G.R. No.

149110            April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and July
10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City
of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended. 4 It
is tasked to undertake the "development of hydroelectric generations of power and the production of electricity from
nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain
power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and
supplying such power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92, 8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year. 9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax
assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall
devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of
the policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the
assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. 13 Respondent
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 Corporation 26 where 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 charges 34 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 1967 39 and the Local Government Code of 1983. 40 Despite these
initiatives, however, the shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority
to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies. 41

Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively deals with the fiscal
constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such
as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like.
The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does
not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies
of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local Government Units.- Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

x   x   x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was
decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of
the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport
Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax. 46 In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions
of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real
property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down
in section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and
charges of any kind on the national government, its agencies and instrumentalities, and local government units';
however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose
the real property tax except on, inter alia, 'real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a
taxable person as provided in the item (a) of the first paragraph of section 12.'" 47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to
impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens
of the country generally as a matter of common right. 48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the corporation
itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the
right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary
or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a
public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used,
a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted
by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its 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

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration
and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of
the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration
and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural resources
xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly
was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry. Although Exec.
Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the transmission of electricity
remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial jurisdiction
pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly
owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to
do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and
be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code. 62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner
is not engaged in business. Section 2 of Pres. Decree No. 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.
G.R. No. 143076               June 10, 2003

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.

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 government-owned and
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

….

Section 234. Exemptions from real property tax.—The following are exempted from payment of the real property tax:

….

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

….

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 and controlled corporations are hereby
withdrawn upon effectivity of this Code.6

Petitioners argue that the above provisions of the Local Government Code are unconstitutional for violating the equal
protection clause. Allegedly, said provisions unduly discriminate against 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 Philippines. They stress
that cooperatives registered under R.A. No. 6938 are singled out for tax exemption privileges under the Local Government
Code. They maintain that electric cooperatives registered with the NEA under P.D. No. 269, as amended, and electric
cooperatives registered with the Cooperative Development Authority (CDA) under R.A. No. 6938 are similarly situated for
the following reasons: a) petitioners are registered with the NEA which is a government agency like the CDA; b)
petitioners, like CDA-registered cooperatives, operate for service to their member-consumers; and c) prior to the
enactment of the Local Government Code, petitioners, like CDA-registered cooperatives, were already tax-exempt. 7 Thus,
petitioners contend that to grant tax exemptions from local government taxes, including real 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 Constitution means that "no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and
in like circumstances."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 (1) rest on substantial distinctions; (2) be germane to the purposes of
the 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 Government Code to justify the different tax treatment
between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938.

First, substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and cooperatives under R.A.
No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives
envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created
under P.D. No. 269, as amended.

a. Capital Contributions by Members

A cooperative under R.A. No. 6938 is defined as:

[A] duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve
a lawful common or social economic end, making equitable contributions to the capital required and accepting a fair share
of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. 10

The above definition provides for the following elements of a cooperative: a) association of persons; b) common bond of
interest; c) voluntary association; d) lawful common social or economic end; e) capital contributions; f) fair share of risks
and benefits; g) adherence to cooperative values; and g) registration with the appropriate government authority. 11

The importance of capital contributions by members of a cooperative under R.A. No. 6938 was emphasized during the
Senate 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 Osmeña. Will this Code, Mr. President, cover electric cooperatives as they exist in the country today and are
administered by the National Electrification Administration?

Senator Aquino. That cannot be answered with a simple yes or no, Mr. President. The answer will depend on what
provisions we will eventually come up with. Electric cooperatives as they exist today would not fall under the term
"cooperative" as used in this bill because the concept of a cooperative is that which adheres and practices certain
cooperative principles. ….

….

Senator Aquino. To begin with, one of the most important requirements, Mr. President, is the principle where members
bind themselves to help themselves. It is because of their collectivity that they can have some economic benefits. In this
particular case [cooperatives under P.D. No. 269], the government is the one that funds these so-called electric
cooperatives. …

….

Senator Aquino. … That is why in Article III we have the following definition:

A cooperative is an association of persons with a common bond of interest who have voluntarily joined together to achieve
a common social or economic end, making equitable contributions to the capital required.
In this particular case [cooperatives under P.D. No. 269], Mr. President, the members do not make substantial
contribution to the capital required. It is the government that puts in the capital, in most cases.

….

Senator Osmeña. Under line 6, Mr. President, making equitable contributions to the capital required would exclude
electric cooperatives [under P.D. No. 269]. Because the membership does not make equitable contributions.

Senator Aquino. Yes, Mr. President. This is precisely what I mean, that electric cooperatives [under P.D. No. 269] do not
qualify in the spirit of cooperatives. That is the reason why they should be eventually assessed whether they intend to
comply with the cooperatives or not. Because, if after giving them a second time, they do not comply, then, they should
not be classified as cooperatives.

Senator Osmeña. Mr. President, the measure of their qualifying as a cooperative would be the requirement that a
member of the electric cooperative must contribute a pro rata share of the capital of the cooperative in cash to be
a cooperative.12

Nowhere in P.D. No. 269, as amended, does it require cooperatives to make equitable contributions to capital. Petitioners
themselves admit that to qualify as a member of an electric cooperative under P.D. No. 269, only the payment of a ₱5.00
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 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

The extent of government control over electric cooperatives covered by P.D. No. 269, as amended, is largely a function of
the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans
from various sources to finance the development and operations of the electric cooperatives. Consequently, amendments
to P.D. No. 269 were primarily geared to expand the powers of the NEA over the electric cooperatives to ensure that
loans granted to them would be repaid to the government. In contrast, cooperatives under R.A. No. 6938 are envisioned
to be self-sufficient and independent organizations with minimal government intervention or regulation.

To be sure, the transitory provisions of R.A. No. 6938 are indicative of the recognition by Congress of the fundamental
distinctions between electric cooperatives organized under P.D No. 269, as amended, and cooperatives under the new
Cooperative Code. Article 128 of the Cooperative Code provides that all cooperatives registered under previous laws shall
be deemed registered with the CDA upon submission of certain requirements within one year. However, cooperatives
created under P.D. No. 269, as amended, are given three years within which to qualify and register with the CDA, after
which, provisions of P.D. No. 1645 which expand the powers of the NEA over electric cooperatives, would no longer
apply.22

Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The
Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of
power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to
create its own sources of 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 consistent with the policy of local autonomy. 23

Section 193 of the Local Government Code is indicative of the legislative intent to vest broad taxing powers upon local
government units and to limit exemptions from local taxation to entities specifically provided therein. Section 193 provides:

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 and
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. 24

The above provision effectively withdraws exemptions from local taxation enjoyed by various entities and organizations
upon effectivity of the Local Government Code except for a) local water districts; b) cooperatives duly registered
under R.A. No. 6938; and c) non-stock and non-profit hospitals and educational institutions. Further, with respect
to real property taxes, the Local Government Code again specifically enumerates entities which are exempt therefrom and
withdraws exemptions enjoyed by all other entities upon the effectivity of the code. Thus, Section 234 provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof had been granted for consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
 (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and
government-owned or controlled corporations engaged in the supply and distribution of water and/or generation
and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed
by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.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.1âwphi1 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.
G.R. No. 127383 August 18, 2005

THE CITY OF DAVAO, CITY TREASURER AND THE CITY ASSESSOR OF DAVAO CITY, Petitioners,
vs.
THE REGIONAL TRIAL COURT, BRANCH XII, DAVAO CITY AND THE GOVERNMENT SERVICE INSURANCE
SYSTEM (GSIS), Respondent.

DECISION

Tinga, J.:

A Davao City Regional Trial Court (RTC) upheld the tax-exempt status of the Government Service Insurance System
(GSIS) for the years 1992 to 1994 in contravention of the mandate under the Local Government Code of 1992, 1 the
precedent set by this Court in Mactan-Cebu International Airport Authority v. Hon. Marcos, 2 and the public policy on local
autonomy enshrined in the Constitution.3

The matter was elevated to this Court directly from the trial court on a pure question of law. 4 The facts are uncontroverted.

On 8 April 1994, the GSIS Davao City branch office received a Notice of Public Auction scheduling the public bidding of
GSIS properties located in Matina and Ulas, Davao City for non-payment of realty taxes for the years 1992 to 1994
totaling Two Hundred Ninety Five Thousand Seven Hundred Twenty One Pesos and Sixty One Centavos
(₱295,721.61).5 The auction was subsequently reset by virtue of a deadline extension allowed by Davao City for the
payment of delinquent real property taxes.6

On 28 July 1994, the GSIS received Warrants of Levy and Notices of Levy on three parcels of land owned by the GSIS.
Another Notice of Public Auction was received by the GSIS on 29 August 1994, setting the date of auction sale for 20
September 1994.

On 13 September 1994, the GSIS filed a Petition for Certiorari, Prohibition, Mandamus And/Or Declaratory Relief with the
RTC of Davao City. It also sought the issuance of a temporary restraining order. The case was raffled to Branch 12,
presided by Judge Maximo Magno Libre. On 13 September 1994, the RTC issued a temporary restraining order for a
period of twenty (20) days, 7 effectively enjoining the auction sale scheduled seven days later. Following exchange of
arguments, the RTC issued an Order dated 3 April 1995 issuing a writ of preliminary injunction effective for the duration of
the suit.8

At the pre-trial, it was agreed that the sole issue for resolution was purely a question of law, that is, whether Sections 234
and 534 of the Local Government Code, which have withdrawn real property tax exemptions of government owned and
controlled corporations (GOCCs), have also withdrawn from the GSIS its right to be exempted from payment of the realty
taxes sought to be levied by Davao City.9 The parties submitted their respective memoranda.

On 28 May 1996, the RTC rendered the Decision10 now assailed before this Court. It concluded that notwithstanding the
enactment of the Local Government Code, the GSIS retained its exemption from all taxes, including real estate taxes. The
RTC cited Section 33 of Presidential Decree (P.D.) No. 1146, the Revised Government Service Insurance Act of 1977, as
amended by P. D. No. 1981, which mandated such exemption.

The RTC conceded that the tax exempting statute, P.D. No. 1146, was enacted prior to the Local Government Code.
However, it noted that the earlier law had prescribed two conditions in order that the tax exemption provided therein could
be withdrawn by future enactments, namely: (1) that Section 33 be expressly and categorically repealed by law; and (2)
that a provision be enacted to substitute the declared policy of exemption from any and all taxes as an essential factor for
the solvency of the GSIS fund.11 The RTC concluded that

both conditions had not been satisfied by the Local Government Code. The RTC likewise accorded weight to Legal
Opinion No. 165 of the Secretary of Justice dated 16 December 1996 concluding that Section 33 was not repealed by the
Local Government Code, and a memorandum emanating from the Office of the President dated 14 February 1995
expressing the same opinion.12

The dispositive portion of the assailed Decision reads:

Now then, in light of the foregoing observation, the court perceives, that the cause of action asseverated by petitioner in
its petition has been well established by law and jurisprudence, and therefore the following relief should be granted:

a) The tax exemption privilege of petitioner should be upheld and continued and that the warrants of levy and notices of
levy issued by the respondent Treasurer is hereby voided and declared of no effect;

b) Let a writ of prohibition be issued restraining the City Treasurer from proceeding with the auction sale of the subject
properties, as well as the respondents Register of Deeds from annotating the warrants/notices of levy on the certificate of
titles of petitioners real properties subject of this suit; and

c) Compelling the City Assessor of Davao City to include the properties of petitioner in the list of properties exempt from
payment of realty tax and if the warrants and levies issued by the City Treasurer had been annotated in the memorandum
of encumbrance on the certificates of title of petitioner’s properties, to cancel such annotation so that the certificates of
titles of petitioners will be free from such liens and encumbrances.

SO ORDERED.13

Petitioners’ Motion for Reconsideration was denied by the RTC in an Order dated 30 October 1996, hence the present
petition.

Petitioners argue that the exemption granted in Section 33 of P.D. No. 1146, as amended, was effectively withdrawn upon
the enactment of the Local Government Code, particularly Sections 193 and 294 thereof. These provisions made the
GSIS, along with all other GOCCs, subject to realty taxes. Petitioners point out that under Section 534(f) of the Local
Government Code, even special laws, such as PD No. 1146, which are inconsistent with the Local Government Code, are
repealed or modified accordingly.

