It is reported that PAGCOR is the third largest source of

Contents government revenue, next to the Bureau of Internal

TAXATION .....................................................................................................................................................
Revenue and the Bureau of Customs. PAGCOR 1 earned in
1989- P3.43 Billion; and directly remitted
BASCO VS PAGCOR ............................................................................................................................. 1 to the
National Government a total of P2.5 Billion in form of
Manila Electric v Province of Laguna .................................................................................................... 3
franchise tax, government's income share, the
Phil Petroleum Corp v. Mun of Pililla ....................................................................................................
President's Social Fund and Host Cities' 4 share. In
addition, PAGCOR sponsored other
MCIA v Marcos ...................................................................................................................................... 6 socio-cultural and
charitable projects on its own or in cooperation with
City Government of Quezon City v Bayan Telecom
various governmental agencies, and other private
MISSING .............................................................................................................................................. 10
associations and organizations. In its 3 1/2 years of
Manila International Airport Authority v. CA......................................................................................
operation under the present administration, 10 PAGCOR
remitted to the government a total of13
Digital Telecom v Pangasinan ............................................................................................................. P6.2 Billion. As of
December 31, 1989, PAGCOR was employing 4,494
City of Iloilo v Smart Communications ................................................................................................ 16
employees in its nine (9) casinos nationwide, directly
GSIS v City Treasurer of Manila MISSING ............................................................................................
supporting the livelihood of Four17Thousand Four
Hundred Ninety-Four (4,494) families.17
Pimentel v Aguirre ..............................................................................................................................
Herein petitioners as taxpayers and18Chairman of the
Villafuerte v Robredo ..........................................................................................................................
Committee on Laws of the City Council of Manila
POLICE POWER ............................................................................................................................................ 21
question the validity of P.D. No. 1869 on the ff. grounds:
City of Gen Santos v. COA ................................................................................................................... 21
1.) the same is "null and void" for being "contrary to
US v. Salaveria MISSING ...................................................................................................................... 22
morals, public policy and public order," ;
Binay v Domingo MISSING .................................................................................................................. 22
2.) violative of the equal protection clause and local
Tatel v Mun of Virac ............................................................................................................................
autonomy (P.D. 1869 constitutes a waiver 22 of the right of
the City of Manila to impose taxes23
Tano v Socrates MISSING .................................................................................................................... and legal fees) ;
FOCUS ON THIS ISSUE
Lim v Pacquing .................................................................................................................................... 23
3.) it runs counter to the state policies
De la Cruz v Paras ................................................................................................................................ 24 enunciated in
Sections 11 (Personal Dignity and Human Rights), 12
Ortigas v FEATI Bank ........................................................................................................................... 24
(Family) and 13 (Role of Youth) of Article II, Section 1
(Social Justice) of Article XIII and Section 2 (Educational
Values) of Article XIV of the 1987 Constitution.

ISSUE:
TAXATION
BASCO VS PAGCOR WON petitioner’s contentions are tenable.
FACTS: RULING:
The Philippine Amusements and Gaming Corporation NO.
(PAGCOR) was created under P.D. 1869 to enable the
Government to regulate and centralize all games of RATIONALE FOR PD 1869’s enactment
chance authorized by existing franchise or permitted by
Enacted pursuant to the policy of the government to
law. "regulate and centralize thru an appropriate institution
PAGCOR is given territorial jurisdiction all over the all games of chance authorized by existing franchise or
Philippines. Under its Charter's repealing clause, all permitted by law"
laws, decrees, executive orders, rules and regulations, A reliable source of much needed revenue for the cash
inconsistent therewith, are accordingly repealed, strapped Government. It provided funds for social
amended or modified. impact projects and subjected gambling to "close
scrutiny, regulation, supervision and control of the
Government"
With the creation of PAGCOR and the direct
intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if
not totally eradicated.
NOT VIOLATIVE OF THE PRINCIPPLE OF LOCAL
AUTONOMY (on taxation power)
Petitioners in invoking the principle of local autonomy
must have in mind Section 13 par. (2) of P.D. 1869
which exempts PAGCOR, as the franchise holder from
paying any "tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local."
(2) Income and other taxes. — a) Franchise Holder: No
tax of any kind or form, income or otherwise as well as
fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under
this franchise from the Corporation; nor shall any form
or tax or charge attach in any way to the earnings of the
Corporation, except a franchise tax of five (5%) percent
of the gross revenues or earnings derived by the
Corporation from its operations under this franchise.
Such tax shall be due and payable quarterly to the
National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or
description, levied, established or collected by any
municipal, provincial or national government authority
(Section 13 [2]).
Their contention is without merit for the ff. reasons:
(based on jurisprudence)
The City of Manila, being a mere Municipal corporation
has no inherent right to impose taxes Thus, "the
Charter or statute must plainly show an intent to confer
that power or the municipality cannot assume it" . Its
"power to tax" therefore must always yield to a
legislative act which is superior having been passed
upon by the state itself which has the "inherent power
to tax".
The Charter of the City of Manila is subject to control by
Congress. It should be stressed that "municipal
corporations are mere creatures of Congress" which has
the power to "create and abolish municipal
corporations" due to its "general legislative powers" .
Congress, therefore, has the power of control over Local
. And if Congress can grant the City of Manila the power
to tax certain matters, it can also provide for
exemptions or even take back the power.
The City of Manila's power to impose license fees on
gambling, has long been revoked. As early as 1975, the
power of local governments to regulate gambling thru
the grant of "franchise, licenses or permits" was
withdrawn by P.D. No. 771 and was vested exclusively
on the National Government.
Therefore, only the National Government has the
power to issue "licenses or permits" for the operation of
gambling. Necessarily, the power to demand or collect
license fees which is a consequence of the issuance of
"licenses or permits" is no longer vested in the City of
Manila.
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.
"SUPREMACY" of the National Government over local
governments.
PAGCOR has a dual role, to operate and to 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. Marland, 4 Wheat 316, 4 L
Ed. 579).
Local Government has been described as a political
subdivision of a nation or state which is constituted by
law and has substantial control of local affairs. In a
unitary system of government, such as the government
under the Philippine Constitution, local governments
can only be an intra sovereign subdivision of one
sovereign nation, it cannot be an imperium in imperio.
Local government in such a system can only mean a
measure of decentralization of the function of
government
As to what state powers should be "decentralized" and
what may be delegated to local government units
remains a matter of policy, which concerns wisdom. It is
therefore a political question.
What is settled is that the matter of regulating, taxing
or otherwise dealing with gambling is a State concern
and hence, it is the sole prerogative of the State to
retain it or delegate it to local governments.
Manila Electric v Province of Laguna
MANILA ELECTRIC COMPANY vs. PROVINCE OF
LAGUNA
G.R. 131359
FACTS:
On various dates, certain municipalities of the Province
of Laguna, 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
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.
ISSUE:
Whether or not a Local Government Unit may validly
impose tax to its constituents, in this case the
MERALCO, in view of the local autonomy granted by the
1987 Constitution despite the imposition of taxes by
other laws.
RULING: Yes.
Prefatorily, it might be well to recall that local
governments do not have the inherent power to
tax 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.
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.
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, 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 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."
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.
Phil Petroleum Corp v. Mun of Pililla
PHILIPPINE PETROLEUM CORPORATION vs.
MUNICIPALITY OF PILILLA
Facts:
1. Petitioner, Philippine Petroleum Corporation (PPC for
short) is a business enterprise engaged in the
manufacture of lubricated oil basestock which is a
petroleum product, with its refinery plant situated at
Malaya, Pililla, Rizal, conducting its business activities
within the territorial jurisdiction of the Municipality of
Pililla, Rizal.
2. Under Section 142 of the National Internal Revenue
Code of 1939, manufactured oils and other fuels are
subject to specific tax.
3. Later, Presidential Decree No. 231, otherwise known
as the Local Tax Code was issued by former President
Ferdinand E. Marcos governing the exercise by
provinces, cities, municipalities and barrios of their
taxing and other revenue-raising powers. Sections 19
and 19 (a) thereof, provide among others, that the
municipality may impose taxes on business, except on
those for which fixed taxes are provided on
manufacturers, importers or producers of any article of
commerce of whatever kind or nature, including
brewers, distillers, rectifiers, repackers, and
compounders of liquors, distilled spirits and/or wines in
accordance with the schedule listed therein.
