a.

Inherent Limitations
i. Public purpose
1. Esso Standard Eastern, Inc. v. Acting Comissioner of
Customs, 18 SCRA 488

ESSO STANDARD EASTERN, INC. vs. ACTING COMMISSIONER OF CUSTOMS

18 SCRA 488
GR No. L-21841, October 28, 1966

"Exemptions from taxation are construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority."

FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for
the refund of special import taxes paid pursuant to the provision of RA 1394 which
imposed a special import tax "on all goods, articles or products imported or brought into
the Philippines." Exempt from this tax, by express mandate of Section 6 of the same law
are "machinery, equipment, accessories, and spare parts, for the use of industries,
miners, mining enterprises, planters and farmers". Petitioner argued that the importation
it made of gas pumps used by their gasoline station operators should fall under such
exemptions, being directly used in its industry. The Collector of Customs of Manila
rejected the claim, and so as the Court on Tax Appeals. The CTA noted that the pumps
imported were not used in the processing of gasoline and other oil products but by the
gasoline stations, owned by the petitioner, for pumping out, from underground barrels,
gasoline sold on retail to customers.

ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the
exemptions?

HELD: No. The contention runs smack against the familiar rules that exemption from
taxation is not favored, and that exemptions in tax statutes are never presumed. Which
are but statements in adherence to the ancient rule that exemptions from taxation are
construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. Tested by this precept, we cannot indulge in expansive construction and write
into the law an exemption not therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express terms certain exemptions, those
are the exemptions to be considered, and no more. Since the law states that, to be tax-
exempt, equipment and spare parts should be "for the use of industries", the coverage
herein should not be enlarged to include equipment and spare parts for use in dispensing
gasoline at retail.

2. Planters Products, Inc. v. FertiPhil Corp., G.R. No.

166006, 14 March 2008

PLANTERS PRODUCTS VS FERTIPHIL

G.R. No. 166006
PLANTERS PRODUCTS, INC
Petitioner,
FERTIPHIL CORPORATION,
Respondent.

Petitioner PPI and private respondent Fertiphil are private corporations incorporated
under Philippine laws. They are both engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of a capital
recovery component (CRC) on the domestic sale of all grades of fertilizers in the
Philippines. The LOI provides:

The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 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.

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount
collected to the Far East Bank and Trust Company, the depositary bank of
PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10
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.

Unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial

of due process of law. 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, 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.

Issue: 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.

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, 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. The power of taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.

While it is true that the power of taxation can be used as an implement of police power,
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.

Notes:

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. 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.”

The doctrine of operative fact, as an exception to the general rule, only applies as a
matter of equity and fair play. It 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.

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 jeopardy
or would put in limbo the acts done by a municipality in reliance upon a law creating it.
3. Bagatsing v. Ramirez, 74 SCRA 306

"The entrusting of the tax collection to private entities does not destroy the public
purpose of a tax ordinance."

FACTS: Aside from the issue on publication, private respondent bewails that the market
stall fees imposed in the disputed City Ordinance No. 7522, which regulates public
markets and prescribes fees for rentals of stalls, are diverted to the exclusive private
use of the Asiatic Integrated Corporation since the collection of said fees had been let
by the City of Manila to the said corporation in a "Management and Operating Contract."

ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax
ordinance and defeats its public purpose?

HELD: No. The assumption is of course saddled on erroneous premise. The fees
collected do not go direct to the private coffers of the corporation. Ordinance No. 7522
was not made for the corporation but for the purpose of raising revenues for the city.
That is the object it serves. The entrusting of the collection of the fees does not destroy
the public purpose of the ordinance. So long as the purpose is public, it does not matter
whether the agency through which the money is dispensed is public or private. The right
to tax depends upon the ultimate use, purpose and object for which the fund is raised. It
is not dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed for a public
purpose, although it be under the direction of an individual or private corporation.

4. Gomez vs. Palomar, 24 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was
returned to the petitioner. Petitioner now assails the constitutionality of the statute
claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the
equal protection clause because 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 exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall be delivered
unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the
equal protection clause?
HELD: No. It is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions. This power has aptly been described as "of wide
range and flexibility." Indeed, it is said that in the field of taxation, more than in other
areas, the legislature possesses the greatest freedom in classification. 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.
The classification of mail users is based on the ability to pay, the enjoyment of a
privilege and on administrative convenience. Tax exemptions have never been thought
of as raising revenues under the equal protection clause.

