G.R. No.

L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL
MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal
Bonifacio R Matol and Assistant Solicitor General Conrado T.
Limcaoco & Solicitor Enrique M. Reyes for appellees.
rates imposed therein are practically the same, and second, that on
January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as
per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant
in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved
on September 25, 1962, levies and collects "from soft drinks producers
and manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked." 2 For the purpose of computing the taxes
due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report, of the total
number of bottles produced and corked during the month. 3

MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of
Leyte in its Civil Case No. 3294, which was certified to Us by the Court
of Appeals on October 6, 1969, as involving only pure questions of law,
challenging the power of taxation delegated to municipalities under the
Local Autonomy Act (Republic Act No. 2264, as amended, June 19,
1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling
Company of the Philippines, Inc., commenced a complaint with
preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264. 1 otherwise
known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23
and 27, series of 1962, of the municipality of Tanauan, Leyte, null and
void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the
material portions of which state that, first, both Ordinances Nos. 23 and
27 embrace or cover the same subject matter and the production tax
On the other hand, Municipal Ordinance No. 27, which was approved
on October 28, 1962, levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax
of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity." 4 For the purpose of computing the taxes due, the
person, fun company, partnership, corporation or plant producing soft
drinks shall submit to the Municipal Treasurer a monthly report of the
total number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as
"municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered
judgment "dismissing the complaint and upholding the constitutionality
of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and
27 legal and constitutional; ordering the plaintiff to pay the taxes due
under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company
appealed to the Court of Appeals, which, in turn, elevated the case to Us
pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
 1. — Is Section 2, Republic Act No. 2264 an undue delegation
of power, confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation
and impose percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of powers.
The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated
to local governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication, the
legislative power to create political corporations for purposes of local
self-government carries with it the power to confer on such local
governmental agencies the power to tax. 9 Under the New Constitution,
local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may
be provided by law." Withal, it cannot be said that Section 2 of Republic
Act No. 2264 emanated from beyond the sphere of the legislative power
to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to
plaintiff-appellant's pretense, would not suffice to invalidate the said
law as confiscatory and oppressive. In delegating the authority, the State
is not limited 6 the exact measure of that which is exercised by itself.
When it is said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such measure of
power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which
for reasons of public policy the State has not deemed wise to tax for
more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due
process of law may be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the person or property
taxed is within the jurisdiction of the government levying the tax; and
(4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11 Due process is usually violated
where the tax imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State, i.e.,
extraterritorial taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes. But, a tax does not violate the due
process clause, as applied to a particular taxpayer, although the purpose
of the tax will result in an injury rather than a benefit to such taxpayer.
Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and
a notice and hearing as to the amount of the tax and the manner in which
it shall be apportioned are generally not necessary to due process of law.
12
There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13
The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden
by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the
United States and some states of the Union. 14 Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is imposed by the State and
the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27
constitute double taxation, because these two ordinances cover the same
subject matter and impose practically the same tax rate. The thesis
proceeds from its assumption that both ordinances are valid and legally
enforceable. This is not so. As earlier quoted, Ordinance No. 23, which
was approved on September 25, 1962, levies or collects from soft drinks
producers or manufacturers a tax of one-sixteen (1/16) of a centavo
for .every bottle corked, irrespective of the volume contents of the bottle
used. When it was discovered that the producer or manufacturer could
increase the volume contents of the bottle and still pay the same tax rate,
the Municipality of Tanauan enacted Ordinance No. 27, approved on
October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity. The difference between the
two ordinances clearly lies in the tax rate of the soft drinks produced: in
Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The intention of the Municipal
Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and
operates as a repeal of the latter, even without words to that effect. 18
Plaintiff-appellant in its brief admitted that defendants-appellees are
only seeking to enforce Ordinance No. 27, series of 1962. Even the
stipulation of facts confirms the fact that the Acting Municipal Treasurer
of Tanauan, Leyte sought t6 compel compliance by the plaintiff-
appellant of the provisions of said Ordinance No. 27, series of 1962.
The aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even the
Provincial Fiscal, counsel for defendants-appellees admits in his brief
"that Section 7 of Ordinance No. 27, series of 1962 clearly repeals
Ordinance No. 23 as the provisions of the latter are inconsistent with the
provisions of the former."
That brings Us to the question of whether the remaining Ordinance No.
27 imposes a percentage or a specific tax. Undoubtedly, the taxing
authority conferred on local governments under Section 2, Republic Act
No. 2264, is broad enough as to extend to almost "everything, accepting
those which are mentioned therein." As long as the text levied under the
authority of a city or municipal ordinance is not within the exceptions
and limitations in the law, the same comes within the ambit of the
general rule, pursuant to the rules of exclucion attehus and exceptio
firmat regulum in cabisus non excepti 19 The limitation applies,
particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax except
gasoline, under the provisions of the National Internal Revenue Code."
For purposes of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the volume of
sale of the taxpayer imposes a sales tax and is null and void for being
outside the power of the municipality to enact. 20 But, the imposition of
"a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity" on all soft drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon. The tax is levied on the
produce (whether sold or not) and not on the sales. The volume capacity
of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set
ratio between the volume of sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are
those imposed on specified articles, such as distilled spirits, wines,
fermented liquors, products of tobacco other than cigars and cigarettes,
matches firecrackers, manufactured oils and other fuels, coal, bunker
fuel oil, diesel fuel oil, cinematographic films, playing cards,
saccharine, opium and other habit-forming drugs. 22 Soft drink is not one
of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity on all softdrinks, produced or manufactured, or an
equivalent of 1-½ centavos per case, 23 cannot be considered unjust and
unfair. 24 an increase in the tax alone would not support the claim that
the tax is oppressive, unjust and confiscatory. Municipal corporations
are allowed much discretion in determining the reates of imposable
taxes. 25 This is in line with the constutional policy of according the
widest possible autonomy to local governments in matters of local
taxation, an aspect that is given expression in the Local Tax Code (PD
No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as
unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine
with five but not more than ten crowners or P2,000.00 with ten but not
more than twenty crowners imposed on manufacturers, producers,
importers and dealers of soft drinks and/or mineral waters under
Ordinance No. 54, series of 1964, as amended by Ordinance No. 41,
series of 1968, of defendant Municipality, 29 appears not to affect the
resolution of the validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public
purposes, just and uniform taxes. The ordinance in question (Ordinance
No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No.
2264, otherwise known as the Local Autonomy Act, as amended, is
hereby upheld and Municipal Ordinance No. 27 of the Municipality of
Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23,
same series, is hereby declared of valid and legal effect. Costs against
petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz
Palma, Aquino and Concepcion, Jr., JJ., concur.
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY,
petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding
Judge of the Regional Trial Court, Branch 20, Cebu City, THE
CITY OF CEBU, represented by its Mayor HON. TOMAS R.
OSMEÑA, and EUSTAQUIO B. CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question
of law are the decision of 22 March 1995 1of the Regional Trial
Court (RTC) of Cebu City, Branch 20, dismissing the petition for
declaratory relief in Civil Case No. CEB-16900 entitled "Mactan
Cebu International Airport Authority vs. City of Cebu", and its
order of 4, May 19952 denying the motion to reconsider the
decision.
We resolved to give due course to this petition for its raises issues
dwelling on the scope of the taxing power of local government-
owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the
instant petition as follows:
Petitioner Mactan Cebu International Airport Authority
(MCIAA) was created by virtue of Republic Act No. 6958,
mandated to "principally undertake the economical, efficient
and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City, . . . and such other Airports as may
be established in the Province of Cebu . . . (Sec. 3, RA 6958). It
is also mandated to:
a) encourage, promote and develop
international and domestic air traffic in the
Central Visayas and Mindanao regions as a
means of making the regions centers of
international trade and tourism, and
accelerating the development of the means of
 transportation and communication in the
country; and
b) upgrade the services and facilities of the
airports and to formulate internationally
acceptable standards of airport
accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter.
Sec. 14. Tax Exemptions. — The authority shall be
exempt from realty taxes imposed by the National
Government or any of its political subdivisions,
agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-
in-Charge, Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of land
belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO,
948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942,
947, 77 Psd., 746 and 991-A), located at Barrio Apas and
Barrio Kasambagan, Lahug, Cebu City, in the total amount of
P2,229,078.79.
Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 of
RA 6958 which exempt it from payment of realty taxes. It was
also asserted that it is an instrumentality of the government
performing governmental functions, citing section 133 of the
Local Government Code of 1991 which puts limitations on the
taxing powers of local government units:
Sec. 133. Common Limitations on the Taxing Powers
of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangay shall
not extend to the levy of the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities, and local government units.
(Emphasis supplied)
Respondent City refused to cancel and set aside petitioner's
realty tax account, insisting that the MCIAA is a government-
controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local
Governmental Code that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons whether natural
or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly
registered under RA No. 6938, non-stock, and non-profit
hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. — . . .
(a) . . .
xxx xxx xxx
(c) . . .
 Except as provided herein, any exemption from
payment of real property tax previously granted to, or
presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled
corporations are hereby withdrawn upon the effectivity
of this Code.
As the City of Cebu was about to issue a warrant of levy
against the properties of petitioner, the latter was compelled to
pay its tax account "under protest" and thereafter filed a
Petition for Declaratory Relief with the Regional Trial Court of
Cebu, Branch 20, on December 29, 1994. MCIAA basically
contended that the taxing powers of local government units do
not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or
instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or
instrumentality of the national government by the very nature
of its powers and functions.
Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-
owned corporation performing proprietary functions As such,
all exemptions previously granted to it were deemed withdrawn
by operation of law, as provided under Sections 193 and 234 of
the Local Government Code when it took effect on January 1,
1992.3
The petition for declaratory relief was docketed as Civil Case No.
CEB-16900.
In its decision of 22 March 1995, 4 the trial court dismissed the
petition in light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or
RA 7160 provides the express cancellation and withdrawal of
exemption of taxes by government owned and controlled
corporation per Sections after the effectivity of said Code on
January 1, 1992, to wit: [proceeds to quote Sections 193 and
234]
Petitioners claimed that its real properties assessed by
respondent City Government of Cebu are exempted from
paying realty taxes in view of the exemption granted under RA
6958 to pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and
special laws, acts, city charters, decress [sic], executive orders,
proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly." ([f],
Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and
state that the tax exemption provided for in RA 6958 creating
petitioner had been expressly repealed by the provisions of the
New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax
of its properties effective after January 1, 1992 until the
present.
This Court's ruling finds expression to give impetus and
meaning to the overall objectives of the New Local
Government Code of 1991, RA 7160. "It is hereby declared the
policy of the State that the territorial and political subdivisions
of the State shall enjoy genuine and meaningful local autonomy
to enable them to attain their fullest development as self-reliant
communities and make them more effective partners in the
attainment of national goals. Towards this end, the State shall
provide for a more responsive and accountable local
 government structure instituted through a system of
decentralization whereby local government units shall be given
more powers, authority, responsibilities, and resources. The
process of decentralization shall proceed from the national
government to the local government units. . . .5
Its motion for reconsideration having been denied by the trial court
in its 4 May 1995 order, the petitioner filed the instant petition
based on the following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO
RULE THAT THE PETITIONER IS VESTED WITH
GOVERNMENT POWERS AND FUNCTIONS
WHICH PLACE IT IN THE SAME CATEGORY AS
AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING
THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it
is a government-owned or controlled corporation it is mandated to
perform functions in the same category as an instrumentality of
Government. An instrumentality of Government is one created to
perform governmental functions primarily to promote certain
aspects of the economic life of the people.6 Considering its task "not
merely to efficiently operate and manage the Mactan-Cebu
International Airport, but more importantly, to carry out the
Government policies of promoting and developing the Central
Visayas and Mindanao regions as centers of international trade and
tourism, and accelerating the development of the means of
transportation and communication in the country,"7and that it is an
attached agency of the Department of Transportation and
Communication (DOTC),8 the petitioner "may stand in [sic] the
same footing as an agency or instrumentality of the national
government." Hence, its tax exemption privilege under Section 14
of its Charter "cannot be considered withdrawn with the passage of
the Local Government Code of 1991 (hereinafter LGC) because
Section 133 thereof specifically states that the taxing powers of
local government units shall not extend to the levy of taxes of fees
or charges of any kind on the national government its agencies and
instrumentalities."
As to the second assigned error, the petitioner contends that being
an instrumentality of the National Government, respondent City of
Cebu has no power nor authority to impose realty taxes upon it in
accordance with the aforesaid Section 133 of the LGC, as explained
in Basco vs. Philippine Amusement and Gaming Corporation;9
Local governments have no power to tax instrumentalities of
the National Government. PAGCOR is a government owned or
controlled corporation with an original character, PD 1869. All
its shares of stock are owned by the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling
casinos. The latter joke is governmental, which places it in the
category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control
by a mere Local government.
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (McCulloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National
Government over local government.
Justice Holmes, speaking for the Supreme Court, make
references to the entire absence of power on the part of the
 States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities,
or even to seriously burden it in the accomplishment of them.
(Antieau Modern Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National
policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the
power to tax as "a toll for regulation" (U.S. v. Sanchez, 340 US
42). The power to tax which was called by Justice Marshall as
the "power to destroy" (McCulloch v. Maryland, supra) cannot
be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. (Emphasis
supplied)
It then concludes that the respondent Judge "cannot therefore
correctly say that the questioned provisions of the Code do not
contain any distinction between a governmental function as against
one performing merely proprietary ones such that the exemption
privilege withdrawn under the said Code would apply to
allgovernment corporations." For it is clear from Section 133, in
relation to Section 234, of the LGC that the legislature meant to
exclude instrumentalities of the national government from the
taxing power of the local government units.
In its comment respondent City of Cebu alleges that as local a
government unit and a political subdivision, it has the power to
impose, levy, assess, and collect taxes within its jurisdiction. Such
power is guaranteed by the Constitution10 and enhanced further by
the LGC. While it may be true that under its Charter the petitioner
was exempt from the payment of realty taxes, 11 this exemption was
withdrawn by Section 234 of the LGC. In response to the
petitioner's claim that such exemption was not repealed because
being an instrumentality of the National Government, Section 133
of the LGC prohibits local government units from imposing taxes,
fees, or charges of any kind on it, respondent City of Cebu points
out that the petitioner is likewise a government-owned corporation,
and Section 234 thereof does not distinguish between government-
owned corporation, and Section 234 thereof does not distinguish
between government-owned corporation, and Section 234 thereof
does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary
functions. Respondent city of Cebu urges this the Manila
International Airport Authority is a governmental-owned
corporation, 12 and to reject the application of Basco because it was
"promulgated . . . before the enactment and the singing into law of
R.A. No. 7160," and was not, therefore, decided "in the light of the
spirit and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and
is unlimited in its range, acknowledging in its very nature no limits,
so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions. 13
Our Constitution, for instance, provides that the rule of taxation
shall be uniform and equitable and Congress shall evolve a
progressive system of taxation.14 So potent indeed is the power that
it was once opined that "the power to tax involves the power to
destroy."15 Verily, taxation is a destructive power which interferes
with the personal and property for the support of the government.
Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. 16 But since taxes
are what we pay for civilized society,17 or are the lifeblood of the
nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris
against the taxpayers and liberally in favor of the taxing authority. 18
A claim of exemption from tax payment must be clearly shown and
based on language in the law too plain to be mistaken. 19 Elsewise
stated, taxation is the rule, exemption therefrom is the exception. 20
However, if the grantee of the exemption is a political subdivision
or instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the
amount of money that has to be handled by the government in the
course of its operations.21
The power to tax is primarily vested in the Congress; however, in
our jurisdiction, it may be exercised by local legislative bodies, no
longer merely by virtue of a valid delegation as before, but pursuant
to direct authority conferred by Section 5, Article X of the
Constitution.22 Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of
local autonomy.
There can be no question that under Section 14 of R.A. No. 6958
the petitioner is exempt from the payment of realty taxes imposed
by the National Government or any of its political subdivisions,
agencies, and instrumentalities. Nevertheless, since taxation is the
rule and exemption therefrom the exception, the exemption may
thus be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to private
parties based on material consideration of a mutual nature, which
then becomes contractual and is thus covered by the non-
impairment clause of the Constitution.23
The LGC, enacted pursuant to Section 3, Article X of the
constitution provides for the exercise by local government units of
their power to tax, the scope thereof or its limitations, and the
exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the
taxing powers of local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local
Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the
following:
(a) Income tax, except when levied on banks and other
financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein
(d) Customs duties, registration fees of vessels and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees charges and dues except
wharfage on wharves constructed and maintained by
the local government unit concerned:
(e) Taxes, fees and charges and other imposition upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the
guise or charges for wharfages, tolls for bridges or
otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprise certified to be the
Board of Investment as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from
the date of registration;
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales,
 barters or exchanges or similar transactions on goods
or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation
contractor and person engage in the transportation of
passengers of freight by hire and common carriers by
air, land, or water, except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or
retrocession;
(l) Taxes, fees, or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving of thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine product
actually exported, except as otherwise provided
herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprise and Cooperatives duly
registered under R.A. No. 6810 and Republic Act
Numbered Sixty nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperative Code of
the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON
THE NATIONAL GOVERNMENT, ITS AGENCIES
AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The
"taxes, fees or charges" referred to are "of any kind", hence they
include all of these, unless otherwise provided by the LGC. The
term "taxes" is well understood so as to need no further elaboration,
especially in the light of the above enumeration. The term "fees"
means charges fixed by law or Ordinance for the regulation or
inspection of business activity,24 while "charges" are pecuniary
liabilities such as rents or fees against person or property.25
Among the "taxes" enumerated in the LGC is real property tax,
which is governed by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or
city or a municipality within the Metropolitan Manila Area may
levy on an annual ad valorem tax on real property such as land,
building, machinery and other improvements not hereafter
specifically exempted.
Section 234 of LGC provides for the exemptions from payment of
real property taxes and withdraws previous exemptions therefrom
granted to natural and juridical persons, including government
owned and controlled corporations, except as provided therein. It
provides:
Sec. 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof had been granted, for
reconsideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenants thereto, mosques nonprofits or
religious cemeteries and all lands, building and
improvements actually, directly, and exclusively used
for religious charitable or educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts
and government-owned or controlled corporations
engaged in the supply and distribution of water and/or
generation and transmission of electric power;
 (d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and;
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemptions from
payment of real property tax previously granted to or
presently enjoyed by, all persons whether natural or
juridical, including all government owned or
controlled corporations are hereby withdrawn upon the
effectivity of his Code.
These exemptions are based on the ownership, character, and use of
the property. Thus;
(a) Ownership Exemptions. Exemptions from real
property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province,
(iii) a city, (iv) a municipality, (v) a barangay, and (vi)
registered cooperatives.
(b) Character Exemptions. Exempted from real
property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of
prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non profit or
religious cemeteries.
(c) Usage exemptions. Exempted from real property
taxes on the basis of the actual, direct and exclusive
use to which they are devoted are: (i) all lands
buildings and improvements which are actually,
directed and exclusively used for religious, charitable
or educational purpose; (ii) all machineries and
equipment actually, directly and exclusively used or by
local water districts or by government-owned or
controlled corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power; and (iii) all machinery
and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the
modernization of the country, all machinery and equipment for
pollution control and environmental protection may not be
taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons
including government-owned or controlled
corporations are withdrawn upon the effectivity of the
Code.26
Section 193 of the LGC is the general provision on withdrawal of
tax exemption privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless
otherwise provided in this code, tax exemptions or incentives
granted to or presently enjoyed by all persons, whether natural
or juridical, including government-owned, or controlled
corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non stock and non profit hospitals
and educational constitutions, are hereby withdrawn upon the
effectivity of this Code.
On the other hand, the LGC authorizes local government units to
grant tax exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. —
Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on
the taxing powers of local government units and the exceptions to
such limitations; and (b) the rule on tax exemptions and the
exceptions thereto. The use of exceptions of provisos in these
section, as shown by the following clauses:
(1) "unless otherwise provided herein" in the opening
paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in
section 193;
(3) "not hereafter specifically exempted" in Section
232; and
(4) "Except as provided herein" in the last paragraph
of Section 234
initially hampers a ready understanding of the sections. Note, too,
that the aforementioned clause in section 133 seems to be
inaccurately worded. Instead of the clause "unless otherwise
provided herein," with the "herein" to mean, of course, the section,
it should have used the clause "unless otherwise provided in this
Code." The former results in absurdity since the section itself
enumerates what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions were
explicitly indicated in the text. For instance, in item (a) which
excepts the income taxes "when livied on banks and other financial
institutions", item (d) which excepts "wharfage on wharves
constructed and maintained by the local government until
concerned"; and item (1) which excepts taxes, fees, and charges for
the registration and issuance of license or permits for the driving of
"tricycles". It may also be observed that within the body itself of the
section, there are exceptions which can be found only in other parts
of the LGC, but the section interchangeably uses therein the clause
"except as otherwise provided herein" as in items (c) and (i), or the
clause "except as otherwise provided herein" as in items (c) and (i),
or the clause "excepts as provided in this Code" in item (j). These
clauses would be obviously unnecessary or mere surplus-ages if the
opening clause of the section were" "Unless otherwise provided in
this Code" instead of "Unless otherwise provided herein". In any
event, even if the latter is used, since under Section 232 local
government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232
must be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we
conclude that as a general rule, as laid down in Section 133 the
taxing powers of local government units cannot extend to the levy
of inter alia, "taxes, fees, and charges of any kind of the National
Government, its agencies and instrumentalties, and local
government units"; however, pursuant to Section 232, provinces,
cities, municipalities in the Metropolitan Manila Area may impose
the real property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political subdivisions
except when the beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person", as provided in item
(a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed
by natural or juridical persons, including government-owned and
controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the
LGC, except upon the effectivity of the LGC, except those granted
to local water districts, cooperatives duly registered under R.A. No.
6938, non stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC. The latter
proviso could refer to Section 234, which enumerates the properties
exempt from real property tax. But the last paragraph of Section
234 further qualifies the retention of the exemption in so far as the
real property taxes are concerned by limiting the retention only to
those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as the real property is owned by the Republic of the
Philippines, or any of its political subdivisions covered by item (a)
of the first paragraph of Section 234, the exemption is withdrawn if
the beneficial use of such property has been granted to taxable
person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew,
upon the effectivity of the LGC, exemptions from real property
taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said
section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the
petitioner can seek refuge under any of the exceptions provided in
Section 234, but not under Section 133, as it now asserts, since, as
shown above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in
Section 133 that the taxing powers of the local government units
cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on the National
Government, its agencies, or instrumentalities, and
local government units.
I must show that the parcels of land in question, which are real
property, are any one of those enumerated in Section 234, either by
virtue of ownership, character, or use of the property. Most likely, it
could only be the first, but not under any explicit provision of the
said section, for one exists. In light of the petitioner's theory that it
is an "instrumentality of the Government", it could only be within
be first item of the first paragraph of the section by expanding the
scope of the terms Republic of the Philippines" to embrace . . . . . .
"instrumentalities" and "agencies" or expediency we quote:
(a) real property owned by the Republic of the
Philippines, or any of the Philippines, or any of its
political subdivisions except when the beneficial use
thereof has been granted, for consideration or
otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's
claim that it is an instrumentality of the Government is based on
Section 133(o), which expressly mentions the word
"instrumentalities"; and in the second place it fails to consider the
fact that the legislature used the phrase "National Government, its
agencies and instrumentalities" "in Section 133(o),but only the
phrase "Republic of the Philippines or any of its political
subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National
Government" are not interchangeable. The former is boarder and
synonymous with "Government of the Republic of the Philippines"
which the Administrative Code of the 1987 defines as the
"corporate governmental entity though which the functions of the
government are exercised through at the Philippines, including,
saves as the contrary appears from the context, the various arms
through which political authority is made effective in the
Philippines, whether pertaining to the autonomous reason, the
provincial, city, municipal or barangay subdivision or other forms
of local government."27 These autonomous regions, provincial, city,
municipal or barangay subdivisions" are the political subdivision.28
On the other hand, "National Government" refers "to the entire
machinery of the central government, as distinguished from the
different forms of local Governments."29 The National Government
then is composed of the three great departments the executive, the
legislative and the judicial.30
An "agency" of the Government refers to "any of the various units
of the Government, including a department, bureau, office
instrumentality, or government-owned or controlled corporation, or
a local government or a distinct unit therein;" 31 while an
"instrumentality" refers to "any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy; usually through a charter. This term
includes regulatory agencies, chartered institutions and
government-owned and controlled corporations".32
If Section 234(a) intended to extend the exception therein to the
withdrawal of the exemption from payment of real property taxes
under the last sentence of the said section to the agencies and
instrumentalities of the National Government mentioned in Section
133(o), then it should have restated the wording of the latter. Yet, it
did not Moreover, that Congress did not wish to expand the scope
of the exemption in Section 234(a) to include real property owned
by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out
by the fact that the source of this exemption is Section 40(a) of P.D.
No. 646, otherwise known as the Real Property Tax Code, which
reads:
Sec 40. Exemption from Real Property Tax. — The exemption
shall be as follows:
(a) Real property owned by the Republic of
the Philippines or any of its political
subdivisions and any government-owned or
controlled corporations so exempt by is
charter: Provided, however, that this
exemption shall not apply to real property of
the above mentioned entities the beneficial
use of which has been granted, for
consideration or otherwise, to a taxable
person.
Note that as a reproduced in Section 234(a), the phrase "and any
government-owned or controlled corporation so exempt by its
charter" was excluded. The justification for this restricted
exemption in Section 234(a) seems obvious: to limit further tax
exemption privileges, specially in light of the general provision on
withdrawal of exemption from payment of real property taxes in the
last paragraph of property taxes in the last paragraph of Section
234. These policy considerations are consistent with the State
policy to ensure autonomy to local governments 33 and the objective
of the LGC that they enjoy genuine and meaningful local autonomy
to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of
national goals.34 The power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities of
local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to
recall that the original reasons for the withdrawal of tax exemption
privileges granted to government-owned and controlled
corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises, and there was a need
for this entities to share in the requirements of the development,
fiscal or otherwise, by paying the taxes and other charges due from
them.35
The crucial issues then to be addressed are: (a) whether the parcels
of land in question belong to the Republic of the Philippines whose
beneficial use has been granted to the petitioner, and (b) whether
the petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets.
— All existing public airport facilities, runways, lands,
buildings and other properties, movable or immovable,
belonging to or presently administered by the airports, and all
assets, powers, rights, interests and privileges relating on
airport works, or air operations, including all equipment which
are necessary for the operations of air navigation, acrodrome
 control towers, crash, fire, and rescue facilities are hereby
transferred to the Authority: Provided however, that the
operations control of all equipment necessary for the operation
of radio aids to air navigation, airways communication, the
approach control office, and the area control center shall be
retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation Office
from Mactan without the concurrence of the authority. The
authority may assist in the maintenance of the Air
Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and
the "Mactan International AirPort in the Province of Cebu", 36 which
belonged to the Republic of the Philippines, then under the Air
Transportation Office (ATO).37
It may be reasonable to assume that the term "lands" refer to
"lands" in Cebu City then administered by the Lahug Air Port and
includes the parcels of land the respondent City of Cebu seeks to
levy on for real property taxes. This section involves a "transfer" of
the "lands" among other things, to the petitioner and not just the
transfer of the beneficial use thereof, with the ownership being
retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership
thereof because the petitioner's authorized capital stock consists of,
inter alia "the value of such real estate owned and/or administered
by the airports."38 Hence, the petitioner is now the owner of the land
in question and the exception in Section 234(c) of the LGC is
inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable
person" under its Charter. It was only exempted from the payment of
real property taxes. The grant of the privilege only in respect of this
tax is conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the forgoing disquisitions,
it had already become even if it be conceded to be an "agency" or
"instrumentality" of the Government, a taxable person for such
purpose in view of the withdrawal in the last paragraph of Section
234 of exemptions from the payment of real property taxes, which,
as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable.
Reliance on Basco vs. Philippine Amusement and Gaming
Corporation39 is unavailing since it was decided before the
effectivity of the LGC. Besides, nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax. Where it
is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged
decision and order of the Regional Trial Court of Cebu, Branch 20,
in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
LUZ R. YAMANE, in her G.R. No. 154993
capacity as the CITY
TREASURER OF MAKATI Present:
CITY,
Petitioner, PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
- versus - TINGA, and
CHICO-NAZARIO, JJ.