4. The Secretary of Finance issued a Circular directed to
all provincial, city and municipal treasurers to refrain
from collecting any local tax imposed in old or new tax
ordinances in the business of manufacturing,
wholesaling, retailing, or dealing in petroleum products
subject to the specific tax under the National Internal
Revenue Code.
5. Likewise, another Circular was issued by the
Secretary of Finance instructing all City Treasurers to
refrain from collecting any local tax imposed in tax
ordinances enacted before or after the effectivity of the
Local Tax Code on the businesses of manufacturing,
wholesaling, retailing, or dealing in, petroleum products
subject to the specific tax under the National Internal
Revenue Code.
6. Meanwhile, Respondent Municipality of Pililla
enacted Municipal Tax Ordinance No. 1 otherwise
known as "The Pililla Tax Code of 1974". Sections 9 and
10 of the said ordinance imposed a tax on business,
except for those for which fixed taxes are provided in
the Local Tax Code.
7. P.D. 436 was promulgated increasing the specific tax
on lubricating oils, gasoline, bunker fuel oil, diesel fuel
oil and other similar petroleum products levied under
Sections 142, 144 and 145 of the National Internal
Revenue Code, as amended, and granting provinces,
cities and municipalities certain shares in the specific
tax on such products in lieu of local taxes imposed on
petroleum products.
8. Provincial Circular No. 6-77 was also issued directing
all city and municipal treasurers to refrain from
collecting the so-called storage fee on flammable or
combustible materials imposed under the local tax
ordinance of their respective locality, said fee partaking
of the nature of a strictly revenue measure or service
charge.
9. P.D. 1158 otherwise known as the National Internal
Revenue Code of 1977 was enacted, Section 153 of
which specifically imposes specific tax on refined and
manufactured mineral oils and motor fuels.
10. Enforcing the provisions of the above-mentioned
ordinance, the respondent filed a complaint on April 4,
1986 docketed as Civil Case No. 057-T against PPC for
the collection of the business tax from 1979 to 1986;
storage permit fees from 1975 to 1986; mayor's permit
and sanitary inspection fees from 1975 to 1984. PPC,
however, have already paid the last-named fees starting
1985 (Rollo, p. 74).
11. The trial court rendered a decision against the
petitioner. Hence, the instant petition.
Issue:
Whether petitioner PPC whose oil products are subject
to specific tax under the NIRC, is still liable to pay (a) tax
on business and (b) storage fees, considering Provincial
Circular No. 6-77; and mayor's permit and sanitary
inspection fee unto the respondent Municipality of
Pililla, Rizal, based on Municipal Ordinance No. 1.
Ruling:
Petitioner PPC contends that: (a) Provincial Circular No.
2673 declared as contrary to national economic policy
the imposition of local taxes on the manufacture of
petroleum products as they are already subject to
specific tax under the National Internal Revenue Code;
(b) the above declaration covers not only old tax
ordinances but new ones, as well as those which may be
enacted in the future; (c) both Provincial Circulars (PC)
26-73 and 26 A-73 are still effective, hence, unless and
until revoked, any effort on the part of the respondent
to collect the suspended tax on business from the
petitioner would be illegal and unauthorized; and (d)
Section 2 of P.D. 436 prohibits the imposition of local
taxes on petroleum products.
There is no question that Pililla's Municipal Tax
Ordinance No. 1 imposing the assailed taxes, fees and
charges is valid as it conforms with the mandate of law.
But P.D. No. 426 amending the Local Tax Code is
deemed to have repealed Provincial Circulars issued by
the Secretary of Finance when Sections 19 and 19 (a),
were carried over into P.D. No. 426 and no exemptions
were given to manufacturers, wholesalers, retailers, or
dealers in petroleum products.
Well-settled is the rule that administrative regulations
must be in harmony with the provisions of the law. In
case of discrepancy between the basic law and an
implementing rule or regulation, the former prevails.
Furthermore, while Section 2 of P.D. 436 prohibits the
imposition of local taxes on petroleum products, said
decree did not amend Sections 19 and 19 (a) of P.D. 231
as amended by P.D. 426, wherein the municipality is
granted the right to levy taxes on business of
manufacturers, importers, producers of any article of
commerce of whatever kind or nature. A tax on
business is distinct from a tax on the article itself. Thus,
if the imposition of tax on business of manufacturers,
etc. in petroleum products contravenes a declared
national policy, it should have been expressly stated in
P.D. No. 436.
The exercise by local governments of the power to tax is
ordained by the present Constitution. To allow the
continuous effectivity of the prohibition set forth in PC
No. 26-73 (1) would be tantamount to restricting their
power to tax by mere administrative issuances. Under
Section 5, Article X of the 1987 Constitution, only
guidelines and limitations that may be established by
Congress can define and limit such power of local
governments. Thus:
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 . . .
Provincial Circular No. 6-77 enjoining all city and
municipal treasurers to refrain from collecting the so-
called storage fee on flammable or combustible
materials imposed in the local tax ordinance of their
respective locality frees petitioner PPC from the
payment of storage permit fee.
The storage permit fee being imposed by Pililla's tax
ordinance is a fee for the installation and keeping in
storage of any flammable, combustible or explosive
substances. Inasmuch as said storage makes use of
tanks owned not by the municipality of Pililla, but by
petitioner PPC, same is obviously not a charge for any
service rendered by the municipality as what is
envisioned in Section 37 of the same Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance
No. 1 prescribing a permit fee is a permit fee allowed
under Section 36 of the amended Code.
As to the authority of the mayor to waive payment of
the mayor's permit and sanitary inspection fees, the
trial court did not err in holding that "since the power to
tax includes the power to exempt thereof which is
essentially a legislative prerogative, it follows that a
municipal mayor who is an executive officer may not
unilaterally withdraw such an expression of a policy
thru the enactment of a tax." The waiver partakes of
the nature of an exemption. It is an ancient rule that
exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the
taxing authority (Esso Standard Eastern, Inc. v. Acting
Commissioner of Customs, 18 SCRA 488 [1966]). Tax
exemptions are looked upon with disfavor (Western
Minolco Corp. v. Commissioner of Internal Revenue,
124 SCRA 121 [1983]). Thus, in the absence of a clear
and express exemption from the payment of said fees,
the waiver cannot be recognized. As already stated, it is
the law-making body, and not an executive like the
mayor, who can make an exemption. Under Section 36
of the Code, a permit fee like the mayor's permit, shall
be required before any individual or juridical entity shall
engage in any business or occupation under the
provisions of the Code.
However, since the Local Tax Code does not provide the
prescriptive period for collection of local taxes, Article
1143 of the Civil Code applies. Said law provides that an
action upon an obligation created by law prescribes
within ten (10) years from the time the right of action
accrues. The Municipality of Pililla can therefore enforce
the collection of the tax on business of petitioner PPC
due from 1976 to 1986, and NOT the tax that had
accrued prior to 1976.
MCIA v Marcos
(Note: I think this case is irrelevant today because as
what we have discussed, recently the SC decided that
the NAIA is exempt from local tax. However, the taxes
paid by MCIA before cannot be refunded anymore.)
I included here some of the provisions in LGC.
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY
vs.
HON. FERDINAND J. MARCOS, in his capacity as the
Presiding Judge of the Regional Trial Court, Branch 20,
Cebu City, THE CITY OF CEBU, represented by its Mayor
HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
CESA, respondents.
FACTS:
Since the time of its creation, petitioner MCIAA enjoyed
the privilege of exemption from payment of realty taxes
in accordance with Section 14 of its Charter. However,
the Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels
of land belonging to the petitioner, located at Lahug,
Cebu City.
Petitioner objected to such demand for payment as
baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempt it from
payment of realty taxes. It was also asserted that it is an
instrumentality of the government performing
governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the
taxing powers of local government units:
Respondent City refused to cancel and set aside
petitioner's realty tax account, insisting that the MCIAA
is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of
Sections 193 and 234 of the Local Governmental Code
that took effect on January 1, 1992.
As the City of Cebu was about to issue a warrant of levy
against the properties of petitioner, the latter was
compelled to pay its tax account "under protest" and
thereafter filed a Petition for Declaratory. MCIAA ba ally
contended that the taxing powers of local government
units do not extend to the levy of taxes or fees of any
kind on an instrumentality of the national government.
Petitioner insisted that while it is indeed a government-
owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national
government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands
on the same footing as an agency or instrumentality of
the national government by the very nature of its
powers and functions.
