FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

vs.
COLON HERITAGE REALTY CORPORATION, operator of Oriente Group Theaters,
represented by ISIDORO A. CANIZARES, Respondent.

G.R. No. 203754 June 16, 2015

Facts:
City of Cebu passed City Ordinance No. LXIX otherwise known as the "Revised
Omnibus Tax Ordinance of the City of Cebu (tax ordinance)", which require
proprietors, lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement, to pay an amusement tax equivalent to thirty percent
(30%) of the gross receipts of admission fees to the Office of the City Treasurer of Cebu
City.

Almost a decade later, or on June 7, 2002, Congress passed RA 9167, creating the Film
Development Council of the Philippines (FDCP) and abolishing the Film Development
Foundation of the Philippines, Inc. and the Film Rating Board. Secs. 13 and 14 of RA 9167
provided for the tax treatment of certain graded films as follows:

Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B"
grading from the Council pursuant to Sections 11 and 12 of this Act shall be entitled to
the following privileges:

a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer to an
incentive equivalent to the amusement tax imposed and collected on the graded
films by cities and municipalities in Metro Manila and other highly urbanized and
independent component cities in the Philippines pursuant to Sections 140 to 151 of
Republic Act No. 7160 at the following rates:

1. For grade "A" films - 100% of the amusement tax collected on such film; and
2. For grade "B" films - 65% of the amusement tax collected on such films. The
remaining thirty-five (35%) shall accrue to the funds of the Council.

Section 14. Amusement Tax Deduction and Remittance. - All revenue from the
amusement tax on the graded film which may otherwise accrue to the cities and
municipalities in Metropolitan Manila and highly urbanized and independent
component cities in the Philippines pursuant to Section 140 of Republic Act. No. 7160
during the period the graded film is exhibited, shall be deducted and withheld by the
proprietors, operators or lessees of theaters or cinemas and remitted within thirty (30)
days from the termination of the exhibition to the Council which shall reward the
corresponding amusement tax to the producers of the graded film within fifteen (15)
days from receipt thereof.
Some operators complied, including Colon Heritage. On its part, Cebu City asserted
claim on the amounts in question and sought the declaration of Secs. 13 and 14 of RA
9167 as invalid and unconstitutional.

RTC ruled in favor of Cebu City, saying that while it is not a tax exemption, it is a
confiscatory measure where the national government extracts money from the local
government's coffers and transfers it to FDCP, a private agency, which in turn, will award
the money to private persons, the film producers, for having produced graded films -
contrary to the basic policy in local autonomy that all taxes, fees, and charges imposed by
the LGUs shall accrue exclusively to them.

Issues:
1. Whether or not the RTC (Branches 5 and 14) gravely erred in declaring Secs. 13 and
14 of RA 9167 invalid for being unconstitutional.
2. Whether the grant of amusement tax reward incentive is a tax exemption.
3. Whether the declaration by the RTC Branch 5 of the entire RA 9167 as
unconstitutional, is valid.
4. Whether amounts paid by Colon Heritage need be returned.

Held:
1. No. RA 9167 violates local fiscal autonomy. Indeed, City of Cebu had the authority to
issue its City Ordinance No. LXIX and impose an amusement tax on cinemas
pursuant to Sec. 140 in relation to Sec. 151 of the LGC.

Considering the amendment, the present rule is that ALL amusement taxes levied by
covered cities and municipalities shall be given by proprietors, operators or lessees
of theatres and cinemas to FDCP. Covered LGUs still have the power to levy
amusement taxes, albeit at the end of the day, they will derive no revenue
therefrom. It confiscates the income to be received by the LGU from the
taxpayers in favor of and for transmittal to FDCP, instead of the taxing
authority. This is in clear contravention of the constitutional command that
taxes levied by LGUs shall accrue exclusively to said LGU and is repugnant to
the power of LGUs to apportion their resources in line with their priorities.

2. No. Both the burden and incidence of the amusement tax are borne by the
proprietors, lessors, and operators, not by the producers of the graded films.
The transfer of the amount to the film producers is actually a monetary
reward given to them for having produced a graded film, the funding for which was
taken by the national government from the coffers of the covered LGUs. Without a
doubt, this is not an exemption from payment of tax.

3. No. Not only does RA 9167 have a separability clause, more importantly, the
constitutionality of the entire law was not put in question in any of the cases.
 It is a basic tenet that courts cannot go beyond the issues in a case, which the
RTC, Branch 5 did when it declared RA 9167 unconstitutional.

4. Per the doctrine of operative fact, it nullifies the effects of an unconstitutional law
by recognizing that the existence of a statute prior to a determination of
unconstitutionality is an operative fact and may have consequences that cannot
always be ignored. It applies when a declaration of unconstitutionality will impose
an undue burden on those who have relied on the invalid law.

Here, to order FDCP and the producers of graded films which may have already
received the amusement tax incentive reward pursuant to the questioned
provisions of RA 9167, to return the amounts received to the respective taxing
authorities would certainly impose a heavy, and possibly crippling, financial
burden upon them who merely, and presumably in good faith, complied with
the legislative fiat subject of this case.
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,
vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.
G.R. No. 181756 June 15, 2015

Facts:
Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by Congress
under Republic Act No. 6958. Upon its creation, petitioner enjoyed exemption from
realty taxes imposed by the National Government or any of its political subdivision.
However, upon the effectivity of the LGC, the Supreme Court rendered a decision that
the petitioner is no longer exempt from realty estate taxes.