5. Pascual vs. Secretary of Public Works, 110 Phil 331

"A law appropriating the public revenue is invalid if the public advantage or benefit,
derived from such expenditure, is merely incidental in the promotion of a particular
enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory
relief, with injunction, upon the ground that RA No. 920, which apropriates funds for
public works particularly for the construction and improvement of Pasig feeder road
terminals. Some of the feeder roads, however, as alleged and as contained in the
tracings attached to the petition, were nothing but projected and planned subdivision
roads, not yet constructed within the Antonio Subdivision, belonging to private
respondent Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not
connect any government property or any important premises to the main highway. The
respondents' contention is that there is public purpose because people living in the
subdivision will directly be benefitted from the construction of the roads, and the
government also gains from the donation of the land supposed to be occupied by the
streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the
purpose of justifying an expenditure of the government?

HELD: No. It is a general rule that the legislature is without power to appropriate public
revenue for anything but a public purpose. It is the essential character of the direct
object of the expenditure which must determine its validity as justifying a tax, and not
the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited
by their promotion. Incidental to the public or to the state, which results from the
promotion of private interest and the prosperity of private enterprises or business, does
not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public funds is whether
the statute is designed to promote the public interest, as opposed to the furtherance of
the advantage of individuals, although each advantage to individuals might incidentally
serve the public.
 6. Lutz vs. Araneta, 98 Phil 148, G.R. No. L-7859, 22
December 1955

FACTS: 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 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.
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 constitutionally levied. The action
having been dismissed by the Court of First Instance, the plaintiffs appealed the case
directly to this Court (Judiciary Act, section 17).
ISSUE: Whether or not the CA No. 567 or Sugar Adjustment Act is constitutional and for
public purpose.
HELD: 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, 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.
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
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.
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".
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".

7. Ferrer v. Bautista, 760 SCRA 652

Facts:
 The City of Quezon passed two ordinances namely.
 The first one was the Socialized Housing Tax (SHT)of QC allowing the imposition
of special assessment (1/2 of the assessed valued of land in excess of P100k)
 The second one was Ordinance No. SP-2235, S-2013 on Garbage Collection Fees
imposing fees depending on the amount of the land or floor area).
 Jose Ferrer, as a property in Quezon City questioned the validity of the city
ordinances.
 According to Ferrer:
 The city has no power to impose the tax.
  The SHT violates the rule on equality because it burdens real property owners
with expenses to provide funds for the housing of informal settlers.
 The SHT is confiscatory or oppressive.
 Also, he assails the validity of the garbage fees imposition because:
 It violates the rule on double taxation.
 It violates the rule on equality because the fees are collected from only
domestic households and not from restaurants, food courts, fast food chains,
and other commercial dining places that spew garbage much more than
residential property owners.

Issue: WON the ordinances were valid.

Held:

1st ordinance: Socialized Housing Tax of Quezon City is valid.

Cities have the power to tax

It must be noted that local government units such as cities has the power to tax. The
collection for the socialized housing tax is valid. It must be noted that the collections
were made to accrue to the socialized housing programs and projects of the city.

The imposition was for a public purpose (exercise of power of taxation + police power)
In this case, there was both an exercise of the power to tax (primary) and police power
(incidental). Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real property
owners as well.
The situation will improve the value of the their property investments, fully enjoying the
same in view of an orderly, secure, and safe community, and will enhance the quality of
life of the poor, making them law-abiding constituents and better consumers of business
products.

There is no violation of the rule on equality

Note: There is a substantial distinction between: real property owner and an informal
settler. In fact, the Supreme Court said that the disparity is so obvious. It is inherent in
the power to tax that a State is free to select the subjects of taxation. Inequities which
result from a singling out of one particular class for taxation or exemption infringe no
constitutional limitation.

All these requisites are complied with: An ordinance based on reasonable classification
does not violate the constitutional guaranty of the equal protection of the law. The
requirements for a valid and reasonable classification are: (1) it must rest on substantial
distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited
to existing conditions only; and (4) it must apply equally to all members of the same
class.

The ordinance is not oppressive or confiscatory

The ordinance is also not oppressive since the tax rate being imposed is consistent with
the UDHA (Urban Development and Housing Act of 1992). While the law authorizes
LGUs to collect SHT on properties with an assessed value of more than P50,000.00,
the questioned ordinance only covers properties with an assessed value exceeding
P100,000.00. As well, the ordinance provides for a tax credit equivalent to the total
amount of the special assessment paid by the property owner beginning in the sixth
(6th) year of the effectivity of the ordinance.

2nd ordinance: The imposition of garbage fee is invalid.

Note: There was no violation of double taxation but there was a violation of the rule on
equity.

There is no violation of double taxation: the garbage fees are not taxes
In Progressive Development Corporation v. Quezon City, the Court declared that:
"if the generating of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax."