Respondent City, however, asserted that MACIAA is not
an instrumentality of the government but merely a
government-owned corporation performing proprietary
functions As such, all exemptions previously granted to
it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local
Government Code.
RTC dismissed the petition. It reasoned out: RA 7160
expressly provides that "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." With that repealing clause in RA 7160, it is
safe to infer and state that the tax exemption provided
for in RA 6958 creating petitioner had been expressly
repealed by the provisions of the New Local
Government Code of 1991. So that petitioner in this
case has to pay the assessed realty tax of its properties.
Issue:
Whether or not the MCIAA may be taxed.
Petitioner’s contention:
First: Although it is a government-owned or controlled
corporation it is mandated to perform functions in the
same category as an instrumentality of Government. An
instrumentality of Government is one created to
perform governmental functions primarily to promote
certain aspects of the economic life of the
people. Considering its task "not merely to efficiently
operate and manage the MCIA, but more importantly,
to carry out the Government policies of promoting and
developing the Central Visayas and Mindanao regions as
centers of international trade and tourism, and
accelerating the development of the means of
transportation and communication in the country," and
that it is an attached agency of the DOTC, the petitioner
"may stand in the same footing as an agency or
instrumentality of the national government." Hence, its
tax exemption privilege under Section 14 of its Charter
"cannot be considered withdrawn with the passage of
the LGC because Section 133 thereof specifically states
that the taxing powers of local government units shall
not extend to the levy of taxes of fees or charges of any
kind on the national government its agencies and
instrumentalities."
Second: that being an instrumentality of the National
Government, respondent City of Cebu has no power nor
authority to impose realty taxes upon it in accordance
with the aforesaid Section 133 of the LGC, as explained
in Basco vs. Philippine Amusement and Gaming
Corporation;
Respondent’s Contention:
-As local a government unit and a political subdivision, it
has the power to impose, levy, assess, and collect taxes
within its jurisdiction. Such power is guaranteed by the
Constitution and enhanced further by the LGC. While it
may be true that under its Charter the petitioner was
exempt from the payment of realty taxes, this
exemption was withdrawn by Section 234 of the LGC.
- Petitioner is likewise a government-owned
corporation, and Section 234 thereof does not
distinguish between government-owned corporations
performing governmental and purely proprietary
functions. Petitioner is a governmental-owned
corporation, and to reject the application of Basco
because it was "promulgated . . . before the enactment
and the singing into law of R.A. No. 7160," and was not,
therefore, decided "in the light of the spirit and
intention of the framers of the said law.
SC Ruling:
Yes. MCIAA may be taxed.
There can be no question that under Section 14 of R.A.
No. 6958 the petitioner is exempt from the payment of
realty taxes imposed by the National Government or
any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the
rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of
the taxing authority. The only exception to this rule is
where the exemption was granted to private parties
based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by
the non-impairment clause of the Constitution.
The LGC, enacted pursuant to Section 3, Article X of the
constitution provides for the exercise by local
government units of their power to tax, the scope
thereof or its limitations, and the exemption from
taxation. (Read Sec 133 of the LGC)
Sec. 133. Common Limitations on the Taxing Power of
Local Government Units. — Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.
Among the "taxes" enumerated in the LGC is real
property tax, which is governed by Section 232. It reads
as follows:
Sec. 232. Power to Levy Real Property Tax. — A province
or city or a municipality within the Metropolitan Manila
Area may levy on an annual ad valorem tax on real
property such as land, building, machinery and other
improvements not hereafter specifically exempted.
Section 234 of LGC provides for the exemptions from
payment of real property taxes and withdraws previous
exemptions therefrom granted to natural and juridical
persons, including government owned and controlled
corporations, except as provided therein.
Section 193 of the LGC is the general provision on
withdrawal of tax exemption privileges.
Sec. 193. Withdrawal of Tax Exemption Privileges. —
Unless otherwise provided in this code, tax exemptions
or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including
government-owned, or controlled corporations, except
local water districts, cooperatives duly registered under
R.A. 6938, non stock and non profit hospitals and
educational constitutions, are hereby withdrawn upon
the effectivity of this Code.
Reading together Section 133, 232 and 234 of the LGC,
we conclude that as a general rule, as laid down in
Section 133 the taxing powers of local government units
cannot extend to the levy of inter alia, "taxes, fees, and
charges of any kind of the National Government, its
agencies and instrumentalties, and local government
units"; however, pursuant to Section 232, provinces,
cities, municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia,
"real property owned by the Republic of the Philippines
or any of its political subdivisions except when the
beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person", as
provided in item (a) of the first paragraph of Section
234.
As to tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons,
including government-owned and controlled
corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the
effectivity of the LGC, except upon the effectivity of the
LGC, except those granted to local water districts,
cooperatives duly registered under R.A. No. 6938, non
stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC.
The latter proviso could refer to Section 234, which
enumerates the properties exempt from real property
tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption in so far as the
real property taxes are concerned by limiting the
retention only to those enumerated there-in; all others
not included in the enumeration lost the privilege upon
the effectivity of the LGC. Moreover, even as the real
property is owned by the Republic of the Philippines, or
any of its political subdivisions covered by item (a) of
the first paragraph of Section 234, the exemption is
withdrawn if the beneficial use of such property has
been granted to taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions
from real property taxes granted to natural or juridical
persons, including government-owned or controlled
corporations, except as provided in the said section, and
the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption
from such tax granted it in Section 14 of its charter, R.A.
No. 6958, has been withdrawn.
Petitioner can no longer invoke the general rule in
Section 133 that the taxing powers of the local
government units cannot extend to the levy of: (o)
taxes, fees, or charges of any kind on the National
Government, its agencies, or instrumentalities, and
local government units.
Not Relevant to the taxation power but can be read for
review purposes in Constitutional law. (RP; agency;
instrumentality)
This view does not persuade us. In the first place, the
petitioner's claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and in the
second place it fails to consider the fact that the
legislature used the phrase "National Government, its
agencies and instrumentalities" "in Section 133(o),but
only the phrase "Republic of the Philippines or any of its
political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National
Government" are not interchangeable. The former is
boarder and synonymous with "Government of the
Republic of the Philippines" which the Administrative
Code of the 1987 defines as the "corporate
governmental entity though which the functions of the
government are exercised through at the Philippines,
including, saves as the contrary appears from the
context, the various arms through which political
authority is made effective in the Philippines, whether
pertaining to the autonomous reason, the provincial,
city, municipal or barangay subdivision or other forms
of local government." These autonomous regions,
provincial, city, municipal or barangay subdivisions" are
the political subdivision.
On the other hand, "National Government" refers "to
the entire machinery of the central government, as
distinguished from the different forms of local
Governments." The National Government then is
composed of the three great departments the
executive, the legislative and the judicial.
An "agency" of the Government refers to "any of the
various units of the Government, including a
department, bureau, office instrumentality, or
government-owned or controlled corporation, or a local
government or a distinct unit therein;" while an
"instrumentality" refers to "any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction
by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy; usually through a charter. This term includes
regulatory agencies, chartered institutions and
government-owned and controlled corporations".
Other issues:
(a) whether the parcels of land in question belong to
the Republic of the Philippines whose beneficial use has
been granted to the petitioner
(b) whether the petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides that the
"airports" referred to are the "Lahug Air Port" in Cebu
City and the "Mactan International AirPort in the
Province of Cebu", which belonged to the Republic of
the Philippines, then under the Air Transportation
Office (ATO).
It may be reasonable to assume that the term "lands"
refer to "lands" in Cebu City then administered by the
Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real
property taxes. This section involves a "transfer" of the
"lands" among other things, to the petitioner and not
just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the
Philippines.
This "transfer" is actually an absolute conveyance of the
ownership thereof because the petitioner's authorized
capital stock consists of, inter alia "the value of such
real estate owned and/or administered by the
airports." Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of
the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never
a "taxable person" under its Charter. It was only
exempted from the payment of real property taxes. The
grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property
tax.
Even if the petitioner was originally not a taxable person
for purposes of real property tax, in light of the forgoing
disquisitions, it had already become even if it be
conceded to be an "agency" or "instrumentality" of the
Government, a taxable person for such purpose in view
of the withdrawal in the last paragraph of Section 234
of exemptions from the payment of real property taxes,
which, as earlier adverted to, applies to the petitioner.
