage on wharves
constructed and maintained by the local government
unit concerned; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses
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 provided in this
Code in item (j). These clauses would be obviously
unnecessary or mere surplusages 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 Sections 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 on the National
Government, its agencies and instrumentalities, and local
government units; however, pursuant to Section 232,
provinces, cities, and municipalities in the Metropolitan
Manila Area may impose the real property tax except
on, inter alia, real property owned by the Republic of the
Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person, as
provided in 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 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 insofar as real property
taxes are concerned by limiting the retention only to
those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property 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 a taxable
person for consideration or otherwise.
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. 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
Sections 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.
It 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
none exists. In light of the petitioners theory that it is an
instrumentality of the Government, it could only be within
the first item of the first paragraph of the section by
expanding the scope of the term Republic of the
Philippines to embrace its instrumentalities and agencies.
For expediency, we quote:
(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.
This view does not persuade us. In the first place, the
petitioners 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
subdivisions in Section 234(a).
The terms Republic of the Philippines and National
Government are not interchangeable. The former is
broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code
of 1987 defines as the corporate governmental entity
through which the functions of government are exercised
throughout the Philippines, including, save as the contrary
appears from the context, the various arms through
which political authority is made affective in the
Philippines, whether pertaining to the autonomous
regions, the provincial, city, municipal or barangay
subdivisions or other forms of local government.[27] These
autonomous regions, provincial, city, municipal or
barangay subdivisions are the political subdivisions.[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. 464, otherwise known as The Real
Property Tax Code, which reads:
SEC. 40. Exemptions 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 corporation so exempt
by its 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 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,
especially in light of the general provision on withdrawal
of tax exemption privileges in Section 193 and the special
provision on withdrawal of exemption from payment of
real property taxes in the last paragraph of Section
234. These policy considerations are consistent with the
State policy to ensure autonomy to local
governments[33] 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 performing governmental functions may be subject to
people. It may also be relevant to recall that the original tax. Where it is done precisely to fulfill a constitutional
reasons for the withdrawal of tax exemption privileges mandate and national policy, no one can doubt its
granted to government-owned and controlled wisdom.
corporations and all other units of government were that
such privilege resulted in serious tax base erosion and WHEREFORE, the instant petition is DENIED. The
distortions in the tax treatment of similarly situated challenged decision and order of the Regional Trial Court
enterprises, and there was a need for these entities to of Cebu, Branch 20, in Civil Case No. CEB-16900 are
share in the requirements of development, fiscal or AFFIRMED.
otherwise, by paying the taxes and other charges due No pronouncement as to costs.
from them.[35]
SO ORDERED.
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 petitioners 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, aerodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control
of all equipment necessary for the operation of radio aids
to air navigation, airways communication, the approach
control office, and the area control center shall be
retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation
Office from Mactan without the concurrence of the
Authority. The Authority may assist in the maintenance of
the Air Transportation Office equipment.

The airports referred to are the Lahug Air Port in

Cebu City and the Mactan International Airport in the
Province of Cebu,[36] which belonged to the Republic of
the Philippines, then under the Air Transportation Office
(ATO).[37]

It may be reasonable to assume that the term lands

refer to lands in Cebu City then administered by the
Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real property
taxes. This section involves a transfer of the lands, among
other things, to the petitioner and not just the transfer of
the beneficial use thereof, with the ownership being
retained by the Republic of the Philippines.

This transfer is actually an absolute conveyance of

the ownership thereof because the petitioners authorized
capital stock consists of, inter alia, the value of such real
estate owned and/or administered by the
airports.[38] Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of
the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was

never a taxable person under its Charter. It was only
exempted from the payment of real property taxes. The
grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property
tax.

Finally, even if the petitioner was originally not a

taxable person for purposes of real property tax, in light of
the foregoing disquisitions, it had already become, even
if it be conceded to be an agency or instrumentality of
the Government, a taxable person for such purpose in
view of the withdrawal in the last paragraph of Section
234 of exemptions from the payment of real property
taxes, which, as earlier adverted to, applies to the
petitioner.

Accordingly, the position taken by the petitioner is

untenable. Reliance on Basco vs. Philippine Amusement
and Gaming Corporation[39] is unavailing since it was
decided before the effectivity of the LGC. Besides,
nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government
G.R. No. 3473 March 22, 1907 ART. 80. A further tax of three per centum on the
gross earnings shall be paid without deduction of
J. CASANOVAS, plaintiff-appellant, costs of any kind whatsoever. All substances
vs. enumerated in section one shall be exempt from
JNO. S. HORD, defendant-appellee. said tax of three per centum for a period of thirty
years.
F.G. Waite for appellant.
Attorney-General Araneta for appellee. ART. 81. No other taxes than those herein
mentioned shall be imposed upon mining and
metallurgical industries.
WILLARD, J.:

The royal decree and regulation for its enforcement

The plaintiff brought this action against the defendant,
provided that the deeds granted by the Government
the Collector of Internal Revenue, to recover the sum of
should be in a particular form, which form was inserted in
P9,600, paid by him under protest as taxes on certain
the regulations. It must be presumed that the deeds
mining claims owned by him in the Province of Ambos
granted to the plaintiff were made as provided by law,
Camarines. Judgment was rendered in the court below in
and, in fact, one of such concessions was exhibited
favor of the defendant, and from that judgment the
during the argument in this court, and was found to be in
plaintiff appealed.
exact conformity with the form prescribed by law. The
deed is as follows:
There is no dispute about the facts.
Don Camilo Garcia de Polavieja, Marquez de
In January, 1897, the Spanish Government, in Polavieja, Teniente General de los Ejercitos
accordance with the provisions of the royal decree of Nacionales, Caballero Gran Cruz de la Real y
the 14th of May, 1867, granted to the plaintiff certain Militar Orden de San Hermenegildo, de la Real y
mines in the said Province of Ambos Camarines, of which distinguida de Isabel la Catolica, de la del Merito
mines the plaintiff is now the owner. Militar Roja, de la de la Corona de Italia,
Comendador de Carlos Tercero, Bennemerito de
That there were valid perfected mining concessions la Patria en grado eminente, condecorado con
granted prior to the 11th of April, 1899, is conceded. They varias cruses de distincion por meritos de guerra,
were so considered by the Collector of Internal Revenue Capitan General y Gobernador General de
and were by him said to fall within the provisions of Filipinas.
section 134 of Act No. 1189, known as the Internal
Revenue Act. That section is as follows: Whereas I have granted to Don Joaquin
Casanovas y Llovet and to Don Martin Buck the
SEC. 134. On all valid perfected mining concession of a gold mine entitled "Nueva
concessions granted prior to April eleventh, California Segunda" in the jurisdiction of
eighteen hundred and ninety-nine, there shall be Paracale, Province of Ambos Camarines: Now,
levied and collected on the after January first, therefore, in the name of His Majesty the King
nineteen hundred and five, the following taxes: (whom God preserve), and pursuant to the
provisions of article 37 of the royal decree of May
2. (a) On each claim containing an area of sixty 14, 1867, regulating mining in these Islands, I issue,
thousand square meters, an annual tax of one this fifth day of November, eighteen hundred
hundred pesos; (b) and at the same rate and ninety-six, this title deed to
proportionately on each claim containing an four pertenencias, comprising an area of two
area in excess of, or less than, sixty thousand hundred and forty thousand square meters, as
square meters. shown in the attached sketch map drafted by
the engineer Don Enrique Abella y Casariego,
and dated at Manila December sixteenth of the
3. On the gross output of each an ad valorem said year, subject to the following general terms
tax equal to three per centum of the actual and conditions:
market value of such output.

1. That the mine shall be worked in conformity

The defendant accordingly imposed upon these with the rules in mining, the grantee and his
properties the tax mentioned in section 134, which tax, as laborers to be governed by the police rules
has before been stated, plaintiff paid under protest. established by existing regulations.

The only question in the case is whether this section 134 is
void or valid.
I. It is claimed by the plaintiff that it is void because it
comes within the provision of section 5 of the act of
Congress of July 1, 19021 (32 U.S. Stat. L., 691), which
provides "that no law impairing the obligation of
contracts shall be enacted." The royal decree of the 14th
of May, 1867, provided, among other things, as follows:
2. That the grantee shall be liable for all damages
to third parties that may be caused by his
operations.
3. That the grantee shall likewise indemnify his
neighbors for any damage they may suffer by
reason of water accumulated on his works, if,
upon being requested, he fail to drain the same
within the time indicated.

ART. 76. On each pertenencia minera (mining
claim) of the area prescribed in the first
paragraph of article 13 (sixty thousand square
meters) there shall be paid annually a fixed tax of
forty escudos (about P20.00).
The pertenencia referred to in the second
paragraph of the same article, though of greater
area than the others (one hundred and fifty
thousand square meters), shall pay only
twenty escudos (about P10.00).
ART. 78. Pertenencia of iron mines and mines of
combustible minerals shall be exempt from the
annual tax for a period of thirty years from the
date of publication of this decree.
4. That he shall contribute for the drainage of the
adjacent mines and for the general galleries for
drainage or haulage in proportion to the benefit
he derives therefrom, whenever, by authority of
the Governor-General, such works shall be
opened for a group of pertenencias or for the
entire mining locality in which the mine is
situated.
5. That he shall commence work on the mine
immediately upon receipt of this concession
unless prevented by force majeure.
6. That he shall keep the mine in active operation
by employing at the rate of at least four laborers
 for eachpertenencia for at least six months of
each year.
7. That he shall strengthen the walls of the mine
within the time indicated whenever, by reason of
mismanagement of the work, it threatens to
cave in, unless he be prevented by force
majeure.
8. That he shall not render further profitable
development of the mine difficult or impossible
by avaricious operation.
9. That he shall not suspend the operation of the
mine with the intention of abandoning the same
without first informing the Governor of his
intention, in which case he must leave the mine
in a good state of timbering.
10. That he shall pay taxes on the mine and its
output as prescribed in the royal decree.
11. Finally, that he shall comply with all the
requirements contained in the royal decree and
in the regulations for concessions of the same
nature as the present.
Without special conditions.
Now, therefore, by virtue of this title deed, I grant
to Don Joaquin Casanovas y Llovet and to Don
Martin Buck the ownership of the said mine for an
unlimited period of time so long as they shall
comply with the foregoing terms and conditions,
to the end that they may develop the same and
make free use and disposition of the output
thereof, with the right to alienate the said mine
subject to the provisions of existing laws, and to
enjoy all the rights and benefits conceded to
such grantees by the royal decree and by the
mining regulations. And for the prompt fulfillment
and observance of the said conditions, both on
the part of the said grantees and by all
authorities, courts, corporations, and private
persons whom it may concern, I have ordered
this title deed to be issued — given under my
hand and the proper seal and countersigned by
the undersigned Director-General of Civil
Administration.
It seems very clear to us that this deed constituted a
contract between the Spanish Government and the
plaintiff, the obligation of which contract was impaired
by the enactment of section 134 of the Internal Revenue
Law above cited, thereby infringing the provisions above
quoted from section 5 of the act of Congress of July 1,
1902. This conclusion seems necessarily to result from the
decisions of the Supreme Court of the United States in
similar cases. In the case of McGee vs. Mathis (4 Wallace,
143), it appeared that the State of Arkansas, by an act of
the legislature of 1851, provided for the sale of certain
swamp lands granted to it by the United States; for the
issue of transferable scrip receivable for any lands not
already taken up at the time of selection by the holder;
for contracts for the making of levees and drains, and for
the payment of contractors in scrip and otherwise. In the
fourteenth section of this act it was provided that —
To encourage by all just means the progress and
completion of the reclaiming of such lands by
offering inducements to purchasers and
contractors to take up said lands, all said swamp
and overflowed lands shall be exempt from
taxation for the term of ten years or until they
shall be reclaimed.
In 1855 this section was repealed and provision was
made by law for the taxation of swamp and overflowed
lands, sold or to be sold, precisely as other lands. McGee,
before this appeal, had become the owner by transfer
from contractors of a large amount of scrip issued under
the Act of 1851, and with this scrip, after the repeal, took
up and paid for many sections and parts of sections of
the granted lands. Taxes were levied by the State on the
lands so taken up by McGee. The Supreme Court held
that these taxes could not be collected. The Court said at
page 156:
It seems quite clear that the Act of 1851
authorizing the issue of land scrip constituted a
contract between the State and the holders of
the land scrip issued under the act.
In the case of the Home of the Friendless vs. Rouse (8
Wallace, 430), it appeared that on the 3d day of
February, 1853, the legislature of Missouri passed on act
to incorporate the Home of the Friendless in the city of St.
Louis. Section 1 of the act provided that —
All property of said corporation shall be exempt
from taxation.
The court held that the State had no power afterwards to
pass laws providing for the levying of taxes upon this
institution. The Court said among other things at page
438:
The validity of this contract is questioned at the
bar on the ground that the legislature had no
authority to grant away the power of taxation.
The answer to this position is, that the question is
no longer open for argument here, for it is settled
by the repeated adjudications of this court, that
a State may be contract based on a
consideration exempt the property of an
individual or corporation from taxation, either for
a specified period or permanently. And it is
equally well settled that the exemption is
presumed to be on sufficient consideration, and
binds the State if the charter containing it is
accepted.
In the case of The Asylum vs. The City of New Orleans (105
U.S., 362), it appears that St. Ariva's Asylum was
incorporated by an act of the legislature of Louisiana,
approved April 29, 1853. The law incorporating it
provided that it should enjoy the same exemption from
taxation which was enjoyed by the Orphan Boys' Asylum
of New Orleans. The law relating to the last named
institution provided (page 364):
That, from and after the passage of this act, all
the property, real and personal, belonging to the
Orphan Boys' Asylum of New Orleans be, and the
same is hereby exempted from all taxation, either
by the State, parish, or city in which it is situated,
any law to the contrary notwithstanding.
It was held that the State had no power by subsequent
legislation to impose taxes upon the property of this
institution.
That the doctrine announced in these cases is still
maintained in that court is apparent from the case of
Powersvs. The Detroit, Grand Haven and Milwaukee
Railway which was decided on the 16th of April, 1906,
and reported in 201 U. S., 543. Section 9 of the act of the
legislature of Michigan, incorporating the railway
company, provided:
Said company shall, on or before the 1st day of
July, pay to the State treasurer, an annual tax of
one per cent on the capital stock of said
company, pain in, which tax shall be in lieu of all
other taxation.
The court said at page 556:
It has often been decided by this court, so often
that a citation on authorities in unnecessary, that
the legislature of a State may, in the absence of
special restrictions in its constitution, make a valid
contract with a corporation in respect to
 taxation, and that such contract can be
enforced against the State at the instance of the
corporation.
The case at bar falls within the cases hereinbefore cited.
It is to be distinguished from the case of the Metropolitan
Street Railway Company vs. The New York State Board of
Tax Commissioners (199 U.S., 1). In that case it was
provided by various acts of the legislature, that the
companies therein referred to, should pay annually to the
city of New York, a fixed amount or percentage, varying
from 2 to 8 per cent of their gross earnings additional
taxes was sustained by the court. It was sustained on the
ground that the prior legislation did not expressly say that
the taxes thus provided for should be in lieu of all other
taxes. The court said at page 37:
Applying these well-established rules to the
several contracts, it will be perceived that there
was no express relinquishment of the right of
taxation. The plaintiff in error must rely upon some
implication, and not upon any direct stipulation.
In each contract there was a grant of privileges,
but the grant was specifically or privileges in
respect to the construction, operation and
maintenance of the street railroad. These were
all that in terms were granted. As consideration
for this grant, the grantees were to pay
something, and such payment is nowhere said to
be in lieu of, or as an equivalent or substitute of
taxes. All that can be extracted from the
language used, was a grant of privileges and a
payment therefor. Other words must be written
into the contract before there can be found any
relinquishment of the power of taxation.
But in the case at bar, there is found not only the
provisions for the payment of certain taxes annually, but
there is also found the provision contained in article 81,
above quoted, which expressly declares that no other
taxes shall be imposed upon these mines.
Philippine Islands, and that any concessions, the
boundaries of which are not so marked within this
period shall be free and open to explorations
and purchase under the provisions of this act.2
This section seems to indicate that concessions, like those
in question, can be canceled only by reason of illegality
in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as
requisite for their retention in the laws under which they
were granted. There is nothing in the section which
indicates that they can be canceled for failure to comply
with the conditions prescribed by subsequent legislation.
In fact, the real intention of the act seems to be that such
concession should be subject to the former legislation
and not to any subsequent legislation. There is no claim in
this case that there was any illegality in the procedure by
which these concessions were obtained, nor is there any
claim that the plaintiff has not complied with the
conditions prescribed in the said royal decree of 1867.
III. In view of the result at which we have arrived, it is not
necessary to consider the further claim made by the
plaintiff that the taxes imposed by article 134 above
quoted, are in violation of the part of section 5 of the act
of July 1, 1902, which declares "that the rule of taxation in
said Islands shall be uniform."
The judgment of the court below is reversed, and
judgment is ordered in favor of the plaintiff and against
the defendant for P9,600, with interest thereon, at 6 per
cent, from the 21st day of February, 1906, and the costs
of the Court of First Instance. No costs will be allowed to
either party in this court.
After the expiration of twenty days let judgment be
entered in accordance herewith and ten days thereafter
let the case be remanded to the court from whence it
came for proper action. So ordered.

The present case is to be distinguished also from that

class of cases of which Grands Lodge vs. The City of New
Orleans (166 U.S., 143) is a type, and which includes Salt
Company vs. East Saginaw (13 Wall., 373) and
Welchvs. Cook (97 U.S., 541). In these cases the
exemption was a mere bounty and did not form a part of
any contract.

The fact that this concession was made by the

Government of Spain, and not by the Government of the
United States, is not important. (Trustees of Dartmouth
College vs. Woodward, 4 Wheaton, 518.)

Our conclusion is that the concessions granted by the

Government of Spain to the plaintiff, constitute contracts
between the parties; that section 134 of the Internal
Revenue Law impairs the obligation of these contracts,
and is therefore void as to them.

II. We think that this section is also void because in conflict

with section 60 of the act of Congress of July 1, 1902. This
section is as follows:

That nothing in this Act shall be construed to

effect the rights of any person, partnership, or
corporation, having a valid, perfected mining
concession granted prior to April eleventh,
eighteen hundred and ninety-nine, but all such
concessions shall be conducted under the
provisions of the law in force at the time they
were granted, subject at all times to cancellation
by reason of illegality in the procedure by which
they were obtained, or for failure to comply with
the conditions prescribed as requisite to their
retention in the laws under which they were
granted: Provided, That the owner or owners of
every such concession shall cause the corners
made by its boundaries to be distinctly marked
with permanent monuments within six months
after this act has been promulgated in the
G.R. No. L-10211 December 3, 1915
THE MANILA RAILROAD COMPANY, plaintiff-appellant,
vs.
THE INSULAR COLLECTOR OF CUSTOMS, defendant-
appellee.
William A. Kincaid and Thomas L. Hartigan for appellant.
Attorney-General Avanceña for appellee.
MORELAND, J.:
In the year 1912 the Manila Railroad Company, being the
owner of a steamship called the Hondagua, caused
certain repairs to be made thereon in the city of
Hongkong, China. In the latter part of that year, and
immediately after the completion of the repairs,
the Hondagua came to the Philippine Islands and an
attempt was made by the railroad company to induce
the Philippine Government to permit the steamship to be
entered in Philippine waters without the payment of
import duties on the repairs made in Hongkong,
adequate facilities existed in the Philippine Islands for the
making of those repairs and that they were, therefore,
dutiable. The decision of the appraisers was protested,
the matter was appealed to the Insular Collector of
Customs for decision, and the judgment of his appraisers
was affirmed. Appeal was taken from his decision to the
Court of First Instance of Manila, where it was affirmed.
This appeal is from the judgment of affirmance.
The appellant bases its claim that the repairs to the
steamship should come in free of duty on two grounds:
The first one is found in section 8, paragraph 200, and
section 11, paragraph 348, of the Tariff Act of Congress,
and the second in the provisions of section 10 of Act No.
1510 and Act No. 1566 of the Philippine Commission.
So much of section 8 and of paragraph 200 as is pertinent
to the inquiry in which we are now engaged is as follows:
SEC. 8. That the rates of duties to be collected on
articles, goods, wares, or merchandise imported
into the Philippine Islands, or going into said
Islands from the United States or any of its
possessions except as otherwise provided in this
Act, shall be as follows:
xxx xxx xxx
200. Boats, launches. lighters, and other water
craft, set up or knocked down, imported into the
Philippine Islands, and cost of repairs made in
foreign countries to vessels, or to parts thereof,
documented for the Philippine coastwise trade
or plying exclusively in Philippine waters and for
which repairs adequate facilities are afforded in
the Philippine Islands, fifty per centum ad
valorem.
Provided, That upon proof satisfactory to the
Collector of Customs that adequate facilities are
not afforded in the Philippine Islands for such
repairs, the same shall be subject to the
provisions of paragraph three hundred and forty-
eight of this Act.
That part of section 11 and paragraph 348 as is pertinent
reads as follows:itc-a1f
SEC. 11. That the following articles shall be free of
duty upon the importation thereof into the
Philippine Islands upon compliance with
regulations which shall be prescribed in accord
with the provisions of each paragraph:
xxx xxx xxx
348. Repairs to vessels documented in the
Philippine Islands or regularly plying in Philippine
waters, made in foreign countries, upon proof
satisfactory to the collector of customs that
adequate facilities for such repairs are not
afforded in the Philippine Islands.
There are two questions raised under the section just
quoted: One by the appellant and the other by the
appellee. That raised by the appellee is to the effect that
the judgment of the Insular Collector of Customs as to
whether or not adequate facilities for repairs to ships
exists in the Philippine Islands is conclusive and cannot be
made the subject of inquiry. That raised by the appellant
is in substance that the judgment of the Insular Collector
of Customs is not conclusive but subject to inquiry, and
that it was conclusively demonstrated on the trial by the
evidence of the appellant that adequate facilities for
such repairs did not exist in the Philippine Islands at the
time such repairs were made.
We are of the opinion that the government is wrong in its
contention, while the appellant's claim must be sustained
in part and disallowed in part. The judgment of the Insular
Collector of Customs as to whether adequate facilities for
the repairs mentioned in the law exist in the Philippine
Islands is not conclusive but is subject to review by the
courts. The appellant is wrong in its statement that it was
demonstrated on the trial that adequate facilities for
such repairs did not exist in the Philippine Islands. We
have examined with care the evidence on that subject
and we find that it is vague, uncertain and inconclusive.
Indeed, it is doubtful if it can be stated that any of the
evidence presented by the appellant on that subject
really went to the point.
The appellant is more successful, however, in presenting
the second ground of its appeal, namely, that which
refers to Acts Nos. 1510 and 1566. Act No. 1510 is entitled
"An Act granting to the Manila Railroad Company a
concession for railways lines in the Island of Luzon, and
providing in respect of proceedings for condemnation of
land by public service corporations." It grants a franchise
to the Manila Railroad Company and, after fixing the
rights of the company under that franchise, formulates
the obligations of the company to the government
arising by reason of the concessions granted. One of the
considerations on which the company's promises and
obligations rested was the privileges conferred by section
10 of that Act. It provides:1awphil.net
All material imported into the Philippine
Archipelago for the construction and equipment
of the railways undertaken by the grantee
pursuant to authority conferred by this
concessionary contract or grant shall be
admitted free of duty, under such rules and
regulations as shall be prescribed by the
Philippine Government: Provided, That this
provision shall not extend or apply to any portion
of such lines, or to any material or supplies
therefor, after the same shall be constructed and
equipped: Provided further, That if any material
so admitted free of duty shall not in fact be used
for the construction and equipment of said
railroads the duty shall become payable thereon
whenever it is ascertained that it has been used
or disposed of or is held for other purposes: And
provided further, That this exemption shall extend
to port charges upon vessels whose entire cargo
consists of material for the construction or
equipment of the railways, and to such
proportion of the prescribed port charges on
other vessels as the tonnage of material for such
construction or equipment may bear to the
tonnage of the entire cargo of the vessels.
By a subsequent act of the Philippine Commission the
franchise of the Manila Railroad Company was extended
and additional concessions granted for railroad lines in
the Island of Luzon. That Act was No. 1905, and by
paragraph 2 of section 1 thereof the provisions of sections
10 of Act No. 1510 were specifically extended and made
applicable to the additional lines of railroad with the
same force and effect as if they had been included in
the original concession. In addition to the provisions of
Act No. 1510, already quoted, which are pertinent to the
matter under discussion, we have Act No. 1566, entitled
"An Act regulating the free entry of certain railroad
material imported into the Philippine Islands." Section 1 of
said Act is as follows: "All material imported into the
Philippine Archipelago for the construction and
equipment of the railroads granted concessions by Acts
Numbered Fourteen hundred and ninety-seven and
Fifteen hundred and ten, which material shall, in fact, be
so used, shall be admitted free of duty under the
following rules and regulations."
This Act, in subsequent sections, establishes certain rules
and regulations for the admission free of duty of the
materials named in the Act. Among them are section 4
and 8, which read as follows:
In case the Insular Collector of Customs shall be
in doubt as to whether any article sought to be
imported free of duty under this Act is entitled to
said exemption, he may submit the question in
writing to the Supervising Railway Expert, who
shall thereupon examine the same, and certify to
the Insular Collector of Customs whether the
expenditure by the railroad for said article will, in
his opinion, be allowed as a proper item in the
cost of construction under section one,
subsection numbered nine of Act Numbered
Fourteen hundred and ninety-seven, and section
four, paragraphs (c) and (d) of Act Numbered
Fifteen hundred and seven, in the case the road
is one upon which interest on bonds is
guaranteed by the Government; or, in case of
non-guaranteed roads, the Supervising Railway
Expert shall certify to the Insular Collector of
Customs whether, in his opinion, said article is a
proper charge against the construction and
equipment of a railroad.
Whenever free entry is requested for any material
or articles which, in the opinion of the Insular
Collector of Customs, are not entitled to
exemption from duty under the terms of this Act,
that officer is authorized, after making due
examination and appraisement and ascertaining
the amount of duties found to be due on said
materials or articles, to admit the same without
payment of the duties, and to deliver the same
to the railway company or its representatives,
notifying them, in writing, that said materials or
articles are found to be dutiable, that the duties
thereon amount to a certain sum, stating the
same, that the same have been passed and
delivered without payment of the duty, in
accordance with this section, and that due
report of his decision and the amount of duties
found to be due will be made to the Governor-
General, in order that the question of their
dutiability may be adjusted and decided by him
in conformity with subsection numbered nine of
section one of Act Numbered Fourteen hundred
and ninety-seven. It shall thereupon become the
duty of the Insular Collector of Customs promptly
to notify the Governor-General in writing of the
above facts and to hold the free entry and
invoice and all other papers connected with the
case in his office subject to the orders of the
Governor-General and until final adjustment of
the question is had. Nothing in this section
contained shall be construed to alter or amend
the rights of the Insular Auditor under the
Accounting Act or any amendment thereto, or
under any other Act of the Philippine
Commission.
From these quotations it will be seen that all materials for
the construction and equipment of the southern lines of
the Manila Railroad Company, on the bonds issued for
which the government guaranteed the interest, were
expressly admitted free of duty into the Philippine Islands,
and that, in case of doubt as to the right to free entry, the
matter was to be referred to the supervising railway
expert or to the Governor-General for final determination.
We are of the opinion that the repairs made to the vessel
must be admitted free of duty under these Acts. It seems
that the ship in question was purchased by the railroad
company as one of the agencies or instrumentalities
made use of in the construction of its southern lines in the
interest of efficiency and economy, it being used to
transport railroad material, both for construction and
equipment, as well as railroad laborers, from one point to
another in the Philippine Islands which could not be so
quickly or economically transported by any other means.
It is undoubted, from the record in this case, that the
steamship became an instrument or agency in the
construction, if not the equipment also, of the railroad, in
the same general class as a locomotive engine used in
the construction work, or a steam shovel, or a pneumatic
drill, or other tool, apparatus, implement, or mechanism
used in railroad construction. Customs Administrative
Circular No. 539, promulgated in 1909, established rules
and regulations under section 19 of Act No. 355 and
section 5 of Act No. 1566 of the Philippine Commission
regulating the free entry of materials and construction or
equipment supplies to be used in the construction and
equipment of the southern lines of the Manila Railroad
Company and other lines. Paragraph 7 thereof specifies
the materials which are entitled to free entry under the
provisions of Act No. 1566. It provides:
The following specified materials are entitled to
free entry under the provisions of Act No. 1566 of
the Philippine Commission:
(a) All material used in surveying, including
engineering instruments, tools, books, stationary,
tents, kitchen utensils and stoves, drafting tables
and drafting supplies, cots, chairs, blankets and
bedding, surgical instruments and supplies,
medicines, harness, saddles, and other
equipment usually employed in railway surveys,
excluding, however, subsistence and commissary
supplies and clothing and personal effects of
employees.
(b) All material for the general and local offices
of construction administration, including office
furniture and fixtures, stationery and supplies,
testing machines, and like material and
equipment.
(c) All construction material, including wagons,
carts, scrapers, graders, dump carts, push cars,
steam or gas traction or hoisting engines, trucks,
pumps, pipe, pipe tools and fittings, pile drivers,
steam shovels, steel rails and fastenings,
telegraph instruments and wire, insulators, poles
and other like supplies, sawmill machinery, ties,
timber for bridges, water tanks and buildings,
sashes, doors, blinds, and mill work, roofing
material, cement, plaster, lime, paint, varnish,
and other similar building material, steel and iron
bridges, turntables, roof trusses, and structural
iron of all kinds, frogs, switches and crossings,
interlocking and signal apparatus, shop
machinery and tools, hand tools of all kinds and
descriptions, hardware, oil, coal and waste used
on construction trains, ship or launches, horses,
mules, and draft animals, including hay, grain,
and forage for same, and all necessary material
and supplies used wholly on railroads built under
concessionary contracts or grants.
(d) All material for equipment of railroads built
under concessionary grant or contract or by any
railroad specially granted exemption by law, said
material for equipment consisting of motive
power and rolling stock for use in construction of
railroads and for equipment of same to enable it
to properly operate mileage constructed under
its concessionary contract or grant.
From this circular it will be seen how far the interpretation and therefore, should be punished by the withdrawal of
of the words "material for construction and equipment" the privileges described, than if it stood idle during such
found in Acts Nos. 1510 (sec. 10) and 1566 (sec. 1) has period without attempt on the part of its owner to earn
gone. While it may be doubtful whether the courts, in sufficient to cover its daily expenses or to reduce the sum
dealing with the same subject-matter at first hand, would for the interest on which the Government might ultimately
have been quite so liberal, nevertheless, such be required to respond.
interpretation having been given by the officers charged
with the administration of the Acts referred to and that The judgment of the Court of First Instance is reversed
interpretation having been followed consistently for and the cause remanded with instruction that the
several years, it ought not, at this time, to be changed, decision of the Insular Collector of Customs refusing to
even though the courts might consider that such admit the repairs, which are the subject matter of this
interpretation was broader than they themselves might proceeding, free of duty be set aside and the Insular
originally have adopted. Accepting such interpretation, Collector of Customs be instructed to permit the entry of
we find that the principle which governs it comprehends such repairs free of duty.
and includes every agency, apparatus, instrument, tool
or implement, including machinery imported into the
Philippine Archipelago, which is necessary for the
efficient and economical construction of the railroad in
question. The ship, the repairs to which are in controversy
here, has been accepted by the officials of the Philippine
Government as one of the instrumentalities used in the
construction of appellant's southern lines and the
purchase price thereof has been included in the bonds
issued for such construction. Not only this, but the ship falls
clearly within the list of articles which, according to the
accepted interpretation of the customs officials, have for
several years been admitted free of duty under Acts Nos.
1510 and 1566. It is an implement, an agency, an
instrument used in the construction of said railroad, and,
as such, if otherwise dutiable, could have been entered
in Philippine waters from a foreign country free of import
duties. We do not feel justified in holding that the repairs
to a ship, which has been found to be an instrumentality
in the construction of appellant's southern lines, and, as
such, could enter and remain in Philippine water free of
government exactions, should be separated from the
ship itself and set apart as something subject to import Republic of the Philippines
duties. We think it will be admitted that the materials SUPREME COURT
going into necessary repairs to a locomotive engine used Manila
on a work train in the construction of the railroad would
not be subject to import duties on their introduction into EN BANC
this country. It would seem that, if the engine itself may
be admitted free of duty, all materials necessary to keep
it in repair would also be exempt from import duties. We
believe that, so far as the comparison may properly go,
the same may be said of the ship in question. G.R. No. 115455 October 30, 1995

The Government argues that because of the admitted
fact that the Hondagua has been used by the Manila
Railroad Company for the carrying of passengers and
freight for hire and has at times held itself out as a
common carrier of freight and passengers, it can no
longer be said to be an instrumentality used in the
construction of the Manila Railroad Company's southern
lines but has become a money-making enterprise, and is,
therefore, no longer entitled to the benefits of Act No.
1510. We are unable to give this argument the weight to
which the Government seems to think it entitled. It is true
that the evidence discloses that the ship in question,
when not in use for railroad construction purposes, has
carried freight and passengers for hire. But it is to be
remembered that the record also shows, as we have
already pointed out, that the purchase price of the ship
was made an item entering into the cost of construction
for which bonds were issued on which the Government
guaranteed the payment of interest to the extent
provided in the Act referred to; and that the receipts
derived from the use of the ship as a common carrier
were, under the direction of the Government, credited to
the construction account, thereby reducing indirectly the
amount for which the Government might become
responsible under the law. We are of the opinion that,
under the circumstances disclosed, the use of the ship by
the railroad company in the manner and for the purposes
specified in the objection of the Government, does not
warrant the withdrawal of those privileges which Acts
Nos. 1510 and 1566 confer. We think it cannot be
successfully maintained that the use of the ship for the
carrying of freight and passengers at times when it was
not in use for the purposes for which it was originally
designed, together with the fact that the proceeds of its
activities were applied to the reduction of the
indebtedness concerning which the Government had
some responsibility, is less beneficial to the Government
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.
and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision
dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed
by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers
Association, Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed
a consolidated comment, to which the Philippine Airlines,
Inc., petitioner in G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544, and Juan T.
David, petitioner in G.R. No. 115525, each filed a reply. In
turn the Solicitor General filed on June 1, 1995 a rejoinder
to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to
revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by them that
R.A. No. 7716 did not "originate exclusively" in the House
of Representatives as required by Art. VI, §24 of the
Constitution. Although they admit that H. No. 11197 was
filed in the House of Representatives where it passed
three readings and that afterward it was sent to the
Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that
the Senate did not pass it on second and third readings.
Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994.
Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197
by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains
a House bill and the Senate version just becomes the text
(only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in
which the Senate proposed an amendment to a House
revenue bill by enacting its own version of a revenue bill.
On at least two occasions during the Eighth Congress, the
Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President on April 10, 1992.
This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S.
No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES) which was
approved by the President on May 22, 1992. This Act is a
consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate on October
21, 1991.
On the other hand, the Ninth Congress passed revenue
laws which were also the result of the consolidation of
House and Senate bills. These are the following, with
indications of the dates on which the laws were
approved by the President and dates the separate bills of
the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR
TAX EVASION, AMENDING FOR THIS
PURPOSE THE PERTINENT SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE
(December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE
COMMISSIONER OF INTERNAL REVENUE
TO REQUIRE THE PAYMENT OF THE VALUE-
ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO
SHARE IN VAT REVENUE, AMENDING FOR
THIS PURPOSE CERTAIN SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE
(December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE
COMMISSIONER OF INTERNAL REVENUE
TO PRESCRIBE THE PLACE FOR PAYMENT
OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT
OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES
INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCS)
TO DEDUCT AND WITHHOLD THE VALUE-
ADDED TAX DUE AT THE RATE OF THREE
PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX
PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS
(April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-
OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS
UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR
OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE
STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING
FOR THE PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, ALLOCATING
FUNDS FOR SPECIFIC PROGRAMS, AND
FOR OTHER PURPOSES (December 23,
1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE,
BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE
LOCAL STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING, AMENDING
FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED,
BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS
THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance
in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the
House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S.
No. 1630, petitioners Tolentino and Roco, as members of
the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in
this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only
provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to
the original amendment shall be
considered.
No amendment by substitution shall be
entertained unless the text thereof is
submitted in writing.
Any of said amendments may be
withdrawn before a vote is taken
thereon.
§69. No amendment which seeks the
inclusion of a legislative provision foreign
to the subject matter of a bill (rider) shall
be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be
amended by substituting it with another
which covers a subject distinct from that
proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual
differences between constitutional provisions giving them
the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate
in the House of Representatives; but the
Senate may propose or concur with
amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and
private bills shall originate exclusively in
the House of Representatives, but the
Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to
petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose
amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were
not to be like other bills but must be treated as a special
kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional intent
are nothing but the relics of an unsuccessful attempt to
limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary
to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by
the National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the
Assembly's lawmaking powers, sought to curtail the
powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds,
revenue or tariff bills, bills of local
application, and private bills shall
originate exclusively in the Assembly, but
the Senate may propose or concur with
amendments. In case of disapproval by
the Senate of any such bills, the
Assembly may repass the same by a
two-thirds vote of all its members, and
thereupon, the bill so repassed shall be
deemed enacted and may be
submitted to the President for
corresponding action. In the event that
the Senate should fail to finally act on
any such bills, the Assembly may, after
thirty days from the opening of the next
regular session of the same legislative
term, reapprove the same with a vote of
two-thirds of all the members of the
Assembly. And upon such reapproval,
the bill shall be deemed enacted and
may be submitted to the President for
corresponding action.
The special committee on the revision of laws of the
Second National Assembly vetoed the proposal. It
deleted everything after the first sentence. As rewritten,
the proposal was approved by the National Assembly
and embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed amendment
was submitted to the people and ratified by them in the
elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution,
from which Art. VI, §24 of the present Constitution was
derived. It explains why the word "exclusively" was added
to the American text from which the framers of the
Philippine Constitution borrowed and why the phrase "as
on other Bills" was not copied. Considering the defeat of
the proposal, the power of the Senate to propose
amendments must be understood to be full, plenary and
complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill
is passed and sent over to it by the House, however, the
Senate certainly can pass its own version on the same
subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the
scope of the Senate's power to concur is clear from the
following commentaries:
The power of the Senate to propose or
concur with amendments is apparently
without restriction. It would seem that by
virtue of this power, the Senate can
practically re-write a bill required to
come from the House and leave only a
trace of the original bill. For example, a
general revenue bill passed by the lower
house of the United States Congress
contained provisions for the imposition of
an inheritance tax . This was changed by
the Senate into a corporation tax. The
amending authority of the Senate was
declared by the United States Supreme
Court to be sufficiently broad to enable it
to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L. TAÑADA AND F. CARREON, POLITICAL
LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed
to be initiated by the House of
Representatives because it is more
numerous in membership and therefore
also more representative of the people.
Moreover, its members are presumed to
be more familiar with the needs of the
country in regard to the enactment of
the legislation involved.
The Senate is, however, allowed much
leeway in the exercise of its power to
propose or concur with amendments to
the bills initiated by the House of
Representatives. Thus, in one case, a bill
introduced in the U.S. House of
Representatives was changed by the
Senate to make a proposed inheritance
tax a corporation tax. It is also accepted
practice for the Senate to introduce
what is known as an amendment by
substitution, which may entirely replace
the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-
145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation,
revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills
must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of
this power, the Senate may propose an entirely new bill
as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred
may do any of the following:
(1) to endorse the bill without changes;
(2) to make changes in the bill omitting
or adding sections or altering its
language; (3) to make and endorse an
entirely new bill as a substitute, in which
case it will be known as a committee bill;
or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills
which are required to originate in the House by
prescribing that the number of the House bill and its other
parts up to the enacting clause must be preserved
although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute measure,
is therefore as much an amendment of H. No. 11197 as
any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No. 1630
is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different
between the reference to S. No. 1129 and the reference
to H. No. 11197. From this premise, they conclude that
R.A. No. 7716 originated both in the House and in the
Senate and that it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630 was passed
by both houses of Congress."
In point of fact, in several instances the provisions of S. No.
1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No.
1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between
the two bills, at the same time indicates that the
provisions of the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not have
enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original
form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on
first reading it was referred to the Senate Committee on
Ways and Means. Neither was it required that S. No. 1630
be passed by the House of Representatives before the
two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the
case of H. No. 11197 and S. No. 1630. When the House bill
and Senate bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank deposits), were referred
to a conference committee, the question was raised
whether the two bills could be the subject of such
conference, considering that the bill from one house had
not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this
question of order as to procedure: If a
House bill is passed by the House but not
passed by the Senate, and a Senate bill
of a similar nature is passed in the Senate
but never passed in the House, can the
two bills be the subject of a conference,
and can a law be enacted from these
two bills? I understand that the Senate
bill in this particular instance does not
refer to investments in government
securities, whereas the bill in the House,
which was introduced by the Speaker,
covers two subject matters: not only
investigation of deposits in banks but also
investigation of investments in
government securities. Now, since the
two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker
Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in order. It is
precisely in cases like this where a
conference should be had. If the House
bill had been approved by the Senate,
there would have been no need of a
conference; but precisely because the
Senate passed another bill on the same
subject matter, the conference
committee had to be created, and we
are now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp.
3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that
H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's
and PAL's) contention that because the President
separately certified to the need for the immediate
enactment of these measures, his certification was
ineffectual and void. The certification had to be made of
the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow
petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the
bill he has already certified. It is enough that he certifies
the bill which, at the time he makes the certification, is
under consideration. Since on March 22, 1994 the Senate
was considering S. No. 1630, it was that bill which had to
be certified. For that matter on June 1, 1993 the President
had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time
was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we
have already explained in the main decision that the
phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, §26
(2) qualifies not only the requirement that "printed copies
[of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the
requirement that before a bill can become a law it must
have passed "three readings on separate days." There is
not only textual support for such construction but
historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either
House unless it shall have been printed
and copies thereof in its final form
furnished its Members at least three
calendar days prior to its passage,
except when the President shall have
certified to the necessity of its immediate
enactment. Upon the last reading of a
bill, no amendment thereof shall be
allowed and the question upon its
passage shall be taken immediately
thereafter, and
the yeas and nays entered on the
Journal.
When the 1973 Constitution was adopted, it was
provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it
has passed three readings on separate
days, and printed copies thereof in its
final form have been distributed to the
Members three days before its passage,
except when the Prime Minister certifies
to the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a
bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the
Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall
become a law unless it has passed three
readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
 reading of a bill, no amendment thereto
shall be allowed, and the vote thereon
shall be taken immediately thereafter,
and the yeas and nays entered in the
Journal.
The exception is based on the prudential consideration
that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it
can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or
public calamity which it is meant to address.
Petitioners further contend that a "growing budget
deficit" is not an emergency, especially in a country like
the Philippines where budget deficit is a chronic
condition. Even if this were the case, an enormous
budget deficit does not make the need for R.A. No. 7716
any less urgent or the situation calling for its enactment
any less an emergency.
Apparently, the members of the Senate (including some
of the petitioners in these cases) believed that there was
an urgent need for consideration of S. No. 1630, because
they responded to the call of the President by voting on
the bill on second and third readings on the same day.
While the judicial department is not bound by the
Senate's acceptance of the President's certification, the
respect due coequal departments of the government in
matters committed to them by the Constitution and the
absence of a clear showing of grave abuse of discretion
caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its
final printed form was actually dispensed with by holding
the voting on second and third readings on the same
day (March 24, 1994). Otherwise, sufficient time between
the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed
before it was finally voted on by the Senate on third
reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members
of Congress of what they must vote on and (2) to give
them notice that a measure is progressing through the
enacting process, thus enabling them and others
interested in the measure to prepare their positions with
reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These
purposes were substantially achieved in the case of R.A.
No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc.
(MABINI)) that in violation of the constitutional policy of
full public disclosure and the people's right to know (Art. II,
§28 and Art. III, §7) the Conference Committee met for
two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only
in 1975 when a new rule was adopted requiring open
sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open
hearings for conference committees.
It is nevertheless claimed that in the United States, before
the adoption of the rule in 1975, at least staff members
were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to
be their confidential men, not stenographers as in this
case who on the last two days of the conference were
excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as
to give petitioner Kilosbayan basis for claiming that even
in secret diplomatic negotiations involving state interests,
conferees keep notes of their meetings. Above all, the
public's right to know was fully served because the
Conference Committee in this case submitted a report
showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide
that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in
or other amendments." These changes are shown in the
bill attached to the Conference Committee Report. The
members of both houses could thus ascertain what
changes had been made in the original bills without the
need of a statement detailing the changes.
The same question now presented was raised when the
bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee.
Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it
is out of order to consider the report of
the conference committee
regarding House Bill No. 2557 by reason
of the provision of Section 11, Article XII,
of the Rules of this House which provides
specifically that the conference report
must be accompanied by a detailed
statement of the effects of the
amendment on the bill of the House. This
conference committee report is not
accompanied by that detailed
statement, Mr. Speaker. Therefore it is out
of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
MR. TOLENTINO. Mr. Speaker, I should just
like to say a few words in connection
with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision
of the Rule cited by the gentleman from
Pangasinan, but this provision applies to
those cases where only portions of the
bill have been amended. In this case
before us an entire bill is
presented; therefore, it can be easily
seen from the reading of the bill what
the provisions are. Besides, this
procedure has been an established
practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr.
Speaker, we have to look into the reason
for the provisions of the Rules, and the
reason for the requirement in the
provision cited by the gentleman from
Pangasinan is when there are only
certain words or phrases inserted in or
deleted from the provisions of the bill
included in the conference report, and
we cannot understand what those words
and phrases mean and their relation to
the bill. In that case, it is necessary to
make a detailed statement on how
those words and phrases will affect the
bill as a whole; but when the entire bill
itself is copied verbatim in the
conference report, that is not necessary.
So when the reason for the Rule does not
exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis
added))
Congressman Tolentino was sustained by the chair. The
record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House
was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227 SCRA
703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House.
It may propose an entirely new provision. What is
important is that its report is subsequently approved by
the respective houses of Congress. This Court ruled that it
would not entertain allegations that, because new
provisions had been added by the conference
committee, there was thereby a violation of the
constitutional injunction that "upon the last reading of a
bill, no amendment thereto shall be allowed."
Applying these principles, we
shall decline to look into the petitioners'
charges that an amendment was made
upon the last reading of the bill that
eventually became R.A. No. 7354 and
that copies thereof in its final form were
not distributed among the members of
each House. Both the enrolled bill and
the legislative journals certify that the
measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of
the Constitution. We are bound by such
official assurances from a coordinate
department of the government, to which
we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of
conference committees in the Philippines in a 1979 study:
Conference committees may be of two
types: free or instructed. These
committees may be given instructions by
their parent bodies or they may be left
without instructions. Normally the
conference committees are without
instructions, and this is why they are often
critically referred to as "the little
legislatures." Once bills have been sent
to them, the conferees have almost
unlimited authority to change the
clauses of the bills and in fact sometimes
introduce new measures that were not in
the original legislation. No minutes are
kept, and members' activities on
conference committees are difficult to
determine. One congressman known for
his idealism put it this way: "I killed a bill
on export incentives for my interest
group [copra] in the conference
committee but I could not have done so
anywhere else." The conference
committee submits a report to both
houses, and usually it is accepted. If the
report is not accepted, then the
committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine
Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).
In citing this study, we pass no judgment on the methods
of conference committees. We cite it only to say that
conference committees here are no different from their
counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At
all events, under Art. VI, §16(3) each house has the power
"to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method
and procedures of Congress or its committees must
therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains
that R.A. No. 7716 violates Art. VI, §26 (1) of the
Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the
law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax
of 2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges
of any kind, nature, or description, imposed, levied,
established, assessed or collected by any municipal, city,
provincial or national authority or government agency,
now or in the future."
PAL was exempted from the payment of the VAT along
with other entities by §103 of the National Internal
Revenue Code, which provides as follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions,
including that granted to PAL, by amending §103, as
follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws, except those granted
under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A.
No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE
VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which
stands in the way of accomplishing the purpose of the
law.
PAL asserts that the amendment of its franchise must be
reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to
comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is
§103(q), in order to widen the base of the VAT. Actually, it
is the bill which becomes a law that is required to express
in its title the subject of legislation. The titles of H. No.
11197 and S. No. 1630 in fact specifically referred to §103
of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had
been given of the pendency of these bills in Congress
before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar
argument as that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING THE PHILIPPINE
POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision
repealing all franking privileges. It was contended that
the withdrawal of franking privileges was not expressed in
the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including
the repeal of franking privileges, this Court held:
To require every end and means
necessary for the accomplishment of the
general objectives of the statute to be
expressed in its title would not only be
unreasonable but would actually render
legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297]
As has been correctly explained:
The details of a
legislative act need not
be specifically stated in
its title, but matter
germane to the subject
as expressed in the title,
and adopted to the
accomplishment of the
object in view, may
properly be included in
the act. Thus, it is proper
to create in the same
act the machinery by
which the act is to be
enforced, to prescribe
the penalties for its
infraction, and to
remove obstacles in the
way of its execution. If
such matters are
properly connected
with the subject as
expressed in the title, it is
unnecessary that they
should also have special
mention in the title.
(Southern Pac. Co. v.
Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have
held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what
the constitutional guarantee of free press prohibits are
laws which single out the press or target a group
belonging to the press for special treatment or which in
any way discriminate against the press on the basis of the
content of the publication, and R.A. No. 7716 is none of
these.
Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against the
press. At any rate, it is averred, "even nondiscriminatory
taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say
that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to
the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S.
233, 80 L. Ed. 660 (1936) was found to be discriminatory
because it was laid on the gross advertising receipts only
of newspapers whose weekly circulation was over 20,000,
with the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature
which enacted the license tax. The censorial motivation
for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune
Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.
Ed. 2d 295 (1983), the tax was found to be discriminatory
because although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax on the
privilege of using, storing or consuming tangible goods,
the press was not. Instead, the press was exempted from
both taxes. It was, however, later made to pay
a special use tax on the cost of paper and ink which
made these items "the only items subject to the use tax
that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of
the press "suggests that the goal of regulation is not
related to suppression of expression, and such goal is
presumptively unconstitutional." It would therefore
appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in
that case)
Nor is it true that only two exemptions previously granted
by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from
the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the
Export Processing Zone Authority, and many more are
likewise totally withdrawn, in addition to exemptions
which are partially withdrawn, in an effort to broaden the
base of the tax.
The PPI says that the discriminatory treatment of the press
is highlighted by the fact that transactions, which are
profit oriented, continue to enjoy exemption under R.A.
No. 7716. An enumeration of some of these transactions
will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the
Solicitor General says, such exemptions are granted, in
some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user
rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services
to enhance agriculture (milling of palay,
corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) or for professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
 subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical,
dental, hospital and veterinary services,
and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
The PPI asserts that it does not really matter that the law
does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally
guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement
in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):
The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First
Amendment is not so restricted. A license
tax certainly does not acquire
constitutional validity because it classifies
the privileges protected by the First
Amendment along with the wares and
merchandise of hucksters and peddlers
and treats them all alike. Such equality in
treatment does not save the ordinance.
Freedom of press, freedom of speech,
freedom of religion are in preferred
position.
The Court was speaking in that case of a license tax,
which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays
a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling
goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is
one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him
for delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license
fee on those engaged in the sale of general
merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible
Society without restraining the free exercise of its right to
propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general
regulation is not to violate its freedom under the
Constitution.
Additionally, the Philippine Bible Society, Inc. claims that
although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies
which are given free to those who cannot afford to pay
so that to tax the sales would be to increase the price,
while reducing the volume of sale. Granting that to be
the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that
might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay
an impermissible burden on the right of the preacher to
make a sermon.
On the other hand the registration fee of P1,000.00
imposed by §107 of the NIRC, as amended by §7 of R.A.
No. 7716, although fixed in amount, is really just to pay for
the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of
the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it
from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal
protection and contract clauses and the rule on taxation.
CREBA asserts that R.A. No. 7716 (1) impairs the
obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis
would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the
contract.
The short answer to this is the one given by this Court in an
early case: "Authorities from numerous sources are cited
by the plaintiffs, but none of them show that a lawful tax
on a new subject, or an increased tax on an old one,
interferes with a contract or impairs its obligation, within
the meaning of the Constitution. Even though such
taxation may affect particular contracts, as it may
increase the debt of one person and lessen the security
of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it
be said that it impairs the obligation of any existing
contract in its true legal sense." (La Insular v. Machuca
Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-
American Life Ins. Co. v. Auditor General, 22 SCRA 135,
147 (1968)) Contracts must be understood as having
been made in reference to the possible exercise of the
rightful authority of the government and no obligation of
contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716
exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of
real property which is equally essential. The sale of real
property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who
are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was
already exempt under §103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No. 7716. Petitioner is in
error in claiming that R.A. No. 7716 granted exemption to
these transactions, while subjecting those of petitioner to
the payment of the VAT. Moreover, there is a difference
between the "homeless poor" and the "homeless less
poor" in the example given by petitioner, because the
second group or middle class can afford to rent houses in
the meantime that they cannot yet buy their own homes.
The two social classes are thus differently situated in life. "It
is inherent in the power to tax that the 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.'" (Lutz v.
Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v.
De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130
SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371
(1988)).
Finally, it is contended, for the reasons already noted,
that R.A. No. 7716 also violates Art. VI, §28(1) which
provides that "The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system
of taxation."
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at
the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes
of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms
and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273
long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the
original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 383 (1988) on grounds similar to those made in
these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all
the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is
applied similarly on all goods and
services sold to the public, which are not
exempt, at the constant rate of 0% or
10%.
The disputed sales tax is also equitable. It
is imposed only on sales of goods or
services by persons engaged in business
with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from
its application. Likewise exempt from the
tax are sales of farm and marine
products, so that the costs of basic food
and other necessities, spared as they are
from the incidence of the VAT, are
expected to be relatively lower and
within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David
argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation
because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to
their ability to pay.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional
provision has been interpreted to mean simply that
"direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17(1) of the 1973 Constitution
from which the present Art. VI, §28(1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but
not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of
the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions.
(R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and
essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services
to enhance agriculture (milling of palay,
corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) and or professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical,
dental, hospital and veterinary services,
and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
On the other hand, the transactions which are subject to
the VAT are those which involve goods and services
which are used or availed of mainly by higher income
groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of
trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or
privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses,
and other common carriers, services of franchise
grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not
at retail but at wholesale and in the abstract. There is no
fully developed record which can impart to adjudication
the impact of actuality. There is no factual foundation to
show in the concrete the application of the law to actual
contracts and exemplify its effect on property rights. For
the fact is that petitioner's members have not even been
assessed the VAT. Petitioner's case is not made concrete
by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
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 on its
face, he has not made out a case. 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. Absent such a showing, the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a
multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A
test case, provided it is an actual case and not an
abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate
justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of
advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to
decide whenever a claim is made that "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." This duty can only arise if an actual
case or controversy is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and all that Art.
VIII, §1, ¶2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is
"judicial power," which is "the power of a court to hear
and decide cases pending between parties who have
the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive power. This
power cannot be directly appropriated until it is
apportioned among several courts either by the
Constitution, as in the case of Art. VIII, §5, or by statute, as
in the case of the Judiciary Act of 1948 (R.A. No. 296) and
the Judiciary Reorganization Act of 1980 (B.P. Blg. 129).
The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to
the exclusion of all others." (United States v. Arceo, 6 Phil.
29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation
of grave abuse of discretion by the other departments of
the government.
VIII. Alleged violation of policy towards cooperatives. On
the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of granting
tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to
infringe a constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and
sales taxes but in 1984, because of the crisis which
menaced the national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008
again granted cooperatives exemption from income and
sales taxes until December 31, 1991, but, in the same
year, E.O. No. 93 revoked the exemption; and that finally
in 1987 the framers of the Constitution "repudiated the
previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and
instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:
§1. The goals of the national economy
are a more equitable distribution of
opportunities, income, and wealth; a
sustained increase in the amount of
goods and services produced by the
nation for the benefit of the people; and
an expanding productivity as the key to
raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization
and full employment based on sound
agricultural development and agrarian
reform, through industries that make full
and efficient use of human and natural
resources, and which are competitive in
both domestic and foreign markets.
However, the State shall protect Filipino
enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of
the economy and all regions of the
country shall be given optimum
opportunity to develop. Private
enterprises, including corporations,
cooperatives, and similar collective
organizations, shall be encouraged to
broaden the base of their ownership.
§15. The Congress shall create an
agency to promote the viability and
growth of cooperatives as instruments for
social justice and economic
development.
Petitioner's contention has no merit. In the first place, it is
not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes
under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to
withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, §2 had
restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, §1, but
then again cooperatives were not the only ones whose
exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and
private entities. In the second place, the Constitution
does not really require that cooperatives be granted tax
exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one
of vacillation, as far as the grant of tax privileges was
concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were
adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives,
no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under
the Constitution cooperatives are exempt from taxation.
Such theory is contrary to the Constitution under which
only the following are exempt from taxation: charitable
institutions, churches and parsonages, by reason of Art.
VI, §28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A.
No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are
exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that
there is greater need to provide cheaper electric power
to as many people as possible, especially those living in
the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is
unreasonable.
We have carefully read the various arguments raised
against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its
enforcement pending resolution of these cases. We have
now come to the conclusion that the law suffers from
none of the infirmities attributed to it by petitioners and
that its enactment by the other branches of the
government does not constitute a grave abuse of
discretion. Any question as to its necessity, desirability or
expediency must be addressed to Congress as the body
which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate
guardians of the liberties and welfare of the people in
quite as great a degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed.
971, 973 (1904)). It is not right, as petitioner in G.R. No.
115543 does in arguing that we should enforce the public
accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress
should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit
as a third branch of the legislature, much less exercise a
veto power over legislation.
WHEREFORE, the motions for reconsideration are denied
with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
G.R. No. 131359 May 5, 1999
MANILA ELECTRIC COMPANY, petitioner,
vs.
PROVINCE OF LAGUNA and BENITO R. BALAZO, in his
capacity as Provincial Treasurer of Laguna, respondents.
VITUG, J.:
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
petitioner 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 No. 7160, otherwise
known as the "Local Government Code of 1991," was
enacted to take effect on 01 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, respondent province enacted Laguna Provincial
Ordinance No. 01-92, effective 01 January 1993,
providing, in part, as follows:
Sec. 2.09. Franchise Tax. — There is
hereby imposed a tax on businesses
enjoying a franchise, at a rate of fifty
percent (50%) of one percent (1%) of the
gross annual receipts, which shall include
both cash sales and sales on account
realized during the preceding calendar
year within this province, including the
territorial limits on any city located in the
province.
On the basis of the above ordinance, respondent
Provincial Treasurer sent a demand letter to MERALCO for
the corresponding tax payment. Petitioner MERALCO
paid the tax, which then amounted to P19,520.628.42,
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 P.D. 551
already included the franchise tax imposed by the
Provincial Tax Ordinance. MERALCO, contended that the
imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as it concerned
MERALCO, contravened the provisions of Section 1 of
P.D. 551 which read:
Any provision of law or local ordinance
to the contrary notwithstanding, the
franchise tax payable by all grantees of
franchises to generate, distribute and sell
electric current for light, heat and power
shall be two per cent (2%) of their gross
receipts received from the sale of
electric current and from transactions
incident to the generation, distribution
and sale of electric current.
Such franchise tax shall be payable to
the Commissioner of Internal Revenue or
his duly authorized representative on or
before the twentieth day of the month
following the end of each calendar
quarter or month, as may be provided in
the respective franchise or pertinent
municipal regulation and shall, any
provision of the Local Tax Code or any
other law to the contrary
notwithstanding, be in lieu of all taxes
and assessments of whatever nature
imposed by any national or local
authority on earnings, receipts, income
and privilege of generation, distribution
and sale of electric current.
On 28 August 1995, the claim for refund of petitioner was
denied in a letter signed by Governor Jose D. Lina relied
on a more recent law, i.e. Republic Act No. 7160 or the
Local Government Code of 1991, than the old decree
invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the
Regional Trial Court of Sta. Cruz, Laguna, a complaint for
refund, with a prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order,
against the Province of Laguna and also Benito R. Balazo
in his capacity as the Provincial Treasurer of Laguna.
Aside from the amount of P19,520,628.42 for which
petitioner MERALCO had priorly made a formal request
for refund, petitioner thereafter likewise made additional
payments under protest on various dates totaling
P27,669,566.91.
The trial court, in its assailed decision of 30 September
1997, dismissed the complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE
FOREGOING CONSIDERATIONS,
JUDGMENT is hereby rendered in favor of
the defendants and against the plaintiff,
by:
1. Ordering the dismissal of the
Complaint; and
2. Declaring Laguna Provincial Tax
Ordinance No. 01-92 as valid, binding,
reasonable and enforceable. 2
In the instant petition, MERALCO assails the above ruling
and brings up the following issues; viz:
1. Whether the imposition of a franchise
tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar
as petitioner is concerned, is violative of
the non-impairment clause of the
Constitution and Section 1 of Presidential
Decree No. 551.
2. Whether Republic Act No. 7160,
otherwise known Local Government
Code of 1991, has repealed, amended
or modified Presidential Decree No. 551.
3. Whether the doctrine of administrative
remedies is applicable in this case. 3
The petition lacks merit.
Prefatorily, it might be well to recall that local
governments do not have the inherent power to
tax 4 except to the extent that such power might be
delegated to them either by the basic law or by statute.
Presently, under Article X of the 1987 Constitution, a
general delegation of that power has been given in favor
of local government units. Thus:
Sec. 3. The Congress shall enact a local
government code which shall provide for
a more responsive and accountable
local government structure instituted
through a system of decentralization with
effective mechanisms of recall, initiative,
and referendum, allocate among the
different local government units their
powers, responsibilities, and resources,
and provide for the qualifications,
election, appointment and removal,
term, salaries, powers and functions, and
duties of local officials, and all other
matters relating to the organization and
operation of the local units.
xxx xxx xxx
Sec. 5. Each local government unit shall
have the power to create its own
sources of revenues and 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.
The 1987 Constitution has a counterpart provision
in the 1973 Constitution which did come out with
a similar delegation of revenue making powers to
local governments. 5
Under regime of the 1935 Constitution no similar
delegation of tax powers was provided, and local
government units instead derived their tax powers under
a limited statutory authority. Whereas, then, the
delegation of tax powers granted at that time by statute
to local governments was confined and defined (outside
of which the power was deemed withheld), the present
constitutional rule (starting with the 1973 Constitution),
however, would broadly confer such tax powers subject
only to specific exceptions that the law might prescribe.
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, 6 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.
The Local Government Code of 1991 has incorporated
and adopted, by and large, the provisions of the now
repealed Local Tax Code, which had been in effect since
01 July 1973, promulgated into law by Presidential
Decree
No. 2317 pursuant to the then provisions of Section 2,
Article XI, of the 1973 Constitution. 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 thereof provides:
Sec. 137. Franchise
Tax — Notwithstanding any exemption
granted by any law or other special law,
the province may impose a tax on
businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts
for the preceding calendar year based
on the incoming receipt, or realized,
within its territorial jurisdiction. In the case
of a newly started business, the tax shall
not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In
the succeeding calendar year,
regardless of when the business started
to operate, the tax shall be based on the
gross receipts for the preceding
calendar year, or any fraction thereof, as
provided herein. (Underscoring supplied
for emphasis)
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 under Section 193 thereof, tax
exemptions or incentives theretofore enjoyed by certain
entities. This law states:
Sec. 193. Withdrawal of Tax Exemption
Privileges — Unless otherwise provided in
this Code, tax exemptions or incentives
granted to, or presently enjoyed by all
persons, whether natural or juridical,
including government-owned or
controlled corporations, except local
water districts, cooperatives duly
registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this Code.
(Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing
clause in its Section 534; thus:
Sec. 534. Repealing Clause. — . . .
(f) All general and special laws, acts, city
charters, decrees, 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. (Underscoring
supplied for emphasis) 8
To exemplify, in Mactan Cebu International Airport
Authority vs. Marcos, 9 the Court upheld the withdrawal of
the real estate tax exemption previously enjoyed by
Mactan Cebu International Airport Authority. The Court
ratiocinated:
. . . These policy considerations are
consistent with the State policy to ensure
autonomy to local governments 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. The power
to tax is the most effective instrument to
raise needed revenues to finance and
support myriad activities if 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 similarity situated
enterprises, and there was a need for
these entities to share in the
requirements of development, fiscal or
otherwise, by paying the taxes and other
charges due from them. 10
Petitioner in its complaint before the Regional Trial Court
cited the ruling of this Court in Province of Misamis
Oriental vs. Cagayan Electric Power and Light
Company, Inc.; 11 thus:
In an earlier case, the phrase "shall be in
lieu of all taxes and at any time levied,
established by, or collected by any
authority" found in the franchise of the
Visayan Electric Company was held to
exempt the company from payment of
the 5% tax on corporate franchise
provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs.
David, 49 O.G. [No. 4] 1385)
Similarly, we ruled that the provision:
"shall be in lieu of all taxes of every name
and nature" in the franchise of the
Manila Railroad (Subsection 12, Section
1, Act No. 1510) exempts the Manila
Railroad from payment of internal
revenue tax for its importations of coal
and oil under Act No. 2432 and the
Amendatory Acts of the Philippine
Legislature (Manila Railroad vs. Rafferty,
40 Phil. 224).
The same phrase found in the franchise
of the Philippine Railway Co. (Sec. 13,
Act No. 1497) justified the exemption of
the Philippine Railway Company from
payment of the tax on its corporate
franchise under Section 259 of the
Internal Revenue Code, as amended by
R.A. No. 39 (Philippine Railway Co vs.
Collector of Internal Revenue, 91 Phil.
35).
Those magic words, "shall be in lieu of all
taxes" also excused the Cotabato Light
and Ice Plant Company from the
payment of the tax imposed by
Ordinance No. 7 of the City of Cotabato
(Cotabato Light and Power Co. vs. City
of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of
the Carcar Electric and Ice Plant
Company when it was required to pay
the corporate franchise tax under
Section 259 of the Internal Revenue
Code, as amended by R.A. No. 39
(Carcar Electric & Ice Plant vs. Collector
of Internal Revenue, 53 O.G. [No. 4].
1068). This Court pointed out that such
exemption is part of the inducement for
the acceptance of the franchise and
the rendition of public service by the
grantee. 2
In the recent case of the City Government of San
Pablo, etc., et al. vs. Hon. Bienvenido V.
Reyes, et al., 13 the Court has held that the phrase in lieu
of all taxes "have to give way to the peremptory
language of the Local Government Code specifically
providing for the withdrawal of such exemptions,
privileges," and that "upon the effectivity of the Local
Government Code all exemptions except only as
provided therein can no longer be invoked by MERALCO
to disclaim liability for the local tax." In fine, the Court has
viewed its previous rulings as laying stress more on the
legislative intent of the amendatory law — whether the
tax exemption privilege is to be withdrawn or not —
rather than on whether the law can withdraw, without
violating the Constitution, the tax exemption or not.
While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being 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. 14 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.15 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.
WHEREFORE, the instant petition is hereby DISMISSED. No
costs.1âwphi1.nêt
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax
G.R. No. 168584 October 15, 2007 laws of the Philippines;