On the other hand, GSIS contends, as the RTC held, that the requisites for repeal are laid down in Section 33 of P.D. No.
1146, as amended, namely that it be done expressly and categorically by law, and that a provision be enacted to
substitute the declared policy of exemption from taxes as an essential factor for the solvency of the

GSIS fund. It stresses that it had been exempt from taxation as far back as 1936, when its original charter was enacted
through Commonwealth Act No. 186. 14 It asserts further that this Court had previously recognized the "extraordinary
exemption" of GSIS in Testate Estate of Concordia T. Lim v. City of Manila, 15 and such exemption has similarly been
affirmed by the Secretary of Justice and the Office of the President in the aforementioned issuances also cited by the
RTC.16

GSIS likewise notes that had it been the intention of the legislature to repeal Section 33 of P.D. No. 1146 through the
Local Government Code, said law would have included the appropriate retraction in its repealing clause found in Section
534(f). However, said section, according to the GSIS, partakes the nature of a general repealing provision which is
accorded less weight in light of the rule that implied repeals are not favored. Consequently with its position that it remains
exempt from realty taxation, the GSIS argues that the Notices of Assessment, Warrants and Notices of Levy, Notices of
Public Auction Sale and the Annotations of the Notice of Levy are void ab initio.

A review of the relevant statutory provisions is in order.

Presidential Decree No. 1146 was enacted in 1977 by President Marcos in the exercise of his legislative powers. Section
33, as originally enacted, read:

Sec. 33. Exemption from tax, Legal Process and Lien.- It is hereby declared to be the policy of the State that the actuarial
solvency of the funds of the System shall be preserved and maintained at all times and that the contribution rates
necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the
system and/or their employees. . . . Accordingly, notwithstanding any laws to the contrary, the System, its assets,
revenues including the accruals thereto, and benefits paid, shall be exempt from all taxes. These exemptions shall
continue unless expressly and specifically revoked and any assessment against the System as of the approval of this Act
are hereby considered paid.

As it stood then, Section 33 merely provided a general rule exempting the GSIS from all taxes. However, Section 33 of
P.D. No. 1146 was amended in 1985 by President Marcos, again in the exercise of his legislative powers, through P.D.
No. 1981. It was through this latter decree that a second paragraph was added to Section 33 delineating the requisites for
repeal of the tax exemption enjoyed by the GSIS by incorporating the following:

Moreover, these exemptions shall not be affected by subsequent laws to the contrary, such as the provisions of
Presidential Decree No. 1931 and other similar laws that have been or will be enacted, unless this section is expressly
and categorically repealed by law and a provision is enacted to substitute the declared policy of exemption from any and
all taxes as an essential factor for the solvency of the fund. 17

It bears noting though, and it is perhaps key to understanding the necessity of the addendum provided under P.D. No.
1981, that a presidential decree enacted a year earlier, P.D. No. 1931, effectively withdrew all tax exemption privileges
granted to GOCCs.18 In fact, P.D. No. 1931 was specifically named in the afore-quoted addendum as among those laws
which, despite passage, would not affect the tax exempt status of GSIS. Section 1 of P.D. No. 1931 states:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of
duties, taxes, fees, imposts and other charges heretofore granted in favor of government-owned or controlled corporations
including their subsidiaries, are hereby withdrawn.

There is no doubt that the GSIS which was established way back in 1937 is a GOCC, a fact that GSIS itself admits in its
petition for certiorari before the RTC. 19 It thus clear that Section 1 of P.D. No. 1931 expressly withdrew those exemptions
granted to the GSIS. Presidential Decree No. 1931 did allow the exemption to be restored in special cases through an
application for restoration with the Secretary of Finance, but otherwise, the exemptions granted to the GSIS prior to the
enactment of P.D. No. 1931 were withdrawn.

Notably, P.D. No. 1931 was also an exercise of legislative powers then accorded to President Marcos by virtue of
Amendment No. 6 to the 1973 Constitution. Whether he was aware of the effect of P.D. No. 1931 on the GSIS’s tax-
exempt status or the ramifications of the decree thereon is unknown; but apparently, he immediately reconsidered the
withdrawal of the exemptions on the GSIS. Thus, P.D. No. 1981 was enacted, expressly stating that the tax-exempt status
of the GSIS under Section 33 of P.D. No. 1146 remained in place, notwithstanding the passage of P.D. No. 1931.

However, P.D. No. 1981 did not stop there, serving merely as it should to restore the previous exemptions on the GSIS. It
also attempted to proscribe future attempts to alter the tax-exempt status of the GSIS by imposing unorthodox conditions
for its future repeal. Thus, as intimated earlier, a second paragraph was added to Section 33, containing the restrictions
relied upon by the RTC and presently invoked by the GSIS before this Court.

These laws have to be weighed against the Local Government Code of 1992, a landmark law which implemented the
constitutional aspirations for a more extensive breadth of local autonomy. The Court, in Mactan, was asked to consider
the effect of the Local Government Code on the taxability by local governments of GOCCs such as the Mactan Cebu
International Airport Authority (MCIAA). Particularly, MCIAA invoked Section 133(o) of the Local Government Code as the
basis for its claimed exemption, the provision reading:

SECTION 133. Common Limitations on the Taxing Powers of Local Government Units.— Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:

....

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units.

However, the Court, in ruling MCIAA non-exempt from realty taxes, considered that Section 133 qualified the exemption of
the National Government, its agencies and instrumentalities from local taxation with the phrase "unless otherwise
provided herein." The Court then considered the other relevant provisions of the Local Government Code, particularly the
following:

SECTION 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemption or
incentives granted to, or enjoyed by all persons, whether natural or juridical, including government-owned and
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

SECTION 232. Power to Levy Real Property Tax. –  A province or city or a municipality within the Metropolitan Manila
area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not
hereafter specifically exempted.

SECTION 234. Exemptions from Real Property Tax. --  The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious charitable or
educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-
owned and controlled corporations engaged in the distribution of water and/or generation and transmission of electric
power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations
are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied.)

Evidently, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National
Government, its agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But
what was the extent of the limitation under Section 133? This is how the Court, in a discussion of far-reaching
consequence, defined the parameters in Mactan:

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the
exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or
provisos in these sections, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133;

(2) "Unless otherwise provided in this Code" in Section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems to
be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course, the
section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were
intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes "when
levied on banks and other financial institutions"; item (d) which excepts "wharfage on wharves constructed and maintained
by the local government unit concerned"; and item (1) which excepts taxes, fees and charges for the registration and
issuance of licenses or permits for the driving of "tricycles." It may also be observed that within the body itself of the
section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses
therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the clause "except as provided in this
Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause of the section
were "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein." In
any event, even if the latter is used, since under Section 232 local government units have the power to levy real property
tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133.

Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in
Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, "taxes, fees and
charges of any kind on the National Government, its agencies and instrumentalities, and local government
units"; however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person," as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-
owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter
proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the
retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity
of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political subdivisions
covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property
has been granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified
by Sections 232 and 234.20 (Emphasis supplied.)

This Court, in Mactan, acknowledged that under Section 133, instrumentalities were generally exempt from all forms of
local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provides"
insofar as it allowed local government units to levy an ad valorem real property tax, irrespective of who owned the
property. At the same time, the imposition of real property taxes under Section 232 is in turn qualified by the phrase "not
hereinafter specifically exempted." The exemptions from real property taxes are enumerated in Section 234, which
specifically states that only real properties owned "by the Republic of the Philippines or any of its political subdivisions" are
exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section
234.

Worth reckoning, however, is an essential difference between the situation of the MCIAA (and most other GOCCs, for that
matter) and that of the GSIS. Unlike most other GOCCs, there is a statutory provision— Section 33 of P.D. No. 1146, as
amended—which imposes conditions on the subsequent withdrawal of the GSIS’s tax exemptions. The RTC justified the
affirmance of the tax exemptions based on the non-compliance by the Local Government Code with these conditionalities,
and not by reason of a general proposition that GOCCs or instrumentalities remain exempt from local government
taxation.

Absent Section 33 of P.D. No. 1146, as amended, there would be no impediment in squarely applying the express
provisions of Sections 193, 232 and 234 of the Local Government Code, as the Court did in  Mactan and recently
in Philippine Rural Electric Cooperatives Association, Inc. et al. v. Secretary of Interior And Local Government, et al.  21 and
in ruling that the tax exemptions of GSIS were withdrawn by the Code. Thus, the crucial proposition is whether the GSIS
tax exemptions can be deemed as withdrawn by the Local Government Code notwithstanding Section 33 of P.D. No.
1146 as amended.

Concededly, it does not appear that at the very least, the second conditionality of Section 33 has been met. No provision
has been enacted "to substitute the declared policy of exemption from any and all taxes as an essential factor for the
solvency of the fund."22 Yet the Court is averse to employing this framework, in the first place as utilized by the RTC, for
we recognize a fundamental flaw in Section 33, particularly the amendatory second paragraph introduced by P.D. No.
1981.
The second paragraph of Section 33 of P.D. No. 1146, as amended, effectively imposes restrictions on the competency of
the Congress to enact future legislation on the taxability of the GSIS. This places an undue restraint on the plenary power
of the legislature to amend or repeal laws, especially considering that it is a lawmaker’s act that imposes such burden.
Only the Constitution may operate to preclude or place restrictions on the amendment or repeal of laws. Constitutional
dicta is of higher order than legislative statutes, and the latter should always yield to the former in cases of irreconcilable
conflict.

It is a basic precept that among the implied substantive limitations on the legislative powers is the prohibition against the
passage of irrepealable laws.23 Irrepealable laws deprive succeeding legislatures of the fundamental best senses carte
blanche  in crafting laws appropriate to the operative milieu. Their allowance promotes an unhealthy stasis in the
legislative front and dissuades dynamic democratic impetus that may be responsive to the times. As Senior Associate
Justice Reynato S. Puno once observed, "[t]o be sure, there are no irrepealable laws just as there are no irrepealable
Constitutions. Change is the predicate of progress and we should not fear change." 24

Moreover, it would be noxious anathema to democratic principles for a legislative body to have the ability to bind the
actions of future legislative body, considering that both assemblies are regarded with equal footing, exercising as they do
the same plenary powers. Perpetual infallibility is not one of the attributes desired in a legislative body, and a legislature
which attempts to forestall future amendments or repeals of its enactments labors under delusions of omniscience.

It might be argued that Section 33 of P.D. No. 1146, as amended, does not preclude the repeal of the tax-exempt status
of GSIS, but merely imposes conditions for such to validly occur. Yet these conditions, if honored, have the precise effect
of limiting the powers of Congress. Thus, the same rationale for prohibiting irrepealable laws applies in prohibiting
restraints on future amendatory laws. President Marcos, who exercised his legislative powers in amending P.D. No. 1146,
could not have demanded obeisance from future legislators by imposing restrictions on their ability to legislate
amendments or repeals. The concerns that may have militated his enactment of these restrictions need not necessarily be
shared by subsequent Congresses.

We do not mean to trivialize the need to ensure the solvency of the GSIS fund, a concern that has seen legislative
expression, even with the most recently enacted Government Service Insurance System Act of 1997. 25 Yet at the same
time, we recognize that Congress has the putative authority, through valid legislation, to diminish such fund, or even
abolish the GSIS itself if it so desires. The GSIS may provide vital services and security to employees of the civil service,
yet it is not a sacred cow that is beyond abolition by Congress if, for example, more innovative methods are devised to
ensure stable pension funds for government employees. If Congress has the inherent power to abrogate the GSIS itself,
then it necessarily has the ability to inflict less detrimental burdens, such as abolishing its tax-exempt status. If there could
be legal authority proscribing the Congress from enacting such legislation, such should be sourced from the Constitution
itself, and not from antecedent statutes which were themselves enacted by legislative power.