Reliance on Basco vs. Philippine Amusement and
Gaming Corporation is unavailing since it was decided
before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even
instrumentalities or agencies of the government
performing governmental functions may be subject to
tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its
wisdom.
City Government of Quezon City v Bayan Telecom
MISSING
Manila International Airport Authority v. CA
PRINCIPLE:
MIAA is exempt from real estate tax because:
1. It is not a GOCC but an instrumentality of the
National Government. LGUs may only tax
GOCCs, not instrumentalities [Sec 133(o) in
relation to Sec 234(a)]
2. 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
3. When local governments invoke the power to
tax on national government instrumentalities,
such power is construed strictly against local
governments.
4. 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.
5. 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.
6. Doctrine emanates from the "supremacy" of
the National Government over local
governments - 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)
7. 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.
FACTS: MIAA was created in 1983 by Executive Order
903 (MIAA Charter) to operate the NAIA Complex in
Paranaque City.
The MIAA Charter provides that no portion of the land
transferred to MIAA shall be disposed of through sale or
any other mode unless specifically approved by the
President of the Philippines. MIAA is also exempt from
real estate tax.
In 1991, the Local Government Code was enacted
wherein Section 193 expressly withdrew the tax
exemption privileges of "government-owned and-
controlled corporations."
The City of Parañaque imposed real estate tax and sent
Final Notices of Real Estate Tax Delinquency for the
taxable years 1992 to 2001. The City then issued notices
of levy and warrants of levy on the Airport Lands and
Buildings and later, a public auction sale was scheduled
for the MIAA properties.
MIAA filed with the Court of Appeals an original petition
for prohibition and injunction to stop the public auction
but the TRO was served only after the auction sale.
MIAA Arguments:
 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
 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.
City of Paranaque Arguments:
 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.
 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.
 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.
ISSUE: WON the Local Government Code has withdrew
the exemption from real estate tax of MIAA
HELD: No. MIAA's Airport Lands and Buildings are
exempt from real estate tax imposed by local
governments.
MIAA NOT A GOCC BUT AN INSTRUMENTALITY OF THE
NATIONAL GOVERNMENT
First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local taxation.
 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 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. This
prevents MIAA from qualifying as a non-stock
corporation.
 MIAA is a government instrumentality vested
with corporate powers to perform efficiently its
governmental functions. MIAA is like any other
government instrumentality, the only difference
is that MIAA is vested with corporate powers.
When the law vests in a government
instrumentality corporate powers, the
instrumentality does not become a corporation.
Unless the government instrumentality is
organized as a stock or non-stock corporation, it
remains a government instrumentality
exercising not only governmental but also
corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain,
police authority and the levying of fees and
charges. 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." 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" will make its operation
more "financially viable."
TAXATION
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.
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
REAL PROPERTIES OWNED BY THE REPUBLIC AND
EXEMPT FROM REAL ESTATE TAX
Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real
estate tax.
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 Airport Lands
and Buildings are devoted to public use because they
are used by the public for international and domestic
travel and transportation.
As properties of public dominion, the Airport Lands
and Buildings are outside the commerce of man.
Before MIAA can encumber26 the Airport Lands and
Buildings, the President must first withdraw from
public use the Airport Lands and Buildings.
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." 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.
Digital Telecom v Pangasinan
Digitel telecommunications vs Province of pangasinan
Facts: The present petition stemmed from a Complaint
for Mandamus, Collection of Sum of Money and
Damages instituted by the Province of Pangasinan
against Digital Telecommunications Philippines, Inc.
Section 137 LGC withdrew any exemption from the
payment of franchise tax by authorizing the LGUs to
impose a franchise tax on businesses at a rate not
exceeding 50% of 1% of the gross annual receipts of the
business. Section 232 also authorizes the imposition of
an ad valorem tax on real property by the LGUs within
the Metropolitan Manila Area wherein the land,
building, machinery and other improvement not
thereinafter specifically exempted.
Digitel was granted, under Provincial Ordinance No. 18-
92, a provincial franchise to install, maintain and
operate a telecommunications system within
Pangasinan. Under the Sec 6 of the provincial franchise,
the grantee is required to pay franchise and real
property taxes.
The Sangguniang Panlalawigan also enacted Provincial
Tax Ordinance 1 (Real Property Tax Ordinance of 1992).
Section 4, however, expanded the application of Sec. 6
of the provincial franchise of Digitel to include
machineries and other improvements, not thereinafter
exempted,. Provincial Tax Ordinance No 4 was then
enacted. Sections 4, 5 and 6 positively imposed a
franchise tax on businesses enjoying a franchise within
the province of Pangasinan.
Thereafter, Digitel was granted by RA 7678 a legislative
franchise. Under its legislative franchise, particularly
Sec. 5 thereof, petitioner DIGITEL became liable for the
payment of a franchise tax “as may be prescribed by
law of all gross receipts of the telephone or other
telecommunications businesses transacted under it by
the grantee,” as well as real property tax “on its real
estate, and buildings “exclusive of this franchise.”
Later, the Province of Pangasinan found that Digitel had
a franchise tax deficiency for the years of 1992, 1993
and 1994.
In the interregnum, on 16 March 1995, Congress passed
RA 7925, otherwise known as “The Public
Telecommunications Policy Act of the Philippines.”
Section 23 of this law entitled Equality of Treatment in
the Telecommunications Industry, provided for the ipso
facto application to any previously granted
telecommunications franchises of any advantage, favor,
privilege, exemption or immunity granted under
existing franchises, or those still to be granted, to be
accorded immediately and unconditionally to earlier
grantees.
Thereafter, Digitel opposed Pangasinan’s claim on the
ground that prior to the approval of its legislative
franchise, its operation of a telecommunications system
was done under a Facilities Management Agreement it
had previously executed with the DOTC. It clarified that
since “the facilities in Pangasinan are just part of the
government owned facilities awarded to DIGITEL,” not
only did the DOTC retain ownership of said facilities, the
latter likewise “provided for the budget for) expenses
under its allocation from the government;” hence, “all
revenues generated from the operation of the facilities
inured to the DOTC;” and all the fees received by
petitioner DIGITEL were purely for services rendered.
Further, it argued that under its legislative franchise,
the payment of a franchise tax to the BIR would be “in
lieu of all taxes” on said franchise or the earnings
therefrom.
The Province of Pangasinan filed a Complaint for
Mandamus, Collection of Sum of Money and Damages
before Branch 68 of the RTC of Lingayen, Pangasinan.
The trial court decided the Province. It ruled that
Digitel’s legislative franchise does not work to exempt
the latter from payment of provincial franchise and real
property taxes. It ruled that provincial and legislative
franchises are separate and distinct from each other.
Moreover, it pointed out that LGC already withdrew any
exemption granted to anyone.
On the other hand, Digitel maintains that its legislative
franchise being an earlier enactment, by virtue of
Section 23 of Republic Act No. 7925, the ipso facto,
immediate and unconditional application to it of the tax
exemption found in the franchises of Globe, Smart and
Bell. Stated simply, Section 23 of Republic Act No. 7925,
in relation to the pertinent provisions of the legislative
franchises of Globe, Smart and Bell, “the national
franchise tax for which Digitel is liable to pay shall be ‘in
lieu of any and all taxes of any kind, nature or
description levied, established or collected by any
authority whatsoever, municipal, provincial, or national,
from which the grantee is hereby expressly granted.’
ISSUE:
a.) WON Digitel is exempt from the payment of
provincial franchise tax in view of Section 23 of
RA 7925 in relation to the exemptions enjoyed
by other telcos.
b.) WON Digitel is exempt from payment of real
estate tax under its legislative franchise.
RULING:
a.) No: Prior to the enactment of its legislative
franchise, Digitel did not enjoy any exemption
from the payment of franchise and real
property taxes. In fact the provincial franchise
made Digitel liable for the payment of such
taxes.
The case at bar is actually not one of first impression.
Indeed, as far back as 2001, this Court has had the
occasion to rule against the claim for tax exemption
under RA 7925. In the case of PLDT v. City of Davao, we
already clarified the confusion brought about by the
effect of Section 23 of Republic Act No. 7925 – that the
word “exemption” as used in the statute refers or
pertains merely to an exemption from regulatory or
reporting requirements of the DOTC or the NTC and
not to the grantee’s tax liability. In said case, the Court
ruled that Congress did not intend Section 23 to
operate as a blanket tax exemption to all telcos.
Moreover, tax exemptions must be expressed in the
statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption.
