LOCAL TAXATION AND RELATED POWERS AND

PRIVILEGES

Considered as the most revolutionary piece of

legislation on local autonomy.
The LGC widens the tax base of the LGUs to
include taxes which were prohibited by
previous laws such as imposition of taxes on
forest products, forest concessionaires, mineral
products, mining operations and the like.
The LGC is also flexible as to the taxing power
of the LGUs as it does not prescribe graduated
fixed rates for tax, but only provides the
minimum and maximum tax rates, and leaves
the determination of actual rates to the
respective sanggunian.

Source of Local Taxation Power:

Section 5, Article X of the 1987 Constitution: it
mandated that each local government unit shall
have the power to create its own sources of
revenues and levy taxes, fees, and charges
subject to such guidelines and limitations as
the Congress may provide, consistent with the
basic policy of local autonomy, and that such
taxes, fees, and charges shall accrue
exclusively to the local governments.
The said constitutional provision is only a
general delegation of the power granted to
LGUs. The said power still exists; although
subject to the guidelines and limitations
imposed by Congress.
The power to tax is inherently lodged in
Congress, it is only Congress, and not any
administrative or executive agency, can define
and limit such power.
Said limitations imposed by Congress must be
consistent with the basic policy of local
autonomy.
Basic Rationale of the Power:
Safeguard the viability and self- sufficiency of
local government units by granting them
general and broad tax powers.

be construed
claiming it.

strictly

against

the person

Fundamental Principles in Local Taxation

The following fundamental principles shall govern the
exercise of the taxing and other revenue- raising power
of local government units:
A. Taxation shall be uniform in each local government
unit;
B. Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on
the taxpayers ability to pay;
(2) be levied and collected only for public
purposes;
(3) not be unjust, excessive, oppressive, or
confiscatory; and
(4) not be contrary to law, public policy, national
economic policy, or in restraint of trade.
C. The collection of local taxes, fees, charges, ad other
impositions shall in no case be let to any pivate person.
D. The revenue collected pursuant to the provisions of
this Code shall inure solely to the benefit of, and subject
to disposition by, the local government unit levying the
tax, fee, charge or other imposition unless otherwise
specifically provided for in the Code; and
E. Each local government unit shall, as far as
practicable, evolve a progressive system of taxation.
Taxing Authority
The power to impose a tax, fee, or charge or to
generate revenues under the Code shall be exercised
by the Sanggunian of the local government unit
concerned through an appropriate ordinance.
Common Limitations on the Taxing Powers
Sec. 133 (LGC) 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;

Guidelines for Legislature:

(1) the taxpayer will not be overburdened or
saddled
with multiple
and
unreasonable
impositions;
(2) each local government unit will have its fair
share of available resources;
(3) the resources of the national government will
not be unduly disturbed; and
(4) local taxation will be fair, uniform, and just.
Requirements for its Validity:
Taxes imposed by the Local Government Units:
(1) must be for a public purpose;
(2) must be uniform within a locality;
(3) must not be confiscatory; and
(4) must be within the jurisdiction of the local
unit to pass.
Construction of Local Taxation
Local tax measures, being in derogation of
property rights must also be construed strictly
against the LGU enacting it and liberally in
favor of the taxpayer in case of doubt.
However, since taxation is the lifeblood of the
local government, any tax exemption, incentive
or relief granted by any local government shall

(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 or
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 "Cooperative 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.

C. Publication and Public Dissemination:

Within 10 days after their approval, certified
true copies of the ordinance shall be published
in full in a newspaper of local circulation for 3
consecutive days.
If no newspaper of local circulation, the same
may be posted in at least 2 conspicuous and
publicly accessible places.
Copies shall be furnished to the respective
local treasurers for public dissemination.
Enforcement of Void or Suspended Tax Measure
If a void ordinance or tax revenue measure is enforced,
the public officer responsible may be administratively
disciplined.
Tax Rate Adjustment
Local Government Units have the authority to
adjust the tax rates as prescribed herein not
oftener than once every 5 years.
Such adjustment shall in no case exceed 10%
of the rates fixed under this Code.
Tax Exemption Privileges
Local government units may, through ordinances duly
approve, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem
necessary (Sec. 192 LGC).
Just Share in the National Taxes