The Court’s position is aligned with entrenched norms of statutory construction. In Duarte v. Dade,26 the Court cited with
approval Lewis’ Southerland on Statutory Construction, which states:

A state legislature has a plenary law-making power over all subjects, whether pertaining to persons or things, within its
territorial jurisdiction, either to introduce new laws or repeal the old, unless prohibited expressly or by implication by the
federal constitution or limited or restrained by its own. It cannot bind itself or its successors by enacting irrepealable laws
except when so restrained. Every legislative body may modify or abolish the acts passed by itself or its predecessors.
This power of repeal may be exercised at the same session at which the original act was passed; and even while a bill is
in its progress and before it becomes a law. This legislature cannot bind a future legislature to a particular mode of
repeal. It cannot declare in advance the intent of subsequent legislatures or the effect of subsequent legislation
upon existing statutes. (Emphasis supplied.)27

The citation is particularly apropos to our present task, since the question for resolution is primarily one of statutory
construction, i.e., whether or not Section 33 of P.D. No. 1146 has been repealed by the Local Government Code. It is
evident that we cannot render effective the amendatory second paragraph of Section 33

as the RTC did, for by doing so, we would be giving sanction to a disingenuous means employed through legislative
power to bind subsequent legislators to a particular mode of repeal.

Thus, the two conditionalities of Section 33 cannot bear relevance on whether the Local Government Code removed the
tax-exempt status of the GSIS. The express withdrawal of all tax exemptions accorded to all persons, natural or juridical,
as stated in Section 193 of the Local Government Code, applies without impediment to the present case. Such position is
bolstered by the other cited provisions of the Local Government Code, and by the Mactan ruling.
There are other reasons that guide us to construe the Local Government Code in favor of the City of Davao’s position.
Section 5 of the Local Government Code provides the guidelines on how to construe the Code’s provisions in cases of
doubt, and they are self-explanatory, thus:

Section 5. Rules of Interpretation. – In the interpretation of the provisions of this Code, the following rules shall apply:

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of
doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower local government
unit. Any fair and reasonable doubt as to the existence of the power shall be interpreted in favor of the local
government unit concerned;

(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit
enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local
government unit pursuant to the provisions of this Code shall be construed strictly against the person claiming
it; (Emphasis supplied.)

Also worthy of note is that the Constitution itself promotes the principles of local autonomy as embodied in the Local
Government Code. The State is mandated to ensure the autonomy of local governments, 28 and local governments are
empowered to levy taxes, fees and charges that accrue exclusively to them, subject to congressional guidelines and
limitations.29 The principle of local autonomy is no mere passing dalliance but a constitutionally enshrined precept that
deserves respect and appropriate enforcement by this Court.

We are aware that this stance runs contrary to that which was adopted by the Secretary of Justice in his Opinion dated 22
July 1993, as well as the memorandum from the Office of the President dated 14 February 1995, expressing the same
opinion. However, statutory interpretations of these executive bodies do not hold decisive sway upon the judiciary but are
merely persuasive. These issuances cannot derogate from the binding precept that one legislature cannot enact
irrepealable legislation or limit or restrict its own power or the power of its successors as to the repeal of statutes. 30 The act
of one legislature is not binding upon and does not tie the hands of future legislatures. 31

The GSIS’s tax-exempt status, in sum, was withdrawn in 1992 by the Local Government Code but restored by the
Government Service Insurance System

Act of 1997, the operative provision of which is Section

39.32 The subject real property taxes for the years 1992 to 1994 were assessed against GSIS while the Local Government
Code provisions prevailed and, thus, may be collected by the City of Davao.

WHEREFORE, premises considered, the Petition for Review  is hereby GRANTED. The appealed Decision of the
Regional Trial Court of Davao City, Branch 12 is REVERSED and SET ASIDE.

Costs de oficio.

SO ORDERED.
G.R. No. 162015             March 6, 2006

THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR. VICTOR B.
ENRIGA, Petitioners,
vs.
BAYAN TELECOMMUNICATIONS, INC., Respondent.

DECISION

GARCIA,J.:

Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45 of the Rules of Court to
nullify and set aside the following issuances of the Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil
Case No. Q-02-47292, to wit:

1) Decision1 dated June 6, 2003, declaring respondent Bayan Telecommunications, Inc. exempt from real estate taxation
on its real properties located in Quezon City; and

2) Order2 dated December 30, 2003, denying petitioners’ motion for reconsideration.

The facts:

Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a legislative franchise holder under Republic Act (Rep. Act)
No. 32594 to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and
telecasting.

Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in Section 14 thereof, which reads:

SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property,
exclusive of the franchise, as other persons or corporations are now or hereafter may be required by law to pay. (b) The
grantee shall further pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the
accounts as prescribed in this Act, one and one-half per centum of all gross receipts from the business transacted under
this franchise by the said grantee (Emphasis supplied).

On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991" (LGC), took effect.
Section 232 of the Code grants local government units within the Metro Manila Area the power to levy tax on real
properties, thus:

SEC. 232. – Power to Levy Real Property Tax. – A province or city or a municipality within the Metropolitan Manila Area
may levy an annual ad valorem tax on real property such as land, building, machinery and other improvements not
hereinafter specifically exempted.

Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code which withdrew any
exemption from realty tax heretofore granted to or enjoyed by all persons, natural or juridical, to wit:

SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:

xxx xxx xxx

Except as provided herein, any exemption from payment of real property tax previously granted to, or enjoyed by, all
persons, whether natural or juridical, including government-owned-or-controlled corporations is hereby withdrawn upon
effectivity of this Code (Emphasis supplied).

On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No. 7633, amending
Bayantel’s original franchise. The amendatory law (Rep. Act No. 7633) contained the following tax provision:
SEC. 11. 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. Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under
Title II of the National Internal Revenue Code …. xxx. [Emphasis supplied]

It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real properties on which it
maintained various telecommunications facilities. These real properties, as hereunder described, are covered by the
following tax declarations:

(a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-04073 pertaining to Bayantel’s
Head Office and Operations Center in Roosevelt St., San Francisco del Monte, Quezon City allegedly the nerve
center of petitioner’s telecommunications franchise operations, said Operation Center housing mainly petitioner’s
Network Operations Group and switching, transmission and related equipment;

(b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-00941 covering Bayantel’s land,
building and equipment in Maginhawa St., Barangay East Teacher’s Village, Quezon City which houses
telecommunications facilities; and

(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-11540 referring to Bayantel’s
Exchange Center located in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City which houses the Network
Operations Group and cover switching, transmission and other related equipment.

In 1993, the government of Quezon City, pursuant to the taxing power vested on local government units by Section 5,
Article X of the 1987 Constitution, infra, in relation to Section 232 of the LGC, supra, enacted City Ordinance No. SP-91,
S-93, otherwise known as the Quezon City Revenue Code (QCRC), 5 imposing, under Section 5 thereof, a real property
tax on all real properties in Quezon City, and, reiterating in its Section 6, the withdrawal of exemption from real property
tax under Section 234 of the LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section 230, withdrew tax
exemption privileges in general, as follows:

SEC. 230. 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 RA 6938, non-stock and non-profit
hospitals and educational institutions, business enterprises certified by the Board of Investments (BOI) as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively, … are hereby withdrawn effective upon approval of this
Code (Emphasis supplied).

Conformably with the City’s Revenue Code, new tax declarations for Bayantel’s real properties in Quezon City were
issued by the City Assessor and were received by Bayantel on August 13, 1998, except one (Tax Declaration No. 124-
01013) which was received on July 14, 1999.

Meanwhile, on March 16, 1995, Rep. Act No. 7925, 6 otherwise known as the "Public Telecommunications Policy Act of the
Philippines," envisaged to level the playing field among telecommunications companies, took effect. Section 23 of the Act
provides:

SEC. 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.

On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real properties in the city
from the roll of taxable real properties. With its request having been denied, Bayantel interposed an appeal with the Local
Board of Assessment Appeals (LBAA). And, evidently on its firm belief of its exempt status, Bayantel did not pay the real
property taxes assessed against it by the Quezon City government.
On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount of P43,878,208.18,
followed by the issuance of several warrants of levy against Bayantel’s properties preparatory to their sale at a public
auction set on July 30, 2002.

Threatened with the imminent loss of its properties, Bayantel immediately withdrew its appeal with the LBAA and instead
filed with the RTC of Quezon City a petition for prohibition with an urgent application for a temporary restraining order
(TRO) and/or writ of preliminary injunction, thereat docketed as Civil Case No. Q-02-47292, which was raffled to Branch
227 of the court.

On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower court issued a TRO, followed,
after due hearing, by a writ of preliminary injunction via its order of August 20, 2002.

And, having heard the parties on the merits, the same court came out with its challenged Decision of June 6, 2003, the
dispositive portion of which reads:

WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of Republic Act No. 7633, the
real estate properties and buildings of petitioner [now, respondent Bayantel] which have been admitted to be used in the
operation of petitioner’s franchise described in the following tax declarations are hereby DECLARED exempt from real
estate taxation:

(1) Tax Declaration No. D-096-04071 –

(2) Tax Declaration No. D-096-04074 –

(3) Tax Declaration No. D-124-01013 –

(4) Tax Declaration No. D-011-10810 –

(5) Tax Declaration No. D-011-10811 –

(6) Tax Declaration No. D-011-10809 –

(7) Tax Declaration No. D-124-00941 –

(8) Tax Declaration No. D-124-00940 –

(9) Tax Declaration No. D-124-00939 –

(10) Tax Declaration No. D-096-04072 –

(11) Tax Declaration No. D-096-04073 –

(12) Tax Declaration No. D-011-11540 –

The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby made permanent. Since
this is a resolution of a purely legal issue, there is no pronouncement as to costs.

SO ORDERED.

Their motion for reconsideration having been denied by the court in its Order dated December 30, 2003, petitioners
elevated the case directly to this Court on pure questions of law, ascribing to the lower court the following errors:

I. [I]n declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that the tax
exemption granted to Bayantel in its original franchise had been withdrawn by the [LGC] and that the said exemption was
not restored by the enactment of RA 7633.

II. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the enactment of the
[QCRC] which withdrew the tax exemption which may have been granted by RA 7633.
III. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the vague and
ambiguous grant of tax exemption provided under Section 11 of RA 7633.

IV. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that [it] had
failed to exhaust administrative remedies in its claim for real property tax exemption. (Words in bracket added.)

As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely:

1. Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its
legislative franchise; and

2. Whether or not Bayantel is required to exhaust administrative remedies before seeking judicial relief with the
trial court.

We shall first address the second issue, the same being procedural in nature.

Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for under the LGC, adding
that the trial court erred in giving due course to Bayantel’s petition for prohibition. To petitioners, the appeal mechanics
under the LGC constitute Bayantel’s plain and speedy remedy in this case.

The Court does not agree.

Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of Court:

SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, … are without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any
other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter specified therein, or otherwise, granting such
incidental reliefs as law and justice may require.

With the reality that Bayantel’s real properties were already levied upon on account of its nonpayment of real estate taxes
thereon, the Court agrees with Bayantel that an appeal to the LBAA is not a speedy and adequate remedy within the
context of the aforequoted Section 2 of Rule 65. This is not to mention of the auction sale of said properties already
scheduled on July 30, 2002.

Moreover, one of the recognized exceptions to the exhaustion- of-administrative remedies rule is when, as here, only legal
issues are to be resolved. In fact, the Court, cognizant of the nature of the questions presently involved, gave due course
to the instant petition. As the Court has said in Ty vs. Trampe: 7

xxx. Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there
is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. xxx.

Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment under protest of the
amount of P43,878,208.18, a figure which, in the light of the then prevailing Asian financial crisis, may have been difficult
to raise up. Given this reality, an appeal to the LBAA may not be considered as a plain, speedy and adequate remedy. It
is thus understandable why Bayantel opted to withdraw its earlier appeal with the LBAA and, instead, filed its petition for
prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The remedy availed of by Bayantel
under Section 2, Rule 65 of the Rules of Court must be upheld.

This brings the Court to the more weighty question of whether or not Bayantel’s real properties in Quezon City are, under
its franchise, exempt from real property tax.

The lower court resolved the issue in the affirmative, basically owing to the phrase "exclusive of this franchise" found in
Section 11 of Bayantel’s amended franchise, Rep. Act No. 7633. To petitioners, however, the language of Section 11 of
Rep. Act No. 7633 is neither clear nor unequivocal. The elaborate and extensive discussion devoted by the trial court on
the meaning and import of said phrase, they add, suggests as much. It is petitioners’ thesis that Bayantel was in no time
given any express exemption from the payment of real property tax under its amendatory franchise.
There seems to be no issue as to Bayantel’s exemption from real estate taxes by virtue of the term "exclusive of the
franchise" qualifying the phrase "same taxes on its real estate, buildings and personal property," found in Section 14,
supra, of its franchise, Rep. Act No. 3259, as originally granted.