REPUBLIC OF THE PHILIPPINES, represented by THE
HONORABLE SECRETARY OF FINANCE, THE HONORABLE
COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE
HONORABLE COMMISSIONER OF CUSTOMS, and THE
COLLECTOR OF CUSTOMS OF THE PORT OF
SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74,
RTC, Third Judicial Region, Olongapo City, INDIGO
DISTRIBUTION CORP., herein represented by ARIEL G.
CONSOLACION, W STAR TRADING AND WAREHOUSING
CORP., herein represented by HIERYN R. ECLARINAL,
FREEDOM BRANDS PHILS., CORP., herein represented by
ANA LISA RAMAT, BRANDED WAREHOUSE, INC., herein
represented by MARY AILEEN S. GOZUN, ALTASIA INC.,
herein represented by ALAN HARROW, TAINAN TRADE
(TAIWAN), INC., herein represented by ELENA RANULLO,
SUBIC PARK N’ SHOP, herein represented by NORMA
MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL
PHILS., herein represented by MA. CHARINA FE C.
RODOLFO, DUTY FREE SUPERSTORE (DFS), herein
represented by RAJESH R. SADHWANI, CHJIMES TRADING
INC., herein represented by ANGELO MARK M. PICARDAL,
PREMIER FREEPORT, INC., herein represented by ROMMEL
P. GABALDON, FUTURE TRADE SUBIC FREEPORT, INC., herein
represented by WILLIE S. VERIDIANO, GRAND COMTRADE
INTERNATIONAL CORP., herein represented by JULIUS
MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC.,
herein represented by ISIDRO M. MUÑOZ,respondents.
(c) The provisions of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within
the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross
income earned by all businesses and enterprises
within the Subic Special Economic Zone shall be
remitted to the National Government, one
percent (1%) each to the local government units
affected by the declaration of the zone in
proportion to their population area, and other
factors. In addition, there is hereby established a
development fund of one percent (1%) of the
gross income earned by all businesses and
enterprises within the Subic Special Economic
Zone to be utilized for the development of
municipalities outside the City of Olongapo and
the Municipality of Subic, and other
municipalities contiguous to be base areas.
In case of conflict between national and local
laws with respect to tax exemption privileges in
the Subic Special Economic Zone, the same shall
be resolved in favor of the latter;
(d) No exchange control policy shall be applied
and free markets for foreign exchange, gold,
securities and future shall be allowed and
maintained in the Subic Special Economic Zone;

DECISION (e) The Central Bank, through the Monetary

CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition
to annul (1) the May 4, 2005 Order1 issued by public
respondent Judge Ramon S. Caguioa of the Regional
Trial Court (RTC), Branch 74, Olongapo City, granting
private respondents’ application for the issuance of a writ
of preliminary injunction and (2) the Writ of Preliminary
Injunction2that was issued pursuant to such Order, which
stayed the implementation of Republic Act (R.A.) No.
9334, AN ACT INCREASING THE EXCISE TAX RATES IMPOSED
ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING
FOR THE PURPOSE SECTIONS 131, 141, 142, 143, 144, 145
AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF
1997, AS AMENDED.
Petitioners likewise seek to enjoin, restrain and inhibit
public respondent from enforcing the impugned
issuances and from further proceeding with the trial of
Civil Case No. 102-0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No.
72273 or the Bases Conversion and Development Act of
1992 which, among other things, created the Subic
Special Economic and Freeport Zone (SBF4) and the Subic
Bay Metropolitan Authority (SBMA).
R.A. No. 7227 envisioned the SBF to be developed into a
"self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments."5 In line with this vision,
Section 12 of the law provided:
Board, shall supervise and regulate the
operations of banks and other financial
institutions within the Subic Special Economic
Zone;
(f) Banking and finance shall be liberalized with
the establishment of foreign currency depository
units of local commercial banks and offshore
banking units of foreign banks with minimum
Central Bank regulation;
(g) Any investor within the Subic Special
Economic Zone whose continuing investment
shall not be less than Two hundred fifty thousand
dollars ($250,000), his/her spouse and dependent
children under twenty-one (21) years of age, shall
be granted permanent resident status within the
Subic Special Economic Zone. They shall have
freedom of ingress and egress to and from the
Subic Special Economic Zone without any need
of special authorization from the Bureau of
Immigration and Deportation. The Subic Bay
Metropolitan Authority referred to in Section 13 of
this Act may also issue working visas renewal
every two (2) years to foreign executives and
other aliens possessing highly-technical skills
which no Filipino within the Subic Special
Economic Zone possesses, as certified by the
Department of Labor and Employment. The
names of aliens granted permanent residence
status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the
Bureau of Immigration and Deportation within
thirty (30) days after issuance thereof;
x x x x. (Emphasis supplied)

Pursuant to the law, private respondents Indigo

(b) The Subic Special Economic Zone shall be
Distribution Corporation, W Star Trading and Warehousing
operated and managed as a separate customs
Corporation, Freedom Brands Philippines Corporation,
territory ensuring free flow or movement of goods
Branded Warehouse, Inc., Altasia, Inc., Tainan Trade
and capital within, into and exported out of the
(Taiwan) Inc., Subic Park ‘N Shop, Incorporated, Trading
Subic Special Economic Zone, as well as provide
Gateways International Philipines, Inc., Duty Free
incentives such as tax and duty-free importations
Superstore (DFS) Inc., Chijmes Trading, Inc., Premier
of raw materials, capital and equipment.
Freeport, Inc., Future Trade Subic Freeport, Inc., Grand
However, exportation or removal of goods from
Comtrade Int’l., Corp., and First Platinum International,
the territory of the Subic Special Economic Zone
Inc., which are all domestic corporations doing business
to the other parts of the Philippine territory shall
at the SBF, applied for and were granted Certificates of
Registration and Tax Exemption6 by the SBMA.
These certificates allowed them to engage in the business
either of trading, retailing or wholesaling, import and
export, warehousing, distribution and/or transshipment of
general merchandise, including alcohol and tobacco
products, and uniformly granted them tax exemptions for
such importations as contained in the following provision
of their respective Certificates:
ARTICLE IV. The Company shall be entitled to tax
and duty-free importation of raw materials,
capital equipment, and household and personal
items for use solely within the Subic Bay Freeport
Zonepursuant to Sections 12(b) and 12(c) of the
Act and Sections 43, 45, 46 and 49 of the
Implementing Rules. All importations by the
Company are exempt from inspection by
the Societe Generale de Surveillance if such
importations are delivered immediately to and
for use solely within the Subic Bay Freeport Zone.
(Emphasis supplied)
Congress subsequently passed R.A. No. 9334, however,
effective on January 1, 2005,7 Section 6 of which
provides:
Sec. 6. Section 131 of the National Internal
Revenue Code of 1977, as amended, is hereby
amended to read as follows:
Sec. 131. Payment of Excise Taxes on Imported
Articles. –
(A) Persons Liable. – Excise taxes on imported
articles shall be paid by the owner or importer to
the Customs Officers, conformably with the
regulations of the Department of Finance and
before the release of such articles from the
customshouse or by the person who is found in
possession of articles which are exempt from
excise taxes other than those legally entitled to
exemption.
In the case of tax-free articles brought or
imported into the Philippines by persons, entities
or agencies exempt from tax which are
subsequently sold, transferred or exchanged in
the Philippines to non-exempt persons or entities,
the purchasers or recipients shall be considered
the importers thereof, and shall be liable for the
duty and internal revenue tax due on such
importation.
The provision of any special or general law to the
contrary notwithstanding, the importation of
cigars and cigarettes, distilled spirits, fermented
liquors and wines into the Philippines, even if
destined for tax and duty free shops, shall be
subject to all applicable taxes, duties, charges,
including excise taxes due thereon. This shall
apply to cigars and cigarettes, distilled spirits,
fermented liquors and wines brought directly into
the duly chartered or legislated freeports of the
Subic Economic Freeport Zone, created under
Republic Act No. 7227; x x x and such other
freeports as may hereafter be established or
created by law: Provided, further, That
importations of cigars and cigarettes, distilled
spirits, fermented liquors and wines made directly
by a government-owned and operated duty-
free shop, like the Duty Free Philippines (DFP),
shall be exempted from all applicable duties
only: x x x Provided, finally, That the removal and
transfer of tax and duty-free goods, products,
machinery, equipment and other similar articles
other than cigars and cigarettes, distilled spirits,
fermented liquors and wines, from one Freeport
to another Freeport, shall not be deemed an
introduction into the Philippine customs territory. x
x x. (Emphasis and underscoring supplied)
On the basis of Section 6 of R.A. No. 9334, SBMA issued on
January 10, 2005 a Memorandum8 declaring that
effective January 1, 2005, all importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines
into the SBF, including those intended to be transshipped
to other free ports in the Philippines, shall be treated as
ordinary importations subject to all applicable taxes,
duties and charges, including excise taxes.
Meanwhile, on February 3, 2005, former Bureau of Internal
Revenue (BIR) Commissioner Guillermo L. Parayno, Jr.
requested then Customs Commissioner George M. Jereos
to immediately collect the excise tax due on imported
alcohol and tobacco products brought to the Duty Free
Philippines (DFP) and Freeport zones.9
Accordingly, the Collector of Customs of the port of Subic
directed the SBMA Administrator to require payment of all
appropriate duties and taxes on all importations of cigars
and cigarettes, distilled spirits, fermented liquors and
wines; and for all transactions involving the said items to
be covered from then on by a consumption entry and no
longer by a warehousing entry.10
On February 7, 2005, SBMA issued a
Memorandum11 directing the departments concerned to
require locators/importers in the SBF to pay the
corresponding duties and taxes on their importations of
cigars, cigarettes, liquors and wines before said items are
cleared and released from the freeport. However, certain
SBF locators which were "exclusively engaged in the
transshipment of cigarette products for foreign
destinations" were allowed by the SBMA to process their
import documents subject to their submission of an
Undertaking with the Bureau of Customs.12
On February 15, 2005, private respondents wrote the
offices of respondent Collector of Customs and the SBMA
Administrator requesting for a reconsideration of the
directives on the imposition of duties and taxes,
particularly excise taxes, on their shipments of cigars,
cigarettes, wines and liquors.13 Despite these letters,
however, they were not allowed to file any warehousing
entry for their shipments.
Thus, private respondent enterprises, through their
representatives, brought before the RTC of Olongapo
City a special civil action for declaratory relief14 to have
certain provisions of R.A. No. 9334 declared as
unconstitutional, which case was docketed as Civil Case
No. 102-0-05.
In the main, private respondents submitted that (1) R.A.
No. 9334 should not be interpreted as altering, modifying
or amending the provisions of R.A. No. 7227 because
repeals by implication are not favored; (2) a general law
like R.A. No. 9334 cannot amend R.A. No. 7727, which is a
special law; and (3) the assailed law violates the one bill-
one subject rule embodied in Section 26(1), Article VI 15 of
the Constitution as well as the constitutional proscription
against the impairment of the obligation of contracts.16
Alleging that great and irreparable loss and injury would
befall them as a consequence of the imposition of taxes
on alcohol and tobacco products brought into the SBF,
private respondents prayed for the issuance of a writ of
preliminary injunction and/or Temporary Restraining Order
(TRO) and preliminary mandatory injunction to enjoin the
directives of herein petitioners.
Petitioners duly opposed the private respondents’ prayer
for the issuance of a writ of preliminary injunction and/or
TRO, arguing that (1) tax exemptions are not presumed
and even when granted, are strictly construed against
the grantee; (2) an increase in business expense is not the
injury contemplated by law, it being a case of damnum
absque injuria; and (3) the drawback mechanism
established in the law clearly negates the possibility of the
feared injury.17
Petitioners moreover pointed out that courts are enjoined
from issuing a writ of injunction and/or TRO on the
grounds of an alleged nullity of a law, ordinance or
administrative regulation or circular or in a manner that
would effectively dispose of the main case. Taxes, they
stressed, are the lifeblood of the government and their
prompt and certain availability is an imperious need. They
maintained that greater injury would be inflicted on the
public should the writ be granted.
On May 4, 2005, the court a quo granted private
respondents’ application for the issuance of a writ of
preliminary injunction, after it found that the essential
requisites for the issuance of a preliminary injunction were
present.
As investors duly licensed to operate inside the SBF, the
trial court declared that private respondents were
entitled to enjoy the benefits of tax incentives under R.A.
No. 7227, particularly the exemption from local and
national taxes under Section 12(c); the aforecited
provision of R.A. No. 7227, coupled with private
respondents’ Certificates of Registration and Tax
Exemption from the SBMA, vested in them a clear and
unmistakable right or right in esse that would be violated
should R.A. No. 9334 be implemented; and the invasion
of such right is substantial and material as private
respondents would be compelled to pay more than what
they should by way of taxes to the national government.
The trial court thereafter ruled that the prima
facie presumption of validity of R.A. No. 9334 had been
overcome by private respondents, it holding that as a
partial amendment of the National Internal Revenue
Code (NIRC) of 1997,18 as amended, R.A. No. 9334 is a
general law that could not prevail over a special statute
like R.A. No. 7227 notwithstanding the fact that the
assailed law is of later effectivity.
The trial court went on to hold that the repealing
provision of Section 10 of R.A. No. 9334 does not expressly
mention the repeal of R. A. No. 7227, hence, its repeal
can only be an implied repeal, which is not favored; and
since R.A. No. 9334 imposes new tax burdens, whatever
doubts arising therefrom should be resolved against the
taxing authority and in favor of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates
the terms and conditions of private respondents’
subsisting contracts with SBMA, which are embodied in
their Certificates of Registration and Exemptions in
contravention of the constitutional guarantee against the
impairment of contractual obligations; that greater
damage would be inflicted on private respondents if the
writ of injunction is not issued as compared to the injury
that the government and the general public would suffer
from its issuance; and that the damage that private
respondents are bound to suffer once the assailed statute
is implemented – including the loss of confidence of their
foreign principals, loss of business opportunity and
unrealized income, and the danger of closing down their
businesses due to uncertainty of continued viability –
cannot be measured accurately by any standard.
With regard to the rule that injunction is improper to
restrain the collection of taxes under Section 218 19 of the
NIRC, the trial court held that what is sought to be
enjoined is not per se the collection of taxes, but the
implementation of a statute that has been found
preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private
respondents’ taxes have not yet been assessed, as they
have not filed consumption entries on all their imported
tobacco and alcohol products, hence, their duty to pay
the corresponding excise taxes and the concomitant
right of the government to collect the same have not yet
materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary
Injunction directing petitioners and the SBMA
Administrator as well as all persons assisting or acting for
and in their behalf "1) to allow the operations of [private
respondents] in accordance with R.A. No. 7227; 2) to
allow [them] to file warehousing entries instead of
consumption entries as regards their importation of
tobacco and alcohol products; and 3) to cease and
desist from implementing the pertinent provisions of R.A.
No. 9334 by not compelling [private respondents] to
immediately pay duties and taxes on said alcohol and
tobacco products as a condition to their removal from
the port area for transfer to the warehouses of [private
respondents]."20
The injunction bond was approved at One Million pesos
(P1,000,000).21
Without moving for reconsideration, petitioners have
come directly to this Court to question the May 4, 2005
Order and the Writ of Preliminary Injunction which, they
submit, were issued by public respondent with grave
abuse of discretion amounting to lack or excess of
jurisdiction.
In particular, petitioners contend that public respondent
peremptorily and unjustly issued the injunctive writ despite
the absence of the legal requisites for its issuance,
resulting in heavy government revenue losses.22 They
emphatically argue that since the tax exemption
previously enjoyed by private respondents has clearly
been withdrawn by R.A. No. 9334, private respondents do
not have any right in esse nor can they invoke legal injury
to stymie the enforcement of R.A. No. 9334.
Furthermore, petitioners maintain that in issuing the
injunctive writ, public respondent showed manifest bias
and prejudice and prejudged the merits of the case in
utter disregard of the caveat issued by this Court in Searth
Commodities Corporation, et al. v. Court of
Appeals23 and Vera v. Arca.24
Regarding the P1 million injunction bond fixed by public
respondent, petitioners argue that the same is grossly
disproportionate to the damages that have been and
continue to be sustained by the Republic.
In their Reply25 to private respondents’ Comment,
petitioners additionally plead public respondent’s bias
and partiality in allowing the motions for intervention of a
number of corporations26 without notice to them and in
disregard of their present pending petition for certiorari
and prohibition before this Court. The injunction bond
filed by private respondent Indigo Distribution
Corporation, they stress, is not even sufficient to cover all
the original private respondents, much less, intervenor-
corporations.
The petition is partly meritorious.
At the outset, it bears emphasis that only questions
relating to the propriety of the issuance of the May 4,
2005 Order and the Writ of Preliminary Injunction are
properly within the scope of the present petition and shall
be so addressed in order to determine if public
respondent committed grave abuse of discretion. The
arguments raised by private respondents which pertain to
the constitutionality of R.A. No. 9334 subject matter of the
case pending litigation before the trial court have no
bearing in resolving the present petition.
Section 3 of Rule 58 of the Revised Rules of Court
provides:
SEC. 3. Grounds for issuance of preliminary
injunction. – A preliminary injunction may be
granted when it is established.
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such relief
consists in restraining the commission or
continuance of the act or acts complained of, or
in requiring the performance of an act or acts,
either for a limited period or perpetually;
 (b) That the commission, continuance or non- brought directly into the duly chartered or direc
performance of the act or acts complained of legislated freeports of the Subic Economic freep
during the litigation would probably work injustice Freeport Zone, created under Republic Act Zone,
to the applicant; or No. 7227; the Cagayan Special Economic the C
Zone and Freeport, created under Republic Freep
(c) That a party, court, agency or a person is Act No. 7922; and the Zamboanga City 7922;
doing, threatening, or is attempting to do, or is Special Economic Zone, created under Econ
procuring or suffering to be done, some act or Republic Act No. 7903, and are not Act N
acts probably in violation of the rights of the transshipped to any other port in the may
applicant respecting the subject of the action or Philippines: Provided, further, That law: P
proceeding, and tending to render the judgment importations of cigars and cigarettes, cigar
ineffectual. distilled spirits, fermented liquors and wines ferme
made directly by a government-owned by a
and operated duty-free shop, like the Duty duty-
For a writ of preliminary injunction to issue, the plaintiff
Free Philippines (DFP), shall be exempted (DFP)
must be able to establish that (1) there is a clear and
from all applicable duties, charges, appli
unmistakable right to be protected, (2) the invasion of
including excise tax due thereon; Provided That s
the right sought to be protected is material and
still further, That such articles directly gove
substantial, and (3) there is an urgent and paramount
imported by a government-owned and free s
necessity for the writ to prevent serious damage.27
operated duty-free shop, like the Duty-Free shall b
Philippines, shall be labeled "tax and duty- "not f
Conversely, failure to establish either the existence of a free" and "not for resale": Provided, still remo
clear and positive right which should be judicially further, That if such articles brought into the good
protected through the writ of injunction, or of the acts or duly chartered or legislated freeports under and o
attempts to commit any act which endangers or tends to Republic Acts Nos. 7227, 7922 and 7903 are and c
endanger the existence of said right, or of the urgent subsequently introduced into the Philippine liquor
need to prevent serious damage, is a sufficient ground for customs territory, then such articles shall, anoth
denying the preliminary injunction.28 upon such introduction, be deemed introd
imported into the Philippines and shall be territo
It is beyond cavil that R.A. No. 7227 granted private subject to all imposts and excise taxes
respondents exemption from local and national taxes, provided herein and other statutes: xxxx
including excise taxes, on their importations of general Provided, finally, That the removal and
merchandise, for which reason they enjoyed tax-exempt transfer of tax and duty-free goods,
status until the effectivity of R.A. No. 9334. products, machinery, equipment and other
similar articles, from one freeport to another
By subsequently enacting R.A. No. 9334, however, freeport, shall not be deemed an
Congress expressed its intention to withdraw private introduction into the Philippine customs
respondents’ tax exemption privilege on their territory.
importations of cigars, cigarettes, distilled spirits,
fermented liquors and wines. Juxtaposed to show this x x x x.
intention are the respective provisions of Section 131 of
the NIRC before and after its amendment by R.A. No. (Emphasis and underscoring supplied)
9334:
To note, the old Section 131 of the NIRC expressly
x x x x. provided that all taxes, duties, charges, including excise
taxes shall not apply to importations of cigars, cigarettes,
Sec. 131 of NIRC before R.A. No. 9334 Sec. 131,
fermented
as amended
spirits and
by R.A.
winesNo. brought
9334 directly into the duly
Sec. 131. Payment of Excise Taxes on chartered
Sec. 131. Paymentor legislated freeports
of Excise Taxes on of the SBF.
Imported Articles. – Imported Articles. –
On the other hand, Section 131, as amended by R.A. No.
(A) Persons Liable. – Excise taxes on 9334, now
(A) Persons provides
Liable. that
– Excise such
taxes ontaxes, duties and charges,
imported articles shall be paid by the owner importedincluding excise
articles shalltaxes, shall
be paid byapply to importation of cigars
the owner
or importer to the Customs Officers, and cigarettes,
or importer distilled
to the Customs spirits, fermented liquors and
Officers,
conformably with the regulations of the wines into
conformably thethe
with SBF.
regulations of the
Department of Finance and before the Department of Finance and before the
release of such articles from the customs release of such
Without articles from
necessarily the customs
passing upon the validity of the
house or by the person who is found in house or by the person
withdrawal who
of the tax is found inprivileges of private
exemption
possession of articles which are exempt possession of articles
respondents, which arethis
it behooves exempt
Court to state certain basic
from excise taxes other than those legally from principles
excise taxes andother than those
observations legally
that should throw light on the
entitled to exemption. entitled to exemption.
propriety of the issuance of the writ of preliminary
injunction in this case.
In the case of tax-free articles brought or In the case of tax-free articles brought or
imported into the Philippines by persons, imported into the
First. Every Philippines must
presumption by persons,
be indulged in favor of the
entities or agencies exempt from tax which entities or agencies exempt
constitutionality from 29
of a statute. tax which
The burden of proving the
are subsequently sold, transferred or are subsequently sold, transferred
unconstitutionality of a law rests or on the party assailing the
exchanged in the Philippines to non- exchanged
law.30 Ininpassing
the Philippines
upon the tovalidity
non- of an act of a co-equal
exempt persons or entities, the purchasers exempt andpersons or entities,
coordinate branchthe ofpurchasers
the government, courts must
or recipients shall be considered the or recipients
ever beshall be considered
mindful the
of the time-honored principle that a
importers thereof, and shall be liable for the importers
statutethereof, and shall
is presumed liable for the
to be valid.
duty and internal revenue tax due on such duty and internal revenue tax due on such
importation. importation.
Second. There is no vested right in a tax exemption, more
so when the latest expression of legislative intent renders
The provision of any special or general law The provision of any special
its continuance doubtful. or Being
general law statutory
a mere
to the contrary notwithstanding, the to theprivilege,
contrary31notwithstanding,
a tax exemptionthe may be modified or
importation of cigars and cigarettes, importation
withdrawn of cigars
at willand cigarettes,
by the granting authority.32
distilled spirits, fermented liquors and wines distilled spirits, fermented liquors and wines
into the Philippines, even if destined for tax into the Philippines,
To state even
otherwise if destined
is to for tax power of the State,
limit the taxing
and duty free shops, shall be subject to all and duty free shops, shall be subject to all
which is unlimited, plenary, comprehensive and supreme.
applicable taxes, duties, charges, including applicable taxes, duties, charges, including
The power to impose taxes is one so unlimited in force
excise taxes due thereon. Provided, excise taxes due thereon. This shall apply to
and so searching in extent, it is subject only to restrictions
however, That this shall not apply to cigars cigars and cigarettes, distilled spirits,
which rest on the discretion of the authority exercising it.33
and cigarettes, fermented spirits and wines fermented liquors and wines brought
Third. As a general rule, tax exemptions are
construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.34 The burden of
proof rests upon the party claiming exemption to prove
that it is in fact covered by the exemption so claimed.35 In
case of doubt, non-exemption is favored.36
Fourth. A tax exemption cannot be grounded upon the
continued existence of a statute which precludes its
change or repeal.37 Flowing from the basic precept of
constitutional law that no law is irrepealable, Congress, in
the legitimate exercise of its lawmaking powers, can
enact a law withdrawing a tax exemption just as
efficaciously as it may grant the same under Section
28(4) of Article VI 38 of the Constitution. There is no
gainsaying therefore that Congress can amend Section
131 of the NIRC in a manner it sees fit, as it did when it
passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of
Registration and Tax Exemption of private respondents
are not absolute and unconditional as to constitute rights
in esse – those clearly founded on or granted by law or is
enforceable as a matter of law.39
These certificates granting private respondents a "permit
to operate" their respective businesses are in the nature
of licenses, which the bulk of jurisprudence considers as
neither a property nor a property right.40 The licensee
takes his license subject to such conditions as the grantor
sees fit to impose, including its revocation at pleasure.41 A
license can thus be revoked at any time since it does not
confer an absolute right.42
While the tax exemption contained in the Certificates of
Registration of private respondents may have been part
of the inducement for carrying on their businesses in the
SBF, this exemption, nevertheless, is far from being
contractual in nature in the sense that the non-
impairment clause of the Constitution can rightly be
invoked.43
Sixth. Whatever right may have been acquired on the
basis of the Certificates of Registration and Tax Exemption
must yield to the State’s valid exercise of police
power.44 It is well to remember that taxes may be made
the implement of the police power.45
It is not difficult to recognize that public welfare and
necessity underlie the enactment of R.A. No. 9334. As
petitioners point out, the now assailed provision was
passed to curb the pernicious practice of some
unscrupulous business enterprises inside the SBF of using
their tax exemption privileges for smuggling purposes.
Smuggling in whatever form is bad enough; it is worse
when the same is allegedly perpetrated, condoned or
facilitated by enterprises hiding behind the cloak of their
tax exemption privileges.
Seventh. As a rule, courts should avoid issuing a writ of
preliminary injunction which would in effect dispose of
the main case without trial.46 This rule is intended to
preclude a prejudgment of the main case and a reversal
of the rule on the burden of proof since by issuing the
injunctive writ, the court would assume the proposition
that petitioners are inceptively duty bound to prove.47
Eighth. A court may issue a writ of preliminary injunction
only when the petitioner assailing a statute has made out
a case of unconstitutionality or invalidity strong enough,
in the mind of the judge, to overcome the presumption of
validity, in addition to a showing of a clear legal right to
the remedy sought.48
Thus, it is not enough that petitioners make out a case of
unconstitutionality or invalidity to overcome the prima
faciepresumption of validity of a statute; they must also
be able to show a clear legal right that ought to be
protected by the court. The issuance of the writ is
therefore not proper when the complainant’s right is
doubtful or disputed.49
Ninth. The feared injurious effects of the imposition of
duties, charges and taxes on imported cigars, cigarettes,
distilled spirits, fermented liquors and wines on private
respondents’ businesses cannot possibly outweigh the
dire consequences that the non-collection of taxes, not
to mention the unabated smuggling inside the SBF, would
wreak on the government. Whatever damage would
befall private respondents must perforce take a back
seat to the pressing need to curb smuggling and raise
revenues for governmental functions.
All told, while the grant or denial of an injunction
generally rests on the sound discretion of the lower court,
this Court may and should intervene in a clear case of
abuse.50
One such case of grave abuse obtained in this case
when public respondent issued his Order of May 4, 2005
and the Writ of Preliminary Injunction on May 11,
200551 despite the absence of a clear and unquestioned
legal right of private respondents.
In holding that the presumption of constitutionality and
validity of R.A. No. 9334 was overcome by private
respondents for the reasons public respondent cited in his
May 4, 2005 Order, he disregarded the fact that as a
condition sine qua non to the issuance of a writ of
preliminary injunction, private respondents needed also
to show a clear legal right that ought to be protected.
That requirement is not satisfied in this case.
To stress, the possibility of irreparable damage without
proof of an actual existing right would not justify an
injunctive relief.52
Besides, private respondents are not altogether lacking
an appropriate relief under the law. As petitioners point
out in their Petition53 before this Court, private
respondents may avail themselves of a tax refund or tax
credit should R.A. No. 9334 be finally declared invalid.
Indeed, Sections 20454 and 22955 of the NIRC provide for
the recovery of erroneously or illegally collected taxes
which would be the nature of the excise taxes paid by
private respondents should Section 6 of R.A. No. 9334 be
declared unconstitutional or invalid.
It may not be amiss to add that private respondents can
also opt not to import, or to import less of, those items
which no longer enjoy tax exemption under R.A. No. 9334
to avoid the payment of taxes thereon.
The Court finds that public respondent had also ventured
into the delicate area which courts are cautioned from
taking when deciding applications for the issuance of the
writ of preliminary injunction. Having ruled preliminarily
against the prima facie validity of R.A. No. 9334, he
assumed in effect the proposition that private
respondents in their petition for declaratory relief were
duty bound to prove, thereby shifting to petitioners the
burden of proving that R.A. No. 9334 is not
unconstitutional or invalid.
In the same vein, the Court finds public respondent to
have overstepped his discretion when he arbitrarily fixed
the injunction bond of the SBF enterprises at
only P1million.
The alleged sparseness of the testimony of Indigo
Corporation’s representative56 on the injury to be suffered
by private respondents may be excused because
evidence for a preliminary injunction need not be
conclusive or complete. Nonetheless, considering the
number of private respondent enterprises and the
volume of their businesses, the injunction bond is
undoubtedly not sufficient to answer for the damages
that the government was bound to suffer as a
consequence of the suspension of the implementation of
the assailed provisions of R.A. No. 9334.
Rule 58, Section 4(b) provides that a bond is executed in
favor of the party enjoined to answer for all damages
which it may sustain by reason of the injunction. The
purpose of the injunction bond is to protect the
defendant against loss or damage by reason of the
injunction in case the court finally decides that the
plaintiff was not entitled to it, and the bond is usually
conditioned accordingly.57
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.

Recalling this Court’s pronouncements in Olalia v.

Hizon58 that:
DAVIDE, JR., J.:
x x x [T]here is no power the exercise of which is
more delicate, which requires greater caution, For review under Rule 45 of the Rules of Court on
deliberation and sound discretion, or more a pure question of law are the decision of 22
dangerous in a doubtful case, than the issuance March 19951of the Regional Trial Court (RTC) of
of an injunction. It is the strong arm of equity that Cebu City, Branch 20, dismissing the petition for
should never be extended unless to cases of declaratory relief in Civil Case No. CEB-16900
great injury, where courts of law cannot afford entitled "Mactan Cebu International Airport
an adequate or commensurate remedy in Authority vs. City of Cebu", and its order of 4, May
damages. 19952 denying the motion to reconsider the
decision.
Every court should remember that an injunction is
a limitation upon the freedom of action of the We resolved to give due course to this petition for
defendant and should not be granted lightly or its raises issues dwelling on the scope of the
precipitately. It should be granted only when the taxing power of local government-owned and
court is fully satisfied that the law permits it and controlled corporations.
the emergency demands it,
The uncontradicted factual antecedents are
it cannot be overemphasized that any injunction that summarized in the instant petition as follows:
restrains the collection of taxes, which is the inevitable
result of the suspension of the implementation of the
Petitioner Mactan Cebu International
assailed Section 6 of R.A. No. 9334, is a limitation upon the
Airport Authority (MCIAA) was created
right of the government to its lifeline and wherewithal.
by virtue of Republic Act No. 6958,
mandated to "principally undertake the
The power to tax emanates from necessity; without taxes, economical, efficient and effective
government cannot fulfill its mandate of promoting the control, management and supervision of
general welfare and well-being of the people.59 That the the Mactan International Airport in the
enforcement of tax laws and the collection of taxes are Province of Cebu and the Lahug Airport
of paramount importance for the sustenance of in Cebu City, . . . and such other Airports
government has been repeatedly observed. Taxes being as may be established in the Province of
the lifeblood of the government that should be collected Cebu . . . (Sec. 3, RA 6958). It is also
without unnecessary hindrance,60 every precaution must mandated to:
be taken not to unduly suppress it.
a)
Whether this Court must issue the writ of prohibition, encour
suffice it to stress that being possessed of the power to age,
act on the petition for declaratory relief, public promot
respondent can proceed to determine the merits of the e and
main case. To halt the proceedings at this point may be develo
acting too prematurely and would not be in keeping with p
the policy that courts must decide controversies on the internati
merits. onal
and
Moreover, lacking the requisite proof of public domesti
respondent’s alleged partiality, this Court has no ground c air
to prohibit him from proceeding with the case for traffic in
declaratory relief. For these reasons, prohibition does not the
lie. Central
Visayas
WHEREFORE, the Petition is PARTLY GRANTED. The writ of and
certiorari to nullify and set aside the Order of May 4, 2005 Mindan
as well as the Writ of Preliminary Injunction issued by ao
respondent Judge Caguioa on May 11, 2005 is GRANTED. regions
The assailed Order and Writ of Preliminary Injunction are as a
hereby declared NULL AND VOID and accordingly SET means
ASIDE. The writ of prohibition prayed for is, of
however, DENIED. making
the
regions
SO ORDERED.
centers
of
Republic of the Philippines internati
SUPREME COURT onal
Manila trade
and
THIRD DIVISION tourism,
and
acceler
ating
the
G.R. No. 120082 September 11, 1996 develo
 pment powers of provinces,
of the cities, municipalities,
means and barangay shall not
of extend to the levy of the
transpor following:
tation
and a) . . .
commu
nication
xxx xxx xxx
in the
country;
and o)
Taxes,
fees or
b)
charges
upgrad
of any
e the
kind on
services
the
and
Nationa
facilities
l
of the
Govern
airports
ment, it
and to
s
formula
agenci
te
es and
internati
instrum
onally
entalitie
accept
s, and
able
local
standar
govern
ds of
ment
airport
units.
accom
(Empha
modati
sis
on and
supplie
service.
d)

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 exempt it
from payment of realty taxes. It was 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
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,"7and 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 allgovernment 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 governmental-
owned corporation, 12 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,
exemption therefrom is the
exception.20 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 as provided for under
LOCAL GOVERNMENT R.A. No. 6938; and;
UNITS. (emphasis
supplied) (e) Machinery and
equipment used for
Needless to say the last item (item o) is pertinent pollution control and
in this case. The "taxes, fees or charges" referred environmental
to are "of any kind", hence they include all of protection.
these, unless otherwise provided by the LGC. The
term "taxes" is well understood so as to need no Except as provided
further elaboration, especially in the light of the herein, any exemptions
above enumeration. The term "fees" means from payment of real
charges fixed by law or Ordinance for the property tax previously
regulation or inspection of business granted to or presently
activity,24 while "charges" are pecuniary liabilities enjoyed by, all persons
such as rents or fees against person or property.25 whether natural or
juridical, including all
Among the "taxes" enumerated in the LGC is real government owned or
property tax, which is governed by Section 232. It controlled corporations
reads as follows: are hereby withdrawn
upon the effectivity of
Sec. 232. Power to Levy Real Property his Code.
Tax. — A province or city or a
municipality within the Metropolitan These exemptions are based on the ownership,
Manila Area may levy on an annual ad character, and use of the property. Thus;
valorem tax on real property such as
land, building, machinery and other (a) Ownership
improvements not hereafter specifically Exemptions. Exemptions
exempted. from real property taxes
on the basis of
Section 234 of LGC provides for the exemptions ownership are real
from payment of real property taxes and properties owned by: (i)
withdraws previous exemptions therefrom the Republic, (ii) a
granted to natural and juridical persons, province, (iii) a city, (iv)
including government owned and controlled a municipality, (v) a
corporations, except as provided therein. It barangay, and (vi)
provides: registered cooperatives.