BA LEPANTO CONDOMINUM Promulgated:
CORPORATION,
Respondent. October 25, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Petitioner City Treasurer of Makati, Luz Yamane (City
Treasurer), presents for resolution of this Court two novel questions:
one procedural, the other substantive, yet both of obvious significance.
The first pertains to the proper mode of judicial review undertaken from
decisions of the regional trial courts resolving the denial of tax protests
made by local government treasurers, pursuant to the Local Government
Code. The second is whether a local government unit can, under the
Local Government Code, impel a condominium corporation to pay
[1]
business taxes.
While we agree with the City Treasurers position on the first
issue, there ultimately is sufficient justification for the Court to overlook
what is essentially a procedural error. We uphold respondents on the
second issue. Indeed, there are disturbing aspects in both procedure and
substance that attend the attempts by the City of Makati to flex its
taxing muscle. Considering that the tax imposition now in question has
utterly no basis in law, judicial relief is imperative. There are fewer
indisputable causes for the exercise of judicial review over the exercise
of the taxing power than when the tax is based on whim, and not on law.
The facts, as culled from the record, follow.
Respondent BA-Lepanto Condominium Corporation (the Corporation)
is a duly organized condominium corporation constituted in accordance
with the Condominium Act,[2]which owns and holds title to the common
and limited common areas of the BA-Lepanto Condominium (the
Condominium), situated in Paseo de Roxas, Makati City. Its
membership comprises the various unit owners of the Condominium.
The Corporation is authorized, under Article V of its Amended By-
Laws, to collect regular assessments from its members for operating
expenses, capital expenditures on the common areas, and other special
assessments as provided for in the Master Deed with Declaration of
Restrictions of the Condominium.
On 15 December 1998, the Corporation received a Notice of
Assessment dated 14 December 1998 signed by the City Treasurer. The
Notice of Assessment stated that the Corporation is liable to pay the
correct city business taxes, fees and charges, computed as totaling
P1,601,013.77 for the years 1995 to 1997.[3] The Notice of Assessment
was silent as to the statutory basis of the business taxes assessed.
 Through counsel, the Corporation responded with a written tax
protest dated 12 February 1999, addressed to the City Treasurer. It was
evident in the protest that the Corporation was perplexed on the
statutory basis of the tax assessment.
With due respect, we submit that the Assessment
has no basis as the Corporation is not liable for business
taxes and surcharges and interest thereon, under the Makati
[Revenue] Code or even under the [Local Government]
Code.
The Makati [Revenue] Code and the [Local
Government] Code do not contain any provisions on which
the Assessment could be based. One might argue that Sec.
3A.02(m) of the Makati [Revenue] Code imposes business
tax on owners or operators of any business not specified in
the said code. We submit, however, that this is not
applicable to the Corporation as the Corporation is not an
owner or operator of any business in the contemplation of
the Makati [Revenue] Code and even the [Local
Government] Code.[4]
Proceeding from the premise that its tax liability arose from
Section 3A.02(m) of the Makati Revenue Code, the Corporation
proceeded to argue that under both the Makati Code and the Local
Government Code, business is defined as trade or commercial activity
regularly engaged in as a means of livelihood or with a view to profit. It
was submitted that the Corporation, as a condominium corporation, was
organized not for profit, but to hold title over the common areas of the
Condominium, to manage the Condominium for the unit owners, and to
hold title to the parcels of land on which the Condominium was located.
Neither was the Corporation authorized, under its articles of
incorporation or by-laws to engage in profit-making activities. The
assessments it did collect from the unit owners were for capital
expenditures and operating expenses.[5]
The protest was rejected by the City Treasurer in a letter dated 4
March 1999. She insisted that the collection of dues from the unit
owners was effected primarily to sustain and maintain the expenses of
the common areas, with the end in view [sic] of getting full appreciative
living values [sic] for the individual condominium occupants and to
command better marketable [sic] prices for those occupants who would
in the future sell their respective units. [6] Thus, she concluded since the
chances of getting higher prices for well-managed common areas of any
condominium are better and more effective that condominiums with
poor [sic] managed common areas, the corporation activity is a profit
venture making [sic].[7]
From the denial of the protest, the Corporation filed an Appeal with the
Regional Trial Court (RTC) of Makati. [8] On 1 March 2000, the Makati
RTC Branch 57 rendered a Decision[9] dismissing the appeal for lack of
merit. Accepting the premise laid by the City Treasurer, the RTC
acknowledged, in sadly risible language:
On 7 June 2002, the Court of Appeals Special Sixteenth Division
Herein appellant, to defray the improvements and
rendered the Decision[16] now assailed before this Court. The appellate
beautification of the common areas, collect [sic] assessments
from its members. Its end view is to get appreciate living court reversed the RTC and declared that the Corporation was not liable
rules for the unit owners [sic], to give an impression to
to pay business taxes to the City of Makati. [17] In doing so, the Court of
outsides [sic] of the quality of service the condominium
offers, so as to allow present owners to command better Appeals delved into jurisprudential definitions of profit,[18]and concluded
prices in the event of sale.[10]
that the Corporation was not engaged in profit. For one, it was held that

With this, the RTC concluded that the activities of the Corporation fell the very statutory concept of a condominium corporation showed that it

squarely under the definition of business under Section 13(b) of the was not a juridical entity intended to make profit, as its sole purpose was

Local Government Code, and thus subject to local business taxation.[11] to hold title to the common areas in the condominium and to maintain
the condominium.[19]

From this Decision of the RTC, the Corporation filed a Petition for
The Court of Appeals likewise cited provisions from the
Review under Rule 42 of the Rules of Civil Procedure with the Court of
Corporations Amended Articles of Incorporation and Amended By-Laws
Appeals. Initially, the petition was dismissed outright [12] on the ground
that, to its estimation, established that the Corporation was not engaged
that only decisions of the RTC brought on appeal from a first level court
in business and the assessment collected from unit owners limited to
could be elevated for review under the mode of review prescribed under
those necessary to defray the expenses in the maintenance of the
Rule 42.[13] However, the Corporation pointed out in its Motion for
common areas and management the condominium.[20]
Reconsideration that under Section 195 of the Local Government Code,
the remedy of the taxpayer on the denial of the protest filed with the
local treasurer is to appeal the denial with the court of competent
jurisdiction.[14] Persuaded by this contention, the Court of Appeals
reinstated the petition.[15]
Upon denial of her Motion for Reconsideration,[21] the City
Treasurer elevated the present Petition for Review under Rule 45. It is
argued that the Corporation is engaged in business, for the dues collected
from the different unit owners is utilized towards the beautification and
maintenance of the Condominium, resulting in full appreciative living
values for the condominium units which would command better market
prices should they be sold in the future. The City Treasurer likewise
avers that the rationale for business taxes is not on the income received
or profit earned by the business, but the privilege to engage in business.
The fact that the
Corporation is empowered to acquire, own, hold, enjoy, lease, operate
and maintain, and to convey sell, transfer or otherwise dispose of real or
personal property allegedly qualifies as incident to the fact of [the
Corporations] act of engaging in business.[22]
The City Treasurer also claims that the Corporation had filed the
wrong mode of appeal before the Court of Appeals when the latter filed
its Petition for Review under Rule 42. It is reasoned that the decision of
the Makati RTC was rendered in the exercise of original jurisdiction, it
being the first court which took cognizance of the case. Accordingly,
with the Corporation having pursued an erroneous mode of appeal, the
RTC Decision is deemed to have become final and executory.
First, we dispose of the procedural issue, which essentially boils
down to 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. 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.[23]
There are discernible conflicting views on the issue. The first, as
expressed by the Court of Appeals, holds that the RTC, in reviewing
denials of protests by local treasurers, exercises appellate jurisdiction.
This position is anchored on the language of Section 195 of the Local
Government Code which states that the remedy of the taxpayer whose
protest is denied by the local treasurer is to appeal with the court of
competent jurisdiction.[24] Apparently though, the Local Government
Code does not elaborate on how such appeal should be undertaken.
The other view, as maintained by the City Treasurer, is that the
jurisdiction exercised by the RTC is original in character. This is the first
time that the position has been presented to the court for adjudication.
Still, this argument does find jurisprudential mooring in our ruling in
Garcia v. De Jesus,[25] where the Court proffered the following
distinction between original jurisdiction and appellate jurisdiction:
Original jurisdiction is the power of the Court to take judicial
cognizance of a case instituted for judicial action for the first time under
conditions provided by law. Appellate jurisdiction is the authority of a
Court higher in rank to re-examine the final order or judgment of a lower
Court which tried the case now elevated for judicial review.[26]
The quoted definitions were taken from the commentaries of the
esteemed Justice Florenz Regalado. With the definitions as beacon, the
review taken by the RTC over the denial of the protest by the local
treasurer would fall within that courts original jurisdiction. In short, the
review is the initial judicial cognizance of the matter. Moreover, labeling
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.
The stringent concept of original jurisdiction may seemingly be
neutered by Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of
which lists a slew of administrative agencies and quasi-judicial tribunals
or their officers whose decisions may be reviewed by the Court of
Appeals in the exercise of its appellate jurisdiction. However, the basic
law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129), [27] ineluctably
confers appellate jurisdiction on the Court of Appeals over final rulings
of quasi-judicial agencies, instrumentalities, boards or commission, by
explicitly using the phrase appellate jurisdiction. [28] The power to create
or characterize jurisdiction of courts belongs to the legislature. While the
traditional notion of appellate jurisdiction connotes judicial review over
lower court decisions, it has to yield to statutory redefinitions that clearly
expand its breadth to encompass even review of decisions of officers in
the executive branches of government.
Yet significantly, the Local Government Code, or any other
statute for that matter, does not expressly confer appellate jurisdiction on
the part of regional trial courts from the denial of a tax protest by a local
treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates
the appellate jurisdiction of the Regional Trial Courts, confining as it
does said appellate jurisdiction to cases decided by Metropolitan,
Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the
Court of Appeals, B.P. 129 does not confer appellate jurisdiction on
Regional Trial Courts over rulings made by non-judicial entities.
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).
Republic Act No. 9282 definitively proves in its Section 7(a)(3)
that the CTA exercises exclusive appellate jurisdiction to review on
appeal decisions, orders or resolutions of the Regional Trial Courts in
local tax cases original decided or resolved by them in the exercise of
their originally or appellate jurisdiction. Moreover, the provision also
states that the review is triggered by filing a petition for review under a
procedure analogous to that provided for under Rule 42 of the 1997
Rules of Civil Procedure.[29]
Republic Act No. 9282, however, would not apply to this case
simply because it arose prior to the effectivity of that law. To declare
otherwise would be to institute a jurisdictional rule derived not from
express statutory grant, but from implication. The jurisdiction of a court
to take cognizance of a case should be clearly conferred and should not
be deemed to exist on mere implications, [30] and this settled rule would
be needlessly emasculated should we declare that the Corporations
position is correct in law.
Be that as it may, characteristic of all procedural rules is
adherence to the precept that they should not be enforced blindly,
especially if mechanical application would defeat the higher ends that
animates our civil procedurethe just, speedy and inexpensive disposition
of every action and proceeding.[31] Indeed, we have repeatedly upheldand
utilized ourselvesthe discretion of courts to nonetheless take cognizance
of petitions raised on an erroneous mode of appeal and instead treat
these petitions in the manner as they should have appropriately been
filed.[32] The Court of Appeals could very well have treated the
Corporations petition for review as an ordinary appeal.
Moreover, we recognize that the Corporations error in elevating
the RTC decision for review via Rule 42 actually worked to the benefit
of the City Treasurer. There is wider latitude on the part of the Court of
Appeals to refuse cognizance over a petition for review under Rule 42
than it would have over an ordinary appeal under Rule 41. Under
Section 13, Rule 41, the stated grounds for the dismissal of an ordinary
appeal prior to the transmission of the case records are when the appeal
was taken out of time or when the docket fees were not paid. [33] On the
other hand, Section 6, Rule 42 provides that in order that the Court of
Appeals may allow due course to the petition for review, it must first
make a prima facie finding that the lower court has committed an error
that would warrant the reversal or modification of the decision under
review.[34] There is no similar requirement of a prima facie determination
of error in the case of ordinary appeal, which is perfected upon the filing
of the notice of appeal in due time.[35]
Evidently, by employing the Rule 42 mode of review, the
Corporation faced a greater risk of having its petition rejected by the
Court of Appeals as compared to having filed an ordinary appeal under
Rule 41. This was not an error that worked to the prejudice of the City
Treasurer.
We now proceed to the substantive issue, on whether the City of
Makati may collect business taxes on condominium corporations.
We begin with an overview of the power of a local government unit to
impose business taxes.
The power of local government units to impose taxes within its
territorial jurisdiction derives from the Constitution itself, which
recognizes the power of these units to create its own sources of revenue
and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy
of local autonomy.[36] These guidelines and limitations as provided by
Congress are in main contained in the Local Government Code of 1991
(the Code), which provides for comprehensive instances when and how
local government units may impose taxes. The significant limitations are
enumerated primarily in Section 133 of the Code, which include among
others, a prohibition on the imposition of income taxes except when
levied on banks and other financial institutions. [37] None of the other
general limitations under Section 133 find application to the case at bar.
The most well-known mode of local government taxation is perhaps the
real property tax, which is governed by Title II, Book II of the Code, and
which bears no application in this case. A different set of provisions,
found under Title I of Book II, governs other taxes imposable by local
government units, including business taxes. Under Section 151 of the
Code, cities such as Makati are authorized to levy the same taxes fees
and charges as provinces and municipalities. It is in Article II, Title II,
Book II of the Code, governing municipal taxes, where the provisions on
business taxation relevant to this petition may be found.[38]
Section 143 of the Code specifically enumerates several types of
business on which municipalities and cities may impose taxes. These
include manufacturers, wholesalers, distributors, dealers of any article of
commerce of whatever nature; those engaged in the export or commerce
of essential commodities; contractors and other independent contractors;
banks and financial institutions; and peddlers engaged in the sale of any
merchandise or article of commerce. Moreover, the local sanggunian is
also authorized to impose taxes on any other businesses not otherwise
specified under Section 143 which the sanggunian concerned may deem
proper to tax.
The coverage of business taxation particular to the City of
Makati is provided by the Makati Revenue Code (Revenue Code),
enacted through Municipal Ordinance No. 92-072. The Revenue Code