Contention of Ferrer: that the imposition of garbage fee is tantamount to double taxation
because garbage collection is a basic and essential public service that should be paid
out from property tax, business tax, transfer tax, amusement tax, community tax
certificate, other taxes, and the IRA of the Quezon City Government. All these are valid
taxes. The garbage fees are license fees

Footnote: 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.

There is a violation of the rule on equality: no substantial distinction

There is no substantial distinction between an occupant of a lot, on one hand, and an
occupant of a unit in a condominium, socialized housing project or apartment, on the
other hand.
Most likely, garbage output produced by these types of occupants is uniform and does
not vary to a large degree; thus, a similar schedule of fee is both just and equitable.

The garbage fees or rates are unjust and inequitable

A resident of a 200 sq. m. unit in a condominium or socialized housing project has to
pay twice the amount than a resident of a lot similar in size; unlike unit occupants, all
occupants of a lot with an area of 200 sq. m. and less have to pay a fixed rate of
Php100.00; and the same amount of garbage fee is imposed regardless of whether the
resident is from a condominium or from a socialized housing project.
The classifications are not germane to the purpose of the ordinance
The declared purpose is: "promoting shared responsibility with the residents to attack
their common mindless attitude in over-consuming the present resources and in
generating waste."

Instead of simplistically categorizing the payee into land or floor occupant of a lot or unit
of a condominium, socialized housing project or apartment, respondent City Council
should have considered factors that could truly measure the amount of wastes
generated and the appropriate fee for its collection. Factors include, among others,
household age and size, accessibility to waste collection, population density of the
barangay or district, capacity to pay, and actual occupancy of the property.

SC:
→ Validity of Socialized Housing Tax of Quezon City is upheld.
→ Ordinance No. SP-2235, S-2013, which collects an annual garbage fee on all
domestic households in Quezon City, is unconstitutional and illegal.

 Taxpayer’s Suit
i. Tolentino v. Comelec, 41 SCRA 702
ii. Sanidad v. Comelec, 73 SCRA 333

FACTS: On September 2, 1976, President Ferdinand E. Marcos issued Presidential

Decree No. 991 to call for a national referendum on October 16, 1976 through the so-
called Citizens Assemblies (“barangays”). Its primary purpose is to resolve the issues of
martial law (as to its existence and length of effectivity).

On September 22, the president issued another proclamation (P.D. 1033) to specify the
questions that are to be asked during the referendum on October 16. The first question
is whether or not the citizen wants martial law to continue, and the second one asks for
the approval on several proposed amendments to the existing Constitution.
The COMELEC was vested with the exclusive supervision and control of the national
referendum in October 16.

Father and son, Pablo and Pablito Sanidad filed for prohibition with preliminary
injunction to enjoin the COMELEC from holding and conducting the Referendum
Plebiscite on October 16, and to declare without force and effect Presidential Decree
Nos. 991 and 1033, insofar as they propose amendments to the Constitution.

Another petitioner, Vicente Guzman filed for prohibition with preliminary injunction,
asserting that the power to propose amendments or revisions of the Constitution during
the transition period is expressly conferred to the interim National Assembly under
Section 16, Article XVII of the Constitution.
Another set of petitioners, Raul Gonzales and Alfredo Salapantan sought to restrain the
implementation of Presidential Decrees relative to the forthcoming Referendum-
Plebiscite of October 16. They assert that the incumbent President cannot act as a
constituent assembly to propose amendments to the Constitution and a referendum-
plebiscite is untenable under the Constitutions of 1935 and 1973.

The submission of the proposed amendments in such a short period of time for
deliberation renders the plebiscite a nullity. To lift Martial Law, the President need not
consult the people via referendum; and allowing 15-.year olds to vote would amount to
an amendment of the Constitution, which confines the right of suffrage to those citizens
of the Philippines 18 years of age and above.

The Solicitor General contends that petitioners have no standing to sue, and that the
issue raised is political in nature – and thus it cannot be reviewed by the court. The
Solicitor General also asserts that at this state of the transition period, only the
incumbent President has the authority to exercise constituent power; the referendum-
plebiscite is a step towards normalization.

ISSUE: WON the issue poses a justiciable question (specifically on the constitutionality
of PDs 991 and 1033).

Ruling:As a preliminary resolution, We rule that the petitioners in L-44640 (Pablo C.