Sec. 234. Exemptions from Real Property (b) Character

Tax. — The following are exempted from Exemptions. Exempted
payment of the real property tax: from real property taxes
on the basis of their
(a) Real property owned character are: (i)
by the Republic of the charitable institutions, (ii)
Philippines or any of its houses and temples of
political subdivisions prayer like churches,
except when the parsonages or convents
beneficial use thereof appurtenant thereto,
had been granted, for mosques, and (iii) non
reconsideration or profit or religious
otherwise, to a taxable cemeteries.
person;
(c) Usage exemptions.
(b) Charitable Exempted from real
institutions, churches, property taxes on the
parsonages or convents basis of the actual,
appurtenants thereto, direct and
mosques nonprofits or exclusive use to which
religious cemeteries and they are devoted are: (i)
all lands, building and all lands buildings and
improvements actually, improvements which are
directly, and exclusively actually, directed and
used for religious exclusively used for
charitable or religious, charitable or
educational purposes; educational purpose; (ii)
all machineries and
equipment actually,
(c) All machineries and
directly and exclusively
equipment that are
used or by local water
actually, directly and
districts or by
exclusively used by local
government-owned or
water districts and
controlled corporations
government-owned or
engaged in the supply
controlled corporations
and distribution of water
engaged in the supply
and/or generation and
and distribution of water
transmission of electric
and/or generation and
power; and (iii) all
transmission of electric
machinery and
power;
equipment used for
pollution control and
(d) All real property environmental
owned by duly protection.
registered cooperatives
 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. departments the executive, the legislative and
Any claim to the contrary can only be justified if the judicial.30
the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not An "agency" of the Government refers to "any of
under Section 133, as it now asserts, since, as the various units of the Government, including a
shown above, the said section is qualified by department, bureau, office instrumentality, or
Section 232 and 234. government-owned or controlled corporation, or
a local government or a distinct unit
In short, the petitioner can no longer invoke the therein;"31 while an "instrumentality" refers to "any
general rule in Section 133 that the taxing powers agency of the National Government, not
of the local government units cannot extend to integrated within the department framework,
the levy of: vested with special functions or jurisdiction by
law, endowed with some if not all corporate
(o) taxes, fees, or powers, administering special funds, and
charges of any kind on enjoying operational autonomy; usually through
the National a charter. This term includes regulatory agencies,
Government, its chartered institutions and government-owned
agencies, or and controlled corporations".32
instrumentalities, and
local government units. If Section 234(a) intended to extend the
exception therein to the withdrawal of the
I must show that the parcels of land in question, exemption from payment of real property taxes
which are real property, are any one of those under the last sentence of the said section to the
enumerated in Section 234, either by virtue of agencies and instrumentalities of the National
ownership, character, or use of the property. Government mentioned in Section 133(o), then it
Most likely, it could only be the first, but not under should have restated the wording of the latter.
any explicit provision of the said section, for one Yet, it did not Moreover, that Congress did not
exists. In light of the petitioner's theory that it is an wish to expand the scope of the exemption in
"instrumentality of the Government", it could only Section 234(a) to include real property owned by
be within be first item of the first paragraph of the other instrumentalities or agencies of the
section by expanding the scope of the terms government including government-owned and
Republic of the Philippines" to embrace . . . . . controlled corporations is further borne out by
. "instrumentalities" and "agencies" or expediency the fact that the source of this exemption is
we quote: Section 40(a) of P.D. No. 646, otherwise known as
the Real Property Tax Code, which reads:
(a) real property owned
by the Republic of the Sec 40. Exemption from Real Property
Philippines, or any of the Tax. — The exemption shall be as follows:
Philippines, or any of its
political subdivisions (a) Real
except when the propert
beneficial use thereof y
has been granted, for owned
consideration or by the
otherwise, to a taxable Republi
person. c of the
Philippin
This view does not persuade us. In the first place, es or
the petitioner's claim that it is an instrumentality of any of
the Government is based on Section 133(o), its
which expressly mentions the word political
"instrumentalities"; and in the second place it fails subdivisi
to consider the fact that the legislature used the ons and
phrase "National Government, its agencies and any
instrumentalities" "in Section 133(o),but only the govern
phrase "Republic of the Philippines or any of its ment-
political subdivision "in Section 234(a). owned
or
controll
The terms "Republic of the Philippines" and
ed
"National Government" are not interchangeable.
corpora
The former is boarder and synonymous with
tions so
"Government of the Republic of the Philippines"
exempt
which the Administrative Code of the 1987
by is
defines as the "corporate governmental entity
charter:
though which the functions of the government
Provide
are exercised through at the Philippines,
d,
including, saves as the contrary appears from the
howeve
context, the various arms through which political
r, that
authority is made effective in the Philippines,
this
whether pertaining to the autonomous reason,
exempti
the provincial, city, municipal or barangay
on shall
subdivision or other forms of local
not
government."27 These autonomous regions,
apply
provincial, city, municipal or barangay
to real
subdivisions" are the political subdivision.28
propert
y of the
On the other hand, "National Government" refers above
"to the entire machinery of the central mentio
government, as distinguished from the different ned
forms of local Governments."29 The National entities
Government then is composed of the three great the
benefici
 al use
of
which
has
been
granted
, for
conside
ration
or
otherwis
e, 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
are hereby transferred to the
Authority: Provided however, that the
operations control of all equipment
necessary for the operation of radio aids
to air navigation, airways
communication, the approach control
office, and the area control center shall
be retained by the Air Transportation
Office. No equipment, however, shall be
removed by the Air Transportation Office
from Mactan without the concurrence of
the authority. The authority may assist in
the maintenance of the Air
Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port"
in Cebu City and the "Mactan International
AirPort in the Province of Cebu",36 which
belonged to the Republic of the Philippines, then
under the Air Transportation Office (ATO).37
It may be reasonable to assume that the term
"lands" refer to "lands" in Cebu City then
administered by the Lahug Air Port and includes
the parcels of land the respondent City of Cebu
seeks to levy on for real property taxes. This
section involves a "transfer" of the "lands" among
other things, to the petitioner and not just the
transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the
Philippines.
This "transfer" is actually an absolute conveyance
of the ownership thereof because the petitioner's
authorized capital stock consists of, inter alia "the
value of such real estate owned and/or
administered by the airports."38 Hence, the
petitioner is now the owner of the land in
question and the exception in Section 234(c) of
the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was
never a "taxable person" under its Charter. It
was only exempted from the payment of real
property taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the
legislative intent to make it a taxable person
subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a
taxable person for purposes of real property tax,
in light of the forgoing disquisitions, it had already
become even if it be conceded to be an
"agency" or "instrumentality" of the Government,
a taxable person for such purpose in view of the
withdrawal in the last paragraph of Section 234
of exemptions from the payment of real property
taxes, which, as earlier adverted to, applies to
the petitioner.
Accordingly, the position taken by the petitioner
is untenable. Reliance on Basco vs. Philippine
Amusement and Gaming Corporation39 is
unavailing since it was decided before the
effectivity of the LGC. 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.
WHEREFORE, the instant petition is DENIED. The
challenged decision and order of the Regional
Trial Court of Cebu, Branch 20, in Civil Case No.
CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 3473 March 22, 1907
J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.
F.G. Waite for appellant.
Attorney-General Araneta for appellee.
WILLARD, J.:
The plaintiff brought this action against the defendant,
the Collector of Internal Revenue, to recover the sum of
P9,600, paid by him under protest as taxes on certain
mining claims owned by him in the Province of Ambos
Camarines. Judgment was rendered in the court below in
favor of the defendant, and from that judgment the
plaintiff appealed.
There is no dispute about the facts.
In January, 1897, the Spanish Government, in
accordance with the provisions of the royal decree of
the 14th of May, 1867, granted to the plaintiff certain
mines in the said Province of Ambos Camarines, of which
mines the plaintiff is now the owner.
That there were valid perfected mining concessions
granted prior to the 11th of April, 1899, is conceded. They
were so considered by the Collector of Internal Revenue
and were by him said to fall within the provisions of
section 134 of Act No. 1189, known as the Internal
Revenue Act. That section is as follows:
SEC. 134. On all valid perfected mining
concessions granted prior to April eleventh,
eighteen hundred and ninety-nine, there shall be
levied and collected on the after January first,
nineteen hundred and five, the following taxes:
2. (a) On each claim containing an area of sixty
thousand square meters, an annual tax of one
hundred pesos; (b) and at the same rate
proportionately on each claim containing an
area in excess of, or less than, sixty thousand
square meters.
3. On the gross output of each an ad valorem
tax equal to three per centum of the actual
market value of such output.
The defendant accordingly imposed upon these
properties the tax mentioned in section 134, which tax, as
has before been stated, plaintiff paid under protest.
The only question in the case is whether this section 134 is
void or valid.
I. It is claimed by the plaintiff that it is void because it
comes within the provision of section 5 of the act of
Congress of July 1, 19021 (32 U.S. Stat. L., 691), which
provides "that no law impairing the obligation of
contracts shall be enacted." The royal decree of the 14th
of May, 1867, provided, among other things, as follows:
ART. 76. On each pertenencia minera (mining
claim) of the area prescribed in the first
paragraph of article 13 (sixty thousand square
meters) there shall be paid annually a fixed tax of
forty escudos (about P20.00).
The pertenencia referred to in the second
paragraph of the same article, though of greater
area than the others (one hundred and fifty
thousand square meters), shall pay only
twenty escudos (about P10.00).
ART. 78. Pertenencia of iron mines and mines of
combustible minerals shall be exempt from the
annual tax for a period of thirty years from the
date of publication of this decree.
ART. 80. A further tax of three per centum on the
gross earnings shall be paid without deduction of
costs of any kind whatsoever. All substances
enumerated in section one shall be exempt from
said tax of three per centum for a period of thirty
years.
ART. 81. No other taxes than those herein
mentioned shall be imposed upon mining and
metallurgical industries.
The royal decree and regulation for its enforcement
provided that the deeds granted by the Government
should be in a particular form, which form was inserted in
the regulations. It must be presumed that the deeds
granted to the plaintiff were made as provided by law,
and, in fact, one of such concessions was exhibited
during the argument in this court, and was found to be in
exact conformity with the form prescribed by law. The
deed is as follows:
Don Camilo Garcia de Polavieja, Marquez de
Polavieja, Teniente General de los Ejercitos
Nacionales, Caballero Gran Cruz de la Real y
Militar Orden de San Hermenegildo, de la Real y
distinguida de Isabel la Catolica, de la del Merito
Militar Roja, de la de la Corona de Italia,
Comendador de Carlos Tercero, Bennemerito de
la Patria en grado eminente, condecorado con
varias cruses de distincion por meritos de guerra,
Capitan General y Gobernador General de
Filipinas.
Whereas I have granted to Don Joaquin
Casanovas y Llovet and to Don Martin Buck the
concession of a gold mine entitled "Nueva
California Segunda" in the jurisdiction of
Paracale, Province of Ambos Camarines: Now,
therefore, in the name of His Majesty the King
(whom God preserve), and pursuant to the
provisions of article 37 of the royal decree of May
14, 1867, regulating mining in these Islands, I issue,
this fifth day of November, eighteen hundred
and ninety-six, this title deed to
four pertenencias, comprising an area of two
hundred and forty thousand square meters, as
shown in the attached sketch map drafted by
the engineer Don Enrique Abella y Casariego,
and dated at Manila December sixteenth of the
said year, subject to the following general terms
and conditions:
1. That the mine shall be worked in conformity
with the rules in mining, the grantee and his
laborers to be governed by the police rules
established by existing regulations.
2. That the grantee shall be liable for all damages
to third parties that may be caused by his
operations.
3. That the grantee shall likewise indemnify his
neighbors for any damage they may suffer by
reason of water accumulated on his works, if,
upon being requested, he fail to drain the same
within the time indicated.
4. That he shall contribute for the drainage of the
adjacent mines and for the general galleries for
drainage or haulage in proportion to the benefit
he derives therefrom, whenever, by authority of
the Governor-General, such works shall be
opened for a group of pertenencias or for the
entire mining locality in which the mine is
situated.
5. That he shall commence work on the mine
immediately upon receipt of this concession
unless prevented by force majeure.
6. That he shall keep the mine in active operation
by employing at the rate of at least four laborers
for each pertenencia for at least six months of
each year.
7. That he shall strengthen the walls of the mine
within the time indicated whenever, by reason of
mismanagement of the work, it threatens to
 cave in, unless he be prevented by force
majeure.
8. That he shall not render further profitable
development of the mine difficult or impossible
by avaricious operation.
9. That he shall not suspend the operation of the
mine with the intention of abandoning the same
without first informing the Governor of his
intention, in which case he must leave the mine
in a good state of timbering.
10. That he shall pay taxes on the mine and its
output as prescribed in the royal decree.
11. Finally, that he shall comply with all the
requirements contained in the royal decree and
in the regulations for concessions of the same
nature as the present.
Without special conditions.
Now, therefore, by virtue of this title deed, I grant
to Don Joaquin Casanovas y Llovet and to Don
Martin Buck the ownership of the said mine for an
unlimited period of time so long as they shall
comply with the foregoing terms and conditions,
to the end that they may develop the same and
make free use and disposition of the output
thereof, with the right to alienate the said mine
subject to the provisions of existing laws, and to
enjoy all the rights and benefits conceded to
such grantees by the royal decree and by the
mining regulations. And for the prompt fulfillment
and observance of the said conditions, both on
the part of the said grantees and by all
authorities, courts, corporations, and private
persons whom it may concern, I have ordered
this title deed to be issued — given under my
hand and the proper seal and countersigned by
the undersigned Director-General of Civil
Administration.
It seems very clear to us that this deed constituted a
contract between the Spanish Government and the
plaintiff, the obligation of which contract was impaired
by the enactment of section 134 of the Internal Revenue
Law above cited, thereby infringing the provisions above
quoted from section 5 of the act of Congress of July 1,
1902. This conclusion seems necessarily to result from the
decisions of the Supreme Court of the United States in
similar cases. In the case of McGee vs. Mathis (4 Wallace,
143), it appeared that the State of Arkansas, by an act of
the legislature of 1851, provided for the sale of certain
swamp lands granted to it by the United States; for the
issue of transferable scrip receivable for any lands not
already taken up at the time of selection by the holder;
for contracts for the making of levees and drains, and for
the payment of contractors in scrip and otherwise. In the
fourteenth section of this act it was provided that —
To encourage by all just means the progress and
completion of the reclaiming of such lands by
offering inducements to purchasers and
contractors to take up said lands, all said swamp
and overflowed lands shall be exempt from
taxation for the term of ten years or until they
shall be reclaimed.
In 1855 this section was repealed and provision was
made by law for the taxation of swamp and overflowed
lands, sold or to be sold, precisely as other lands. McGee,
before this appeal, had become the owner by transfer
from contractors of a large amount of scrip issued under
the Act of 1851, and with this scrip, after the repeal, took
up and paid for many sections and parts of sections of
the granted lands. Taxes were levied by the State on the
lands so taken up by McGee. The Supreme Court held
that these taxes could not be collected. The Court said at
page 156:
It seems quite clear that the Act of 1851
authorizing the issue of land scrip constituted a
contract between the State and the holders of
the land scrip issued under the act.
In the case of the Home of the Friendless vs. Rouse (8
Wallace, 430), it appeared that on the 3d day of
February, 1853, the legislature of Missouri passed on act
to incorporate the Home of the Friendless in the city of St.
Louis. Section 1 of the act provided that —
All property of said corporation shall be exempt
from taxation.
The court held that the State had no power afterwards to
pass laws providing for the levying of taxes upon this
institution. The Court said among other things at page
438:
The validity of this contract is questioned at the
bar on the ground that the legislature had no
authority to grant away the power of taxation.
The answer to this position is, that the question is
no longer open for argument here, for it is settled
by the repeated adjudications of this court, that
a State may be contract based on a
consideration exempt the property of an
individual or corporation from taxation, either for
a specified period or permanently. And it is
equally well settled that the exemption is
presumed to be on sufficient consideration, and
binds the State if the charter containing it is
accepted.
In the case of The Asylum vs. The City of New Orleans (105
U.S., 362), it appears that St. Ariva's Asylum was
incorporated by an act of the legislature of Louisiana,
approved April 29, 1853. The law incorporating it
provided that it should enjoy the same exemption from
taxation which was enjoyed by the Orphan Boys' Asylum
of New Orleans. The law relating to the last named
institution provided (page 364):
That, from and after the passage of this act, all
the property, real and personal, belonging to the
Orphan Boys' Asylum of New Orleans be, and the
same is hereby exempted from all taxation, either
by the State, parish, or city in which it is situated,
any law to the contrary notwithstanding.
It was held that the State had no power by subsequent
legislation to impose taxes upon the property of this
institution.
That the doctrine announced in these cases is still
maintained in that court is apparent from the case of
Powers vs.The Detroit, Grand Haven and Milwaukee
Railway which was decided on the 16th of April, 1906,
and reported in 201 U. S., 543. Section 9 of the act of the
legislature of Michigan, incorporating the railway
company, provided:
Said company shall, on or before the 1st day of
July, pay to the State treasurer, an annual tax of
one per cent on the capital stock of said
company, pain in, which tax shall be in lieu of all
other taxation.
The court said at page 556:
It has often been decided by this court, so often
that a citation on authorities in unnecessary, that
the legislature of a State may, in the absence of
special restrictions in its constitution, make a valid
contract with a corporation in respect to
taxation, and that such contract can be
enforced against the State at the instance of the
corporation.
The case at bar falls within the cases hereinbefore cited.
It is to be distinguished from the case of the Metropolitan
Street Railway Company vs. The New York State Board of
Tax Commissioners (199 U.S., 1). In that case it was
provided by various acts of the legislature, that the
companies therein referred to, should pay annually to the
city of New York, a fixed amount or percentage, varying
from 2 to 8 per cent of their gross earnings additional
taxes was sustained by the court. It was sustained on the
ground that the prior legislation did not expressly say that
the taxes thus provided for should be in lieu of all other
taxes. The court said at page 37:
Applying these well-established rules to the
several contracts, it will be perceived that there
was no express relinquishment of the right of
taxation. The plaintiff in error must rely upon some
implication, and not upon any direct stipulation.
In each contract there was a grant of privileges,
but the grant was specifically or privileges in
respect to the construction, operation and
maintenance of the street railroad. These were
all that in terms were granted. As consideration
for this grant, the grantees were to pay
something, and such payment is nowhere said to
be in lieu of, or as an equivalent or substitute of
taxes. All that can be extracted from the
language used, was a grant of privileges and a
payment therefor. Other words must be written
into the contract before there can be found any
relinquishment of the power of taxation.
But in the case at bar, there is found not only the
provisions for the payment of certain taxes annually, but
there is also found the provision contained in article 81,
above quoted, which expressly declares that no other
taxes shall be imposed upon these mines.
The present case is to be distinguished also from that
class of cases of which Grands Lodge vs. The City of New
Orleans (166 U.S., 143) is a type, and which includes Salt
Company vs. East Saginaw (13 Wall., 373) and
Welch vs.Cook (97 U.S., 541). In these cases the
exemption was a mere bounty and did not form a part of
any contract.
The fact that this concession was made by the
Government of Spain, and not by the Government of the
United States, is not important. (Trustees of Dartmouth
College vs. Woodward, 4 Wheaton, 518.)
Our conclusion is that the concessions granted by the
Government of Spain to the plaintiff, constitute contracts
between the parties; that section 134 of the Internal
Revenue Law impairs the obligation of these contracts,
and is therefore void as to them.
II. We think that this section is also void because in conflict
with section 60 of the act of Congress of July 1, 1902. This
section is as follows:
That nothing in this Act shall be construed to
effect the rights of any person, partnership, or
corporation, having a valid, perfected mining
concession granted prior to April eleventh,
eighteen hundred and ninety-nine, but all such
concessions shall be conducted under the
provisions of the law in force at the time they
were granted, subject at all times to cancellation
by reason of illegality in the procedure by which
they were obtained, or for failure to comply with
the conditions prescribed as requisite to their
retention in the laws under which they were
granted: Provided, That the owner or owners of
every such concession shall cause the corners
made by its boundaries to be distinctly marked
with permanent monuments within six months
after this act has been promulgated in the
Philippine Islands, and that any concessions, the
boundaries of which are not so marked within this
period shall be free and open to explorations
and purchase under the provisions of this act.2
This section seems to indicate that concessions, like those
in question, can be canceled only by reason of illegality
in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as
requisite for their retention in the laws under which they
were granted. There is nothing in the section which
indicates that they can be canceled for failure to comply
with the conditions prescribed by subsequent legislation.
In fact, the real intention of the act seems to be that such
concession should be subject to the former legislation
and not to any subsequent legislation. There is no claim in
this case that there was any illegality in the procedure by
which these concessions were obtained, nor is there any
claim that the plaintiff has not complied with the
conditions prescribed in the said royal decree of 1867.
III. In view of the result at which we have arrived, it is not
necessary to consider the further claim made by the
plaintiff that the taxes imposed by article 134 above
quoted, are in violation of the part of section 5 of the act
of July 1, 1902, which declares "that the rule of taxation in
said Islands shall be uniform."
The judgment of the court below is reversed, and
judgment is ordered in favor of the plaintiff and against
the defendant for P9,600, with interest thereon, at 6 per
cent, from the 21st day of February, 1906, and the costs
of the Court of First Instance. No costs will be allowed to
either party in this court.
After the expiration of twenty days let judgment be
entered in accordance herewith and ten days thereafter
let the case be remanded to the court from whence it
came for proper action. So ordered.
G.R. No. L-10211 December 3, 1915
THE MANILA RAILROAD COMPANY, plaintiff-appellant,
vs.
THE INSULAR COLLECTOR OF CUSTOMS, defendant-
appellee.
William A. Kincaid and Thomas L. Hartigan for appellant.
Attorney-General Avanceña for appellee.
MORELAND, J.:
In the year 1912 the Manila Railroad Company, being the
owner of a steamship called the Hondagua, caused
certain repairs to be made thereon in the city of
Hongkong, China. In the latter part of that year, and
immediately after the completion of the repairs,
the Hondagua came to the Philippine Islands and an
attempt was made by the railroad company to induce
the Philippine Government to permit the steamship to be
entered in Philippine waters without the payment of
import duties on the repairs made in Hongkong,
adequate facilities existed in the Philippine Islands for the
making of those repairs and that they were, therefore,
dutiable. The decision of the appraisers was protested,
the matter was appealed to the Insular Collector of
Customs for decision, and the judgment of his appraisers
was affirmed. Appeal was taken from his decision to the
Court of First Instance of Manila, where it was affirmed.
This appeal is from the judgment of affirmance.
The appellant bases its claim that the repairs to the
steamship should come in free of duty on two grounds:
The first one is found in section 8, paragraph 200, and
section 11, paragraph 348, of the Tariff Act of Congress,
and the second in the provisions of section 10 of Act No.
1510 and Act No. 1566 of the Philippine Commission.
So much of section 8 and of paragraph 200 as is pertinent
to the inquiry in which we are now engaged is as follows:
SEC. 8. That the rates of duties to be collected on
articles, goods, wares, or merchandise imported
 into the Philippine Islands, or going into said
Islands from the United States or any of its
possessions except as otherwise provided in this
Act, shall be as follows:
xxx xxx xxx
200. Boats, launches. lighters, and other water
craft, set up or knocked down, imported into the
Philippine Islands, and cost of repairs made in
foreign countries to vessels, or to parts thereof,
documented for the Philippine coastwise trade
or plying exclusively in Philippine waters and for
which repairs adequate facilities are afforded in
the Philippine Islands, fifty per centum ad
valorem.
Provided, That upon proof satisfactory to the
Collector of Customs that adequate facilities are
not afforded in the Philippine Islands for such
repairs, the same shall be subject to the
provisions of paragraph three hundred and forty-
eight of this Act.
That part of section 11 and paragraph 348 as is pertinent
reads as follows:itc-a1f
SEC. 11. That the following articles shall be free of
duty upon the importation thereof into the
Philippine Islands upon compliance with
regulations which shall be prescribed in accord
with the provisions of each paragraph:
xxx xxx xxx
348. Repairs to vessels documented in the
Philippine Islands or regularly plying in Philippine
waters, made in foreign countries, upon proof
satisfactory to the collector of customs that
adequate facilities for such repairs are not
afforded in the Philippine Islands.
There are two questions raised under the section just
quoted: One by the appellant and the other by the
appellee. That raised by the appellee is to the effect that
the judgment of the Insular Collector of Customs as to
whether or not adequate facilities for repairs to ships
exists in the Philippine Islands is conclusive and cannot be
made the subject of inquiry. That raised by the appellant
is in substance that the judgment of the Insular Collector
of Customs is not conclusive but subject to inquiry, and
that it was conclusively demonstrated on the trial by the
evidence of the appellant that adequate facilities for
such repairs did not exist in the Philippine Islands at the
time such repairs were made.
We are of the opinion that the government is wrong in its
contention, while the appellant's claim must be sustained
in part and disallowed in part. The judgment of the Insular
Collector of Customs as to whether adequate facilities for
the repairs mentioned in the law exist in the Philippine
Islands is not conclusive but is subject to review by the
courts. The appellant is wrong in its statement that it was
demonstrated on the trial that adequate facilities for
such repairs did not exist in the Philippine Islands. We
have examined with care the evidence on that subject
and we find that it is vague, uncertain and inconclusive.
Indeed, it is doubtful if it can be stated that any of the
evidence presented by the appellant on that subject
really went to the point.
The appellant is more successful, however, in presenting
the second ground of its appeal, namely, that which
refers to Acts Nos. 1510 and 1566. Act No. 1510 is entitled
"An Act granting to the Manila Railroad Company a
concession for railways lines in the Island of Luzon, and
providing in respect of proceedings for condemnation of
land by public service corporations." It grants a franchise
to the Manila Railroad Company and, after fixing the
rights of the company under that franchise, formulates
the obligations of the company to the government
arising by reason of the concessions granted. One of the
considerations on which the company's promises and
obligations rested was the privileges conferred by section
10 of that Act. It provides:1awphil.net
All material imported into the Philippine
Archipelago for the construction and equipment
of the railways undertaken by the grantee
pursuant to authority conferred by this
concessionary contract or grant shall be
admitted free of duty, under such rules and
regulations as shall be prescribed by the
Philippine Government:Provided, That this
provision shall not extend or apply to any portion
of such lines, or to any material or supplies
therefor, after the same shall be constructed and
equipped: Provided further, That if any material
so admitted free of duty shall not in fact be used
for the construction and equipment of said
railroads the duty shall become payable thereon
whenever it is ascertained that it has been used
or disposed of or is held for other purposes: And
provided further, That this exemption shall extend
to port charges upon vessels whose entire cargo
consists of material for the construction or
equipment of the railways, and to such
proportion of the prescribed port charges on
other vessels as the tonnage of material for such
construction or equipment may bear to the
tonnage of the entire cargo of the vessels.
By a subsequent act of the Philippine Commission the
franchise of the Manila Railroad Company was extended
and additional concessions granted for railroad lines in
the Island of Luzon. That Act was No. 1905, and by
paragraph 2 of section 1 thereof the provisions of sections
10 of Act No. 1510 were specifically extended and made
applicable to the additional lines of railroad with the
same force and effect as if they had been included in
the original concession. In addition to the provisions of
Act No. 1510, already quoted, which are pertinent to the
matter under discussion, we have Act No. 1566, entitled
"An Act regulating the free entry of certain railroad
material imported into the Philippine Islands." Section 1 of
said Act is as follows: "All material imported into the
Philippine Archipelago for the construction and
equipment of the railroads granted concessions by Acts
Numbered Fourteen hundred and ninety-seven and
Fifteen hundred and ten, which material shall, in fact, be
so used, shall be admitted free of duty under the
following rules and regulations."
This Act, in subsequent sections, establishes certain rules
and regulations for the admission free of duty of the
materials named in the Act. Among them are section 4
and 8, which read as follows:
In case the Insular Collector of Customs shall be
in doubt as to whether any article sought to be
imported free of duty under this Act is entitled to
said exemption, he may submit the question in
writing to the Supervising Railway Expert, who
shall thereupon examine the same, and certify to
the Insular Collector of Customs whether the
expenditure by the railroad for said article will, in
his opinion, be allowed as a proper item in the
cost of construction under section one,
subsection numbered nine of Act Numbered
Fourteen hundred and ninety-seven, and section
four, paragraphs (c) and (d) of Act Numbered
Fifteen hundred and seven, in the case the road
is one upon which interest on bonds is
guaranteed by the Government; or, in case of
non-guaranteed roads, the Supervising Railway
Expert shall certify to the Insular Collector of
Customs whether, in his opinion, said article is a
proper charge against the construction and
equipment of a railroad.
Whenever free entry is requested for any material
or articles which, in the opinion of the Insular
Collector of Customs, are not entitled to
exemption from duty under the terms of this Act,
that officer is authorized, after making due
 examination and appraisement and ascertaining
the amount of duties found to be due on said
materials or articles, to admit the same without
payment of the duties, and to deliver the same
to the railway company or its representatives,
notifying them, in writing, that said materials or
articles are found to be dutiable, that the duties
thereon amount to a certain sum, stating the
same, that the same have been passed and
delivered without payment of the duty, in
accordance with this section, and that due
report of his decision and the amount of duties
found to be due will be made to the Governor-
General, in order that the question of their
dutiability may be adjusted and decided by him
in conformity with subsection numbered nine of
section one of Act Numbered Fourteen hundred
and ninety-seven. It shall thereupon become the
duty of the Insular Collector of Customs promptly
to notify the Governor-General in writing of the
above facts and to hold the free entry and
invoice and all other papers connected with the
case in his office subject to the orders of the
Governor-General and until final adjustment of
the question is had. Nothing in this section
contained shall be construed to alter or amend
the rights of the Insular Auditor under the
Accounting Act or any amendment thereto, or
under any other Act of the Philippine
Commission.
From these quotations it will be seen that all materials for
the construction and equipment of the southern lines of
the Manila Railroad Company, on the bonds issued for
which the government guaranteed the interest, were
expressly admitted free of duty into the Philippine Islands,
and that, in case of doubt as to the right to free entry, the
matter was to be referred to the supervising railway
expert or to the Governor-General for final determination.
We are of the opinion that the repairs made to the vessel
must be admitted free of duty under these Acts. It seems
that the ship in question was purchased by the railroad
company as one of the agencies or instrumentalities
made use of in the construction of its southern lines in the
interest of efficiency and economy, it being used to
transport railroad material, both for construction and
equipment, as well as railroad laborers, from one point to
another in the Philippine Islands which could not be so
quickly or economically transported by any other means.
It is undoubted, from the record in this case, that the
steamship became an instrument or agency in the
construction, if not the equipment also, of the railroad, in
the same general class as a locomotive engine used in
the construction work, or a steam shovel, or a pneumatic
drill, or other tool, apparatus, implement, or mechanism
used in railroad construction. Customs Administrative
Circular No. 539, promulgated in 1909, established rules
and regulations under section 19 of Act No. 355 and
section 5 of Act No. 1566 of the Philippine Commission
regulating the free entry of materials and construction or
equipment supplies to be used in the construction and
equipment of the southern lines of the Manila Railroad
Company and other lines. Paragraph 7 thereof specifies
the materials which are entitled to free entry under the
provisions of Act No. 1566. It provides:
The following specified materials are entitled to
free entry under the provisions of Act No. 1566 of
the Philippine Commission:
(a) All material used in surveying, including
engineering instruments, tools, books, stationary,
tents, kitchen utensils and stoves, drafting tables
and drafting supplies, cots, chairs, blankets and
bedding, surgical instruments and supplies,
medicines, harness, saddles, and other
equipment usually employed in railway surveys,
excluding, however, subsistence and commissary
supplies and clothing and personal effects of
employees.
(b) All material for the general and local offices
of construction administration, including office
furniture and fixtures, stationery and supplies,
testing machines, and like material and
equipment.
(c) All construction material, including wagons,
carts, scrapers, graders, dump carts, push cars,
steam or gas traction or hoisting engines, trucks,
pumps, pipe, pipe tools and fittings, pile drivers,
steam shovels, steel rails and fastenings,
telegraph instruments and wire, insulators, poles
and other like supplies, sawmill machinery, ties,
timber for bridges, water tanks and buildings,
sashes, doors, blinds, and mill work, roofing
material, cement, plaster, lime, paint, varnish,
and other similar building material, steel and iron
bridges, turntables, roof trusses, and structural
iron of all kinds, frogs, switches and crossings,
interlocking and signal apparatus, shop
machinery and tools, hand tools of all kinds and
descriptions, hardware, oil, coal and waste used
on construction trains, ship or launches, horses,
mules, and draft animals, including hay, grain,
and forage for same, and all necessary material
and supplies used wholly on railroads built under
concessionary contracts or grants.
(d) All material for equipment of railroads built
under concessionary grant or contract or by any
railroad specially granted exemption by law, said
material for equipment consisting of motive
power and rolling stock for use in construction of
railroads and for equipment of same to enable it
to properly operate mileage constructed under
its concessionary contract or grant.
From this circular it will be seen how far the interpretation
of the words "material for construction and equipment"
found in Acts Nos. 1510 (sec. 10) and 1566 (sec. 1) has
gone. While it may be doubtful whether the courts, in
dealing with the same subject-matter at first hand, would
have been quite so liberal, nevertheless, such
interpretation having been given by the officers charged
with the administration of the Acts referred to and that
interpretation having been followed consistently for
several years, it ought not, at this time, to be changed,
even though the courts might consider that such
interpretation was broader than they themselves might
originally have adopted. Accepting such interpretation,
we find that the principle which governs it comprehends
and includes every agency, apparatus, instrument, tool
or implement, including machinery imported into the
Philippine Archipelago, which is necessary for the
efficient and economical construction of the railroad in
question. The ship, the repairs to which are in controversy
here, has been accepted by the officials of the Philippine
Government as one of the instrumentalities used in the
construction of appellant's southern lines and the
purchase price thereof has been included in the bonds
issued for such construction. Not only this, but the ship falls
clearly within the list of articles which, according to the
accepted interpretation of the customs officials, have for
several years been admitted free of duty under Acts Nos.
1510 and 1566. It is an implement, an agency, an
instrument used in the construction of said railroad, and,
as such, if otherwise dutiable, could have been entered
in Philippine waters from a foreign country free of import
duties. We do not feel justified in holding that the repairs
to a ship, which has been found to be an instrumentality
in the construction of appellant's southern lines, and, as
such, could enter and remain in Philippine water free of
government exactions, should be separated from the
ship itself and set apart as something subject to import
duties. We think it will be admitted that the materials
going into necessary repairs to a locomotive engine used
on a work train in the construction of the railroad would
not be subject to import duties on their introduction into
this country. It would seem that, if the engine itself may
be admitted free of duty, all materials necessary to keep
it in repair would also be exempt from import duties. We
believe that, so far as the comparison may properly go,
the same may be said of the ship in question.
The Government argues that because of the admitted
fact that the Hondagua has been used by the Manila
Railroad Company for the carrying of passengers and
freight for hire and has at times held itself out as a
common carrier of freight and passengers, it can no
longer be said to be an instrumentality used in the
construction of the Manila Railroad Company's southern
lines but has become a money-making enterprise, and is,
therefore, no longer entitled to the benefits of Act No.
1510. We are unable to give this argument the weight to
which the Government seems to think it entitled. It is true
that the evidence discloses that the ship in question,
when not in use for railroad construction purposes, has
carried freight and passengers for hire. But it is to be
remembered that the record also shows, as we have
already pointed out, that the purchase price of the ship
was made an item entering into the cost of construction
for which bonds were issued on which the Government
guaranteed the payment of interest to the extent
provided in the Act referred to; and that the receipts
derived from the use of the ship as a common carrier
were, under the direction of the Government, credited to
the construction account, thereby reducing indirectly the
amount for which the Government might become
responsible under the law. We are of the opinion that,
under the circumstances disclosed, the use of the ship by
the railroad company in the manner and for the purposes
specified in the objection of the Government, does not
warrant the withdrawal of those privileges which Acts
Nos. 1510 and 1566 confer. We think it cannot be
successfully maintained that the use of the ship for the
carrying of freight and passengers at times when it was
not in use for the purposes for which it was originally
designed, together with the fact that the proceeds of its
activities were applied to the reduction of the
indebtedness concerning which the Government had
some responsibility, is less beneficial to the Government
and therefore, should be punished by the withdrawal of
the privileges described, than if it stood idle during such
period without attempt on the part of its owner to earn
sufficient to cover its daily expenses or to reduce the sum
for the interest on which the Government might ultimately
be required to respond.
The judgment of the Court of First Instance is reversed
and the cause remanded with instruction that the
decision of the Insular Collector of Customs refusing to
admit the repairs, which are the subject matter of this
proceeding, free of duty be set aside and the Insular
Collector of Customs be instructed to permit the entry of
such repairs free of duty.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN
NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO,
GERONIMO Q. QUADRA, and MARIO C.
VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers
and affiliated labor federations and alliances, petitioners,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE, and SECRETARY
OF BUDGET, respondents.
G.R. No. 81921 June 30, 1988
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE
PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL
REVENUE, respondent.
G.R. No. 82152 June 30, 1988
RICARDO C. VALMONTE, petitioner,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE,
COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF
BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No.
81311.
Jaime C. Opinion for individual petitioners in G.R. No.
81311.
Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and
Associates for petitioners in G.R. No 81820.
Union of Lawyers and Advocates for Peoples Right
collaborating counsel for petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in
G.R. No. 81921.
PADILLA, J.:
These four (4) petitions, which have been consolidated
because of the similarity of the main issues involved
therein, seek to nullify Executive Order No. 273 (EO 273,
for short), issued by the President of the Philippines on 25
July 1987, to take effect on 1 January 1988, and which
amended certain sections of the National Internal
Revenue Code and adopted the value-added tax (VAT,
for short), for being unconstitutional in that its enactment
is not alledgedly within the powers of the President; that
the VAT is oppressive, discriminatory, regressive, and
violates the due process and equal protection clauses
and other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions
on the ground that the petitioners have failed to show
justification for the exercise of its judicial powers, viz. (1)
the existence of an appropriate case; (2) an interest,
personal and substantial, of the party raising the
constitutional questions; (3) the constitutional question
should be raised at the earliest opportunity; and (4) the
question of constitutionality is directly and necessarily
involved in a justiciable controversy and its resolution is
essential to the protection of the rights of the parties.
According to the Solicitor General, only the third requisite
— that the constitutional question should be raised at the
earliest opportunity — has been complied with. He also
questions the legal standing of the petitioners who, he
contends, are merely asking for an advisory opinion from
the Court, there being no justiciable controversy for
resolution.
Objections to taxpayers' suit for lack of sufficient
personality standing, or interest are, however, in the main
procedural matters. Considering the importance to the
public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine wether or
not the other branches of government have kept
themselves within the limits of the Constitution and the
laws and that they have not abused the discretion given
to them, the Court has brushed aside technicalities of
procedure and has taken cognizance of these petitions.
But, before resolving the issues raised, a brief look into the
tax law in question is in order.
The VAT is a tax levied on a wide range of goods and
services. It is a tax on the value, added by every seller,
with aggregate gross annual sales of articles and/or
services, exceeding P200,00.00, to his purchase of goods
and services, unless exempt. VAT is computed at the rate
of 0% or 10% of the gross selling price of goods or gross
receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple
rated sales tax on manufacturers and producers,
advance sales tax, and compensating tax on
importations. The framers of EO 273 that it is principally
aimed to rationalize the system of taxing goods and
services; simplify tax administration; and make the tax
system more equitable, to enable the country to attain
economic recovery.
The VAT is not entirely new. It was already in force, in a
modified form, before EO 273 was issued. As pointed out
by the Solicitor General, the Philippine sales tax system,
prior to the issuance of EO 273, was essentially a single
stage value added tax system computed under the "cost
subtraction method" or "cost deduction method" and
was imposed only on original sale, barter or exchange of
articles by manufacturers, producers, or importers.
Subsequent sales of such articles were not subject to
sales tax. However, with the issuance of PD 1991 on 31
October 1985, a 3% tax was imposed on a second sale,
which was reduced to 1.5% upon the issuance of PD 2006
on 31 December 1985, to take effect 1 January 1986.
Reduced sales taxes were imposed not only on the
second sale, but on every subsequent sale, as well. EO
273 merely increased the VAT on every sale to 10%, unless
zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on
the Ground that the President had no authority to issue
EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3,
which decreed a Provisional Constitution, sole legislative
authority was vested upon the President. Art. II, sec. 1 of
the Provisional Constitution states:
Sec. 1. Until a legislature is elected and
convened under a new Constitution, the
President shall continue to exercise
legislative powers.
On 15 October 1986, the Constitutional Commission of
1986 adopted a new Constitution for the Republic of the
Philippines which was ratified in a plebiscite conducted
on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987
Constitution, provides:
Sec. 6. The incumbent President shall
continue to exercise legislative powers
until the first Congress is convened.
It should be noted that, under both the Provisional and
the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new
Constitution is convened. The first Congress, created and
elected under the 1987 Constitution, was convened on
27 July 1987. Hence, the enactment of EO 273 on 25 July
1987, two (2) days before Congress convened on 27 July
1987, was within the President's constitutional power and
authority to legislate.
Petitioner Valmonte claims, additionally, that Congress
was really convened on 30 June 1987 (not 27 July 1987).
He contends that the word "convene" is synonymous with
"the date when the elected members of Congress
assumed office."
The contention is without merit. The word "convene"
which has been interpreted to mean "to call together,
cause to assemble, or convoke," 1 is clearly different from
assumption of office by the individual members of
Congress or their taking the oath of office. As an
example, we call to mind the interim National Assembly
created under the 1973 Constitution, which had not been
"convened" but some members of the body, more
particularly the delegates to the 1971 Constitutional
Convention who had opted to serve therein by voting
affirmatively for the approval of said Constitution, had
taken their oath of office.
To uphold the submission of petitioner Valmonte would
stretch the definition of the word "convene" a bit too far.
It would also defeat the purpose of the framers of the
1987 Constitutional and render meaningless some other
provisions of said Constitution. For example, the provisions
of Art. VI, sec. 15, requiring Congress to convene once
every year on the fourth Monday of July for its regular
session would be a contrariety, since Congress would
already be deemed to be in session after the individual
members have taken their oath of office. A portion of the
provisions of Art. VII, sec. 10, requiring Congress
to convene for the purpose of enacting a law calling for
a special election to elect a President and Vice-President
in case a vacancy occurs in said offices, would also be a
surplusage. The portion of Art. VII, sec. 11, third
paragraph, requiring Congress to convene, if not in
session, to decide a conflict between the President and
the Cabinet as to whether or not the President and the
Cabinet as to whether or not the President can re-assume
the powers and duties of his office, would also be
redundant. The same is true with the portion of Art. VII,
sec. 18, which requires Congress to convene within
twenty-four (24) hours following the declaration of martial
law or the suspension of the privilage of the writ of
habeas corpus.
The 1987 Constitution mentions a specific date when the
President loses her power to legislate. If the framers of
said Constitution had intended to terminate the exercise
of legislative powers by the President at the beginning of
the term of office of the members of Congress, they
should have so stated (but did not) in clear and
unequivocal terms. The Court has not power to re-write
the Constitution and give it a meaning different from that
intended.
The Court also finds no merit in the petitioners' claim that
EO 273 was issued by the President in grave abuse of
discretion amounting to lack or excess of jurisdiction.
"Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such
capricious and whimsical exercise of
judgment as is equivalent to lack of
jurisdiction (Abad Santos vs. Province of
Tarlac, 38 Off. Gaz. 834), or, in other
words, where the power is exercised in
an arbitrary or despotic manner by
reason of passion or personal hostility,
and it must be so patent and gross as to
amount to an evasion of positive duty or
to a virtual refusal to perform the duty
enjoined or to act at all in contemplation
of law. (Tavera-Luna, Inc. vs. Nable, 38
Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued
capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or personal hostility. It
appears that a comprehensive study of the VAT had
been extensively discussed by this framers and other
government agencies involved in its implementation,
even under the past administration. As the Solicitor
General correctly sated. "The signing of E.O. 273 was
merely the last stage in the exercise of her legislative
powers. The legislative process started long before the
signing when the data were gathered, proposals were
weighed and the final wordings of the measure were
drafted, revised and finalized. Certainly, it cannot be said
that the President made a jump, so to speak, on the
Congress, two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive,
discriminatory, unjust and regressive, in violation of the
provisions of Art. VI, sec. 28(1) of the 1987 Constitution,
which states:
 Sec. 28 (1) The rule of taxation shall be
uniform and equitable. The Congress
shall evolve a progressive system of
taxation.
The petitioners" assertions in this regard are not supported
by facts and circumstances to warrant their conclusions.
They have failed to adequately show that the VAT is
oppressive, discriminatory or unjust. Petitioners merely rely
upon newspaper articles which are actually hearsay and
have evidentiary value. To justify the nullification of a law.
there must be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative
implication. 4
As the Court sees it, EO 273 satisfies all the requirements of
a valid tax. It is uniform. The court, in City of Baguio vs. De
Leon, 5 said:
... In Philippine Trust Company v. Yatco
(69 Phil. 420), Justice Laurel, speaking for
the Court, stated: "A tax is considered
uniform when it operates with the same
force and effect in every place where
the subject may be found."
There was no occasion in that case to
consider the possible effect on such a
constitutional requirement where there is
a classification. The opportunity came in
Eastern Theatrical Co. v. Alfonso (83 Phil.
852, 862). Thus: "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; . . ." About two
years later, Justice Tuason, speaking for
this Court in Manila Race Horses Trainers
Assn. v. de la Fuente (88 Phil. 60, 65)
incorporated the above excerpt in his
opinion and continued; "Taking
everything into account, the
differentiation against which the plaintiffs
complain conforms to the practical
dictates of justice and equity and is not
discriminatory within the meaning of the
Constitution."
To satisfy this requirement then, all that is
needed as held in another case
decided two years later, (Uy Matias v.
City of Cebu, 93 Phil. 300) is that the
statute or ordinance in question "applies
equally to all persons, firms and
corporations placed in similar situation."
This Court is on record as accepting the
view in a leading American case
(Carmichael v. Southern Coal and Coke
Co., 301 US 495) that "inequalities which
result from a singling out of one particular
class for taxation or exemption infringe
no constitutional limitation." (Lutz v.
Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only
on sales of goods or services by persons engage in
business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, spared as they
are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general
public. 6
The Court likewise finds no merit in the contention of the
petitioner Integrated Customs Brokers Association of the
Philippines that EO 273, more particularly the new Sec.
103 (r) of the National Internal Revenue Code, unduly
discriminates against customs brokers. The contested
provision states:
Sec. 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(r) Service performed in the exercise of
profession or calling (except customs
brokers) subject to the occupation tax
under the Local Tax Code, and
professional services performed by
registered general professional
partnerships;
The phrase "except customs brokers" is not meant to
discriminate against customs brokers. It was inserted in
Sec. 103(r) to complement the provisions of Sec. 102 of
the Code, which makes the services of customs brokers
subject to the payment of the VAT and to distinguish
customs brokers from other professionals who are subject
to the payment of an occupation tax under the Local Tax
Code. Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of
services. — There shall be levied,
assessed and collected, a value-added
tax equivalent to 10% percent of gross
receipts derived by any person engaged
in the sale of services. The phrase sale of
services" means the performance of all
kinds of services for others for a fee,
remuneration or consideration, including
those performed or rendered by
construction and service contractors;
stock, real estate, commercial, customs
and immigration brokers; lessors of
personal property; lessors or distributors of
cinematographic films; persons engaged
in milling, processing, manufacturing or
repacking goods for others; and similar
services regardless of whether or not the
performance thereof call for the exercise
or use of the physical or mental faculties:
...
With the insertion of the clarificatory phrase "except
customs brokers" in Sec. 103(r), a potential conflict
between the two sections, (Secs. 102 and 103), insofar as
customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from
the other professionals who are subject to occupation tax
under the Local Tax Code is based upon material
differences, in that the activities of customs brokers (like
those of stock, real estate and immigration brokers)
partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Sec.
174 of the National Internal Revenue Code prior to its
amendment by EO 273. EO 273 abolished the
percentage tax and replaced it with the VAT. If the
petitioner Association did not protest the classification of
customs brokers then, the Court sees no reason why it
should protest now.
The Court takes note that EO 273 has been in effect for
more than five (5) months now, so that the fears
expressed by the petitioners that the adoption of the VAT
will trigger skyrocketing of prices of basic commodities
and services, as well as mass actions and demonstrations
against the VAT should by now be evident. The fact that
nothing of the sort has happened shows that the fears
and apprehensions of the petitioners appear to be more
imagined than real. It would seem that the VAT is not as
bad as we are made to believe.
In any event, if petitioners seriously believe that the
adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and
relief from the political branches of the government. The
Court, following the time-honored doctrine of separation
of powers, cannot substitute its judgment for that of the
President as to the wisdom, justice and advisability of the
adoption of the VAT. The Court can only look into and
determine whether or not EO 273 was enacted and
made effective as law, in the manner required by, and
consistent with, the Constitution, and to make sure that it
was not issued in grave abuse of discretion amounting to
lack or excess of jurisdiction; and, in this regard, the Court
finds no reason to impede its application or continued
implementation.
WHEREFORE, the petitions are DISMISSED. Without
pronouncement as to costs.
SO ORDERED.
EN BANC
[G.R. No. L-9141. September 25, 1956.]
Testate Estate of OLIMPIO FERNANDEZ, deceased.
REPUBLIC OF THE PHILIPPINES, claimant-Appellee, vs.
ANGELINA OASAN VDA DE FERNANDEZ, PRISCILLA O.
FERNANDEZ, and ESTELA O. FERNANDEZ, Oppositors-
Appellants.
DECISION
LABRADOR, J.:
Appeal from a decision of the Court of Tax Appeals
sustaining the validity of a tax amounting to P7,614.60
against the estate of Olimpio Fernandez under the War
Profits Tax Law (Republic Act No. 55).
Olimpio Fernandez and his wife Angelina Oasan had a
net worth of P8,600 on December 8, 1941. During the
Japanese occupation the spouses acquired several real
properties, and at the time of his death on February 11,
1945 he had a net worth of P31,489. The Collector of
Internal Revenue assessed a war profits tax on the estate
of the deceased at P7,614.60, which his administratrix
refused to pay. The case was brought to the Court of Tax
Appeals which sustained the validity and legality of the
assessment. The administratrix has appealed this decision
to this Court.
The most important questions raised by
the Appellant are:chanroblesvirtuallawlibrary (a) the
unconstitutionality of the war profits tax law for the reason
that it is retroactive; chan roblesvirtualawlibrary(b) the
inapplicability of said law to the estate of the deceased
Olimpio Fernandez, because the law taxes
individuals; chan roblesvirtualawlibraryand (c) the
separate taxation of the estate of the deceased Olimpio
Fernandez from that of his wife’s, because Olimpio
Fernandez died before the law was passed.
Appellant’s contention that the law is invalid or
unconstitutional because it acts retroactively, thus
violating the due process of law clause, is not supported
by reason or authority. The tax, insofar as applicable to
the estate of the deceased Olimpio Fernandez, is both a
property tax and a tax on income. It is a property tax in
relation to the properties that Fernandez had in
December, 1941; chan roblesvirtualawlibraryand it is an
income tax in relation to the properties which he
purchased during the Japanese occupation. In both
cases, however, the war profits tax may not be
considered as unconstitutional.
The doctrine of unconstitutionality raised by Appellant is
based on the prohibition against ex post facto laws. But
this prohibition applies only to criminal or penal matters,
and not to laws which concern civil matters or
proceedings generally, or which affect or regulate civil or
private rights (Ex parte Garland, 18 Law Ed., 366; chan
roblesvirtualawlibrary16 C.J. S., 889-891).
“At an early day it was settled by authoritative decisions,
in opposition to what might seem the more natural and
obvious meaning of the term ex post facto, that in their
scope and purpose these provisions were confined to
laws respecting criminal punishments, and had no
relation whatever to retrospective legislation of any other
description. And it has, therefore, been repeatedly held,
that retrospective laws, when not of a criminal nature, do
not come in conflict with the national Constitution, unless
obnoxious to its provisions on other grounds than their
respective character.” (1 Cooley, Constitutional
Limitations, 544-545.)
We have applied the above principle in the cases of
Mekin vs. Wolf, 2 Phil. 74 and Ongsiako vs. Gamboa, 47
Off. Gaz., No. 11, 5613, 5616.
It has also been held that property taxes and benefit
assessments on real estate, retroactively applied, are not
open to the objection that they infringe upon the due
process of law clause of the Constitution (Wagner vs.
Baltimore, 239 U. S. 207, 60 L. Ed. 230); chan
roblesvirtualawlibrarythat taxes on income are not
subject to the constitutional objection because of their
retroactivity. The universal practice has been to increase
taxes on incomes already earned; chan
roblesvirtualawlibraryyet notwithstanding this retroactive
operation, income taxes have not been successfully
assailed as invalid. The uniform ruling of the courts in the
United States has been to reject the contention that the
retroactive application of revenue acts is a denial of the
due process guaranteed by the Fifth Amendment (Welch
vs. Henry, 305 U. S. 134, 83 L. Ed. 87).
It has also been held that in order to declare a tax as
transgressing the constitutional limitation, it must be so
harsh and oppressive in its retroactive application
(Idem.). But we hold that far from being unjust or harsh
and oppressive our war profits tax is both wise and just.
The last Pacific war and the Japanese occupation of the
Islands have wrought divergent effects upon the different
sectors of the population. The quiet and the timid, who
were afraid to go out of their homes or who refused to
have any dealings with the enemy, stopped from
exercising their callings or professions, losing their
incomes; chan roblesvirtualawlibraryand they supported
themselves with properties they already owned, selling
these from time to time to raise funds with which to
purchase their daily needs. These were reduced to
penury and want. But the bold and the daring, as well as
those who were callous to the criticism of being
collaborators, engaged in trading in all forms or sorts of
commodities, from foodstuffs to war materials, earning
fabulous incomes and acquiring properties with their
earnings. Those who were able to retain their properties
found themselves possessed of increased wealth
because inflation set in, the currency dropped in value
and properties soared in prices. It would have been
unrealistic for the legislature to have ignored all these
facts and circumstances. After the war it could not, with
justice to all concerned, apportion the expenses of
government equally on all the people irrespective of the
vicissitudes of war, equally on those who had their
properties decimated as on those who had become
fabulously rich after the war. Those who were fortunate to
increase their wealth during the troubulous period of the
war were made to contribute a portion of their newly-
acquired wealth for the maintenance of the government
and defray its expenses. Those who in turn were reduced
to penury or whose incomes suffered reductions could
not be compelled to share in the expenses to the same
extent as those who grew rich. This in effect is what the
legislature did when it enacted the War Profits Tax Law.
The law may not be considered harsh and oppressive
because the force of its impact fell on those who had
amassed wealth or increased their wealth during the war,
but did not touch the less fortunate. The policy followed is
the same as that which underlies the Income Tax Law,
imposing the burden upon those who have and relieving
those who have not. No one can dare challenge the law
as harsh and oppressive. We declare it to be just and
sound and overrule the objection thereto on the ground
of unconstitutionality.
The contention that the deceased Olimpio Fernandez or
his estate should not be responsible because he died in
1945 and was no longer living when the law was enacted
at a later date, in 1946, is absolutely without merit.
Fernandez died immediately before the liberation and
the actual cessation of hostilities. He profited by the
war; chan roblesvirtualawlibrarythere is no reason why
the incident of his death should relieve his estate from the
tax. On this matter we agree with the Court of Tax
Appeals that the provisions of section 18 of the Internal
Revenue Code have been incorporated in Republic Act
No. 55 by virtue of Section 9 thereof, which
provides:chanroblesvirtuallawlibrary
SEC. 9. Administrative remedies. — All administrative,
special and general provisions of law, including the laws
in relation to the assessment, remission, collection and
refund of national internal revenue taxes, not inconsistent
with the provisions of the Act, are hereby extended and
made applicable to all the provisions of this law, and to
the tax herein imposed.”
Under section 84 of the National Internal Revenue Code,
the term “person” means an individual, a trust, estate,
corporation, or a duly registered general co-partnership.
If the individual is already dead, property or estate left by
him should be subject to the tax in the same manner as if
he were alive.
The last contention is also without merit. The property
which Olimpio Fernandez was possessed of in December,
1941 is presumed to be conjugal property and so are the
properties which were acquired by him during the war,
because at that time he was married. There is no claim or
evidence to support the claim that any of the properties
were paraphernal properties of the wife; chan
roblesvirtualawlibraryso the presumption stands that they
were conjugal properties of the husband and wife. Under
these circumstances they cannot be considered as
properties belonging to two individuals, each of which
shall be subject to the tax independently of the other.
For the foregoing considerations, the judgment appealed
from is hereby affirmed, with costs against the Appellants.
EN BANC
[G.R. No. L-9408. October 31, 1956.]
EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF
INTERNAL REVENUE and THE COURT OF TAX
APPEALS, Respondents.
DECISION
BAUTISTA ANGELO, J.:
On March 31, 1952, Petitioner filed his income tax return
for 1951 with the treasurer of Bacolod City wherein he
claimed, among other things, the amount of P12,837.65
as a deductible item from his gross income pursuant to
General Circular No. V-123 issued by the Collector of
Internal Revenue. This circular was issued pursuant to
certain rules laid down by the Secretary of Finance On
the basis of said return, an assessment notice demanding
the payment of P9,419 was sent to Petitioner, who paid
the tax in monthly installments, the last payment having
been made on January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance,
through the Collector of Internal Revenue, issued General
Circular No. V-139 which not only revoked and declared
void his general Circular No. V- 123 but laid down the rule
that losses of property which occurred during the period
of World War II from fires, storms, shipwreck or other
casualty, or from robbery, theft, or embezzlement are
deductible in the year of actual loss or destruction of said
property. As a consequence, the amount of P12,837.65
was disallowed as a deduction from the gross income
of Petitioner for 1951 and the Collector of Internal
Revenue demanded from him the payment of the sum of
P3,546 as deficiency income tax for said year. When the
petition for reconsideration filed by Petitioner was denied,
he filed a petition for review with the Court of Tax
Appeals. In due time, this court rendered decision
affirming the assessment made by Respondent Collector
of Internal Revenue. This is an appeal from said decision.
It appears that Petitioner claimed in his 1951 income tax
return the deduction of the sum of P12,837.65 as a loss
consisting in a portion of his war damage claim which
had been duly approved by the Philippine War Damage
Commission under the Philippine Rehabilitation Act of
1946 but which was not paid and never has been paid
pursuant to a notice served upon him by said Commission
that said part of his claim will not be paid until the United
States Congress should make further appropriation. He
claims that said amount of P12,837.65 represents a
“business asset” within the meaning of said Act which he
is entitled to deduct as a loss in his return for 1951. This
claim is untenable.
To begin with, assuming that said a mount represents a
portion of the 75% of his war damage claim which was
not paid, the same would not be deductible as a loss in
1951 because, according to Petitioner, the last
installment he received from the War Damage
Commission, together with the notice that no further
payment would be made on his claim, was in 1950. In the
circumstance, said amount would at most be a proper
deduction from his 1950 gross income. In the second
place, said amount cannot be considered as a “business
asset” which can be deducted as a loss in contemplation
of law because its collection is not enforceable as a
matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government.
Note that, as of the end of 1945, there was absolutely no
law under which Petitioner could claim compensation for
the destruction of his properties during the battle for the
liberation of the Philippines. And under the Philippine
Rehabilitation Act of 1946, the payments of claims by the
War Damage Commission merely depended upon its
discretion to be exercised in the manner it may see fit,
but the non-payment of which cannot give rise to any
enforceable right, for, under said Act, “All findings of the
Commission concerning the amount of loss or damage
sustained, the cause of such loss or damage, the persons
to whom compensation pursuant to this title is payable,
and the value of the property lost or damaged, shall be
conclusive and shall not be reviewable by any court”.
(section 113).
It is true that under the authority of section 338 of the
National Internal Revenue Code the Secretary of
Finance, in the exercise of his administrative powers,
caused the issuance of General Circular No. V-123 as an
implementation or interpretative regulation of section 30
of the same Code, under which the amount of P12,837.65
was allowed to be deducted “in the year the last
installment was received with notice that no further
payment would be made until the United States Congress
makes further appropriation therefor”, but such circular
was found later to be wrong and was revoked. Thus,
when doubts arose as to the soundness or validity of such
circular, the Secretary of Finance sought the advice of
the Secretary of Justice who, accordingly, gave his
opinion the pertinent portion of which reads as
follows:chanroblesvirtuallawlibrary
“Yet it might be argued that war losses were not included
as deductions for the year when they were sustained
because the taxpayers had prospects that losses would
be compensated for by the United States
Government; chan roblesvirtualawlibrarythat since only
uncompensated losses are deductible, they had to wait
until after the determination by the Philippine War
Damage Commission as to the compensability in part or
in whole of their war losses so that they could exclude
from the deductions those compensated for by the said
Commission; chan roblesvirtualawlibraryand that, of
necessity, such determination could be complete only
much later than in the year when the loss was sustained.
This contention falls to the ground when it is considered
that the Philippine Rehabilitation Act which authorized
the payment by the United States Government of war
losses suffered by property owners in the Philippines was
passed only on August 30, 1946, long after the losses were
sustained. It cannot be said therefore, that the property
owners had any conclusive assurance during the years
said losses were sustained, that the compensation was to
be paid therefor. Whatever assurance they could have
had, could have been based only on some information
less reliable and less conclusive than the passage of the
Act itself. Hence, as diligent property owners, they should
adopt the safest alternative by considering such losses
deductible during the year when they were sustained.”
In line with this opinion, the Secretary of Finance, through
the Collector of Internal Revenue, issued General Circular
No. V-139 which not only revoked and declared void his
previous Circular No. V — 123 but laid down the rule that
losses of property which occurred during the period of
World War II from fires, storms, shipwreck or other casualty,
or from robbery, theft, or embezzlement are deductible
for income tax purposes in the year of actual destruction
of said property. We can hardly argue against this
opinion. Since we have already stated that the amount
claimed does not represent a “business asset” that may
be deducted as a loss in 1951, it is clear that the loss of
the corresponding asset or property could only be
deducted in the year it was actually sustained. This is in
line with section 30 (d) of the National Internal Revenue
Code which prescribes that losses sustained are
allowable as deduction only within the corresponding
taxable year.
Petitioner’s contention that during the last war and as a
consequence of enemy occupation in the Philippines
“there was no taxable year” within the meaning of our
internal revenue laws because during that period they
were unenforceable, is without merit. It is well known that
our internal revenue laws are not political in nature and
as such were continued in force during the period of
enemy occupation and in effect were actually enforced
by the occupation government. As a matter of fact,
income tax returns were filed during that period and
income tax payment were effected and considered
valid and legal. Such tax laws are deemed to be the laws
of the occupied territory and not of the occupying
enemy.
“Furthermore, it is a legal maxim, that excepting that of a
political nature, ‘Law once established continues until
changed by some competent legislative power. It is not
changed merely by change of sovereignty.’ (Joseph H.
Beale, Cases on Conflict of Laws, III, Summary section 9,
citing Commonwealth vs. Chapman, 13 Met., 68.) As the
same author says, in his Treatise on the Conflict of Laws
(Cambridge, 1916, section
131):chanroblesvirtuallawlibrary ‘There can be no break
or interregnun in law. From the time the law comes into
existence with the first-felt corporateness of a primitive
people it must last until the final disappearance of human
society. Once created, it persists until a change takes
place, and when changed it continues in such changed
condition until the next change and so forever. Conquest
or colonization is impotent to bring law to an end; chan
roblesvirtualawlibraryinspite of change of constitution, the
law continues unchanged until the new sovereign by
legislative act creates a change.’“ (Co Kim Chan vs.
Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.)
It is likewise contended that the power to pass upon the
validity of General Circular No. V-123 is vested exclusively
in our courts in view of the principle of separation of
powers and, therefore, the Secretary of Finance acted
without valid authority in revoking it and approving in lieu
thereof General Circular No. V-139. It cannot be denied,
however, that the Secretary of Finance is vested with
authority to revoke, repeal or abrogate the acts or
previous rulings of his predecessor in office because the
construction of a statute by those administering it is not
binding on their successors if thereafter the latter become
satisfied that a different construction should be given.
[Association of Clerical Employees vs. Brotherhood of
Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R.,
345.]
“When the Commissioner determined in 1937 that
the Petitioner was not exempt and never had been, it
was his duty to determine, assess and collect the tax due
for all years not barred by the statutes of limitation. The
conclusion reached and announced by his predecessor
in 1924 was not binding upon him. It did not exempt
the Petitioner from tax, This same point was decided in
this way in Stanford University Bookstore, 29 B. T. A.,
1280; chan roblesvirtualawlibraryaffd., 83 Fed. (2d) 710.”
(Southern Maryland Agricultural Fair Association vs.
Commissioner of Internal Revenue, 40 B. T. A., 549, 554).
With regard to the contention that General Circular No.
V-139 cannot be given retroactive effect because that
would affect and obliterate the vested right acquired
by Petitioner under the previous circular, suffice it to say
that General Circular No. V-123, having been issued on a
wrong construction of the law, cannot give rise to a
vested right that can be invoked by a taxpayer. The
reason is obvious:chanroblesvirtuallawlibrary a vested
right cannot spring from a wrong interpretation. This is too
clear to require elaboration.
“It seems too clear for serious argument that an
administrative officer cannot change a law enacted by
Congress. A regulation that is merely an interpretation of
the statute when once determined to have been
erroneous becomes nullity. An erroneous construction of
the law by the Treasury Department or the collector of
internal revenue does not preclude or estop the
government from collecting a tax which is legally due.”
(Ben Stocker, et al., 12 B. T. A., 1351.)
“Art. 2254. — No vested or acquired right can arise from
acts or omissions which are against the law or which
infringe upon the rights of others.” (Article 2254, New Civil
Code.)
Wherefore, the decision appealed from is affirmed
Without pronouncement as to costs.
DIVISION
[ GR No. 80276, Dec 21, 1990 ]
HYDRO RESOURCES CONTRACTORS CORPORATION v.
CTA +
DECISION
270 Phil. 722
PARAS, J.:
This is a special civil action of certiorari instituted by
petitioner Hydro Resources Contractors Corporation
against respondents Court of Tax Appeals and Deputy
Minister of Finance which seeks to set aside the decisions
of both public respondents holding petitioner liable for a
3% ad valorem duty in the amount of P281,591.00.
It appears that the National Irrigation Administration
(referred to hereinafter as NIA for brevity) a government
owned and controlled corporation, entered into an
agreement, sometime in August 1978, with petitioner
Hydro Resources Contractors Corporation (Hydro for
short), for the construction of the Magat River
Multipurpose Project in Isabela.
Under the aforesaid contract, designated as Contract
No. MPI-C-1, petitioner was allowed to procure new
construction equipment, spare parts and tools from
abroad, the payment for which was advanced by NIA
under a financing plan embodied in the contract, as
follows:
a) Procurement - Petitioner is required to submit to NIA for
approval a list of new construction equipment, spare
parts and tools which it intends to acquire from
abroad. Petitioner shall procure these items as an agent
of NIA as all invoices shall be in the name of said
government agency. NIA undertakes to pay all import
taxes, duties and all fees, impost and other charges that
may be due on said importations.
b) Ownership and delivery - The equipment and spare
parts imported from abroad shall be owned by NIA and
delivered to its construction site in Isabela.
c) Repayment - Petitioner shall repay NIA the costs of the
above procurement and the manner of repayment shall
be through deductions from each monthly or periodic
progress payment due to petitioner.
d) Transfer of Ownership - Ownership shall be transferred
to petitioner only upon complete payment of the costs
abovementioned.
The equipment imported by NIA in 1978 and 1979
for Hydro's use are -
DESCRIPTION OFEQUIPMENT NET BOOKVALUE
1 Tamrock Hyd. Jumbo Drill
Ser. #18153
3 units Cat Drill Toyo TYPR 120
1 unit Tamrock Hyd. Drill
16 units Air Leg Drills Toyo
P1,566,116.55 to be delivered at some future date, whose price or
prices at the time of delivery may be way above or
278,264.25 below the sale price or prices. For another thing, HYDRO
may not be deprived of rights vested before the
1,493,834.29
promulgation of Executive Order 860 prescribing 3%
12,000.92 additional duty ad valorem." (p. 22, Rollo)