remains in effect as of this
writing. Article A, Chapter III of the Revenue Code governs business
taxes in Makati, and it is quite specific as to the particular businesses
which are covered by business taxes. To give a sample of the specified
businesses under the Revenue Code which are not enumerated under the
Local Government Code, we cite Section 3A.02(f) of the Code, which
levies a gross receipt tax :
typewriters, etc.; roasting of pigs, fowls, etc.; shipping
agencies; shipyard for repairing ships for others; shops
for shearing animals; silkscreen or T-shirt printing
shops; stables; travel agencies; vaciador shops;
veterinary clinics; video rentals and/or coverage
services; dancing schools/speed reading/EDP; nursery,
vocational and other schools not regulated by the
Department of Education, Culture and Sports, (DECS),
day care centers; etc.[39]

(f) On contractors and other independent contractors Other provisions of the Revenue Code likewise subject hotel and
defined in Sec. 3A.01(q) of Chapter III of this Code,
and on owners or operators of business establishments restaurant owners and operators[40], real estate dealers, and lessors of real
rendering or offering services such as: advertising estate[41] to business taxes.
agencies; animal hospitals; assaying laboratories; belt
and buckle shops; blacksmith shops; bookbinders;
booking officers for film exchange; booking offices for
Should the comprehensive listing not prove encompassing
transportation on commission basis; breeding of game
cocks and other sporting animals belonging to others; enough, there is also a catch-all provision similar to that under the Local
business management services; collecting agencies;
Government Code. This is found in Section 3A.02(m) of the Revenue
escort services; feasibility studies; consultancy
services; garages; garbage disposal contractors; gold Code, which provides:
and silversmith shops; inspection services for incoming
and outgoing cargoes; interior decorating services;
(m) On owners or operators of any business not
janitorial services; job placement or recruitment
specified above shall pay the tax at the rate of two percent
agencies; landscaping contractors; lathe machine
(2%) for 1993, two and one-half percent (2 %) for 1994 and
shops; management consultants not subject to
1995, and three percent (3%) for 1996 and the years
professional tax; medical and dental laboratories;
thereafter of the gross receipts during the preceding year.[42]
mercantile agencies; messsengerial services; operators
of shoe shine stands; painting shops; perma press
establishments; rent-a-plant services; polo players;
school for and/or horse-back riding academy; real The initial inquiry is what provision of the Makati Revenue Code
estate appraisers; real estate brokerages; photostatic, does the City Treasurer rely on to make the Corporation liable for
white/blue printing, Xerox, typing, and mimeographing
services; rental of bicycles and/or tricycles, furniture, business taxes. Even at this point, there already stands a problem with
shoes, watches, household appliances, boats, the City Treasurers cause of action.

Our careful examination of the record reveals a highly
disconcerting fact. At no point has the City Treasurer been candid
enough to inform the Corporation, the RTC, the Court of Appeals, or this
Court for that matter, as to what exactly is the precise statutory basis
under the Makati Revenue Code for the levying of the business tax on
petitioner. We have examined all of the pleadings submitted by the City
Treasurer in all the antecedent judicial proceedings, as well as in this
present petition, and also the communications by the City Treasurer to
the Corporation which form part of the record. Nowhere therein is there
any citation made by the City Treasurer of any provision of the Revenue
Code which would serve as the legal authority for the collection of
business taxes from condominiums in Makati.
Ostensibly, the notice of assessment, which stands as the first
instance the taxpayer is officially made aware of the pending tax
liability, should be sufficiently informative to apprise the taxpayer the
legal basis of the tax. Section 195 of the Local Government Code does
not go as far as to expressly require that the notice of assessment
specifically cite the provision of the ordinance involved but it does
require that it state the nature of the tax, fee or charge, the amount of
deficiency, surcharges, interests and penalties. In this case, the notice of
assessment sent to the Corporation did state that the assessment was for
business taxes, as well as the amount of the assessment. There may have
been prima facie compliance with the requirement under Section 195.
However in this case, the Revenue Code provides multiple provisions on
business taxes, and at varying rates. Hence, we could appreciate the
Corporations confusion, as expressed in its protest, as to the exact legal
basis for the tax.[43] Reference to the local tax ordinance is vital, for the
power of local government units to impose local taxes is exercised
through the appropriate ordinance enacted by the sanggunian, and not by
the Local Government Code alone.[44] What determines tax liability is the
tax ordinance, the Local Government Code being the enabling law for
the local legislative body.
Moreover, a careful examination of the Revenue Code shows that
while Section 3A.02(m) seems designed as a catch-all provision, Section
3A.02(f), which provides for a different tax rate from that of the former
provision, may be construed to be of similar import. While Section
3A.02(f) is quite exhaustive in enumerating the class of businesses taxed
under the provision, the listing, while it does not include condominium-
related enterprises, ends with the abbreviation etc., or et cetera.
We do note our discomfort with the unlimited breadth and the
dangerous uncertainty which are the twin hallmarks of the words et
cetera. Certainly, we cannot be disposed to uphold any tax imposition
that derives its authority from enigmatic and uncertain words such as et
cetera. Yet we cannot even say with definiteness whether the tax
imposed on the Corporation in this case is based on et cetera, or on
Section 3A.02(m), or on any other provision of the Revenue Code.
Assuming that the assessment made on the Corporation is on a provision
other than Section 3A.02(m), the main legal issue takes on a different
complexion. For example, if it is based on et cetera under Section
3A.02(f), we would have to examine whether the Corporation faces
analogous comparison with the other businesses listed under that
provision.
Certainly, the City Treasurer has not been helpful in that regard,
as she has been silent all through out as to the exact basis for the tax
imposition which she wishes that this Court uphold. Indeed, there is only
one thing that prevents this Court from ruling that there has been a due
process violation on account of the City Treasurers failure to disclose on
paper the statutory basis of the taxthat the Corporation itself does not
allege injury arising from such failure on the part of the City Treasurer.
We do not know why the Corporation chose not to put this issue
into litigation, though we can ultimately presume that no injury was
sustained because the City Treasurer failed to cite the specific statutory
basis of the tax. What is essential though is that the local treasurer be
required to explain to the taxpayer with sufficient particularity the basis
of the tax, so as to leave no doubt in the mind of the taxpayer as to the
specific tax involved.
In this case, the Corporation seems confident enough in litigating
despite the failure of the City Treasurer to admit on what exact provision
of the Revenue Code the tax liability ensued. This is perhaps because the
Corporation has anchored its central argument on the position that the
Local Government Code itself does not sanction the imposition of
business taxes against it. This position was sustained by the Court of
Appeals, and now merits our analysis.
As stated earlier, 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. [45]
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. For example, Section 143(b) authorizes the
imposition of business taxes on wholesalers, distributors, or dealers in
any article of commerce of whatever kind or nature.
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.

The creation of the condominium corporation is sanctioned by
Republic Act No. 4726, otherwise known as the Condominium Act.
Under the law, a condominium is an interest in real property consisting
of a separate interest in a unit in a residential, industrial or commercial
building and an undivided interest in common, directly or indirectly, in
the land on which it is located and in other common areas of the
building.[46] To enable the orderly administration over these 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.[47] The necessity of a condominium corporation has not gained
widespread acceptance[48], and even is merely permissible under the
Condominium Act.[49] Nonetheless, the condominium corporation has
been resorted to by many condominium projects, such as the
Corporation in this case.
In line with the authority of the condominium corporation to
manage the condominium project, it may be authorized, in the deed of
restrictions, to make reasonable assessments to meet authorized
expenditures, each condominium unit to be assessed separately for its
share of such expenses in proportion (unless otherwise provided) to its
owners fractional interest in any common areas.[50] It is the collection of
these assessments from unit owners that form the basis of the City
Treasurers claim that the Corporation is doing business.
The Condominium Act imposes several limitations on the
condominium corporation that prove crucial to the disposition of this
case. Under Section 10 of the law, the
corporate purposes of a condominium corporation are limited to the
holding of the common areas, either in ownership or any other interest in
real property recognized by law; to the management of the project; and
to such other purposes as may be necessary, incidental or convenient to
the accomplishment of such purpose.[51] Further, the same provision
prohibits the articles of incorporation or by-laws of the condominium
corporation from containing any provisions which are contrary to the
provisions of the Condominium Act, the enabling or master deed, or the
declaration of restrictions of the condominium project.[52]
We can elicit from the Condominium Act that a condominium
corporation is precluded by statute from engaging in corporate activities
other than the holding of the common areas, the administration of the
condominium project, and other acts necessary, incidental or convenient
to the accomplishment of such purposes. Neither the maintenance of
livelihood, nor the procurement of profit, fall within the scope of
permissible corporate purposes of a condominium corporation under the
Condominium Act.

The Court has examined the particular Articles of Incorporation
and By-Laws of the Corporation, and these documents unmistakably
hew to the limitations contained in the Condominium Act. Per the
Articles of Incorporation, the Corporations corporate purposes are
limited to: (a) owning and holding title to the common and limited
common areas in the Condominium Project; (b) adopting such necessary
measures for the protection and safeguard of the unit owners and their
property, including the power to contract for security services and for
insurance coverage on the entire project; (c) making and adopting
needful rules and regulations concerning the use, enjoyment and
occupancy of the units and common areas, including the power to fix
penalties and assessments for violation of such rules; (d) to provide for
the maintenance, repair, sanitation, and cleanliness of the common and
limited common areas; (e) to provide and contract for public utilities and
other services to the common areas; (f) to contract for the services of
persons or firms to assist in the management and operation of the
Condominium Project; (g) to discharge any lien or encumbrances upon
the Condominium Project; (h) to enforce the terms contained in the
Master Deed with Declaration of Restrictions of the Project; (i) to levy
and
collect those assessments as provided in the Master Deed, in order to
defray the costs, expenses and losses of the condominium; (j) to acquire,
own, hold, enjoy, lease operate and maintain, and to convey, sell transfer,
mortgage or otherwise dispose of real or personal property in connection
with the purposes and activities of the corporation; and (k) to exercise
and perform such other powers reasonably necessary, incidental or
convenient to accomplish the foregoing purposes.[53]
Obviously, none of these stated corporate purposes are geared
towards maintaining a livelihood or the obtention of profit. Even though
the Corporation is empowered to levy assessments or dues from the unit
owners, these amounts collected are not intended for the incurrence of
profit by the Corporation or its members, but to shoulder the multitude
of necessary expenses that arise from the maintenance of the
Condominium Project. Just as much is confirmed by Section 1, Article V
of the Amended By-Laws, which enumerate the particular expenses to
be defrayed by the regular assessments collected from the unit owners.
These would include the salaries of the employees of the Corporation,
and the cost of maintenance and ordinary repairs of the common areas.
[54]
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 when arbitrary or oppressive methods are used in assessing and
value of the condominium unit.[55] collecting taxes.[57] The fact that the Corporation did not fall within the
enumerated classes of taxable businesses under either the Local
Government Code or the Makati Revenue Code already forewarns that a
Moreover, the logic on this point of the City Treasurer is baffling.
clear demonstration is essential on the part of the City Treasurer on why
By this rationale, every Makati City car owner may be considered as
the Corporation should be taxed anyway. Full appreciative living values
being engaged in business, since the repairs or improvements on the car
is nothing but blather in search of meaning, and to impose a tax hinged
may be deemed oriented towards appreciating the value of the car upon
on that standard is both arbitrary and oppressive.
resale. There is an evident distinction between persons who spend on
repairs and improvements on their personal and real property for the
The City Treasurer also contends that the fact that the
purpose of increasing its resale value, and those who defray such
Corporation is engaged in business is evinced by the Articles of
expenses for the purpose of preserving the property. The vast majority of
Incorporation, which specifically empowers the Corporation to acquire,
persons fall under the second category, and it would be highly specious
own, hold, enjoy, lease, operate and maintain, and to convey, sell,
to subject these persons to local business taxes. The profit motive in
transfer mortgage or otherwise dispose of real or personal property.[58]
such cases is hardly the driving factor behind such improvements, if it
What the City Treasurer fails to add is that every corporation
were contemplated at all. Any profit that would be derived under such
circumstances would merely be incidental, if not accidental.
organized under the Corporation Code[59] is so specifically empowered.
Section 36(7) of the Corporation Code states that every corporation
Besides, we shudder at the thought of upholding tax liability on
incorporated under the Code has the power and capacity to purchase,
the basis of the standard of full appreciative living values, a phrase that
receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
defies statutory explication, commonsensical meaning, the English
otherwise deal with such real and personal property . . . as the
language, or even definition from Google. The exercise of the power of
transaction of the lawful business of the corporation may reasonably and
taxation constitutes a deprivation of property under the
necessarily require . . . .[60] Without this power, corporations, as juridical
persons, would be deprived of the capacity to engage in most meaningful
due process clause,[56] and the taxpayers right to due process is violated
legal relations.
 Still, the City Treasurer has not posited the claim that the
Again, whatever capacity the Corporation may have pursuant to
Corporation is engaged in business activities beyond the statutory
its power to exercise acts of ownership over personal and real property is
purposes of a condominium corporation. The assessment appears to be
limited by its stated corporate purposes, which are by themselves further
based solely on the Corporations collection of assessments from unit
limited by the Condominium Act. A condominium corporation, while
owners, such assessments being utilized to defray the necessary
enjoying such powers of ownership, is prohibited by law from
expenses for the Condominium Project and the common areas. There is
transacting its properties for the purpose of gainful profit.
no contemplation of business, no orientation towards profit in this case.
Hence, the assailed tax assessment has no basis under the Local
Accordingly, and with a significant degree of comfort, we hold
Government Code or the Makati Revenue Code, and the insistence of the
that condominium corporations are generally exempt from local business
city in its collection of the void tax constitutes an attempt at deprivation
taxation under the Local Government Code, irrespective of any local
of property without due process of law.
ordinance that seeks to declare otherwise.