Sanidad and Pablito V. Sanidad) possess locus standi to challenge the constitutional
premise of Presidential Decree Nos. 991, 1031, and 1033. It is now an ancient rule that
the valid source of a stature Presidential Decrees are of such nature-may be contested
by one who will sustain a direct injuries as a in result of its enforcement. At the instance
of taxpayers, laws providing for the disbursement of public funds may be enjoined, upon
the theory that the expenditure of public funds by an officer of the State for the purpose
of executing an unconstitutional act constitutes a misapplication of such funds. 4 The
breadth of Presidential Decree No. 991 carries all appropriation of Five Million Pesos for
the effective implementation of its purposes. 5 Presidential Decree No. 1031
appropriates the sum of Eight Million Pesos to carry out its provisions. 6 The interest of
the aforenamed petitioners as taxpayers in the lawful expenditure of these amounts of
public money sufficiently clothes them with that personality to litigate the validity of the
Decrees appropriating said funds. Moreover, as regards taxpayer's suits, this Court
enjoys that open discretion to entertain the same or not. 7 For the present case, We
deem it sound to exercise that discretion affirmatively so that the authority upon which
the disputed Decrees are predicated may be inquired into.
iii. Jumamil v. Café, G. R No. 144570

Facts: In 1989, Vivencio V. Jumamil filed before the Regional Trial Court (RTC) of
Panabo, Davao del Norte a petition for declaratory relief with prayer for preliminary
injunction and writ of restraining order against Mayor Jose J. Cafe and the members of
the Sangguniang Bayan of Panabo, Davao del Norte. He questioned the
constitutionality of Municipal Resolution 7, Series of 1989 (Resolution 7). Resolution 7,
enacting Appropriation Ordinance 111, provided for an initial appropriation of P765,000
for the construction of stalls around a proposed terminal fronting the Panabo Public
Market which was destroyed by fire. Subsequently, the petition was amended due to the
passage of Resolution 49, series of 1989 (Resolution 49), denominated as Ordinance
10, appropriating a further amount of P1,515,000 for the construction of additional stalls
in the same public market. Prior to the passage of these resolutions, Mayor Cafe had
already entered into contracts with those who advanced and deposited (with the
municipal treasurer) from their personal funds the sum of P40,000 each. Some of the
parties were close friends and/or relatives of Cafe, et al. The construction of the stalls
which Jumamil sought to stop through the preliminary injunction in the RTC was
nevertheless finished, rendering the prayer therefor moot and academic. The leases of
the stalls were then awarded by public raffle which, however, was limited to those who
had deposited P40,000 each. Thus, the petition was amended anew to include the 57
awardees of the stalls as private respondents. Jumamil alleges that Resolution Nos. 7
and 49 were unconstitutional because they were passed for the business, occupation,
enjoyment and benefit of private respondents, some of which were close friends and/or
relative of the mayor and the sanggunian, who deposited the amount of P40,000.00 for
each stall, and with whom also the mayor had a prior contract to award the would be
constructed stalls to all private respondents; that resolutions and ordinances did not
provide for any notice of publication that the special privilege and unwarranted benefits
conferred on the private respondents may be availed of by anybody who can deposit
the amount of P40,000; and that nor there were any prior notice or publication
pertaining to contracts entered into by public and private respondents for the
construction of stalls to be awarded to private respondents that the same can be availed
of by anybody willing to deposit P40,000.00. The Regional Trial Court dismissed
Jumamil’s petition for declaratory relief with prayer for preliminary injunction and writ of
restraining order, and ordered Jumamil to pay attorney’s fees in the amount of P1,000
to each of the 57 private respondents. On appeal, and on 24 July 2000 (CA GR CV
35082), the Court of Appeals affirmed the decision of the trial court. Jumamil filed the
petition for review on certiorari.
Issue [1]: Whether Jumamil had the legal standing to bring the petition for declaratory
relief
Held [1]: Legal standing or locus standi is a party’s personal and substantial interest in a
case such that he has sustained or will sustain direct injury as a result of the
governmental act being challenged. It calls for more than just a generalized grievance.
The term “interest” means a material interest, an interest in issue affected by the
decree, as distinguished from mere interest in the question involved, or a mere
incidental interest. Unless a person’s constitutional rights are adversely affected by the
statute or ordinance, he has no legal standing. Jumamil brought the petition in his
capacity as taxpayer of the Municipality of Panabo, Davao del Norte and not in his
personal capacity. He was questioning the official acts of the the mayor and the
members of the Sanggunian in passing the ordinances and entering into the lease
contracts with private respondents. A taxpayer need not be a party to the contract to
challenge its validity. Parties suing as taxpayers must specifically prove sufficient
interest in preventing the illegal expenditure of money raised by taxation. The
expenditure of public funds by an officer of the State for the purpose of executing an
unconstitutional act constitutes a misapplication of such funds. The resolutions being
assailed were appropriations ordinances. Jumamil alleged that these ordinances were
“passed for the business, occupation, enjoyment and benefit of private respondents”
(that is, allegedly for the private benefit of respondents) because even before they were
passed, Mayor Cafe and private respondents had already entered into lease contracts
for the construction and award of the market stalls. Private respondents admitted they
deposited P40,000 each with the municipal treasurer, which amounts were made
available to the municipality during the construction of the stalls. The deposits, however,
were needed to ensure the speedy completion of the stalls after the public market was
gutted by a series of fires. Thus, the award of the stalls was necessarily limited only to
those who advanced their personal funds for their construction. Jumamil did not
seasonably allege his interest in preventing the illegal expenditure of public funds or the
specific injury to him as a result of the enforcement of the questioned resolutions and
contracts. It was only in the “Remark to Comment” he filed in the Supreme Court did he
first assert that “he (was) willing to engage in business and (was) interested to occupy a
market stall.” Such claim was obviously an afterthought.
Issue [2]: Whether the rule on locus standi should be relaxed.
Held [2]: Objections to a taxpayer's suit for lack of sufficient personality, standing or
interest are procedural matters. Considering the importance to the public of a suit
assailing the constitutionality of a tax law, and in keeping with the Court's duty, specially
explicated in the 1987 Constitution, to determine whether or not the other branches of
the 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 Supreme Court may
brush aside technicalities of procedure and take cognizance of the suit. There being no
doctrinal definition of transcendental importance, the following determinants formulated
by former Supreme Court Justice Florentino P. Feliciano are instructive: (1) the
character of the funds or other assets involved in the case; (2) the presence of a clear
case of disregard of a constitutional or statutory prohibition by the public respondent
agency or instrumentality of the government; and (3) the lack of any other party with a
more direct and specific interest in raising the questions being raised. But, even if the
Court disregards Jumamil’s lack of legal standing, this petition must still fail. The subject
resolutions/ordinances appropriated a total of P2,280,000 for the construction of the
public market stalls. Jumamil alleged that these ordinances were discriminatory
because, even prior to their enactment, a decision had already been made to award the
market stalls to the private respondents who deposited P40,000 each and who were
either friends or relatives of the mayor or members of the Sanggunian. Jumamil
asserted that “there (was) no publication or invitation to the public that this contract
(was) available to all who (were) interested to own a stall and (were) willing to deposit
P40,000.” Respondents, however, counter that the “public respondents’ act of entering
into this agreement was authorized by the Sangguniang Bayan of Panabo per
Resolution 180 dated 10 October 1988” and that “all the people interested were invited
to participate in investing their savings.” Jumamil failed to prove the subject ordinances
and agreements to be discriminatory. Considering that he was asking the Court to nullify
the acts of the local political department of Panabo, Davao del Norte, he should have
clearly established that such ordinances operated unfairly against those who were not
notified and who were thus not given the opportunity to make their deposits. His
unsubstantiated allegation that the public was not notified did not suffice. Furthermore,
there was the time-honored presumption of regularity of official duty, absent any
showing to the contrary.
iv. Pascual v. Secretary of Public Works, 110 Phil.
331