Local governments have no power to tax the national

government, its agencies and instrumentalities, except
as otherwise provided in the LGC pursuant to the
saving clauses in Sec. 133. Such exception refers to
Sec. 234(a) of the Code. The said section subjects real
property owned by the Republic or its instrumentalities,
to real estate tax if the beneficial use of such property is
given to a taxable entity.
Procedural Matters Affecting Tax Ordinances and
Measures
A. Public Hearing:
A mandatory requirement of public hearing
shall always be conducted for the purpose prior
to the enactment of tax ordinance and
measures.
B. Questions on Constitutionality or Legality of Tax
Measures:
Any question on the constitutionality or legality
of a tax or revenue measure may be raised on
appeal within 30 days from the effectivity
thereof to the DOJ Secretary.

The DOJ Secretary shall render a decision

within 60 days from the date of receipt of the
appeal.
Such appeal shall not have the effect of
suspending the effectivity of the ordinance and
the accrual and payment of the tax, fee, or
charge levied therein.
If within 30 days after the receipt of the decision
or the lapse of the 60 day period wihout being
acted by the DOJ Secretary the aggrieved
party may file appropriate proceedings with a
court of competent jurisdiction.

LGUs shall have a just share, as determined

by law, in the national taxes which shall be
automatically released to them.
A basic feature of local fiscal autonomy is the
automatic release of the shares of LGUs in the
national internal revenue.
Pursuant to the Constitutional mandate that
this share in the national taxes, called IRA, be
automatically
released
to
the
local
governments, the Code specifically mandates
that the share of each local government unit
shall be released without the need of any
further action.

Other Related Powers:

1. Share in the Natural Wealth
The proceeds shall be appropriated by the
Sangguinan to finance local development and
livelihood projects.

2. Power to Dispose of Patrimonial properties for

Welfare purposes
LGUs have the authority to acquire, develop,
lease, encumber, alienate or otherwise dispose of real
or personal property held by them in their proprietary
capacity and to apply the resources and assets for
productive, developmental or welfare purposes, in the
exercise or furtherance of their governmental or
proprietary powers and functions.
All these are given to LGUs to ensure their
development into self- reliant communities and active
participant in the attainment of national goals.

JURISPRUDENCE

amended by RA 983), sweepstakes, lotteries and races

(RA 1169 as amended by BP 42) are legalized under
certain conditions, while others are prohibited, does not
render the applicable laws, PD. 1869 for one,
unconstitutional.
Bascos 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. A
law does not have to operate in equal force on all
persons or things to be conformable to Article III, Sec 1
of the Constitution. The equal protection clause does
not prohibit the Legislature from establishing classes of
individuals or objects upon which different rules shall
operate. The Constitution does not require situations
which are different in fact or opinion to be treated in law
as though they were the same.

1. BASCO VS PAGCOR
FACTS:
In 1977, the Philippine Amusements and Gaming
Corporation (PAGCOR) was created by Presidential
Decree 1067-A. PD 1067-B meanwhile granted
PAGCOR the power to establish, operate and maintain
gambling casinos on land or water within the territorial
jurisdiction of the Philippines. PAGCORs operation
was a success hence in 1978, PD 1399 was passed
which expanded PAGCORs power. In 1983,
PAGCORs charter was updated through PD 1869.
PAGCORs
charter
provides
that
PAGCOR
shall regulate and centralize all games of chance
authorized by existing franchise or permitted by law.
Section 1 of PD 1869 provides:
Section 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.
Atty. Humberto Basco and several other lawyers
assailed the validity of the law creating PAGCOR. They
claim that PD 1869 is unconstitutional because a) it
violates the equal protection clause and b) it violates
the local autonomy clause of the constitution.
Basco et al argued that PD 1869 violates the equal
protection
clause
because
it
legalizes
PAGCOR-conducted gambling, while most other forms
of gambling are outlawed, together with prostitution,
drug trafficking and other vices.
Anent the issue of local autonomy, Basco et al contend
that P.D. 1869 forced cities like Manila to waive its right
to impose taxes and legal fees as far as PAGCOR is
concerned; that 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 is violative of the local
autonomy principle.
ISSUE:
1. Whether or not PD 1869 violates the equal protection
clause.
2. Whether or not PD 1869 violates the local autonomy
clause.
HELD:
1. No. Just how PD 1869 in legalizing gambling
conducted by PAGCOR is violative of the equal
protection is not clearly explained in Bascos petition.
The mere fact that some gambling activities like
cockfighting (PD 449) horse racing (RA 306 as