Still, we can note a possible exception to the rule. It is not

unthinkable that the unit owners of a condominium would band together
to engage in activities for profit under the shelter of the condominium
corporation.[61] Such activity would be prohibited under the
Condominium Act, but if the fact is established, we see no reason why
the condominium corporation may be made liable by the local
government unit for business taxes. Even though such activities would
be considered as ultra vires, since they are engaged in beyond the legal
capacity of the condominium corporation[62], the principle of estoppel
would preclude the corporation or its officers and members from
invoking the void nature of its undertakings for profit as a means of
acquitting itself of tax liability.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
LUNG CENTER OF THE PHILIPPINES, petitioner,
vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as
City Assessor of Quezon City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court, as amended, of the Decision1 dated July 17, 2000 of the Court of
Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the
Central Board of Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon are subject to
assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-
profit entity established on January 16, 1981 by virtue of Presidential
Decree No. 1823.2 It is the registered owner of a parcel of land,
particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495,
located at Quezon Avenue corner Elliptical Road, Central District,
Quezon City. The lot has an area of 121,463 square meters and is
covered by Transfer Certificate of Title (TCT) No. 261320 of the
Registry of Deeds of Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of the Philippines.
A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients
whom they charge for their professional services. Almost one-half of the
entire area on the left side of the building along Quezon Avenue is
vacant and idle, while a big portion on the right side, at the corner of
Quezon Avenue and Elliptical Road, is being leased for commercial
purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
The petitioner accepts paying and non-paying patients. It also renders
medical services to out-patients, both paying and non-paying. Aside
from its income from paying patients, the petitioner receives annual
subsidies from the government.
On June 7, 1993, both the land and the hospital building of the
petitioner were assessed for real property taxes in the amount of
₱4,554,860 by the City Assessor of Quezon City. 3 Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-
A) were issued for the land and the hospital building, respectively. 4 On
August 25, 1993, the petitioner filed a Claim for Exemption5 from real
property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioner’s request was denied, and a petition
was, thereafter, filed before the Local Board of Assessment Appeals of
Quezon City (QC-LBAA, for brevity) for the reversal of the resolution
of the City Assessor. The petitioner alleged that under Section 28,
paragraph 3 of the 1987 Constitution, the property is exempt from real
property taxes. It averred that a minimum of 60% of its hospital beds are
exclusively used for charity patients and that the major thrust of its
hospital operation is to serve charity patients. The petitioner contends
that it is a charitable institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered judgment dismissing the
petition and holding the petitioner liable for real property taxes.6
The QC-LBAA’s decision was, likewise, affirmed on appeal by the
Central Board of Assessment Appeals of Quezon City (CBAA, for
brevity)7 which ruled that the petitioner was not a charitable institution
and that its real properties were not actually, directly and exclusively
used for charitable purposes; hence, it was not entitled to real property
tax exemption under the constitution and the law. The petitioner sought
relief from the Court of Appeals, which rendered judgment affirming the
decision of the CBAA.8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER
AS NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE
GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT
ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR
CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL
PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823,
SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED
UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context
of Section 28(3), Article VI of the 1987 Constitution. It asserts that its
character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases
portions of the land to private parties, and rents out portions of the
hospital to private medical practitioners from which it derives income to
be used for operational expenses. The petitioner points out that for the
years 1995 to 1999, 100% of its out-patients were charity patients and
of the hospital’s 282-bed capacity, 60% thereof, or 170 beds, is allotted
to charity patients. It asserts that the fact that it receives subsidies from
the government attests to its character as a charitable institution. It
contends that the "exclusivity" required in the Constitution does not
necessarily mean "solely." Hence, even if a portion of its real estate is
leased out to private individuals from whom it derives income, it does
not lose its character as a charitable institution, and its exemption from
the payment of real estate taxes on its real property. The petitioner cited
our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner
further contends that even if P.D. No. 1823 does not exempt it from the
payment of real estate taxes, it is not precluded from seeking tax
exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner
is not a charitable entity. The petitioner’s real property is not exempt
from the payment of real estate taxes under P.D. No. 1823 and even
under the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is actually, directly and
exclusively used for charitable purposes. The respondents noted that in a
newspaper report, it appears that graft charges were filed with the
Sandiganbayan against the director of the petitioner, its administrative
officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids
and Garden Center, for entering into a lease contract over 7,663.13
square meters of the property in 1990 for only ₱20,000 a month, when
the monthly rental should be ₱357,000 a month as determined by the
Commission on Audit; and that instead of complying with the directive
of the COA for the cancellation of the contract for being grossly
prejudicial to the government, the petitioner renewed the same on
March 13, 1995 for a monthly rental of only ₱24,000. They assert that
the petitioner uses the subsidies granted by the government for charity
patients and uses the rest of its income from the property for the benefit
of paying patients, among other purposes. They aver that the petitioner
failed to adduce substantial evidence that 100% of its out-patients and
170 beds in the hospital are reserved for indigent patients. The
respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak
well of its record of service. That before a patient is admitted for
treatment in the Center, first impression is that it is pay-patient and
required to pay a certain amount as deposit. That even if a patient is
living below the poverty line, he is charged with high hospital bills.
And, without these bills being first settled, the poor patient cannot
be allowed to leave the hospital or be discharged without first
paying the hospital bills or issue a promissory note guaranteed and
indorsed by an influential agency or person known only to the
Center; that even the remains of deceased poor patients suffered the
same fate. Moreover, before a patient is admitted for treatment as
free or charity patient, one must undergo a series of interviews and
must submit all the requirements needed by the Center, usually
accompanied by endorsement by an influential agency or person
known only to the Center. These facts were heard and admitted by
the Petitioner LCP during the hearings before the Honorable QC-
BAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they prefer to
be treated at the Quezon Institute. Can such practice by the Center
be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is
a charitable institution within the context of Presidential Decree No.
1823 and the 1973 and 1987 Constitutions and Section 234(b) of
Republic Act No. 7160; and (b) whether the real properties of the
petitioner are exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitutions. To determine
whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the
beneficiaries, and the use and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number
of persons, either by bringing their minds and hearts under the influence
of education or religion, by assisting them to establish themselves in life
or otherwise lessening the burden of government. 12 It may be applied to
almost anything that tend to promote the well-doing and well-being of
social man. It embraces the improvement and promotion of the
happiness of man.13 The word "charitable" is not restricted to relief of
the poor or sick.14 The test of a charity and a charitable organization are
in law the same. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law as charitable
or whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock
corporation which, subject to the provisions of the decree, is to be
administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino people principally
to help combat the high incidence of lung and pulmonary diseases in the
Philippines. The raison d’etre for the creation of the petitioner is stated
in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority
concern, having been the leading cause of illness and death in the
Philippines, comprising more than 45% of the total annual deaths
from all causes, thus, exacting a tremendous toll on human
resources, which ailments are likely to increase and degenerate into
serious lung diseases on account of unabated pollution,
industrialization and unchecked cigarette smoking in the
country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent,
preventable, and curable with early and adequate medical care,
immunization and through prompt and intensive prevention and
health education programs;
Whereas, there is an urgent need to consolidate and reinforce
existing programs, strategies and efforts at preventing, treating and
rehabilitating people affected by lung diseases, and to undertake
research and training on the cure and prevention of lung diseases,
through a Lung Center which will house and nurture the above and
related activities and provide tertiary-level care for more difficult
and problematical cases;
Whereas, to achieve this purpose, the Government intends to
provide material and financial support towards the establishment
and maintenance of a Lung Center for the welfare and benefit of the
Filipino people.15
The purposes for which the petitioner was created are spelled out in its
Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed
are as follows:
1. To construct, establish, equip, maintain, administer and
conduct an integrated medical institution which shall specialize
in the treatment, care, rehabilitation and/or relief of lung and
allied diseases in line with the concern of the government to
assist and provide material and financial support in the
establishment and maintenance of a lung center primarily to
benefit the people of the Philippines and in pursuance of the
policy of the State to secure the well-being of the people by
providing them specialized health and medical services and by
minimizing the incidence of lung diseases in the country and
elsewhere.
2. To promote the noble undertaking of scientific research
related to the prevention of lung or pulmonary ailments and the
care of lung patients, including the holding of a series of
relevant congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific
researches on the biological, demographic, social, economic,
eugenic and physiological aspects of lung or pulmonary
diseases and their control; and to collect and publish the
findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance
of information on lung consciousness or awareness, and the
development of fact-finding, information and reporting
facilities for and in aid of the general purposes or objects
aforesaid, especially in human lung requirements, general
health and physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health
officers, social workers and medical and technical personnel in
the practical and scientific implementation of services to lung
patients;
6. To assist universities and research institutions in their studies
about lung diseases, to encourage advanced training in matters
of the lung and related fields and to support educational
programs of value to general health;
7. To encourage the formation of other organizations on the
national, provincial and/or city and local levels; and to
coordinate their various efforts and activities for the purpose of
achieving a more effective programmatic approach on the
common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both
international and local foundations and organizations; and to
administer grants and funds that may be given to the
organization;
9. To extend, whenever possible and expedient, medical
services to the public and, in general, to promote and protect
the health of the masses of our people, which has long been
recognized as an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary
afflictions and maladies of the people in any and all walks of
life, including those who are poor and needy, all without regard
to or discrimination, because of race, creed, color or political
belief of the persons helped; and to enable them to obtain
treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any
activity designed and carried on to promote the general health
of the community;
12. To acquire and/or borrow funds and to own all funds or
equipment, educational materials and supplies by purchase,
donation, or otherwise and to dispose of and distribute the same
in such manner, and, on such basis as the Center shall, from
time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange,
transfer and dispose of properties, whether real or personal, for
purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient
for the accomplishment of any of the powers herein set forth
and to do every other act and thing incidental thereto or
connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the
public in general in any and all walks of life including those who are
poor and the needy without discrimination. After all, any person, the
rich as well as the poor, may fall sick or be injured or wounded and
become a subject of charity.17
As a general principle, a charitable institution does not lose its character
as such and its exemption from taxes simply because it derives income
from paying patients, whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the money received
is devoted or used altogether to the charitable object which it is intended
to achieve; and no money inures to the private benefit of the persons
managing or operating the institution.18 In Congregational Sunday
School, etc. v. Board of Review,19 the State Supreme Court of Illinois
held, thus:
… [A]n institution does not lose its charitable character, and
consequent exemption from taxation, by reason of the fact that
those recipients of its benefits who are able to pay are required to
do so, where no profit is made by the institution and the amounts so
received are applied in furthering its charitable purposes, and those
benefits are refused to none on account of inability to pay therefor.
The fundamental ground upon which all exemptions in favor of
charitable institutions are based is the benefit conferred upon the
public by them, and a consequent relief, to some extent, of the
burden upon the state to care for and advance the interests of its
citizens.20
As aptly stated by the State Supreme Court of South Dakota in
Lutheran Hospital Association of South Dakota v. Baker:21
… [T]he fact that paying patients are taken, the profits derived from
attendance upon these patients being exclusively devoted to the
maintenance of the charity, seems rather to enhance the usefulness
of the institution to the poor; for it is a matter of common
observation amongst those who have gone about at all amongst the
suffering classes, that the deserving poor can with difficulty be
persuaded to enter an asylum of any kind confined to the reception
of objects of charity; and that their honest pride is much less
wounded by being placed in an institution in which paying patients
are also received. The fact of receiving money from some of the
patients does not, we think, at all impair the character of the charity,
so long as the money thus received is devoted altogether to the
charitable object which the institution is intended to further.22
The money received by the petitioner becomes a part of the trust fund
and must be devoted to public trust purposes and cannot be diverted to
private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The
petitioner does not lose its character as a charitable institution simply
because the gift or donation is in the form of subsidies granted by the
government. As held by the State Supreme Court of Utah in Yorgason v.
County Board of Equalization of Salt Lake County:24
Second, the … government subsidy payments are provided to the
project. Thus, those payments are like a gift or donation of any
other kind except they come from the government. In both
Intermountain Health Careand the present case, the crux is the
presence or absence of material reciprocity. It is entirely irrelevant
to this analysis that the government, rather than a private
benefactor, chose to make up the deficit resulting from the
exchange between St. Mark’s Tower and the tenants by making a
contribution to the landlord, just as it would have been irrelevant in
Intermountain Health Care if the patients’ income supplements had
come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of
furnishing such housing is by the government rather than private
charitable contributions does not dictate the denial of a charitable
exemption if the facts otherwise support such an exemption, as they
do here.25
In this case, the petitioner adduced substantial evidence that it spent its
income, including the subsidies from the government for 1991 and 1992
for its patients and for the operation of the hospital. It even incurred a
net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold,
anent the second issue, that those portions of its real property that are
leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable
purposes.
The settled rule in this jurisdiction is that laws granting exemption from
tax are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is the
exception. The effect of an exemption is equivalent to an appropriation.
Hence, a claim for exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken. 26 As held in
Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption
from the taxing power of the state will never be implied from
language which will admit of any other reasonable construction.
Such an intention must be expressed in clear and unmistakable
terms, or must appear by necessary implication from the language
used, for it is a well settled principle that, when a special privilege
or exemption is claimed under a statute, charter or act of
incorporation, it is to be construed strictly against the property
owner and in favor of the public. This principle applies with
peculiar force to a claim of exemption from taxation . …28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner,
specifically provides that the petitioner shall enjoy the tax exemptions
and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-
profit, non-stock corporation organized primarily to help combat
the high incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions, endowments and
equipment and supplies to be imported by authorized entities or
persons and by the Board of Trustees of the Lung Center of the
Philippines, Inc., for the actual use and benefit of the Lung Center,
shall be exempt from income and gift taxes, the same further
deductible in full for the purpose of determining the maximum
deductible amount under Section 30, paragraph (h), of the National
Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the
payment of taxes, charges and fees imposed by the Government or
any political subdivision or instrumentality thereof with respect to
equipment purchases made by, or for the Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any
property tax exemption privileges for its real properties as well as the
building constructed thereon. If the intentions were otherwise, the same
should have been among the enumeration of tax exempt privileges
under Section 2:
It is a settled rule of statutory construction that the express mention
of one person, thing, or consequence implies the exclusion of all
others. The rule is expressed in the familiar maxim, expressio unius
est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a
number of ways. One variation of the rule is the principle that what
is expressed puts an end to that which is implied. Expressium facit
cessare tacitum. Thus, where a statute, by its terms, is expressly
limited to certain matters, it may not, by interpretation or
construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations
are canons of restrictive interpretation. They are based on the rules
of logic and the natural workings of the human mind. They are
predicated upon one’s own voluntary act and not upon that of
 others. They proceed from the premise that the legislature would
not have made specified enumeration in a statute had the intention
been not to restrict its meaning and confine its terms to those
expressly mentioned.30
The exemption must not be so enlarged by construction since the
reasonable presumption is that the State has granted in express terms all
it intended to grant at all, and that unless the privilege is limited to the
very terms of the statute the favor would be intended beyond what was
meant.31
Section 28(3), Article VI of the 1987 Philippine Constitution provides,
thus:
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly and exclusively
used for religious, charitable or educational purposes shall be
exempt from taxation.32
The tax exemption under this constitutional provision covers property
taxes only.33 As Chief Justice Hilario G. Davide, Jr., then a member of
the 1986 Constitutional Commission, explained: ". . . what is exempted
is not the institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively
used for religious, charitable or educational purposes."34
Consequently, the constitutional provision is implemented by Section
234(b) of Republic Act No. 7160 (otherwise known as the Local
Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The
following are exempted from payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually,
directly, and exclusivelyused for religious, charitable or
educational purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and
improvements used ‘exclusively’ for … charitable … purposes shall be
exempt from taxation."36 However, under the 1973 and the present
Constitutions, for "lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not only be
"exclusively" used for charitable purposes; it is required that such
property be used "actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the Constitution, the
petitioner cannot rely on our ruling in Herrera v. Quezon City Board of
Assessment Appeals which was promulgated on September 30, 1961
before the 1973 and 1987 Constitutions took effect.38 As this Court held
in Province of Abra v. Hernando:39
… Under the 1935 Constitution: "Cemeteries, churches, and
parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation."
The present Constitution added "charitable institutions, mosques,
and non-profit cemeteries" and required that for the exemption of
"lands, buildings, and improvements," they should not only be
"exclusively" but also "actually" and "directly" used for religious or
charitable purposes. The Constitution is worded differently. The
change should not be ignored. It must be duly taken into
consideration. Reliance on past decisions would have sufficed were
the words "actually" as well as "directly" not added. There must be
proof therefore of the actual and direct use of the lands, buildings,
and improvements for religious or charitable purposes to be exempt
from taxation. …
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order
to be entitled to the exemption, the petitioner is burdened to prove, by
clear and unequivocal proof, that (a) it is a charitable institution; and (b)
its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY
used for charitable purposes. "Exclusive" is defined as possessed and
enjoyed to the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively."40 If real property is used for one or
more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation.41 The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively"
without doing violence to the Constitutions and the law.42 Solely is
synonymous with exclusively.43
What is meant by actual, direct and exclusive use of the property for
charitable purposes is the direct and immediate and actual application of
the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that the entirety of
its real property is actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for the treatment of
patients and the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being leased to private
individuals for their clinics and a canteen. Further, a portion of the land
is being leased to a private individual for her business enterprise under
the business name "Elliptical Orchids and Garden Center." Indeed, the
petitioner’s evidence shows that it collected ₱1,136,483.45 as rentals in
1991 and ₱1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private individuals
are not exempt from such taxes.45 On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property
taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The respondent Quezon City Assessor is hereby
DIRECTED to determine, after due hearing, the precise portions of the
land and the area thereof which are leased to private persons, and to
compute the real property taxes due thereon as provided for by law.
SO ORDERED.
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
finding petitioner National Power Corporation (NPC) liable to pay
franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created
under Commonwealth Act No. 120, as amended.4 It is tasked to
undertake the "development of hydroelectric generations of power and
the production of electricity from nuclear, geothermal and other sources,
as well as, the transmission of electric power on a nationwide basis." 5
Concomitant to its mandated duty, petitioner has, among others, the
power to construct, operate and maintain power plants, auxiliary plants,
power stations and substations for the purpose of developing hydraulic
power and supplying such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7
Pursuant to section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the preceding
year.9
Petitioner, whose capital stock was subscribed and paid wholly by the
Philippine Government,10 refused to pay the tax assessment. It argued
that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from
all Taxes, Duties, Fees, Imposts and Other Charges by Government
and Governmental Instrumentalities.- The Corporation shall be
non-profit and shall devote all its return from its capital investment,
as well as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and obligations and
in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby
exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges,
costs and service fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities,
municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities,
on all petroleum products used by the Corporation in the
generation, transmission, utilization, and sale of electric power."12
The respondent filed a collection suit in the Regional Trial Court of
Cabanatuan City, demanding that petitioner pay the assessed tax due,
plus a surcharge equivalent to 25% of the amount of tax, and 2%
monthly interest.13Respondent alleged that petitioner's exemption from
local taxes has been repealed by section 193 of Rep. Act No. 7160,14
which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this
Code."
On January 25, 1996, the trial court issued an Order 15 dismissing the
case. It ruled that the tax exemption privileges granted to petitioner
subsist despite the passage of Rep. Act No. 7160 for the following
reasons: (1) Rep. Act No. 6395 is a particular law and it may not be
repealed by Rep. Act No. 7160 which is a general law; (2) section 193
of Rep. Act No. 7160 is in the nature of an implied repeal which is not
favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the
Order reads:
"The question of whether a particular law has been repealed or not
by a subsequent law is a matter of legislative intent. The lawmakers
may expressly repeal a law by incorporating therein repealing
provisions which expressly and specifically cite(s) the particular
law or laws, and portions thereof, that are intended to be repealed. A
declaration in a statute, usually in its repealing clause, that a
particular and specific law, identified by its number or title is
repealed is an express repeal; all others are implied repeal. Sec. 193
of R.A. No. 7160 is an implied repealing clause because it fails to
identify the act or acts that are intended to be repealed. It is a well-
settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against
inconsistency and repugnancy for the legislative is presumed to
know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that,
generally, general law does not repeal a special law unless it clearly
appears that the legislative has intended by the latter general act to
modify or repeal the earlier special law. Thus, despite the passage of
R.A. No. 7160 from which the questioned Ordinance No. 165-92
was based, the tax exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the
Supreme Court in the case of Basco vs. Philippine Amusement and
Gaming Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of
the National Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869. All of
its shares of stocks are owned by the National Government.
xxx Being an instrumentality of the government, PAGCOR
should be and actually is exempt from local taxes. Otherwise,
its operation might be burdened, impeded or subjected to
control by mere local government.'
Like PAGCOR, NPC, being a government owned and controlled
corporation with an original charter and its shares of stocks owned
by the National Government, is beyond the taxing power of the
Local Government. Corollary to this, it should be noted here that in
the NPC Charter's declaration of Policy, Congress declared that:
'xxx (2) the total electrification of the Philippines through the
development of power from all services to meet the needs of
industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to
its tax-ordinance would be to impede the avowed goal of this
government instrumentality.
Unlike the State, a city or municipality has no inherent power of
taxation. Its taxing power is limited to that which is provided for in
its charter or other statute. Any grant of taxing power is to be
construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it
is very clear that the plaintiff could not impose the subject tax on
the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the
ground that section 193, in relation to sections 137 and 151 of the LGC,
expressly withdrew the exemptions granted to the petitioner. 18 It ordered
the petitioner to pay the respondent city government the following: (a)
the sum of P808,606.41 representing the franchise tax due based on
gross receipts for the year 1992, (b) the tax due every year thereafter
based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P
10,000.00 as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on
the Court of Appeal's Decision. This was denied by the appellate court,
viz:
"The Court finds no merit in NPC's motion for reconsideration. Its
arguments reiterated therein that the taxing power of the province
under Art. 137 (sic) of the Local Government Code refers merely to
private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may
not impliedly repeal the NPC Charter which is a special law—finds
the answer in Section 193 of the LGC to the effect that 'tax
exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned
or controlled corporations except local water districts xxx are
hereby withdrawn.' The repeal is direct and unequivocal, not
implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby
 DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT
FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131
APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT NPC'S EXEMPTION FROM ALL FORMS OF TAXES
HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL
GOVERNMENT CODE AS THE ENACTMENT OF A LATER
LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT
CONSIDERING THAT AN EXERCISE OF POLICE POWER
THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE
LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the
authority to issue Ordinance No. 165-92 and impose an annual tax on
"businesses enjoying a franchise," pursuant to section 151 in relation to
section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted
by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In
the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided
herein." (emphasis supplied)
x x x
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in
this Code, the city, may levy the taxes, fees, and charges which the
province or municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly urbanized
and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than
fifty percent (50%) except the rates of professional and amusement
taxes."
Petitioner, however, submits that it is not liable to pay an annual
franchise tax to the respondent city government. It contends that
sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that
are engaged in trade or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or
privilege, affected with public interest which is conferred upon private
persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of
the public welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private" modifies the