And, even if it is granted, the exemption must be
interpreted in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
Moreover, it ruled that PLDT’s theory will leave the
Government with the burden of having to keep track of
all granted telecommunications franchises, lest some
companies be treated unequally. It is different if
Congress enacts a law specifically granting uniform
advantages, favor, privilege, exemption, or immunity to
all telecommunications entities. R.A. No. 7925 is thus a
legislative enactment designed to set the national policy
on telecommunications and provide the structures to
implement it to keep up with the technological
advances in the industry and the needs of the public.
The thrust of the law is to promote gradually the
deregulation of the entry, pricing, and operations of all
public telecommunications entities and thus promote a
level playing field in the telecommunications industry.
There is nothing in the language of §23 nor in the
proceedings of both the House of Representatives and
the Senate in enacting R.A. No. 7925 which shows that
it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose
exemptions had been withdrawn by the LGC. The issue
is then settled, the Court has no recourse but to deny
Digitel’s claim for exemption from payment of
provincial franchise tax. The foregoing pronouncement
notwithstanding, in view of the passage of RA 7716
abolishing the franchise tax imposed on
telecommunications companies effective 1 January
1996 and in its place is imposed a 10% VAT, the “in-lieu-
of-all-taxes” clause/provision in the legislative
franchises of Globe, Smart and Bell, among others, has
now become functus officio, made inoperative for lack
of a franchise tax. Therefore, taking into consideration
the above, from 1 January 1996, Digitel ceased to be
liable for national franchise tax and in its stead is
imposed a 10% VAT in accordance with Section 108 of
the Tax Code.
b.) Yes. Pertinent Provision: SECTION 5. Tax
Provisions. – The grantee shall be liable to pay
the same taxes on its 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 x x x.
Owing to the phrase “exclusive of this
franchise,” petitioner DIGITEL stands firm in its
position that it is equally exempt from the
payment of real property tax. It maintains that
said phrase found in Section 5 qualifies or
delimits the scope of its liability respecting real
property tax –that real property tax should only
be imposed on its assets that are actually,
directly and exclusively used in the conduct of
its business pursuant to its franchise. According
to the Province, however, “the phrase ‘exclusive
of this franchise’ in the legislative franchise of
Digitel did not specifically or categorically
express that such franchise grant intended to
provide privilege to the extent of impliedly
repealing RA 7160.” Thus, the question is,
whether or not petitioner DIGITEL’s real
properties located within the territorial
jurisdiction of respondent Province of
Pangasinan are exempt from real property
taxes by virtue of Section 5 of Republic Act No.
7678. We rule in the affirmative. However, it is
with the caveat that such exemption solely
applies to those real properties actually, directly
and exclusively used by the grantee in its
franchise.
The present issue actually boils down to a dispute
between the inherent taxing power of Congress and the
delegated authority to tax of the local government
borne by the 1987 Constitution. In the PLDT v. City of
Davao, we already sustained the power of Congress to
grant exemptions over and above the power of the
local government’s delegated taxing authority
notwithstanding the source of such power. Had
Congress intended to tax each and every real property
of Digitel, regardless of whether or not it is used in the
business or operation of its franchise, it would not have
incorporated a qualifying phrase, which such
manifestation admittedly is. And, to our minds, “the
issue in this case no longer dwells on whether Congress
has the power to exempt” Digitel’s properties from
realty taxes by its enactment of RA 7678 which contains
the phrase “exclusive of this franchise,” in the face of
the mandate of the Local Government Code. The more
pertinent issue to consider is whether or not, by passing
Ra7678, Congress intended to exempt Digitel’s real
properties actually, directly and exclusively used by the
grantee in its franchise. The fact that Republic Act No.
7678 was a later piece of legislation can be taken to
mean that Congress, knowing fully well that the Local
Government Code had already withdrawn exemptions
from real property taxes, chose to restore such
immunity even to a limited degree. In view of the
unequivocal intent of Congress to exempt from real
property tax those real properties actually, directly and
exclusively used by petitioner DIGITEL in the pursuit of
its franchise, respondent Province of Pangasinan can
only levy real property tax on the remaining real
properties of the grantee located within its territorial
jurisdiction not part of the above-stated classification.
Said exemption, however, merely applies from the time
of the effectivity of petitioner DIGITEL’s legislative
franchise and not a moment sooner.
In fine, petitioner DIGITEL is found accountable to
respondent Province of Pangasinan for the following tax
liabilities: 1) as to provincial franchise tax, from 13
November 1992 until actually paid; and 2) as to real
property tax, for the period starting from 13 November
1992 until 28 December 1992, it shall be imposed only
on the lands and buildings of petitioner DIGITEL located
within the subject jurisdiction; for the period
commencing from 29 December 1992 until 16 February
1994, in addition to the lands and buildings
aforementioned, it shall similarly be imposed on
machineries and other improvements; and, by virtue of
the National Franchise of petitioner DIGITEL or Republic
Act No. 7678, in accordance with the Court’s ruling in
the abovementioned Bayantel case, from the date of
effectivity on 17 February 1994 until the present, it shall
be imposed only on real properties NOT actually,
directly and exclusively used in the franchise of
petitioner DIGITEL. In addition to the foregoing
summary, pertinent provisions of law respecting
interests, penalties and surcharges shall also be made
to apply to herein subject tax liabilities.
City of Iloilo v Smart Communications
CITY OF ILOILO v. SMART TELECOMMUNICATIONS
PRINCIPLES:
Section 193. Withdrawal of Tax Exemption Privileges of
the LGC applies only to those tax exemption privileges
granted prior to the effectivity of the Code.
FACTS:
SMART received a letter of assessment dated February
12, 2002 from petitioner requiring it to pay deficiency
local franchise and business taxes. SMART protested
claiming that the exemption from payment of local
franchise and business taxes based on Section 9 of its
legislative franchise under Republic Act (R.A.) No. 7294
(SMARTs franchise). Under SMARTs franchise, it was
required to pay a franchise tax equivalent to 3% of all
gross receipts, which amount shall be in lieu of all
taxes. SMART contends that the in lieu of all taxes clause
covers local franchise and business taxes.
Through a letter, petitioner denied SMARTs protest,
citing the failure of SMART to comply with Section 252
of R.A. No. 7160 or the Local Government Code (LGC)
before filing the protest against the assessment. Section
252 of the LGC requires payment of the tax before any
protest against the tax assessment can be made.
SMART filed a case against petitioner with the RTC. RTC
decided in favor of SMART.
ISSUE:
WON SEC. 193 of LGC applied to the exemption granted
to SMART.
HELD:
No…
Section 193. Withdrawal of Tax
Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions
or incentives granted to, or presently
enjoyed by all persons, whether
natural or juridical, including
government-owned or controlled
corporations, except local water
districts, cooperatives duly registered
under RA No. 6938, non-stock and non-
profit hospitals and educational
institutions, are hereby withdrawn
upon the effectivity of this
Code. [Emphasis supplied.]
The petitioner argues, too, that SMARTs claim for
exemption from taxes under Section 9 of its franchise is
not couched in plain and unequivocal language such
that it restored the withdrawal of tax exemptions under
Section 193 above. It claims that if Congress intended
that the tax exemption privileges withdrawn by Section
193 of RA 7160 [LGC] were to be restored in
respondents [SMARTs] franchise, it would have so
expressly provided therein and not merely [restored the
exemption] by the simple expedient of including the in
lieu of all taxes provision in said franchise.[10]
We have indeed ruled that by virtue of Section 193 of
the LGC, all tax exemption privileges then enjoyed by all
persons, save those expressly mentioned, have been
withdrawn effective January 1, 1992 the date of
effectivity of the LGC.[11] The first clause of Section 137
of the LGC states the same rule.[12] However, the
withdrawal of exemptions, whether under Section
193 or 137 of the LGC, pertains only to those
already existing when the LGC was enacted. The
intention of the legislature was to remove all tax
exemptions or incentives granted prior to the
LGC.[13] As SMARTs franchise was made effective
on March 27, 1992 after the effectivity of the LGC
Section 193 will therefore not apply in this case.
GSIS v City Treasurer of Manila MISSING
Pimentel v Aguirre
Taxation: Just Share in the National Taxes
Facts:
On December 27, 1997, the President of the
Philippines issued AO 372 entitled ADOPTION OF
ECONOMY MEASURES IN GOVERNMENT FOR FY 1998.
The AO was made because of the depreciation of peso
during that time.