2. No. Section 5, Article 10 of the 1987 Constitution

provides:
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.
A close reading of the above provision does not violate
local autonomy (particularly on taxing powers) as it was
clearly stated that the taxing power of LGUs are subject
to such guidelines and limitation as Congress may
provide.
Further, the City of Manila, being a mere Municipal
corporation has no inherent right to impose taxes. 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 which
has the power to create and abolish municipal
corporations due to its general legislative powers.
Congress, therefore, has the power of control over
Local governments. 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.
Further still, 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. Otherwise, its
operation might be burdened, impeded or subjected to
control by a mere Local government.
This doctrine emanates from the supremacy of the
National Government over local governments.

2. Aquilino Pimentel, Jr. vs. Hon. Alexander

Aguirre
The President cannot order the withholding of 10% of
the LGUs internal revenue allotments. This encroaches
on the fiscal autonomy of local government and violates
the constitution and the local government code.
Facts:
On December 27, 1997, the then President of
the Philippines, Fidel V. Ramos, issued Administrative
Order (AO) 372. Subsequently, on December 10, 1998,
President Joseph E. Estrada issued AO 43, amending
Section 4 of AO 372, by reducing to five percent (5%)
the amount of internal revenue allotment (IRA) to be
withheld from local government units (LGUs.) In this
original petition for certiorari and prohibition before the

Supreme Court, petitioner seeks to annul Section 1

of AO 372, insofar as it requires LGUs to reduce their
expenditures by 25% of their authorized regular
appropriations for non-personal services; and to enjoin
respondents from implementing Section 4 of the Order,
which withholds a portion of their internal revenue
allotments. In sum, the main issue involved here is
whether Section 1 of EO 372 and Section 4 of the same
issuance are valid exercises of the President's power of
general supervision over local governments.|||
ISSUE: Whether AO 372 of President Ramos which
withholds 10% of lgus IRA is valid
HELD:
Section 4 of AO 372 cannot, however, be
upheld.
A basic feature of local fiscal autonomy is the
automatic release of the shares of LGUs in the national
internal revenue. This is mandated by no less than the
Constitution. The Local Government Code specifies
further that the release shall be made directly to the
LGU concerned within five (5) days after every quarter
of the year and "shall not be subject to any lien or
holdback that may be imposed by the national
government for whatever purpose." As a rule, the term
"shall" is a word of command that must be given a
compulsory meaning.
The provision is, therefore, imperative. Section
4 of AO 372, however, orders the withholding, effective
January 1, 1998, of 10 percent of the LGUs' IRA
"pending the assessment and evaluation by the
Development Budget Coordinating Committee of the
emerging fiscal situation" in the country. Such
withholding clearly contravenes the Constitution and
the law. Although temporary, it is equivalent to a
holdback, which means "something held back or
withheld, often temporarily." Hence, the "temporary"
nature of the retention by the national government does
not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be
upheld as an advisory effected in times of national crisis,
Section 4 thereof has no color of validity at all. The
latter provision effectively encroaches on the fiscal
autonomy of local governments. Concededly, the
President was well-intentioned in issuing his Order to
withhold the LGUs IRA, but the rule of law requires that
even the best intentions must be carried out within the
parameters of the Constitution and the law. Verily,
laudable purposes must be carried out by legal
methods. Respondents and their successors are
hereby permanently PROHIBITED from implementing
Administrative Order Nos. 372 and 43 insofar as local
government units are concerned.

3. PROVINCE OF BATANGAS VS. HON. ALBERTO

ROMULO, ET AL., May 27, 2004
Local Autonomy; automatic release of funds of
Local Government Units, particularly the IRA.
Facts:
The petitioner is questioning the constitutionality of the
General Appropriations Act of 1999, 2000 and 2001
insofar as they uniformly earmarked for each year the
amount of P5B of the Internal Revenue Allotment (IRA)
for the Local Government Service Equalization Fund