The legislative intent expressed in the phrase "exclusive of this franchise" cannot be construed other than distinguishing
between two (2) sets of properties, be they real or personal, owned by the franchisee, namely, (a) those actually, directly
and exclusively used in its radio or telecommunications business, and (b) those properties which are not so used. It is
worthy to note that the properties subject of the present controversy are only those which are admittedly falling under the
first category.

To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or delegate to local governments of
Congress’ inherent power to tax the franchisee’s properties belonging to the second group of properties indicated above,
that is, all properties which, "exclusive of this franchise," are not actually and directly used in the pursuit of its franchise.
As may be recalled, the taxing power of local governments under both the 1935 and the 1973 Constitutions solely
depended upon an enabling law. Absent such enabling law, local government units were without authority to impose and
collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may
be validly viewed as an implied delegation of power to tax, the delegation under that provision, as couched, is limited to
impositions over properties of the franchisee which are not actually, directly and exclusively used in the pursuit of its
franchise. Necessarily, other properties of Bayantel directly used in the pursuit of its business are beyond the pale of the
delegated taxing power of local governments. In a very real sense, therefore, real properties of Bayantel, save those
exclusive of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all realties which
are actually, directly and exclusively used in the operation of its franchise are "exempted" from any property tax.

Bayantel’s franchise being national in character, the "exemption" thus granted under Section 14 of Rep. Act No. 3259
applies to all its real or personal properties found anywhere within the Philippine archipelago.

However, with the LGC’s taking effect on January 1, 1992, Bayantel’s "exemption" from real estate taxes for properties of
whatever kind located within the Metro Manila area was, by force of Section 234 of the Code, supra, expressly withdrawn.
But, not long thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s original
franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section
14, supra, of Bayantel’s original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259
which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under Section 14 of Rep. Act No.
7633. In concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by force of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633.

The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987 Constitution, 8 local governments are
empowered to levy taxes. And pursuant to this constitutional empowerment, juxtaposed with Section 232 9 of the LGC, the
Quezon City government enacted in 1993 its local Revenue Code, imposing real property tax on all real properties found
within its territorial jurisdiction. And as earlier stated, the City’s Revenue Code, just like the LGC, expressly withdrew,
under Section 230 thereof, supra, all tax exemption privileges in general.

This thus raises the question of whether or not the City’s Revenue Code pursuant to which the city treasurer of Quezon
City levied real property taxes against Bayantel’s real properties located within the City effectively withdrew the tax
exemption enjoyed by Bayantel under its franchise, as amended.

Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same taxes, as any other
persons or corporations on all its real or personal properties, exclusive of its franchise."

Bayantel’s posture is well-taken. While the system of local government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still limited. As we explained in Mactan Cebu International
Airport Authority:10

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 be virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5,
Article X of the Constitution. 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. (at p. 680;
Emphasis supplied.)

Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local
government units’ delegated power to tax had been effectively modified with Article X, Section 5 of the 1987 Constitution
now in place, .the basic doctrine on local taxation remains essentially the same. For as the Court stressed in Mactan, "the
power to tax is [still] primarily vested in the Congress."

This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the 1986 Constitutional
Commission which crafted the 1987 Constitution, thus:

What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine
that municipal corporations do not possess inherent powers of taxation. What it does is to confer municipal corporations a
general power to levy taxes and otherwise create sources of revenue. They no longer have to wait for a statutory grant of
these powers. The power of the legislative authority relative to the fiscal powers of local governments has been reduced
to the authority to impose limitations on municipal powers. Moreover, these limitations must be "consistent with the basic
policy of local autonomy." The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved
against municipal corporations. Henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will be
resolved in favor of municipal corporations. It is understood, however, that taxes imposed by local government must be for
a public purpose, uniform within a locality, must not be confiscatory, and must be within the jurisdiction of the local unit to
pass.11 (Emphasis supplied).

In net effect, the controversy presently before the Court involves, at bottom, a clash between the inherent taxing power of
the legislature, which necessarily includes the power to exempt, and the local government’s delegated power to tax under
the aegis of the 1987 Constitution.

Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the city’s
territory and removed exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural
or juridical ….,"12 there can really be no dispute that the power of the Quezon City Government to tax is limited by Section
232 of the LGC which expressly provides that "a province or city or municipality within the Metropolitan Manila Area may
levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter
specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from the
taxing power of local government units. An interpretation denying Congress such power to exempt would reduce the
phrase "not hereinafter specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such
absurd situation is unacceptable.

For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, 13 this Court has upheld the
power of Congress to grant exemptions over the power of local government units to impose taxes. There, the Court wrote:

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. (Emphasis supplied.)

As we see it, then, the issue in this case no longer dwells on whether Congress has the power to exempt Bayantel’s
properties from realty taxes by its enactment of Rep. Act No. 7633 which amended Bayantel’s original franchise. The
more decisive question turns on whether Congress actually did exempt Bayantel’s properties at all by virtue of Section 11
of Rep. Act No. 7633.

Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has already withdrawn
Bayantel’s former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633 using, under Section 11
thereof, exactly the same defining phrase "exclusive of this franchise" which was the basis for Bayantel’s exemption from
realty taxes prior to the LGC. In plain language, Section 11 of Rep. Act No. 7633 states that "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." The Court views this
subsequent piece of legislation as an express and real intention on the part of Congress to once again remove from the
LGC’s delegated taxing power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively
used in the pursuit of its franchise.

WHEREFORE, the petition is DENIED.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD
NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in
Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International
Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the runways and
buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further provides
that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21
of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the
City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable
years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No.
061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The
OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing
real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was
docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary
period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental
motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review. 7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the
Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine
Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the
Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building
of Parañaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent  Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the
City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque,
and the City Assessor of Parañaque ("respondents") — from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the
TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective
Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings
for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service,
the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are
not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the
Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would
not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges
of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents
also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all
others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local
Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further
argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that
the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate
tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all
proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become
moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and
thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and
thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in
Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities
exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA
is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative
Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock

corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has  no capital stock divided
into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9 provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be
increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties,
movable and immovable[,] which may be contributed by the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of
the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National
 Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be
provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital stock is divided into shares and
x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided
into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-
stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A
non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income
to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as
follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain,12 police authority13 and the levying of fees and charges. 14 At the same time, MIAA exercises
"all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part
of the National Government machinery although not integrated with the department framework. The MIAA Charter
expressly states that transforming MIAA into a "separate and autonomous body" 16 will make its operation more "financially
viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate
powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government
corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of government
entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
 SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities  and
local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and
limitations as the Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or
its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has
to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies. 19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements
and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2,
p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).
 The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield
it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form
part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like " roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article
420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the
State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or not.
Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government
collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions
as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as
an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax
is more equitable — a principle of taxation mandated in the 1987 Constitution. 21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion.  As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man . The Court has
ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already
ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works
of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court
of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because they
are by their very nature outside of commerce are those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce
of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the
public in general. They are outside the commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it
that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of
an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the
Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains
to this day the existing general law governing the classification and disposition of lands of the public domain other than
timber and mineral lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President
may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the
Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable
in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As
long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the
Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President
shall have the power to reserve for settlement or public use, and for specific public purposes, any of the
lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until otherwise provided by law or
proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of
man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I
of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is authorized
by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head
cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. — x x x x

The land where the Airport is presently located as well as the surrounding land area of approximately six
hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of
the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this
Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall
not be disposed through sale or through any other mode unless specifically approved by the President of
the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works
 or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities,
are hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and
Transitory Provisions. — The Manila International Airport including the Manila Domestic Airport as a division
under the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory
notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA,
thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and
domestic air traffic, is required to provide standards of airport accommodation and service comparable with the
best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the
current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation, will best be
achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of
the Philippines is given continuing authority to reorganize the National Government, which authority includes
the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer
beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the
Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of
the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over
MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines ." This only means that the
Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code,
only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings,
MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic
paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the
sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to
the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of
the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities x x x." The
real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be
titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government.
This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the
Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is
not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax.
In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied
by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from
real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code
of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code.
Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government
Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the
minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions
from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit
proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of
GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the
original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether MIAA
is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section
133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of
tax on national government instrumentalities. Section 133(o) states:
 SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its
agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its
agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133.
The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned
by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local
governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of
entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under
Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis
supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax
by local governments since the national government is not included in the enumeration of exempt entities in Section 193.
Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national
government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to
any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research Institute,31 Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34 Philippine Ports

Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments
from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section
133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This
means that unless the Local Government Code grants an express authorization, local governments have no power to tax
the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax
the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the
national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity.
Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property
tax:
 (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real
estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later
provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person,
is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the
Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234
on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that
there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious
error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its
own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of
the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters,
there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133
limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section
133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national
government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically
prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the
"common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local
governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can
impose any kind of tax on the national government, its agencies and instrumentalities — a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise
provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided
in this Code." This exception — which is an exception to the exemption of the Republic from real estate tax imposed by
local governments — refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real
property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities,
to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative
Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that
the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative
Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the
Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major
structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the
provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by
special charters. The minority sees no reason why government corporations with special charters should have a capital
stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer
to those corporations owned by the government or its instrumentalities which are created not by legislative
enactment, but formed and organized under the Corporation Code through registration with the Securities and
Exchange Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends
or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will
also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish
between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The
special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which
shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:
 SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion Pesos to
be divided into Fifty Million common shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets
and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine
Crop Insurance Corporation,42 Philippine International Trading Corporation, 43 and the Philippine National Bank44 before it
was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized
under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that
they are not government-owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting
them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or
controlled corporation must be established for the common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability. (Emphasis and
underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through
special charters only if these entities are required to meet the twin conditions of common good and economic viability. In
other words, Congress has no power to create government-owned or controlled corporations with special charters unless
they are made to comply with the two conditions of common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that perform economic or commercial activities and need to
compete in the market place. Being essentially economic vehicles of the State for the common good — meaning for
economic development purposes — these government-owned or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions
need not meet the test of economic viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned
or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these instrumentalities perform essential government
functions or public services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities — known as "government-owned or controlled corporations" — must
meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain
the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the
purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic performance.
We know what happened in the past. If a government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the government and what is always invoked is the common
 good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion
of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration
and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good. 45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in business and that they should not go into activities
which the private sector can do better. Moreover, economic viability is more than financial viability but also
includes capability to make profit and generate benefits not quantifiable in financial terms. 46 (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations,
along with government-owned or controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the
market place. MIAA does not compete in the market place because there is no competing international airport operated by
the private sector. MIAA performs an essential public service as the primary domestic and international airport of the
Philippines. The operation of an international airport requires the presence of personnel from the following government
agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening
out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious
diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the
country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or
leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA
charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public
services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation"
as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned
or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a
government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not
a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA
are intended for public use, and at the very least intended for public service. Whether intended for public use or public
service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local
Government Code.

4. Conclusion

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

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports
x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned
by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October
2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all
the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of
Parañaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and
all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.
G.R. No. 183137               April 10, 2013

PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY, Petitioner,

vs.
THE PROVINCE OF BENGUET, Respondent.

DECISION

LEONEN, J.:

The principal issue in this case is the scope of authority of a province to impose an amusement tax.

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the December 10, 2007
decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-2232 be reversed and set
aside and a new one issued in which: ( 1) respondent Province of Benguet is declared as having no authority to levy
amusement taxes on admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots, and other
places for recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of 2005 is declared null and void;
and (3) the respondent Province of Benguet is permanently enjoined from enforcing Section 59, Article X of the Benguet
Provincial Revenue Code of 2005.

Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed for recreation and which
has facilities like swimming pools, a spa and function halls. It is located at Asin, Angalisan, Municipality of Tuba, Province
of Benguet.

On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial Tax Ordinance No. 05-107,
otherwise known as the Benguet Revenue Code of 2005 ("Tax Ordinance"). Section 59, Article X of the Tax Ordinance
levied a ten percent (10%) amusement tax on gross receipts from admissions to "resorts, swimming pools, bath houses,
hot springs and tourist spots." Specifically, it provides the following:

Article Ten: Amusement Tax on Admission

Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day clubs, and other places
of amusement at the rate of thirty percent (30%) of the gross receipts from admission fees; and

A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming pools, bath houses, hot
springs, and tourist spots is likewise levied. [Emphasis and underscoring supplied]

Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January 1, 2006.