Petitioner seeks to annul Sec. 1 and Sec. 4 of the AO 372
on the grounds that:
1. insofar as it requires local government units to
reduce their expenditures by 25 percent of their
authorized regular appropriations for non-
personal services; (Sec. 1) and
2. to enjoin respondents from implementing
Section 4 of the Order, which withholds a
portion of their internal revenue allotments.
The following are the Sections of the AO the petitioner
seeks to annul:
SECTION 1. All government departments and agencies,
including state universities and colleges, government-
owned and controlled corporations and local
governments units will identify and implement
measures in FY 1998 that will reduce total
expenditures for the year by at least 25% of authorized
regular appropriations for non-personal services
items…xxx
SECTION 4. Pending the assessment and evaluation by
the Development Budget Coordinating Committee of
the emerging fiscal situation, the amount equivalent to
10% of the internal revenue allotment to local
government units shall be withheld.
Issue:
"A. Whether or not the president committed grave
abuse of discretion in ordering all LGUS to adopt a 25%
cost reduction program in violation of the LGU’S fiscal
autonomy
"B. Whether or not the president committed grave
abuse of discretion in ordering the withholding of 10%
of the LGU’S IRA”
Ruling:
A. Alleged Violation on LGU’S Fiscal Autonomy
No. Section 1 of the AO is merely an advisory not a
mandate. Hence, the President did not exercise power
of control over the LGU so there is no violation on fiscal
autonomy.
Under existing law, local government units, in addition
to having administrative autonomy in the exercise of
their functions, enjoy fiscal autonomy as well. Fiscal
autonomy means that local governments have the
power 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.
Local fiscal autonomy does not however rule out any
manner of national government intervention by way of
supervision, in order to ensure that local programs,
fiscal and otherwise, are consistent with national
goals. Significantly, the President, by constitutional fiat,
is the head of the economic and planning agency of the
government.
However, under the Constitution, the formulation and
the implementation of such policies and programs are
subject to "consultations with the appropriate public
agencies, various private sectors, and local government
units." The President cannot do so unilaterally.
Section 284 of the LGC provides:
"x x x [I]n the event the national government incurs an
unmanaged public sector deficit, the President of the
Philippines is hereby authorized, upon the
recommendation of [the] Secretary of Finance,
Secretary of the Interior and Local Government and
Secretary of Budget and Management, and subject to
consultation with the presiding officers of both Houses
of Congress and the presidents of the liga, to make the
necessary adjustments in the internal revenue
allotment of local government units but in no case shall
the allotment be less than thirty percent (30%) of the
collection of national internal revenue taxes of the third
fiscal year preceding the current fiscal year x x x."
There are therefore several requisites before the
President may interfere in local fiscal matters:
(1) an unmanaged public sector deficit of the national
government;
(2) consultations with the presiding officers of the
Senate and the House of Representatives and the
presidents of the various local leagues; and
(3) the corresponding recommendation of the
secretaries of the Department of Finance, Interior and
Local Government, and Budget and Management.
While the wordings of Section 1 of AO 372 have a rather
commanding tone, and while we agree with petitioner
that the requirements of Section 284 of the Local
Government Code have not been satisfied, we are
prepared to accept the solicitor general's
assurance that the directive to "identify and implement
measures x x x that will reduce total expenditures x x
x by at least 25% of authorized regular appropriation" is
merely advisory in character, and does not constitute a
mandatory or binding order that interferes with local
autonomy. The language used, while authoritative, does
not amount to a command that emanates from a boss
to a subaltern.
Rather, the provision is merely an advisory to prevail
upon local executives to recognize the need for fiscal
restraint in a period of economic difficulty. Indeed, all
concerned would do well to heed the President's call to
unity, solidarity and teamwork to help alleviate the
crisis. It is understood, however, that no legal sanction
may be imposed upon LGUs and their officials who do
not follow such advice. It is in this light that we sustain
the solicitor general's contention in regard to Section 1.
B. The withholding of the IRA (Just share from
national tax)
Yes. The President committed grave abuse of discretion
in withholding the IRA of the LGU.
Section 4 of AO 372 cannot, however, be upheld. A
basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the
national internal revenue. This is mandated by no less
than the Constitution (Sec. 6 of Art. X of the
Constitution). The Local Government Code [Sec. 286
(a)] specifies further that the release shall be made
directly to the LGU concerned within five (5) days after
every quarter of the year and "shall not be subject to
any lien or holdback that may be imposed by the
national government for whatever purpose." As a rule,
the term "shall" is a word of command that must be
given a compulsory meaning. The provision is,
therefore, imperative.
Section 4 of AO 372, however, orders the withholding,
effective January 1, 1998, of 10 percent of the LGUs' IRA
"pending the assessment and evaluation by the
Development Budget Coordinating Committee of the
emerging fiscal situation" in the country. Such
withholding clearly contravenes the Constitution and
the law. Although temporary, it is equivalent to a
holdback, which means "something held back or
withheld, often temporarily."[32] Hence, the "temporary"
nature of the retention by the national government
does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an
advisory effected in times of national crisis, Section 4
thereof has no color of validity at all. The latter
provision effectively encroaches on the fiscal autonomy
of local governments. Concededly, the President was
well-intentioned in issuing his Order to withhold the
LGUs IRA, but the rule of law requires that even the
best intentions must be carried out within the
parameters of the Constitution and the law. Verily,
laudable purposes must be carried out by legal
methods.
Villafuerte v Robredo
The Facts
In 1995, the Commission on Audit (COA) conducted an
examination and audit on the manner the local
government units (LGUs) utilized their Internal Revenue
Allotment (IRA) for the calendar years 1993-1994. The
examination yielded an official report, showing that a
substantial portion of the 20% development fund of
some LGUs was not actually utilized for development
projects but was diverted to expenses properly
chargeable against the Maintenance and Other
Operating Expenses (MOOE), in stark violation of
Section 287 of R.A. No. 7160, otherwise known as the
Local Government Code of 1991 (LGC). Thus, on
December 14, 1995, the DILG issued MC No. 95-216,5
enumerating the policies and guidelines on the
utilization of the development fund component of the
IRA. It likewise carried a reminder to LGUs of the strict
mandate to ensure that public funds, like the 20%
development fund, “shall be spent judiciously and only
for the very purpose or purposes for which such funds
are intended.”6
On September 20, 2005, then DILG Secretary Angelo T.
Reyes and Department of Budget and Management
Secretary Romulo L. Neri issued Joint MC No. 1, series of
2005,7 pertaining to the guidelines on the appropriation
and utilization of the 20% of the IRA for development
projects, which aims to enhance accountability of the
LGUs in undertaking development projects. The said
memorandum circular underscored that the 20% of the
IRA intended for development projects should be
utilized for social development, economic development
and environmental management.8
On August 31, 2010, the respondent, in his capacity as
DILG Secretary, issued the assailed MC No. 2010-83,9
entitled “Full Disclosure of Local Budget and Finances,
and Bids and Public Offerings,” which aims to promote
good governance through enhanced transparency and
accountability of LGUs.
Issue:
THE HON. SECRETARY OF THE INTERIOR AND LOCAL
GOVERNMENT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN HE ISSUED THE ASSAILED
MEMORANDUM CIRCULARS IN VIOLATION OF THE
PRINCIPLES OF LOCAL AUTONOMY AND FISCAL
AUTONOMY ENSHRINED IN THE 1987 CONSTITUTION
AND THE LOCAL GOVERNMENT CODE OF 1991[.]
Ruling of the Court
The petitioners argue that the assailed issuances of the
respondent interfere with the local and fiscal autonomy
of LGUs embodied in the Constitution and the LGC. In
particular, they claim that MC No. 2010-138
transgressed these constitutionally-protected liberties
when it restricted the meaning of “development” and
enumerated activities which the local government must
finance from the 20% development fund component of
the IRA and provided sanctions for local authorities who
shall use the said component of the fund for the
excluded purposes stated therein.33 They argue that the
respondent cannot substitute his own discretion with
that of the local legislative council in enacting its annual
budget and specifying the development projects that
the 20% component of its IRA should fund.34
The argument fails to persuade.