(LGSEF) and imposed conditions for the release

thereof.
Likewise, the President of the Philippines issued
Executive Order No. 48 entitled Establishing a
Program fro Devolution Adjustment and Equalization
with the purpose of facilitating the process of
enhancing the capacities of LGUs in the discharge of
the functions and services devolved tot hem by the
national government agencies concerned pursuant to
the Local Government Code.
Issue:
May the Congress or the President impose conditions
for the use of the IRA by the different local government
units?
Held: No.
The provision of the GAA for the years 1999, 2000 and
2001 are unconstitutional as they encroach on the fiscal
autonomy of the local government units in violation of
the Constitution. And even if this case is already moot
and academic because said provisions have been
implemented, there is a possibility that the same be
incorporated in the future GAA or it is capable of
repetition and as such, it must be decided before
another GAA is enacted. It behooves this Court to make
a categorical ruling on the substantive issue now to
formulate controlling principles to guide the bench, bar
and the public.
DOCTRINES
1. A local government unit (LGU), seeking relief in
order to protect or vindicate an interest of its
own, and other LGUs, pertaining to their in
share in the national taxes or Internal Revenue
Allotment (IRA), has the requisite standing to
bring suit.
2. Consistent with the principle of local autonomy,
the Constitution confines the Presidents over
the LGUs to one of general supervision, which
has been interpreted to exclude the power of
control.
3. When parsed, it would be readily seen that
Section 6, Article X of the Constitution readily
mandates that (1) the LGUs shall have a just
share in the national taxes, (2) the just share
shall be determined by law, and the just share
shall be automatically released to the LGUs.
4. The LGUs are not required to perform any act
to receive the just share accruing to them
from the national coffers-the just share of the
LGUs shall release to them without need of
further action.
5. Automatic means involuntary either wholly or
to a major extent so that any activity of the will
is largely negligible; of a complex nature;
without volition; mechanical; like or suggestive
of automation.
6. The entire process involving the distribution
and release of LGSEF is constitutionally
impermissible-to subject its distribution and
release to the vagaries of implementing rules
and regulation, including the guidelines and
mechanism unilaterally prescribe by the
Oversight Committee from time to time, make
the release not automatic.

7. Where the law, the Constitution in this case, is

clear and unambiguous, it must be taken to
mean exactly what it says, and the courts have
no choice but to see to it that the mandate is
obeyed.
8. The Oversight Committee exercising discretion,
even control, over the distribution and release
of a portion of the IRA, the LGSEF, is an
anathema to and subversive of the principle of
local autonomy as embodied in the
Constitution.
9. The Oversight Committees authority is
undoubtedly limited to the implementation of
the Local Government Code of 1991, not to
supplant or subvert the same, and neither can
it exercise control over the IRA, or even a
portion thereof, of the LGUs.
10. The assailed provisions in the General
Appropriations Act (GAAs) of 1999, 2000, and
2001, and the Oversight Committee on
Devolution (OCD) resolution constitutes a
withholding of a portion of IRA-they effectively
encroach on the fiscal autonomy enjoyed by
the LGUs and must be struck down.
11. The only possible exemption to the LGUs
mandatory automatic release of the LGUs IRA
is if the national internal revenue collections for
the current fiscal year is less than 40% of the
collections of the preceding third fiscal year, in
which case what should be automatically
released shall be a proportionate amount of the
collections for the current fiscal year.
12. It is well noted that the principle of local
autonomy, while concededly expounded in
greater detail in the present Constitution, dates
back to the turn of century when President
William McKinley, in his Instructions to the
Second Philippine Commission date 7 April
1900, ordered the new Government to devote
their attention in the first instance to the
establishment of municipal governments in
which the natives of the Islands, both in the
cities and rural communities, shall be afforded
opportunity to manage their own affairs to the
fullest extent of which they are capable, and
subject to the least degree of supervision and
control in which a careful study of their
capacities and observation of the workings of
native control show to be consistent with the
maintenance of law, order and loyalty.
13. While it is conceded that Congress may amend
any of the provisions of the Local Government
Code, a substantive law, it may not do so
through appropriation laws of GAAs-any
amendment to the Local Government Code
should be done in a separate law, not
appropriation laws, because Congress cannot
include in a general appropriations bill matters
that should be more properly enacted in
separate legislation.
14. The value of local governments as institutions
of democracy is measured by the degree of
autonomy they enjoy-our national officials
should not only comply with the constitutional
provisions on local autonomy but should also