1 unit Toyo Reinforciong Bar 2,423.21 The Acting Commissioner of Customs affirmed the ruling
of the Collector of Customs. In
3 units Toyo TYCD 10 CY Cralwer 265,421.35 his 2nd Indorsement dated June 25, 1984, (p. 25, Rollo)
Acting Commissioner Ramon Farolan stated -
2 units Scheele K-60 Pump 624,772.80
"This Office shares the view of the Collector of Customs to
2 units New Reed Gun Mdl. IAS 67,349.90 the effect that the various equipment and parts in
1 unit Prota Tunnel Profile 43,340.26 question which the National Irrigation Administration
imported in 1978 and 1979 and subsequently sold to
2 units Wild TheodoliteSurveying Hydro Resources Construction Corporation by virtue of a
previous agreement, are subject to duties and taxes but
Equipment 28,545.93 not the additional 3% ad valorem duty under Executive
Order No. 860 which took effect only on December 21,
1 unit Toyo Mud Sub Pump 201,108.01
1982. Moreover, the Deputy Minister of Finance, in his
2 units Aichi Skymaster Truck 1st Indorsement to the Central Bank dated March 26,
1983, which was then reproduced by the Central Bank
mounted Boom 93,622.78 Governor in a circular letter to all authorized agent banks,
clarified that -
2 units Grindex Sub Type Pump 140,518.35
'Letters of Credit opened prior to the effectivity of P.D.
6 units K/Worth C500 Trick Mixer 1,690,054.60 1853 and E.O. 860 are not subject to the provisions
thereof even if they are amended after
1 unit Putamesitor 201,863.77
the effectivity thereof."'
6 units Sullair Air Comp. 588,940.53
(p. 15, Rollo)
2 units Well Air Driven Grout 20,582.40
These findings of the Collector of Customs as well as the
10 units Stancom VHF Radio Tran. 32,537.70 Acting Customs Commissioner were reversed by the
Deputy Minister of Finance.
4 units Cummins 1,055,209.20
Petitioner appealed to the Court of Tax Appeals but in its
By the terms of the contract (quoted earlier) NIA Decision dated May 22, 1987, the said court (with
undertakes payment of all the import duties and taxes a dissenting opinion) affirmed the ruling of the Deputy
incident to the importations deductible from the Minister of Finance denying petitioner's claim for refund.
proceeds of the contract price. HYDRO shall repay NIA in
full the value of the construction equipment out of the Hence, the present recourse, after petitioner's motion for
same proceeds before eventual transfer or taking reconsideration was denied.
ownership of subject construction equipment upon
In this petition, Hydro presents the following issues -
termination of the contract.
I
NIA reneged and failed in the compliance of its tax
obligations. In the meantime, HYDRO had fully repaid the THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR IN
value of the construction equipment in the amount of EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF
P14,537,783.63 (US$1,991,477.21) so much so that on DISCRETION IN REFUSING TO CONSIDER THE FACT THAT THE
December 6, 1982 and March 24, 1983, NIA executed SALE OF THE NIA-FINANCED EQUIPMENT TOOK PLACE IN
deeds of sale covering the same and transferring the 1978.
ownership thereof in favor of petitioner.
II
Upon the transfer of the ownership of the said equipment
HYDRO was assessed by the Bureau of Customs the THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR IN
corresponding customs duty and compensating tax, EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF
respectively, as follows: DISCRETION IN APPLYING EXECUTIVE ORDER NO. 860
RETROACTIVELY.
Customs Duty - P1,214,010.00
III
Compensating Tax - 1,089,368.63
THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR IN
-------------------- EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF
DISCRETION IN FAILING TO CONSIDEER THAT THE
P2,303,378.63
IMPOSITION OF THE 3% AD VALOREM TAX ON
=========== IMPORTATIONS MADE PRIOR TO ITS ISSUANCE IS VIOLATIVE
OF THE CONSTITUTION.
This amount was paid by HYDRO to the Bureau of
Customs. IV

In addition, HYDRO was assessed additional THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR IN
3% ad valorem duty in the amount of P281,591.00 EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF
prescribed in Executive Order 860. HYDRO also paid this DISCRETION IN IMPOSING THE AD VALOREM
amount but this time under protest. TAX SANS STATUTORY AND LEGAL BASIS.

The Collector of Customs acted favorably on petitioner's The petition is meritorious.

protest and ordered the refund of the amount paid for
the ad valorem duty in the form of tax credit, ruling that -
"The foregoing scheme entered into between NIA and
HYDRO had generated a contract and it will be unfair to
involve new proposal as in the imposition of 3% additional
duty ad valorem which was not obtaining at the time of
the agreement nor at the time of arrival and release of
the shipment from the piers. For one thing, the scheme
may be viewed in the same light as sales of commodities
Executive Order No. 860 which was the basis for the
imposition of the 3% ad valorem duty upon the said
importations, took effect on December 21, 1982. The
importations were effected in 1978 and 1979 by
NIA. Nonetheless, respondent Court of Tax Appeals
denied petitioner's claim for refund because -
"When NIA transferred the equipment in question
supposedly 'after its (HYDRO's) use for a number of years',
it cannot he doubted that these equipment were sold
and transferred presumably 'several years' after the
equipments' importation in 1978 and 1979. It is obvious
therefore that the sale or transfer of the ownership of the
equipment to petitioner HYDRO were unquestionably
made after the effectivity of PD 882 on January 20,
1976, undisputably said sale or transfer thereof was (sic)
governed by Section 4 of PD 882 and was correctly
applied by respondent. We take particular note of the
fact that we cannot pinpoint with definiteness or
exactitude from the evidence, when or what years after
the years 1978 and 1979 importations were the
equipment sold or transferred by NIA to petitioner HYDRO
so that we can determine outright whether the sale or
transfers are covered by the mandatory provision of
Executive Order 860 effective on December 21, 1982
imposing 3% additional ad valorem duty on such
importations. Such that if the sale or transfer of the
ownership of the equipment were effected to petitioner
HYDRO after December 21, 1982, the effective date of
Executive Order No. 860, the 3% ad valorem duty is
imposable as said Executive Order 860 was applied
prospectively and rightly. If the sale or transfer of the
ownership of the equipment to HYDRO were (sic) prior to
the effectivity of Executive Order No. 860, then said
Executive Order 860 is inapplicable, and petitioner is not
liable to pay the 3% ad valorem duty of P281,591.00 and
is entitled to the refund thereof.
As a rule and principle, it was incumbent upon petitioner-
taxpayer HYDRO to have shown that the sale or transfer
of said equipment to it were made before December 21,
1982, when the Executive Order No. 860 was effective in
order that it shall not be subject to the imposition of 3%
additional ad valorem duty. Fairing thus, its claim for
refund in the amount of P281,591.00 unquestionably fails."
(pp. 37-38, Rollo)
The foregoing conclusion is erroneous. The subsequent
executions of the Deeds of Sale of the equipment in
question on December 6, 1982 and March 24, 1983 are
not relevant and material in the consideration of the
application of Executive Order No. 860 because said
Deeds of Sale were mere formalities in the
implementation of Contract No. MFI-C-1 executed on
August 1978, which should be reckoned and construed
as the actual date of sale. This must be so because the
contract of purchase and sale of the NIA-
financed/owned equipment to Hydro took place in 1978
when Contract No. MP1-C-1 was signed by NIA and
HYDRO wherein the contracting parties provided for their
financing, procurement, delivery, repayment, transfer of
possession and ownership. The said scheme
contemplated a Contract of Sale within the purview of
Art. 1458 of the Civil Code which provides -
"Art. 1458. By the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and
to deliver adeterminate thing, and the other to pay
thereafter a price certain in money or its equivalent.
"A contract of sale may be absolute or conditional." (p.
11, Rollo)
This view is shared by the Collector of Customs in his
decision when he declared that there being a meeting
of the minds between NIA and HYDRO upon the object
of the contract of sale and upon the price, the contract
of sale of the equipment between them was perfected in
1978. It is a perfected contract of sale subject to
a suspensive condition, the full payment by HYDRO of the
consideration for the subject of the contract is the
operative act to compel NIA to effect the transfer of
absolute ownership thereof to HYDRO. And under
Art. 1187 of the Civil Code, the effectivity of said contract
reverts back to the constitution of the contract, in this
case - August 1978.
"ART. 1187. The effects of a conditional obligation to give,
once the condition has been fulfilled, shall retroact to the
day of the constitution of the obligation." (p. 12, Rollo)
It is a cardinal rule that laws shall have no retroactive
effect, unless the contrary is provided. Art. 4, Civil Code)
Except for a statement providing for its immediate
execution, Executive Order No. 860 does not provide for
its retroactivity. Moreover, the Deputy Minister of Finance
in his 1st Indorsement to the Central Bank dated March
26, 1983 which was reproduced by the Central Bank
Governor in a circular letter to all authorized
agent banks, clarified that letters of credit opened prior
to the effectivity of E.O. 860 are not subject to the
provisions thereof. Consequently, the importations in
question which arrived in 1977 and 1978 are not subject
to the the 3% additional advalorem duty, the same being
imposed only on those whose letter of credit were
opened after the promulgation of Executive Order
860. In this regard Judge Alex Reyes in his dissenting
opinion correctly observed -
"Let it suffice that the procurement of the equipment, as
earlier stated, was not on a tax exempt basis as the
import liabilities thereon have been secured to be
paid under the terms of the financial scheme in the
contract. The formality of vesting of title over the
equipment was not an unwarranted expectation but a
matter of an implementation of a pre-existing
agreement, hence, the imported articles can only be
subject to the rates of import duties/taxes prevailing at
the time of entry or withdrawal from customs custody
(Sec. 205, TCC) in 1978 and 1979, thus foreclosing any
retroactive application of the 1982 Executive Order.
"Taken in the above light, it would be unfair and
incongruous to hold petitioner to an additional
levy sans any statutory basis. The majority could have
fumbled into a precipitate action in taking an adverse
position on petitioner's right to a refund." (pp. 44-45, Rollo)
IN VIEW OF THE FOREGOING CONSIDERATIONS, the
petition is GRANTED; the assailed Decisions of
respondents Court of Tax Appeals and Deputy Minister of
Finance are SET ASIDE and another one
rendered ordering the refund of the amount of
P281,591.00representing 3% additional ad valorem duty
to petitioner Hydro Resources Contractors Corporation in
the form of tax credit.
SO ORDERED.
COMMISSIONER OF INTERNAL G.R. No. 154068
REVENUE,
Petitioner, Present:
QUISUMBING, J.,
Chairperson,
- versus -
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
ROSEMARIE ACOSTA, as Promulgated:
represented
by Virgilio A. Abogado, August 3, 2007
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
Assailed in this petition for review are the
Decision[1] and Resolution[2] dated February 13, 2002 and
May 29, 2002, respectively, of the Court of Appeals in CA-
G.R. SP No. 55572 which had reversed the
Resolution[3] dated August 4, 1999 of the Court of Tax
Appeals in C.T.A. Case No. 5828 and ordered the latter to
resolve respondents petition for review.
The facts are as follows:
Respondent is an employee of Intel
Manufacturing Phils., Inc. (Intel). For the period January 1,
1996 to December 31, 1996, respondent was assigned in
a foreign country.During that period, Intel withheld the WHETHER OR NOT THE 1997 TAX REFORM
ACT CAN BE APPLIED RETROACTIVELY.
taxes due on respondents compensation income and
remitted to the Bureau of Internal Revenue (BIR) the II.
amount of P308,084.56. WHETHER OR NOT THE CTA HAS
JURISDICTION TO TAKE [COGNIZANCE]
OF RESPONDENTS PETITION FOR
On March 21, 1997, respondent and her husband REVIEW.[11]
filed with the BIR their Joint Individual Income Tax Return
for the year 1996. Later, on June 17, 1997, respondent,
through her representative, filed an amended return and While the main concern in this controversy is

a Non-Resident Citizen Income Tax Return, and paid the the CTAs jurisdiction, we must first resolve two issues. First,

BIR P17,693.37 plus interests in the amount does the amended return filed by respondent indicating

of P14,455.76. On October 8, 1997, she filed another an overpayment constitute the written claim for refund

amended return indicating an overpayment required by law, thereby vesting the CTA with jurisdiction

of P358,274.63. over this case? Second, can the 1997 NIRC be applied
retroactively?

Claiming that the income taxes withheld and

paid by Intel and respondent resulted in an overpayment Petitioner avers that an amended return showing

of P340,918.92,[4] respondent filed on April 15, 1999 a an overpayment does not constitute the written claim for

petition for review docketed as C.T.A. Case No. 5828 with refund required under Section 230[12] of the 1993

the Court of Tax Appeals (CTA). The Commissioner of NIRC[13] (old Tax Code). He claims that an actual written

Internal Revenue (CIR) moved to dismiss the petition for claim for refund is necessary before a suit for its recovery

failure of respondent to file the mandatory written claim may proceed in any court.

for refund before the CIR.

On the other hand, respondent contends that

In its Resolution dated August 4, 1999, the CTA the filing of an amended return indicating an

dismissed respondents petition. For one, the CTA ruled overpayment of P358,274.63 constitutes a written claim

that respondent failed to file a written claim for refund for refund pursuant to the clear proviso stated in the last

with the CIR, a condition precedent to the filing of a sentence of Section 204(c) of the 1997 NIRC (new Tax

petition for review before the CTA.[5] Second, the CTA Code), to wit:
xxxx
noted that respondents omission, inadvertently or
otherwise, to allege in her petition the date of filing the Provided, however, That a return
final adjustment return, deprived the court of its filed showing an overpayment shall be
considered as a written claim for credit
jurisdiction over the subject matter of the case.[6] The or refund.
decretal portion of the CTAs resolution states:
xxxx
WHEREFORE, in view of all the
foregoing, Respondents Motion to Dismiss
is GRANTED. Accordingly[,] the Petition
Along the same vein, respondent invokes the
for Review is hereby DISMISSED.
liberal application of technicalities in tax refund cases,
SO ORDERED.[7] conformably with our ruling in BPI-Family Savings Bank,
Inc. v. Court of Appeals.[14] We are, however, unable to
agree with respondents submission on this score.
Upon review, the Court of Appeals reversed the CTA and
directed the latter to resolve respondents petition for
The applicable law on refund of taxes pertaining
review. Applying Section 204(c)[8] of the 1997 National
to the 1996 compensation income is Section 230 of the
Internal Revenue Code (NIRC), the Court of Appeals
old Tax Code, which was the law then in effect, and not
ruled that respondents filing of an amended return
Section 204(c) of the new Tax Code, which was effective
indicating an overpayment was sufficient compliance
starting only on January 1, 1998.
with the requirement of a written claim for refund.[9] The
decretal portion of the Court of Appeals decision reads:
Noteworthy, the requirements under Section 230
WHEREFORE, finding the petition to be
for refund claims are as follows:
meritorious, this Court GRANTS it due
course and REVERSES the appealed 1. A written claim for refund or tax
Resolutions and DIRECTS the Court of Tax credit must be filed by the taxpayer
Appeal[s] to resolve the petition for with the Commissioner;
review on the merits.
2. The claim for refund must be
SO ORDERED.[10] a categorical
demand for reimbursement;