It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross receipts from admission
fees for resorts, swimming pools, bath houses, hot springs, and tourist spots is an ultra vires act on the part of the
Province of Benguet. Thus, it filed an appeal/petition before the Secretary of Justice on January 27, 2006.

The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax ordinance allowed by Section 187
of Republic Act No. 7160, otherwise known as the Local Government Code (LGC). 1 The appeal/petition was docketed as
MSO-OSJ Case No. 03-2006.

Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the appeal to render a decision.
After the lapse of which, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60) days provided by Section
187 of the LGC as an implied denial of such appeal/petition, Pelizloy filed a Petition for Declaratory Relief and Injunction
before the Regional Trial Court, Branch 62, La Trinidad, Benguet. The petition was docketed as Civil Case No. 06-CV-
2232.
Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in violation of the limitation on
the taxing powers of local government units (LGUs) under Section 133 (i) of the LGC. Thus, it was null and void ab initio.
Section 133 (i) of the LGC provides:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:

xxx

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services
except as otherwise provided herein

The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an improper remedy. It alleged that
once a tax liability has attached, the only remedy of a taxpayer is to pay the tax and to sue for recovery after exhausting
administrative remedies.2

On substantive grounds, the Province of Benguet argued that the phrase ‘other places of amusement’ in Section 140 (a)
of the LGC3 encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since "Article 220 (b) (sic)"
of the LGC defines "amusement" as "pleasurable diversion and entertainment x x x synonymous to relaxation, avocation,
pastime, or fun."4 However, the Province of Benguet erroneously cited Section 220 (b) of the LGC. Section 220 of the
LGC refers to valuation of real property for real estate tax purposes. Section 131 (b) of the LGC, the provision which
actually defines "amusement", states:

Section 131. Definition of Terms. - When used in this Title, the term:

xxx

(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation, pastime, or fun
On December 10, 2007, the RTC rendered the assailed Decision dismissing the Petition for Declaratory Relief and
Injunction for lack of merit.

Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of Section 59, Article X of the
Tax Ordinance, the RTC noted that, while Section 59, Article X imposes a percentage tax, Section 133 (i) of the LGC itself
allowed for exceptions. It noted that what the LGC prohibits is not the imposition by LGUs of percentage taxes in general
but the "imposition and levy of percentage tax on sales, barters, etc., on goods and services only." 5 It further gave
credence to the Province of Benguet's assertion that resorts, swimming pools, bath houses, hot springs, and tourist spots
are encompassed by the phrase ‘other places of amusement’ in Section 140 of the LGC.

On May 21, 2008, the RTC denied Pelizloy’s Motion for Reconsideration.

Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It assailed the legality of Section
59, Article X of the Tax Ordinance as being a (supposedly) prohibited percentage tax per Section 133 (i) of the LGC.

In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that Section 59, Article X of
the Tax Ordinance does not levy a percentage tax "because the imposition is not based on the total gross receipts of
services of the petitioner but solely and actually limited on the gross receipts of the admission fees collected." 6 In addition,
it argued that provinces can validly impose amusement taxes on resorts, swimming pools, bath houses, hot springs, and
tourist spots, these being ‘amusement places’.

For resolution in this petition are the following issues:

1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise known as the Benguet
Revenue Code of 2005, levies a percentage tax.

2. Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts, swimming
pools, bath houses, hot springs, and tourist spots for being "amusement places" under the Local Government
Code.
The power to tax "is an attribute of sovereignty," 7 and as such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are not the sovereign; 8 rather, they are mere "territorial and
political subdivisions of the Republic of the Philippines". 9

The rule governing the taxing power of provinces, cities, muncipalities and barangays is summarized in Icard v. City
Council of Baguio:10

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The charter
or statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the power when
granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power
must be resolved against the municipality. Inferences, implications, deductions – all these – have no place in the
interpretation of the taxing power of a municipal corporation. 11 [Underscoring supplied]

Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the
Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:

Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees
and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. [Underscoring supplied]

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges." 12 Nevertheless, such authority is
"subject to such guidelines and limitations as the Congress may provide". 13

In conformity with Section 3, Article X of the 1987 Constitution, 14 Congress enacted Republic Act No. 7160, otherwise
known as the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUS found below.

First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject
to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically
provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs. Specifically, Section 133 (i)
prohibits the levy by LGUs of percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions
on goods or services except as otherwise provided by the LGC.

As it is Pelizloy’s contention that Section 59, Article X of the Tax Ordinance levies a prohibited percentage tax, it is crucial
to understand first the concept of a percentage tax.
In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc., 15 the Supreme Court defined percentage tax as a
"tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings derived by any person engaged in the sale of services." Also, Republic Act
No. 8424, otherwise known as the National Internal Revenue Code (NIRC), in Section 125, Title V, 16 lists amusement
taxes as among the (other) percentage taxes which are levied regardless of whether or not a taxpayer is already liable to
pay value-added tax (VAT).

Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified establishments.

Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement taxes by the NIRC,
amusement taxes are percentage taxes as correctly argued by Pelizloy.

However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of percentage
taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes "except as otherwise provided" by the LGC.

Section 140 of the LGC provides:

SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected from the proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate
of not more than thirty percent (30%) of the gross receipts from admission fees.

(b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or
operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors,
lessees, or operators and the distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the
payment of the tax herein imposed.

(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax.
In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan may impose such surcharges, interests
and penalties.

(e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where
such amusement places are located. [Underscoring supplied]

Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). Section 140 expressly
allows for the imposition by provinces of amusement taxes on "the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement."

However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly
mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination of whether
amusement taxes may be levied on admissions to resorts, swimming pools, bath houses, hot springs, and tourist spots
hinges on whether the phrase ‘other places of amusement’ encompasses resorts, swimming pools, bath houses, hot
springs, and tourist spots.

Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of particular and specific
words of the same class or where the latter follow the former, the general word or phrase is to be construed to include, or
to be restricted to persons, things or cases akin to, resembling, or of the same kind or class as those specifically
mentioned."17

The purpose and rationale of the principle was explained by the Court in National Power Corporation v. Angas 18 as
follows:

The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the
particular words as indicating the class and the general words as including all that is embraced in said class, although not
specifically named by the particular words. This is justified on the ground that if the lawmaking body intended the general
terms to be used in their unrestricted sense, it would have not made an enumeration of particular subjects but would have
used only general terms. [2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400]. 19
In Philippine Basketball Association v. Court of Appeals, 20 the Supreme Court had an opportunity to interpret a starkly
similar provision or the counterpart provision of Section 140 of the LGC in the Local Tax Code then in effect. Petitioner
Philippine Basketball Association (PBA) contended that it was subject to the imposition by LGUs of amusement taxes (as
opposed to amusement taxes imposed by the national government).1âwphi1 In support of its contentions, it cited Section
13 of Presidential Decree No. 231, otherwise known as the Local Tax Code of 1973, (which is analogous to Section 140
of the LGC) providing the following:

Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be collected from the
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement
xxx.

Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and noted that:

In determining the meaning of the phrase 'other places of amusement', one must refer to the prior enumeration of
theaters, cinematographs, concert halls and circuses with artistic expression as their common characteristic. Professional
basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the
latter basically belong to artistic forms of entertainment while the former caters to sports and gaming. 21 [Underscoring
supplied]

However, even as the phrase ‘other places of amusement’ was already clarified in Philippine Basketball Association,
Section 140 of the LGC adds to the enumeration of 'places of amusement' which may properly be subject to amusement
tax. Section 140 specifically mentions 'boxing stadia' in addition to "theaters, cinematographs, concert halls and circuses"
which were already mentioned in PD No. 231. Also, 'artistic expression' as a characteristic does not pertain to 'boxing
stadia'.

In the present case, the Court need not embark on a laborious effort at statutory construction. Section 131 (c) of the LGC
already provides a clear definition of ‘amusement places’:

Section 131. Definition of Terms. - When used in this Title, the term:

xxx

(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where one
seeks admission to entertain oneself by seeing or viewing the show or performances [Underscoring supplied]

Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common typifying characteristic in
that they are all venues primarily for the staging of spectacles or the holding of public shows, exhibitions, performances,
and other events meant to be viewed by an audience. Accordingly, ‘other places of amusement’ must be interpreted in
light of the typifying characteristic of being venues "where one seeks admission to entertain oneself by seeing or viewing
the show or performances" or being venues primarily used to stage spectacles or hold public shows, exhibitions,
performances, and other events meant to be viewed by an audience.

As defined in The New Oxford American Dictionary, 22 ‘show’ means "a spectacle or display of something, typically an
impressive one";23 while ‘performance’ means "an act of staging or presenting a play, a concert, or other form of
entertainment."24 As such, the ordinary definitions of the words ‘show’ and ‘performance’ denote not only visual
engagement (i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging or presenting) such that
actions are manifested to, and (correspondingly) perceived by an audience.

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be
considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or
performances". While it is true that they may be venues where people are visually engaged, they are not primarily venues
for their proprietors or operators to actively display, stage or present shows and/or performances.

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or class as
theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they cannot be considered as among the
‘other places of amusement’ contemplated by Section 140 of the LGC and which may properly be subject to amusement
taxes.

At this juncture, it is helpful to recall this Court’s pronouncements in Icard:

The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt or ambiguity arising out of
the term used in granting that power must be resolved against the province. Inferences, implications, deductions – all
these – have no place in the interpretation of the taxing power of a province. 25

In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis for determining what
constitutes the 'other places of amusement' which may properly be subject to amusement tax impositions by provinces.
There is no reason for going beyond such basis. To do otherwise would be to countenance an arbitrary
interpretation/application of a tax law and to inflict an injustice on unassuming taxpayers.

The previous pronouncements notwithstanding, it will be noted that it is only the second paragraph of Section 59, Article X
of the Tax Ordinance which imposes amusement taxes on "resorts, swimming pools, bath houses, hot springs, and tourist
spots". The first paragraph of Section 59, Article X of the Tax Ordinance refers to "theaters, cinemas, concert halls,
circuses, cockpits, dancing halls, dancing schools, night or day clubs, and other places of amusement".1âwphi1 In any
case, the issues raised by Pelizloy are pertinent only with respect to the second paragraph of Section 59, Article X of the
Tax Ordinance. Thus, there is no reason to invalidate the first paragraph of Section 59, Article X of the Tax Ordinance.
Any declaration as to the Province of Benguet's lack of authority to levy amusement taxes must be limited to admission
fees to resorts, swimming pools, bath houses, hot springs and tourist spots.

Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to resorts, swimming pools,
bath houses, hot springs, and tourist spots but also covers admission fees for boxing. As Section 140 of the LGC allows
for the imposition of amusement taxes on gross receipts from admission fees to boxing stadia, Section 59, Article X of the
Tax Ordinance must be sustained with respect to admission fees from boxing stadia.

WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of Section 59, Article X of the
Benguet Provincial Revenue Code of 2005, in so far as it imposes amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs and tourist spots, is declared null and void. Respondent Province of Benguet is
permanently enjoined from enforcing the second paragraph of Section 59, Article X of the Benguet Provincial Revenue
Code of 2005 with respect to resorts, swimming pools, bath houses, hot springs and tourist spots.

SO ORDERED.
G.R. No. 203754               June 16, 2015

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

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

x-----------------------x

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

vs.
CITY OF CEBU and SM PRIME HOLDINGS, INC., Respondents.

DECISION

VELASCO, JR., J.:

The Constitution is the basic law to which all laws must conform; no act shall be valid if it conflicts with the Constitution. In
the discharge of their defined functions, the three departments of government have no choice but to yield obedience to
the commands of the Constitution. Whatever limits it imposes must be observed. 1

The Case

Once again, We are called upon to resolve a clash between the Inherent taxing power of the legislature and the
constitutionally-delegated power to tax of local governments in these consolidated Petitions for Review on Certiorari under
Rule 45 of the Rules of Court seeking the reversal of the Decision dated September 25, 2012 of the Regional Trial Court
(RTC), Branch 5 in Cebu City, in Civil Case No. CEB-35601, entitled Colon Heritage Realty Corp., represented by Isidoro
Canizares v. Film Development Council of the' Philippines, and Decision dated October 24, 2012 of the RTC, Branch 14 in
Cebu City, in Civil Case No. CEB-35529, entitled City of Cebu v. Film Development Council of the Philippines, collectively
declaring Sections 13 and 14 of Republic Act No. (RA) 9167 invalid and unconstitutional.