appreciate the spirit and liberty upon which

these provisions are based.
4. Luz Yamane vs BA Lepanto Condominium
Corporation
FACTS
In
1998,
BA
Lepanto
Condominium
Corporation (Lepanto) received a tax assessment in the
amount of P1.6 million from Luz Yamane, the City
Treasurer of Makati, for business taxes. Lepanto
protested the assessment as it averred that Lepanto, as
a corporation, is not organized for profit; that it merely
exists for the maintenance of the condominium.
Yamane denied the protest. Lepanto then appealed the
denial to the RTC of Makati. RTC Makati affirmed the
decision of Yamane. Lepanto then filed a petition for
review under Rule 42 with the Court of Appeals. The
Court of Appeals reversed the RTC.
Yamane now filed a petition for review under
Rule 45 with the Supreme Court. Yamane avers that
Lepanto is liable for local taxation because its act of
maintaining the condominium is an activity for profit
because the end result of such activity is the betterment
of the market value of the condominium which makes it
easier to sell it and that Lepanto is earning profit from
fees collected from condominium unit owners.
ISSUES
1. Whether the RTC, in deciding an appeal taken from a
denial of a protest by a local treasurer under Section
195 of the Local Government Code, exercises original
jurisdiction or appellate jurisdiction.
2. Whether or not the City of Makati may collect
business taxes on condominium corporations.
RULING
1. Original Jurisdiction. The question assumes a
measure of importance to this petition, for the adoption
of the position of the City Treasurer that the mode of
review of the decision taken by the RTC is governed by
Rule 41 of the Rules of Civil Procedure means that the
decision of the RTC would have long become final and
executory by reason of the failure of the Corporation to
file a notice of appeal.
Labelling the said review as an exercise of
appellate jurisdiction is inappropriate, since the denial of
the protest is not the judgment or order of a lower court,
but of a local government official.
From these premises, it is evident that the
stance of the City Treasurer is correct as a matter of law,
and that the proper remedy of the Corporation from the
RTC judgment is an ordinary appeal under Rule 41 to
the Court of Appeals. However, we make this
pronouncement subject to two important qualifications.
First, in this particular case there are nonetheless
significant reasons for the Court to overlook the
procedural error and ultimately uphold the adjudication
of the jurisdiction exercised by the Court of Appeals in
this case. Second, the doctrinal weight of the
pronouncement is confined to cases and controversies
that emerged prior to the enactment of Republic Act No.
9282, the law which expanded the jurisdiction of the
Court of Tax Appeals (CTA).
2. NO. Local tax on businesses is authorized under
Section 143 of the Local Government Code. The word

business itself is defined under Section 131(d) of the

Code as trade or commercial activity regularly engaged
in as a means of livelihood or with a view to profit. This
definition of business takes on importance, since
Section 143 allows local government units to impose
local taxes on businesses other than those specified
under the provision. Moreover, even those business
activities specifically named in Section 143 are
themselves susceptible to broad interpretation.
It is thus imperative that in order that the
Corporation may be subjected to business taxes, its
activities must fall within the definition of business as
provided in the Local Government Code. And to hold
that they do is to ignore the very statutory nature of a
condominium corporation.
For orderly administration over common areas
which are jointly owned by the various unit owners, the
Condominium Act permits the creation of a
condominium corporation, which is specially formed for
the purpose of holding title to the common area, in
which the holders of separate interests shall
automatically be members or shareholders, to the
exclusion of others, in proportion to the appurtenant
interest of their respective units.
The City Treasurer nonetheless contends that
the collection of these assessments and dues are with
the end view of getting full appreciative living values for
the condominium units, and as a result, profit is
obtained once these units are sold at higher prices. The
Court cites with approval the two counterpoints raised
by the Court of Appeals in rejecting this contention. First,
if any profit is obtained by the sale of the units, it
accrues not to the corporation but to the unit owner.
Second, if the unit owner does obtain profit from the
sale of the corporation, the owner is already required to
pay capital gains tax on the appreciated value of the
condominium unit.
The City Treasurer also contends that the fact
that the Corporation is engaged in business is evinced
by the Articles of Incorporation, which specifically
empowers the Corporation to acquire, own, hold, enjoy,
lease, operate and maintain, and to convey, sell,
transfer mortgage or otherwise dispose of real or
personal property. What the City Treasurer fails to
add is that every corporation organized under the
Corporation Code is so specifically empowered. Section
36(7) of the Corporation Code states that every
corporation incorporated under the Code has the power
and capacity to purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property . . . as the
transaction
of
the
lawful
business
of
the
corporation may reasonably and necessarily req
uire . . . . Without this power, corporations, as juridical
persons, would be deprived of the capacity to engage in
most meaningful legal relations.
Again, whatever capacity the Corporation may
have pursuant to its power to exercise acts of ownership
over personal and real property is limited by its stated
corporate purposes, which are by themselves further
limited by the Condominium Act. A condominium
corporation, while enjoying such powers of ownership,
is prohibited by law from transacting its properties for
the purpose of gainful profit.
Accordingly, and with a significant degree of
comfort, we hold that condominium corporations are