terms "persons" and "corporations." Hence, when the LGC uses the term
"franchise," petitioner submits that it should refer specifically to
franchises granted to private natural persons and to private
corporations.23 Ergo, its charter should not be considered a "franchise"
for the purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as
"trade or commercial activity regularly engaged in as means of
livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically
provides that it is a "non-profit organization." In any case, petitioner
argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for
expansion and improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city
government. It cites the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation26where this Court held that local governments
have no power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the
National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos.
The latter role is governmental, which places it in the category of an
agency or instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might
be burdened, impeded or subjected to control by a mere local
government.
'The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National
Government over local governments.
'Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal
responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as ' a tool
regulation' (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the
'power to destroy' (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing
the tax privileges of government-owned or controlled corporations, is in
the nature of an implied repeal. A special law, its charter cannot be
amended or modified impliedly by the local government code which is a
general law. Consequently, petitioner claims that its exemption from all
taxes, fees or charges under its charter subsists despite the passage of
the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of
statutes by implication are not favored and as much as possible,
effect must be given to all enactments of the legislature. Moreover,
it has to be conceded that the charter of the NPC constitutes a
special law. Republic Act No. 7160, is a general law. It is a basic
rule in statutory construction that the enactment of a later legislation
which is a general law cannot be construed to have repealed a
special law. Where there is a conflict between a general law and a
 special statute, the special statute should prevail since it evinces the
legislative intent more clearly than the general statute."28
Finally, petitioner submits that the charter of the NPC, being a valid
exercise of police power, should prevail over the LGC. It alleges that the
power of the local government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being the most
pervasive, the least limitable and most demanding of all powers,
including the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges
it to promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; 32 without taxes,
government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.
In recent years, the increasing social challenges of the times expanded
the scope of state activity, and taxation has become a tool to realize
social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare
and similar objectives.33 Taxation assumes even greater significance
with the ratification of the 1987 Constitution. Thenceforth, the power to
tax is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges34
pursuant to Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to
create its own sources of revenue, to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that genuine
development can be achieved only by strengthening local autonomy and
promoting decentralization of governance. For a long time, the country's
highly centralized government structure has bred a culture of
dependence among local government leaders upon the national
leadership. It has also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the part of
local government leaders."35 The only way to shatter this culture of
dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own
sources for the purpose. To achieve this goal, section 3 of Article X of
the 1987 Constitution mandates Congress to enact a local government
code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code
which shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization
with effective mechanisms of recall, initiative, and referendum,
allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications,
election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating
to the organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160,36 also known
as the Local Government Code of 1991 (LGC), various measures have
been enacted to promote local autonomy. These include the Barrio
Charter of 1959,37 the Local Autonomy Act of 1959,38 the
Decentralization Act of 196739 and the Local Government Code of
1983.40 Despite these initiatives, however, the shackles of dependence
on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to
participate effectively in the national development efforts, among which
are: (a) inadequate tax base, (b) lack of fiscal control over external
sources of income, (c) limited authority to prioritize and approve
development projects, (d) heavy dependence on external sources of
income, and (e) limited supervisory control over personnel of national
line agencies.41
Considered as the most revolutionary piece of legislation on local
autonomy,42 the LGC effectively deals with the fiscal constraints faced
by LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose
tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and
maximum tax rates and leaves the determination of the actual rates to
the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a general
rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize
the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the
Local Government Units.- Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
x x x petitioner the franchise tax in question.
(o) Taxes, fees, or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units."
(emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco
vs. Philippine Amusement and Gaming Corporation 44 relied upon by the
petitioner to support its claim no longer applies. To emphasize, the
Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the
National Government was in effect. However, as this Court ruled in the
case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing
governmental functions may be subject to tax.46 In enacting the LGC,
Congress exercised its prerogative to tax instrumentalities and agencies
of government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property
tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in section 133, the
taxing power of local governments cannot extend to the levy of
inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local
government units'; however, pursuant to section 232, provinces,
cities and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, 'real property
owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been
granted for consideration or otherwise, to a taxable person as
provided in the item (a) of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC
clearly authorizes the respondent city government to impose on the
In its general signification, a franchise is a privilege conferred by
government authority, which does not belong to citizens of the country
generally as a matter of common right.48 In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to
a special law creating the corporation.49 The right under a primary or
general franchise is vested in the individuals who compose the
corporation and not in the corporation itself. 50 On the other hand, the
latter refers to the right or privileges conferred upon an existing
corporation such as the right to use the streets of a municipality to lay
pipes of tracks, erect poles or string wires.51 The rights under a
secondary or special franchise are vested in the corporation and may
ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary
franchises as are charged with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a
franchise in the sense of a secondary or special franchise. This is to
avoid any confusion when the word franchise is used in the context of
taxation. As commonly used, a franchise tax is "a tax on the privilege of
transacting business in the state and exercising corporate franchises
granted by the state."53 It is not levied on the corporation simply for
existing as a corporation, upon its property 54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government.
Hence, a corporation need not pay franchise tax from the time it ceased
to do business and exercise its franchise.56 It is within this context that
the phrase "tax on businesses enjoying a franchise" in section 137 of the
LGC should be interpreted and understood. Verily, to determine whether
the petitioner is covered by the franchise tax in question, the following
requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its
rights or privileges under this franchise within the territory of the
respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as
amended by Rep. Act No. 7395, constitutes petitioner's primary and
secondary franchises. It serves as the petitioner's charter, defining its
composition, capitalization, the appointment and the specific duties of
its corporate officers, and its corporate life span.57 As its secondary
franchise, Commonwealth Act No. 120, as amended, vests the petitioner
the following powers which are not available to ordinary corporations,
viz:
"x x x
(e) To conduct investigations and surveys for the development of
water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring
or waterfall in the Philippines, for the purposes specified in this
Act; to intercept and divert the flow of waters from lands of riparian
owners and from persons owning or interested in waters which are
or may be necessary for said purposes, upon payment of just
compensation therefor; to alter, straighten, obstruct or increase the
flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof:
Provided, That just compensation shall be paid to any person or
persons whose property is, directly or indirectly, adversely affected
or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary
plants, dams, reservoirs, pipes, mains, transmission lines, power
stations and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring and
waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate,
and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the
production of electric power; to establish, develop, operate,
maintain and administer power and lighting systems for the
transmission and utilization of its power generation; to sell electric
power in bulk to (1) industrial enterprises, (2) city, municipal or
provincial systems and other government institutions, (3) electric
cooperatives, (4) franchise holders, and (5) real estate subdivisions
x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,
encumber and otherwise dispose of property incident to, or
necessary, convenient or proper to carry out the purposes for which
the Corporation was created: Provided, That in case a right of way
 is necessary for its transmission lines, easement of right of way
shall only be sought: Provided, however, That in case the property
itself shall be acquired by purchase, the cost thereof shall be the fair
market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream,
watercourse, canal, ditch, flume, street, avenue, highway or railway
of private and public ownership, as the location of said works may
require xxx;
(j) To exercise the right of eminent domain for the purpose of this
Act in the manner provided by law for instituting condemnation
proceedings by the national, provincial and municipal governments;
x x x franchise tax simply because its stocks are wholly owned by the
(m) To cooperate with, and to coordinate its operations with those
of the National Electrification Administration and public service
entities;
(n) To exercise complete jurisdiction and control over watersheds
surrounding the reservoirs of plants and/or projects constructed or
proposed to be constructed by the Corporation. Upon determination
by the Corporation of the areas required for watersheds for a
specific project, the Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon written advice
by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to
existing private rights, the needs of waterworks systems, and the
requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the
Corporation shall adopt measures to prevent environmental
pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the
generation and distribution of electricity. This monopoly was
strengthened with the issuance of Pres. Decree No. 40,59 nationalizing
the electric power industry. Although Exec. Order No. 21560 thereafter
allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the
respondent city government's territorial jurisdiction pursuant to the
powers granted to it by Commonwealth Act No. 120, as amended. From
its operations in the City of Cabanatuan, petitioner realized a gross
income of P107,814,187.96 in 1992. Fulfilling both requisites,
petitioner is, and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the
National Government, and its charter characterized it as a "non-profit"
organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on
the exercise by the corporation of a privilege to do business. The taxable
entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created
as a separate and distinct entity from the National Government. It can
sue and be sued under its own name,61 and can exercise all the powers of
a corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire
capital stock does not necessarily imply that petitioner is not engaged in
business. Section 2 of Pres. Decree No. 2029 63 classifies government-
owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-
stock corporation, whether performing governmental or proprietary
functions, which is directly chartered by special law or if organized
 under the general corporation law is owned or controlled by the
government directly, or indirectly through a parent corporation or
subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of
government, and as such, are treated as absolute obligation on the part
of the state to perform while proprietary functions are those that are
undertaken only by way of advancing the general interest of society, and
are merely optional on the government. 64 Included in the class of
GOCCs performing proprietary functions are "business-like" entities
such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the
Government Service Insurance System (GSIS), and the National Water
Sewerage Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric
generation of power and the production of electricity from nuclear,
geothermal and other sources, as well as the transmission of electric
power on a nationwide basis."66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities
do not partake of the sovereign functions of the government. They are
purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does not
distract from the true nature of the petitioner as a commercial enterprise,
in the same league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply and irrigation
companies, gas, coal or light companies, power plants, ice plant among
others; all of which are declared by this Court as ministrant or
proprietary functions of government aimed at advancing the general
interest of society.67
A closer reading of its charter reveals that even the legislature treats the
character of the petitioner's enterprise as a "business," although it limits
petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate
affairs or necessary for the proper transaction of its business or to
carry out the purposes for which it was organized, to contract
indebtedness and issue bonds subject to approval of the President
upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be
reasonably necessary to carry out the business and purposes for
which it was organized, or which, from time to time, may be
declared by the Board to be necessary, useful, incidental or
auxiliary to accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at
least sixty percent (60%) of its electricity requirement from the
petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote
"all its returns from its capital investment, as well as excess revenues
from its operation, for expansion"70 while other franchise holders have
the option to distribute their profits to its stockholders by declaring
dividends. We do not see why this fact can be a source of difference in
tax treatment. In both instances, the taxable entity is the corporation,
which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax
exemptions under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant.
Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions.71 In the case at bar, the petitioner's
sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public corporations.
Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions
from local taxes.72 It reads:
 "Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed
in the familiar maxim expressio unius est exclusio alterius.73 Not being a
local water district, a cooperative registered under R.A. No. 6938, or a
non-stock and non-profit hospital or educational institution, petitioner
clearly does not belong to the exception. It is therefore incumbent upon
the petitioner to point to some provisions of the LGC that expressly
grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City
Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption
from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila
Electric Company v. Province of Laguna.75 Ruling in favor of the local
government in both instances, we ruled that the franchise tax in question
is imposable despite any exemption enjoyed by MERALCO under
special laws, viz:
"It is our view that petitioners correctly rely on provisions of
Sections 137 and 193 of the LGC to support their position that
MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose
franchise tax 'notwithstanding any exemption granted by any law or
other special law' is all-encompassing and clear. The franchise tax
is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code,
tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including government-owned
or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and
non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the
exemptions to the three enumerated entities. It is a basic precept of
statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any
provision of the Code to the contrary, and we find no other
provision in point, any existing tax exemption or incentive enjoyed
by MERALCO under existing law was clearly intended to be
withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude
that under the LGC the local government unit may now impose a
local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is
clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used."76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the
LGUs, through ordinances duly approved, to grant tax exemptions,
initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-
92 which imposes an annual franchise tax "notwithstanding any
exemption granted by law or other special law," the respondent city
government clearly did not intend to exempt the petitioner from the
coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the
Mactan case, "the original reasons for the withdrawal of tax exemption
privileges granted to government-owned or controlled corporations and
all other units of government were that such privilege resulted in serious
tax base erosion and distortions in the tax treatment of similarly situated
enterprises."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due
from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed
Decision and Resolution of the Court of Appeals dated March 12, 2001
and July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.
FERNANDO LACSON and SIMPLICIO A. PALANCA, plaintiffs-
appellants,
vs.
BACOLOD CITY, TEOFISTO E. CORDOVA, as City Mayor and
ALFREDO TAMBASEN, as City Treasurer of the City of Bacolod,
defendants-appellants;
CESAR FEGARIDO, VICTOR EMATONG, ET AL., intervenors-
appellants.
Jose V. Coruña, Pedro D. Delfin and Ismael L. Serfino for plaintiffs-
appellants.
City Attorney Jesus S. Rodriguez and Asst. City Attorney Fernando C.
Divinagracia for defendants-appellants.
BENGZON, C.J.:
This is a suit instituted in Negros Occidental by theater owners of
Bacolod City to annul its ordinance imposing license fees and/or taxes
on theaters, to wit: (a) Ordinance No. 48, series of 1949 imposing an
annual fee of P1,500.00; and (b) Ordinance No. 185 as amended by
Ordinance No. 191, series of 1957 imposing a tax of five centavos and
ten centavos on each theater ticket.
Plaintiffs asserted both ordinances were ultra vires void.1äwphï1.ñët
Cesar Fegarido and nineteen others, filed a complaint in intervention
alleging they were theater-goers who had paid the tax on admission
tickets, challenging the legality thereof, and asking for themselves and
in behalf of other theater-goers for the return of the amounts so
collected.
The defendants, the city with its mayor and treasurer sustained the
validity of such ordinances; and the issues having been tried and heard,
the court rendered judgment,
(a) upholding Ordinance No. 48, series of 1949; (b) declare
Ordinances Nos. 185 and 191, series of 1957, ultra vires and
invalid, and (c) dismissing the complaint in intervention.
The plaintiffs appealed. The intervenors also appealed; but their appeal
was dismissed in this Tribunal for failure to submit their brief on time.
The defendants also appealed.
Plaintiffs-appellants claim that Ordinance No. 48, series of 1949, is
invalid. On the other hand, the defendants-appellants insist in the
validity of Ordinances Nos. 185 and 191, series of 1957.
I. — It appears that under Sec. 1 of Ordinance No. 48, an annual fee of
P30.00 is collected for every permit issued by the Mayor to every
theater or cinematograph. However, under section 6 of the same
Ordinance, theaters and cinematographs are required to pay a fixed
annual fee of P1,500.00 "for the exercise, conduct, establishment and
operation of the business of a theater, cinematograph," etc. The second
fee is a duplication and is unauthorized, argue the theater-owners. At
this point, we may quote from the appealed decision, which correctly
states the issues and the solution thereof: .
Admitting that the annual permit fee of P30.00 imposed in article 4
of section 1 of Ordinance No. 48, series of 1949, is already for
regulation and/or police surveillance and therefore, valid, the
plaintiffs maintain that the fixed annual fee of P1,500.00 required
by article 1 of section 6 of said Ordinance can no longer be
considered regulatory but is in fact for revenue purposes and
accordingly ultra vires, illegal and void. The Court cannot agree. As
correctly explained by the defendants, the fee of P30.00 is charged
for the issuance of a permit for the opening of theaters or cinemas;
and before such permit is granted by the Mayor pursuant to
subsection (k) of section 10 of Commonwealth Act No. 326 as
amended, his office has to investigate and be satisfied with the
conditions of the theater or cinema concerned. Upon the other hand,
as well pointed out by the defendants, the fixed annual fee of
P1,500.00 is for supervision of the cinema or theatrical business
operated for as many days as there are in a year. There is
consequently no repugnance between the annual permit fee of
P30.00 (for opening) and the fixed annual fee of P1,500.00 (for
continuous regulation and police surveillance).
For one thing, even if the two fees refer to the same objective and
hence a duplication, why do the plaintiffs not assail the legality of
the annual permit fee of P30.00 and choose to pay the fixed annual
fee of P1,500.00? Bona fide existence of distinct purposes may be
gathered from the circumstance that the Ordinance in question did
not impose a single permit or fixed annual fee of P1,530.00 which
could easily and validly have been done by the City Council if its
design was merely to increase collection.
The plaintiffs proceed to argue that the fixed annual fee of
P1,500.00 is in any event excessive, unreasonable and arbitrary,
because it is imposed regardless of classification, .... In answer it
would suffice to remark that the matter of classification and of the
amount reasonably needed for regulatory purposes, is addressed to
the judgment and discretion of a particular City Council which
cannot and should not be bound by the opinion of another City
Council. And then it must be remembered that the efforts which the
authorities are called upon to exert should be about equal or
uniform for all classes of theaters or cinemas. What is more, in the
City of Iloilo cited by the plaintiffs, an annual fee as high as
P3,000.00 is provided for.
Nothing in appellant's brief can impair the soundness of the above
considerations. With the trial judge, and for the same reasons, we
uphold the legality of the ordinance.
II. — In connection with the ordinance imposing a tax on each theater
admission ticket (P0.05 and P0.10), the trial court applied and followed
the decisions of this Court1 to the effect that such exactions are in reality
taxes that cannot be collected in the guise of license fees, especially
where other substantial license fees are already imposed on theaters. It
noted that the statute under which the exactions were collected in our
Rojas and Arong decisions were similar in nature to those under which
the City of Bacolod acted in imposing these taxes on theater tickets.
To evade the controlling effect of the two above name decisions, the
City of Bacolod urges here that the tax could be upheld as one adopted
under the general welfare clause, arguing that the tax was designed to
cope wit the problem of insufficiency of school buildings, and school
funds, the intention of the council being to use the money so collected to
further the education of the youth in the City of Bacolod. This
contention was presented in the court below, and the Hon. Jose de la
Cruz, aptly overruled it in the following words and phrases:
There can be no divergence of thought as to the wisdom and
desirability of any and all solicitude for education; literacy of the
 people is indeed one of the primary concern of the Government; but
the General Welfare Clause cannot be resorted to as a source of the
power to tax. Besides, it is provided that the tax shall go exclusively
to the General Fund (Section 2, Ordinance No. 185).
The defendant intimate that going to the movies partakes of the
nature of a non-useful occupation subject to regulation, and that the
amounts of P0.05 and P0.10 collected under Ordinances Nos. 185
and 191 are regulatory fees imposed by the defendant City under
the General Welfare Clause of its Charter. This is obviously wanting
in plausibility. In the first place, the Ordinances expressly call the
payments of P0.05 and P0.10 as a "tax" on every admission ticket.
In the second place, while going to the movie may be looked upon
as a luxurious (or indispensable) form of recreation, it may hardly
be considered an occupation, a term implying business or
profession. In the third place, the tax is levied against every
admission ticket, not strictly upon the cinema patron, although it
may be added by owners or operators of theaters to the admission
price and charged to and paid by the movie.
III. — The appealed judgment is affirmed. No costs.
MUNICIPALITY OF SAN FERNANDO, LA UNION represented
by Mayor LORENZO L. DACANAY, plaintiff-appellee, (respondent)
vs.
MAYOR TIMOTEO STA. ROMANA, MUNICIPAL TREASURER
and their authorized Agents of Luna, La Union and the
MUNICIPALITY OF LUNA, LA UNION, defendants-appellants
(petitioners).
PARAS, J.:
This is a petition for review on certiorari of the November 11, 1968
Order of the Court of First Instance of La Union, the dispositive portion
of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the
preliminary injunction already issued is made permanent and
the defendants are enjoined not to prevent the plaintiff from
getting sand and gravel from barrio Nalvo Norte.
The undisputed facts of this case are as follows:
The Municipality of San Fernando, La Union which was undertaking a
cement road construction around its Supermarket and other municipal
projects, needed sufficient gravel and sand from their source, the
Municipality of Luna but its trucks sent to the latter municipality to haul
said road construction materials were allegedly charged unreasonable
fees per truck load.
On March 18, 1968, the Municipality of San Fernando represented by
its incumbent Municipal Mayor Lorenzo L. Dacanay filed a complaint
for Injunction with Writ of Preliminary Injunction at the Court of First
Instance of La Union against the Municipality of Luna and its officials
and authorized agents, praying that the defendants be immediately
enjoined from preventing plaintiff's truck obtaining road construction
materials from Luna, La Union and from levying unreasonable fees, and
after trial to make the injunction permanent (Complaint "Annex A,
"Rollo, p. 13).
On the same day the complaint was filed, the Court of First Instance of
La Union (Branch 11) issued an Order granting the Writ of Preliminary
Injunction ex parte (Petition, Rollo, p. 7, "Annex B," Rollo, p. 18). On
March 26, 1968, the defendants filed their Answer wherein they averred
that the license fees collected from the hauling of sand and gravel
excavated from the municipality of Luna, La Union are by virtue of an
ordinance duly approved by the Municipal Council of defendant
municipality in consonance with its power to tax, and that the fees
collected are reasonable, fair and legal. The Answer further pointed out
that the remedy of Injunction availed of is not the proper remedy. On
May 21, 1968, after the issues were joined, the lower court issued an
Order requiring the parties to submit their respective memoranda since
the issue raised was purely a question of law. On November 11, 1968,
the lower court issued an Order making permanent the writ of
preliminary injunction issued and further ordered the defendants not to
prevent the plaintiff from getting sand and gravel from Barrio Nalvo
Norte, a barrio of Luna, La Union.
Hence, this petition.
The main issue in this case is whether or not the Municipality of Luna
has the authority to pass Ordinance No. 1 and impose the license fees in
question.
Aforesaid Ordinance reads:
ORDINANCE NO. 1
Section 1. There shall be collected from any person, partnership
or corporation engaged in any business, occupation or calling
or enjoying any privilege hereunder enumerated the following
municipal license and/or fees at the rate set opposite each:
xxx xxx xxx
14. Dealer and/or hauler of sand, gravel and/or stones for every
truck load or fraction thereof:
Sand.......................................................P1. 50
Gravel........................................................8.00
Course sand...........................................10.00
Selected stones or pea size..................15.00
The Municipality of Luna insists on the validity of its Ordinance No. 1
imposing the license fees in question on the basis of its authority to
exercise police power under Section 2238 of the Revised Administrative
Code, otherwise known as the General Welfare Clause and its power to
levy licenses and fees for public purposes under Republic Act 2264
(Petition, Rollo, p. 10) and justifies the inclusion of the Municipality of
San Fernando thereunder, among the persons, partnership or corporation
engaged in any business, occupation or calling to be charged for hauling
sand and gravel from its seashore, claiming that respondent municipality
in hauling sand and gravel for the improvement of its roads is engaged
in a proprietary function as it can later exact higher license fees from
those in the business center. Thus, for eventually obtaining profit by the
improvement of its roads, the Municipality of San Fernando should
allegedly pay license fees to the Municipality of Luna (Brief for
Petitioner, pp. 5 and 6).
On the other hand, respondent Municipality alleges that the license fee
embodied in Ordinance No. I is beyond the authority of the
Municipality of Luna, La Union to impose, as the sand and gravel
deposits in the seashore of Nalvo Norte are classified as minerals under
the Mining Laws of the Philippines and as such belong to the State, and
fall under the administration and control of the Bureau of Mines and not
of the Municipality of Luna. For this purpose, respondent Municipality
obtained on March 18, 1968, a gratuitous Revocable Permit from the
Bureau of Mines (Answer, Rollo, pp. 55-56; Brief for Respondent, pp. 3
and 4). Even granting arguendo that the disposition of sand and gravel
belongs to petitioner, nevertheless, the Municipality of San Fernando
does not fall under Ordinance No. 1 because the gravel and sand
extracted by said municipality are used for the improvement of its
streets which function is governmental.
This issue in the case at bar is now governed by Presidential Decree No.
231, enacting a Local Tax Code (for Provinces, Cities, Municipalities
and Barrios which took effect on July 1, 1973. The Code provides:
SEC. 10. Sand and gravel fee. — The province may levy and
collect a fee of not exceeding seventy-five centavos per cubic
meter of ordinary stones, sand, gravel earth and other materials
 extracted from lakes, rivers, streams, creeks, and other public
waters within the jurisdiction of the province.
SEC. 22. Specific limitations on power. — Except as otherwise
provided in this Code, the municipality shall not levy the
following:
(a) Taxes, fees, and charges that the province or city is
authorized to levy in this Code;
(b) Taxes on articles, subject to specific tax under the
provisions of the National Internal Revenue Code; and
question that the authority to impose the license fees in dispute, properly
belongs to the province concerned and not to the Municipality of Luna
which is specifically prohibited under Section 22 of the same Code
"from levying taxes, fees and charges that the province or city is
authorized to levy in this Code. " On the other hand, the Municipality of
San Fernando cannot extract sand and gravel from the Municipality of
Luna without paying the corresponding taxes or fees that may be
imposed by the province of La Union.
PREMISES CONSIDERED, the Court RESOLVED to DISMISS this
petition and to AFFIRM assailed Order of the trial court.