Facts:
1. Petitioner was the governor of Rizal, filed a petition assailing the validity of R.A. 920
which contains an item providing for an appropriation of P85,000.00 for the construction
and repair of a feeder road in Pasig. The said law was passed in Congress and
approved by the President.

2. The property over which the feeder road will be constructed is however owned by
Sen. Zulueta. The property was to be donated to the local government, though the
donation was made a few months after the appropriation was included in RA 920. The
petition alleged that the said planned feeder road would relieve Zulueta the
responsibility of improving the road which is inside a private subdivision.

3. The lower court (RTC) ruled that the petitioner has standing to assail the validity of
RA 920, due to the public interest involved in the appropriation. However, he does not
have a standing with respect to the donation since he does not have an interest that will
be injured by said donation, hence it dismissed the petition.

Issue: Whether or not the petitioner has the standing to file the petition

YES.

1. Petitioner has standing. He is not merely a taxpayer but the governor of the province
of Rizal which is considered one of the most populated biggest provinces during that
time, its taxpayers bear a substantial portion of the burden of taxation in the country.

2. Public funds can only be appropriated for a public purpose. The test of the
constitutionality of a statute requiring the use of public funds is whether it is used to
promote public interest. Moreover, the validity of a stature depends on the powers of the
Congress at the time of its passage or approval, not upon events occurring, or acts
performed subsequent thereto, unless it is an amendment of the organic law.