generally exempt from local business taxation under

the Local Government Code, irrespective of any local
ordinance that seeks to declare otherwise.

5. Manila International Airport Authority (MIAA) v.

Court of Appeals
FACTS:
Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino International Airport (NAIA)
Complex in Paraaque City under Executive Order No.
903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("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.
On 28 June 2001, MIAA received Final Notices of Real
Estate Tax Delinquency from the City of Paraaque for
the taxable years 1992 to 2001.
On 17 July 2001, the City of Paraaque, through its City
Treasurer, issued notices of levy and warrants of levy
on the Airport Lands and Buildings. The Mayor of the
City of Paraaque 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.
Meanwhile, in January 2003, the City of Paraaque
posted notices of auction sale. 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
Paraaque City.
Upon Motion by MIAA, SC issued a temporary
restraining order (TRO) effective immediately. The
Court ordered respondents to cease and desist from
selling at public auction the Airport Lands and
Buildings.
ISSUE: Whether or not the Airport Lands and Buildings
of MIAA are exempt from real estate tax imposed by a
local government unit under existing laws
RULING: YES
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

This doctrine emanates from the "supremacy" of the

National Government over local governments.

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. 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.

The Airport Lands and Buildings of MIAA are property

of public dominion and therefore owned by the State or
the Republic of the Philippines.

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. Clearly, under its Charter,
MIAA does not have capital stock that is divided into
shares.
MIAA is also not a non-stock corporation because it has
no 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.
Since MIAA is neither a stock nor a non-stock
corporation,
MIAA does not qualify as a
government-owned or controlled corporation.
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.
A government instrumentality like MIAA falls under
Section 133(o) of the Local Government Code.
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.

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 Court has also ruled that property of public
dominion, being outside the commerce of man, cannot
be the subject of an auction sale.
Section 234(a) of the Local Government Code exempts
from real estate tax any "[r]eal property owned by the
Republic of the Philippines."
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 xx." 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.
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.

6. Spouses Ortega vs. City of Cebu

Facts:

dismiss or discontinue the proceeding except on such

terms as the court deems just and equitable. (Sec. 4,
Rule 67 Rules of Court).

Spouses Ortega are the registered owners of a parcel

of land in Hipodromo. Half of the said land are occupied
by informal settlers. As a result, the spouses filed an
ejectment suit against the squatters which was granted
by MTC, and affirmed by SC. The SC decision became
final and executory on Feb. 1, 1994.
On May 2014, the SangguniangPanglungsod of Cebu
enacted an ordinance authorizing the mayor to
expropriate the said one half parcel of land (the portion
occupied by informal settlers) and appropriating for that
purpose the amount of P3,284,400.00 or at the price of
ONE THOUSAND ONE HUNDRED FIFTY PESOS
(P1,150.00) per square meter. The value of the land
was determined by the Cebu City Appraisal Committee
in Resolution No. 19, series of 1994, dated April 15,
1994. The City then filed the expropriation proceedings
before the RTC which the latter granted.
Based on the recommendation of the appointed
commissioners, the total amount of the property was
31,416,000. The decision became final and executory
for the failure of the City of Cebu to perfect an appeal
on time and a Writ of Execution was issued on
September 17, 1999 to enforce the courts judgment.
The RTC garnished the amount appropriated by the
Sanggunian for the said expropriation.
Cebu City filed an Omnibus Motion to Stay Execution,
Modification of Judgment and Withdrawal of the Case,
contending that the price set by the RTC as just
compensation to be paid is way beyond the reach of its
intended beneficiaries for its socialized housing
program. Cebu City further contended that the funds of
the government cannot be garnished for reasons of
public policy. RTC denied the motion. Cebu City filed
certiorari to the CA. CA partially granted the RTC
decision. It affirmed the RTC decision that Cebu City
cannot withdraw from the expropriation as the same
was already final and executory, but granted the Citys
motion to stay execution. Hence, this appeal.