The Facts

The facts are simple and undisputed.

Sometime in 1993, respondent City of Cebu, in its exercise of its power to impose amusement taxes under Section 140 of
the Local Government Code2 (LGC) anchored on the constitutional policy on local autonomy, 3 passed City Ordinance No.
LXIX otherwise known as the "Revised Omnibus Tax Ordinance of the City of Cebu (tax ordinance)." Central to the case
at bar are Sections 42 and 43, Chapter XI thereof 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. Said provisions
read:

CHAPTER XI - Amusement Tax

Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement, an amusement tax at the rate
of thirty percent (30%) of the gross receipts from admission fees. 4

Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are divided between said
proprietor, lessees, operators, and the distributors of the cinematographic films.

Almost a decade later, or on June 7, 2002, Congress passed RA 9167, 5 creating the Film Development Council qf 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.

Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within the
prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each month of
delinquency which shall be paid to the Council. (emphasis added)

According to petitioner, from the time RA 9167 took effect up to the present, all the cities and municipalities in Metro
Manila, as well as urbanized and independent component cities, with the sole exception of Cebu City, have complied with
the mandate of said law.

Accordingly, petitioner, through the Office of the Solicitor General, sent on January 2009 demand letters for unpaid
amusement tax reward (with 5% surcharge for each month of delinquency) due to the producers of the Grade "A" or "B"
films to the following cinema proprietors and operators in Cebu City:

Amusement
Tax Reward Number
Cinema (with 5% of CEB
Period Covered
Proprietor/Operator surcharge for Graded
each moth of Films
delinquency)

SM Prime Holdings Inc. 76,836,807.08 89 Sept. 11, 2003 - Nov. 4, 2008

Ayala Center Cinemas 43,435,718.23 70 May 14, 2003 - Nov. 4, 2008

Colon Heritage Realty 8,071,267.00 50 Aug. 11, 2004-Nov. 4, 2008

Corp.

Eden Theater 428,938.25 4 May 5, 2005 - Sept. 2, 2008

Cinema Theater 3,100,354.80 22 Feb. 18, 2004-Oct. 7, 2008

Visaya Cineplex Corp. 17,582,521.89 86 June 25, 2005 - Oct. 21, 2008

Ultra Vistarama Cinema 68,821.60 2 July 2 - 22, 2008

Cebu Central Realty Corp. 9,853,559.69 48 Jan. 1, 2004 - Oct. 21, 2008

In said letters, the proprietors and cinema operators, including private respondent Colon Heritage Realty Corp. (Colon
Heritage), operator of the Oriente theater, were given ten (10) days from receipt thereof to pay the aforestated amounts to
FDCP. The demand, however, fell on deaf ears.
Meanwhile, on March 25, 2009, petitioner received a letter from Regal Entertainment, Inc., inquiring on the status of its
receivables for tax rebates in Cebu cinemas for all their A and B rate films along with those which it co-produced with
GMA films. This was followed by a letter from

Star Cinema ABS-CBN Film Productions, Inc., requesting the immediate remittance of its amusement tax rewards for its
graded films for the years 2004-2008.

Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts as FDCP demanded,
on one hand, and Cebu City's assertion of a claim on the amounts in question, the city finally filed on May 18, 2009 before
the RTC, Branch 14 a petition for declaratory relief with application for a writ of preliminary injunction, docketed as Civil
Case No. CEB-35529 (City of Cebu v. FDCP). In said petition, Cebu City sought the declaration of Secs. 13 and 14 of RA
9167 as invalid and unconstitutional.

Similarly, Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-35601 (Colon Heritage v. FDCP), seeking to
declare Sec. 14 of RA 9167 as unconstitutional.

On May 25, 2010, the RTC, Branch 14 issued a temporary restraining order (TRO) restraining and enjoining FDCP, et al.
from, inter alia:

(a) Collecting amusement tax incentive award in the City of Cebu and from imposing surcharges thereon;

(b) Demanding from the owners, proprietors, and lessees of theaters and cinemas located and operated within
Cebu City, payment of said amusement tax incentive award which should have been deducted, withheld, and
remitted to FDCP, etc. by the owners, etc., or being operated within Cebu City and imposing surcharges on the
unpaid amount; and

(c) Filing any suit due to or arising from the failure of the owners, etc., of theaters or cinemas within Cebu City, to
deduct, withhold, and remit the incentive to FDCP.

Meanwhile, on August 13, 2010, SM Prime Holdings, Inc. moved for leave to file and admit attached comment-in-
intervention and was later granted.6

Rulings of the Trial Courts

In City of Cebu v. FDCP, the RTC, Branch 14 issued the challenged Decision 7 declaring Secs. 13 and 14 of RA 9167
unconstitutional, disposing as follows:

WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of petitioner City of Cebu against respondent
Film Development Council of the Philippines, as follows:

1. Declaring Sections 13 and 14 of the (sic) Republic Act No. 9167 otherwise known as an Act Creating the Film
Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds Therefor and for
other purposes, as violative of Section 5 Article X of the 1997 (sic) Philippine Constitution; Consequently

2. Declaring that defendant Film Development Council of the Philippines (FDCP) cannot collect under Sections 13
and 14 of R.A. 9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;

3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes, withheld on
graded cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality
of the decision in G.R. Nos. 203754 and 204418;

4. Declaring that after the finality of the decision in G.R. Nos. 203 754 and 204418, all amusement taxes withheld
and those which may be collected by Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be
remitted to petitioner Cebu City pursuant to City Ordinance LXIX, Chapter XI, Section 42.

As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount shall be
remitted by the City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R. Nos. 203754
and 204418 without interests and surcharges.
SO ORDERED.

According to the court, what RA 9167 seeks to accomplish is the segregation of the amusement taxes raised and
collected by Cebu City and its subsequent transfer to FDCP. The court concluded that this arrangement cannot be
classified as a tax exemption but 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.

The court further held that Secs. 13 and 14 of RA 9167 are contrary to the basic policy in local autonomy that all taxes,
fees, and charges imposed by the LGUs shall accrue exclusively to them, as articulated in A1iicle X,. Sec. 5 of the 1987
Constitution. This edict, according to the court, is a limitation upon the rule-making power of Congress when it provides
guidelines and limitations on the local government unit's (LGU's) power of taxation. Therefore, when Congress passed
this "limitation," if went beyond its legislative authority, rendering the questioned provisions unconstitutional.

By the same token, in Colon Heritage v. FDCP, the RTC, Branch 5, in its Decision of September 25, 2012, also ruled
against the constitutionality of said Secs. 13 and 14 of RA 9167 for the following reasons: (a) while Congress, through the
enactment of RA 9167, may have amended Secs. 140(a) 8 and 1519 of the LGC, in the exercise of its plenary power to
amend laws, such power must be exercised within constitutional parameters; (b) the assailed provision violates the
constitutional directive that taxes should accrue exclusively to the LGU concerned; (c) the Constitution, through its Art. X,
Sec. 5,10 directly conferred LGUs with authority to levy taxes-the power is no longer delegated by the legislature; (d) In
CIR v. SM Prime Holdings,11 the Court ruled that amusement tax on cinema/theater operators or proprietors remain with
the LGU, amusement tax, being, by nature, a local tax. The fallo of the questioned judgment reads:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;

(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the legal rate
of interest thereof, until the whole amount is paid in full.

Notify parties and counsels of this order.

SO ORDERED.

The Issue

Undeterred by two defeats, petitioner has come directly to this Court, presenting the singular issue: whether or not the
RTC (Branches 5 and 14) gravely erred in declaring Secs. 13 and 14 of RA 9167 invalid for being unconstitutional.

Anent Sec. 13,12 FDCP concedes that the amusement taxes assessed in RA 9167 are to be given to the producers of
graded films who are private persons. Nevertheless, according to FDCP, this particular tax arrangement is not a violation
of the rule on the use of public funds for RA 9167 was enacted for a public purpose, that is, the promotion and support of
the "development and growth of the local film industry as a medium for the upliftment of aesthetic, cultural, and social
values for the better understanding and appreciation of the Filipino identity" as well as the "encouragement of the
production of quality films that will promote the growth and development' of the local film industry." 13 Moreover, FDCP
suggests that "even if the resultant effect would be a certain loss of revenue, [LGUs] do not feel deprived nor bitter for
they realize that the benefits for the film industry, the fortification of our values system, and the cultural boost for the nation
as a whole, far outweigh the pecuniary cost they would shoulder by backing this law." 14 Finally, in support of its stance,
FDCP invites attention to the following words of former Associate Justice Isagani A. Cruz: "[t]he mere fact that the tax will
be directly enjoyed by a private individual does not make it invalid so long as some link to the public welfare is
established."15

As regards Sec. 1416 of RA 9167, FDCP is of the position that Sec. 5, Article X of the Constitution does not change the
doctrine that municipal corporations only possess delegated, not inherent, powers of taxation and that the power to tax is
still primarily vested in the Congress. Thus, wielding its power to impose limitations on this delegated power, Congress
further restricted the LGU's power to impose amusement taxes via Secs. 13 and 14 of RA 9167-an express and real
intention of Congress to further contain the LGU's delegated taxing power. It, therefore, cannot be construed as an undue
limitation since it is well within the power of Congress to make such restriction. Furthermore, the LGC is a mere statute
which Congress can amend, which it in fact did when it enacted RA 9164 17 and, later, the questioned law, RA 9167.18

This, according to FDCP, evinces the overriding intent of Congress to remove from the LGU' s delegated taxing power all
revenues from amusement taxes on grade "A" or "B" films which would otherwise accrue to the cities and municipalities in
Metropolitan Manila and highly urbanized and independent component cities in the Philippines pursuant to Secs. 140 and
151 of the LGC.

In fine, it is petitioner's posture that the inclusion in RA 9167 of the questioned provisions was a valid exercise of the
legislature's power to amend laws and an assertion of its constitutional authority to set limitations on the LGU' s authority
to tax.

The Court's Ruling

We find no reason to disturb the assailed rulings.

Local fiscal autonomy and the constitutionally-delegated power to tax

The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every
independent government, and needs no express conferment by the people before it can be exercised. It is purely
legislative and, thus, cannot be delegated to the executive and judicial branches of government without running afoul to
the theory of separation of powers. It, however, can be delegated to municipal corporations, consistent with the principle
that legislative powers may be delegated to local governments in respect of matters of local concern. 19 The authority of
provinces, cities, and municipalities to create their own sources of revenue and to levy taxes, therefore, is not inherent
and may be exercised only to the extent that such power might be delegated to them either by the basic law or by
statute.20 Under the regime of the 1935 Constitution, there was no constitutional provision on the delegation of the power
to tax to municipal corporations. They only derived such under a limited statutory authority, outside of which, it was
deemed withheld.21 Local governments, thus, had very restricted taxing powers which they derive from numerous tax
laws. This highly-centralized government structure was later seen to have arrested the growth and efficient operations of
LG Us, paving the way for the adoption of a more decentralized system which granted LGUs local autonomy, both
administrative and fiscal autonomy.22

Material to the case at bar is the concept and scope of local fiscal autonomy. In Pimentel v. Aguirre, 23 fiscal autonomy was
defined as "the power [of LGUs] to create their own sources of revenue in addition to their equitable share in the national
taxes released by the national government, as well as the power to allocate their resources in accordance with their own
priorities. It extends to the preparation of their budgets, and local officials in tum have to work within the constraints
thereof."