(c) Taxes and other impositions enumerated in Section 5,

Chapter I of this Code. LEPANTO CONSOLIDATED G.R. No. 180639
MINING COMPANY,
Section 10 of aforesaid decree was later amended by Presidential Petitioner, Present:
Decree No. 426, dated March 30, 1974, and now reads:
CARPIO, J., Chairperson,
Sec. 10. Sand and gravel tax. — The province may levy and - versus - NACHURA,
collect a tax of not exceeding seventy-five centavos per cubic PERALTA,
meter of ordinary stones, sand, gravel earth and other materials ABAD, and
extracted from public and private lands of the government or MENDOZA, JJ.
from the beds of seas, lakes, rivers, streams, creeks and other HON. MAURICIO B. AMBANLOC,
public waters within the jurisdiction of the province. The in his capacity as the Provincial Promulgated:
municipality where the materials are extracted shall share in the Treasurer of Benguet,
proceeds of the tax herein authorized at a rate of not less than Respondent. June 29, 2010
thirty per cent thereof as may be determined by the Provincial
Board. x
---------------------------------------------------------------------------------------
The permit to extract the materials shall be issued by the x
Director of Mines or his duly authorized representative and the
extraction thereof shag be governed by regulations issued by DECISION
the Director of Mines. (As amended by Presidential Decree No.
426). ABAD, J.:

Under the above-quoted provisions of the Local Tax Code, there is no

 This case is about the liability of a mining corporation for taxes
imposed by a province for the extraction of sand and gravel from areas
covered by its mining lease with the national government and used
exclusively in its mining operations.
The Facts and the Case
The national government issued to petitioner Lepanto
Consolidated Mining Company (Lepanto) a mining lease contract
covering, among others, its TIKEM leased mining claim at Sitio Nayak,
Barrio Palasan (Suyoc), Municipality of Mankayan, Benguet. The
contract granted Lepanto the right to extract and use for its purposes all
mineral deposits within the boundary lines of its mining claim. Upon
inquiry, the Mines and Geo-sciences Bureau of the Department of
Environment and Natural Resources (DENR) advised Lepanto that,
under its contract, it did not have to get a permit to extract and use sand
and gravel from within the mining claim for its operational and
infrastructure needs. Based on this advice, Lepanto proceeded to extract
and remove sand, gravel, and other earth materials from the mining site.
Lepanto used the quarried materials to back-fill stopesportions
of the earth excavated as a result of miningreplacing what had been
mined to maintain the integrity of the ground. It also used sand and
gravel to construct and maintain concrete structures needed in its mining
operation, such as a tailings dam, access roads, and offices. Its use of
quarry resources, readily available within its mining claim, was more
practical and cheaper than having to outsource them.
Respondent Mauricio Ambanloc, the provincial treasurer of
Benguet, sent a demand letter to Lepanto, asking it to pay the province
P1,901,893.22 as sand and gravel tax, for the quarry materials that it
extracted from its mining site from 1997 to 2000. Lepanto sent a letter-
protest to the provincial treasurer, but the latter denied the same,
insisting on payment.
Lepanto filed a petition with the Regional Trial Court (RTC) of
Benguet to question the assessment.[1] The RTC ruled that Lepanto was
liable for the amount assessed, with interest at the rate of 2 percent per
month from the time the tax should have been paid. Lepanto appealed
the RTC decision to the Court of Tax Appeals (CTA) where it was
raffled to its Second Division.[2] The Second Division affirmed the
ruling of the RTC with the modification that the interest of 2 percent per
month shall not exceed 36 months.[3]
Lepanto appealed the decision of the Second Division to the
CTA En Banc.[4] Three justices of the CTA voted to affirm the decision
but three justices dissented. Because the needed vote of four members
could not be obtained, the En Banc dismissed the appeal, resulting in the
affirmance of the decision of the Second Division. Lepantos motion for
reconsideration met the same fate, hence, this appeal.
The Issue Presented
The sole issue presented in this case is whether or not Lepanto is
liable for the tax imposed by the Province of Benguet on the sand and
gravel that it extracted from within the area of its mining claim and used
exclusively in its mining operations.
 The Courts Rulings
One. Lepanto claims that the tax on sand and gravel applied
only to commercial extractions. In its case, it extracted these materials
for use solely in its mining operations.Lepanto did not supply other
users for some profit. Thus, its extractions were not commercial and
should not be subject to provincial tax.
The CTAs Second Division held, however, that sand and gravel
taxes may be imposed even on non-commercial extractions. Since
Section 138 of the Local Government Code (Republic Act 7160)
authorized provinces to impose a tax on the extraction of sand and
gravel from public lands, without distinguishing between personal and
commercial uses, then the tax should be deemed to cover extractions for
both purposes. The provision reads:
Sec. 138. Tax on Sand, Gravel and Other
Quarry Resources. The province may levy and collect
not more than ten percent (10%) fair market value in
the locality per cubic meter of ordinary stones, sand
gravel, earth, and other quarry resources, as defined
under the National Internal Revenue Code, as
amended, extracted from public lands or from the
beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction.
But the CTA Second Division ruling overlooks the fact that
Republic Act 7160 is not the provincial governments basis for taxing
Lepantos extraction. It is but the general law that delegates to provinces
the power to impose taxes on the extraction of quarry resources. As it
happens, the scope and validity of such delegation is not the issue in this
case. The question of Lepantos liability for tax should be determined
based on the revenue measure itself, which in this case, was the Revised
Benguet Revenue Code (the revenue code).[5] The relevant provisions of
this provincial revenue code reads:
Article D. Tax on Sand, Gravel and Other
Quarry Resources.
xxxx
SECTION 3. Imposition of Tax. There shall be
levied a tax of ten (10) percent of fair market value in
the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, x x x
applied for and expected to be extracted or removed
from public lands x x x within the territorial
jurisdiction of Benguet Province.
This provision may not apply in case of
gratuitous permits for government projects within
Benguet Province.
SECTION 4. Conditions for the Issuance of
Permit.
xxxx
(g) The permittee shall within ten (10) days
after the end of each month submit to the Provincial
Treasurer, the Municipal Treasurer and Barangay
Treasurer where the materials are extracted, copies of
sworn statement stating the quantity in terms of cubic
meter and kind of materials extracted or removed by
him; the amount of tax or fees paid; the quantity and
kind of materials sold or disposed of during the
period covered by said report; the selling price per
 cubic meter; the names and addresses of the buyers;
and the quantity and kind of materials left in stock.
xxxx
SECTION 5. Mode, Time and Place of
Payment. The tax shall be paid to the Provincial
Treasurer or his duly authorized representative
before the approval by the Provincial Governor of the
permit to extract or remove the materials applied for
and before the said materials are extracted or
removed. x x x
SECTION 6. Surcharges and Interests. Failure
to pay the tax as provided herein shall subject the
permittee to a surcharge of Twenty-five (25%)
percent of the original amount of tax due plus Two
(2%) percent per month of the unpaid amount
including the surcharges until such amount is fully
paid, but in no case shall the total amount or portion
thereof exceed thirty-six (36) months. x x x
Lepanto insists that the subject tax intended to cover only
commercial extractions since the provincial revenue code referred to fair
market value of the resources, quantity sold or disposed, amount left in
stock, selling price, and buyers information.
Not necessarily. The provincial revenue code provides that the
subject tax had to be paid prior to the issuance of the permit to extract
sand and gravel. Its Article D, Section 2, enumerates four kinds of
permits: commercial, industrial, special, and gratuitous. Special permits
covered only personal use of the extracted materials and did not allow
the permitees to sell materials coming from his concession. [6] Among
applicants for permits, however, only gratuitous permits were exempt
from the sand and gravel tax. It follows that persons who applied for
special permits needed to pay the tax, even though they did not extract
materials for commercial purposes. Thus, the tax needed to be paid
regardless of the applicability of the administrative and reportorial
requirements of that revenue code.
Two. Lepanto claims that the tax can only be levied against
extractions by persons or entities required to apply for permits to
remove quarry resources. Since the mining lease contract with the
national government granted it the right to extract and utilize all mineral
deposits from within its mining claim, Lepanto claims that it did not
need to apply for a separate permit from the local government.
Paragraph 9 of its Mining Lease Contract provides that:
This Lease hereby grants unto the LESSEE,
his successors or assigns, the right to extract and
utilize for their own benefit all mineral deposits
within the boundary lines of the mining claim/s
covered by this Lease continued vertically downward.
But this merely declares that Lepantos extraction and use of
mineral deposits bears the consent of the national government, in line
with the principle that exploration of natural resources can only be done
under the control and supervision of the State. The contract makes no
mention of any exemption from securing government permits.
Lepanto invokes the Bureau of Mines and Geo-Sciences view
that the mining company did not require it to get any of the permits that
Mines Administrative Order MRD-27 might require.[7] But that Bureaus
view applied only to permits under MRD-27. The Bureau has no
authority to determine the applicability of local ordinances. Besides,
even the Bureau itself states that the exemption from MRD-27 is not
absolute as it shall not apply if the sand and gravel were to be disposed
of commercially. An exemption from the requirements of the provincial
government should have a clear basis, whether in law, ordinance, or
even from the contract itself. Unfortunately for Lepanto, it failed to
show its entitlement to such exemption.
Three. Lepanto relies on the principle that when a company is
taxed on its main business, it is no longer taxable for engaging in an
activity that is but a part of, incidental to, and necessary to such main
business. Lepanto points out that, since it did not extract and use sand
and gravel as independent activities but as integral parts of its mining
operations, it should not be subjected to a separate tax on the same.
But in the cases where this principle has been applied, the taxes
which were stricken down were in the nature of business taxes. The
reasoning behind those cases was that the incidental activity could not
be treated as a business separate and distinct from the main business of
the taxpayer. Here the tax is an excise tax imposed on the privilege of
extracting sand and gravel. And it is settled that provincial governments
can levy excise taxes on quarry resources independently from the
national government.[8]
WHEREFORE, the Court DENIES the petition and
AFFIRMS the decision of the Court of Tax Appeals En Banc in CTA
EB 201 dated May 17, 2007.
SO ORDERED.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC.,
petitioner,
vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her
capacity as the City Treasurer of Davao,respondents.
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure of the resolution, 1 dated June 23, 2000, of the
Regional Trial Court, Branch 13, Davao City, affirming the tax
assessment of petitioner and the denial of its claim for tax refund by the
City Treasurer of Davao.
The facts are as follows:
On January 1999, petitioner Philippine Long Distance Telephone Co.,
Inc. (PLDT) applied for a Mayor's Permit to operate its Davao Metro
Exchange. Respondent City of Davao withheld action on the application
pending payment by petitioner of the local franchise tax in the amount
of P3,681,985.72 for the first to the fourth quarter of 1999. 2 In a letter
dated May 31, 1999, 3 petitioner protested the assessment of the local
franchise tax and requested a refund of the franchise tax paid by it for
the year 1997 and the first to the third quarters of 1998. Petitioner
contended that it was exempt from the payment of franchise tax based
on an opinion of the Bureau of Local Government Finance (BLGF),
dated June 2, 1998, which reads as follows:
PLDT:
Section 12 of RA 7082 provides as follows:
"SECTION 12. The grantee, its successors or assigns shall be
liable to pay the same taxes on their real estate, buildings, and
personal property, exclusive of this franchise, as other persons
 or corporations are now or hereafter may be required by law to
pay. In addition thereto, the grantee, its successors or assigns
shall pay a franchise tax equivalent to three percent (3%) of all
gross receipts of the telephone or other telecommunications
businesses transacted under this franchise by the grantee, its
successors or assigns, and the said percentage shall be in lieu of
all taxes on this franchise or earnings thereof . . ."
It appears that RA 7082 further amending Act No. 3436 which
granted to PLDT a franchise to install, operate and maintain a
telephone system throughout the Philippine Islands was approved
on August 3, 1991. Section 12 of said franchise, likewise, contains
the "in lieu of all taxes" proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which
was approved on March 1, 1995, provides for the equality of
treatment in the telecommunications industry:
"SECTION 23. Equality of Treatment in the
Telecommunications Industry. — Any advantage, favor,
privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchise and
shall be accorded immediately and unconditionally to the
grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by
the franchise, the life span of the franchise, or the type of
service authorized by the franchise." (Italics supplied.)
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a
telecommunications franchise holder becomes automatically
covered by the tax exemption provisions of RA 7925, which took
effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise
and business taxes imposable by LGUs under Sections 137 and 143
(sic), respectively, of the LGC, upon the effectivity of RA 7925 on
March 16, 1995. However, PLDT shall be liable to pay the
franchise and business taxes on its gross receipts realized from
January 1, 1992 up to March 15, 1995, during which period PLDT
was not enjoying the "most favored clause" proviso of RA 7025
(sic).4
In a letter dated September 27, 1999, respondent Adelaida B. Barcelona,
City Treasurer of Davao, denied the protest and claim for tax refund of
petitioner,5 citing the legal opinion of the City Legal Officer of Davao
and Art. 10, §1 of Ordinance No. 230, Series of 1991, as amended by
Ordinance No. 519, Series of 1992, which provides:
Notwithstanding any exemption granted by any law or other special
law, there is hereby imposed a tax on businesses enjoying a
franchise, at a rate of Seventy-five percent (75%) of one percent
(1%) of the gross annual receipts for the preceding calendar year
based on the income or receipts realized within the territorial
jurisdiction of Davao City.6
Petitioner received respondent City Treasurer's order of denial on
October 1, 1999. On November 3, 1999, it filed a petition in the
Regional Trial Court of Davao seeking a reversal of respondent City
Treasurer's denial of petitioner's protest and the refund of the franchise
tax paid by it for the year 1998 in the amount of P2,580,829.23. The
petition was filed pursuant to §§195 and 196 of the Local Government
Code (R.A. No. 7160). No claim for refund of franchise taxes paid in
1997 was made as the same had already prescribed under §196 of the
LGC, which provides that claims for the refund of taxes paid under it
must be made within two (2) years from the date of payment of such
taxes.7
The trial court denied petitioner's appeal and affirmed the City
Treasurer's decision. It ruled that the LGC withdrew all tax exemptions
previously enjoyed by all persons and authorized local government units
to impose a tax on businesses enjoying a franchise notwithstanding the
grant of tax exemption to them. The trial court likewise denied
petitioner's claim for exemption under R.A. No. 7925 for the following
reasons: (1) it is clear from the wording of §193 of the Local
Government Code that Congress did not intend to exempt any franchise
holder from the payment of local franchise and business taxes; (2) the
opinion of the Executive Director of the Bureau of Local Government
Finance to the contrary is not binding on respondents; and (3) petitioner
failed to present any proof that Globe and Smart were enjoying local
franchise and business tax exemptions.
Hence, this petition for review based on the following grounds:
I. THE LOWER COURT ERRED IN APPLYING SECTION 137
OF THE LOCAL GOVERNMENT CODE, WHICH ALLOWS A
CITY TO IMPOSE A FRANCHISE TAX, AND SECTION 193
THEREOF, WHICH PROVIDES FOR WITHDRAWAL OF TAX
EXEMPTION PRIVILEGES.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT
UNDER PETITIONER'S FRANCHISE, AS IMPLICITLY
AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC
ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY
ACT), TAKING INTO ACCOUNT THE FRANCHISES OF
GLOBE TELECOM, INC. AND SMART COMMUNICATIONS,
INC., WHICH WERE ENACTED SUBSEQUENT TO THE
LOCAL GOVERNMENT CODE, NO FRANCHISE AND
BUSINESS TAXES MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.
III. THE LOWER COURT ERRED IN NOT GIVING WEIGHT
TO THE RULING OF THE BUREAU OF LOCAL
GOVERNMENT FINANCE THAT PETITIONER IS EXEMPT
FROM THE PAYMENT OF FRANCHISE AND BUSINESS
TAXES, AMONG OTHERS, IMPOSABLE BY LOCAL
GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT
CODE.
First. The LGC, which took effect on January 1, 1992, provides:
SECTION 137. Franchise Tax. — Notwithstanding any exemption
granted by any law or other special law, the province may impose a
tax on businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In
the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided
herein.8
SECTION 193. Withdrawal of Tax Exemption Privileges. — Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or -controlled corporations,
except local water districts, cooperatives duly registered under R.A.
6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
The trial court held that, under these provisions, all exemptions granted
to all persons, whether natural and juridical, including those which in
the future might be granted, are withdrawn unless the law granting the
exemption expressly states that the exemption also applies to local
taxes. We disagree. Sec. 137 does not state that it covers future
exemptions. In Philippine Airlines, Inc. v. Edu,9 where a provision of the
Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the
exemption enjoyed by PAL, it was held that a subsequent amendment of
PAL's franchise, exempting it from all other taxes except that imposed
by its franchise, again entitled PAL to exemption from the date of the
enactment of such amendment. The Tax Code provision withdrawing
the tax exemption was not construed as prohibiting future grants of
exemptions from all taxes.
Indeed, the grant of taxing powers to local government units under the
Constitution and the LGC does not affect the power of Congress to
grant exemptions to certain persons, pursuant to a declared national
policy. The legal effect of the constitutional grant to local governments
simply means that in interpreting statutory provisions on municipal
taxing powers, doubts must be resolved in favor of municipal
corporations.10
The question, therefore, is whether, after the withdrawal of its
exemption by virtue of §137 of the LGC, petitioner has again become
entitled to exemption from local franchise tax. Petitioner answers in the
affirmative and points to §23 of R.A. No. 7925, in relation to the
franchises of Globe Telecom (Globe) and Smart Communications, Inc.
(Smart), which allegedly grant the latter exemption from local franchise
taxes.
To begin with, tax exemptions are highly disfavored. The reason for this
was explained by this Court in Asiatic Petroleum Co. v. Llanes,11 in
which it was held:
. . . Exemptions from taxation are highly disfavored, so much so
that they may almost be said to be odious to the law. He who claims
an exemption must be able to point to some positive provision of
law creating the right. . . As was said by the Supreme Court of
Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550), "The
right of taxation is inherent in the State. It is a prerogative essential
to the perpetuity of the government; and he who claims an
exemption from the common burden must justify his claim by the
clearest grant of organic or statute law." Other utterances equally or
more emphatic come readily to hand from the highest authority. In
Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was
said by Chief Justice Taney, that the right of taxation will not be
held to have been surrendered, "unless the intention to surrender is
manifested by words too plain to be mistaken." In the case of the
Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court
of the United States said that the surrender, when claimed, must be
shown by clear, unambiguous language, which will admit of no
reasonable construction consistent with the reservation of the
power. If a doubt arises as to the intent of the legislature, that doubt
must be solved in favor of the State. In Erie Railway Company vs.
Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice
Hunt, speaking of exemptions, observed that a State cannot strip
itself of the most essential power of taxation by doubtful words. "It
cannot, by ambiguous language, be deprived of this highest
attribute of sovereignty." In Tennessee vs. Whitworth (117 U.S.,
129, 136), it was said: "In all cases of this kind the question is as to
the intent of the legislature, the presumption always being against
any surrender of the taxing power." In Farrington vs. Tennessee and
County of Shelby (95 U.S., 679, 686), Mr. Justice Swayne said:
". . . When exemption is claimed, it must be shown indubitably to
exist. At the outset, every presumption is against it. A well-founded
doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction
that the proposition can be supported."
The tax exemption must be expressed in the statute in clear language
that leaves no doubt of the intention of the legislature to grant such
exemption. And, even if it is granted, the exemption must be interpreted
in strictissimi jurisagainst the taxpayer and liberally in favor of the
taxing authority.12
In the present case, petitioner justifies its claim of tax exemption by
strained inferences. First, it cites R.A. No. 7925, otherwise known as the
Public Telecommunications Policy Act of the Philippines, §23 of which
reads:
SECTION 23. Equality of Treatment in the Telecommunications
Industry. — Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately
and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect
provisions of telecommunications franchises concerning territory
covered by the franchise, the life span of the franchise, or the type
 of service authorized by the franchise.
Petitioner then claims that Smart and Globe enjoy exemption from the
payment of the franchise tax by virtue of their legislative franchises per
opinion of the Bureau of Local Government Finance of the Department
of Finance. Finally, it argues that because Smart and Globe are exempt
from the franchise tax, it follows that it must likewise be exempt from
the tax being collected by the City of Davao because the grant of tax
exemption to Smart and Globe ipso factoextended the same exemption
to it.
The acceptance of petitioner's theory would result in absurd
consequences. To illustrate: In its franchise, Globe is required to pay a
franchise tax of only one and one-half percentum (1½%) of all gross
receipts from its transactions while Smart is required to pay a tax of
three percent (3%) on all gross receipts from business transacted.
Petitioner's theory would require that, to level the playing field, any
"advantage, favor, privilege, exemption, or immunity" granted to Globe
must be extended to all telecommunications companies, including
Smart. If, later, Congress again grants a franchise to another
telecommunications company imposing, say, one percent (1%) franchise
tax, then all other telecommunications franchises will have to be
adjusted to "level the playing field" so to speak. This could not have
been the intent of Congress in enacting §23 of Rep. Act 7925.
Petitioner's theory will leave the Government with the burden of having
to keep track of all granted telecommunications franchises, lest some
companies be treated unequally. It is different if Congress enacts a law
specifically granting uniform advantages, favor, privilege, exemption, or
immunity to all telecommunications entities.
The fact is that the term "exemption" in §23 is too general. A cardinal
rule in statutory construction is that legislative intent must be
ascertained from a consideration of the statute as a whole and not
merely of a particular provision. For, taken in the abstract, a word or
phrase might easily convey a meaning which is different from the one
actually intended. A general provision may actually have a limited
application if read together with other provisions.13 Hence, a
consideration of the law itself in its entirety and the proceedings of both
Houses of Congress is in order.14
Art. I of Rep. Act No. 7925 contains the general provisions, stating that
the Act shall be known as the Public Telecommunications Policy Act of
the Philippines, and a definition of terms.15 Art. II provides for its
policies and objectives, which is to foster the improvement and
expansion of telecommunications services in the country through: (1)
the construction of telecommunications infrastructure and
interconnection facilities, having in mind the efficient use of the radio
frequency spectrum and extension of basic services to areas not yet
served; (2) fair, just, and reasonable rates and tariff charges; (3) stable,
transparent, and fair administrative processes; (4) reliance on private
enterprise for direct provision of telecommunications services; (5)
dispersal of ownership of telecommunications entities in compliance
with the constitutional mandate to democratize the ownership of public
utilities; (6) encouragement of the establishment of interconnection with
other countries to provide access to international communications
highways and development of a competitive export-oriented domestic
telecommunications manufacturing industry; and (7) development of
human resources skills and capabilities to sustain the growth and
development of telecommunications.16
Art. III provides for its administration. The operational and
administrative functions are delegated to the National
Telecommunications Commission (NTC), while policy-making,
research, and negotiations in international telecommunications matters
are left with the Department of Transportation and Communications.17
Art. IV classifies the categories of telecommunications entities as: Local
Exchange Operator, Inter-Exchange Carrier, International Carrier,
Value-Added Service Provider, Mobile Radio Services, and Radio
Paging Services.18 Art. V provides for the use of other services and
facilities, such as customer premises equipment, which may be used
within the premises of telecommunications subscribers subject only to
the requirement that it is type-approved by the NTC, and radio
frequency spectrum, the assignment of which shall be subject to
periodic review.19
Art. VI, entitled Franchise, Rates and Revenue Determination, provides
for the requirement to obtain a franchise from Congress and a
Certificate of Public Convenience and Necessity from the NTC before a
telecommunications entity can begin its operations. It also provides for
the NTC's residual power to regulate the rates or tariffs when ruinous
competition results or when a monopoly or a cartel or combination in
restraint of free competition exists and the rates or tariffs are distorted or
unable to function freely and the public is adversely affected. There is
also a provision relating to revenue sharing arrangements between inter-
connecting carriers.20
Art. VII provides for the rights of telecommunications users.21
Art. VIII, entitled Telecommunications Development, where §23 is
found, provides for public ownership of telecommunications entities,
privatization of existing facilities, and the equality of treatment
provision.22
Art. IX contains the Final Provisions.23
R.A. No. 7925 is thus a legislative enactment designed to set the
national policy on telecommunications and provide the structures to
implement it to keep up with the technological advances in the industry
and the needs of the public. The thrust of the law is to promote
gradually the deregulation of the entry, pricing, and operations of all
public telecommunications entities and thus promote a level playing
field in the telecommunications industry. 24 There is nothing in the
language of §23 nor in the proceedings of both the House of
Representatives and the Senate in enacting R.A. No. 7925 which shows
that it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had
been withdrawn by the LGC.
What this Court said in Asiatic Petroleum Co. v. Llanes25 applies mutatis
mutandis to this case: "When exemption is claimed, it must be shown
indubitably to exist. At the outset, every presumption is against it. A
well-founded doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction that
the proposition can be supported." In this case, the word "exemption" in
§23 of R.A. No. 7925 could contemplate exemption from certain
regulatory or reporting requirements, bearing in mind the policy of the
law. It is noteworthy that, in holding Smart and Globe exempt from
local taxes, the BLGF did not base its opinion on §23 but on the fact
that the franchises granted to them after the effectivity of the LGC
exempted them from the payment of local franchise and business taxes.
Second. In the case of petitioner, the BLGF opined that §23 of R.A. No.
7925 amended the franchise of petitioner and in effect restored its
exemptions from local taxes. Petitioner contends that courts should not
set aside conclusions reached by the BLGF because its function is
precisely the study of local tax problems and it has necessarily
developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on
questions of fact are given weight and deference in the courts. The
authorities cited by petitioner pertain to the Court of Tax Appeals, 26 a
highly specialized court which performs judicial functions as it was
created for the review of tax cases.27 In contrast, the BLGF was created
merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property
assessment, and other related matters, among others.28 The question
raised by petitioner is a legal question, to wit, the interpretation of §23
of R.A. No. 7925. There is, therefore, no basis for claiming expertise for
the BLGF that administrative agencies are said to possess in their
respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of
regularity in the performance of its duty. It does enjoy this presumption,
but this has nothing to do with the question in this case. This case does
not concern the regularity of performance of the BLGF in the exercise
of its duties, but the correctness of its interpretation of a provision of
law.
In sum, it does not appear that, in approving §23 of R.A. No. 7925,
Congress intended it to operate as a blanket tax exemption to all
telecommunications entities. Applying the rule of strict construction of
laws granting tax exemptions and the rule that doubts should be
resolved in favor of municipal corporations in interpreting statutory
provisions on municipal taxing powers, we hold that §23 of R.A. No.
7925 cannot be considered as having amended petitioner's franchise so
as to entitle it to exemption from the imposition of local franchise taxes.
Consequently, we hold that petitioner is liable to pay local franchise
taxes in the amount of P3,681,985.72 for the period covering the first to
the fourth quarter of 1999 and that it is not entitled to a refund of taxes
paid by it for the period covering the first to the third quarter of 1998.
WHEREFORE, the petition for review on certiorari is DENIED and the
decision of the Regional Trial Court, Branch 13, Davao City is
AFFIRMED.
SO ORDERED.
PHILIPPINE RURAL ELECTRIC COOPERATIVES
ASSOCIATION, INC. (PHILRECA); AGUSAN DEL
NORTE ELECTRIC COOPERATIVE, INC. (ANECO);
ILOILO I ELECTRIC COOPERATIVE, INC. (ILECO I);
and ISABELA I ELECTRIC COOPERATIVE, INC.
(ISELCO I), petitioners, vs. THE SECRETARY,
DEPARTMENT OF INTERIOR AND LOCAL
GOVERNMENT, and THE SECRETARY, DEPARTMENT
OF FINANCE, respondents.
DECISION
PUNO, J.:
This is a petition for Prohibition under Rule 65 of the Rules of
Court with prayer for the issuance of a temporary restraining order
seeking to annul as unconstitutional sections 193 and 234 of R.A. No.
7160 otherwise known as the Local Government Code.
On May 23, 2000, a class suit was filed by petitioners in their own
behalf and in behalf of other electric cooperatives organized and
existing under P.D. No. 269 who are members of petitioner Philippine
Rural Electric Cooperatives Association, Inc. (PHILRECA). Petitioner
PHILRECA is an association of 119 electric cooperatives throughout the
country. Petitioners Agusan del Norte Electric Cooperative, Inc.
(ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isabela I
Electric Cooperative, Inc. (ISELCO I) are non-stock, non-profit electric
cooperatives organized and existing under P.D. No. 269, as amended,
and registered with the National Electrification Administration (NEA).
Under P.D. No. 269, as amended, or the National Electrification
Administration Decree, it is the declared policy of the State to provide
the total electrification of the Philippines on an area coverage basis the
same being vital to the people and the sound development of the nation.
[1]
Pursuant to this policy, P.D. No. 269 aims to promote, encourage and
assist all public service entities engaged in supplying electric service,
particularly electric cooperatives by giving every tenable support and
assistance to the electric cooperatives coming within the purview of the
law.[2] Accordingly, Section 39 of P.D. No. 269 provides for the
following tax incentives to electric cooperatives:
SECTION 39. Assistance to Cooperatives; Exemption from Taxes,
Imposts, Duties, Fees; Assistance from the National Power
Corporation. Pursuant to the national policy declared in Section 2, the
Congress hereby finds and declares that the following assistance to
cooperative is necessary and appropriate:
(a) Provided that it operates in conformity with the purposes and
provisions of this Decree, cooperatives (1) shall be permanently
exempt from paying income taxes, and (2) for a period ending on
December 31 of the thirtieth full calendar year after the date of a
cooperative's organization or conversion hereunder, or until it shall
become completely free of indebtedness incurred by borrowing,
whichever event first occurs, shall be exempt from the payment (a) of
all National Government, local government and municipal taxes
and fees, including franchise, filing, recordation, license or permit
fees or taxes and any fees, charges, or costs involved in any court or
administrative proceeding in which it may be a party, and (b) of all
duties or imposts on foreign goods acquired for its operations, the
period of such exemption for a new cooperative formed by
consolidation, as provided for in Section 29, to begin from as of the date
of the beginning of such period for the constituent consolidating
cooperative which was most recently organized or converted under this
Decree: Provided, That the Board of Administrators shall, after
consultation with the Bureau of Internal Revenue, promulgate rules and
regulations for the proper implementation of the tax exemptions
provided for in this Decree.
.[3]
From 1971 to 1978, in order to finance the electrification projects
envisioned by P.D. No. 269, as amended, the Philippine Government,
acting through the National Economic Council (now National Economic
Development Authority) and the NEA, entered into six (6) loan
agreements with the government of the United States of America
through the United States Agency for International Development
(USAID) with electric cooperatives, including petitioners ANECO,
ILECO I and ISELCO I, as beneficiaries. The six (6) loan agreements
involved a total amount of approximately US$86,000,000.00. These
loan agreements are existing until today.
The loan agreements contain similarly worded provisions on the tax
application of the loan and any property or commodity acquired through
the proceeds of the loan. Thus, Section 6.5 of A.I.D. Loan No. 492-H-
027 dated November 15, 1971 provides:
Section 6.5. Taxes and Duties. The Borrower covenants and agrees that
this Loan Agreement and the Loan provided for herein shall be free
from, and the Principal and interest shall be paid to A.I.D. without
deduction for and free from, any taxation or fees imposed under any
laws or decrees in effect within the Republic of the Philippines or any
such taxes or fees so imposed or payable shall be reimbursed by the
Borrower with funds other than those provided under the Loan. To the
extent that (a) any contractor, including any consulting firm, any
personnel of such contractor financed hereunder, and any property or
transactions relating to such contracts and (b) any commodity
procurement transactions financed hereunder, are not exempt from
identifiable taxes, tariffs, duties and other levies imposed under laws in
effect in the country of the Borrower, the Borrower and/or Beneficiary
shall pay or reimburse the same with funds other than those provided
under the Loan.[4]
Petitioners contend that pursuant to the provisions of P.D. No. 269,
as amended, and the above-mentioned provision in the loan agreements,
they are exempt from payment of local taxes, including payment of real
property tax. With the passage of the Local Government Code, however,
they allege that their tax exemptions have been invalidly withdrawn. In
particular, petitioners assail Sections 193 and 234 of the Local
Government Code on the ground that the said provisions discriminate
against them, in violation of the equal protection clause. Further, they
submit that the said provisions are unconstitutional because they impair
the obligation of contracts between the Philippine Government and the
United States Government.
On July 25, 2000 we issued a Temporary Restraining Order.[5]
We note that the instant action was filed directly to this Court, in
disregard of the rule on hierarchy of courts. However, we opt to take
primary jurisdiction over the present petition and decide the same on its
merits in view of the significant constitutional issues raised by the
parties dealing with the tax treatment of cooperatives under existing
laws and in the interest of speedy justice and prompt disposition of the
matter.
I
There is No Violation of the Equal Protection Clause
The pertinent parts of Sections 193 and 234 of the Local
Government Code provide:
Section 193. Withdrawal of Tax Exemption Privileges.Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including for service to their member-consumers; and c) prior to the enactment of
government-owned and controlled corporations, except local water the Local Government Code, petitioners, like CDA-registered
districts, cooperatives duly registered under R.A. No. 6938, non-stock cooperatives, were already tax-exempt.[7] Thus, petitioners contend that
and non-profit hospitals and educational institutions, are hereby to grant tax exemptions from local government taxes, including real
withdrawn upon the effectivity of this Code. property tax under Sections 193 and 234 of the Local Government Code
only to registered cooperatives under R.A. No. 6938 is a violation of the
. equal protection clause.
We are not persuaded. The equal protection clause under the
Section 234. Exemptions from real property tax.The following are
Constitution means that no person or class of persons shall be deprived
exempted from payment of the real property tax:
of the same protection of laws which is enjoyed by other persons or
other classes in the same place and in like circumstances. [8] Thus, the
.
guaranty of the equal protection of the laws is not violated by a law
based on reasonable classification. Classification, to be reasonable, must
(d) All real property owned by duly registered cooperatives as
(1) rest on substantial distinctions; (2) be germane to the purposes of the
provided for under R.A. No. 6938; and
law; (3) not be limited to existing conditions only; and (4) apply equally
to all members of the same class.[9]
.
We hold that there is reasonable classification under the Local
Except as provided herein, any exemption from payment of real Government Code to justify the different tax treatment between electric
property tax previously granted to, or presently enjoyed by, all persons cooperatives covered by P.D. No. 269, as amended, and electric
whether natural or juridical, including all government-owned and cooperatives under R.A. No. 6938.
controlled corporations are hereby withdrawn upon effectivity of this
First, substantial distinctions exist between cooperatives under P.D.
Code.[6]
No. 269, as amended, and cooperatives under R.A. No. 6938. These
distinctions are manifest in at least two material respects which go into
Petitioners argue that the above provisions of the Local
the nature of cooperatives envisioned by R.A. No. 6938 and which
Government Code are unconstitutional for violating the equal protection
characteristics are not present in the type of cooperative associations
clause. Allegedly, said provisions unduly discriminate against
created under P.D. No. 269, as amended.
petitioners who are duly registered cooperatives under P.D. No. 269, as
amended, and not under R.A. No. 6938 or the Cooperative Code of the
a. Capital Contributions by Members
Philippines. They stress that cooperatives registered under R.A. No.
6938 are singled out for tax exemption privileges under the Local
A cooperative under R.A. No. 6938 is defined as:
Government Code. They maintain that electric cooperatives registered
with the NEA under P.D. No. 269, as amended, and electric cooperatives
[A] duly registered association of persons with a common bond
registered with the Cooperative Development Authority (CDA) under
of interest, who have voluntarily joined together to achieve a
R.A. No. 6938 are similarly situated for the following reasons: a)
lawful common or social economic end, making equitable
petitioners are registered with the NEA which is a government agency
contributions to the capital required and accepting a fair
like the CDA; b) petitioners, like CDA-registered cooperatives, operate
share of the risks and benefits of the undertaking in accordance
 with universally accepted cooperative principles.[10] definition:

The above definition provides for the following elements of a A cooperative is an association of persons with a common bond of
cooperative: a) association of persons; b) common bond of interest; c) interest who have voluntarily joined together to achieve a common
voluntary association; d) lawful common social or economic end; e) social or economic end, making equitable contributions to the capital
capital contributions; f) fair share of risks and benefits; g) adherence to required.
cooperative values; and g) registration with the appropriate government
authority.[11] In this particular case [cooperatives under P.D. No. 269], Mr.
President, the members do not make substantial contribution to the
The importance of capital contributions by members of a
capital required. It is the government that puts in the capital, in
cooperative under R.A. No. 6938 was emphasized during the Senate
most cases.
deliberations as one of the key factors which distinguished electric
cooperatives under P.D. No. 269, as amended, from electric
.
cooperatives under the Cooperative Code. Thus:
Senator Osmea. Under line 6, Mr. President, making equitable
Senator Osmea. Will this Code, Mr. President, cover electric
contributions to the capital required would exclude electric cooperatives
cooperatives as they exist in the country today and are administered by
[under P.D. No. 269]. Because the membership does not make equitable
the National Electrification Administration?
contributions.
Senator Aquino. That cannot be answered with a simple yes or no, Mr.
Senator Aquino. Yes, Mr. President. This is precisely what I mean, that
President. The answer will depend on what provisions we will
electric cooperatives [under P.D. No. 269] do not qualify in the spirit of
eventually come up with. Electric cooperatives as they exist today
cooperatives. That is the reason why they should be eventually assessed
would not fall under the term cooperative as used in this bill
whether they intend to comply with the cooperatives or not. Because, if
because the concept of a cooperative is that which adheres and
after giving them a second time, they do not comply, then, they should
practices certain cooperative principles. .
not be classified as cooperatives.
.
Senator Osmea. Mr. President, the measure of their qualifying as a
cooperative would be the requirement that a member of the electric
Senator Aquino. To begin with, one of the most important
cooperative must contribute a pro rata share of the capital of the
requirements, Mr. President, is the principle where members bind
cooperative in cash to be a cooperative.[12]
themselves to help themselves. It is because of their collectivity that
they can have some economic benefits. In this particular case
Nowhere in P.D. No. 269, as amended, does it require cooperatives
[cooperatives under P.D. No. 269], the government is the one that funds
to make equitable contributions to capital. Petitioners themselves admit
these so-called electric cooperatives.
that to qualify as a member of an electric cooperative under P.D. No.
269, only the payment of a P5.00 membership fee is required which is
.
even refundable the moment the member is no longer interested in
getting electric service from the cooperative or will transfer to another
Senator Aquino. That is why in Article III we have the following
place outside the area covered by the cooperative.[13] However, under the
Cooperative Code, the articles of cooperation of a cooperative applying
for registration must be accompanied with the bonds of the accountable
officers and a sworn statement of the treasurer elected by the subscribers
showing that at least twenty-five per cent (25%) of the authorized share
capital has been subscribed and at least twenty-five per cent (25%) of
the total subscription has been paid and in no case shall the paid-up
share capital be less than Two thousand pesos (P2,000.00).[14]
b. Extent of Government Control over Cooperatives
Another principle adhered to by the Cooperative Code is the
principle of subsidiarity. Pursuant to this principle, the government may
only engage in development activities where cooperatives do not posses
the capability nor the resources to do so and only upon the request of
such cooperatives.[15] Thus, Article 2 of the Cooperative Code provides:
Art. 2. Declaration of Policy. It is the declared policy of the State to
foster the creation and growth of cooperatives as a practical vehicle for
prompting self-reliance and harnessing people power towards the
attainment of economic development and social justice. The State shall
encourage the private sector to undertake the actual formation and
organization to cooperatives and shall create an atmosphere that is
conducive to the growth and development of these cooperatives.
Towards this end, the Government and all its branches, subdivisions,
instrumentalities and agencies shall ensure the provision of technical
guidance, financial assistance and other services to enable said
cooperatives to develop into viable and responsive economic enterprises
and thereby bring about a strong cooperative movement that is free from
any conditions that might infringe upon the autonomy or organizational
integrity of cooperatives.
Further, the State recognizes the principle of subsidiarity under
which the cooperative sector will initiate and regulate within its own
ranks the promotion and organization, training and research, audit
and support services relating to cooperatives with government
assistance where necessary.[16]
Accordingly, under the charter of the CDA, or the primary
government agency tasked to promote and regulate the institutional
development of cooperatives, it is the declared policy of the State that:
[g]overnment assistance to cooperatives shall be free from any
restriction and conditionality that may in any manner infringe upon
the objectives and character of cooperatives as provided in this Act. The
State shall, except as provided in this Act, maintain the policy of
noninterference in the management and operation of cooperatives.
[17]
In contrast, P.D. No. 269, as amended by P.D. No. 1645, is replete
with provisions which grant the NEA, upon the happening of certain
events, the power to control and take over the management and
operations of cooperatives registered under it. Thus:
a) the NEA Administrator has the power to designate, subject to
the confirmation of the Board of Administrators, an Acting
General Manager and/or Project Supervisor for a cooperative
where vacancies in the said positions occur and/or when the
interest of the cooperative or the program so requires, and to
prescribe the functions of the said Acting General Manager
and/or Project Supervisor, which powers shall not be nullified,
altered or diminished by any policy or resolution of the
Board of Directors of the cooperative concerned;[18]
b) the NEA is given the power of supervision and control over
electric cooperatives and pursuant to such powers, NEA may
issue orders, rules and regulations motu propio or upon petition
of third parties to conduct referenda and other similar actions in
all matters affecting electric cooperatives;[19]
c) No cooperative shall borrow money from any source without the
approval of the Board of Administrators of the NEA;[20] and
d) The management of a cooperative shall be vested in its Board,
subject to the supervision and control of NEA which shall
have the right to be represented and to participate in all Board
meetings and deliberations and to approve all policies and
 resolutions.[21] provided therein. Section 193 provides:
The extent of government control over electric cooperatives
Section 193. Withdrawal of Tax Exemption Privileges.Unless otherwise
covered by P.D. No. 269, as amended, is largely a function of the role of
provided in this Code, tax exemptions or incentives granted to, or
the NEA as a primary source of funds of these electric cooperatives. It
presently enjoyed by all persons, whether natural or juridical, including
is crystal clear that NEA incurred loans from various sources to finance
government-owned and controlled corporations, except local water
the development and operations of the electric cooperatives.
districts, cooperatives duly registered under R.A. No. 6938, non-stock
Consequently, amendments to P.D. No. 269 were primarily geared to
and non-profit hospitals and educational institutions, are hereby
expand the powers of the NEA over the electric cooperatives to ensure
withdrawn upon the effectivity of this Code.[24]
that loans granted to them would be repaid to the government. In
contrast, cooperatives under R.A. No. 6938 are envisioned to be self-
The above provision effectively withdraws exemptions from local
sufficient and independent organizations with minimal government
taxation enjoyed by various entities and organizations upon effectivity
intervention or regulation.
of the Local Government Code except for a) local water districts; b)
To be sure, the transitory provisions of R.A. No. 6938 are indicative cooperatives duly registered under R.A. No. 6938; and c) non-stock
of the recognition by Congress of the fundamental distinctions between and non-profit hospitals and educational institutions. Further, with
electric cooperatives organized under P.D No. 269, as amended, and respect to real property taxes, the Local Government Code again
cooperatives under the new Cooperative Code. Article 128 of the specifically enumerates entities which are exempt therefrom and
Cooperative Code provides that all cooperatives registered under withdraws exemptions enjoyed by all other entities upon the effectivity
previous laws shall be deemed registered with the CDA upon of the code. Thus, Section 234 provides:
submission of certain requirements within one year. However,
cooperatives created under P.D. No. 269, as amended, are given three SEC. 234. Exemptions from Real Property Tax. The following are
years within which to qualify and register with the CDA, after which, exempted from payment of the real property tax:
provisions of P.D. No. 1645 which expand the powers of the NEA over
electric cooperatives, would no longer apply.[22] (a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been
Second, the classification of tax-exempt entities in the Local
granted for consideration or otherwise, to a taxable person;
Government Code is germane to the purpose of the law. The
Constitutional mandate that every local government unit shall enjoy
(b) Charitable institutions, churches, parsonages or convents
local autonomy, does not mean that the exercise of power by local
appurtenant thereto, mosques, nonprofit or religious cemeteries and all
governments is beyond regulation by Congress. Thus, while each
lands, buildings and improvements actually, directly, and exclusively
government unit is granted the power to create its own sources of
used for religious, charitable or educational purposes;
revenue, Congress, in light of its broad power to tax, has the discretion
to determine the extent of the taxing powers of local government units
(c) All machineries and equipment that are actually, directly and
consistent with the policy of local autonomy.[23]
exclusively used by local water districts and government-owned or
Section 193 of the Local Government Code is indicative of the controlled corporations engaged in the supply and distribution of water
legislative intent to vest broad taxing powers upon local government and/or generation and transmission of electric power;
units and to limit exemptions from local taxation to entities specifically
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all persons,
whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of
this Code.[25]
In Mactan Cebu International Airport Authority v. Marcos,[26]
this Court held that the limited and restrictive nature of the tax
exemption privileges under the Local Government Code is consistent
with the State policy to ensure autonomy of local governments and the
objective of the Local Government Code to grant genuine and
meaningful autonomy to enable local government units to attain their
fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. The obvious
intention of the law is to broaden the tax base of local government units
to assure them of substantial sources of revenue.
While we understand petitioners predicament brought about by the
withdrawal of their local tax exemption privileges under the Local
Government Code, it is not the province of this Court to go into the
wisdom of legislative enactments. Courts can only interpret laws. The
principle of separation of powers prevents them from re-inventing the
laws.
Finally, Sections 193 and 234 of the Local Government Code
permit reasonable classification as these exemptions are not limited to
existing conditions and apply equally to all members of the same class.
Exemptions from local taxation, including real property tax, are granted
to all cooperatives covered by R.A. No. 6938 and such exemptions exist
for as long as the Local Government Code and the provisions therein on
local taxation remain good law.
II
There is No Violation of the Non-Impairment Clause
It is ingrained in jurisprudence that the constitutional prohibition on
the impairment of the obligation of contracts does not prohibit every
change in existing laws. To fall within the prohibition, the change must
not only impair the obligation of the existing contract, but the
impairment must be substantial.[27] What constitutes substantial
impairment was explained by this Court in Clemons v. Nolting:[28]
A law which changes the terms of a legal contract between parties,
either in the time or mode of performance, or imposes new conditions,
or dispenses with those expressed, or authorizes for its satisfaction
something different from that provided in its terms, is law which
impairs the obligation of a contract and is therefore null and void.
Moreover, to constitute impairment, the law must affect a change in the
rights of the parties with reference to each other and not with respect to
non-parties.[29]
Petitioners insist that Sections 193 and 234 of the Local
Government Code impair the obligations imposed under the six (6) loan
agreements executed by the NEA as borrower and USAID as lender. All
six agreements contain similarly worded provisions on the tax treatment
of the proceeds of the loan and properties and commodities acquired
through the loan. Thus:
Section 6.5. Taxes and Duties. The Borrower covenants and agrees that
this Loan Agreement and the Loan provided for herein shall be free
from, and the Principal and interest shall be paid to A.I.D. without
deduction for and free from, any taxation or fees imposed under any
laws or decrees in effect within the Republic of the Philippines or any
such taxes or fees so imposed or payable shall be reimbursed by the
Borrower with funds other than those provided under the Loan. To the
extent that (a) any contractor, including any consulting firm, any
personnel of such contractor financed hereunder, and any property
or transactions relating to such contracts and (b) any commodity
procurement transactions financed hereunder, are not exempt from
identifiable taxes, tariffs, duties and other levies imposed under
laws in effect in the country of the Borrower, the Borrower and/or
Beneficiary shall pay or reimburse the same with funds other than
those provided under the Loan.[30]
Petitioners contend that the withdrawal by the Local Government
Code of the tax exemptions of cooperatives under P.D. No. 269, as
amended, is an impairment of the tax exemptions provided under the
loan agreements. Petitioners argue that as beneficiaries of the loan
proceeds, pursuant to the above provision, [a]ll the assets of petitioners,
such as lands, buildings, distribution lines acquired through the
proceeds of the Loan Agreements are tax exempt.[31]
We hold otherwise.
A plain reading of the provision quoted above readily shows that it
does not grant any tax exemption in favor of the borrower or the
beneficiary either on the proceeds of the loan itself or the properties
acquired through the said loan. It simply states that the loan proceeds
and the principal and interest of the loan, upon repayment by the
borrower, shall be without deduction of any tax or fee that may be
payable under Philippine law as such tax or fee will be absorbed by
the borrower with funds other than the loan proceeds. Further, the
provision states that with respect to any payment made by the borrower
to (1) any contractor or any personnel of such contractor or any property
transaction and (2) any commodity transaction using the proceeds of the
loan, the tax to be paid, if any, on such transactions shall be
absorbed by the borrower and/or beneficiary through funds other
than the loan proceeds.
Beyond doubt, the import of the tax provision in the loan
agreements cited by petitioners is twofold: (1) the borrower is entitled to
receive from and is obliged to pay the lender the principal amount of the
loan and the interest thereon in full, without any deduction of the tax
component thereof imposed under applicable Philippine law and
any tax imposed shall be paid by the borrower with funds other
than the loan proceeds and (2) with respect to payments made to any
contractor, its personnel or any property or commodity transaction
entered into pursuant to the loan agreement and with the use of the
proceeds thereof, taxes payable under the said transactions shall be
paid by the borrower and/or beneficiary with the use of funds other
than the loan proceeds. The quoted provision does not purport to grant
any tax exemption in favor of any party to the contract, including the
beneficiaries thereof. The provisions simply shift the tax burden, if any,
on the transactions under the loan agreements to the borrower and/or
beneficiary of the loan. Thus, the withdrawal by the Local Government
Code under Sections 193 and 234 of the tax exemptions previously
enjoyed by petitioners does not impair the obligation of the borrower,
the lender or the beneficiary under the loan agreements as in fact, no tax
exemption is granted therein.
III
Conclusion
Petitioners lament the difficulties they face in complying with the
implementing rules and regulations issued by the CDA for the
conversion of electric cooperatives under P.D. No. 269, as amended, to
cooperatives under R.A. No. 6938. They allege that because of the
cumbersome legal and technical requirements imposed by the Omnibus
Rules and Regulations on the Registration of Electric Cooperatives
under R.A. No. 6938, petitioners cannot register and convert as stock
cooperatives under the Cooperative Code.[32]
The Court understands the plight of the petitioners. Their remedy,
however, is not judicial. Striking down Sections 193 and 234 of the
Local Government Code as unconstitutional or declaring them
inapplicable to petitioners is not the proper course of action for them to
obtain their previous tax exemptions. The language of the law and the
intention of its framers are clear and unequivocal and courts have no
other duty except to uphold the law. The task to re-examine the rules
and guidelines on the conversion of electric cooperatives to cooperatives
under R.A. No. 6938 and provide every assistance available to them
should be addressed by the proper authorities of government. This is
necessary to encourage the growth and viability of cooperatives as
instruments of social justice and economic development.
 WHEREFORE, the instant petition is DENIED and the temporary
restraining order heretofore issued is LIFTED.
SO ORDERED.