An order by the trial court fixing just compensation does

not affect a prior order of expropriation. As applied to
the case at bar, Cebu City can no longer ask for
modification of the judgment, much less, withdraw its
complaint, after it failed to appeal even the first stage of
the expropriation proceedings.
Cebu City is
misguided to say that it should be allowed to withdraw
its complaint as the just compensation is too high, and
the intended expropriation of the property is dependent
on whether Cebu City would have sufficient funds to
pay for the same. It is well-settled in jurisprudence
that the determination of just compensation is a judicial
prerogative.

Issues:

Based on the ordinance, the Cebu City appropriated an

amount for the payment of just compensation for the
said land, but Philippine Postal Bank issued a
Certification dated February 7, 2005, certifying that
Account No. 8-93-310 (Continuing Account) and
Account No. 101-8918-334 intended for purchase of lot
for various projects are not bank account numbers with
Philippine Postal Bank.

(1) WON Cebu City can withdraw from the

expropriation proceedings.
(2) Whether the deposit of Cebu City with the Philippine
Postal Bank, appropriated for a different purpose by its
SangguniangPanglungsod,
can be subject to
garnishment as payment for the expropriated lot.
Held:
First Issue
SC affirmed the RTC and CA decision. Consequently,
both the Order of expropriation and the Order fixing just
compensation by the RTC can no longer be modified. In
short, Cebu City cannot withdraw from the
expropriation proceedings.
The CA did not err in affirming the RTCs Order that the
expropriation case had long been final and executory.
Consequently, both the Order of expropriation and the
Order fixing just compensation by the RTC can no
longer be modified. In short, Cebu City cannot withdraw
from the expropriation proceedings.
A final order
sustaining the right to expropriate the property may be
appealed by any party aggrieved thereby. Such appeal,
however, shall not prevent the court from determining
the just compensation to be paid. After the rendition of
such an order, the plaintiff shall not be permitted to

Second Issue:
While the claim of the Spouses Ortega against
Cebu City is valid, the RTC cannot, by itself, order the
City Council of [Cebu City] to enact an appropriation
ordinance in order to satisfy its judgment. The proper
remedy would be to file a mandamus in order to compel
its SangguniangPanglungsod to enact an appropriation
ordinance for the satisfaction of the claim.
However,
in
the
case
while
theSangguniangPanglungsod of petitioner enacted
Ordinance No. 1519 appropriating the sum
of P3,284,400.00 for payment of just compensation for
the expropriated land, such ordinance cannot be
considered as a source of authority for the RTC to
garnish Cebu Citys bank account with Philippine Postal
Bank, which was already appropriated for another
purpose. Cebu Citys account with Philippine Postal
Bank was not specifically opened for the payment of
just compensation nor was it specifically appropriated
by Ordinance No. 1519 for such purpose. Said account,
therefore, is exempt from garnishment.

It is a settled rule that government funds and properties

may not be seized under writs of execution or
garnishment to satisfy judgments, based on obvious
consideration of public policy. Disbursements of public
funds must be covered by the corresponding
appropriation as required by law. The functions and
public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of
public funds from their legitimate and specific objects,
as appropriated by law.

7. SMART COMMUNICATIONS, INC., vs.

MUNICIPALITY OF MALVAR, BATANGAS
FACTS:

Petitioner Smart Communications, Inc. is a

domestic corporation engaged in the business

of providing telecommunications services to the

general public.
Smart constructed a telecommunications tower
within the territorial jurisdiction of the
respondent Municipality of MalvarBatangas.
On July 30 2003, the Municipality passed
Ordinance No. 18. Series of 2003, entitled n
ordinance Regulating the Establishment of
Special Projects
On August 24 2004, Smart an assessment
letter with schedule of payment for the tower
they constructed from the Municipality.
Due to the alleged arrears in the payment of
the assessment, the Municipality posted a
closure notice on the telecommunications
tower.
On September 9, 2004, smart filed a protest
and challenged the validity of the Ordinance
issued by the Municipality on which the
assessment was based. They were claiming
that there was a lack of due process in the
issuance of the said assessment and closure
notice.
Petitioners argument: the "fees" in Ordinance
No. 18 are actually taxes since they are not
regulatory, but revenue-raising. Citing
Philippine Airlines, Inc. v. Edu Smart contends
that the designation of "fees" in Ordinance No.
18 is not controlling.