With the adoption of the 1973 Constitution,24 and later the 1987 Constitution, municipal corporations were granted fiscal
autonomy via a general delegation of the power to tax. 25 Section 5, Article XI of the 1973 Constitution gave LGUs the
"power to create its own sources of revenue and to levy taxes, subject to such limitations as may be provided by law.''
This authority was further strengthened in the 1987 Constitution, through the inclusion in Section 5, Article X thereof of the
condition that " [s]uch taxes, fees, and charges shall accrue exclusively to local governments." 26

Accordingly, under the present Constitution, where there is neither a grant nor a prohibition by statute, the tax power of
municipal corporations must be deemed to exist although Congress may provide statutory limitations and
guidelines.27 The basic rationale for the current rule on local fiscal autonomy is the strengthening of LGUs and the
safeguarding of their viability and self-sufficiency through a direct grant of general and broad tax powers. Nevertheless,
the fundamental law did not intend the delegation to be absolute and unconditional. The legislature must still see to it that
(a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each LGU will have
its fair share of available resources; ( c) the resources of the national government will not be unduly disturbed; and ( d)
local taxation will be fair, uniform, and just.28

In conformity to the dictate of the fundamental law for the legislature to "enact a local government code which shall
provide for a more responsive and accountable local government structure instituted through a system of
decentralization,"29 consistent with the basic policy of local autonomy, Congress enacted the LGC, Book II of which
governs local taxation and fiscal matters and sets forth the guidelines and limitations for the exercise of this power. In
Pelizloy Realty Corporation v. The Province of Benguet, 30 the Court alluded to the fundamental principles governing the
taxing powers of LGUs as laid out in Section 130 of the LGC, to wit:
 1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject
to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically
provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

It is in the application of the adverted fourth rule, that is-all revenue collected pursuant to the provisions of the LGC shall
inure solely to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition
unless otherwise specifically provided by the LGC-upon which the present controversy grew.

RA 9167 violates local fiscal autonomy

It is beyond cavil that the 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. Sec. 140 states, among other things, that a
"province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of
the gross receipts from admission fees." By operation of said Sec. 151, 31 extending to them the authority of provinces and
municipalities to levy certain taxes, fees, and charges, cities, such as respondent city government, may therefore validly
levy amusement taxes subject to the parameters set forth under the law. Based on this authority, the City of Cebu passed,
in 1993, its Revised Omnibus Tax Ordinance,32 Chapter XI, Secs. 42 and 43 of which reads:

CHAPTER XI - Amusement Tax

Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement, an amusement tax at the rate
of thirty percent (30%) of the gross receipts from admission fees. 33

Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are divided between said
proprietor, lessees, operators, and the distributors of the cinematographic films.

Then, after almost a decade of cities reaping benefits from this imposition, Congress, through RA 9167, amending Section
140 of the LGC,34 among others, transferred this income from the cities and municipalities in Metropolitan Manila and
highly urbanized and independent component cities, such as respondent City of Cebu, to petitioner FDCP, which
proceeds will ultimately be rewarded to the producers of graded films. We reproduce anew Secs. 13 and 14 of RA 9167,
thus:

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.

Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within the
prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each month of
delinquency which shall be paid to the Council.

Considering the amendment, the present rule is that ALL amusement taxes levied by covered cities and municipalities
shall be 2iven by proprietors, operators or lessees of theatres and cinemas to FDCP, which shall then reward said amount
to the producers of graded films in this wise:

1. For grade "A" films, ALL amusement taxes collected by ALL covered LGUs on said films shall be given to the
producer thereof. The LGU, therefore, is entitled to NOTHING from its own imposition.

2. For grade "B" films, SIXTY FIVE PERCENT (65%) of ALL amusement taxes derived by ALL covered LGUs on
said film shall be given to the producer thereof. In this case, however, the LGU is still NOT entitled to any portion
of the imposition, in view of Sec. 16 of RA 9167 which provides that the remaining 35% may be expended for the
Council's operational expenses. Thus: Section 16. Funding. - The Executive Secretary shall immediately include
in the Office of the President's program the implementation of this Act, the funding of which shall be included in
the annual General Appropriations Act.

To augment the operational expenses of the Council, the Council may:

a. Utilize the remaining thirty-five (35%) percent of the amusement tax collected during the period of grade "B" film is
exhibited, as provided under Sections 13 and 14 hereof x x x.

For petitioner, the amendment is a valid legislative manifestation of the intention to remove from the grasp of the taxing
power of the covered LGUs all revenues from amusement taxes on grade "A" or "B" films which would otherwise accrue to
them. An evaluation of the provisions in question, however, compels Us to disagree.

RA 9167, Sec. 14 states:

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.

A reading of the challenged provision reveals that the power to impose amusement taxes was NOT removed from the
covered LGUs, unlike what Congress did for the taxes enumerated in Sec. 133, Article X of the LGC, 35 which lays down
the common limitations on the taxing powers of LGUs. Thus:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

 (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise
provided herein;

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed and maintained by the local
government unit concerned;

(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise,
or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period
of six (6) and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees
or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code;

(k) Taxes on premiums paid by way or reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered
under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known
as the "Cooperative Code of the Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units. (emphasis ours)

From the above, the difference between Sec. 133 and the questioned amendment of Sec. 140 of the LGC by RA 9167 is
readily revealed. In Sec. · 133, what Congress did was to prohibit the levy by LGUs of the enumerated taxes. For RA
9167, however, the covered LGUs were deprived of the income which they will otherwise be collecting should they impose
amusement taxes, or, in petitioner's own words, "Section 14 of [RA 9167] can be viewed as an express and real intention
on the part of Congress to remove from the LGU's delegated taxing power, all revenues from the amusement taxes on
graded films which would otherwise accrue to [them] pursuant to Section 140 of the [LGC]." 36

In other words, per RA 9167, covered LGUs still have the power to levy amusement taxes, albeit at the end of the day,
they will derive no revenue therefrom. The same, however, cannot be said for FDCP and the producers of graded films
since the amounts thus levied by the LGUs which should rightfully accrue to them, they being the taxing authority-will be
going to their coffers. As a matter of fact, it is only through the exercise by the LGU of said power that the funds to be
used for the amusement tax reward can be raised. Without said imposition, the producers of graded films will receive
nothing from the owners, proprietors and lessees of cinemas operating within the territory of the covered LGU.

Taking the resulting scheme into consideration, it is apparent that what Congress did in this instance was not to exclude
the authority to levy amusement taxes from the taxing power of the covered LGUs, but to earmark, if not altogether
confiscate, 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, to Our mind, 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.
It is a basic precept that the inherent legislative powers of Congress, broad as they may be, are limited and confined
within the four walls of the Constitution.37 Accordingly, whenever the legislature exercises its power to enact, amend, and
repeal laws, it should do so without going beyond the parameters wrought by the organic law.

In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the amusement taxes
levied by the covered LGUs did not and will under no circumstance accrue to them, not even partially, despite being the
taxing authority therefor. Congress, therefore, clearly overstepped its plenary legislative power, the amendment being
violative of the fundamental law's guarantee on local autonomy, as echoed in Sec. 130(d) of the LGC, thus: Section 130.
Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing and other revenue-
raising powers of local government units:

xxxx

(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to the
disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically
provided herein x x x.

Moreover, in Pimentel,38 the Court elucidated that local fiscal autonomy includes the power of LGUs to allocate their
resources in accordance with their own priorities. By earmarking the income on amusement taxes imposed by the LGUs
in favor of FDCP and the producers of graded films, the legislature appropriated and distributed the LGUs' funds-as
though it were legally within its control-under the guise of setting a limitation on the LGUs' exercise of their delegated
taxing power. This, undoubtedly, is a usurpation of the latter's exclusive prerogative to apportion their funds, an
impermissible intrusion into the LGUs' constitutionally-protected domain which puts to naught the guarantee of fiscal
autonomy to municipal corporations enshrined in our basic law.

Grant of amusement tax reward incentive:

not a tax exemption

It was argued that subject Sec. 13 is a grant by Congress of an exemption from amusement taxes in favor of producers of
graded films. Without question, this Court has previously upheld the power of Congress to grant exemptions over the
power of LGUs to impose taxes. 39 This amusement tax reward, however, is not, as the lower court posited, a tax
exemption. Exempting a person or entity from tax is to relieve or to excuse that person or entity from the burden of the
imposition. Here, however, it cannot be said that an exemption from amusement taxes was granted by Congress to the
producers of graded films. Take note that the burden of paying the amusement tax in question is on the proprietors,
lessors, and operators of the theaters and cinemas that showed the graded films. Thus, per City Ordinance No. LXIX:
CHAPTER XI - Amusement Tax

Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or operators
of theaters, cinemas, concert halls,, circuses, boxing stadia and other places of amusement, an amusement tax at the rate
of thirty percent (30%) of the gross receipts from admission fees.

Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are divided between said
proprietor, lessees, operators, and the distributors of the cinematographic films.

Similarly, the LGC provides as follows:

Section 140. Amusement Tax. –

(a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more
than thirty percent (30%) of the gross receipts from admission fees.

(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or
operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors,
lessees, or operators and the distributors of the cinematographic films.
Simply put, 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.

Declaration by the RTC, Branch 5 of the

entire RA 9167 as unconstitutional

Noticeably, the RTC, Branch 5, in its September 25, 2012 Decision in Colon Heritage v. FDCP, ruled against the
constitutionality of the entire law, not just the assailed Sec. 14. The fallo of the judgment reads:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;

(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the legal rate
of interest thereof, until the whole amount is paid in full.

In this regard, it is well to emphasize that if it appears that the rest of the law is free from the taint of unconstitutionality,
then it should remain in force and effect if said law contains a separability clause. A separability clause is a legislative
expression of intent that the nullity of one provision shall not invalidate the other provisions of the act. Such a clause is
not, however, controlling and the courts, in spite of it, may invalidate the whole statute where what is left, after the void
part, is not complete and workable.40

In this case, not only does RA 9167 have a separability clause, contained in Section 23 thereof which reads:

Section 23. Separability Clause. -If, for any reason, any provision of this Act, or any part thereof, is declared invalid or
unconstitutional, all other sections or provisions not affected thereby shall remain in force and effect.

it is also true that the constitutionality of the entire law was not put m question in any of the said cases.

Moreover, a perusal of RA 9167 easily reveals that even with the removal of Secs. 13 and 14 of the law, the remaining
provisions can survive as they mandate other matters like a cinema evaluation system, an incentive and reward system,
and local and international film festivals and activities that "will promote the growth and development of the local film
industry and promote its participation in both domestic and foreign markets," and to "enhance the skills and expertise of
Filipino talents."41

Where a part of a statute is void as repugnant to the Constitution, while another part is valid, the valid portion, if separable
from the invalid, may stand-and be enforced. The exception to this is when the parts of a statute are so mutually
dependent and connected, as conditions, considerations, inducements, or compensations for each other, as to warrant a
belief that the legislature intended them as a whole, in which case, the nullity of one part will vitiate the rest. 42

Here, the constitutionality of the rest of the provisions of RA 9167 was never put in question. Too, nowhere in the assailed
judgment of the RTC was it explicated why the entire law was being declared as unconstitutional.

It is a basic tenet that courts cannot go beyond the issues in a case, 43 which the RTC, Branch 5 did when it declared RA
9167 unconstitutional. This being the case, and in view of the elementary rule that every statute is presumed valid, 44 the
declaration by the R TC, Branch 5 of the entirety of RA 9167 as unconstitutional, is improper.

Amounts paid by Colon Heritage

need not be returned

Having ruled that the questioned provisions are unconstitutional, the RTC, Branch 5, in Colon Heritage v. FDCP, ordered
the return of all amounts paid by respondent Colon Heritage to FDCP by way of amusement tax. Thus:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:
 (1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;

(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the legal rate
of interest thereof, until the whole amount is paid in full.

As regards the refund, the Court cannot subscribe to this position.

It is a well-settled rule that an unconstitutional act is not a law; it . confers no rights; it imposes no duties; it affords no
protection; it creates no office; it is inoperative as if it has not been passed at all. Applying this principle, the logical
conclusion would be to order the return of all the amounts remitted to FDCP and given to the producers of graded films,
by all of the covered cities, which actually amounts to hundreds of millions, if not billions. In fact, just for Cebu City, the
aggregate deficiency claimed by FDCP is ONE HUNDRED FIFTY NINE MILLION THREE HUNDRED SEVENTY SEVEN
THOUSAND NINE HUNDRED EIGHTY-EIGHT PESOS AND FIFTY FOUR CENTAVOS (₱159,377,988.54). Again, this
amount represents the unpaid amounts to FDCP by eight cinema operators or proprietors in only one covered city.

An exception to the above rule, however, is the doctrine of operative fact, which applies as a matter of equity and fair play.
This doctrine nullifies the effects of an unconstitutional law or an executive act 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.45

In Hacienda Luisita v. PARC, the Court elucidated the meaning and scope of the operative fact doctrine, viz:

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or
executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:

x x x           x x x          x x x

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:

Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so, much
less retroactively apply such nullification to deprive private respondent of a compelling and valid reason for not filing the
leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy
upon past acts or omissions done in reliance thereof. Consequently, the existence of a statute or executive order prior to
its being adjudged void is an operative fact to which legal consequences are attached. It would indeed be ghastly unfair to
prevent private respondent from relying upon the order of suspension in lieu of a formal leave application.