ii. Non- delegability

iii. Exemption of the Government
1. LRTA vs. CBAA, G.R. No. 127316, 12 October 2000
Facts: The LRTA is a government-owned and controlled corporation created and
organized under EO 603, dated July 12, 1980 primarily responsible for the construction,
operation, maintenance and/or lease of light rail transit system in the Philippines, giving
due regard to the reasonable requirements of the public transportation of the country.
LRTA acquired real properties, constructed structional improvements, such as buildings,
carriage ways, passenger terminal stations and installed various kinds of machinery and
equipment and facilities for the purpose of its operations. For an effective maintenance,
operation and management, it entered into a contract of management with the
MERALCO transit organization in which the latter undertook to manage, operate and
maintain the light rail transit system owned by the LRTA subject to the specific
stipulations contained in said agreement, including payments of a management fee and
real property taxes. That it commenced its operations in 1984, and that sometime that
year, respondent-appellee city of assessor of manila assessed the real properties of
petitioner consisting of lands, buildings, carriage ways and passenger terminal stations
machinery and equipment which he considered real property under the real property tax
code, to commence with the year 1985. That petitioner paid its real property taxes on all
its real property holdings, except the carriage ways and passenger terminal stations
including the land where it constructed on the ground that the same are not real
properties under the real property tax code, and if the same are real property, these are
for public use/purpose, therefore exempt from realty taxation which claim was denied by
the respondent-appellee city assessor of Manila.

Issue: Whether or not petitioner’s carriage ways and passenger terminal stations are
subject to real property tax.

Held: No. Under the real property tax code, 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 named entities the beneficial use of which has been
granted, for consideration or otherwise, to a taxable person.

EO 603, the charter of petitioner, does not provide for any real estate tax exemption in
its favor. Its exemption is limited to direct and indirect taxes, duties or fees in connection
with the importation of equipment not locally available.

Even granting that the national government indeed owns the carriage ways and terminal
stations, the exemption would not apply because their beneficial use has been granted
to petitioner, a taxable entity.

Taxation is the rule and exemption is the exception. Any claim for tax exemption is
strictly construed against the claimant. LRTA has not shown its eligibility for exemption;
hence, it’s subject to tax.

2. MCIAA vs. Marcos, G.R. No. 120082, 11 September 1996

FACTS:
Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act 6958. Since the time of its creation, MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter. However on 11
October 1994, the Office of the Treasurer of Cebu, demanded for the payment of realty
taxes on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified and
asserted that it is an instrumentality of the government performing governmental
functions, which puts limitations on the taxing powers of local government units.
The 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 Government Code (LGC), and
not an instrumentality of the government but merely a government owned corporation
performing proprietary functions. MCIAA paid its tax account “under protest” when City
is about to issue a warrant of levy against the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC contending that the taxing
power of local government units do not extend to the levy of taxes or fees on an
instrumentality of the national government. It contends that by the nature of its powers
and functions, it has the footing of an agency or instrumentality of the national
government; which claim the City rejects. The trial court dismissed the petition, citing
that close reading of the LGC provides the express cancellation and withdrawal of tax
exemptions of Government Owned and Controlled Corporations.

ISSUE: Whether the MCIAA is exempted from realty taxes.

RULING:
Tax statutes are construed strictly against the government and liberally in favor of the
taxpayer. But since taxes are paid for civilized society, 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.
A claim of exemption from tax payments must be clearly shown and based on language
in the law too plain to be mistaken. Taxation is the rule, exemption therefrom is the
exception. However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect
of the exemption is merely to reduce the amount of money that has to be handled by the
government in the course of its operations.
Further, since taxation is the rule and exemption therefrom the exception, the exemption
may 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.
MCIAA is a “taxable person” under its Charter (RA 6958), and 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.
Since Republic Act 7160 or the Local Government Code (LGC) 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.”
With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had
been expressly repealed by the provisions of the LGC. Therefore, MCIAA has to pay the
assessed realty tax of its properties effective after January 1, 1992 until the present.

3. MIAA vs. Paranaque, G.R. No. 155650, 20 July 2006

Facts: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy
Aquino International Airport (NAIA) complex in Parañaque City under Executive Order
No. 9303, otherwise known as the revised charter of the MIAA. EO 903 was issued on
July 21, 1983 by then President Ferdinand E. Marcos. Subsequently EO 909 and 298
amended the MIAA charter as operator of the international operator, MIAA administers
the land, improvements, and equipments within the NAIA complex. The MIAA charter
transferred to MIAA approximately 600 hectares of land, including the runways and
buildings then under the Bureau of Air Transportation. The MIAA charter 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. On March 21,
1997, the Office of the Government Corporate Counsel issued opinion no. 061. The
OGCC opined that the local government code of 1991 withdraw 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 July 17, 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
deliquency. MIAA thus sought clarification of OGCC opinion no. 061. On August 9,
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.

Issue: Whether or not the airport lands and buildings are exempt from real estate tax.
Held: Yes. 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 21 (10) of the introductory provisions of the administrative code defines a
government instrumentality as follows:

Sec 2 General terms defined

xxx

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.

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 surging
of fees and charges. At the same time, MIAA exercises all the powers of a corporation
under the corporation law, in so far as these powers are not inconsistent with the
provisions of this executive order.