ISSUE:
1. Whether or not the fees imposed under
Ordinance No. 18 are in fact taxes.
2. Whether or not the CTA erred in dismissing the
petition due to lack of jurisdiction. Since Smart
is questioning the constitutionality of the
ordinance.
3. Whether or not the imposition of the fees in
Ordinance No.18 is ultra vire on the ground that
the Municipality exceeded its power to impose
taxes and fees as provided in Book II, Title One,
Chapter 2, Article II of the LGC.
HELD:
1. The Court Finds that the fees imposed under
Ordinance No. 18 are NOT taxes.
In this case, the Municipality issued Ordinance No. 18,
which is entitled "An Ordinance Regulating the
Establishment of Special Projects," to regulate the
"placing, stringing, attaching, installing, repair and
construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus,
and provide for the correction, condemnation or
removal of the same when found to be dangerous,
defective or otherwise hazardous to the welfare of the
inhabitant[s]." It was also envisioned to address the
foreseen "environmental depredation" to be brought
about by these "special projects" to the Municipality.
Pursuant to these objectives, the Municipality imposed
fees on various
structures,
which included
telecommunications towers.
As clearly stated in its whereas clauses, the primary
purpose of Ordinance No. 18 is to regulate the "placing,
stringing, attaching, installing, repair and construction
of all gas mains, electric, telegraph and telephone wires,
conduits, meters and other apparatus" listed therein,
which included Smarts telecommunications tower.

Clearly, the purpose of the assailed Ordinance is to

regulate the enumerated activities particularly related to
the construction and maintenance of various structures.
The fees in Ordinance No. 18 are not impositions on
the building or structure itself; rather, they are
impositions on the activity subject of government
regulation, such as the installation and construction of
the structures.
Since the main purpose of Ordinance No. 18 is to
regulate certain construction activities of the identified
special projects, which included "cell sites" or
telecommunications towers, the fees imposed
Ordinance No. 18 are primarily regulatory in nature,
and not primarily revenue-raising. While the fees may
contribute to the revenues of the Municipality, this effect
is merely incidental. Thus, the fees imposed in
Ordinance No. 18 are not taxes.
2. The CTA correctly dismissed the Petition for
lack of jurisdiction
Contrary to Smarts contention, Ordinance No. 18
expressly provides for the standards which Smart must
satisfy prior to the issuance of the specified permits,
clearly indicating that the fees are regulatory in nature.
Considering that the fees in Ordinance No. 18 are not in
the nature of local taxes, and Smart is questioning the
constitutionality of the ordinance, the CTA correctly
dismissed the petition for lack of jurisdiction.
Likewise, Section 187 of the LGC,25 which outlines the
procedure for questioning the constitutionality of a tax
ordinance, is inapplicable, rendering unnecessary the
resolution of the issue on non-exhaustion of
administrative remedies.
3. (Smart maintains that the mayors permit fees
in Ordinance No. 18 (equivalent to 1% of the
project cost) are not among those expressly
enumerated in the LGC.)
As discussed, the fees in Ordinance No.18 are not
taxes. Logically, the imposition does not appear in the
enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143
or any other provision in the LGC, the Municipality is
empowered to impose taxes, fees and charges, not
specifically enumerated in the LGC or taxed under the
Tax Code or other applicable law. Section 186 of the
LGC, granting local government units wide latitude in
imposing fees, expressly provides:
Section 186. Power To Levy Other Taxes, Fees or
Charges. - Local government units may exercise the
power to levy taxes, fees or charges on any base or
subject not otherwise specifically enumerated herein or
taxed under the provisions of the National Internal
Revenue Code, as amended, or other applicable laws:
Provided, That the taxes, fees, or charges shall not be
unjust, excessive, oppressive, confiscatory or contrary
to declared national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall not
be enacted without any prior public hearing conducted
for the purpose.