The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v. People,
thus:

Petitioner contends that his arrest by virtue of Arrest . Search and Seizure Order (ASSO) No. 4754 was invalid, as the law
upon which it was predicated-General Order No. 60, issued by then President Ferdinand E. Marcos - was subsequently
declared by the Court, in Tanada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained
pursuant thereto is inadmissible in evidence.

We do not agree. In Tanada, the Court addressed the possible effects of its declaration of the invalidity of various
presidential issuances.1a\^/phi1 Discussing therein how such a declaration might affect acts done on a presumption of
their validity, the Court said:

" ... In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County
Drainage District vs. Baxter Bank to wit:

'The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was
not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the
challenged decree. . . . It is quite clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to [the determination of its
invalidity], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be
erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in
various aspects – with respect to particular conduct, private and official. Questions of rights claimed to have become
vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light of
the nature both of the statute and of its previous application, demand examination. These questions are among the most
difficult of those which have engaged the attention of courts, state and federal, and it is manifest from numerous decisions
that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.'

x x x           x x x          x x x

"Similarly, the implementation/ enforcement of presidential decrees prior to their publication in the Official Gazette is 'an
operative fact which may have consequences which cannot be justly ignored. The past cannot always be erased by a new
judicial declaration ... that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified."

The Chicot doctrine cited in Tanada advocates that, prior to the nullification of a statute, there is an imperative necessity
of taking into account its actual existence as an operative fact negating the acceptance of "a principle of absolute
retroactive invalidity." Whatever was done while the legislative or the executive act was in operation should be duly
recognized and presumed to be valid in all respects. The ASSO that was issued in 1979 under General Order No. 60 -
long before our Deeision n Taiiada and the arrest of petitioner - is an operative fact that can no longer be disturbed or
simply ignored. (citations omitted; emphasis in the original.)

Bearing in mind that PARC Resolution No. 89-12-2-an executive act-was declared invalid in the instant case, the
operative fact doctrine is clearly applicable.46

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. For these reasons, We are of the
considered view that the application of the doctrine of operative facts in the case at bar is proper so as not to penalize
FDCP for having complied with the legislative command in RA 9167, and the producers of graded films who have already
received their tax cut prior to this Decision for having produced top-quality films.

With respect to the amounts retained by the cinema proprietors due to petitioner FDCP, said proprietors are required
under the law to remit the same to petitioner. Obeisance to the rule of law must always be protected and preserved at all
times and the unjustified refusal of said proprietors cannot be tolerated. The operative fact doctrine equally applies to the
non-remittance by said proprietors since the law produced legal effects prior to the declaration of the nullity of Secs. 13
and 14 in these instant petitions. It can be surmised, however, that the proprietors were at a loss whether or not to remit
said amounts to FDCP considering the position of the City of Cebu for them to remit the amusement taxes directly to the
local government. For this reason, the proprietors shall not be liable for surcharges.

In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167, all amusement taxes remitted to
petitioner FDCP prior to the date of the finality of this decision shall remain legal and valid under the operative fact
doctrine. Amusement taxes due to petitioner but unremitted up to the finality of this decision shall be remitted to petitioner
within thirty (30) days from date of finality. Thereafter, amusement taxes previously covered by RA 9167 shall be remitted
to the local governments.

WHEREFORE, premises considered, the consolidated petitions are hereby PARTIALLY GRANTED. The questioned
Decision of the RTC, Branch 5 of Cebu City in Civil Case No. CEB-35601 dated September 25, 2012 and that of the R
TC, Branch 14, Cebu City in Civil Case No. CEB-35529 dated October 24, 2012, collectively declaring Sections 13 and 14
of Republic Act No. 9167 invalid and unconstitutional, are hereby AFFIRMED with MODIFICATION.

As modified, the decisions of the lower courts shall read:

1. Civil Case No. CEB-35601 entitled Colon Heritage Realty Corp. v. Film Development Council of the Philippines:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of Colon Heritage Realty Corp. and
against the Film Development council of the Philippines, as follows: 1. Declaring Sections 13 and 14 of Republic Act No.
9167 otherwise known as an Act Creating the Film Development Council of the Philippines, Defining its Powers and
Functions, Appropriating Funds therefor arid for other purposes, as invalid and unconstitutional;
 2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and 14 of R.A.
9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;

3. Declaring that Colon Heritage Realty Corp. has the obligation to remit the amusement taxes withheld on graded
cinema films to FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of this Decision,
without surcharges;

4. Declaring that upon the finality of this decision, all amusement taxes withheld and those which may be collected
by Colon Heritage Realty Corp. on graded films shown in its cinemas in Cebu City shall be remitted to Cebu City
pursuant to City Ordinance LXIX, Chapter XI, Section 42.

2. Civil Case No. CEB-35529 entitled City of Cebu v. Film Development Council of the Philippines:

WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of the City of Cebu against the Film
development Council of the Philippines, as follows:

1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as an Act Creating the Film
Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds therefor and for
other purposes, void and unconstitutional;

2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and 14 of R.A.
9167 as of the finality of this Decision;

3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes, withheld on
graded cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality
of this Decision, without surcharges;

4. Declaring that after the finality of this Decision, all amusement taxes withheld and those which may be collected
by Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be remitted to petitioner Cebu City
pursuant to City Ordinance LXIX, Chapter XI, Section 42.

As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount shall be
remitted by the City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R. Nos. 203754
and 204418 without interests and surcharges. Since Sections 13 and 14 of Republic Act No. 9167 were declared void and
unconstitutional, all remittances of amusement taxes pursuant to said Sections 13 and 14 of said law prior to the date of
finality of this Decision shall remain valid and legal. Cinema proprietors who failed to remit said amusement taxes to
petitioner FDCP prior to the date of finality of this Decision are obliged to remit the same, without surcharges, to petitioner
FDCP under the doctrine of operative fact.

SO ORDERED.
G.R. No. 131359 May 5, 1999

MANILA ELECTRIC COMPANY, petitioner,

vs.
PROVINCE OF LAGUNA and BENITO R. BALAZO, in his capacity as Provincial Treasurer of Laguna, respondents.

VITUG, J.:

On various dates, certain municipalities of the Province of Laguna, including, Biñan, Sta. Rosa, San Pedro, Luisiana,
Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their respective municipal
councils granting franchise in favor of petitioner Manila Electric Company ("MERALCO") for the supply of electric light,
heat and power within their concerned areas. On 19 January 1983, MERALCO was likewise granted a franchise by the
National Electrification Administration to operate an electric light and power service in the Municipality of Calamba,
Laguna.

On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local Government Code of 1991," was enacted
to take effect on 01 January 1992 enjoining local government units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy.
Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows:

Sec. 2.09. Franchise Tax. — There is hereby imposed a tax on businesses enjoying a franchise, at a rate
of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash
sales and sales on account realized during the preceding calendar year within this province, including the
territorial limits on any city located in the province.

On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to MERALCO for the
corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520.628.42, under protest. A
formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise
tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax
imposed by the Provincial Tax Ordinance. MERALCO, contended that the imposition of a franchise tax under Section 2.09
of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of
P.D. 551 which read:

Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be
two per cent (2%) of their gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or
month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes
and assessments of whatever nature imposed by any national or local authority on earnings, receipts,
income and privilege of generation, distribution and sale of electric current.

On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina relied on a
more recent law, i.e. Republic Act No. 7160 or the Local Government Code of 1991, than the old decree invoked by
petitioner.

On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta. Cruz, Laguna, a complaint for
refund, with a prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order, against the
Province of Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of Laguna. Aside from the
amount of P19,520,628.42 for which petitioner MERALCO had priorly made a formal request for refund, petitioner
thereafter likewise made additional payments under protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and concluded:

WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is hereby

rendered in favor of the defendants and against the plaintiff, by:

1. Ordering the dismissal of the Complaint; and

2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable and enforceable. 2

In the instant petition, MERALCO assails the above ruling and brings up the following issues; viz:

1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-
92, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and
Section 1 of Presidential Decree No. 551.

2. Whether Republic Act No. 7160, otherwise known Local Government Code of 1991, has repealed,
amended or modified Presidential Decree No. 551.

3. Whether the doctrine of administrative remedies is applicable in this case. 3

The petition lacks merit.

Prefatorily, it might be well to recall that local governments do not have the inherent power to tax 4 except to the extent
that such power might be delegated to them either by the basic law or by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has been given in favor of local government units. Thus:

Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions, and duties of local officials, and all other matters relating to
the organization and operation of the local units.

xxx xxx xxx

Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively
to the local governments.

The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar
delegation of revenue making powers to local governments. 5

Under regime of the 1935 Constitution no similar delegation of tax powers was provided, and local government units
instead derived their tax powers under a limited statutory authority. Whereas, then, the delegation of tax powers granted
at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld),
the present constitutional rule (starting with the 1973 Constitution), however, would broadly confer such tax powers
subject only to specific exceptions that the law might prescribe.

Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad
tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units are being strengthened and made
more autonomous, 6 the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each local government unit will have its fair share of available resources; (c)
the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now repealed
Local Tax Code, which had been in effect since 01 July 1973, promulgated into law by Presidential Decree
No. 2317 pursuant to the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code explicitly
authorizes provincial governments, notwithstanding "any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise." Section 137 thereof provides:

Sec. 137. Franchise Tax — Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the
tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding
calendar year, regardless of when the business started to operate, the tax shall be based on the gross
receipts for the preceding calendar year, or any fraction thereof, as provided herein. (Underscoring
supplied for emphasis)

Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government
units, the Local Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states:

Sec. 193. Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (Underscoring supplied for emphasis)

The Code, in addition, contains a general repealing clause in its Section 534; thus:

Sec. 534. Repealing Clause. — . . .

(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly. (Underscoring supplied for emphasis) 8

To exemplify, in Mactan Cebu International Airport Authority vs. Marcos, 9 the Court upheld the withdrawal of the real
estate tax exemption previously enjoyed by Mactan Cebu International Airport Authority. The Court ratiocinated:

. . . These policy considerations are consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals. The power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities if local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal
of tax exemption privileges granted to government-owned and controlled corporations and all other units
of government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarity situated enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges due from
them. 10

Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in Province of Misamis
Oriental vs. Cagayan Electric Power and Light Company, Inc.; 11 thus:

In an earlier case, the phrase "shall be in lieu of all taxes and at any time levied, established by, or
collected by any authority" found in the franchise of the Visayan Electric Company was held to exempt the
company from payment of the 5% tax on corporate franchise provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)

Similarly, we ruled that the provision: "shall be in lieu of all taxes of every name and nature" in the
franchise of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila Railroad
 from payment of internal revenue tax for its importations of coal and oil under Act No. 2432 and the
Amendatory Acts of the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).

The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified the
exemption of the Philippine Railway Company from payment of the tax on its corporate franchise under
Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co vs.
Collector of Internal Revenue, 91 Phil. 35).

Those magic words, "shall be in lieu of all taxes" also excused the Cotabato Light and Ice Plant Company
from the payment of the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and
Power Co. vs. City of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was required
to pay the corporate franchise tax under Section 259 of the Internal Revenue Code, as amended by R.A.
No. 39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4]. 1068). This Court
pointed out that such exemption is part of the inducement for the acceptance of the franchise and the
rendition of public service by the grantee. 2

In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al., 13 the Court has
held that the phrase in lieu of all taxes "have to give way to the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions, privileges," and that "upon the effectivity of the Local
Government Code all exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim
liability for the local tax." In fine, the Court has viewed its previous rulings as laying stress more on the legislative intent of
the amendatory law — whether the tax exemption privilege is to be withdrawn or not — rather than on whether the law
can withdraw, without violating the Constitution, the tax exemption or not.

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature
of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being
strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment
clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without impairing the obligations of contracts.  14 These contractual tax
exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the
nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. 15 Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject
to amendment, alteration or repeal by Congress as and when the common good so requires.

WHEREFORE, the instant petition is hereby DISMISSED. No costs.1âwphi1.nêt

SO ORDERED.