3. The claim for refund or tax credit

Petitioner sought reconsideration, but it was
must be filed, or the suit or
denied. Hence, the instant petition raising the following proceeding therefor must be
questions of law: commenced in court within two (2)
years from date of payment of the
I. tax or penalty regardless of any
 supervening cause.[15] (Emphasis
ours.)
In our view, the law is clear. A claimant must first
file a written claim for refund, categorically demanding
recovery of overpaid taxes with the CIR, before resorting
to an action in court. This obviously is intended, first, to
afford the CIR an opportunity to correct the action of
subordinate officers; and second, to notify the
government that such taxes have been questioned, and
the notice should then be borne in mind in estimating the
revenue available for expenditure.[16]
Thus, on the first issue, we rule against
respondents contention. Entrenched in our jurisprudence
is the principle that tax refunds are in the nature of tax
exemptions which are construed strictissimi juris against
the taxpayer and liberally in favor of the government. As
tax refunds involve a return of revenue from the
government, the claimant must show indubitably the
specific provision of law from which her right arises; it
cannot be allowed to exist upon a mere vague
implication or inference[17] nor can it be extended
beyond the ordinary and reasonable intendment of the
language actually used by the legislature in granting the
refund.[18] To repeat, strict compliance with the conditions
imposed for the return of revenue collected is a doctrine
consistently applied in this jurisdiction.[19]
Under the circumstances of this case, we cannot
agree that the amended return filed by respondent
constitutes the written claim for refund required by the
old Tax Code, the law prevailing at that time. Neither can
we apply the liberal interpretation of the law based on
our pronouncement in the case of BPI-Family Savings
Bank, Inc. v. Court of Appeals, as the taxpayer therein
filed a written claim for refund aside from presenting
other evidence to prove its claim, unlike this case before
us.
On the second issue, petitioner argues that the
1997 NIRC cannot be applied retroactively as the instant
case involved refund of taxes withheld on a 1996
income.Respondent, however, points out that when the
petition was filed with the CTA on April 15, 1999, the 1997
NIRC was already in effect, hence, Section 204(c) should
apply, despite the fact that the refund being sought
pertains to a 1996 income tax. Note that the issue on the
retroactivity of Section 204(c) of the 1997 NIRC arose
because the last paragraph of Section 204(c) was not
found in Section 230 of the old Code. After a thorough
consideration of this matter, we find that we cannot give
retroactive application to Section 204(c) abovecited. We
have to stress that tax laws are prospective in operation,
unless the language of the statute clearly provides
otherwise.[20]
Moreover, it should be emphasized that a party
seeking an administrative remedy must not merely initiate
the prescribed administrative procedure to obtain relief,
but also pursue it to its appropriate conclusion before
seeking judicial intervention in order to give the
administrative agency an opportunity to decide the
matter itself correctly and prevent unnecessary and
premature resort to court action.[21] This the respondent
did not follow through. Additionally, it could not escape
notice that at the time respondent filed her amended
return, the 1997 NIRC was not yet in effect. Hence,
respondent had no reason at that time to think that the
filing of an amended return would constitute the written
claim for refund required by applicable law.
Furthermore, as the CTA stressed, even the date
of filing of the Final Adjustment Return was omitted,
inadvertently or otherwise, by respondent in her petition
for review.This omission was fatal to respondents claim, for
it deprived the CTA of its jurisdiction over the subject
matter of the case.
Finally, we cannot agree with the Court of
Appeals finding that the nature of the instant case calls
for the application of remedial laws. Revenue statutes
are substantive laws and in no sense must their
application be equated with that of remedial laws. As
well said in a prior case, revenue laws are not intended to
be liberally construed.[22]Considering that taxes are the
lifeblood of the government and in Holmess memorable
metaphor, the price we pay for civilization, tax laws must
be faithfully and strictly implemented.
WHEREFORE, the petition is GRANTED. Both the
assailed Decision and Resolution dated February 13,
2002 and May 29, 2002, respectively, of the Court of
Appeals in CA-G.R. SP No. 55572 are REVERSED and SET
ASIDE. The Resolution dated August 4, 1999 of the Court
of Tax Appeals in C.T.A. Case No. 5828 is
hereby REINSTATED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 104037 May 29, 1992
REYNALDO V. UMALI, petitioner,
vs.
HON. JESUS P. ESTANISLAO, Secretary of Finance, and
HON. JOSE U. ONG, Commissioner of Internal
Revenue, respondents.
G.R. No. 104069 May 29, 1992
RENE B. GOROSPE, LEIGHTON R. SIAZON, MANUEL M.
SUNGA, PAUL D. UNGOS, BIENVENIDO T. JAMORALIN, JR.,
JOSE D. FLORES, JR., EVELYN G. VILLEGAS, DOMINGO T.
LIGOT, HENRY E. LARON, PASTOR M. DALMACION, JR., and,
JULIUS NORMAN C. CERRADA, petitioners,
vs
COMMISSIONER OF INTERNAL REVENUE, respondent.
Rene B. Gorospe, Leighton R. Siazon, Manuel M. Sunga,
Bienvinido T. Jamoralin, Jr and Paul D. Ungos for
petitioners.
PADILLA, J.:
These consolidated cases are petitions
for mandamus and prohibition, premised upon the
following undisputed facts:
Congress enacted Rep. Act 7167, entitled "AN ACT
ADJUSTING THE BASIC PERSONAL AND ADDITIONAL
EXEMPTIONS ALLOWABLE TO INDIVIDUALS FOR INCOME
TAX PURPOSES TO THE POVERTY THRESHOLD LEVEL,
AMENDING FOR THE PURPOSE SECTION 29, PARAGRAPH
(L), ITEMS (1) AND (2) (A) OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES." It provides as follows:
Sec. (1). The first paragraph of item (1),
paragraph (1) of Section 29 of the
National Internal Revenue Code, as
amended, is hereby further amended to
read as follows:
(1) Personal Exemptions allowable to
individuals –– (1) Basic personal
exemption as follows:
For single individual or
married individual
judicially decreed as
legally separated with
no qualified dependents
P9,000
For head of a family
P12,000
For married individual
P18,000
Provided, That husband and wife
electing to compute their income tax
separately shall be entitled to a personal
exemption of P9,000 each.
Sec. 2. The first paragraph of item (2) (A),
paragraph (1) of Section 29 of the same
Code, as amended, is hereby further
amended to read as follows:
(2) Additional exemption.
(a) Taxpayers with dependents. –– A
married individual or a head of family
shall be allowed an additional
exemption of Five Thousand Pesos
(P5,000) for each dependent: Provided,
That the total number of dependents for
which additional exemptions may be
claimed shall not exceed four
dependents: Provided, further, That an
additional exemption of One Thousand
Pesos (1,000) shall be allowed for each
child who otherwise qualified as
dependent prior to January 1,
1980: Provided, finally, That the
additional exemption for dependents
shall be claimed by only one of the
spouses in case of married individuals
electing to compute their income tax
liabilities separately.
Sec. 3. This act shall take effect upon its
approval.
Approved. 1
The said act was signed and approved by the President
on 19 December 1991 and published on 14 January 1992
in "Malaya" a newspaper of general circulation.
On 26 December 1991, respondents promulgated
Revenue Regulations No. 1-92, the pertinent portions of
which read as follows:
Sec. 1. SCOPE –– Pursuant to Sections 245
and 72 of the National Internal Revenue
Code in relation to Republic Act No.
7167, these Regulations are hereby
promulgated prescribing the collection
at source of income tax on
compensation income paid on or after
January 1, 1992 under the Revised
Withholding Tax Tables (ANNEX "A")
which take into account the increase of
personal and additional exemptions.
xxx xxx xxx
Sec. 3. Section 8 of Revenue Regulations
No. 6-82 is amended by Revenue
Regulations No. 1-86 is hereby further
amended to read as follows:
Section 8. –– Right to
claim the following
exemptions. . . .
Each employee shall be
allowed to claim the
following amount of
exemption with respect
to compensation paid
on or after January 1,
1992.
xxx xxx xxx
Sec. 5. EFFECTIVITY. –– These regulations
shall take effect on compensation
income from January 1, 1992.
On 27 February 1992, the petitioner in G.R. No. 104037, a
taxpayer and a resident of Gitnang Bayan Bongabong,
Oriental Mindoro, filed a petition for mandamus for
himself and in behalf all individual Filipino taxpayers, to
COMPEL the respondents to implement Rep. Act 7167
with respect to taxable income of individual taxpayers
earned or received on or after 1 January 1991 or as of
taxable year ending 31 December 1991.
On 28 February 1992, the petitioners in G.R. No. 104069
likewise filed a petition for mandamus and prohibition on
their behalf as well as for those other individual taxpayers
who might be similarly situated, to compel the
Commissioner of Internal Revenue to implement the
mandate of Rep. Act 7167 adjusting the personal and
additional exemptions allowable to individuals for income
tax purposes in regard to income earned or received in
1991, and to enjoin the respondents from implementing
Revenue Regulations No. 1-92.
In the Court's resolution of 10 March 1992, these two (2)
cases were consolidated. Respondents were required to
comment on the petitions, which they did within the
prescribed period.
The principal issues to be resolved in these cases are: (1)
whether or not Rep. Act 7167 took effect upon its
approval by the President on 19 December 1991, or on 30
January 1992, i.e., after fifteen (15) days following its
publication on 14 January 1992 in the "Malaya" a
newspaper of general circulation; and (2) assuming that
Rep. Act 7167 took effect on 30 January 1992, whether or
not the said law nonetheless covers or applies to
compensation income earned or received during
calendar year 1991.
In resolving the first issue, it will be recalled that the Court
in its resolution in Caltex (Phils.), Inc. vs. The Commissioner
of Internal Revenue, G.R. No. 97282, 26 June 1991 ––
which is on all fours with this case as to the first issue ––
held:
The central issue presented in the instant
petition is the effectivity of R.A. 6965
entitled "An Act Revising The Form of
Taxation on Petroleum Products from Ad
Valorem to Specific, Amending For the
Purpose Section 145 of the National
Internal Revenue Code, As amended by
Republic Act Numbered Sixty Seven
Hundred Sixty Seven."
Sec. 3 of R.A. 6965 contains the
effectivity clause which provides. "This
Act shall take effect upon its approval"
R.A. 6965 was approved on September
19, 1990. It was published in the
Philippine Journal, a newspaper of
general circulation in the Philippines, on
September 20, 1990. Pursuant to the Act,
an implementing regulation was issued
by the Commissioner of Internal
Revenue, Revenue Memorandum
Circular 85-90, stating that R.A. 6965 took
effect on October 5, 1990. Petitioner took
exception thereof and argued that the
law took effect on September 20, 1990
instead.
Pertinent is Article 2 of the Civil Code (as
amended by Executive Order No. 200)
which provides:
Art. 2. Laws shall take
effect after fifteen days
following the
completion of their
publication either in the
official Gazette or in a
newspaper of general
circulation in the
Philippines, unless it is
otherwise provided. . . .
In the case of Tanada vs. Tuvera (L-
63915, December 29, 1986, 146 SCRA
446, 452) we construed Article 2 of the
Civil Code and laid down the rule:
. . .: the) clause "unless it
is otherwise provided"
refers to the date of
effectivity and not to
the requirement of
publication itself, which
cannot in any event be
omitted. This clause
does not mean that the
legislator may make the
law effective
immediately upon
approval, or on any
other date without its
previous publication.
Publication is
indispensable in every
case, but the legislature
may in its discretion
provide that the usual
fifteen-day period shall
be shortened or
extended. . . .
Inasmuch as R.A. 6965 has no specific
date for its effectivity and neither can it
become effective upon its approval
notwithstanding its express statement,
following Article 2 of the Civil Code and
the doctrine enunciated in
Tanada, supra, R.A. 6965 took effect
fifteen days after September 20, 1990, or
specifically, on October 5, 1990.
Accordingly, the Court rules that Rep. Act 7167 took
effect on 30 January 1992, which is after fifteen (15) days
following its publication on 14 January 1992 in the
"Malaya."
Coming now to the second issue, the Court is of the
considered view that Rep. Act 7167 should cover or
extend to compensation income earned or received
during calendar year 1991.
Sec. 29, par. (L), Item No. 4 of the National Internal
Revenue Code, as amended, provides:
Upon the recommendation of the
Secretary of Finance, the President shall
automatically adjust not more often than
once every three years, the personal
and additional exemptions taking into
account, among others, the movement
in consumer price indices, levels of
minimum wages, and bare subsistence
levels.
As the personal and additional exemptions of individual
taxpayers were last adjusted in 1986, the President, upon
the recommendation of the Secretary of Finance, could
have adjusted the personal and additional exemptions in
1989 by increasing the same even without any legislation
providing for such adjustment. But the President did not.
However, House Bill 28970, which was subsequently
enacted by Congress as Rep. Act 7167, was introduced
in the House of Representatives in 1989 although its
passage was delayed and it did not become effective
law until 30 January 1992. A perusal, however, of the
sponsorship remarks of Congressman Hernando B. Perez,
Chairman of the House Committee on Ways and Means,
on House Bill 28970, provides an indication of the intent of
Congress in enacting Rep. Act 7167. The pertinent
legislative journal contains the following:
At the outset, Mr. Perez explained that
the Bill Provides for increased personal
additional exemptions to individuals in
view of the higher standard of living.
The Bill, he stated, limits the amount of
income of individuals subject to income
tax to enable them to spend for basic
necessities and have more disposable
income.
xxx xxx xxx
Mr. Perez added that inflation has raised
the basic necessities and that it had
been three years since the last
exemption adjustment in 1986.
xxx xxx xxx
Subsequently, Mr. Perez stressed the
necessity of passing the measure to
mitigate the effects of the current
inflation and of the implementation of
the salary standardization law. Stating
that it is imperative for the government
to take measures to ease the burden of
 the individual income tax filers, Mr. Perez
then cited specific examples of how the
measure can help assuage the burden
to the taxpayers.
He then reiterated that the increase in
the prices of commodities has eroded
the purchasing power of the peso
despite the recent salary increases and
emphasized that the Bill will serve to
compensate the adverse effects of
inflation on the taxpayers. . . . (Journal of
the House of Representatives, May 23,
1990, pp. 32-33).
It will also be observed that Rep. Act 7167 speaks of the
adjustments that it provides for, as adjustments "to the
poverty threshold level." Certainly, "the poverty threshold
level" is the poverty threshold level at the time Rep. Act
7167 was enacted by Congress, not poverty threshold
levels in futuro, at which time there may be need of
further adjustments in personal exemptions. Moreover,
the Court can not lose sight of the fact that these
personal and additional exemptions are fixed amounts to
which an individual taxpayer is entitled, as a means to
cushion the devastating effects of high prices and a
depreciated purchasing power of the currency. In the
end, it is the lower-income and the middle-income
groups of taxpayers (not the high-income taxpayers) who
stand to benefit most from the increase of personal and
additional exemptions provided for by Rep. Act 7167. To
that extent, the act is a social legislation intended to
alleviate in part the present economic plight of the lower
income taxpayers. It is intended to remedy the
inadequacy of the heretofore existing personal and
additional exemptions for individual taxpayers.
And then, Rep. Act 7167 says that the increased personal
exemptions that it provides for shall be available
thenceforth, that is, after Rep. Act 7167 shall have
become effective. In other words, these exemptions are
available upon the filing of personal income tax returns
which is, under the National Internal Revenue Code,
done not later than the 15th day of April after the end of
a calendar year. Thus, under Rep. Act 7167, which
became effective, as aforestated, on 30 January 1992,
the increased exemptions are literally available on or
before 15 April 1992 (though not before 30 January 1992).
But these increased exemptions can be available on 15
April 1992 only in respect of compensation income
earned or received during the calendar year 1991.
The personal exemptions as increased by Rep. Act 7167
cannot be regarded as available in respect of
compensation income received during
the 1990 calendar year; the tax due in respect of said
income had already accrued, and been presumably
paid, by 15 April 1991 and by 15 July 1991, at which time
Rep. Act 7167 had not been enacted. To make Rep. Act
7167 refer back to income received during 1990 would
require language explicitly retroactive in purport and
effect, language that would have to authorize the
payment of refunds of taxes paid on 15 April 1991 and 15
July 1991: such language is simply not found in Rep. Act
7167.
The personal exemptions as increased by Rep. Act 7167
cannot be regarded as available only in respect of
compensation income received during 1992, as the
implementing Revenue Regulations No. 1-92 purport to
provide. Revenue Regulations No. 1-92 would in effect
postpone the availability of the increased exemptions to
1 January-15 April 1993, and thus literally defer the
effectivity of Rep. Act 7167 to 1 January 1993. Thus, the
implementing regulations collide frontally with Section 3
of Rep. Act 7167 which states that the statute "shall take
effect upon its approval." The objective of the Secretary
of Finance and the Commissioner of Internal Revenue in
postponing through Revenue Regulations No. 1-92 the
legal effectivity of Rep. Act 7167 is, of course, entirely
understandable –– to defer to 1993 the reduction of
governmental tax revenues which irresistibly follows from
the application of Rep. Act 7167. But the law-making
authority has spoken and the Court can not refuse to
apply the law-maker's words. Whether or not the
government can afford the drop in tax revenues resulting
from such increased exemptions was for Congress (not
this Court) to decide.
WHEREFORE, Sections 1, 3 and 5 of Revenue Regulations
No. 1-92 which provide that the regulations shall take
effect on compensation income earned or received from
1 January 1992 are hereby SET ASIDE. They should take
effect on compensation income earned or received from
1 January 1991.
Since this decision is promulgated after 15 April 1992, the
individual taxpayers entitled to the increased exemptions
on compensation income earned during calendar year
1991 who may have filed their income tax returns on or
before 15 April 1992 (later extended to 24 April 1992)
without the benefit of such increased exemptions, are
entitled to the corresponding tax refunds and/or credits,
and respondents are ordered to effect such refunds
and/or credits. No costs.
SO ORDERED.
G.R. No. 159991 November 16, 2006
CARMELINO F. PANSACOLA, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari is the Decision1 dated June 5,
2003 of the Court of Appeals in CA-G.R. S.P. No. 60475.
The appellate court denied petitioner’s availment of the
increased amounts of personal and additional
exemptions under Republic Act No. 8424, the National
Internal Revenue Code of 19972 (NIRC), which took effect
on January 1, 1998. Also assailed is the appellate court’s
Resolution3 dated September 11, 2003, denying the
motion for reconsideration.
The facts are undisputed.
On April 13, 1998, petitioner Carmelino F. Pansacola filed
his income tax return for the taxable year 1997 that
reflected an overpayment of ₱5,950. In it he claimed the
increased amounts of personal and additional
exemptions under Section 354 of the NIRC, although his
certificate of income tax withheld on compensation
indicated the lesser allowed amounts5 on these
exemptions. He claimed a refund of ₱5,950 with the
Bureau of Internal Revenue, which was denied. Later, the
Court of Tax Appeals also denied his claim because
according to the tax court, "it would be absurd for the
law to allow the deduction from a taxpayer’s gross
income earned on a certain year of exemptions availing
on a different taxable year…"6 Petitioner sought
reconsideration, but the same was denied.7
On appeal, the Court of Appeals denied his petition for
lack of merit. The appellate court ruled that Umali v.
Estanislao,8 relied upon by petitioner, was inapplicable to
his case. It further ruled that the NIRC took effect on
January 1, 1998, thus the increased exemptions were
effective only to cover taxable year 1998 and cannot be
applied retroactively.
Petitioner, before us, raises a single issue:
…[W]hether or not the increased personal and additional
exemptions under [the NIRC] can be availed of by the
[p]etitioner for purposes of computing his income tax
liability for the taxable year 1997 and thus be entitled to
the refund.9
Simply stated, the issue is: Could the exemptions under
Section 35 of the NIRC, which took effect on January 1,
1998, be availed of for the taxable year 1997?
Petitioner argues that the personal and additional
exemptions are of a fixed character based on Section 35
(A) and (B) of the NIRC10 and as ruled by this Court
in Umali, these personal and additional exemptions are
fixed amounts to which an individual taxpayer is entitled.
He contends that unlike other allowable deductions, the
availability of these exemptions does not depend on the
taxpayer’s profession, trade or business for a particular
taxable period. Relying again in Umali, petitioner alleges
that the Court of Appeals erred in ruling that the
increased exemptions were meant to be applied
beginning taxable year 1998 and were to be reflected in
the taxpayers’ returns to be filed on or before April 15,
1999. Petitioner reasons that such ruling would postpone
the availability of the increased exemptions and literally
defer the effectivity of the NIRC to January 1,
1999. Petitioner insists that the increased exemptions were
already available on April 15, 1998, the deadline for filing
income tax returns for taxable year 1997, because the
NIRC was already effective.
Respondent, through the Office of the Solicitor General,
counters that the increased exemptions were not yet
available for taxable year 1997 because all provisions of
the NIRC took effect on January 1, 1998 only; that the
fixed character of personal and additional exemptions
does not necessarily mean that these were not time
bound; and petitioner’s proposition was contrary to
Section 35 (C)11 of the NIRC. It further stated that
petitioner’s exemptions were determined as of
December 31, 1997 and the effectivity of the NIRC during
the period of January 1 to April 15, 1998 did not affect his
tax liabilities within the taxable year 1997; and the
inclusive period from January 1 to April 15, 1998, the filing
dates and deadline for administrative purposes, was
outside of the taxable year 1997. Respondent also
maintains that Umali is not applicable to this case.
Prefatorily, personal and additional exemptions under
Section 35 of the NIRC are fixed amounts to which certain
individual taxpayers (citizens, resident aliens)12 are
entitled. Personal exemptions are the theoretical
personal, living and family expenses of an individual
allowed to be deducted from the gross or net income of
an individual taxpayer. These are arbitrary amounts which
have been calculated by our lawmakers to be roughly
equivalent to the minimum of subsistence,13 taking into
account the personal status and additional qualified
dependents of the taxpayer. They are fixed amounts in
the sense that the amounts have been predetermined by
our lawmakers as provided under Section 35 (A) and (B).
Unless and until our lawmakers make new adjustments on
these personal exemptions, the amounts allowed to be
deducted by a taxpayer are fixed as predetermined by
Congress.
A careful scrutiny of the provisions14 of the NIRC
specifically shows that Section 79 (D)15 provides that the
personal and additional exemptions shall be determined
in accordance with the main provisions in Title II of the
NIRC. Its main provisions pertain to Section 35 (A) and (B)
which state,
SEC. 35. Allowance of Personal Exemption for Individual
Taxpayer. -
(A) In General.-For purposes of determining the tax
provided in Section 24(A) of this Title,16 there shall be
allowed a basic personal exemption as follows:
xxxx
For each married individual – ₱32,000
xxxx
(B) Additional Exemption for Dependents.–There shall be
allowed an additional exemption of Eight thousand pesos
(₱8,000) for each dependent not exceeding four (4).
(Emphasis ours.)
Section 35 (A) and (B) allow the basic personal and
additional exemptions as deductions from gross or net
income, as the case maybe, to arrive at the correct
taxable income of certain individual taxpayers. Section
24 (A) (1) (a) imposed income tax on a resident citizen’s
taxable income derived for each taxable year. It
provides as follows:
SEC. 24. Income Tax Rates. –
(A) Rates of Income Tax on Individual Citizen …
(1) An income tax is hereby imposed:
(a) On the taxable income defined in Section 31 of this
Code, other than income subject to tax under
Subsections (B),17 (C),18 and (D)19 of this Section, derived
for each taxable year from all sources within and without
the Philippines by every individual citizen of the
Philippines residing therein; (Emphasis ours.)
Section 31 defines "taxable income" as the pertinent
items of gross income specified in the NIRC, less the
deductions and/or personal and additional exemptions, if
any, authorized for such types of income by the NIRC or
other special laws. As defined in Section 22 (P),20 "taxable
year" means the calendar year, upon the basis of which
the net income is computed under Title II of the NIRC.
Section 4321 also supports the rule that the taxable
income of an individual shall be computed on the basis
of the calendar year. In addition, Section 4522 provides
that the deductions provided for under Title II of the NIRC
shall be taken for the taxable year in which they are
"paid or accrued" or "paid or incurred."
Moreover, Section 79 (H)23 requires the employer to
determine, on or before the end of the calendar year but
prior to the payment of the compensation for the last
payroll period, the tax due from each employee’s
taxable compensation income for the entire taxable year
in accordance with Section 24 (A). This is for the purpose
of either withholding from the employee’s December
salary, or refunding to him not later than January 25 of
the succeeding year, the difference between the tax
due and the tax withheld.
Therefore, as provided in Section 24 (A) (1) (a) in relation
to Sections 31 and 22 (P) and Sections 43, 45 and 79 (H)
of the NIRC, the income subject to income tax is the
taxpayer’s income as derived and computed during the
calendar year, his taxable year.
Clearly from the abovequoted provisions, what the law
should consider for the purpose of determining the tax
due from an individual taxpayer is his status and qualified
dependents at the close of the taxable year and not at
the time the return is filed and the tax due thereon is
paid. Now comes Section 35 (C) of the NIRC which
provides,
Sec. 35. Allowance of Personal Exemption for Individual
Taxpayer. –
xxxx
(C) Change of Status. – If the taxpayer marries or should
have additional dependent(s) as defined above during
the taxable year, the taxpayer may claim the
corresponding additional exemption, as the case may
be, in full for such year.
If the taxpayer dies during the taxable year, his estate
may still claim the personal and additional exemptions for
himself and his dependent(s) as if he died at the close of
such year.
If the spouse or any of the dependents dies or if any of
such dependents marries, becomes twenty-one (21)
years old or becomes gainfully employed during the
taxable year, the taxpayer may still claim the same
exemptions as if the spouse or any of the dependents
died, or as if such dependents married, became twenty-
one (21) years old or became gainfully employed at the
close of such year.
Emphasis must be made that Section 35 (C) of the NIRC
allows a taxpayer to still claim the corresponding full
amount of exemption for a taxable year, e.g. if he
marries; have additional dependents; he, his spouse, or
any of his dependents die; and if any of his dependents
marry, turn 21 years old; or become gainfully employed. It
is as if the changes in his or his dependents’ status took
place at the close of the taxable year.
Consequently, his correct taxable income and his
corresponding allowable deductions e.g. personal and
additional deductions, if any, had already been
determined as of the end of the calendar year.
In the case of petitioner, the availability of the
aforementioned deductions if he is thus entitled, would
be reflected on his tax return filed on or before the 15th
day of April 1999 as mandated by Section 51 (C)
(1).24 Since the NIRC took effect on January 1, 1998, the
increased amounts of personal and additional
exemptions under Section 35, can only be allowed as
deductions from the individual taxpayer’s gross or net
income, as the case maybe, for the taxable year 1998 to
be filed in 1999. The NIRC made no reference that the
personal and additional exemptions shall apply on
income earned before January 1, 1998.
Thus, petitioner’s reliance in Umali is misplaced.
In Umali, we noted that despite being given authority by
Section 29 (1) (4)25 of the National Internal Revenue Code
of 1977 to adjust these exemptions, no adjustments were
made to cover 1989. Note that Rep. Act No. 7167 is
entitled "An Act Adjusting the Basic Personal and
Additional Exemptions Allowable to Individuals for
Income Tax Purposes to the Poverty Threshold Level,
Amending for the Purpose Section 29, Paragraph (L),
Items (1) and (2) (A), of the National Internal Revenue
Code, As Amended, and For Other Purposes." Thus, we
said in Umali, that the adjustment provided by Rep. Act
No. 7167 effective 1992, should consider the poverty
threshold level in 1991, the time it was enacted. And we
observed therein that since the exemptions would
especially benefit lower and middle-income taxpayers,
the exemption should be made to cover the past year
1991. To such an extent, Rep. Act No. 7167 was a social
legislation intended to remedy the non-adjustment in
1989. And as cited in Umali, this legislative intent is also
clear in the records of the House of Representatives’
Journal.
This is not so in the case at bar. There is nothing in the
NIRC that expresses any such intent. The policy
declarations in its enactment do not indicate it was a
social legislation that adjusted personal and additional
exemptions according to the poverty threshold level nor
is there any indication that its application should retroact.
At the time petitioner filed his 1997 return and paid the
tax due thereon in April 1998, the increased amounts of
personal and additional exemptions in Section 35 were
not yet available. It has not yet accrued as of December
31, 1997, the last day of his taxable year. Petitioner’s
taxable income covers his income for the calendar year
1997. The law cannot be given retroactive effect. It is
established that tax laws are prospective in application,
unless it is expressly provided to apply retroactively.26 In
the NIRC, we note, there is no specific mention that the
increased amounts of personal and additional
exemptions under Section 35 shall be given retroactive
effect. Conformably too, personal and additional
exemptions are considered as deductions from gross
income. Deductions for income tax purposes partake of
the nature of tax exemptions, hence strictly
construed27 against the taxpayer28 and cannot be
allowed unless granted in the most explicit and
categorical language29 too plain to be mistaken.30 They
cannot be extended by mere implication or
inference.31 And, where a provision of law speaks
categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify non-
compliance. All that has to be done is to apply it in every
case that falls within its terms.32
Accordingly, the Court of Appeals and the Court of Tax
Appeals were correct in denying petitioner’s claim for
refund.1âwphi1
WHEREFORE, the petition is DENIED for lack of merit. The
Decision dated June 5, 2003 and the Resolution dated
September 11, 2003 of the Court of Appeals in CA-G.R.
S.P. No. 60475 are hereby AFFIRMED.
SO ORDERED.
January 24, 2017
G.R. No. 184450
JAIME N. SORIANO, MICHAEL VERNON M. GUERRERO,
MARY ANN L. REYES, MARAH SHARYN M. DE CASTRO and
CRIS P. TENORIO, Petitioners,
vs.
SECRETARY OF FINANCE and the COMMISSIONER OF
INTERNAL REVENUE, Respondents.
x-----------------------x
G.R. No. 184508
SENATOR MANUEL A. ROXAS, Petitioner,
vs.
MARGARITO B. TEVES, in his capacity as Secretary of the
Department of Finance and LILIAN B. HEFTI, in her
capacity as Commissioner of the Bureau of Internal
Revenue, Respondents.
x-----------------------x
G.R. No. 184538
TRADE UNION CONGRESS OF THE PHILIPPINES (TUCP),
represented by its President, DEMOCRITO T.
MENDOZA, Petitioner,
vs.
MARGARITO B. TEVES, in his capacity as Secretary of the
Department of Finance and LILIAN B. HEFTI, in her
capacity as Commissioner of the Bureau of Internal
Revenue, Respondents.
x-----------------------x
G.R. No. 185234
SENATOR FRANCIS JOSEPH G. ESCUDERO, TAX
MANAGEMENT ASSOCIATION OF THE PHILIPPINES, INC.
and ERNESTO G. EBRO, Petitioners,
vs.
MARGARITO B. TEVES, in his capacity as Secretary of the
Department of Finance and SIXTO S. ESQUIVIAS IV, in his
capacity as Commissioner of the Bureau of Internal
Revenue, Respondents.
DECISION
SERENO, CJ.:
Before us are consolidated Petitions for Certiorari,
Prohibition and Mandamus, under Rule 65 of the 1997
Revised Rules of Court. These Petitions seek to nullify
certain provisions of Revenue Regulation No. (RR) 10-
2008. The RR was issued by the Bureau of Internal
Revenue (BIR) on 24 September 2008 to implement the
provisions of Republic Act No. (R.A.) 9504. The law
granted, among others, income tax exemption for
minimum wage earners (MWEs), as well as an increase in
personal and additional exemptions for individual
taxpayers.
Petitioners assail the subject RR as an unauthorized
departure from the legislative intent of R.A. 9504. The
regulation allegedly restricts the implementation of the
MWEs income tax exemption only to the period starting
from 6 July 2008, instead of applying the exemption to
the entire year 2008. They further challenge the BIR's
adoption of the prorated application of the new set of
personal and additional exemptions for taxable year
2008. They also contest the validity of the RR's alleged
imposition of a condition for the availment by MWEs of
the exemption provided by R.A. 9504. Supposedly, in the
event they receive other benefits in excess of ₱30,000,
they can no longer avail themselves of that exemption.
Petitioners contend that the law provides for the
unconditional exemption of MWEs from income tax and,
thus, pray that the RR be nullified.
ANTECEDENT FACTS
R.A. 9504
On 19 May 2008, the Senate filed its Senate Committee
Report No. 53 on Senate Bill No. (S.B.) 2293. On 21 May
2008, former President Gloria M. Arroyo certified the
passage of the bill as urgent through a letter addressed
to then Senate President Manuel Villar. On the same day,
the bill was passed on second reading IN the Senate and,
on 27 May 2008, on third reading. The following day, 28
May 2008, the Senate sent S.B. 2293 to the House of
Representatives for the latter's concurrence.
On 04 June 2008, S.B. 2293 was adopted by the House of
Representatives as an amendment to House Bill No. (H.B.)
3971.
On 17 June 2008, R.A. 9504 entitled "An Act Amending
Sections 22, 24, 34, 35, 51, and 79 of Republic Act No.
8424, as Amended, Otherwise Known as the National
Internal Revenue Code of 1997," was approved and
signed into law by President Arroyo. The following are the
salient features of the new law:
1. It increased the basic personal exemption from
₱20,000 for a single individual, ₱25,000 for the
head of the family, and ₱32,000 for a married
individual to P50,000 for each individual.
2. It increased the additional exemption for each
dependent not exceeding four from ₱8,000 to
₱25,000.
3. It raised the Optional Standard Deduction
(OSD) for individual taxpayers from 10% of gross
income to 40% of the gross receipts or gross sales.
4. It introduced the OSD to corporate taxpayers
at no more than 40% of their gross income.
5. It granted MWEs exemption from payment of
income tax on their minimum wage, holiday pay,
overtime pay, night shift differential pay and
hazard pay. 1
Section 9 of the law provides that it shall take effect 15
days following its publication in the Official Gazette or in
at least two newspapers of general circulation.
Accordingly, R.A. 9504 was published in the Manila
Bulletin and Malaya on 21 June 2008. On 6 July 2008, the
end of the 15-day period, the law took effect.
RR 10-2008
On 24 September 2008, the BIR issued RR 10-2008, dated
08 July 2008, implementing the provisions of R.A. 9504. The
relevant portions of the said RR read as follows:
SECTION 1. Section 2.78.1 of RR 2-98, as amended, is
hereby further amended to read as follows:
Sec. 2.78.1. Withholding of Income Tax on Compensation
Income.
xxxx
The amount of 'de minimis' benefits conforming to the
ceiling herein prescribed shall not be considered in
determining the ₱30,000.00 ceiling of 'other benefits'
excluded from gross income under Section 32 (b) (7) (e)
of the Code. Provided that, the excess of the 'de
minimis' benefits over their respective ceilings prescribed
by these regulations shall be considered as part of 'other
benefits' and the employee receiving it will be subject to
tax only on the excess over the ₱30,000.00
ceiling. Provided, further, that MWEs receiving 'other
benefits' exceeding the ₱30,000.00 limit shall be taxable
on the excess benefits, as well as on his salaries, wages
and allowances, just like an employee receiving
compensation income beyond the SMW.
xxxx
(B) Exemptions from Withholding Tax on Compensation. -
The following income payments are exempted from the
requirements of withholding tax on compensation:
xxxx
(13) Compensation income of MWEs who work in the
private sector and being paid the Statutory Minimum
Wage (SMW), as fixed by Regional Tripartite Wage and
Productivity Board (RTWPB)/National Wages and
Productivity Commission (NWPC), applicable to the place
where he/she is assigned.
The aforesaid income shall likewise be exempted from
income tax.
'Statutory Minimum Wage' (SMW) shall refer to the rate
fixed by the Regional Tripartite Wage and Productivity
Board (RTWPB), as defined by the Bureau of Labor and
Employment Statistics (BLES) of the Department of Labor
and Employment (DOLE). The RTWPB of each region shall
determine the wage rates in the different regions based
on established criteria and shall be the basis of
exemption from income tax for this purpose.
Holiday pay, overtime pay, night shift differential pay and
hazard pay earned by the aforementioned MWE shall
likewise be covered by the above exemption. Provided,
however, that an employee who receives/earns
additional compensation such as commissions,
honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of ₱30,000.00, taxable
allowances and other taxable income other than the
SMW, holiday pay, overtime pay, hazard pay and night
shift differential pay shall not enjoy the privilege of being
a MWE and, therefore, his/her entire earnings are not
exempt from income tax, and consequently, from
withholding tax.
MWEs receiving other income, such as income from the
conduct of trade, business, or practice of profession,
except income subject to final tax, in addition to
compensation income are not exempted from income
tax on their entire income earned during the taxable
year. This rule, notwithstanding, the SMW, holiday pay,
overtime pay, night shift differential pay and hazard pay
shall still be exempt from withholding tax.
For purposes of these regulations, hazard pay shall mean
the amount paid by the employer to MWEs who were
actually assigned to danger or strife-torn areas, disease-
infested places, or in distressed or isolated stations and
camps, which expose them to great danger of
contagion or peril to life. Any hazard pay paid to MWEs
which does not satisfy the above criteria is deemed
subject to income tax and consequently, to withholding
tax.
xxxx
SECTION 3. Section 2. 79 of RR 2-98, as amended, is
hereby further amended to read as follows:
Sec. 2.79. Income Tax Collected at Source on
Compensation Income. --
(A) Requirement of Withholding. - Every employer must
withhold from compensation paid an amount computed
in accordance with these Regulations. Provided, that no
withholding of tax shall be required on the SMW,
including holiday pay, overtime pay, night shift
differential and hazard pay of MWEs in the private/public
sectors as defined in these Regulations. Provided, further,
that an employee who receives additional compensation
such as commissions, honoraria, fringe benefits, benefits
in excess of the allowable statutory amount of ₱30,000.00,
taxable allowances and other taxable income other than
the SMW, holiday pay, overtime pay, hazard pay and
night shift differential pay shall not enjoy the privilege of
being a MWE and, therefore, his/her entire earnings are
not exempt from income tax and, consequently, shall be
subject to withholding tax.
xxxx
For the year 2008, however, being the initial year of
implementation of R.A. 9504, there shall be a transitory
withholding tax table for the period from July 6 to
December 31, 2008 (Annex "D") determined by prorating
the annual personal and additional exemptions under
R.A. 9504 over a period of six months. Thus, for individuals,
regardless of personal status, the prorated personal
exemption is ₱25,000, and for each qualified dependent
child (QDC), ₱12,500.
xxxx
SECTION 9. Effectivity. -
These Regulations shall take effect beginning July 6, 2008.
(Emphases supplied)
The issuance and effectivity of RR 10-2008 implementing
R.A. 9504 spawned the present Petitions.1âwphi1
G.R. No. 184450
Petitioners Jaime N. Soriano et al. primarily assail Section 3
of RR 10-2008 providing for the prorated application of
the personal and additional exemptions for taxable year
2008 to begin only effective 6 July 2008 for being contrary
to Section 4 of Republic Act No. 9504.2
Petitioners argue that the prorated application of the
personal and additional exemptions under RR 10-2008 is
not "the legislative intendment in this jurisdiction." 3 They
stress that Congress has always maintained a policy of
"full taxable year treatment"4 as regards the application
of tax exemption laws. They allege further that R.A. 9504
did not provide for a prorated application of the new set
of personal and additional exemptions. 5
G.R. No. 184508
Then Senator Manuel Roxas, as principal author of R.A.
9504, also argues for a full taxable year treatment of the
income tax benefits of the new law. He relies on what he
says is clear legislative intent. In his "Explanatory Note of
Senate Bill No. 103," he stresses "the very spirit of enacting
the subject tax exemption law"6 as follows:
With the poor, every little bit counts, and by lifting their
burden of paying income tax, we give them opportunities
to put their money to daily essentials as well as
savings. Minimum wage earners can no longer afford to
be taxed and to be placed in the cumbersome income
tax process in the same manner as higher-earning
employees. It is our obligation to ease their burdens in
any way we can.7(Emphasis Supplied)
Apart from raising the issue of legislative intent, Senator
Roxas brings up the following legal points to support his
case for the full-year application of R.A. 9504's income
tax benefits. He says that the pro rata application of the
assailed RR deprives MWEs of the financial relief extended
to them by the law;8 that Umali v. Estanislao9serves as
jurisprudential basis for his position that R.A. 9504 should
be applied on a full-year basis to taxable year
2008; 10and that the social justice provisions of the 1987
Constitution, particularly Articles II and XIII, mandate a full
application of the law according to the spirit of R.A.
9504. 11
On the scope of exemption of MWEs under R.A. 9504,
Senator Roxas argues that the exemption of MWEs is
absolute, regardless of the amount of the other benefits
they receive. Thus, he posits that the Department of
Finance (DOF) and the BIR committed grave abuse of
discretion amounting to lack and/or excess of jurisdiction.
They supposedly did so when they provided in Section l of
RR 10-2008 the condition that an MWE who receives
"other benefits" exceeding the ₱30,000 limit would lose
the tax exemption. 12 He further contends that the real
intent of the law is to grant income tax exemption to the
MWE without any limitation or qualification, and that
while it would be reasonable to tax the benefits in excess
of ₱30,000, it is unreasonable and unlawful to tax both the
excess benefits and the salaries, wages and
allowances. 13
G.R. No. 184538
Petitioner Trade Union Congress of the Philippine
contends that the provisions of R.A. 9504 provide for the
application of the tax exemption for the full calendar
year 2008. It also espouses the interpretation that R.A.
9504 provides for the unqualified tax exemption of the
income of MWEs regardless of the other benefits they
receive. 14 In conclusion, it says that RR 10-2008, which is
only an implementing rule, amends the original intent of
R.A. 9504, which is the substantive law, and is thus null
and void.
G.R. No. 185234
Petitioners Senator Francis Joseph Escudero, the Tax
Management Association of the Philippines, Inc., and
Ernesto Ebro allege that R.A. 9504 unconditionally grants
MWEs exemption from income tax on their taxable
income, as well as increased personal and additional
exemptions for other individual taxpayers, for the whole
year 2008. They note that the assailed RR 10-2008 restricts
the start of the exemptions to 6 July 2008 and provides
that those MWEs who received "other benefits" in excess
of ₱30,000 are not exempt from income taxation.
Petitioners believe this RR is a "patent nullity" 15 and
therefore void.
Comment of the OSG
The Office of the Solicitor General (OSG) filed a
Consolidated Comment16 and took the position that the
application of R.A. 9504 was intended to be prospective,
and not retroactive. This was supposedly the general 1ule
under the rules of statutory construction: law will only be
applied retroactively if it clearly provides for retroactivity,
which is not provided in this instance. 17
The OSG contends that Umali v. Estanislao is not
applicable to the present case.1âwphi1 It explains that
R.A. 7167, the subject of that case, was intended to
adjust the personal exemption levels to the poverty
threshold prevailing in 1991. Hence, the Court in that case
held that R.A. 7167 had been given a retroactive effect.
The OSG believes that the grant of personal exemptions
no longer took into account the poverty threshold level
under R.A. 9504, because the amounts of personal
exemption far exceeded the poverty threshold levels. 18
The OSG further argues that the legislative intent of non-
retroactivity was effectively confirmed by the "Conforme"
of Senator Escudero, Chairperson of the Senate
Committee on Ways and Means, on the draft revenue
regulation that became RR 10-2008.
ISSUES
Assailing the validity of RR 10-2008, all four Petitions raise
common issues, which may be distilled into three major
ones:
First, whether the increased personal and additional
exemptions provided by R.A. 9504 should be applied to
the entire taxable year 2008 or prorated, considering that
R.A. 9504 took effect only on 6 July 2008.
Second, whether an MWE is exempt for the entire taxable
year 2008 or from 6 July 2008 only.
Third, whether Sections 1 and 3 of RR 10-2008 are
consistent with the law in providing that an MWE who
receives other benefits in excess of the statutory limit of
₱30,000 19 is no longer entitled to the exemption provided
by R.A. 9504.
THE COURT'S RULING
I.
Whether the increased personal and additional
exemptions provided by R.A. 9504 should be applied to
the entire taxable year 2008 or prorated, considering that
the law took effect only on 6 July 2008
The personal and additional exemptions established by
R.A. 9504 should be applied to the entire taxable year
2008.
Umali is applicable.
Umali v. Estanislao20supports this Comi's stance that R.A.
9504 should be applied on a full-year basis for the entire
taxable year 2008.21 In Umali, Congress enacted R.A. 7167
amending the 1977 National Internal Revenue Code
(NIRC). The amounts of basic personal and additional
exemptions given to individual income taxpayers were
adjusted to the poverty threshold level. R.A. 7167 came
into law on 30 January 1992. Controversy arose when the
Commission of Internal Revenue (CIR) promulgated RR 1-
92 stating that the regulation shall take effect on
compensation income earned beginning 1 January 1992.
The issue posed was whether the increased personal and
additional exemptions could be applied to
compensation income earned or received during
calendar year 1991, given that R.A. 7167 came into law
only on 30 January 1992, when taxable year 1991 had
already closed.
This Court ruled in the affirmative, considering that the
increased exemptions were already available on or
before 15 April 1992, the date for the filing of individual
income tax returns. Further, the law itself provided that
the new set of personal and additional exemptions would
be immediately available upon its effectivity. While R.A.
7167 had not yet become effective during calendar year
1991, the Court found that it was a piece of social
legislation that was in part intended to alleviate the
economic plight of the lower-income taxpayers. For that
purpose, the new law provided for adjustments "to the
poverty threshold level" prevailing at the time of the
enactment of the law. The relevant discussion is quoted
below:
[T]he Court is of the considered view that Rep. Act 7167
should cover or extend to compensation income earned
or received during calendar year 1991.
Sec. 29, par.(L), Item No. 4 of the National Internal
Revenue Code, as amended, provides:
Upon the recommendation of the Secretary of Finance,
the President shall automatically adjust not more often
than once every three years, the personal and additional
exemptions taking into account, among others, the
movement in consumer price indices, levels of minimum
wages, and bare subsistence levels.
As the personal and additional exemptions of individual
taxpayers were last adjusted in 1986, the President, upon
the recommendation of the Secretary of Finance, could
have adjusted the personal and additional exemptions in
1989 by increasing the same even without any legislation
providing for such adjustment. But the President did not.
However, House Bill 28970, which was subsequently
enacted by Congress as Rep. Act 7167, was introduced
in the House of Representatives in 1989 although its
passage was delayed and it did not become effective
law until 30 January 1992. A perusal, however, of the
sponsorship remarks of Congressman Hernando B. Perez,
Chairman of the House Committee on Ways and Means,
on House Bill 28970, provides an indication of the intent of
Congress in enacting Rep. Act 716 7. The pertinent
legislative journal contains the following:
At the outset, Mr. Perez explained that the Bill Provides for
increased personal additional exemptions to individuals in
view of the higher standard of living.
The Bill, he stated, limits the amount of income of
individuals subject to income tax to enable them to
spend for basic necessities and have more disposable
income.
xxxx
Mr. Perez added that inflation has raised the basic
necessities and that it had been three years since the last
exemption adjustment in 1986.
xxxx
Subsequently, Mr. Perez stressed the necessity of passing
the measure to mitigate the effects of the current
inflation and of the implementation of the salary
standardization law. Stating that it is imperative for the
government to take measures to ease the burden of the
individual income tax filers, Mr. Perez then cited specific
examples of how the measure can help assuage the
burden to the taxpayers.
He then reiterated that the increase in the prices of
commodities has eroded the purchasing power of the
peso despite the recent salary increases and emphasized
that the Bill will serve to compensate the adverse effects
of inflation on the taxpayers. x x x (Journal of the House of
Representatives, May 23, 1990, pp. 32-33).
It will also be observed that Rep. Act 7167 speaks of the
adjustments that it provides for, as adjustments "to the
poverty threshold level." Certainly, "the poverty threshold
level" is the poverty threshold level at the time Rep. Act
7167 was enacted by Congress, not poverty threshold
levels in futuro, at which time there may be need of
further adjustments in personal exemptions. Moreover, the
Court can not lose sight of the fact that these personal
and additional exemptions are fixed amounts to which an
individual taxpayer is entitled, as a means to cushion the
devastating effects of high prices and a depreciated
purchasing power ofthe currency. In the end, it is the
lower-income and the middle-income groups of
taxpayers (not the high-income taxpayers) who stand to
benefit most from the increase of personal and additional
exemptions provided for by Rep. Act 7167. To that extent,
the act is a social legislation intended to alleviate in part
the present economic plight of the lower income
taxpayers. It is intended to remedy the inadequacy of the
heretofore existing personal and additional exemptions
for individual taxpayers.
And then, Rep. Act 7167 says that the increased personal
exemptions that it provides for shall be available
thenceforth, that is, after Rep. Act 7167 shall have
become effective. In other words, these exemptions are
available upon the filing of personal income tax returns
which is, under the National Internal Revenue Code, done
not later than the 15th day of April after the end of a
calendar year. Thus, under Rep. Act 7167, which became
effective, as aforestated, on 30 January 1992, the
increased exemptions are literally available on or before
15 April 1992 (though not before 30 January 1992). But
these increased exemptions can be available on 15 April
1992 only in respect of compensation income earned or
received during the calendar year 1991.
The personal exemptions as increased by Rep. Act 7167
cannot be regarded as available in respect of
compensation income received during the 1990
calendar year; the tax due in respect of said income had
already accrued, and been presumably paid, by 15 April
1991 and by 15 July 1991, at which time Rep. Act 7167
had not been enacted. To make Rep. Act 7167 refer
back to income received during 1990 would require
language explicitly retroactive in purport and effect,
language that would have to authorize the payment of
refunds of taxes paid on 15 April 1991 and 15 July 1991:
such language is simply not found in Rep. Act 7167.
The personal exemptions as increased by Rep. Act 7167
cannot be regarded as available only in respect of
compensation income received during 1992, as the
implementing Revenue Regulations No. 1-92 purport to
provide. Revenue Regulations No. 1-92 would in effect
postpone the availability of the increased exemptions to
1 January-15 April 1993, and thus literally defer the
effectivity of Rep. Act 7167 to 1 January 1993. Thus, the
implementing regulations collide frontally with Section 3
of Rep. Act 7167 which states that the statute "shall take
effect upon its approval." The objective of the Secretary
of Finance and the Commissioner of Internal Revenue in
postponing through Revenue Regulations No. 1-92 the
legal effectivity of Rep. Act 7167 is, of course, entirely
understandable - to defer to 1993 the reduction of
governmental tax revenues which irresistibly follows from
the application of Rep. Act 7167. But the law-making
authority has spoken and the Court can not refuse to
apply the law-maker's words. Whether or not the
government can afford the drop in tax revenues resulting
from such increased exemptions was for Congress (not
this Court) to decide.22 (Emphases supplied)
In this case, Senator Francis Escudero's sponsorship
speech for Senate Bill No. 2293 reveals two important
points about R.A. 9504: (1) it is a piece of social
legislation; and (2) its intent is to make the proposed law
immediately applicable, that is, to taxable year 2008:
Mr. President, distinguished colleagues, Senate Bill No.
2293 seeks, among others, to exempt minimum wage
earners from the payment of income and/or withholding
tax. It is an attempt to help our people cope with the
rising costs of commodities that seem to be going up
unhampered these past few months.
Mr. President, a few days ago, the Regional Tripartite and
Wages Productivity Board granted an increase of ₱20 per
day as far as minimum wage earners are concerned. By
way of impact, Senate Bill No. 2293 would grant our
workers an additional salary or take-home pay of
approximately ₱34 per day, given the exemption that will
be granted to all minimum wage earners. It might be also
worthy of note that on the part of the public sector, the
Senate Committee on Ways and Means included, as
amongst those who will be exempted from the payment
of income tax and/or withholding tax, government
workers receiving Salary Grade V. We did not make any
distinction so as to include Steps 1 to 8 of Salary Grade V
as long as one is employed in the public sector or in
government.
In contradistinction with House Bill No. 3971 approved by
the House of Representatives pertaining to a similar
subject matter, the House of Representatives, very much
like the Senate, adopted the same levels of exemptions
which are:
From an allowable personal exemption for a single
individual of ₱20,000, to a head of family of ₱25,000, to a
married individual of ₱32,000, both the House and the
Senate versions contain a higher personal exemption of
₱50,000.
Also, by way of personal additional exemption as far as
dependents are concerned, up to four, the House, very
much like the Senate, recommended a higher ceiling of
₱25,000 for each dependent not exceeding four, thereby
increasing the maximum additional exemptions and
personal additional exemptions to as high as ₱200,000,
depending on one's status in life.
The House also, very much like the Senate,
recommended by way of trying to address the revenue
loss on the part of the government, an optional standard
deduction (OSD) on gross sales, and/or gross receipts as
far as individual taxpayers are concerned. However, the
House, unlike the Senate, recommended a Simplified Net
Income Tax Scheme (SNITS) in order to address the
remaining balance of the revenue loss.
By way of contrast, the Senate Committee on Ways and
Means recommended, in lieu of SNITS, an optional
standard deduction of 40% for corporations as far as their
gross income is concerned.
Mr. President, if we total the revenue loss as well as the
gain
brought about by the 40% OSD on individuals on gross
sales and receipts and 40% on gross income as far as
corporations are concerned, with a conservative
availment rate as computed by the Department of
Finance, the government would still enjoy a gain of ₱.78
billion or ₱780 million if we use the high side of the
computation however improbable it may be.
For the record, we would like to state that if the availment
rate is computed at 15% for individuals and 10% for
corporations, the potential high side of a revenue gain
would amount to approximately ₱18.08 billion.
Mr. President, we have received many suggestions
increasing the rate of personal exemptions and personal
additional exemptions. We have likewise received various
suggestions pertaining to the expansion of the coverage
of the tax exemption granted to minimum wage earners
to encompass as well other income brackets.
However, the only suggestion other than or outside the
provisions contained in House Bill No. 3971 that the
Senate Committee on Ways and Means adopted, was
an expansion of the exemption to cover overtime,
holiday, nightshift differential, and hazard pay also being
enjoyed by minimum wage earners. It entailed an
additional revenue loss of ₱l billion approximately on the
part of the government. However, Mr. President, that was
taken into account when I stated earlier that there will still
be a revenue gain on the conservative side on the part
of government of ₱780 million.
Mr. President, [my distinguished colleagues in the
Senate, we wish to provide a higher exemption for our
countrymen because of the incessant and constant
increase in the price of goods.Nonetheless, not only Our
Committee, but also the Senate and Congress, must act
responsibly in recognizing that much as we would like to
give all forms of help that we can and must provide to
our people, we also need to recognize the need of the
government to defray its expenses in providing services to
the public. This is the most that we can give at this time
because the government operates on a tight budget
and is short on funds when it comes to the discharge of its
main expenses.]23
Mr. President, time will perhaps come and we can [T]hese statutes dealing with the manner of collecting the
improve on this version, but at present, this is the best, I income tax and with the deductions to be made in favor
believe, that we can give our people. But by way of of the taxpayer have reference to the time when the
comparison, it is still ₱10 higher than what the wage return is filed and the tax assessed. If Act No. 2926 took, as
boards were able to give minimum wage earners. Given it did take, effect on January 1, 1921, its provisions must
that, we were able to increase their take-home pay by be applied to income tax returns filed, and assessments
the amount equivalent to the tax exemption we have made from that date. This is the reason why Act No. 2833,
granted. and Act No. 2926, in their respective first sections, refer to
income received during the preceding civil year. (Italics
We urge our colleagues, Mr. President, to pass this bill in in the original)
earnest so that we can immediately grant relief to our
people. There, the exemption was reduced, not increased, and
the Court effectively ruled that income tax due from the
Thank you, Mr. President. (Emphases Supplied)24 individual taxpayer is properly determined upon the filing
of the return. This is done after the end of the taxable
year, when all the incomes for the immediately
Clearly, Senator Escudero expressed a sense of urgency
preceding taxable year and the corresponding personal
for passing what would subsequently become R.A. 9504.
exemptions and/or deductions therefor have been
He was candid enough to admit that the bill needed
considered. Therefore, the taxpayer was made to pay a
improvement, but because time was of the essence, he
higher tax for his income earned during 1920, even if the
urged the Senate to pass the bill immediately. The idea
reduced exemption took effect on 1 January 1921.
was immediate tax relief to the individual taxpayers,
particularly low-compensation earners, and an increase
in their take-home pay.25 In the present case, the increased exemptions were
already available much earlier than the required time of
filing of the return on 15 April 2009. R.A. 9504 came into
Senator Miriam Defensor-Santiago also remarked during
law on 6 July 2008, more than nine months before the
the deliberations that "the increase in personal exemption
deadline for the filing of the income tax return for taxable
from ₱20,000 to ₱50,000 is timely and appropriate given
year 2008. Hence, individual taxpayers were entitled to
the increased cost of living. Also, the increase in the
claim the increased amounts for the entire year 2008. This
additional exemption for dependent children is necessary
was true despite the fact that incomes were already
and timely."26
earned or received prior to the law's effectivity on 6 July
2008.
Finally, we consider the President's certification of the
necessity of the immediate enactment of Senate Bill No.
Even more compelling is the fact that R.A. 9504 became
2293. That certification became the basis for the Senate
effective during the taxable year in question. In Umali, the
to dispense with the three-day rule27 for passing a bill. It
Court ruled that the application of the law was
evinced the intent of the President to afford wage
prospective, even if the amending law took effect after
earners immediate tax relief from the impact of a
the close of the taxable year in question, but before the
worldwide increase in the prices of commodities.
deadline for the filing of the return and payment of the
Specifically, the certification stated that the purpose was
taxes due for that year. Here, not only did R.A. 9504 take
to "address the urgent need to cushion the adverse
effect before the deadline for the filing of the return and
impact of the global escalation of commodity prices
payment for the taxes due for taxable year 2008, it took
upon the most vulnerable within the low income group
effect way before the close of that taxable year.
by providing expanded income tax relief."28
Therefore, the operation of the new set of personal and
additional exemption in the present case was all the
In sum, R.A. 9504, like R.A. 7167 in Umali, was a piece of more prospective.
social legislation clearly intended to afford immediate tax
relief to individual taxpayers, particularly low-income
Additionally, as will be discussed later, the rule of full
compensation earners. Indeed, if R.A. 9504 was to take
taxable year treatment for the availment of personal and
effect beginning taxable year 2009 or half of the year
additional exemptions was established, not by the
2008 only, then the intent of Congress to address the
amendments introduced by R.A. 9504, but by the
increase in the cost of living in 2008 would have been
provisions of the 1997 Tax Code itself. The new law merely
negated.
introduced a change in the amounts of the basic and
additional personal exemptions. Hence, the fact that R.A.
Therefore, following Umali, the test is whether the new set 9504 took effect only on 6 July 2008 is irrelevant.
of personal and additional exemptions was available at
the time of the filing of the income tax return. In other
The present case issubstantially
words, while the status of the individual taxpayers is
identical with Umali and not with
determined at the close of the taxable year, 29 their
Pansacola.
personal and additional exemptions - and consequently
the computation of their taxable income - are reckoned
when the tax becomes due, and not while the income is Respondents argue that Umali is not applicable to the
being earned or received. present case. They contend that the increase in personal
and additional exemptions were necessary in that case
to conform to the 1991 poverty threshold level; but that in
The NIRC is clear on these matters. The taxable income of
the present case, the amounts under R.A. 9504 far
an individual taxpayer shall be computed on the basis of
exceed the poverty threshold level. To support their case,
the calendar year.30 The taxpayer is required to file an
respondents cite figures allegedly coming from the
income tax return on the 15th of April of each year
National Statistical Coordination Board. According to
covering income of the preceding taxable year. 31 The
those figures, in 2007, or one year before the effectivity of
tax due thereon shall be paid at the time the return is
R.A. 9504, the poverty threshold per capita was ₱14,866
filed. 32
or ₱89,196 for a family of six. 34