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

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

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

Petitioner claimed before the RTC that it had discovered that respondent City did not
pass any ordinance authorizing the collection of real property tax, a tax for the
special education fund (SEF), and a penalty interest for its non-payment. Petitioner
argued that without the corresponding tax ordinances, respondent City could not impose
and collect real property tax, an additional tax for the SEF, and penalty interest from
petitioner.

RTC granted the writ of preliminary injunction which was later on lifted upon motion by
the respondents. CA held that petitioner’s airport terminal building, airfield, runway,
taxiway, and the lots on which they are situated are not exempt from real estate tax
reasoning as follows: Under the LGC, all natural and juridical persons, including
government-owned or controlled corporations (GOCCs), instrumentalities and
agencies, are no longer exempt from local taxes even if previously granted an
exemption. The only exemptions from local taxes are those specifically provided under the
Code itself, or those enacted through subsequent legislation.

Issue:
Whether or not MIAA is exempt from Real Property Tax.
Held:
Yes. The petitioner is an instrumentality of the government; thus, its properties
actually, solely and exclusively used for public purposes, consisting of the airport
terminal building, airfield, runway, taxiway and the lots on which they are situated,
are not subject to real property tax and respondent City is not justified in collecting
taxes from petitioner over said properties.

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices
within the entire government machinery, MIAA is a government instrumentality and
not a government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person
because it is not subject to "[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government Code, in which case
the specific real property leased becomes subject to real estate tax. Thus, only portions of
the Airport Lands and Buildings leased to taxable persons like private parties are subject to
real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and owned by the State or
the Republic of the Philippines; hence expressly exempt from real estate tax under
Section 234(a) of the Local Government Code.

Also important to note is that the Respondent City can collect Special Education Fund. The
LGC does not require the enactment of an ordinance for the collection of the SEF.
Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need
not be covered by ordinance. Besides, the City has enacted the Revenue Code containing
provisions for the levy and collection of the SEF.
LUCENA D. DEMAALA, Petitioner, v. COMMISSION ON AUDIT, REPRESENTED BY ITS
CHAIRPERSON COMMISSIONER MA. GRACIA M. PULIDO TAN, Respondent.
G.R. No. 199752, February 17, 2015

Facts:
The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A, Series
of 1995, entitled “An Ordinance Approving and Adopting the Code Governing the Revision
of Assessments, Classification and Valuation of Real Properties in the Province of Palawan”
(Ordinance). Chapter 5, Section 48 of the Ordinance provides for an additional levy on
real property tax for the special education fund at the rate of one-half percent or
0.5%.

In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of real properties located within its territory
an annual tax as special education fund at the rate of 0.5% of the assessed value of the
property subject to tax.

On post-audit, Audit Team issued Audit Observation Memorandum (AOM) which noted
supposed deficiencies in the special education fund collected by the Municipality of
Narra. It questioned the levy of the special education fund at the rate of only 0.5%
rather than at 1%, the rate stated in Section 23511 of Republic Act No. 7160, otherwise
known as the LGC of 1991.

Demaala, held personally liable, filed Motion for Reconsideration and Petition for Review,
both of which denied.

Issues:
1. Whether COA committed grave abuse of discretion amounting to lack or excess of
jurisdiction in holding that there was a deficiency in the Municipality of Narra’s
collection of the additional levy for the special education fund.
2. Assuming that respondent correctly held that there was a deficiency, whether
respondent committed grave abuse of discretion in holding petitioner personally
liable for the deficiency.

Held:
1. Yes. Setting the rate of the additional levy for the special education fund at
less than 1% is within the taxing power of local government units. It is
consistent with the guiding constitutional principle of local autonomy.

Sec. 5 of LGC — Each Local Government unit shall have the power 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. Such taxes, fees and charges shall accrue
exclusively to the Local Governments.

The important legal effect of Section 5 is that henceforth, in interpreting statutory

provision on municipal fiscal powers, doubts will have to be resolved in favor of
municipal corporations.

Also, the operative phrase in Section 235’s grant to municipalities in Metro Manila,
cities, and provinces of the power to impose an additional levy for the special
education fund is prefixed with “may,” thus, “may levy and collect an annual tax of
one percent (1%).” The use of the word “may” in a statute denotes that it is
directory in nature and generally permissive only.

2. Yes. The SC finds it improper to hold petitioner personally liable for the uncollected
amount on account of the sheer happenstance that she was the mayor of Narra,
Palawan, when the Ordinance was enforced. The mayor’s actions were done
pursuant to an ordinance which, at the time of the collection, was yet to be
invalidated.

It is basic that laws and local ordinances are “presumed to be valid unless and
until the courts declare the contrary in clear and unequivocal terms.” Thus, the
concerned officials of the Municipality of Narra, Palawan must be deemed to have
conducted themselves in good faith and with regularity when they acted
pursuant to Chapter 5, Section 48 of Provincial Ordinance No. 332-A, Series of
1995, and collected the additional levy for the special education fund at the rate of
0.5%.