To safeguard the state policy on local autonomy, the
Constitution confines the power of the President over
LGUs to mere supervision.39 “The President exercises
‘general supervision’ over them, but only to ‘ensure
that local affairs are administered according to law.’ He
has no control over their acts in the sense that he can
substitute their judgments with his own.”40 Thus,
Section 4, Article X of the Constitution, states:
Section 4. The President of the Philippines shall exercise
general supervision over local governments. Provinces
with respect to component cities and municipalities,
and cities and municipalities with respect to component
barangays, shall ensure that the acts of their
component units are within the scope of their
prescribed powers and functions.
In Province of Negros Occidental v. Commissioners,
Commission on Audit,41 the Court distinguished general
supervision from executive control in the following
manner:
The President’s power of general supervision means the
power of a superior officer to see to it that subordinates
perform their functions according to law. This is
distinguished from the President’s power of control
which is the power to alter or modify or set aside what
a subordinate officer had done in the performance of
his duties and to substitute the judgment of the
President over that of the subordinate officer. The
power of control gives the President the power to
revise or reverse the acts or decisions of a subordinate
officer involving the exercise of discretion.42 (Citations
omitted)
It is the petitioners’ contention that the respondent
went beyond the confines of his supervisory powers, as
alter ego of the President, when he issued MC No.
2010-138. They argue that the mandatory nature of the
circular, with the threat of imposition of sanctions for
non-compliance, evinces a clear desire to exercise
control over LGUs.43
The Court, however, perceives otherwise.
A reading of MC No. 2010-138 shows that it is a mere
reiteration of an existing provision in the LGC. It was
plainly intended to remind LGUs to faithfully observe
the directive stated in Section 287 of the LGC to utilize
the 20% portion of the IRA for development projects. It
was, at best, an advisory to LGUs to examine
themselves if they have been complying with the law. It
must be recalled that the assailed circular was issued in
response to the report of the COA that a substantial
portion of the 20% development fund of some LGUs
was not actually utilized for development projects but
was diverted to expenses more properly categorized as
MOOE, in violation of Section 287 of the LGC. This
intention was highlighted in the very first paragraph of
MC No. 2010-138.
The petitioners misread the issuance by claiming that
the provision of sanctions therein is a clear indication of
the President’s interference in the fiscal autonomy of
LGUs. The relevant portion of the assailed issuance
reads, thus:
All local authorities are further reminded that utilizing
the 20% component of the Internal Revenue Allotment,
whether willfully or through negligence, for any purpose
beyond those expressly prescribed by law or public
policy shall be subject to the sanctions provided under
the Local Government Code and under such other
applicable laws.45
Significantly, the issuance itself did not provide for
sanctions. It did not particularly establish a new set of
acts or omissions which are deemed violations and
provide the corresponding penalties therefor. It simply
stated a reminder to LGUs that there are existing rules
to consider in the disbursement of the 20%
development fund and that non-compliance therewith
may render them liable to sanctions which are provided
in the LGC and other applicable laws. Nonetheless, this
warning for possible imposition of sanctions did not
alter the advisory nature of the issuance.
At any rate, LGUs must be reminded that the local
autonomy granted to them does not completely severe
them from the national government or turn them into
impenetrable states. Autonomy does not make local
governments sovereign within the state.46 In Ganzon v.
Court of Appeals,47 the Court reiterated:
Autonomy, however, is not meant to end the relation of
partnership and interdependence between the central
administration and local government units, or
otherwise, to usher in a regime of federalism. The
Charter has not taken such a radical step. Local
governments, under the Constitution, are subject to
regulation, however limited, and for no other purpose
than precisely, albeit paradoxically, to enhance self-
government.48
Thus, notwithstanding the local fiscal autonomy being
enjoyed by LGUs, they are still under the supervision of
the President and maybe held accountable for
malfeasance or violations of existing laws. “Supervision
is not incompatible with discipline. And the power to
discipline and ensure that the laws be faithfully
executed must be construed to authorize the President
to order an investigation of the act or conduct of local
officials when in his opinion the good of the public
service so requires.”49
Clearly then, the President’s power of supervision is not
antithetical to investigation and imposition of sanctions
WHEREFORE, in view of the foregoing considerations,
the petition is DISMISSED for lack of merit.
SO ORDERED.
POLICE POWER
City of Gen Santos v. COA
CITY OF GENERAL SANTOS vs. COMMISSION ON AUDIT
Doctrine:
In order to be able to deliver more effective and
efficient services, the law allows local government units
the power to reorganize. In doing so, they should be
given leeway to entice their employees to avail of
severance benefits that the local government can
afford. However, local government units may not
provide such when it amounts to a supplementary
retirement benefit scheme.
Facts:
City of Gensa issued Ordinance No. 08 (Scheme on Early
Retirement for Valued Employees Security Scheme on
Early Retirement for Valued Employees Security -
SERVES), designed "to entice those employees who were
unproductive due to health reasons to avail of the
incentives being offered therein by way of early
retirement package."
The contextual background in the passing of Ordinance
No. 08, series of 2009, was not contested by respondent
Commission on Audit.
However, in response to the endorsement of the city
audit team leader, respondent Commission’s regional
director agreed that the grant lacked legal basis.
The Commission’s regional director forwarded the
matter to the Office of General Counsel which issued
COA-LSS Opinion No. 2010-021. Respondent
Commission on Audit observed that GenSan SERVES
was not based on a law passed by Congress but on
ordinances and resolutions passed and approved by the
Sangguniang Panlungsod and Executive Orders by the
city mayor. Moreover, nowhere in Republic Act No.
7160, otherwise known as the Local Government Code,
does it provide a specific power for local government
units to establish an early retirement program.
Issue:
Whether Gensan has the power to reorganize through
ordinance no. 08 without requiring a law authorizing it
for its validity.
Held:
Yes. The constitutional mandate for local autonomy
supports petitioner city’s issuance of Executive Order
No. 40, series of 2008, creating change management
teams as an initial step for its organization development
masterplan.
Local autonomy also grants local governments the
power to streamline and reorganize. This power is
inferred from Section 76 of the Local Government Code
on organizational structure and staffing pattern, and
Section 16 otherwise known as the general welfare
clause:
Section 76. Organizational Structure and Staffing
Pattern. - Every local government unit shall design and
implement its own organizational structure and staffing
pattern taking into consideration its service
requirements and financial capability, subject to the
minimum standards and guidelines prescribed by the
Civil Service Commission.
Section 16. General Welfare. - Every local government
unit shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient and
effective governance, and those which are essential to
the promotion of the general welfare. Within their
respective territorial jurisdictions, local government
units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health
and safety, enhance the right of the people to a
balanced ecology, encourage and support the
development of appropriate and self-reliant scientific
and technological capabilities, improve public morals,
enhance economic prosperity and social justice,
promote full employment among their residents,
maintain peace and order, and preserve the comfort
and convenience of their inhabitants.
Section 5, paragraph (a) of the Local Government Code
states that "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 or devolution of powers x x x."
Section 5, paragraph (c) also provides that "the general
welfare provisions in this Code shall be liberally
interpreted to give more powers to local government
units in accelerating economic development and
upgrading the quality of life for the people in the
community." These rules of interpretation emphasize
the policy of local autonomy and the devolution of
powers to the local government units.
Designing and implementing a local government unit’s
own "organizational structure and staffing pattern" also
implies the power to revise and reorganize. Without
such power, local governments will lose the ability to
adjust to the needs of its constituents. Effective and
efficient governmental services especially at the local
government level require rational and deliberate
changes planned and executed in good faith from time
to time.
(However, thought the reorganization has legal basis,
the Court nevertheless partially granted the validity of
said Ordinance because some of its provisions run
contrary to law. To this effect the following is for your
guidance, but this is not necessary as to the topic
concerns us)
The Court agree with respondent Commission on Audit
but only insofar as the invalidity of Section 5 of the
ordinance is concerned.
Section 5. GenSan SERVES Program Incentives On Top of
Government Service Insurance System (GSIS) and PAG-
IBIG Benefits – Any personnel qualified and approved to
receive the incentives of this program shall be entitled
to whatever retirement benefits the GSIS or PAG-IBIG is
granting to a retiring government employee.
Moreover, an eligible employee shall receive an early
retirement incentive provided under this program at
the rate of one and one-half (1 1/2) months of the
employee’s latest basic salary for every year of service
in the City Government.9
Section 5 refers to an "early retirement incentive," the
amount of which is pegged on the beneficiary’s years of
service in the city government. The ordinance provides
that only those who have rendered service to the city
government for at least 15 years may
apply.75 Consequently, this provision falls under the
definition of a retirement benefit. Applying the
definition in Conte, it is a form of reward for an
employee’s loyalty and service to the city government,
and it is intended to help the employee enjoy the
remaining years of his or her life by lessening his or her
financial worries.