It stands to reason that the new set of personal and

We are not persuaded.
additional exemptions, adjusted as a form of social
legislation to address the prevailing poverty threshold,
should be given effect at the most opportune time as the The variance raised by respondents borders on the
Court ruled in Umali. superficial. The message of Umali is that there must be an
event recognized by Congress that occasions the
immediate application of the increased amounts of
The test provided by Umali is consistent with Ingalls v.
personal and additional exemptions. In Umali, that event
Trinidad, 33 in which the Court dealt with the matter of a
was the failure to adjust the personal and additional
married person's reduced exemption. As early as 1923,
exemptions to the prevailing poverty threshold level. In
the Court already provided the reference point for
this case, the legislators specified the increase in the price
determining the taxable income:
of commodities as the basis for the immediate availability
of the new amounts of personal and additional
exemptions.
We find the facts of this case to be substantially identical
to those of Umali.
First, both cases involve an amendment to the prevailing
tax code. The present petitions call for the interpretation
of the effective date of the increase in personal and
additional exemptions. Otherwise stated, the present
case deals with an amendment (R.A. 9504) to the
prevailing tax code (R.A. 8424 or the 1997 Tax Code). Like
the present case, Umali involved an amendment to the
then prevailing tax code - it interpreted the effective
date of R.A. 7167, an amendment to the 1977 NIRC,
which also increased personal and additional
exemptions.
Second, the amending law in both cases reflects an
intent to make the new set of personal and additional
exemptions immediately available after the effectivity of
the law. As already pointed out, in Umali, R.A. 7167
involved social legislation intended to adjust personal
and additional exemptions. The adjustment was made in
keeping with the poverty threshold level prevailing at the
time.
Third, both cases involve social legislation intended to
cure a social evil - R.A. 7167 was meant to adjust personal
and additional exemptions in relation to the poverty
threshold level, while R.A. 9504 was geared towards
addressing the impact of the global increase in the price
of goods.
Fourth, in both cases, it was clear that the intent of the
legislature was to hasten the enactment of the law to
make its beneficial relief immediately available.
Pansacola is not applicable.
In lieu of Umali, the OSG relies on our ruling in Pansacola
v.Commissioner of Internal Revenue. 35 In that case, the
1997 Tax Code (R.A. 8424) took effect on 1 January 1998,
and the petitioner therein pleaded for the application of
the new set of personal and additional exemptions
provided thereunder to taxable year 1997. R.A. 8424
explicitly provided for its effectivity on 1 January 1998, but
it did not provide for any retroactive application.
We ruled against the application of the new set of
personal and additional exemptions to the previous
taxable year 1997, in which the filing and payment of the
income tax was due on 15 April 1998, even if the NIRC
had already taken effect on 1 January 1998. This court
explained that the NIRC could not be given retroactive
application, given the specific mandate of the law that it
shall take effect on 1 January 1998; and given the
absence of any reference to the application of personal
and additional exemptions to income earned prior to
1January 1998. We further stated that what the law
considers for the purpose of determining the income tax
due is the status at the close of the taxable year, as
opposed to the time of filing of the return and payment
of the corresponding tax.
The facts of this case are not identical with those
of Pansacola.
First, Pansacola interpreted the effectivity of
an entirely new tax code - R.A. 8424, the Tax Reform Act
of 1997. The present case, like Umali, involves a mere
amendment of some specific provisions of the prevailing
tax code: R.A. 7167 amending then P.D. 1158 (the 1977
NIRC) in Umali and R.A. 9504 amending R.A. 8424 herein.
Second, in Pansacola, the new tax code specifically
provided for an effective date - the beginning of the
following year - that was to apply to all its provisions,
including new tax rates, new taxes, new requirements, as
well as new exemptions. The tax code did not make any
exception to the effectivity of the subject exemptions,
even if transitory provisions36 specifically provided for
different effectivity dates for certain provisions.
Hence, the Court did not find any legislative intent to
make the new rates of personal and additional
exemptions available to the income earned in the year
previous to R.A. 8424's effectivity. In the present case, as
previously discussed, there was a clear intent on the part
of Congress to make the new amounts of personal and
additional exemptions immediately available for the
entire taxable year 2008. R.A. 9504 does not even need a
provision providing for retroactive application because,
as mentioned above, it is actually prospective - the new
law took effect during the taxable year in question.
Third, in Pansacola, the retroactive application of the
new rates of personal and additional exemptions would
result in an absurdity - new tax rates under the new law
would not apply, but a new set of personal and
additional exemptions could be availed of. This situation
does not obtain in this case, however, precisely because
the new law does not involve an entirely new tax code.
The new law is merely an amendment to the rates of
personal and additional exemptions.
Nonetheless, R.A. 9504 can still be made applicable to
taxable year 2008, even if we apply the Pansacola test.
We stress that Pansacola considers the close of the
taxable year as the reckoning date for the effectivity of
the new exemptions. In that case, the Court refused the
application of the new set of personal exemptions, since
they were not yet available at the close of the taxable
year. In this case, however, at the close of the taxable
year, the new set of exemptions was already available. In
fact, it was already available during the taxable year - as
early as 6 July 2008 - when the new law took effect.
There may appear to be some dissonance between the
Court's declarations in Umali and those
in Pansacola, which held:
Clearly from the abovequoted provisions, what the law
should consider for the purpose of determining the tax
due from an individual taxpayer is his status and qualified
dependents at the close of the taxable year and not at
the time the return is filed and the tax due thereon is
paid. Now comes Section 35(C) of the NIRC which
provides,
xxxx
Emphasis must be made that Section 35(C) of the NIRC
allows a taxpayer to still claim the corresponding full
amount of exemption for a taxable year, e.g. if he
marries; have additional dependents; he, his spouse, or
any of his dependents die; and if any of his dependents
marry, turn 21 years old; or become gainfully employed. It
is as if the changes in his or his dependents status took
place at the close of the taxable year.
Consequently, his correct taxable income and his
corresponding allowable deductions e.g. personal and
additional deductions, if any, had already been
determined as of the end of the calendar year.
x x x. Since the NIRC took effect on January 1, 1998, the
increased amounts of personal and additional
exemptions under Section 35, can only be allowed as
deductions from the individual taxpayers gross or net
income, as the case maybe, for the taxable year 1998 to
be filed in 1999. The NIRC made no reference that the
personal and additional exemptions shall apply on
income earned before January 1, 1998.37
It must be remembered, however, that the Court therein
emphasized that Umali was interpreting a social
legislation:
In Umali, we noted that despite being given authority by
Section 29(1)(4) of the National Internal Revenue Code of
1977 to adjust these exemptions, no adjustments were
made to cover 1989. Note that Rep. Act No. 7167 is
entitled "An Act Adjusting the Basic Personal and
Additional Exemptions Allowable to Individuals for
Income Tax Purposes to the Poverty Threshold Level,
Amending for the Purpose Section 29, Paragraph (L),
Items (1) and (2) (A), of the National Internal Revenue
Code, As Amended, and For Other Purposes." Thus, we
said in Umali, that the adjustment provided by Rep. Act
No. 7167 effective 1992, should consider the poverty
threshold level in 1991, the time it was enacted. And we
observed therein that since the exemptions would
especially benefit lower and middle-income taxpayers,
the exemption should be made to cover the past year
1991. To such an extent, Rep. Act No. 7167 was a social
legislation intended to remedy the non-adjustment in
1989. And as cited in Umali, this legislative intent is also
clear in the records of the House of Representatives'
Journal.
This is not so in the case at bar. There is nothing in the
NIRC that expresses any such intent. The policy
declarations in its enactment do not indicate it was a
social legislation that adjusted personal and additional
exemptions according to the poverty threshold level nor
is there any indication that its application should
retroact. x x x.38 (Emphasis Supplied)
Therefore, the seemingly inconsistent pronouncements
in Umali and Pansacola are more apparent than real. The
circumstances of the cases and the laws interpreted, as
well as the legislative intents thereof, were different.
The policy in this jurisdiction is full
taxable year treatment.
We have perused R.A. 9504, and we see nothing that
expressly provides or even suggests a prorated
application of the exemptions for taxable year 2008. On
the other hand, the policy of full taxable year treatment,
especially of the personal and additional exemptions, is
clear under Section 35, particularly paragraph C of R.A.
8424 or the 1997 Tax Code:
SEC. 35. Allowance of Personal Exemption for Individual
Taxpayer. -
(A) In General. - For purposes of determining the tax
provided in Section 24(A) of this Title, there shall be
allowed a basic personal exemption as follows:
xxxx
(B) Additional Exemption for Dependents.-There shall be
allowed an additional exemption of... for each
dependent not exceeding four (4).
x x xx
(C) Change of Status. - If the taxpayer marries or should
have additional dependent(s) as defined above during
the taxable year, the taxpayer may claim the
corresponding additional exemption, as the case may
be, in full for such year.
If the taxpayer dies during the taxable year, his estate
may still claim the personal and additional exemptions for
himself and his dependent(s) as if he died at the close of
such year.
If the spouse or any of the dependents dies or if any of
such
dependents marries, becomes twenty-one (21) years old
or becomes gainfully employed during the taxable year,
the taxpayer may still claim the same exemptions as if
the spouse or any of the dependents died, or as if such
dependents married, became twenty-one (21) years old
or became gainfully employed at the close of such year.
(Emphases supplied)
Note that paragraph C does not allow the prorating of
the personal and additional exemptions provided in
paragraphs A and B, even in case a status-changing
event occurs during the taxable year. Rather, it allows the
fullest benefit to the individual taxpayer. This manner of
reckoning the taxpayer's status for purposes of the
personal and additional exemptions clearly demonstrates
the legislative intention; that is, for the state to give the
taxpayer the maximum exemptions that can be availed,
notwithstanding the fact that the latter's actual status
would qualify only for a lower exemption if prorating were
employed.
We therefore see no reason why we should make any
distinction between the income earned prior to the
effectivity of the amendment (from 1 January 2008 to 5
July 2008) and that earned thereafter (from 6 July 2008 to
31 December 2008) as none is indicated in the law. The
principle that the courts should not distinguish when the
law itself does not distinguish squarely app1ies to this
case. 39
We note that the prorating of personal and additional
exemptions was employed in the 1939 Tax Code. Section
23(d) of that law states:
Change of status. - - If the status of the taxpayer insofar
as it affects the personal and additional exemptions for
himself or his dependents, changes during the taxable
year, the amount of the personal and additional
exemptions shall be apportioned, under rules and
regulations prescribed by the Secretary of Finance, in
accordance with the number of months before and after
such change. For the purpose of such apportionment a
fractional part of a month shall be disregarded unless it
amounts to more than half a month, in which case it shall
be considered as a month.40 (Emphasis supplied)
On 22 September 1950, R.A. 590 amended Section 23(d)
of the 1939 Tax Code by restricting the operation of the
prorating of personal exemptions. As amended, Section
23(d) reads:
(d) Change of status. - If the status of the taxpayer insofar
as it affects the personal and additional exemption for
himself or his dependents, changes during the taxable
year by reason of his death, the amount of the personal
and additional exemptions shall be apportioned, under
rules and regulations prescribed by the Secretary of
Finance, in accordance with the number of months
before and after such change. For the purpose of such
apportionment a fractional part of a month shall be
disregarded unless it amounts to more than half a month,
in which case it shall be considered as a
month.41(Emphasis supplied)
Nevertheless, in 1969, R. A. 6110 ended the operation of
the prorating scheme in our jurisdiction when it amended
Section 23(d) of the 1939 Tax Code and adopted a full
taxable year treatment of the personal and additional
exemptions. Section 23(d), as amended, reads:
(d) Change of status. -
If the taxpayer married or should have additional
dependents as defined in subsection (c) above during
the taxable year the taxpayer may claim the
corresponding personal exemptions in full for such year.
If the taxpayer should die during the taxable year, his
estate may still claim the personal and additional
deductions for himself and his dependents as if he died
at the close of such year.
If the spouse or any of the dependents should die during
the year, the taxpayer may still claim the same
deductions as if they died at the close of such year.
P.D. 69 followed in 1972, and it retained the full taxable
year scheme. Section 23(d) thereof reads as follows:
(d) Change of status. - If the taxpayer marries or should
have additional dependents as defined in subsection (c)
above during the taxable year the taxpayer may claim
the corresponding personal exemptions in full for such
year.
If the taxpayer should die during the taxable year, his
estate may still claim the personal and additional
deductions for himself and his dependents as if he died
at the close of such year.
If the spouse or any of the dependents should die or
become twenty-one years old during the taxable year,
the taxpayer may still claim the same exemptions as if
they died, or as if such dependents became twenty-one
years old at the close of such year.
The 1977 Tax Code continued the policy of full taxable
year treatment. Section 23(d) thereof states:
(d) Change of status.- If the taxpayer married or should
have additional dependents as defined in subsection (c)
above during the taxable year, the taxpayer may claim
the corresponding personal exemption in full for such
year.
If the taxpayer should die during the taxable year, his
estate may still claim the personal and additional
exemptions for himself and his dependents as if he died
at the close of such year.
If the spouse or any of the dependents should die or
become
twenty-one years old during the taxable year, the
taxpayer may still claim the same exemptions as if they
died, or as if such dependents became twenty-one years
old at the close of such year.
While Section 23 of the 1977 Tax Code underwent
changes, the provision on full taxable year treatment in
case of the taxpayer's change of status was left
untouched.42 Executive Order No. 37, issued on 31 July
1986, retained the change of status provision verbatim.
The provision appeared under Section 30(1)(3) of the
NIRC, as amended:
(3) Change of status.- If the taxpayer married or should
have additional dependents as defined above during
the taxable year, the taxpayer may claim the
corresponding personal and additional exemptions, as
the case may be, in full for such year.
If the taxpayer should die during the taxable year, his
estate may still claim the personal and additional
exemptions for himself and his dependents as if he died
at the close of such year.
If the spouse or any of the dependents should die or if
any of such
dependents becomes twenty-one years old during the
taxable year, the taxpayer may still claim the same
exemptions as if they died, or if such dependents
become twenty-one years old at the close of such year.
Therefore, the legislative policy of full taxable year
treatment of the personal and additional exemptions has
been in our jurisdiction continuously since 1969. The
prorating approach has long since been abandoned.
Had Congress intended to revert to that scheme, then it
should have so stated in clear and unmistakeable terms.
There is nothing, however, in R.A. 9504 that provides for
the reinstatement of the prorating scheme. On the
contrary, the change-of-status provision utilizing the full-
year scheme in the 1997 Tax Code was left untouched by
R.A. 9504.
We now arrive at this important point: the policy of full
taxable year treatment is established, not by the
amendments introduced by R.A. 9504, but by the
provisions of the 1997 Tax Code, which adopted the
policy from as early as 1969.
There is, of course, nothing to prevent Congress from
again adopting a policy that prorates the effectivity of
basic personal and additional exemptions. This policy,
however, must be explicitly provided for by law - to
amend the prevailing law, which provides for full-year
treatment. As already pointed out, R.A. 9504 is totally
silent on the matter. This silence cannot be presumed by
the BIR as providing for a half-year application of the new
exemption levels. Such presumption is unjust, as incomes
do not remain the same from month to month, especially
for the MWEs.
Therefore, there is no legal basis for the BIR to reintroduce
the prorating of the new personal and additional
exemptions. In so doing, respondents overstepped the
bounds of their rule-making power. It is an established rule
that administrative regulations are valid only when these
are consistent with the law. 43 Respondents cannot
amend, by mere regulation, the laws they administer.44 To
do so would violate the principle of non-delegability of
legislative powers.45
The prorated application of the new set of personal and
additional exemptions for the year 2008, which was
introduced by respondents, cannot even be justified
under the exception to the canon of non-delegability;
that is, when Congress makes a delegation to the
executive branch.46 The delegation would fail the two
accepted tests for a valid delegation of legislative
power; the completeness test and the sufficient standard
test.47 The first test requires the law to be complete in all its
terms and conditions, such that the only thing the
delegate will have to do is to enforce it.48 The sufficient
standard test requires adequate guidelines or limitations
in the law that map out the boundaries of the delegate's
authority and canalize the delegation.49
In this case, respondents went beyond enforcement of
the law, given the absence of a provision in R.A. 9504
mandating the prorated application of the new amounts
of personal and additional exemptions for 2008. Further,
even assuming that the law intended a prorated
application, there are no parameters set forth in R.A. 9504
that would delimit the legislative power surrendered by
Congress to the delegate. In contrast, Section 23(d) of
the 1939 Tax Code authorized not only the prorating of
the exemptions in case of change of status of the
taxpayer, but also authorized the Secretary of Finance to
prescribe the corresponding rules and regulations.
II.
Whether an MWE is exempt for the entire taxable
year 2008 or from 6 July 2008 only
The MWE is exempt for the entire taxable year 2008.
As in the case of the adjusted personal and additional
exemptions, the MWE exemption should apply to the
entire taxable year 2008, and not only from 6 July 2008
onwards. We see no reason why Umali cannot be made
applicable to the MWE exemption, which is undoubtedly
a piece of social legislation. It was intended to alleviate
the plight of the working class, especially the low-income
earners. In concrete terms, the exemption translates to a
₱34 per day benefit, as pointed out by Senator Escudero
in his sponsorship speech.50
As it stands, the calendar year 2008 remained as one
taxable year for an individual taxpayer. Therefore, RR 10-
2008 cannot declare the income earned by a minimum
wage earner from 1 January 2008 to 5 July 2008 to be
taxable and those earned by him for the rest of that year
to be tax-exempt. To do so would be to contradict the
NIRC and jurisprudence, as taxable income would then
cease to be determined on a yearly basis.
Respondents point to the letter of former Commissioner of
Internal Revenue Lilia B. Hefti dated 5 July 2008 and
petitioner Sen. Escudero's signature on
the Conforme portion thereof. This letter and the
conforme supposedly establish the legislative intent not
to make the benefits of R.A. 9504 effective as of 1
January 2008.
We are not convinced. The conforme is irrelevant in the
determination of legislative intent.
We quote below the relevant portion of former
Commissioner Hefti's letter:
Attached herewith are salient features of the proposed
regulations to implement RA 9504 x x x. We have
tabulated critical issues raised during the public hearing
and comments received from the public which we need
immediate written resolution based on the inten[t]ion of
the law more particularly the effectivity clause. Due to
the expediency and clamor of the public for its
immediate implementation, may we request your
confirmation on the proposed recommendation within
five (5) days from receipt hereof. Otherwise, we shall
construe your affirmation. 51
We observe that a Matrix of Salient Features of Proposed
Revenue Regulations per R.A. 9504 was attached to the
letter.52 The Matrix had a column entitled "Remarks"
opposite the Recommended Resolution. In that column,
noted was a suggestion coming from petitioner TMAP:
TMAP suggested that it should be retroactive considering
that it was [for] the benefit of the majority and to
alleviate the plight of workers. Exemption should be
applied for the whole taxable year as provided in the
NIRC. x x x Umali v. Estanislao [ruled] that the increase[d]
exemption in 1992 [was applicable] [to] 1991.
Majority issues raised during the public hearing last July 1,
2008 and emails received suggested [a] retroactive
implementation. 53(Italics in the original)
The above remarks belie the claim that the conforme is
evidence of the legislative intent to make the benefits
available only from 6 July 2008 onwards. There would
have been no need to make the remarks if the BIR had
merely wanted to confirm was the availability of the law's
benefits to income earned starting 6 July 2008. Rather,
the implication is that the BIR was requesting the
conformity of petitioner Senator Escudero to the
proposed implementing rules, subject to the remarks
contained in the Matrix. Certainly, it cannot be said that
Senator Escudero's conforme is evidence of legislative
intent to the effect that the benefits of the law would not
apply to income earned from 1 January 2008 to 5 July
2008.
Senator Escudero himself states in G.R. No. 185234:
In his bid to ensure that the BIR would observe the
effectivity dates of the grant of tax exemptions and
increased basic personal and additional exemptions
under Republic Act No. 9504, Petitioner Escudero, as Co-
Chairperson of the Congressional Oversight Committee
on Comprehensive Tax Reform Program, and his
counterpart in the House of Representatives, Hon.
Exequiel B. Javier, conveyed through a letter, dated 16
September 2008, to Respondent Teves the legislative
intent that "Republic Act (RA) No. 9504 must be made
applicable to the entire taxable year 2008" considering
that it was "a social legislation intended to somehow
alleviate the plight of minimum wage earners or low
income taxpayers". They also jointly expressed their
"fervent hope that the corresponding Revenue
Regulations that will be issued reflect the true legislative
intent and rightful statutory interpretation of R.A. No.
9504." 54
Senator Escudero repeats in his Memorandum:
On 16 September 2008, the Chairpersons (one of them
being herein Petitioner Sen. Escudero) of the
Congressional Oversight Committee on Comprehensive
Tax Reform Program of both House of Congress wrote
Respondent DOF Sec. Margarito Teves, and requested
that the revenue regulations (then yet still to be
issued)55 to implement Republic Act No. 9504 reflect the
true intent and rightful statutory interpretation thereof,
specifically that the grant of tax exemption and
increased basic personal and additional exemptions be
made available for the entire taxable year 2008. Yet, the
DOF promulgated Rev. Reg. No. 10-2008 in contravention
of such legislative intent.x x x.56
We have gone through the records and we do not see
anything that would to suggest that respondents deny
the senator's assertion.
Clearly, Senator Escudero's assertion is that the legislative
intent is to make the MWE' s tax exemption and the
increased basic personal and additional exemptions
available for the entire year 2008. In the face of his
assertions, respondents' claim that his conforme to
Commissioner Hefti's letter was evidence of legislative
intent becomes baseless and specious. The remarks
described above and the subsequent letter sent to DOF
Secretary Teves, by no less than the Chairpersons of the
Bi-camera! Congressional Oversight Committee on
Comprehensive Tax Reform Program, should have settled
for respondents the matter of what the legislature
intended for R.A. 9504's exemptions.
Accordingly, we agree with petitioners that RR 10-2008,
insofar as it allows the availment of the MWE's tax
exemption and the increased personal and additional
exemptions beginning only on 6 July 2008 is in
contravention of the law it purports to implement.
A clarification is proper at this point. Our ruling that the
MWE exemption is available for the entire taxable year
2008 is premised on the fact of one's status as an MWE;
that is, whether the employee during the entire year of
2008 was an MWE as defined by R.A. 9504. When
the wages received exceed the minimum wage anytime
during the taxable year, the employee necessarily loses
the MWE qualification. Therefore, wages become taxable
as the employee ceased to be an MWE. But the
exemption of the employee from tax on the income
previously earned as an MWE remains.
This rule reflects the understanding of the Senate as
gleaned from the exchange between Senator Miriam
Defensor-Santiago and Senator Escudero:
Asked by Senator Defensor-Santiago on how a person
would be taxed if, during the year, he is promoted from
Salary Grade 5 to Salary Grade 6 in July and ceases to be
a minimum wage employee, Senator Escudero said that
the tax computation would be based starting on the new
salary in July. 57
As the exemption is based on the employee's status as an
MWE, the operative phrase is "when the employee
ceases to be an MWE. Even beyond 2008, it is therefore
possible for one employee to be exempt early in the year
for being an MWE for that period, and subsequently
become taxable in the middle of the same year with
respect to the compensation income, as when the pay is
increased higher than the minimum wage. The
improvement of one's lot, however, cannot justly operate
to make the employee liable for tax on the income
earned as an MWE.
Additionally, on the question of whether one who ceases
to be an MWE may still be entitled to the personal and
additional exemptions, the answer must necessarily be
yes. The MWE exemption is separate and distinct from the
personal and additional exemptions. One's status as an
MWE does not preclude enjoyment of the personal and
additional exemptions. Thus, when one is an MWE during
a part of the year and later earns higher than the
minimum wage and becomes a non-MWE, only earnings
for that period when one is a non-MWE is subject to tax. It
also necessarily follows that such an employee is entitled
to the personal and additional exemptions that any
individual taxpayer with taxable gross income is entitled.
A different interpretation will actually render the MWE
exemption a totally oppressive legislation. It would be a
total absurdity to disqualify an MWE from enjoying as
much as ₱150,00058 in personal and additional
exemptions just because sometime in the year, he or she
ceases to be an MWE by earning a little more in wages.
Laws cannot be interpreted with such absurd and unjust
outcome. It is axiomatic that the legislature is assumed to
intend right and equity in the laws it passes.59
Critical, therefore, is how an employee ceases to
become an MWE and thus ceases to be entitled to an
MWE's exemption.
III.
Whether Sections 1 and 3 of RR 10-2008 are consistent
with the law in
declaring that an MWE who receives other benefits in
excess of the
statutory limit of ₱30,000 is no longer entitled to the
exemption provided
by R.A. 9504, is consistent with the law.
Sections 1 and 3 of RR 10-2008 add a requirement not
found in the law by effectively declaring that an MWE
who receives other benefits in excess of the statutory limit
of ₱30,000 is no longer entitled to the exemption provided
by R.A. 9504.
The BIR added a requirement not
found in the law.
The assailed Sections 1 and 3 of RR 10-2008 are
reproduced hereunder for easier reference.
SECTION 1. Section 2.78.1 of RR 2-98, as amended, is
hereby further amended to read as follows:
Sec. 2.78.1. Withholding of Income Tax on Compensation
Income. -
(A) Compensation Income Defined. – x x x
xxxx
(3) Facilities and privileges of relatively small value. -
Ordinarily, facilities, and privileges (such as entertainment,
medical services, or so-called "courtesy" discounts on
purchases), otherwise known as "de minimis benefits,"
furnished or offered by an employer to his employees, are
not considered as compensation subject to income tax
and consequently to withholding tax, if such facilities or
privileges are of relatively small value and are offered or
furnished by the employer merely as means of promoting
the health, goodwill, contentment, or efficiency of his
employees.
The following shall be considered as "de minimis" benefits
not subject to income tax, hence, not subject to
withholding tax on compensation income of both
managerial and rank and file employees:
(a) Monetized unused vacation leave credits of
employees not exceeding ten (10) days during the year
and the monetized value of leave credits paid to
government officials and employees;
(b) Medical cash allowance to dependents of
employees not exceeding ₱750.00 per employee per
semester or ₱125 per month;
(c) Rice subsidy of ₱l,500.00 or one (1) sack of 50-kg. rice
per month amounting to not more than ₱l,500.00;
(d) Uniforms and clothing allowance not exceeding
₱4,000.00 per annum;
(e) Actual yearly medical benefits not exceeding
₱10,000.00 per annum;
(f) Laundry allowance not exceeding ₱300.00 per month;
(g) Employees achievement awards, e.g., for length of
service or safety achievement, which must be in the form
of a tangible personal property other than cash or gift
certificate, with an annual monetary value not
exceeding ₱10,000.00 received by the employee under
an established written plan which does not discriminate in
favor of highly paid employees;
(h) Gifts given during Christmas and major anniversary
celebrations not exceeding ₱5,000.00per employee per
annum;
(i) Flowers, fruits, books, or similar items given to
employees under special circumstances, e.g., on
account of illness, marriage, birth of a baby, etc.; and
(j) Daily meal allowance for overtime work not exceeding
twenty-five percent (25%) of the basic minimum wage.60
The amount of 'de minimis' benefits conforming to the
ceiling herein prescribed shall not be considered in
determining the ₱30,000.00 ceiling of 'other benefits'
excluded from gross income under Section 32(b)(7)(e) of
the Code. Provided that, the excess of the 'de
minimis' benefits over their respective ceilings prescribed
by these regulations shall be considered as part of 'other
benefits' and the employee receiving it will be subject to
tax only on the excess over the ₱30,000.00
ceiling. Provided, further, that MWEs receiving 'other
benefits' exceeding the P30,000.00 limit shall be taxable
on the excess benefits, as well as on his salaries, wages
and allowances, just like an employee receiving
compensation income beyond the SMW.
Any amount given by the employer as benefits to its
employees, whether classified as 'de minimis' benefits or
fringe benefits, shall constitute [a] deductible expense
upon such employer.
Where compensation is paid in property other than
money, the employer shall make necessary
arrangements to ensure that the amount of the tax
required to be withheld is available for payment to the
Bureau of Internal Revenue.
xxxx
(B) Exemptions from Withholding Tax on Compensation. -
The following income payments are exempted from the
requirements of withholding tax on compensation:
xxxx
(13) Compensation income of MWEs who work
in the private sector and being paid the Statutory
Minimum Wage (SMW), as fixed by Regional Tripartite
Wage and Productivity Board (RTWPB)/National Wages
and Productivity Commission (NWPC), applicable to the
place where he/she is assigned.
The aforesaid income shall likewise be exempted from
income tax.
"Statutory Minimum Wage" (SMW) shall refer to the rate
fixed by the Regional Tripartite Wage and Productivity
Board (RTWPB), as defined by the Bureau of Labor and
Employment Statistics (BLES) of the Department of Labor
and Employment (DOLE). The RTWPB of each region shall
determine the wage rates in the different regions based
on established criteria and shall be the basis of
exemption from income tax for this purpose.
Holiday pay, overtime pay, night shift differential pay and
hazard pay earned by the aforementioned MWE shall
likewise be covered by the above exemption. Provided,
however, that an employee who receives/earns
additional compensation such as commissions,
honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of ₱30,000.00, taxable
allowances and other taxable income other than the
SMW, holiday pay, overtime pay, hazard pay and night
shift differential pay shall not enjoy the privilege of being
a MWE and, therefore, his/her entire earnings are not
exempt form income tax, and consequently, from
withholding tax.
MWEs receiving other income, such as income from the
conduct of trade, business, or practice of
profession, except income subject to final tax, in addition
to compensation income are not exempted from income
tax on their entire income earned during the taxable
year. This rule, notwithstanding, the [statutory minimum
wage], [h]oliday pay, overtime pay, night shift differential
pay and hazard pay shall still be exempt from
withholding tax.
For purposes of these regulations, hazard pay shall mean
x x x.
In case of hazardous employment, x x x
The NWPC shall officially submit a Matrix of Wage Order
by region x x x
Any reduction or diminution of wages for purposes of
exemption from income tax shall constitute
misrepresentation and therefore, shall result to the
automatic disallowance of expense, i.e. compensation
and benefits account, on the part of the employer. The
offenders may be criminally prosecuted under existing
laws.
(14) Compensation income of employees in the public
sector with compensation income of not more than the
SMW in the non-agricultural sector, as fixed by
RTWPB/NWPC, applicable to the place where he/she is
assigned.
The aforesaid income shall likewise be exempted from
income tax.
The basic salary of MWEs in the public sector shall be
equated to the SMW in the non-agricultural sector
applicable to the place where he/she is assigned. The
determination of the SMW in the public sector shall
likewise adopt the same procedures and consideration
as those of the private sector.
Holiday pay, overtime pay, night shift differential pay and
hazard pay earned by the aforementioned MWE in the
public sector shall likewise be covered by the above
exemption. Provided, however, that a public sector
employee who receives additional compensation such
as commissions, honoraria, fringe benefits, benefits in
excess of the allowable statutory amount of
₱30,000.00, taxable allowances and other taxable
income other than the SMW, holiday pay, overtime pay,
night shift differential pay and hazard pay shall not enjoy
the privilege of being a MWE and, therefore, his/her entire
earnings are not exempt from income tax and,
consequently, from withholding tax.
MWEs receiving other income, such as income from the
conduct of trade, business, or practice of
profession, except income subject to final tax, in addition
to compensation income are not exempted from income
tax on their entire income earned during the taxable
year. This rule, notwithstanding, the SMW, Holiday pay,
overtime pay, night shift differential pay and hazard pay
shall still be exempt from withholding tax.
For purposes of these regulations, hazard pay shall mean
xxx
In case of hazardous employment, x x x
xxxx
SECTION 3. Section 2.79 of RR 2-98, as amended, is hereby
further amended to read as follows:
Sec. 2.79. Income Tax Collected at Source on
Compensation Income. -
(A) Requirement of Withholding. - Every employer must
withhold from compensation paid an amount computed
in accordance with these Regulations. Provided, that no
withholding of tax shall be required on the SMW,
including holiday pay, overtime pay, night shift
differential and hazard pay of MWEs in the private/public
sectors as defined in these Regulations. Provided, further,
that an employee who receives additional compensation
such as commissions, honoraria, fringe benefits, benefits
in excess of the allowable statutory amount of₱30,000.00,
taxable allowances and other taxable income other than
the SMW, holiday pay, overtime pay, hazard pay and
night shift differential pay shall not enjoy the privilege of
being a MWE and, therefore, his/her entire earnings are
not exempt from income tax and, consequently, shall be
subject to withholding tax.
xxxx
For the year 2008, however, being the initial year of
implementation of R.A. 9504, there shall be a transitory
withholding tax table for the period from July 6 to
December 31, 2008 (Annex "D") determined by prorating
the annual personal and additional exemptions under
R.A. 9504 over a period of six months. Thus, for individuals,
regardless of personal status, the prorated personal
exemption is ₱25,000, and for each qualified dependent
child (QDC), ₱12,500.
On the other hand, the pertinent provisions of law, which
are supposed to be implemented by the above-quoted
sections of RR10-2008, read as follows:
SECTION 1. Section 22 of Republic Act No. 8424, as
amended, otherwise known as the National Internal
Revenue Code of 1997, is hereby further amended by
adding the following definitions after Subsection (FF) to
read as follows:
Section 22. Definitions.- when used in this Title:61
(A) x x x
(FF) x x x
(GG) The term 'statutory minimum wage' shall refer to the
rate fixed by the Regional Tripartite Wage and
Productivity Board, as defined by the Bureau of Labor
and Employment Statistics (BLES) of the Department of
Labor and Employment (DOLE).
(HH) The term 'minimum wage earner' shall refer to a
worker in the private sector paid the statutory minimum
wage, or to an employee in the public sector with
compensation income of not more than the statutory
minimum wage in the non-agricultural sector where
he/she is assigned.
SECTION 2. Section 24(A) of Republic Act No. 8424, as
amended, otherwise known as the National Internal
Revenue Code of 1997, is hereby further amended to
read as follows:
SEC. 24. Income Tax Rates. -
(A) Rates of Income Tax on Individual Citizen and
Individual Resident Alien of the Philippines. -
(l)x x x
x x x x; and
(c) On the taxable income defined in Section 31 of this
Code, other than income subject to tax under
Subsections (B), (C) and (D)of this Section, derived for
each taxable year from all sources within the Philippines
by an individual alien who is a resident of the Philippines.
(2) Rates of Tax on Taxable Income of Individuals. - The
tax shall be computed in accordance with and at the
rates established in the following schedule:
xxxx
For married individuals, the husband and wife, subject to
the provision of Section 51 (D) hereof, shall compute
separately their individual income tax based on their
respective total taxable income: Provided, That if any
income cannot be definitely attributed to or identified as
income exclusively earned or realized by either of the
spouses, the same shall be divided equally between the
spouses for the purpose of determining their respective
taxable income.
Provided, That mm1mum wage earners as defined in
Section 22(HH) of this Code shall be exempt from the
payment of income tax on their taxable income:
Provided, further, That the holiday pay, ovr.rtime pay,
night shift differential pay and hazard pay received by
such minimum wage earners shall likewise be exempt
from income tax.
xxxx
SECTION 5. Section 51(A)(2) of Republic Act No. 8424, as
amended, otherwise known as the National Internal
Revenue Code of 1997, is hereby further amended to
read as follows:
SEC. 51. Individual Return. -
(A) Requirements. -
(1) Except as provided in paragraph (2) of this
Subsection, the following individuals are required to file
an income tax return:
(a) x x x
xxxx
(2) The following individuals shall not be required to file an
income tax return:
(a) x x x
(b) An individual with respect to pure compensation
income, as defined in Section 32(A)(l), derived from
sources within the Philippines, the income tax on which
has been correctly withheld under the provisions of
Section 79 of this Code:
Provided, That an individual deriving compensation
concurrently from two or more employers at any time
during the taxable year shall file an income tax return;
(c) x x x; and
(d) A minimum wage earner as defined in Section
22(HH) of this Code or an individual who is exempt from
income tax pursuant to the provisions of this Code and
other laws, general or special.
xxxx
SECTION 6. Section 79(A) of Republic Act No. 8424, as
amended, otherwise known as the National Internal
Revenue Code of 1997, is hereby further amended to
read as follows:
SEC. 79. Income Tax Collected at Source. –
(A) Requirement of Withholding. - Except in the case of a
minimum wage earner as defined in Section 22(HH) of this
Code, every employer making payment of wages shall
deduct and withhold upon such wages a tax determined
in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner. (Emphases
supplied)
Nowhere in the above provisions of R.A. 9504 would one
find the qualifications prescribed by the assailed
provisions of RR 10-2008. The provisions of the law are
clear and precise; they leave no room for interpretation -
they do not provide or require any other qualification as
to who are MWEs.
To be exempt, one must be an MWE, a term that is clearly
defined. Section 22(HH) says he/she must be one who is
paid the statutory minimum wage if he/she works in the
private sector, or not more than the statutory minimum
wage in the non-agricultural sector where he/she is
assigned, if he/she is a government employee. Thus, one
is either an MWE or he/she is not. Simply put, MWE is the
status acquired upon passing the litmus test - whether
one receives wages not exceeding the prescribed
minimum wage.
The minimum wage referred to in the definition has itself a
clear and definite meaning. The law explicitly refers to the
rate fixed by the Regional Tripartite Wage and
Productivity Board, which is a creation of the Labor
Code.62 The Labor Code clearly describes wages and
Minimum Wage under Title II of the Labor Code.
Specifically, Article 97 defines "wage" as follows:
(f) "Wage" paid to any employee shall mean the
remuneration or earnings, however designated, capable
of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis,
or other method of calculating the same, which is
payable by an employer to an employee under a written
or unwritten contract of employment for work done or to
be done, or for services rendered or to be rendered and
includes the fair and reasonable value, as determined by
the Secretary of Labor and Employment, of board,
lodging, or other facilities customarily furnished by the
employer to the employee. "Fair and reasonable value"
shall not include any profit to the employer, or to any
person affiliated with the employer.
While the Labor Code's definition of "wage" appears to
encompass any payments of any designation that an
employer pays his or her employees, the concept of
minimum wage is distinct.63 "Minimum wage" is wage
mandated; one that employers may not freely choose on
their own to designate in any which way.
In Article 99, minimum wage rates are to be prescribed
by the
Regional Tripartite Wages and Productivity Boards. In
Articles 102 to 105, specific instructions are given in
relation to the payment of wages. They must be paid in
legal tender at least once every two weeks, or twice a
month, at intervals not exceeding 16 days, directly to the
worker, except in case of force majeure or death of the
worker.
These are the wages for which a minimum is prescribed.
Thus, the minimum wage exempted by R.A. 9504 is that
which is referred to in the Labor Code. It is distinct and
different from other payments including allowances,
honoraria, commissions, allowances or benefits that an
employer may pay or provide an employee.
Likewise, the other compensation incomes an MWE
receives that are also exempted by R.A. 9504 are all
mandated by law and are based on this minimum wage.
Additional compensation in the form of overtime pay is
mandated for work beyond the normal hours based on
the employee's regular wage.64 Those working between
ten o'clock in the evening and six o'clock in the morning
are required to be paid a night shift differential based on
their regular wage.65Holiday/premium pay is mandated
whether one works on regular holidays or on one's
scheduled rest days and special holidays. In all of these
cases, additional compensation is mandated, and
computed based on the employee's regular wage.66
R.A. 9504 is explicit as to the coverage of the exemption:
the wages that are not in excess of the minimum wage as
determined by the wage boards, including the
corresponding holiday, overtime, night differential and
hazard pays.
In other words, the law exempts from income taxation the
most basic compensation an employee receives - the
amount afforded to the lowest paid employees by the
mandate of law. In a way, the legislature grants to these
lowest paid employees additional income by no longer
demanding from them a contribution for the operations
of government. This is the essence of R.A. 9504 as a social
legislation. The government, by way of the tax
exemption, affords increased purchasing power to this
sector of the working class.
This intent is reflected in the Explanatory Note to Senate
Bill No. 103 of Senator Roxas:
This bill seeks to exempt minimum wage earners in the
private sector and government workers in Salary Grades
1 to 3, amending certain provisions of Republic Act 8424,
otherwise known as the National Internal Revenue Code
of 1997, as amended.
As per estimates by the National Wages and Productivity
Board, there are 7 million workers earning the minimum
wage and even below. While these workers are in the
verge of poverty, it is unfair and unjust that the
Government, under the law, is taking away a portion of
their already subsistence-level income.
Despite this narrow margin from poverty, the Government
would still be mandated to take a slice away from that
family's meager resources. Even if the Government has
recently exempted minimum wage earners from
withholding taxes, they are still liable to pay income taxes
at the end of the year. The law must be amended to
correct this injustice. (Emphases supplied)
The increased purchasing power is estimated at about
₱9,500 a year.67 RR 10-2008, however, takes this away. In
declaring that once an MWE receives other forms of
taxable income like commissions, honoraria, and fringe
benefits in excess of the non-taxable statutory amount of
₱30,000, RR 10-2008 declared that the MWE immediately
becomes ineligible for tax exemption; and otherwise non-
taxable minimum wage, along with the other taxable
incomes of the MWE, becomes taxable again.
Respondents acknowledge that R.A.9504 is a social
legislation meant for social justice,68 but they insist that it is
too generous, and that consideration must be given to
the fiscal position and financial capability of the
government.69 While they acknowledge that the intent of
the income tax exemption of MWEs is to free low-income
earners from the burden of taxation, respondents, in the
guise of clarification, proceed to redefine which incomes
may or may not be granted exemption. These
respondents cannot do without encroaching on purely
legislative prerogatives.
By way of review, this ₱30,000 statutory ceiling on benefits
has its beginning in 1994 under R. A. 7833, which
amended then Section 28(b )(8) of the 1977 NIRC. It is
substantially carried over as Section 32(B) (Exclusion from
Gross Income) of Chapter VI (Computation of Gross
Income) of Title II (Tax on Income) in the 1997 NIRC (R.A.
8424). R.A. 9504 does not amend that provision of R.A.
8424, which reads:
SEC. 32. Gross Income.-
(A) General Definition.- x x x
(B) Exclusions from Gross Income.- The following items
shall not be included in gross income and shall be
exempt from taxation under this title:
(1) x x x
xxxx
(7) Miscellaneous Items. -
(a) x x x
xxxx
(e) 13th Month Pay and Other Benefits.- Gross benefits
received by officials and employees of public and
private entities: Provided, however, That the total
exclusion under this subparagraph shall not exceed Thirty
thousand pesos (₱30,000) which shall cover:
(i) Benefits received by officials and employees of the
national and local government pursuant to Republic Act
No. 668670;
(ii) Benefits received by employees pursuant to
Presidential Decree No. 85171, as amended by
Memorandum Order No. 28, dated August 13, 1986;
(iii) Benefits received by officials and employees not
covered by Presidential decree No. 851, as amended by
Memorandum Order No. 28, dated August 13, 1986;and
(iv) Other benefits such as productivity incentives and
Christmas bonus: Provided, further, That the ceiling of
Thirty thousand pesos (₱30,000) may be increased
through rules and regulations issued by the Secretary of
Finance, upon recommendation of the Commissioner,
after considering among others, the effect on the same
of the inflation rate at the end of the taxable year.
(f) x x x
The exemption granted to MWEs by R.A. 9504 reads:
Provided, That minimum wage earners as defined in
Section 22(HH) of this Code shall be exempt from the
payment of income tax on their taxable income:
Provided, further, That the holiday pay, overtime pay,
night shift differential pay and hazard pay received by
such minimum wage earners shall likewise be exempt
from income tax.
"Taxable income" is defined as follows:
SEC. 31. Taxable Income Defined.- The term taxable
income means the pertinent items of gross
income specified in this Code, less the deductions and/or
personal and additional exemptions, if any, authorized for
such types of income by this Code or other special laws.
A careful reading of these provisions will show at least two
distinct groups of items of compensation. On one hand
are those that are further exempted from tax by R.A.
9504; on the other hand are items of compensation that
R.A. 9504 does not amend and are thus unchanged and
in no need to be disturbed.
First are the different items of compensation subject to
tax prior to R.A. 9504. These are included in the pertinent
items of gross income in Section 31. "Gross income" in
Section 32 includes, among many other items,
"compensation for services in whatever form paid,
including, but not limited to salaries, wages, commissions,
and similar items." R.A. 9504 particularly exempts the
minimum wage and its incidents; it does not provide
exemption for the many other forms of compensation.
Second are the other items of income that, prior to R.A.
9504, were excluded from gross income and were
therefore not subject to tax. Among these are other
payments that employees may receive from employers
pursuant to their employer-employee relationship, such as
bonuses and other benefits. These are either mandated
by law (such as the 13th month pay) or granted upon the
employer's prerogative or are pursuant to collective
bargaining agreements (as productivity incentives). These
items were not changed by R.A. 9504.
It becomes evident that the exemption on benefits
granted by law in 1994 are now extended to wages of
the least paid workers under R.A. 9504. Benefits not
beyond ₱30,000 were exempted; wages not beyond the
SMW are now exempted as well. Conversely, benefits in
excess of ₱30,000 are subject to tax and now, wages in
excess of the SMW are still subject to tax.
What the legislature is exempting is the MWE's minimum
wage and other forms statutory compensation like
holiday pay, overtime pay, night shift differential pay,
and hazard pay. These are not bonuses or other benefits;
these are wages. Respondents seek to frustrate this
exemption granted by the legislature.
In respondents' view, anyone receiving 13th month pay
and other benefits in excess of ₱30,000 cannot be an
MWE. They seek to impose their own definition of "MWE"
by arguing thus:
It should be noted that the intent of the income tax
exemption of MWEs is to free the low-income earner from
the burden of tax. R.A. No. 9504 and R.R. No. 10-2008
define who are the low-income earners. Someone who
earns beyond the incomes and benefits above-
enumerated is definitely not a low-income earner. 72
We do not agree.
As stated before, nothing to this effect can be read from
R.A. 9504. The amendment is silent on whether
compensation-related benefits exceeding the ₱30,000
threshold would make an MWE lose exemption. R.A. 9504
has given definite criteria for what constitutes an MWE,
and R.R. 10-2008 cannot change this.
An administrative agency may not enlarge, alter or
restrict a provision of law. It cannot add to the
requirements provided by law. To do so constitutes
lawmaking, which is generally reserved for
Congress. 73 In CIR v. Fortune Tobacco, 74 we applied
the plain meaning rule when the Commissioner of Internal
Revenue ventured into unauthorized administrative
lawmaking:
[A]n administrative agency issuing regulations may not
enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional
requirements not contemplated by the legislature. The
Court emphasized that tax administrators are not allowed
to expand or contract the legislative mandate and that
the "plain meaning rule" or verba legis in statutory
construction should be applied such that where the words
of a statute are clear, plain and free from ambiguity, it
must be given its literal meaning and applied without
attempted interpretation.
As we have previously declared, rule-making power must
be confined to details for regulating the mode or
proceedings in order to carry into effect the law as it has
been enacted, and it cannot be extended to amend or
expand the statutory requirements or to embrace matters
not covered by the statute. Administrative regulations
must always be in harmony with the provisions of the law
because any resulting discrepancy between the two will
always be resolved in favor of the basic law. 75 (Emphases
supplied)
We are not persuaded that RR 10-2008 merely clarifies the
law. The CIR' s clarification is not warranted when the
language of the law is plain and clear. 76
The deliberations of the Senate reflect its understanding
of the outworking of this MWE exemption in relation to the
treatment of benefits, both those for the ₱30,000
threshold and the de minimis benefits:
Senator Defensor Santiago. Thank you. Next question:
How about employees who are only receiving a
minimum wage as base pay, but are earning significant
amounts of income from sales, commissions which may
be even higher than their base pay? Is their entire
income from commissions also tax-free? Because strictly
speaking, they are minimum wage earners. For purposes
of ascertaining entitlement to tax exemption, is the basis
only the base pay or should it be the aggregate
compensation that is being received, that is, inclusive of
commissions, for example?
Senator Escudero. Mr. President, what is included would
be only the base pay and, if any, the hazard pay, holiday
pay, overtime pay and night shift differential received by
a minimum wage earner. As far as commissions are
concerned, only to the extent of ₱30,000 would be
exempted. Anything in excess of ₱30,000 would already
be taxable if it is being received by way of
commissions. Add to that de minimis benefits being
received by an employee, such as rice subsidy or
clothing allowance or transportation allowance would
also be exempted; but they are exempted already under
the existing law.
Senator Defensor Santiago. I would like to thank the
sponsor. That makes it clear. 77 (Emphases supplied)
Given the foregoing, the treatment of bonuses and other
benefits that an employee receives from the employer in
excess of the ₱30,000 ceiling cannot but be the same as
the prevailing treatment prior to R.A. 9504 - anything in
excess of ₱30,000 is taxable; no more, no less.
The treatment of this excess cannot operate to
disenfranchise the MWE from enjoying the exemption
explicitly granted by R.A. 9504.
The government's argument that the
RR avoids a tax distortion has no
merit.
The government further contends that the "clarification"
avoids a situation akin to wage distortion and
discourages tax evasion. They claim that MWE must be
treated equally as other individual compensation income
earners "when their compensation does not warrant
exemption under R.A. No. 9504. Otherwise, there would
be gross inequity between and among individual income
taxpayers."78 For illustrative purposes, respondents present
three scenarios:
37.1. In the first scenario, a minimum wage earner in the
National Ca[ital Region receiving ₱382.00 per day has an
annual salary of ₱119,566.00, while a non-minimum wage
earner with a basic pay of ₱385.00 per day has an annual
salary of ₱120,505.00. The difference in their annual
salaries amounts to only ₱939.00, but the non-minimum
wage earner is liable for a tax of ₱8,601.00, while the
minimum wage earner is tax-exempt?
37.2. In the second scenario, the minimum wage earner's
"other benefits" exceed the threshold of ₱30,000.00 by
₱20,000.00. The non-minimum wage earner is liable for
₱8,601.00, while the minimum wage earner is still tax-
exempt.
37.3. In the third scenario, both workers earn "other
benefits" at ₱50,000.00 more than the ₱30,000 threshold.
The non-minimum wage earner is liable for the tax of
₱l8,601.00, while the minimum wage earner is still tax-
exempt.79 (Underscoring in the original)
Again, respondents are venturing into policy-making, a
function that properly belongs to Congress. In British
American Tobacco v. Camacho, we explained:80
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. 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. This is especially true for tax legislation
which simultaneously addresses and impacts multiple
state interests. 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. (Emphases supplied and
citations deleted)
Respondents cannot interfere with the wisdom of R.A.
9504. They must respect and implement it as enacted.
Besides, the supposed undesirable "income distortion" has
been addressed in the Senate deliberations. The
following exchange between Senators Santiago and
Escudero reveals the view that the distortion impacts only
a few - taxpayers who are single and have no
dependents:
Senator Santiago.... It seems to me awkward that a
person is earning just Pl above the minimum wage is
already taxable to the full extent simply because he is
earning ₱l more each day, or o more than P30 a month,
or ₱350 per annum. Thus, a single individual earning ₱362
daily in Metro Manila pays no tax but the same individual
if he earns ₱363 a day will be subject to tax, under the
proposed amended provisions, in the amount of ₱4,875 - I
no longer took into account the deductions of SSS, e
cetera- although that worker is just ₱360 higher than the
minimum wage.
xxxx
I repeat, I am raising respectfully the point that a person
who is earning just Pl above the minimum wage is already
taxable to the full extent just for a mere Pl. May I please
have the Sponsor's comment. Senator Escudero...I fully
subscribe and accept the analysis and computation of
the distinguished Senator, Mr. President, because this was
the very concern of this representation when we were
discussing the bill. It will create wage distortions up to the
extent wherein a person is paying or rather receiving a
salary which is only higher by ₱6,000 approximately from
that of a minimum wage earner. So anywhere between
P1 to approximately ₱6,000 higher, there will be a wage
distortion, although distortions disappears as the salary
goes up.
However, Mr. President, as computed by the
distinguished Senator, the distortion is only made
apparent if the taxpayer is single or is not married and
has no dependents. Because at two dependents, the
distortion would already disappear; at three dependents,
it would not make a difference anymore because the
exemption would already cover approximately the wage
distortion that would be created as far as individual or
single taxpayers are concerned.81(Emphases in the
original)
Indeed, there is a distortion, one that RR 10-2008 actually
engenders. While respondents insist that MWEs who are
earning purely compensation income will lose their MWE
exemption the moment they receive benefits in excess of
₱30,000, RR 10-2008 does not withdraw the MWE
exemption from those who are earning other income
outside of their employer-employee relationship. Consider
the following provisions of RR 10-2008:
Section 2.78.l (B):
(B) Exemptions from Withholding Tax on Compensation. -
The following income payments are exempted from the
requirements of withholding tax on compensation:
xxxx
(13) Compensation income of MWEs who work in the
private sector and being paid the Statutory Minimum
Wage (SMW), as fixed by Regional Tripartite Wage and
Productivity Board (RTWPB)/National Wages and
Productivity Commission (NWPC), applicable to the place
where he/she is assigned.
xxxx
Holiday pay, overtime pay, night shift differential pay and
hazard pay earned by the aforementioned MWE shall
likewise be covered by the above exemption. Provided,
however, that an employee who receives/earns
additional compensation such as commissions, honoraria,
fringe benefits, benefits in excess of the allowable
statutory amount of ₱30,000.00, taxable allowances and
other taxable income other than the SMW, holiday pay,
overtime pay, hazard pay and night shift differential pay
shall not enjoy the privilege of being a MWE and,
therefore, his/her entire earnings are not exempt from
income tax, and consequently, from withholding tax.
MWEs receiving other income, such as income from the
conduct of trade, business, or practice of
profession, except income subject to final tax, in addition
to compensation income are not exempted from income
tax on their entire income earned during the taxable
year. This rule, notwithstanding, the SMW, Holiday pay,
overtime pay, night shift differential pay and hazard pay
shall still be exempt from withholding tax.
xxxx
(14) Compensation income of employees in the public
sector with compensation income of not more than the
SMW in the nonagricultural sector, as fixed by
RTWPB/NWPC, applicable to the place where he/she is
assigned.
xxxx
Holiday pay, overtime pay, night shift differential pay and
hazard pay earned by the aforementioned MWE in the
public sector shall likewise be covered by the above
exemption. Provided, however, that a public sector
employee who receives additional compensation such
as commissions, honoraria, fringe benefits, benefits in
excess of the allowable statutory amount of ₱30,000.00,
taxable allowances and other taxable income other than
the SMW, holiday pay, overtime pay, night shift
differential pay and hazard pay shall not enjoy the
privilege of being a MWE and, therefore, his/her entire
earnings are not exempt from income tax and,
consequently, from withholding tax.
MWEs receiving other income, such as income from the
conduct of trade, business, or practice of
profession, except income subject to final tax, in addition
to compensation income are not exempted from income
tax on their entire income earned during the taxable
year. This rule, notwithstanding, the SMW, Holiday pay,
overtime pay, night shift differential pay and hazard pay
shall still be exempt from withholding tax.
Law Effective
These provisions of RR 10-2008 reveal a bias against those
who are purely compensation earners. In their
consolidated comment, respondents reason:
RA 716788 1992
Verily, the interpretation as to who is a minimum wage
earner as petitioners advance will open the opportunity
RA 749689
for tax evasion by the mere expedient of pegging the
salary or wage of a worker at the minimum and reflecting
RA 842490 1998
a worker's other incomes as some other benefits. This
situation will not only encourage tax evasion, it will
(1997
likewise discourage able employers from paying NIRC)salaries
or wages higher than the statutory minimum. This should
never be countenanced. 82
Again, respondents are delving into policy-making RAthey
950491 2008
presume bad faith on the part of the employers, and
then shift the burden of this presumption and lay it on the
backs of the lowest paid workers. This presumption of bad
faith does not even reflect pragmatic reality. It must be
remembered that a worker's holiday, overtime and night
differential pays are all based on the worker's regular
wage. Thus, there will always be pressure from the workers
to increase, not decrease, their basic pay.
What is not acceptable is the blatant inequity between
the treatment that RR 10-2008 gives to those who earn
purely compensation income and that given to those
who have other sources of income. Respondents want to
tax the MWEs who serve their employer well and thus
receive higher bonuses or performance incentives; but
exempts the MWEs who serve, in addition to their
employer, their other business or professional interests.
We cannot sustain respondent’s position.
In sum, the proper interpretation of R.A. 9504 is that it
imposes taxes only on the taxable income received in
excess of the minimum wage, but the MWEs will not lose
their exemption as such. Workers who receive the
statutory minimum wage their basic pay remain MWEs.
The receipt of any other income during the year does not
disqualify them as MWEs. They remain MWEs, entitled to
exemption as such, but the taxable income they receive
other than as MWEs may be subjected to appropriate
taxes.
R.A. 9504 must be liberally construed.
We are mindful of the strict construction rule when it
comes to the interpretation of tax exemption laws. 83 The
canon, however, is tempered by several exceptions, one
of which is when the taxpayer falls within the purview of
the exemption by clear legislative intent. In this situation,
the rule of liberal interpretation applies in favor of the
grantee and against the government. 84
In this case, there is a clear legislative intent to exempt
the minimum wage received by an MWE who earns
additional income on top of the minimum wage. As
previously discussed, this intent can be seen from both
the law and the deliberations.
Accordingly, we see no reason why we should not
liberally interpret R.A. 9504 in favor of the taxpayers.
R.A. 9504 is a grant of tax relief long overdue.
We do not lose sight of the fact that R.A. 9504 is a tax
relief that is long overdue.
Table 1 below shows the tax burden of an MWE over the
years. We use as example one who is a married individual
without dependents and is working in the National
Capital Region (NCR). For illustration purposes, R.A. 9504 is
applied as if the worker being paid the statutory minimum
wage is not tax exempt:
Table 1 -Tax Burden of MWE over the years
NCR Minimum Daily Wage85 Taxable Tax Due
Income86
(Annual)
WO 3 (1993 Dec) ₱135.00 ₱24,255 ₱1,343.05
WO 5 (1997 May) ₱185.00 ₱39,905 ₱3,064.55
WO 6 (1998 Feb) ₱198.00 ₱29,974 ₱2,497.40
WO 13 (2007 Aug) ₱362.00 ₱81,306 ₱10,761.20
WO 14 (2008 ₱382.00 ₱87,566 ₱12,013.20
June)
WO 14 (2008 Aug) ₱382.00 ₱69,566 ₱8,434.90
WO 20 (2016 ₱491.00 ₱103,683 ₱15,236.60
June)
As shown on Table 1, we note that in 1992, the tax burden
upon an MWE was just about 3.2%, when Congress
passed R.A. 7167, which increased the personal
exemptions for a married individual without dependents
from ₱12,000 to ₱18,000; and R.A. 7496, which revised the
table of graduated tax rates (tax table).
Over the years, as the minimum wage increased, the tax
burden of the MWE likewise increased. In 1997, the MWE's
tax burden was about 5.3%. When R.A. 8424 became
effective in 1998, some relief in the MWE's tax burden was
seen as it was reduced to 4.0%. This was mostly due to the
increase in personal exemptions, which were increased
from ₱18,000 to ₱32,000 for a married individual without
dependents. It may be noted that while the tax table
was revised, a closer scrutiny of Table 3 below would
show that the rates actually increased for those who
were earning less.
As the minimum wage continued to increase, the MWE's
tax burden likewise did - by August 2007, it was 9.5%. This
means that in 2007, of the ₱362 minimum wage, the
MWE's take-home pay was only ₱327.62, after a tax of
₱34.38.
This scenario does not augur well for the wage earners.
Over the years, even with the occasional increase in the
basic personal and additional exemptions, the
contribution the government exacts from its MWEs
continues to increase as a portion of their income. This is
a serious social issue, which R.A. 9504 partly addresses.
With the ₱20 increase in minimum wage from ₱362 to
₱382 in 2008, the tax due thereon would be about ₱30. As
seen in their deliberations, the lawmakers wanted all of
this amount to become additional take-home pay for the
MWEs in 2008.92
The foregoing demonstrates the effect of inflation. When
tax tables do not get adjusted, inflation has a profound
 impact in terms of tax burden. "Bracket creep," "the
process by which inflation pushes individuals into higher
tax brackets,"93 occurs, and its deleterious results may be
explained as follows:
[A]n individual whose dollar income increases from one
year to the next might be obliged to pay tax at a higher
marginal rate (say 25% instead of 15%) on the increase,
this being a natural consequence of rate progression. If,
however, due to inflation the benefit of the increase is
wiped out by a corresponding increase in the cost of
living, the effect would be a heavier tax burden with no
real improvement in the taxpayer's economic position.
Wage and salary-earners are especially vulnerable. Even
if a worker gets a raise in wages this year, the raise will be
illusory if the prices of consumer goods rise in the same
proportion. If her marginal tax rate also increased, the
result would actually be a decrease in the taxpayer's real
disposable income.94 Taxable Income Bracket
Table 2 shows how MWEs get pushed to higher tax
Not Over ₱2,500
brackets with higher tax rates due only to the periodic
increases in the minimum wage. This unfortunate
development illustrates how "bracket creep" comes Over ₱2,500 but not over
about and how inflation alone increases their tax₱5,000
burden:
burden of 9.9%. This means that for every ₱100 the MWE
earns, the government takes back ₱9.90.
Further, a comparative view of the tax tables over the
years (Table 3) shows that while the highest tax rate was
reduced from as high as 70% under the 1977 NTRC, to
35% in 1992, and 32% presently, the lower income group
actually gets charged higher taxes. Before R.A. 8424, one
who had taxable income of less than ₱2,500 did not have
to pay any income tax; under R.A. 8424, he paid 5%
thereof. The MWEs now pay 20% or even more,
depending on the other benefits they receive including
overtime, holiday, night shift, and hazard pays.
Table 3 – Tax Tables: Comparison of Tax Brackets and
Rates
Rates under R. A. Rates under R. A. Rates un
7496 (1992) 8424 (1998) A. 9504
0%
1%
5% 5%