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 the local government units –
Unless otherwise provided herein, the exercise of the taxing power of the 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.

Section 133 (0) recognizes the basic principles that local governments cannot tax the
national government, which historically, merely delegated to the local governments the
power to tax. While the 1987 constitution now includes taxation as one of the powers of
the local governments, local governments may only exercise such powers subject to
such guidelines and limitations as the congress may provide.

4. MIAA vs. Pasay City, G.R. No. 163072, 02 April 2009

 Petitioner Manila International Airport Authority (MIAA) operates and administers the
Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO
903), otherwise known as the Revised Charter of the Manila International Airport
Authority. EO 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Under Sections 3 and 22 of EO 903, approximately 600 hectares of land, including the
runways, the airport tower, and other airport buildings, were transferred to MIAA. The
NAIA Complex is located along the border between Pasay City and Parañaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax

Delinquency from the City of Pasay for the taxable years 1992 to 2001. The City of
Pasay, through its City Treasurer, issued notices of levy and warrants of levy for the
NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August
2001.

Issue
Whether the NAIA Pasay properties of MIAA are exempt from real property tax.

Held:

In Manila International Airport Authority v. Court of Appeals (2006 MIAA case), this
Court already resolved the issue of whether the airport lands and buildings of MIAA are
exempt from tax under existing laws. The 2006 MIAA case originated from a petition for
prohibition and injunction which MIAA filed with the Court of Appeals, seeking to restrain
the City of Parañaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in Parañaque City. 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. In the 2006 MIAA case, this Court held:

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.
5. Republic v. Parañaque, G.R. No. 191109, July 18, 2012,
677 SCRA 246
FACTS:A petition for review on certiorari under Rule 45 assailing the January 8, 2010
Order of the RTC, Branch 195, Paranaque City, which ruled that petitioner Philippine
Reclamation Authority (PRA) is a GOCC, a taxable entity, and, therefore, not exempt
from payment of real property taxes.
The Public Estates Authority (PEA) is a government corporation created by virtue of PD
No. 1084. By virtue of E.O. No. 525, PEA was designated as the agency primarily
responsible for integrating, directing and coordinating all reclamation projects for and on
behalf of the National Government. Then President Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA
relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore
areas of Manila Bay, including those located in Parañaque City. Then Parañaque City
Treasurer Carabeo issued Warrants of Levy on PRA’s reclaimed properties (Central
Business Park and Barangay San Dionisio) based on the assessment for delinquent
real property taxes made by then Parañaque City Assessor Soledad Medina Cue for tax
years 2001 and 2002.
PRA filed a Motion which sought to declare as null and void the assessment for real
property taxes, the levy based on the said assessment, the public auction sale
conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction
sale.
On January 8, 2010, the RTC rendered its decision dismissing PRA’s petition. In ruling
that PRA was not exempt from payment of real property taxes, the RTC reasoned out
that it was a GOCC under Section 3 of P.D. No. 1084. It was organized as a stock
corporation because it had an authorized capital stock divided into no par value shares.
Issue(s): Whether or not PRA is liable to pay real property tax on the subject reclaimed
lands. Not liable.

Ruling: The Supreme Court is convinced that PRA is not a GOCC either under Section
2(3) of the Introductory Provisions of the Administrative Code or under Section 16,
Article XII of the 1987 Constitution. PRA was not organized either as a stock or a non-
stock corporation. Neither was it created by Congress to operate commercially and
compete in the private market.

Instead, PRA is a government instrumentality vested with corporate powers and

performing an essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Being an incorporated government
instrumentality, it is exempt from payment of real property tax. Clearly, respondent has
no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the
other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA
from paying realty taxes and protects it from the taxing powers of local government
units. 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. 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:
x x x x (o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. It is clear from Section 234
that real property owned by the Republic is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person. In this case, there is no
proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable
entity.

There is no showing on record either that PRA leased the subject reclaimed properties
to a private taxable entity. This exemption should be read in relation to Section 133(o) of
the same Code, which prohibits local governments from imposing "taxes, fees or
charges of any kind on the National Government, its agencies and instrumentalities x x
x." 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
6. MCIAA v. Lapu-Lapu, G.R. No. 181756, 15 June 2015

Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by

Congress under Republic Act No. 6958. Upon its creation, petitioner enjoyed
exemption from realty taxes imposed by the National Government or any of its political
subdivision. However, upon the effectivity of the LGC the Supreme Court rendered a
decision that the petitioner is no longer exempt from realty estate taxes.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport which included the airfield, runway, taxi way
and the lots on which these are built. Petitioner contends that these lots, and the lots to
which they are built, are utilized solely and exclusively for public purposes and are
exempt from real property tax. Petitioner based its claim for exemption on DOJ Opinion
No. 50.

Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner

filed a petition for Prohibition, TRO, and a writ of preliminary injunction with RTC
Lapulapu which sought to enjoin respondent City from issuing the warrant of levy
against petitioner’s properties from selling them at public auction for delinquency in
realty tax obligations.

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.
RTC granted the writ of preliminary which was later on lifted upon motion by the
respondents.

(fait accompli)

RULING OF THE CA: 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.

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 situatedNOT 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;

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
asNULL 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.

RULING OF THE SUPREME COURT:

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.
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.

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

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

3. NULL and VOID the sale in public auction of 27 of petitioner’s properties and the
eventual forfeiture and purchase of the said properties by respondent City of
Lapu-Lapu. We likewise declare VOID the corresponding Certificates of Sale of
Delinquent Property issued to respondent City of Lapu-Lapu.

iv. International Comity

Sec 2, Article II of the Philippine Constitution
1. See Resolution in the First National Tax Association cited
in International Comity in Taxation by Clyde J. Crobaugh,
University of Chicago Press, p. 269.
v. Territorial Jurisdiction or Situs
1. CIR v. Marubeni Corp. G.R No. 137377

Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting
the 1985 deficiency income, branch profit remittance and contractor’s taxes from
Marubeni Corp after finding the latter to have properly availed of the tax amnesty under
EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading,

financing and construction, is duly registered in the Philippines with Manila branch
office. CIR examined the Manila branch’s books of accounts for fiscal year ending
March 1985, and found that respondent had undeclared income from contracts with
NDC and Philphos for construction of a wharf/port complex and ammonia storage
complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several
deficiency taxes. CIR claims that the income respondent derived were income from
Philippine sources, hence subject to internal revenue taxes. On Sept 1986, respondent
filed 2 petitions for review with CTA: the first, questioned the deficiency income, branch
profit remittance and contractor’s tax assessments and second questioned the
deficiency commercial broker’s assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85,
and that taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni
filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes
under Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of
availment to Dec 15, 1986 and stated those who already availed amnesty under EO 41
should file an amended return to avail of the new benefits. Marubeni filed a
supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.

On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not
liable for the deficiency tax because the income from the projects came from the
“Offshore Portion” as opposed to “Onshore Portion”. It claims 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.
(BG: Marubeni won in the public bidding for projects with government corporations NDC
and Philphos. In the contracts, the prices were broken down into a Japanese Yen
Portion (I and II) and Philippine Pesos Portion and financed either by OECF or by
supplier’s credit. The Japanese Yen Portion I corresponds to the Foreign Offshore
Portion, while Japanese Yen Portion II and the Philippine Pesos Portion correspond to
the Philippine Onshore Portion. Marubeni has already paid the Onshore Portion, a fact
that CIR does not deny.)

CIR argues that since the two agreements are turn-key, 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. 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 (a tax on the exercise of a privilege of selling services or labor rather
than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was
performed in the Philippines because some of them were completed in Japan (and in
fact subcontracted) in accordance with the provisions of the contracts. 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 Philippines’ taxing jurisdiction and are therefore not subject to
contractor’s tax.Petition denied.

2. Commissioner v. British Overseas Airways Corporation,

149 SCRA 395

"The source of an income is the property, activity or service that produced the income.
For such source to be considered as coming from the Philippines, it is sufficient that the
income is derived from activity within the Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's
assessment of deficiency income taxes against respondent British Overseas Airways
Corporation (BOAC) for the fiscal years 1959 to 1971. BOAC is a 100% British
Government-owned corporation organized and existing under the laws of the United
Kingdom, and is engaged in the international airline business. During the periods
covered by the disputed assessments, it is admitted that BOAC had no landing rights for
traffic purposes in the Philippines. Consequently, it did not carry passengers and/or
cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines — Wamer Barnes
and Company, Ltd., and later Qantas Airways — which was responsible for selling
BOAC tickets covering passengers and cargoes. The CTA sided with BOAC citing that
the proceeds of sales of BOAC tickets do not constitute BOAC income from Philippine
sources since no service of carriage of passengers or freight was performed by BOAC
within the Philippines and, therefore, said income is not subject to Philippine income tax.
The CTA position was that income from transportation is income from services so that
the place where services are rendered determines the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation,
while having no landing rights here, constitute income of BOAC from Philippine sources,
and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced
the income. For the source of income to be considered as coming from the Philippines,
it is sufficient that the income is derived from activity within the Philippines. In BOAC's
case, the sale of tickets in the Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were also made here in
Philippine currency. The site of the source of payments is the Philippines. The flow of
wealth proceeded from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government.