Table 2 Over ₱5,000 but not over

3%
₱10,000

Highest Over ₱10,000 but not over

7%
Applicable ₱20,000
NCR Minimum Daily Tax Due Tax
Effective Tax Rate 10% 10%
Wage95 (Annual) Burden96
(Bracket Over ₱20,000 but not over
Creep) 11%
₱30,000

WO 3 (1993 11% Over ₱30,000 but not over

7 1992 ₱135.00 ₱1,343.05 3.2%
Dec) ₱40,000

WO 5 (1997 11% Over ₱40,000 but not over

8 ₱185.00 ₱3,064.55 5.3% 15% 15% 15%
May) ₱60,000

9 WO 6 (1998 10% Over ₱60,000 but not over

1998 ₱198.00 ₱2,497.40 4.0%
Feb) ₱70,000
19%
WO 13 (2007 20% Over ₱70,000 but not over
₱362.00 ₱10,761.20 9.5%
Aug) ₱100,000
20% 20%
WO 14 (2008 20% Over but not over
₱100,000 10.0%
₱382.00 ₱12,013.20
June) ₱140,000
24%
00 2008 WO 14 (2008 15% Over but not over
₱140,000 7.1%
₱382.00 ₱8,434.90 25% 25%
Aug) ₱250,000

WO 20 (2016 20% Over but not over

₱250,000 9.9%
₱491.00 ₱15,236.60 29% 30% 30%
June) ₱500,000

Over ₱500,00 35% 34% 32%

The overall effect is the diminution, if not elimination, of
the progressivity of the rate structure under the present
Tax Code. We emphasize that the graduated tax rate
schedule for individual taxpayers, which takes into
account the ability to pay, is intended to breathe life into
the constitutional requirement of equity. 101
R.A. 9504 provides relief by declaring that an MWE, one
who is paid the statutory minimum wage (SMW), is
exempt from tax on that income, as well as on the
associated statutory payments for hazardous, holiday,
overtime and night work.
R.R. 10-2008, however, unjustly removes this tax relief.
While R.A. 9504 grants MWEs zero tax rights from the
beginning or for the whole year 2008, RR 10-2008 declares
that certain workers - even if they are being paid the
SMW, "shall not enjoy the privilege."
Following RR10-2008's "disqualification" injunction, the
MWE will continue to be pushed towards the higher tax
brackets and higher rates. As Table 2 shows, as of June
2016, an MWE would already belong to the 4th highest
tax bracket of 20% (see also Table 3), resulting in a tax
The relief afforded by R.A.9504 is thus long overdue. The
law must be now given full effect for the entire taxable
year 2008, and without the qualification introduced by RR
10-2008. The latter cannot disqualify MWEs from
exemption from taxes on SMW and on their on his SMW,
holiday, overtime, night shift differential, and hazard pay.
CONCLUSION
The foregoing considered, we find that respondents
committed grave abuse of discretion in promulgating
Sections 1 and 3 of RR 10-2008, insofar as they provide for
(a) the prorated application of the personal and
additional exemptions for taxable year 2008 and for the
period of applicability of the MWE exemption for taxable
year 2008 to begin only on 6 July 2008; and (b) the
disqualification of MWEs who earn purely compensation
income, whether in the private or public sector, from the
privilege of availing themselves of the MWE exemption in
case they receive compensation-related benefits
exceeding the statutory ceiling of ₱30,000.
As an aside, we stress that the progressivity of the rate
structure under the present Tax Code has lost its strength.
In the main, it has not been updated since its revision in
1997, or for a period of almost 20 years. The phenomenon
of "bracket creep" could be prevented through the
inclusion of an indexation provision, in which the
graduated tax rates are adjusted periodically without
need of amending the tax law. The 1997 Tax Code,
however, has no such indexation provision. It should be
emphasized that indexation to inflation is now a standard
feature of a modern tax code. 102
We note, however, that R.A. 8424 imposes upon
respondent Secretary of Finance and Commissioner of
Internal Revenue the positive duty to periodically review
the other benefits, in consideration of the effect of
inflation thereon, as provided under Section 32(B)(7)(e)
entitled" 13th Month Pay and Other Benefits":
(iv) Other benefits such as productivity incentives and
Christmas bonus: Provided, further, That the ceiling of
Thirty thousand pesos (₱30,000) may be increased
through rules and regulations issued by the Secretary of
Finance, upon recommendation of the Commissioner,
after considering among others, the effect on the same
of the inflation rate at the end of the taxable year.
This same positive duty, which is also imposed upon the
same officials regarding the de minimis benefits provided
under Section 33(C)(4), is a duty that has been exercised
several times. The provision reads:
(C) Fringe Benefits Not Taxable. - The following fringe
benefits are not taxable under this Section:
(l) x x x
xxxx
(4) De minimis benefits as defined in the rules and
regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.
WHEREFORE, the Court resolves to
(a) GRANT the Petitions for Certiorari, Prohibition, and
Mandamus; and
(b) DECLARE NULL and VOID the following provisions of
Revenue Regulations No. 10-2008:
(i) Sections 1 and 3, insofar as they disqualify MWEs who
earn purely compensation income from the privilege of
the MWE exemption in case they receive bonuses and
other compensation-related benefits exceeding the
statutory ceiling of ₱30,000;
(ii) Section 3 insofar as it provides for the prorated
application of the personal and additional exemptions
under R.A. 9504 for taxable year 2008, and for the period
of applicability of the MWE exemption to begin only on 6
July 2008.
(c) DIRECT respondents Secretary of Finance and
Commissioner of Internal Revenue to grant a refund, or
allow the application of the refund by way of withholding
tax adjustments, or allow a claim for tax credits by (i) all
individual taxpayers whose incomes for taxable year 2008
were the subject of the prorated increase in personal and
additional tax exemption; and (ii) all MWEs whose
minimum wage incomes were subjected to tax for their
receipt of the 13thmonth pay and other bonuses and
benefits exceeding the threshold amount under Section
32(B)(7)(e) of the 1997 Tax Code.
SO ORDERED.
SECOND DIVISION
G.R. No. L-66653 June 19, 1986
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
BURROUGHS LIMITED AND THE COURT OF TAX
APPEALS, respondents.
Sycip, Salazar, Feliciano & Hernandez Law Office for
private respondent.
PARAS, J.:
Petition for certiorari to review and set aside the Decision
dated June 27, 1983 of respondent Court of Tax Appeals
in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs.
Commissioner of Internal Revenue" which ordered
petitioner Commissioner of Internal Revenue to grant in
favor of private respondent Burroughs Limited, tax credit
in the sum of P172,058.90, representing erroneously
overpaid branch profit remittance tax.
Burroughs Limited is a foreign corporation authorized to
engage in trade or business in the Philippines through a
branch office located at De la Rosa corner Esteban
Streets, Legaspi Village, Makati, Metro Manila.
Sometime in March 1979, said branch office applied with
the Central Bank for authority to remit to its parent
company abroad, branch profit amounting to
P7,647,058.00. Thus, on March 14, 1979, it paid the 15%
branch profit remittance tax, pursuant to Sec. 24 (b) (2)
(ii) and remitted to its head office the amount of
P6,499,999.30 computed as follows:
Amount applied for
remittance................................
P7,647,058.00
Deduct: 15% branch profit
remittance tax
..............................................1,147,058.70
Net amount actually
remitted..................................
P6,499,999.30
Claiming that the 15% profit remittance tax should have
been computed on the basis of the amount actually
remitted (P6,499,999.30) and not on the amount before
profit remittance tax (P7,647,058.00), private respondent
filed on December 24, 1980, a written claim for the refund
or tax credit of the amount of P172,058.90 representing
alleged overpaid branch profit remittance tax,
computed as follows:
Profits actually remitted
.........................................P6,499,999.30
Remittance tax rate
.......................................................15%
Branch profit remittance tax-
due thereon
......................................................P
974,999.89
Branch profit remittance
tax paid
.............................................................Pl,147,
058.70
Less: Branch profit remittance
tax as above
computed................................................. 9
74,999.89
 Total amount Remittance tax
refundable........................................... due...................................................
P172,058.81 P974,999.89

On February 24, 1981, private respondent filed with is well-taken. As correctly held by
respondent court, a petition for review, docketed as respondent Court in its assailed decision-
C.T.A. Case No. 3204 for the recovery of the above-
mentioned amount of P172,058.81. Respondent concedes at least that in his
ruling dated January 21, 1980 he held
On June 27, 1983, respondent court rendered its Decision, that under Section 24 (b) (2) of the Tax
the dispositive portion of which reads— Code the 15% branch profit remittance
tax shall be imposed on the profit
ACCORDINGLY, respondent Commission of Internal actually remitted abroad and not on the
Revenue is hereby ordered to grant a tax credit in favor total branch profit out of which the
of petitioner Burroughs Limited the amount of P remittance is to be made. Based on such
172,058.90. Without pronouncement as to costs. ruling petitioner should have paid only
the amount of P974,999.89 in remittance
tax computed by taking the 15% of the
SO ORDERED.
profits of P6,499,999.89 in remittance tax
actually remitted to its head office in the
Unable to obtain a reconsideration from the aforesaid United States, instead of Pl,147,058.70, on
decision, petitioner filed the instant petition before this its net profits of P7,647,058.00.
Court with the prayers as herein earlier stated upon the Undoubtedly, petitioner has overpaid its
sole issue of whether the tax base upon which the 15% branch profit remittance tax in the
branch profit remittance tax shall be imposed under the amount of P172,058.90.
provisions of section 24(b) of the Tax Code, as amended,
is the amount applied for remittance on the profit
Petitioner contends that respondent is no longer entitled
actually remitted after deducting the 15% profit
to a refund because Memorandum Circular No. 8-82
remittance tax. Stated differently is private respondent
dated March 17, 1982 had revoked and/or repealed the
Burroughs Limited legally entitled to a refund of the
BIR ruling of January 21, 1980. The said memorandum
aforementioned amount of P172,058.90.
circular states—

We rule in the affirmative. The pertinent provision of the

National Revenue Code is Sec. 24 (b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances.
Any profit remitted abroad by a branch
to its head office shall be subject to a tax
of fifteen per cent (15 %) ...
In a Bureau of Internal Revenue ruling dated January 21,
1980 by then Acting Commissioner of Internal Revenue
Hon. Efren I. Plana the aforequoted provision had been
interpreted to mean that "the tax base upon which the
15% branch profit remittance tax ... shall be imposed...(is)
the profit actually remitted abroad and not on the total
branch profits out of which the remittance is to be made.
" The said ruling is hereinbelow quoted as follows:
In reply to your letter of November 3,
1978, relative to your query as to the tax
base upon which the 15% branch profits
remittance tax provided for under
Section 24 (b) (2) of the 1977 Tax Code
shall be imposed, please be advised that
the 15% branch profit tax shall be
imposed on the branch profits actually
remitted abroad and not on the total
branch profits out of which the
remittance is to be made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of
private respondent that it made an overpayment in the
amount of P172,058.90 which is the difference between
the remittance tax actually paid of Pl,147,058.70 and the
remittance tax that should have been paid of
P974,999,89, computed as follows
Profits actually
remitted.........................................
P6,499,999.30
Considering that the 15% branch profit
remittance tax is imposed and collected
at source, necessarily the tax base
should be the amount actually applied
for by the branch with the Central Bank
of the Philippines as profit to be remitted
abroad.
Petitioner's aforesaid contention is without merit. What is
applicable in the case at bar is still the Revenue Ruling of
January 21, 1980 because private respondent Burroughs
Limited paid the branch profit remittance tax in question
on March 14, 1979. Memorandum Circular No. 8-82 dated
March 17, 1982 cannot be given retroactive effect in the
light of Section 327 of the National Internal Revenue
Code which provides-
Sec. 327. Non-retroactivity of rulings. Any
revocation, modification, or reversal of
any of the rules and regulations
promulgated in accordance with the
preceding section or any of the rulings or
circulars promulgated by the
Commissioner shag not be given
retroactive application if the revocation,
modification, or reversal will be
prejudicial to the taxpayer except in the
following cases (a) where the taxpayer
deliberately misstates or omits material
facts from his return or in any document
required of him by the Bureau of Internal
Revenue; (b) where the facts
subsequently gathered by the Bureau of
Internal Revenue are materially different
from the facts on which the ruling is
based, or (c) where the taxpayer acted
in bad faith. (ABS-CBN Broadcasting
Corp. v. CTA, 108 SCRA 151-152)
The prejudice that would result to private respondent
Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions
are concerned, admittedly, Burroughs Limited does not
fall under any of them.

Remittance tax WHEREFORE, the assailed decision of respondent Court of

rate.............................................................. 1 Tax Appeals is hereby AFFIRMED. No pronouncement as
5% to costs.
SO ORDERED.
G.R. No. 112024 January 28, 1999
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX
APPEALS and COURT OF APPEALS, respondent.
Pending the investigation of the respondent
Commissioner of Internal Revenue, petitioner instituted a
Petition for Review on November 18, 1988 before the
Court of Tax Appeals (CTA). The petition was docketed as
CTA Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of
petitioner's claims for refund and tax credit for 1985 and
1986, filed before the Court of Tax Appeals, are as follows:

1985 1986
QUISUMBING, J.:

——— ———
This petition for review assails the Resolution 1 of the Court
of Appeals dated September 22, 1993 affirming the
Decision2 and a Resolution 3 of the Court Of Tax Appeals Net Income (Loss) (P25,317,288.00)
which denied the claims of the petitioner for tax refund (P14,129,602.00)
and tax credits, and disposing as follows:
Tax Due NIL NIL
IN VIEW OF ALL, THE FOREGOING, the
instant petition for review, is DENIED due Quarterly tax.
course. The Decision of the Court of Tax
Appeals dated May 20, 1993 and its Payments Made 5,016,954.00 —
resolution dated July 20, 1993, are
hereby AFFIRMED in toto.
Tax Withheld at Source 282,795.50
234,077.69
SO ORDERED.4
———————— ———————
The Court of Tax Appeals earlier ruled as follows:
Excess Tax Payments P5,299,749.50*
WHEREFORE, Petitioner's claim for P234,077.69
refund/tax credits of overpaid income
tax for 1985 in the amount of
=============== =============
P5,299,749.95 is hereby denied for having
been filed beyond the reglementary
period. The 1986 claim for refund * CTA's decision reflects
amounting to P234,077.69 is likewise PBCom's 1985 tax claim
denied since petitioner has opted and in as P5,299,749.95. A forty
all likelihood automatically credited the five centavo difference
same to the succeeding year. The was noted.
petition for review is dismissed for lack of
merit. On May 20, 1993, the CTA rendered a decision which, as
stated on the outset, denied the request of petitioner for
SO ORDERED.5 a tax refund or credit in the sum amount of P5,299,749.95,
on the ground that it was filed beyond the two-year
reglementary period provided for by law. The petitioner's
The facts on record show the antecedent circumstances
claim for refund in 1986 amounting to P234,077.69 was
pertinent to this case.
likewise denied on the assumption that it was
automatically credited by PBCom against its tax
Petitioner, Philippine Bank of Communications (PBCom), a payment in the succeeding year.
commercial banking corporation duly organized under
Philippine laws, filed its quarterly income tax returns for
On June 22, 1993, petitioner filed a Motion for
the first and second quarters of 1985, reported profits,
Reconsideration of the CTA's decision but the same was
and paid the total income tax of P5,016,954.00. The taxes
denied due course for lack of merit. 6
due were settled by applying PBCom's tax credit memos
and accordingly, the Bureau of Internal Revenue (BIR)
issued Tax Debit Memo Nos. 0746-85 and 0747-85 for Thereafter, PBCom filed a petition for review of said
P3,401,701.00 and P1,615,253.00, respectively. decision and resolution of the CTA with the Court of
Appeals. However on September 22, 1993, the Court of
Appeals affirmed in toto the CTA's resolution dated July
Subsequently, however, PBCom suffered losses so that
20, 1993. Hence this petition now before us.
when it filed its Annual Income Tax Returns for the year-
ended December 31, 1986, the petitioner likewise
reported a net loss of P14,129,602.00, and thus declared The issues raised by the petitioner are:
no tax payable for the year.
I. Whether taxpayer
But during these two years, PBCom earned rental income PBCom — which relied
from leased properties. The lessees withheld and remitted in good faith on the
to the BIR withholding creditable taxes of P282,795.50 in formal assurances of BIR
1985 and P234,077.69 in 1986. in RMC No. 7-85 and did
not immediately file with
the CTA a petition for
On August 7, 1987, petitioner requested the
review asking for the
Commissioner of Internal Revenue, among others, for a
refund/tax credit of its
tax credit of P5,016,954.00 representing the overpayment
1985-86 excess quarterly
of taxes in the first and second quarters of 1985.
income tax payments —
can be prejudiced by
Thereafter, on July 25, 1988, petitioner filed a claim for the subsequent BIR
refund of creditable taxes withheld by their lessees from rejection, applied
property rentals in 1985 for P282,795.50 and in 1986 for retroactivity, of its
P234,077.69. assurances in RMC No.
7-85 that the prescriptive
period for the refund/tax
 credit of excess Tax Appeals within the two-year period
quarterly income tax from the date of payment, in
payments is not two accordance with sections 292 and 295 of
years but ten (10).7 the National Internal Revenue Code. It is
obvious that the filing of the case in
II. Whether the Court of court is to preserve the judicial right of
Appeals seriously erred the corporation to claim the refund or
in affirming the CTA tax credit.
decision which denied
PBCom's claim for the It should he noted, however, that this is
refund of P234,077.69 not a case of erroneously or illegally paid
income tax overpaid in tax under the provisions of Sections 292
1986 on the mere and 295 of the Tax Code.
speculation, without
proof, that there were In the above provision of the Regulations
taxes due in 1987 and the corporation may request for the
that PBCom availed of refund of the overpaid income tax or
tax-crediting that year.8 claim for automatic tax credit. To insure
prompt action on corporate annual
Simply stated, the main question is: Whether or not the income tax returns showing refundable
Court of Appeals erred in denying the plea for tax refund amounts arising from overpaid quarterly
or tax credits on the ground of prescription, despite income taxes, this Office has
petitioner's reliance on RMC No. 7-85, changing the promulgated Revenue Memorandum
prescriptive period of two years to ten years? Order No. 32-76 dated June 11, 1976,
containing the procedure in processing
Petitioner argues that its claims for refund and tax credits said returns. Under these procedures, the
are not yet barred by prescription relying on the returns are merely pre-audited which
applicability of Revenue Memorandum Circular No. 7-85 consist mainly of checking mathematical
issued on April 1, 1985. The circular states that overpaid accuracy of the figures of the return.
income taxes are not covered by the two-year After which, the refund or tax credit is
prescriptive period under the tax Code and that granted, and, this procedure was
taxpayers may claim refund or tax credits for the excess adopted to facilitate immediate action
quarterly income tax with the BIR within ten (10) years on cases like this.
under Article 1144 of the Civil Code. The pertinent
portions of the circular reads: In this regard, therefore, there is no need
to file petitions for review in the Court of
REVENUE MEMORANDUM CIRCULAR NO. Tax Appeals in order to preserve the right
7-85 to claim refund or tax credit the two year
period. As already stated, actions
hereon by the Bureau are immediate
SUBJECT
after only a cursory pre-audit of the
:
income tax returns. Moreover, a
PROCES
taxpayer may recover from the Bureau
SING OF
of Internal Revenue excess income tax
REFUND
paid under the provisions of Section 86 of
OR TAX
the Tax Code within 10 years from the
CREDIT
date of payment considering that it is an
OF
obligation created by law (Article 1144
EXCESS
of the Civil Code).9 (Emphasis supplied.)
CORPO
RATE
INCOM Petitioner argues that the government is barred from
E TAX asserting a position contrary to its declared circular if it
RESULTI would result to injustice to taxpayers. Citing ABS CBN
NG Broadcasting Corporation vs. Court of Tax
FROM Appeals 10 petitioner claims that rulings or circulars
THE promulgated by the Commissioner of Internal Revenue
FILING have no retroactive effect if it would be prejudicial to
OF THE taxpayers, In ABS-CBN case, the Court held that the
FINAL government is precluded from adopting a position
ADJUST inconsistent with one previously taken where injustice
MENT would result therefrom or where there has been a
RETURN. misrepresentation to the taxpayer.

TO: All Internal Revenue Officers and Petitioner contends that Sec. 246 of the National Internal
Others Concerned. Revenue Code explicitly provides for this rules as follows:

Sec. 85 And 86 Of the National Internal Sec. 246 Non-retroactivity of

Revenue Code provide: rulings— Any revocation, modification or
reversal of any of the rules and
regulations promulgated in accordance
xxx xxx xxx
with the preceding section or any of the
rulings or circulars promulgated by the
The foregoing provisions are Commissioner shall not be given
implemented by Section 7 of Revenue retroactive application if the revocation,
Regulations Nos. 10-77 which provide; modification or reversal will be
prejudicial to the taxpayers except in the
xxx xxx xxx following cases:

It has been observed, however, that a).

because of the excess tax payments, where
corporations file claims for recovery of the
overpaid income tax with the Court of taxpay
 er Basic is the principle that "taxes are the lifeblood of the
deliber nation." The primary purpose is to generate funds for the
ately State to finance the needs of the citizenry and to
misstate advance the common weal. 13 Due process of law under
s or the Constitution does not require judicial proceedings in
omits tax cases. This must necessarily be so because it is upon
material taxation that the government chiefly relies to obtain the
facts means to carry on its operations and it is of utmost
from his importance that the modes adopted to enforce the
return collection of taxes levied should be summary and
or in interfered with as little as possible. 14
any
docum From the same perspective, claims for refund or tax credit
ent should be exercised within the time fixed by law because
require the BIR being an administrative body enforced to collect
d of him taxes, its functions should not be unduly delayed or
by the hampered by incidental matters.
Bureau
of
Sec. 230 of the National Internal Revenue Code (NIRC) of
Internal
1977 (now Sec. 229, NIRC of 1997) provides for the
Revenu
prescriptive period for filing a court proceeding for the
e;
recovery of tax erroneously or illegally collected, viz.:

b).
Sec. 230. Recovery of tax erroneously or
where
illegally collected. — No suit or
the
proceeding shall be maintained in any
facts
court for the recovery of any national
subseq
internal revenue tax hereafter alleged to
uently
have been erroneously or illegally
gathere
assessed or collected, or of any penalty
d by
claimed to have been collected without
the
authority, or of any sum alleged to have
Bureau
been excessive or in any manner
of
wrongfully collected, until a claim for
Internal
refund or credit has been duly filed with
Revenu
the Commissioner; but such suit or
e are
proceeding may be maintained,
material
whether or not such tax, penalty, or sum
ly
has been paid under protest or duress.
differen
t from
the In any case, no such suit or proceedings
facts on shall begun after the expiration of two
which years from the date of payment of the
the tax or penalty regardless of any
ruling is supervening cause that may arise after
based; payment; Provided however, That the
Commissioner may, even without a
written claim therefor, refund or credit
c).
any tax, where on the face of the return
where
upon which payment was made, such
the
payment appears clearly to have been
taxpay
erroneously paid. (Emphasis supplied)
er
acted
in bad The rule states that the taxpayer may file a claim for
faith. refund or credit with the Commissioner of Internal
Revenue, within two (2) years after payment of tax,
before any suit in CTA is commenced. The two-year
Respondent Commissioner of Internal Revenue, through
prescriptive period provided, should be computed from
Solicitor General, argues that the two-year prescriptive
the time of filing the Adjustment Return and final
period for filing tax cases in court concerning income tax
payment of the tax for the year.
payments of Corporations is reckoned from the date of
filing the Final Adjusted Income Tax Return, which is
generally done on April 15 following the close of the In Commissioner of Internal Revenue vs. Philippine
calendar year. As precedents, respondent Commissioner American Life Insurance Co., 15 this Court explained the
cited cases which adhered to this principle, to wit ACCRA application of Sec. 230 of 1977 NIRC, as follows:
Investments Corp. vs. Court of Appeals, et
al., 11 and Commissioner of Internal Revenue vs. TMX Clearly, the prescriptive period of two
Sales, Inc., et al.. 12 Respondent Commissioner also states years should commence to run only from
that since the Final Adjusted Income Tax Return of the the time that the refund is ascertained,
petitioner for the taxable year 1985 was supposed to be which can only be determined after a
filed on April 15, 1986, the latter had only until April 15, final adjustment return is accomplished.
1988 to seek relief from the court. Further, respondent In the present case, this date is April 16,
Commissioner stresses that when the petitioner filed the 1984, and two years from this date would
case before the CTA on November 18, 1988, the same be April 16, 1986. . . . As we have earlier
was filed beyond the time fixed by law, and such failure is said in the TMX Sales case, Sections
fatal to petitioner's cause of action. 68. 16 69, 17 and 70 18 on Quarterly
Corporate Income Tax Payment and
After a careful study of the records and applicable Section 321 should be considered in
jurisprudence on the matter, we find that, contrary to the conjunction with it 19
petitioner's contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards When the Acting Commissioner of Internal Revenue
the two-year prescriptive period set by law. issued RMC 7-85, changing the prescriptive period of two
years to ten years on claims of excess quarterly income
tax payments, such circular created a clear inconsistency
with the provision of Sec. 230 of 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars
are considered administrative rulings (in the sense of
more specific and less general interpretations of tax laws)
which are issued from time to time by the Commissioner
of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such interpretation is
not conclusive and will be ignored if judicially found to be
erroneous. 20 Thus, courts will not countenance
administrative issuances that override, instead of
remaining consistent and in harmony with the law they
seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and
regulations issued by administrative officials to implement
a law cannot go beyond the terms and provisions of the
latter.
Appellant contends that Section 2 of
FAO No. 37-1 is void because it is not only
inconsistent with but is contrary to the
provisions and spirit of Act. No 4003 as
amended, because whereas the
prohibition prescribed in said Fisheries
Act was for any single period of time not
exceeding five years duration, FAO No
37-1 fixed no period, that is to say, it
establishes an absolute ban for all time.
This discrepancy between Act No. 4003
and FAO No. 37-1 was probably due to
an oversight on the part of Secretary of
Agriculture and Natural Resources. Of
course, in case of discrepancy, the basic
Act prevails, for the reason that the
regulation or rule issued to implement a
law cannot go beyond the terms and
provisions of the
latter. . . . In this connection, the
attention of the technical men in the
offices of Department Heads who draft
rules and regulation is called to the
importance and necessity of closely
following the terms and provisions of the
law which they intended to implement,
this to avoid any possible
misunderstanding or confusion as in the
present case.23
Further, fundamental is the rule that the State cannot be
put in estoppel by the mistakes or errors of its officials or
agents. 24 As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of
1977 NIRC. for being contrary to the express provision of a
statute. Hence, his interpretation could not be given
weight for to do so would, in effect, amend the statute.
It is likewise argued that the
Commissioner of Internal Revenue, after
promulgating RMC No. 7-85, is estopped
by the principle of non-retroactively of
BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a
taxpayer may recover the excess
income tax paid within 10 years from
date of payment because this is an
obligation created by law, was issued by
the Acting Commissioner of Internal
Revenue. On the other hand, the
decision, stating that the taxpayer should
still file a claim for a refund or tax credit
and corresponding petition fro review
within the
two-year prescription period, and that
the lengthening of the period of
limitation on refund from two to ten years
would be adverse to public policy and
run counter to the positive mandate of
Sec. 230, NIRC, - was the ruling and
judicial interpretation of the Court of Tax
Appeals. Estoppel has no application in
the case at bar because it was not the
Commissioner of Internal Revenue who
denied petitioner's claim of refund or tax
credit. Rather, it was the Court of Tax
Appeals who denied (albeit correctly)
the claim and in effect, ruled that the
RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an
administrative interpretation which is out
of harmony with or contrary to the
express provision of a statute (specifically
Sec. 230, NIRC), hence, cannot be given
weight for to do so would in effect
amend the statute.25
Art. 8 of the Civil Code 26 recognizes judicial decisions,
applying or interpreting statutes as part of the legal
system of the country. But administrative decisions do not
enjoy that level of recognition. A memorandum-circular
of a bureau head could not operate to vest a taxpayer
with shield against judicial action. For there are no vested
rights to speak of respecting a wrong construction of the
law by the administrative officials and such wrong
interpretation could not place the Government in
estoppel to correct or overrule the same. 27 Moreover, the
non-retroactivity of rulings by the Commissioner of Internal
Revenue is not applicable in this case because the nullity
of RMC No. 7-85 was declared by respondent courts and
not by the Commissioner of Internal Revenue. Lastly, it
must be noted that, as repeatedly held by this Court, a
claim for refund is in the nature of a claim for exemption
and should be construed in strictissimi juris against the
taxpayer.28
On the second issue, the petitioner alleges that the Court
of Appeals seriously erred in affirming CTA's decision
denying its claim for refund of P234,077.69 (tax overpaid
in 1986), based on mere speculation, without proof, that
PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC)
provides that any excess of the total quarterly payments
over the actual income tax computed in the adjustment
or final corporate income tax return, shall either(a) be
refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for
the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate
adjustment return (by marking the option box provided in
the BIR form) its intention, whether to request for a refund
or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection,
these remedies are in the alternative, and the choice of
one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of
income tax over-paid in 1986 — the
Court of Tax Appeals, after examining
the adjusted final corporate annual
income tax return for taxable year 1986,
found out that petitioner opted to apply
for automatic tax credit. This was the
basis used (vis-avis the fact that the 1987
annual corporate tax return was not
offered by the petitioner as evidence) by
the CTA in concluding that petitioner
had indeed availed of and applied the
automatic tax credit to the succeeding
year, hence it can no longer ask for
refund, as to [sic] the two remedies of
refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in
accordance with Sec. 69 of the 1977 NIRC, as specified in
its 1986 Final Adjusted Income Tax Return, is a finding of Add: 50% surcharge 84,636,108
fact which we must respect. Moreover, the 1987 annual
corporate tax return of the petitioner was not offered as
20% int. p.a.fr. 7-15-85 to 8-15-86 36,675,646
evidence to contovert said fact. Thus, we are bound by
the findings of fact by respondent courts, there being no TOTAL AMOUNT DUE P290,583,9
showing of gross error or abuse on their part to disturb our II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
reliance thereon. 31
FY ended March 31, 1985
WHEREFORE, the, petition is hereby DENIED, The decision Undeclared gross income from Philphos and
of the Court of Appeals appealed from is AFFIRMED, with NDC construction projects P483,634,9
COSTS against the petitioner.1âwphi1.nêt Less: Income tax thereon 169,272,21
Amount subject to Tax 314,362,68
SO ORDERED.
Tax due thereon 47,154,403
FIRST DIVISION Add: 50% surcharge 23,577,201

G.R. No. 137377 December 18, 2001 20% int. p.a.fr. 4-26-85 to 8-15-86 12,305,360
TOTAL AMOUNT DUE P83,036,96
COMMISSIONER OF INTERNAL REVENUE, petitioner, III. DEFICIENCY CONTRACTOR'S TAX
vs.
MARUBENI CORPORATION, respondent.
FY ended March 31, 1985

PUNO, J.: Undeclared gross receipts/gross income from

Philphos and NDC construction projects P967,269,8
In this petition for review, the Commissioner of Internal Contractor's tax due thereon (4%) 38,690,792
Revenue assails the decision dated January 15, 1999 of Add: 50% surcharge for non-declaration 19,345,396
the Court of Appeals in CA-G.R. SP No. 42518 which
affirmed the decision dated July 29, 1996 of the Court of
20% surcharge for late payment 9,672,698.0
Tax Appeals in CTA Case No. 4109. The tax court ordered
the Commissioner of Internal Revenue to desist from Sub-total 67,708,886
collecting the 1985 deficiency income, branch profit Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 17,854,739
remittance and contractor's taxes from Marubeni
Corporation after finding the latter to have properly TOTAL AMOUNT DUE P85,563,62
availed of the tax amnesty under Executive Orders Nos. IV. DEFICIENCY COMMERCIAL BROKER'S TAX
41 and 64, as amended.
FY ended March 31, 1985

Respondent Marubeni Corporation is a foreign Undeclared share from commission income

corporation organized and existing under the laws of
Japan. It is engaged in general import and export
trading, financing and the construction business. It is duly
registered to engage in such business in the Philippines
and maintains a branch office in Manila.
Sometime in November 1985, petitioner Commissioner of
Internal Revenue issued a letter of authority to examine
the books of accounts of the Manila branch office of
respondent corporation for the fiscal year ending March
1985. In the course of the examination, petitioner found
respondent to have undeclared income from two (2)
contracts in the Philippines, both of which were
completed in 1984. One of the contracts was with the
National Development Company (NDC) in connection
with the construction and installation of a wharf/port
complex at the Leyte Industrial Development Estate in the
municipality of Isabel, province of Leyte. The other
contract was with the Philippine Phosphate Fertilizer
Corporation (Philphos) for the construction of an
ammonia storage complex also at the Leyte Industrial
Development Estate.
On March 1, 1986, petitioner's revenue examiners
recommended an assessment for deficiency income,
branch profit remittance, contractor's and commercial
broker's taxes. Respondent questioned this assessment in
a letter dated June 5, 1986.
On August 27, 1986, respondent corporation received a
letter dated August 15, 1986 from petitioner assessing
respondent several deficiency taxes. The assessed
deficiency internal revenue taxes, inclusive of surcharge
and interest, were as follows:
I. DEFICIENCY INCOME TAX
FY ended March 31, 1985
Undeclared gross income (Philphos and NDC
construction projects) P967,269,811.14
Less: Cost and expenses (50%)
Net undeclared income
Income tax due thereon
(denominated as "subsidy from Home Office") P24,683,11
Tax due thereon 1,628,569.0
Add: 50% surcharge for non-declaration 814,284.50
20% surcharge for late payment 407,142.2
Sub-total 2,849,995.7
Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 751,539.9
TOTAL AMOUNT DUE P3,600,5
The 50% surcharge was imposed for your client's failure to
report for tax purposes the aforesaid taxable revenues
while the 25% surcharge was imposed because of your
client's failure to pay on time the above deficiency
percentage taxes.
xxx xxx xxx"1
Petitioner found that the NDC and Philphos contracts
were made on a "turn-key" basis and that the gross
income from the two projects amounted to
P967,269,811.14. Each contract was for a piece of work
and since the projects called for the construction and
installation of facilities in the Philippines, the entire income
therefrom constituted income from Philippine sources,
hence, subject to internal revenue taxes. The assessment
letter further stated that the same was petitioner's final
decision and that if respondent disagreed with it,
respondent may file an appeal with the Court of Tax
Appeals within thirty (30) days from receipt of the
assessment.
On September 26, 1986, respondent filed two (2) petitions
for review with the Court of Tax Appeals. The first petition,
CTA Case No. 4109, questioned the deficiency income,
branch profit remittance and contractor's tax
assessments in petitioner's assessment letter. The second,
CTA Case No. 4110, questioned the deficiency
commercial broker's assessment in the same letter.
483,634,905.57
Earlier, on August 2, 1986, Executive Order (E.O.) No.
483,634,905.57
412 declaring a one-time amnesty covering unpaid
169,272,217.00
income taxes for the years 1981 to 1985 was issued. Under
this E.O., a taxpayer who wished to avail of the income
tax amnesty should, on or before October 31, 1986: (a)
file a sworn statement declaring his net worth as of
December 31, 1985; (b) file a certified true copy of his
statement declaring his net worth as of December 31,
1980 on record with the Bureau of Internal Revenue (BIR),
or if no such record exists, file a statement of said net
worth subject to verification by the BIR; and (c) file a
return and pay a tax equivalent to ten per cent (10%) of
the increase in net worth from December 31, 1980 to
December 31, 1985.
In accordance with the terms of E.O. No. 41, respondent
filed its tax amnesty return dated October 30, 1986 and
attached thereto its sworn statement of assets and
liabilities and net worth as of Fiscal Year (FY) 1981 and FY
1986. The return was received by the BIR on November 3,
1986 and respondent paid the amount of P2,891,273.00
equivalent to ten percent (10%) of its net worth increase
between 1981 and 1986.
The period of the amnesty in E.O. No. 41 was later
extended from October 31, 1986 to December 5, 1986 by
E.O. No. 54 dated November 4, 1986.
On November 17, 1986, the scope and coverage of E.O.
No. 41 was expanded by Executive Order (E.O.) No. 64. In
addition to the income tax amnesty granted by E.O. No.
41 for the years 1981 to 1985, E.O. No. 64 3 included
estate and donor's taxes under Title III and the tax on
business under Chapter II, Title V of the National Internal
Revenue Code, also covering the years 1981 to 1985. E.O.
No. 64 further provided that the immunities and privileges
under E.O. No. 41 were extended to the foregoing tax
liabilities, and the period within which the taxpayer could
avail of the amnesty was extended to December 15,
1986. Those taxpayers who already filed their amnesty
return under E.O. No. 41, as amended, could avail
themselves of the benefits, immunities and privileges
under the new E.O. by filing an amended return and
paying an additional 5% on the increase in net worth to
cover business, estate and donor's tax liabilities.
The period of amnesty under E.O. No. 64 was extended to
January 31, 1987 by E.O No. 95 dated December 17,
1986.
On December 15, 1986, respondent filed a supplemental
tax amnesty return under the benefit of E.O. No. 64 and
paid a further amount of P1,445,637.00 to the BIR
equivalent to five percent (5%) of the increase of its net
worth between 1981 and 1986.
On July 29, 1996, almost ten (10) years after filing of the
case, the Court of Tax Appeals rendered a decision in
CTA Case No. 4109. The tax court found that respondent
had properly availed of the tax amnesty under E.O. Nos.
41 and 64 and declared the deficiency taxes subject of
said case as deemed cancelled and withdrawn. The
Court of Tax Appeals disposed of as follows:
"WHEREFORE, the respondent Commissioner of
Internal Revenue is hereby ORDERED to DESIST
from collecting the 1985 deficiency taxes it had
assessed against petitioner and the same are
deemed considered [sic] CANCELLED and
WITHDRAWN by reason of the proper availment
by petitioner of the amnesty under Executive
Order No. 41, as amended."4
Petitioner challenged the decision of the tax court by
filing CA-G.R. SP No. 42518 with the Court of Appeals.
On January 15, 1999, the Court of Appeals dismissed the
petition and affirmed the decision of the Court of Tax
Appeals. Hence, this recourse.
Before us, petitioner raises the following issues:
"(1) Whether or not the Court of Appeals erred in
affirming the Decision of the Court of Tax
Appeals which ruled that herein respondent's
deficiency tax liabilities were extinguished upon
respondent's availment of tax amnesty under
Executive Orders Nos. 41 and 64.
(2) Whether or not respondent is liable to pay the
income, branch profit remittance, and
contractor's taxes assessed by petitioner."5
The main controversy in this case lies in the interpretation
of the exception to the amnesty coverage of E.O. Nos. 41
and 64. There are three (3) types of taxes involved herein
— income tax, branch profit remittance tax and
contractor's tax. These taxes are covered by the
amnesties granted by E.O. Nos. 41 and 64. Petitioner
claims, however, that respondent is disqualified from
availing of the said amnesties because the latter falls
under the exception in Section 4 (b) of E.O. No. 41.
Section 4 of E.O. No. 41 enumerates which taxpayers
cannot avail of the amnesty granted thereunder, viz:
"Sec. 4. Exceptions. — The following taxpayers
may not avail themselves of the amnesty herein
granted:
a) Those falling under the provisions of Executive
Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in
Court as of the effectivity hereof;
c) Those with criminal cases involving violations of
the income tax law already filed in court as of
the effectivity hereof;
d) Those that have withholding tax liabilities
under the National Internal Revenue Code, as
amended, insofar as the said liabilities are
concerned;
e) Those with tax cases pending investigation by
the Bureau of Internal Revenue as of the
effectivity hereof as a result of information
furnished under Section 316 of the National
Internal Revenue Code, as amended;
f) Those with pending cases involving
unexplained or unlawfully acquired wealth
before the Sandiganbayan;
g) Those liable under Title Seven, Chapter Three
(Frauds, Illegal Exactions and Transactions) and
Chapter Four (Malversation of Public Funds and
Property) of the Revised Penal Code, as
amended."
Petitioner argues that at the time respondent filed for
income tax amnesty on October 30, 1986, CTA Case No.
4109 had already been filed and was pending; before
the Court of Tax Appeals. Respondent therefore fell under
the exception in Section 4 (b) of E.O. No. 41.
Petitioner's claim cannot be sustained. Section 4 (b) of
E.O. No. 41 is very clear and unambiguous. It excepts
from income tax amnesty those taxpayers "with income
tax cases already filed in court as of the effectivity
hereof." The point of reference is the date of effectivity of
E.O. No. 41. The filing of income tax cases in court must
have been made before and as of the date
of effectivity of E.O. No. 41. Thus, for a taxpayer not to be
disqualified under Section 4 (b) there must have been no
income tax cases filed in court against him when E.O. No.
41 took effect. This is regardless of when the taxpayer
filed for income tax amnesty, provided of course he files it
on or before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No.
4109 questioning the 1985 deficiency income, branch
profit remittance and contractor's tax assessments was
filed by respondent with the Court of Tax Appeals on
September 26, 1986. When E.O. No. 41 became effective
on August 22, 1986, CTA Case No. 4109 had not yet been
filed in court. Respondent corporation did not fall under
the said exception in Section 4 (b), hence, respondent
was not disqualified from availing of the amnesty for
income tax under E.O. No. 41.
The same ruling also applies to the deficiency branch
profit remittance tax assessment. A branch profit
remittance tax is defined and imposed in Section 24 (b)
(2) (ii), Title II, Chapter III of the National Internal Revenue
Code.6 In the tax code, this tax falls under Title II on
Income Tax. It is a tax on income. Respondent therefore
did not fall under the exception in Section 4 (b) when it
filed for amnesty of its deficiency branch profit
remittance tax assessment.
The difficulty herein is with respect to the contractor's tax
assessment and respondent's availment of the amnesty
under E.O. No. 64. E.O. No. 64 expanded the coverage of
E.O. No. 41 by including estate and donor's taxes and tax
on business. Estate and donor's taxes fall under Title III of
the Tax Code while business taxes fall under Chapter II,
Title V of the same. The contractor's tax is provided in
Section 205, Chapter II, Title V of the Tax Code; it is
defined and imposed under the title on business taxes,
and is therefore a tax on business.7
When E.O. No. 64 took effect on November 17, 1986, it
did not provide for exceptions to the coverage of the
amnesty for business, estate and donor's taxes. Instead,
Section 8 of E.O. No. 64 provided that:
"Section 8. The provisions of Executive Orders Nos.
41 and 54 which are not contrary to or
inconsistent with this amendatory Executive
Order shall remain in full force and effect."
By virtue of Section 8 as afore-quoted, the provisions of
E.O. No. 41 not contrary to or inconsistent with the
amendatory act were reenacted in E.O. No. 64. Thus,
Section 4 of E.O. No. 41 on the exceptions to amnesty
coverage also applied to E.O. No. 64. With respect to
Section 4 (b) in particular, this provision excepts from tax
amnesty coverage a taxpayer who has "income tax
cases already filed in court as of the effectivity hereof." As
to what Executive Order the exception refers to,
respondent argues that because of the words "income"
and "hereof," they refer to Executive Order No. 41.8
In view of the amendment introduced by E.O. No. 64,
Section 4 (b) cannot be construed to refer to E.O. No. 41
and its date of effectivity. The general rule is that an
amendatory act operates prospectively.9 While an
amendment is generally construed as becoming a part
of the original act as if it had always been contained
therein,10 it may not be given a retroactive effect unless it
is so provided expressly or by necessary implication and
no vested right or obligations of contract are thereby
impaired.11
There is nothing in E.O. No. 64 that provides that it should
retroact to the date of effectivity of E.O. No. 41, the
original issuance. Neither is it necessarily implied from E.O.
No. 64 that it or any of its provisions should apply
retroactively. Executive Order No. 64 is a substantive
amendment of E.O. No. 41. It does not merely change
provisions in E.O. No. 41. It supplements the original act by
adding other taxes not covered in the first.12 It has been
held that where a statute amending a tax law is silent as
to whether it operates retroactively, the amendment will
not be given a retroactive effect so as to subject to tax
past transactions not subject to tax under the original
act.13 In an amendatory act, every case of doubt must
be resolved against its retroactive effect.14
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances.
A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law.15 It partakes of an
absolute forgiveness or waiver by the government of its
right to collect what is due it and to give tax evaders who
wish to relent a chance to start with a clean slate.16 A tax
amnesty, much like a tax exemption, is never favored nor
presumed in law.17 If granted, the terms of the amnesty,
like that of a tax exemption, must be construed strictly
against the taxpayer and liberally in favor of the taxing
authority.18 For the right of taxation is inherent in
government. The State cannot strip itself of the most
essential power of taxation by doubtful words. He who
claims an exemption (or an amnesty) from the common
burden must justify his claim by the clearest grant of
organic or state law. It cannot be allowed to exist upon a
vague implication. If a doubt arises as to the intent of the
legislature, that doubt must be resolved in favor of the
state.19
In the instant case, the vagueness in Section 4 (b)
brought about by E.O. No. 64 should therefore be
construed strictly against the taxpayer. The term "income
tax cases" should be read as to refer to estate and
donor's taxes and taxes on business while the word
"hereof," to E.O. No. 64. Since Executive Order No. 64 took
effect on November 17, 1986, consequently, insofar as
the taxes in E.O. No. 64 are concerned, the date of
effectivity referred to in Section 4 (b) of E.O. No. 41 should
be November 17, 1986.
Respondent filed CTA Case No. 4109 on September 26,
1986. When E.O. No. 64 took effect on November 17,
1986, CTA Case No. 4109 was already filed and pending
in court. By the time respondent filed its supplementary
tax amnesty return on December 15, 1986, respondent
already fell under the exception in Section 4 (b) of E.O.
Nos. 41 and 64 and was disqualified from availing of the
business tax amnesty granted therein.
It is respondent's other argument that assuming it did not
validly avail of the amnesty under the two Executive
Orders, it is still not liable for the deficiency contractor's
tax because the income from the projects came from the
"Offshore Portion" of the contracts. The two contracts
were divided into two parts, i.e., the Onshore Portion and
the Offshore Portion. All materials and equipment in the
contract under the "Offshore Portion" were manufactured
and completed in Japan, not in the Philippines, and are
therefore not subject to Philippine taxes.
Before going into respondent's arguments, it is necessary
to discuss the background of the two contracts, examine
their pertinent provisions and implementation.
The NDC and Philphos are two government corporations.
In 1980, the NDC, as the corporate investment arm of the
Philippine Government, established the Philphos to
engage in the large-scale manufacture of phosphatic
fertilizer for the local and foreign markets.20 The Philphos
plant complex which was envisioned to be the largest
phosphatic fertilizer operation in Asia, and among the
largest in the world, covered an area of 180 hectares
within the 435-hectare Leyte Industrial Development
Estate in the municipality of Isabel, province of Leyte.
In 1982, the NDC opened for public bidding a project to
construct and install a modern, reliable, efficient and
integrated wharf/port complex at the Leyte Industrial
Development Estate. The wharf/port complex was
intended to be one of the major facilities for the industrial
plants at the Leyte Industrial Development Estate. It was
to be specifically adapted to the site for the handling of
phosphate rock, bagged or bulk fertilizer products, liquid
materials and other products of Philphos, the Philippine
Associated Smelting and Refining Corporation
(Pasar),21 and other industrial plants within the Estate. The
bidding was participated in by Marubeni Head Office in
Japan.
Marubeni, Japan pre-qualified and on March 22, 1982,
the NDC and respondent entered into an agreement
entitled "Turn-Key Contract for Leyte Industrial Estate Port
Development Project Between National Development
Company and Marubeni Corporation."22 The Port
Development Project would consist of a wharf, berths,
causeways, mechanical and liquids unloading and
loading systems, fuel oil depot, utilities systems, storage
and service buildings, offsite facilities, harbor service
vessels, navigational aid system, fire-fighting system, area
lighting, mobile equipment, spare parts and other related
facilities.23 The scope of the works under the contract
covered turn-key supply, which included grants of
licenses and the transfer of technology and know-
how,24 and:
". . . the design and engineering, supply and
delivery, construction, erection and installation,
supervision, direction and control of testing and
commissioning of the Wharf-Port Complex as set
forth in Annex I of this Contract, as well as the
coordination of tie-ins at boundaries and
schedule of the use of a part or the whole of the
Wharf/Port Complex through the Owner, with the
design and construction of other facilities around
the site. The scope of works shall also include any
activity, work and supply necessary for,
incidental to or appropriate under present
international industrial port practice, for the
timely and successful implementation of the
object of this Contract, whether or not expressly
referred to in the abovementioned Annex I."25
The contract price for the wharf/port complex was
¥12,790,389,000.00 and P44,327,940.00. In the contract,
the price in Japanese currency was broken down into
two portions: (1) the Japanese Yen Portion I; (2) the
Japanese Yen Portion II, while the price in Philippine
currency was referred to as the Philippine Pesos Portion.
The Japanese Yen Portions I and II were financed in two
(2) ways: (a) by yen credit loan provided by the Overseas
Economic Cooperation Fund (OECF); and (b) by
supplier's credit in favor of Marubeni from the Export-
Import Bank of Japan. The OECF is a Fund under the
Ministry of Finance of Japan extended by the Japanese
government as assistance to foreign governments to
promote economic development.26 The OECF extended
to the Philippine Government a loan of ¥7,560,000,000.00
for the Leyte Industrial Estate Port Development Project
and authorized the NDC to implement the same.27 The
other type of financing is an indirect type where the
supplier, i.e., Marubeni, obtained a loan from the Export-
Import Bank of Japan to advance payment to its sub-
contractors.28
Under the financing schemes, the Japanese Yen Portions
I and II and the Philippine Pesos Portion were further
broken down and subdivided according to the materials,
equipment and services rendered on the project. The
price breakdown and the corresponding materials,
equipment and services were contained in a list
attached as Annex III to the contract.29
A few months after execution of the NDC contract,
Philphos opened for public bidding a project to construct
and install two ammonia storage tanks in Isabel. Like the
NDC contract, it was Marubeni Head Office in Japan that
participated in and won the bidding. Thus, on May 2,
1982, Philphos and respondent corporation entered into
an agreement entitled "Turn-Key Contract for Ammonia
Storage Complex Between Philippine Phosphate Fertilizer
Corporation and Marubeni Corporation."30 The object of
the contract was to establish and place in operating
condition a modern, reliable, efficient and integrated
ammonia storage complex adapted to the site for the
receipt and storage of liquid anhydrous ammonia31 and
for the delivery of ammonia to an integrated fertilizer
plant adjacent to the storage complex and to vessels at
the dock.32 The storage complex was to consist of
ammonia storage tanks, refrigeration system, ship
unloading system, transfer pumps, ammonia heating
system, fire-fighting system, area lighting, spare parts, and
other related facilities.33 The scope of the works required
for the completion of the ammonia storage complex
covered the supply, including grants of licenses and
transfer of technology and know-how,34 and:
". . . the design and engineering, supply and
delivery, construction, erection and installation,
supervision, direction and control of testing and
commissioning of the Ammonia Storage
Complex as set forth in Annex I of this Contract,
as well as the coordination of tie-ins at
boundaries and schedule of the use of a part or
the whole of the Ammonia Storage Complex
through the Owner with the design and
construction of other facilities at and around the
Site. The scope of works shall also include any
activity, work and supply necessary for,
incidental to or appropriate under present
international industrial practice, for the timely
and successful implementation of the object of
this Contract, whether or not expressly referred to
in the abovementioned Annex I."35
The contract price for the project was ¥3,255,751,000.00
and P17,406,000.00. Like the NDC contract, the price was
divided into three portions. The price in Japanese
currency was broken down into the Japanese Yen
Portion I and Japanese Yen Portion II while the price in
Philippine currency was classified as the Philippine Pesos
Portion. Both Japanese Yen Portions I and II were
financed by supplier's credit from the Export-Import Bank
of Japan. The price stated in the three portions were
further broken down into the corresponding materials,
equipment and services required for the project and their
individual prices. Like the NDC contract, the breakdown
in the Philphos contract is contained in a list attached to
the latter as Annex III.36
The division of the price into Japanese Yen Portions I and
II and the Philippine Pesos Portion under the two
contracts corresponds to the two parts into which the
contracts were classified — the Foreign Offshore Portion
and the Philippine Onshore Portion. In both contracts, the
Japanese Yen Portion I corresponds to the Foreign
Offshore Portion.37 Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine
Onshore Portion.38
Under the Philippine Onshore Portion, respondent does
not deny its liability for the contractor's tax on the income
from the two projects. In fact respondent claims, which
petitioner has not denied, that the income it derived from
the Onshore Portion of the two projects had been
declared for tax purposes and the taxes thereon already
paid to the Philippine government.39 It is with regard to
the gross receipts from the Foreign Offshore Portion of the
two contracts that the liabilities involved in the
assessments subject of this case arose. Petitioner argues
that since the two agreements are turn-key,40 they call for
the supply of both materials and services to the client,
they are contracts for a piece of work and are indivisible.
The situs of the two projects is in the Philippines, and the
materials provided and services rendered were all done
and completed within the territorial jurisdiction of the
Philippines.41 Accordingly, respondent's entire receipts
from the contracts, including its receipts from the
Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and
materials should be subjected to contractor's tax in
accordance with the ruling in Commissioner of Internal
Revenue v. Engineering Equipment & Supply Co.42
A contractor's tax is imposed in the National Internal
Revenue Code (NIRC) as follows:
"Sec. 205. Contractors, proprietors or operators of
dockyards, and others. —A contractor's tax of
four percent of the gross receipts is hereby
imposed on proprietors or operators of the
following business establishments and/or persons
engaged in the business of selling or rendering
the following services for a fee or compensation:
(a) General engineering, general
building and specialty contractors, as
defined in Republic Act No. 4566;
xxx xxx xxx
 (q) Other independent contractors. The
term "independent contractors" includes
persons (juridical or natural) not
enumerated above (but not including
individuals subject to the occupation tax
under the Local Tax Code) whose
activity consists essentially of the sale of
all kinds of services for a fee regardless of
whether or not the performance of the
service calls for the exercise or use of the
physical or mental faculties of such
contractors or their employees. It does
not include regional or area
headquarters established in the
Philippines by multinational corporations,
including their alien executives, and
which headquarters do not earn or
derive income from the Philippines and
which act as supervisory,
communications and coordinating
centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region.
xxx xxx xxx43
Under the afore-quoted provision, an independent
contractor is a person whose activity consists essentially
of the sale of all kinds of services for a fee, regardless of
whether or not the performance of the service calls for
the exercise or use of the physical or mental faculties of
such contractors or their employees. The word
"contractor" refers to a person who, in the pursuit of
independent business, undertakes to do a specific job or
piece of work for other persons, using his own means and
methods without submitting himself to control as to the
petty details.44
A contractor's tax is a tax imposed upon the privilege of
engaging in business.45 It is generally in the nature of an
excise tax on the exercise of a privilege of selling services
or labor rather than a sale on products;46 and is directly
collectible from the person exercising the
privilege.47 Being an excise tax, it can be levied by the
taxing authority only when the acts, privileges or business
are done or performed within the jurisdiction of said
authority.48 Like property taxes, it cannot be imposed on
an occupation or privilege outside the taxing district.49
In the case at bar, it is undisputed that respondent was
an independent contractor under the terms of the two
subject contracts. Respondent, however, argues that the
work therein were not all performed in the Philippines
because some of them were completed in Japan in
accordance with the provisions of the contracts.
An examination of Annex III to the two contracts reveals
that the materials and equipment to be made and the
works and services to be performed by respondent are
indeed classified into two. The first part, entitled
"Breakdown of Japanese Yen Portion I" provides:
"Japanese Yen Portion I of the Contract Price has
been subdivided according to discrete portions
of materials and equipment which will be
shipped to Leyte as units and lots. This subdivision
of price is to be used by owner to verify invoice
for Progress Payments under Article 19.2.1 of the
Contract. The agreed subdivision of Japanese
Yen Portion I is as follows:
xxx xxx xxx50
The subdivision of Japanese Yen Portion I covers materials
and equipment while Japanese Yen Portion II and the
Philippine Pesos Portion enumerate other materials and
equipment and the construction and installation work on
the project. In other words, the supplies for the project
are listed under Portion I while labor and other supplies
are listed under Portion II and the Philippine Pesos Portion.
Mr. Takeshi Hojo, then General Manager of the Industrial
Plant Section II of the Industrial Plant Department of
Marubeni Corporation in Japan who supervised the
implementation of the two projects, testified that all the
machines and equipment listed under Japanese Yen
Portion I in Annex III were manufactured in Japan.51 The
machines and equipment were designed, engineered
and fabricated by Japanese firms sub-contracted by
Marubeni from the list of sub-contractors in the technical
appendices to each contract.52 Marubeni sub-
contracted a majority of the equipment and supplies to
Kawasaki Steel Corporation which did the design,
fabrication, engineering and manufacture
thereof;53 Yashima & Co. Ltd. which manufactured the
mobile equipment; Bridgestone which provided the
rubber fenders of the mobile equipment;54 and B.S.
Japan for the supply of radio equipment.55 The
engineering and design works made by Kawasaki Steel
Corporation included the lay-out of the plant facility and
calculation of the design in accordance with the
specifications given by respondent.56 All sub-contractors
and manufacturers are Japanese corporations and are
based in Japan and all engineering and design works
were performed in that country.57
The materials and equipment under Portion I of the NDC
Port Project is primarily composed of two (2) sets of ship
unloader and loader; several boats and mobile
equipment.58 The ship unloader unloads bags or bulk
products from the ship to the port while the ship loader
loads products from the port to the ship. The unloader
and loader are big steel structures on top of each is a
large crane and a compartment for operation of the
crane. Two sets of these equipment were completely
manufactured in Japan according to the specifications
of the project. After manufacture, they were rolled on to
a barge and transported to Isabel, Leyte.59 Upon
reaching Isabel, the unloader and loader were rolled off
the barge and pulled to the pier to the spot where they
were installed.60 Their installation simply consisted of
bolting them onto the pier.61
Like the ship unloader and loader, the three tugboats
and a line boat were completely manufactured in
Japan. The boats sailed to Isabel on their own power. The
mobile equipment, consisting of three to four sets of
tractors, cranes and dozers, trailers and forklifts, were also
manufactured and completed in Japan. They were
loaded on to a shipping vessel and unloaded at the
Isabel Port. These pieces of equipment were all on wheels
and self-propelled. Once unloaded at the port, they
were ready to be driven and perform what they were
designed to do.62
In addition to the foregoing, there are other items listed in
Japanese Yen Portion I in Annex III to the NDC contract.
These other items consist of supplies and materials for five
(5) berths, two (2) roads, a causeway, a warehouse, a
transit shed, an administration building and a security
building. Most of the materials consist of steel sheets, steel
pipes, channels and beams and other steel structures,
navigational and communication as well as electrical
equipment.63
In connection with the Philphos contract, the major
pieces of equipment supplied by respondent were the
ammonia storage tanks and refrigeration units.64 The steel
plates for the tank were manufactured and cut in Japan
according to drawings and specifications and then
shipped to Isabel. Once there, respondent's employees
put the steel plates together to form the storage tank. As
to the refrigeration units, they were completed and
assembled in Japan and thereafter shipped to Isabel. The
units were simply installed there. 65 Annex III to the
Philphos contract lists down under the Japanese Yen
Portion I the materials for the ammonia storage tank,
incidental equipment, piping facilities, electrical and
instrumental apparatus, foundation material and spare
parts.
All the materials and equipment transported to the
Philippines were inspected and tested in Japan prior to
shipment in accordance with the terms of the
contracts.66 The inspection was made by representatives
of respondent corporation, of NDC and Philphos. NDC, in
fact, contracted the services of a private consultancy
firm to verify the correctness of the tests on the machines
and equipment67 while Philphos sent a representative to
Japan to inspect the storage equipment.68
The sub-contractors of the materials and equipment
under Japanese Yen Portion I were all paid by
respondent in Japan. In his deposition upon oral
examination, Kenjiro Yamakawa, formerly the Assistant
General Manager and Manager of the Steel Plant
Marketing Department, Engineering & Construction
Division, Kawasaki Steel Corporation, testified that the
equipment and supplies for the two projects provided by
Kawasaki under Japanese Yen Portion I were paid by
Marubeni in Japan. Receipts for such payments were
duly issued by Kawasaki in Japanese and
English.69 Yashima & Co. Ltd. and B.S. Japan were likewise
paid by Marubeni in Japan.70
Between Marubeni and the two Philippine corporations,
payments for all materials and equipment under
Japanese Yen Portion I were made to Marubeni by NDC
and Philphos also in Japan. The NDC, through the
Philippine National Bank, established letters of credit in
favor of respondent through the Bank of Tokyo. The letters
of credit were financed by letters of commitment issued
by the OECF with the Bank of Tokyo. The Bank of Tokyo,
upon respondent's submission of pertinent documents,
released the amount in the letters of credit in favor of
respondent and credited the amount therein to
respondent's account within the same bank.71
Clearly, the service of "design and engineering, supply
and delivery, construction, erection and installation,
supervision, direction and control of testing and
commissioning, coordination. . . "72 of the two projects
involved two taxing jurisdictions. These acts occurred in
two countries — Japan and the Philippines. While the
construction and installation work were completed within
the Philippines, the evidence is clear that some pieces of
equipment and supplies were completely designed and
engineered in Japan. The two sets of ship unloader and
loader, the boats and mobile equipment for the NDC
project and the ammonia storage tanks and refrigeration
units were made and completed in Japan. They were
already finished products when shipped to the
Philippines. The other construction supplies listed under
the Offshore Portion such as the steel sheets, pipes and
structures, electrical and instrumental apparatus, these
were not finished products when shipped to the
Philippines. They, however, were likewise fabricated and
manufactured by the sub-contractors in Japan. All
services for the design, fabrication, engineering and
manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in
Japan. These services were rendered outside the taxing
jurisdiction of the Philippines and are therefore not
subject to contractor's tax.
Contrary to petitioner's claim, the case of Commissioner
of Internal Revenue v. Engineering Equipment & Supply
Co73 is not in point. In that case, the Court found that
Engineering Equipment, although an independent
contractor, was not engaged in the manufacture of air
conditioning units in the Philippines. Engineering
Equipment designed, supplied and installed centralized
air-conditioning systems for clients who contracted its
services. Engineering, however, did not manufacture all
the materials for the air-conditioning system. It imported
some items for the system it designed and installed.74 The
issues in that case dealt with services performed within
the local taxing jurisdiction. There was no foreign element
involved in the supply of materials and services.
With the foregoing discussion, it is unnecessary to discuss
the other issues raised by the parties.
IN VIEW WHEREOF, the petition is denied. The decision in
CA-G.R. SP No. 42518 is affirmed.
SO ORDERED.
EN BANC
G.R. No. L-46720 June 28, 1940
WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-
appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-
appellee.
De Witt, Perkins and Ponce Enrile for appellant.
Office of the Solicitor-General Ozaeta and Assistant
Solicitor-General Concepcion for appellee.
Ross, Lawrence, Selph and Carrascoso, James Madison
Ross and Federico Agrava as amici curiæ.
MORAN, J.:
An appeal from a declaratory judgment rendered by the
Court of First Instance of Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye, died on
September 16, 1932, at Los Angeles, California, the place
of her alleged last residence and domicile. Among the
properties she left her one-half conjugal share in 70,000
shares of stock in the Benguet Consolidated Mining
Company, an anonymous partnership (sociedad
anonima), organized and existing under the laws of the
Philippines, with is principal office in the City of Manila.
She left a will which was duly admitted to probate in
California where her estate was administered and settled.
Petitioner-appellant, Wells Fargo Bank & Union Trust
Company, was duly appointed trustee of the created by
the said will. The Federal and State of California's
inheritance taxes due on said shares have been duly
paid. Respondent Collector of Internal Revenue sought to
subject anew the aforesaid shares of stock to the
Philippine inheritance tax, to which petitioner-appellant
objected. Wherefore, a petition for a declaratory
judgment was filed in the lower court, with the statement
that, "if it should be held by a final declaratory judgment
that the transfer of the aforesaid shares of stock is legally
subject to the Philippine inheritance tax, the petitioner will
pay such tax, interest and penalties (saving error in
computation) without protest and will not file to recover
the same; and the petitioner believes and t herefore
alleges that it should be held that such transfer is not
subject to said tax, the respondent will not proceed to
assess and collect the same." The Court of First Instance
of Manila rendered judgment, holding that the
transmission by will of the said 35,000 shares of stock is
subject to Philippine inheritance tax. Hence, this appeal
by the petitioner.
Petitioner concedes (1) that the Philippine inheritance tax
is not a tax property, but upon transmission by inheritance
(Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2)
that as to real and tangible personal property of a non-
resident decedent, located in the Philippines, the
Philippine inheritance tax may be imposed upon their
transmission by death, for the self-evident reason that,
being a property situated in this country, its transfer is, in
some way, defendant, for its effectiveness, upon
Philippine laws. It is contended, however, that, as to
intangibles, like the shares of stock in question, their situs is
in the domicile of the owner thereof, and, therefore, their
transmission by death necessarily takes place under his
domiciliary laws.
Section 1536 of the Administrative Code, as amended,
provides that every transmission by virtue of inheritance of
any share issued by any corporation of sociedad
anonima organized or constituted in the Philippines, is
subject to the tax therein provided. This provision has
already been applied to shares of stock in a domestic
corporation which were owned by a British subject
residing and domiciled in Great Britain.
(Knowles vs. Yatco, G. R. No. 42967. See
also Gibbs vs. Government of P. I., G. R. No. 35694.)
Petitioner, however, invokes the rule laid down by the
United States Supreme Court in four cases (Farmers Loan
& Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed.,
371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056,
Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75
Law. ed., 131; First National Bank of Boston vs. Maine, 284
U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401),
to the effect that an inheritance tax can be imposed with
respect to intangibles only by the State where the
decedent was domiciled at the time of his death, and
that, under the due-process clause, the State in which a
corporation has been incorporated has no power to
impose such tax if the shares of stock in such corporation
are owned by a non-resident decedent. It is to be
observed, however, that in a later case (Burnet vs. Brooks,
288 U. S., 378; 77 Law. ed., 844), the United States
Supreme Court upheld the authority of the Federal
Government to impose an inheritance tax on the
transmission, by death of a non-resident, of stock in a
domestic (America) corporation, irrespective of the situs
of the corresponding certificates of stock. But it is
contended that the doctrine in the foregoing case is not
applicable, because the due-process clause is directed
at the State and not at the Federal Government, and
that the federal or national power of the United States is
to be determined in relation to other countries and their
subjects by applying the principles of jurisdiction
recognized in international relations. Be that as it may,
the truth is that the due-process clause is "directed at the
protection of the individual and he is entitled to its
immunity as much against the state as against the
national government." (Curry vs. McCanless, 307 U. S.,
357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid
down in the four cases relied upon by the appellant was
predicated on a proper regard for the relation of the
states of the American Union, which requires that
property should be taxed in only one state and that
jurisdiction to tax is restricted accordingly. In other words,
the application to the states of the due-process rule
springs from a proper distribution of their powers and
spheres of activity as ordained by the United States
Constitution, and such distribution is enforced and
protected by not allowing one state to reach out and tax
property in another. And these considerations do not
apply to the Philippines. Our status rests upon a wholly
distinct basis and no analogy, however remote, cam be
suggested in the relation of one state of the Union with
another or with the United States. The status of the
Philippines has been aptly defined as one which, though
a part of the United States in the international sense, is,
nevertheless, foreign thereto in a domestic sense.
(Downes vs. Bidwell, 182 U. S., 244, 341.)
At any rate, we see nothing of consequence in drawing
any distinct between the operation and effect of the
due-process clause as it applies to the individual states
and to the national government of the United States. The
question here involved is essentially not one of due-
process, but of the power of the Philippine Government
to tax. If that power be conceded, the guaranty of due
process cannot certainly be invoked to frustrate it, unless
the law involved is challenged, which is not, on
considerations repugnant to such guaranty of due
process of that of the equal protection of the laws, as,
when the law is alleged to be arbitrary, oppressive or
discriminatory.
Originally, the settled law in the United States is that
intangibles have only one situs for the purpose of
inheritance tax, and that such situs is in the domicile of
the decedent at the time of his death. But this rule has, of
late, been relaxed. The maxim mobilia sequuntur
personam, upon which the rule rests, has been described
as a mere "fiction of law having its origin in consideration
of general convenience and public policy, and cannot
be applied to limit or control the right of the state to tax
property within its jurisdiction" (State Board of
Assessors vs. Comptoir National D'Escompte, 191 U. S.,
388, 403, 404), and must "yield to established fact of legal
ownership, actual presence and control elsewhere, and
cannot be applied if to do so result in inescapable and
patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280
U. S., 83, 91-92) There is thus a marked shift from artificial
postulates of law, formulated for reasons of convenience,
to the actualities of each case.
An examination of the adjudged cases will disclose that
the relaxation of the original rule rests on either of two
fundamental considerations: (1) upon the recognition of
the inherent power of each government to tax persons,
properties and rights within its jurisdiction and enjoying,
thus, the protection of its laws; and (2) upon the principle
that as o intangibles, a single location in space is hardly
possible, considering the multiple, distinct relationships
which may be entered into with respect thereto. It is on
the basis of the first consideration that the case of
Burnet vs.Brooks, supra, was decided by the Federal
Supreme Court, sustaining the power of the Government
to impose an inheritance tax upon transmission, by death
of a non-resident, of shares of stock in a domestic
(America) corporation, regardless of the situs of their
corresponding certificates; and on the basis of the
second consideration, the case of Cury vs. McCanless,
supra.
In Burnet vs. Brooks, the court, in disposing of the
argument that the imposition of the federal estate tax is
precluded by the due-process clause of the Fifth
Amendment, held:
The point, being solely one of jurisdiction to tax,
involves none of the other consideration raised
by confiscatory or arbitrary legislation inconsistent
with the fundamental conceptions of justice
which are embodied in the due-process clause
for the protection of life, liberty, and property of
all persons — citizens and friendly aliens alike.
Russian Volunteer Fleet vs. United States, 282 U. S.,
481, 489; 75 Law ed., 473, 476; 41 S. Ct., 229;
Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law
ed., 1184, 1192; 47 S. Ct., 710; 52 A. L. R., 1081;
Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed.,
772, 779; 52 S. Ct., 358. If in the instant case the
Federal Government had jurisdiction to impose
the tax, there is manifestly no ground for assailing
it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law.
ed., 969, 996; 20 S. Ct., 747; MaGray vs. United
States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S.
Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy
Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414,
415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312;
Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60
Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D;
414, Ann. Cas, 1917B, 713; United
States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed.,
439, 496; 39 S. Ct., 214. (Emphasis ours.)
And, in sustaining the power of the Federal Government
to tax properties within its borders, wherever its owner
may have been domiciled at the time of his death, the
court ruled:
. . . There does not appear, a priori, to be
anything contrary to the principles of
international law, or hurtful to the polity of
nations, in a State's taxing property physically
situated within its borders, wherever its owner
may have been domiciled at the time of his
death. . . .
As jurisdiction may exist in more than one
government, that is, jurisdiction based on distinct
grounds — the citizenship of the owner, his
domicile, the source of income, the situs of the
property — efforts have been made to preclude
multiple taxation through the negotiation of
appropriate international conventions. These
endeavors, however, have proceeded upon
express or implied recognition, and not in denial,
of the sovereign taxing power as exerted by
governments in the exercise of jurisdiction upon
any one of these grounds. . . . (See pages 396-
397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the
question of whether the States of Alabama and
Tennessee may each constitutionally impose death taxes
upon the transfer of an interest in intangibles held in trust
by an Alabama trustee but passing under the will of a
beneficiary decedent domiciles in Tennessee, sustained
the power of each State to impose the tax. In arriving at
this conclusion, the court made the following
observations:
In cases where the owner of intangibles confines
his activity to the place of his domicile it has
been found convenient to substitute a rule for a
reason, cf. New York ex rel., Cohn vs. Graves, 300
U.S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466;
108 A. L. R., 721; First Bank Stock
Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law.
ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by
saying that his intangibles are taxed at their situs
and not elsewhere, or perhaps less artificially, by
invoking the maxim mobilia sequuntur personam.
Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed.,
749; S. Ct., 410, supra; Baldwin vs. Missouri, 281 U.
S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R.,
1303, supra, which means only that it is the
identify owner at his domicile which gives
jurisdiction to tax. But when the taxpayer extends
his activities with respect to his intangibles, so as
to avail himself of the protection and benefit of
the laws of another state, in such a way as to
bring his person or properly within the reach of
the tax gatherer there, the reason for a single
place of taxation no longer obtains, and the rule
even workable substitute for the reasons may
exist in any particular case to support the
constitutional power of each state concerned to
tax. Whether we regard the right of a state to tax
as founded on power over the object taxed, as
declared by Chief Justice Marshall in
McCulloch vs. Maryland, 4 Wheat., 316; 4 Law.
ed., 579, supra, through dominion over tangibles
or over persons whose relationships are source of
intangibles rights, or on the benefit and
protection conferred by the taxing sovereignty,
or both, it is undeniable that the state of domicile
is not deprived, by the taxpayer's activities
elsewhere, of its constitutional jurisdiction to tax,
and consequently that there are many
circumstances in which more than one state may
have jurisdiction to impose a tax and measure it
by some or all of the taxpayer's intangibles.
Shares or corporate stock be taxed at the
domicile of the shareholder and also at that of
the corporation which the taxing state has
created and controls; and income may be taxed
both by the state where it is earned and by the
state of the recipient's domicile. protection,
benefit, and power over the subject matter are
not confined to either state. . . .(p. 1347-1349.)
. . . We find it impossible to say that taxation of
intangibles can be reduced in every case to the
mere mechanical operation of locating at a
single place, and there taxing, every legal
interest growing out of all the complex legal
relationships which may be entered into
between persons. This is the case because in
point of actuality those interests may be too
diverse in their relationships to various taxing
jurisdictions to admit of unitary treatment without
discarding modes of taxation long accepted
and applied before the Fourteen Amendment
was adopted, and still recognized by this Court
as valid. (P. 1351.)
We need not belabor the doctrines of the foregoing
cases. We believe, and so hold, that the issue here
involved is controlled by those doctrines. In the instant
case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled therein. And
besides, the certificates of stock have remained in this
country up to the time when the deceased died in
California, and they were in possession of one Syrena
McKee, secretary of the Benguet Consolidated Mining
Company, to whom they have been delivered and
indorsed in blank. This indorsement gave Syrena McKee
the right to vote the certificates at the general meetings
of the stockholders, to collect dividends, and dispose of
the shares in the manner she may deem fit, without
prejudice to her liability to the owner for violation of
instructions. For all practical purposes, then, Syrena
McKee had the legal title to the certificates of stock held
in trust for the true owner thereof. In other words, the
owner residing in California has extended here her
activities with respect to her intangibles so as to avail
herself of the protection and benefit of the Philippine
laws. Accordingly, the jurisdiction of the Philippine
Government to tax must be upheld.
Judgment is affirmed, with costs against petitioner-
appellant.
Avanceña, C.J., Imperial, Diaz and Concepcion, JJ.,
concur.
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL
MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial
Fiscal Bonifacio R Matol and Assistant Solicitor General
Conrado T. Limcaoco & Solicitor Enrique M. Reyes for
appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First
Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6,
1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under
the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola
Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of
First Instance of Leyte for that court to declare Section 2
of Republic Act No. 2264.1 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, series of 1962, of the municipality of Tanauan,
Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of
Facts, the material portions of which state that, first, both
Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed
therein are practically the same, and second, that on
January 17, 1963, the acting Municipal Treasurer of
Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter
of the provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which
was approved on September 25, 1962, levies and collects
"from soft drinks producers and manufacturers a tai of
one-sixteenth (1/16) of a centavo for every bottle of soft
drink corked." 2 For the purpose of computing the taxes
due, the person, firm, company or corporation producing
soft drinks shall submit to the Municipal Treasurer a
monthly report, of the total number of bottles produced
and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which
was approved on October 28, 1962, 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." 4 For the purpose of computing the
taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to
the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the
month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is
denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte
rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act
No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due
under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling
Company appealed to the Court of Appeals, which, in
turn, elevated the case to Us pursuant to Section 31 of
the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264
an undue delegation of power,
confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27
constitute double taxation and impose
percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27
unjust and unfair?
1. 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. 6 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. 7 This is sanctioned by immemorial practice. 8 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. 9 Under
the New Constitution, local governments are granted the
autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides:
"Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to
such limitations as may be provided by law." Withal, it
cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power
of local taxation.
The plenary nature of the taxing power thus delegated,
contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by
itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to
impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has
not deemed wise to tax for more general purposes. 10 This
is not to say though that the constitutional injunction
against deprivation of property without due process of
law may be passed over under the guise of the taxing
power, except when the taking of the property is in the
lawful exercise of the taxing power, as when (1) the tax is
for a public purpose; (2) the rule on uniformity of taxation
is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax;
and (4) in the assessment and collection of certain kinds
of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax
imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes. But, a
tax does not violate the due process clause, as applied
to a particular taxpayer, although the purpose of the tax
will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised
should be determined by judicial inquiry, and a notice
and hearing as to the amount of the tax and the manner
in which it shall be apportioned are generally not
necessary to due process of law. 12
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. 13 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, since We have not adopted as
part thereof the injunction against double taxation found
in the Constitution of the United States and some states of
the Union.14 Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the
same governmental entity 15 or by the same jurisdiction
for the same purpose, 16 but not in a case where one tax
is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23
and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose
practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally
enforceable. This is not so. As earlier quoted, Ordinance
No. 23, which was approved on September 25, 1962,
levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo
for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that
the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the
Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo
for every bottle corked; in Ordinance No. 27, it is one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus clear: it
was intended as a plain substitute for the prior Ordinance
No. 23, and operates as a repeal of the latter, even
without words to that effect. 18 Plaintiff-appellant in its
brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even
the stipulation of facts confirms the fact that the Acting
Municipal Treasurer of Tanauan, Leyte sought t6 compel
compliance by the plaintiff-appellant of the provisions of
said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance
No. 27, series of 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals
Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining
Ordinance No. 27 imposes a percentage or a specific
tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything,
accepting those which are mentioned therein." As long
as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of
the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the
prohibition against municipalities and municipal districts
to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject
to specific tax except gasoline, under the provisions of
the National Internal Revenue Code." For purposes of this
particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and
the volume of sale of the taxpayer imposes a sales tax
and is null and void for being outside the power of the
municipality to enact. 20 But, the imposition of "a tax of
one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does 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.21
Nor can the tax levied be treated as a specific tax.
Specific taxes are those imposed on specified articles,
such as distilled spirits, wines, fermented liquors, products
of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal,
bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-
forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1-½ centavos per
case, 23 cannot be considered unjust and unfair. 24 an
increase in the tax alone would not support the claim
that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line
with the constutional policy of according the widest
possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the
amount is so excessive as to be prohibitive, courts will go
slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the
law to further strengthen local autonomy were to be
realized. 28
Finally, the municipal license tax of P1,000.00 per corking
machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners
imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under
Ordinance No. 54, series of 1964, as amended by
Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the
validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes
upon persons engaged in any business or occupation but
also to levy for public purposes, just and uniform taxes.
The ordinance in question (Ordinance No. 27) comes
within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of
Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of
Tanauan, Leyte, series of 1962, re-pealing Municipal
Ordinance No. 23, same series, is hereby declared of
valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
EN BANC
G.R. No. L-26521 December 28, 1968
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-
appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision
of the Court of First Instance of Iloilo declaring illegal
Ordinance 11, series of 1960, entitled, "An Ordinance
Imposing Municipal License Tax On Persons Engaged In
The Business Of Operating Tenement Houses," and
ordering the City to refund to the plaintiffs-appellees the
sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City
enacted Ordinance 86, imposing license tax fees as
follows: (1) tenement house (casa de vecindad), P25.00
annually; (2) tenement house, partly or wholly engaged
in or dedicated to business in the streets of J.M. Basa,
Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other
streets, P12.00 per apartment. The validity and
constitutionality of this ordinance were challenged by the
spouses Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement houses containing
34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March
23, 1959, declared the ordinance ultra vires, "it not
appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted
to the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City,
believing, obviously, that with the passage of Republic
Act 2264, otherwise known as the Local Autonomy Act, it
had acquired the authority or power to enact an
ordinance similar to that previously declared by this Court
as ultra vires, enacted Ordinance 11, series of 1960,
hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE
TAX ON PERSONS ENGAGED IN THE BUSINESS OF
OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City
of Iloilo, pursuant to the provisions of Republic
Act No. 2264, otherwise known as the Autonomy
Law of Local Government, that:
Section 1. — A municipal license tax is hereby
imposed on tenement houses in accordance
with the schedule of payment herein provided.
Section 2. — Tenement house as contemplated
in this ordinance shall mean any building or
dwelling for renting space divided into separate
apartments or accessorias.
Section 3. — The municipal license tax provided
in Section 1 hereof shall be as follows:
I. Tenement houses:
(a) Apartment house made of strong materials
(b) Apartment house made of mixed materials
II Rooming house of strong materials
Rooming house of mixed materials
III. Tenement house partly or wholly engaged in o
business in the following streets: J.M. Basa, Iznart,
and Ledesma from Plazoleto Gay to Valeria. St.

IV. Tenement house partly or wholly engaged in or dedicated to
business in any other street
V. Tenement houses at the streets surrounding the super market as
soon as said place is declared commercial
Section 4. — All ordinances or parts thereof
inconsistent herewith are hereby amended.
Section 5. — Any person found violating this
ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an
imprisonment of not more than six (6) months or
both at the discretion of the Court.
Section 6 — This ordinance shall take effect upon
approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and
Remedios S. Villanueva are owners of five tenement
houses, aggregately containing 43 apartments, while the
other appellees and the same Remedios S. Villanueva
are owners of ten apartments. Each of the appellees'
apartments has a door leading to a street and is rented
by either a Filipino or Chinese merchant. The first floor is
utilized as a store, while the second floor is used as a
dwelling of the owner of the store. Eusebio Villanueva
owns, likewise, apartment buildings for rent in Bacolod,
Dumaguete City, Baguio City and Quezon City, which
cities, according to him, do not impose tenement or
apartment taxes.
By virtue of the ordinance in question, the appellant City
collected from spouses Eusebio Villanueva and Remedios
S. Villanueva, for the years 1960-1964, the sum of
P5,824.30, and from the appellees Pio Sian Melliza,
Teresita S. Topacio, and Remedios S. Villanueva, for the
years 1960-1964, the sum of P1,317.00. Eusebio Villanueva
has likewise been paying real estate taxes on his
property.
On July 11, 1962 and April 24, 1964, the plaintiffs-
appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the
aforementioned court, praying that Ordinance 11, series
of 1960, be declared "invalid for being beyond the
powers of the Municipal Council of the City of Iloilo to
enact, and unconstitutional for being violative of the rule
as to uniformity of taxation and for depriving said plaintiffs
of the equal protection clause of the Constitution," and
that the City be ordered to refund the amounts collected
from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment
declaring the ordinance illegal on the grounds that (a)
"Republic Act 2264 does not empower cities to impose
apartment taxes," (b) the same is "oppressive and
unreasonable," for the reason that it penalizes owners of
tenement houses who fail to pay the tax, (c) it constitutes
not only double taxation, but treble at that and (d) it
violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of
Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local
Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and
unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the
rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy
Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary
notwithstanding, all chartered cities,
P12.00 per door p.a.
municipalities and municipal districts shall have
authority to impose municipal license taxes or
fees upon persons engaged in any occupation
P24.00 per door p.a.
or business, or exercising privileges in chartered
cities, municipalities or municipal districts by
requiring them to secure licences at rates fixed
by the municipal board or city council of the city,
the municipal council of the municipality, or the
municipal district council of the municipal district;
to collect fees and charges for services rendered
by the city, municipality or municipal district; to
regulate and impose reasonable fees for services
rendered in connection with any business,
profession or occupation being conducted
within the city, municipality or municipal district
and otherwise to levy for public purposes, just
and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no
case, impose any percentage tax on sales or
other taxes in any form based thereon nor
impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the
National Internal Revenue Code; Provided,
however, That no city, municipality or municipal
district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in
the printing and publication of any newspaper,
magazine, review or bulletin appearing at
regular intervals and having fixed prices for for
subscription and sale, and which is not published
primarily for the purpose of publishing
advertisements;
(d) Taxes on persons operating waterworks,
irrigation and other public utilities except electric
light, heat and power;
(e) Taxes on forest products and forest
concessions;
(f) Taxes on estates, inheritance, gifts, legacies,
and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor
vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on
wharves owned by the national government,
tonnage, and all other kinds of customs fees,
charges and duties;
(j) Taxes of any kind on banks, insurance
companies, and persons paying franchise tax;
and
(k) Taxes on premiums paid by owners of
property who obtain insurance directly with
foreign insurance companies.
A tax ordinance shall go into effect on the
fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided,
however, That the Secretary of Finance shall
have authority to suspend the effectivity of any
ordinance within one hundred and twenty days
after its passage, if, in his opinion, the tax or fee
therein levied or imposed is unjust, excessive,
oppressive, or confiscatory, and when the said
Secretary exercises this authority the effectivity of
such ordinance shall be suspended.
 In such event, the municipal board or city
council in the case of cities and the municipal
council or municipal district council in the case of
municipalities or municipal districts may appeal
the decision of the Secretary of Finance to the
court during the pendency of which case the tax
levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of
Republic Act 2264 confer on local governments broad
taxing authority which extends to almost "everything,
excepting those which are mentioned therein," provided
that the tax so levied is "for public purposes, just and
uniform," and does not transgress any constitutional
provision or is not repugnant to a controlling
statute.2 Thus, when a tax, levied under the authority of a
city or municipal ordinance, is not within the exceptions
and limitations aforementioned, the same comes within
the ambit of the general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat
regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall
within any of the exceptions provided for in section 2 of
the Local Autonomy Act? For this purpose, it is necessary
to determine the true nature of the tax. The appellees
strongly maintain that it is a "property tax" or "real estate
tax,"3 and not a "tax on persons engaged in any
occupation or business or exercising privileges," or a
license tax, or a privilege tax, or an excise tax.4 Indeed,
the title of the ordinance designates it as a
"municipal license tax on persons engaged in
the business of operating tenement houses," while section
1 thereof states that a "municipal license tax is
hereby imposed on tenement houses." It is the
phraseology of section 1 on which the appellees base
their contention that the tax involved is a real estate tax
which, according to them, makes the ordinance ultra
vires as it imposes a levy "in excess of the one per centum
real estate tax allowable under Sec. 38 of the Iloilo City
Charter, Com. Act 158."5.
It is our view, contrary to the appellees' contention, that
the tax in question is not a real estate tax. Obviously, the
appellees confuse the tax with the real estate tax within
the meaning of the Assessment Law,6 which, although
not applicable to the City of Iloilo, has counterpart
provisions in the Iloilo City Charter.7 A real estate tax is a
direct tax on the ownership of lands and buildings or
other improvements thereon, not specially
exempted,8 and is payable regardless of whether the
property is used or not, although the value may vary in
accordance with such factor.9 The tax is usually single or
indivisible, although the land and building or
improvements erected thereon are assessed separately,
except when the land and building or improvements
belong to separate owners.10 It is a fixed proportion11 of
the assessed value of the property taxed, and requires,
therefore, the intervention of assessors.12 It is collected or
payable at appointed times,13 and it constitutes a
superior lien on and is enforceable against the
property14 subject to such taxation, and not by
imprisonment of the owner.
The tax imposed by the ordinance in question does not
possess the aforestated attributes. It is not a tax on the
land on which the tenement houses are erected,
although both land and tenement houses may belong to
the same owner. The tax is not a fixed proportion of the
assessed value of the tenement houses, and does not
require the intervention of assessors or appraisers. It is not
payable at a designated time or date, and is not
enforceable against the tenement houses either by sale
or distraint. Clearly, therefore, the tax in question is not a
real estate tax.
"The spirit, rather than the letter, or an ordinance
determines the construction thereof, and the court looks
less to its words and more to the context, subject-matter,
consequence and effect. Accordingly, what is within the
spirit is within the ordinance although it is not within the
letter thereof, while that which is in the letter, although
not within the spirit, is not within the ordinance."15 It is
within neither the letter nor the spirit of the ordinance that
an additional real estate tax is being imposed, otherwise
the subject-matter would have been not merely
tenement houses. On the contrary, it is plain from the
context of the ordinance that the intention is to impose a
license tax on the operation of tenement houses, which is
a form of business or calling. The ordinance, in both its
title and body, particularly sections 1 and 3 thereof,
designates the tax imposed as a "municipal license tax"
which, by itself, means an "imposition or exaction on the
right to use or dispose of property, to pursue a business,
occupation, or calling, or to exercise a privilege."16.
"The character of a tax is not to be fixed by any
isolated words that may beemployed in the
statute creating it, but such words must be taken
in the connection in which they are used and the
true character is to be deduced from the nature
and essence of the subject."17 The subject-matter
of the ordinance is tenement houses whose
nature and essence are expressly set forth in
section 2 which defines a tenement house as
"any building or dwelling for renting
space divided into separate apartments or
accessorias." The Supreme Court, in City of Iloilo
vs. Remedios Sian Villanueva, et al., L-12695,
March 23, 1959, adopted the definition of a
tenement house18 as "any house or building, or
portion thereof, which is rented, leased, or hired
out to be occupied, or is occupied, as the home
or residence of three families or more living
independently of each other and doing their
cooking in the premises or by more than two
families upon any floor, so living and cooking, but
having a common right in the halls, stairways,
yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for
rent or lease by their very nature and essence,
therefore constitute a distinct form of business or
calling, similar to the hotel or motel business, or
the operation of lodging houses or boarding
houses. This is precisely one of the reasons why
this Court, in the said case of City of Iloilo vs.
Remedios Sian Villanueva, et al., supra, declared
Ordinance 86 ultra vires, because, although the
municipal board of Iloilo City is empowered,
under sec. 21, par. j of its Charter, "to tax, fix the
license fee for, and regulate hotels, restaurants,
refreshment parlors, cafes, lodging houses,
boarding houses, livery garages, public
warehouses, pawnshops, theaters,
cinematographs," tenement houses, which
constitute a different business enterprise,19 are
not mentioned in the aforestated section of the
City Charter of Iloilo. Thus, in the aforesaid case,
this Court explicitly said:.
"And it not appearing that the power to
tax owners of tenement houses is one among
those clearly and expressly granted to the City of
Iloilo by its Charter, the exercise of such power
cannot be assumed and hence the ordinance in
question is ultra vires insofar as it taxes a
tenement house such as those belonging to
defendants." .
The lower court has interchangeably denominated the
tax in question as a tenement tax or an apartment tax.
Called by either name, it is not among the exceptions
listed in section 2 of the Local Autonomy Act. On the
other hand, the imposition by the ordinance of a license
tax on persons engaged in the business of operating
tenement houses finds authority in section 2 of the Local
Autonomy Act which provides that chartered cities have
the authority to impose municipal license taxes or fees
upon persons engaged in any occupation or business, or
exercising privileges within their respective territories, and
"otherwise to levy for public purposes, just and uniform
taxes, licenses, or fees." .
2. The trial court condemned the ordinance as
constituting "not only double taxation but treble at that,"
because "buildings pay real estate taxes and also
income taxes as provided for in Sec. 182 (A) (3) (s) of the
National Internal Revenue Code, besides the tenement
tax under the said ordinance." Obviously, what the trial
court refers to as "income taxes" are the fixed taxes on
business and occupation provided for in section 182, Title
V, of the National Internal Revenue Code, by virtue of
which persons engaged in "leasing or renting property,
whether on their account as principals or as owners of
rental property or properties," are considered "real estate
dealers" and are taxed according to the amount of their
annual income.20.
While it is true that the plaintiffs-appellees are taxable
under the aforesaid provisions of the National Internal
Revenue Code as real estate dealers, and still taxable
under the ordinance in question, the argument against
double taxation may not be invoked. The same tax may
be imposed by the national government as well as by the
local government. There is nothing inherently obnoxious in
the exaction of license fees or taxes with respect to the
same occupation, calling or activity by both the State
and a political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly
taxed because they are paying the real estate taxes and
the tenement tax imposed by the ordinance in question,
is also devoid of merit. It is a well-settled rule that a license
tax may be levied upon a business or occupation
although the land or property used in connection
therewith is subject to property tax. The State may collect
an ad valorem tax on property used in a calling, and at
the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sensea
double tax.22.
"In order to constitute double taxation in the
objectionable or prohibited sense the same
property must be taxed twice when it should be
taxed but once; both taxes must be imposed on
the same property or subject-matter, for the
same purpose, by the same State, Government,
or taxing authority, within the same jurisdiction or
taxing district, during the same taxing period,
and they must be the same kind or character of
tax."23 It has been shown that a real estate tax
and the tenement tax imposed by the
ordinance, although imposed by the sametaxing
authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against
double taxation in the Philippines.24 It is something not
favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as
the requirement that taxes must be uniform."25.
3. The appellant City takes exception to the conclusion of
the lower court that the ordinance is not only oppressive
because it "carries a penal clause of a fine of P200.00 or
imprisonment of 6 months or both, if the owner or owners
of the tenement buildings divided into apartments do not
pay the tenement or apartment tax fixed in said
ordinance," but also unconstitutional as it subjects the
owners of tenement houses to criminal prosecution for
non-payment of an obligation which is purely sum of
money." The lower court apparently had in mind, when it
made the above ruling, the provision of the Constitution
that "no person shall be imprisoned for a debt or non-
payment of a poll tax."26 It is elementary, however, that "a
tax is not a debt in the sense of an obligation incurred by
contract, express or implied, and therefore is not within
the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a
statute or ordinance which punishes the non-payment
thereof by fine or imprisonment is not, in conflict with that
prohibition."27 Nor is the tax in question a poll tax, for the
latter is a tax of a fixed amount upon all persons, or upon
all persons of a certain class, resident within a specified
territory, without regard to their property or the
occupations in which they may be engaged.28 Therefore,
the tax in question is not oppressive in the manner the
lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for
violations of ordinances, which shall not exceed a fine of
two hundred pesos or six months' imprisonment, or both
such fine and imprisonment for each offense." In
Punsalan, et al. vs. Mun. Board of Manila, supra, this Court
overruled the pronouncement of the lower court
declaring illegal and void an ordinance imposing an
occupation tax on persons exercising various professions
in the City of Manilabecause it imposed a penalty of fine
and imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the
rule of uniformity of taxation.
"... because while the owners of the other
buildings only pay real estate tax and income
taxes the ordinance imposes aside from these
two taxes an apartment or tenement tax. It
should be noted that in the assessment of real
estate tax all parts of the building or buildings are
included so that the corresponding real estate
tax could be properly imposed. If aside from the
real estate tax the owner or owners of the
tenement buildings should pay apartment taxes
as required in the ordinance then it will violate
the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the
appellees argue that there is "lack of uniformity" and
"relative inequality," because "only the taxpayers of the
City of Iloilo are singled out to pay taxes on their
tenement houses, while citizens of other cities, where their
councils do not enact a similar tax ordinance, are
permitted to escape such imposition." .
It is our view that both assertions are undeserving of
extended attention. This Court has already ruled that
tenement houses constitute a distinct class of property. It
has likewise ruled that "taxes are uniform and equal when
imposed upon all property of the same class or character
within the taxing authority."31 The fact, therefore, that the
owners of other classes of buildings in the City of Iloilo do
not pay the taxes imposed by the ordinance in question is
no argument at all against uniformity and equality of the
tax imposition. Neither is the rule of equality and
uniformity violated by the fact that tenement taxesare
not imposed in other cities, for the same rule does not
require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same
time.32 So long as the burden of the tax falls equally and
impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of
taxation is accomplished.33 The plaintiffs-appellees, as
owners of tenement houses in the City of Iloilo, have not
shown that the tax burden is not equally or uniformly
distributed among them, to overthrow the presumption
that tax statutes are intended to operate uniformly and
equally.34.
5. The last important issue posed by the appellees is that
since the ordinance in the case at bar is a mere
reproduction of Ordinance 86 of the City of Iloilo which
was declared by this Court in L-12695, supra, as ultra vires,
the decision in that case should be accorded the effect
of res judicata in the present case or should constitute
estoppel by judgment. To dispose of this contention, it
suffices to say that there is no identity of subject-matter in
that case andthis case because the subject-matter in L-
12695 was an ordinance which dealt not only with
tenement houses but also warehouses, and the said
ordinance was enacted pursuant to the provisions of the
City charter, while the ordinance in the case at bar was
enacted pursuant to the provisions of the Local
Autonomy Act. There is likewise no identity of cause of
action in the two cases because the main issue in L-12695
was whether the City of Iloilo had the power under its
charter to impose the tax levied by Ordinance 11, series
of 1960, under the Local Autonomy Act which took effect
on June 19, 1959, and therefore was not available for
consideration in the decision in L-12695 which was
promulgated on March 23, 1959. Moreover, under the
provisions of section 2 of the Local Autonomy Act, local
governments may now tax any taxable subject-matter or
object not included in the enumeration of matters
removed from the taxing power of local
governments.Prior to the enactment of the Local
Autonomy Act the taxes that could be legally levied by
local governments were only those specifically authorized
by law, and their power to tax was construed in strictissimi
juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the

ordinance in questionbeing valid, the complaint is hereby
dismissed. No pronouncement as to costs..