Sec. 28 (b) as amended by RA 4968 in no uncertain
terms bars the creation of any insurance or retirement
plan – other than the GSIS – for government officers
and employees, in order to prevent the undue and
inequitous proliferation of such plans. x x x. To ignore
this and rule otherwise would be tantamount to
permitting every other government office or agency to
put up its own supplementary retirement benefit plan
under the guise of such "financial assistance.71
The Court declares Section 6 on post-retirement
incentives as valid.
US v. Salaveria MISSING
Binay v Domingo MISSING
Tatel v Mun of Virac
TATEL VS MUNICIPALITY OF VIRAC
FACTS:
Complaints were received from the residents of barrio
Sta. Elena on March 18, 1966 against the disturbance
caused by the operation of the abaca bailing machine
inside the warehouse of petitioner which affected the
peace and tranquility of the neighborhood due to the
smoke, obnoxious odor and dust emitted by the
machine. A committee was appointed by the municipal
council of Virac to investigate the matter. The
committee noted the crowded nature of the
neighborhood with narrow roads and the surrounding
residential houses, so much so that an accidental fire
within the warehouse of the petitioner occasioned by
the continuance of the activity inside the warehouse
and the storing of inflammable materials created a
danger to the lives and properties of the people within
the neighborhood.
Resultantly, Resolution No. 29 was passed by the
Municipal Council of Virac on April 22, 1966 declaring
the warehouse owned and operated by petitioner a
public nuisance within the purview of Article 694 of the
New Civil Code.
His motion for reconsideration having been denied by
the Municipal Council of Virac, petitioner instituted the
present petition for prohibition with preliminary
injunction.
ISSUE:
WON Ordinance No. 13, S. 1952 of the Municipality of
Virac is a valid exercise of police power
RULING:
Ordinance No. 13, series of 1952, was passed by the
Municipal Council of Virac in the exercise of its police
power. It is a settled principle of law that municipal
corporations are agencies of the State for the
promotion and maintenance of local self-government
and as such are endowed with the police powers in
order to effectively accomplish and carry out the
declared objects of their creation. Its authority
emanates from the general welfare clause under the
Administrative Code, which reads:
The municipal council shall enact such ordinances and
make such regulations, not repugnant to law, as may be
necessary to carry into effect and discharge the powers
and duties conferred upon it by law and such as shall
seem necessary and proper to provide for the health
and safety, promote the prosperity, improve the
morals, peace, good order, comfort and convenience of
the municipality and the inhabitants thereof, and for
the protection of property therein.
For an ordinance to be valid, it must not only be within
the corporate powers of the municipality to enact but
must also be passed according to the procedure
prescribed by law, and must be in consonance with
certain well established and basic principles of a
substantive nature. These principles require that a
municipal ordinance (1) must not contravene the
Constitution or any statute (2) must not be unfair or
oppressive (3) must not be partial or discriminatory (4)
must not prohibit but may regulate trade (5) must be
general and consistent with public policy, and (6) must
not be unreasonable. 5 Ordinance No. 13, Series of
1952, meets these criteria.
Tano v Socrates MISSING
Lim v Pacquing
Facts:
Judge Pacquing had issued an order directing the
mayor Manila mayor Alfredo S. Lim to issue the
permit/license to operate the jai-alai in favor of
Associated Development Corporation.
Such order was issued, upon motion by ADC for
execution of Final Judgment under Manila Ordinace
7065.
Petitioner Guingona (as executive secretary) issued a
directive to then chairman of Games and Amusement
Board (GAB) to hold in abeyance the grant of authority
or if any had been issued, to withdraw such grant of
authority, to Associated Development Corporation to
operate the jai- alai in the City of Manila, until the
following legal questions are properly resolved:
Whether P.D. 771 which revoked all existing Jai-Alai
franchisers issued by local governments as of 20 August
1975 is unconstitutional.
Xxx
Xxx
Additional Facts:
On 20 June 1953, Congress enacted Republic Act No.
954, entitled "An Act to Prohibit With Horse Races and
Basque Pelota Games (Jai-Alai), And To Prescribe
Penalties For Its Violation".
On 07 September 1971, however, the Municipal Board
of Manila nonetheless passed Ordinance No. 7065
entitled "An Ordinance Authorizing the Mayor To Allow
And Permit The Associated Development Corporation
To Establish, Maintain And Operate A Jai-Alai In The City
Of Manila, Under Certain Terms And Conditions And For
Other Purposes."
On 20 August 1975, Presidential Decree No. 771 was
issued by then President Marcos. The decree, entitled
"Revoking All Powers and Authority of Local
Government(s) To Grant Franchise, License or Permit
And Regulate Wagers Or Betting By The Public On Horse
And Dog Races, Jai-Alai Or Basque Pelota, And Other
Forms Of Gambling", in Section 3 thereof, expressly
revoked all existing franchises and permits issued by
local governments.
Issue:
Whether P.D. 771 is a valid exercise of police power?
Ruling:
Yes.
The police power has been described as the least
limitable of the inherent powers of the State. It is based
on the ancient doctrine — salus populi est suprema lex
(the welfare of the people is the supreme law.) In the
early case of Rubi v. Provincial Board of Mindoro (39
Phil. 660), this Court through Mr. Justice George A.
Malcolm stated thus:
The police power of the State . . . is a power
co-extensive with self-protection, and is not inaptly
termed the "law of overruling necessity." It may be said
to be that inherent and plenary power in the State
which enables it to prohibit all things hurtful to the
comfort, safety and welfare of society. Carried onward
by the current of legislation, the judiciary rarely
attempts to dam the onrushing power of legislative
discretion, provided the purposes of the law do not go
beyond the great principles that mean security for the
public welfare or do not arbitrarily interfere with the
right of the individual.
In the matter of PD No. 771, the purpose of the law is
clearly stated in the "whereas clause" as follows:
WHEREAS, it has been reported that in spite of the
current drive of our law enforcement agencies against
vices and illegal gambling, these social ills are still
prevalent in many areas of the country;
WHEREAS, there is need to consolidate all the efforts of
the government to eradicate and minimize vices and
other forms of social ills in pursuance of the social and
economic development program under the new society;
WHEREAS, in order to effectively control and regulate
wagers or betting by the public on horse and dog races,
jai-alai and other forms of gambling there is a necessity
to transfer the issuance of permit and/or franchise from
local government to the National Government.
It cannot be argued that the control and regulation of
gambling do not promote public morals and welfare.
Gambling is essentially antagonistic and self-reliance. It
breeds indolence and erodes the value of good, honest
and hard work. It is, as very aptly stated by PD No. 771,
a vice and a social ill which government must minimize
(if not eradicate) in pursuit of social and economic
development.
Jai-alai is not a mere economic activity which the law
seeks to regulate. It is essentially gambling and whether
it should be permitted and, if so, under what conditions
are questions primarily for the lawmaking authority to
determine, talking into account national and local
interests. Here, it is the police power of the State that is
paramount.
De la Cruz v Paras MISSING
Ortigas v FEATI Bank
ORTIGAS VS FEATI BANK
Facts:
Plaintiff is engaged in real estate business, developing
and selling lots to the public, particularly the Highway
Hills Subdivision along EDSA. On March 4, 1952,
plaintiff, as vendor, and Augusto Padilla and Natividad
Angeles, as vendees, entered into separate agreements
of sale on installments over two parcels of land of the
Subdivision. On July 19, 1962, the said vendees
transferred their rights and interests over the aforesaid
lots in favor of one Emma Chavez. Upon completion of
payment of the purchase price, the plaintiff executed
the corresponding deeds of sale in favor of Emma
Chavez. Both the agreements (of sale on installment)
and the deeds of sale contained the stipulations or
restrictions that:
1. The parcel of land shall be used exclusively for
residential purposes, and she shall not be entitled to
take or remove soil, stones or gravel from it or any
other lots belonging to the Seller.
2. All buildings and other improvements (except the
fence) which may be constructed at any time in said lot
must be, (a) of strong materials and properly painted,
(b) provided with modern sanitary installations
connected either to the public sewer or to an approved
septic tank, and (c) shall not be at a distance of less than
two (2) meters from its boundary lines.

Eventually said lots were bought by defendant. Lot 5

directly from Chavez and Lot 6 from Republic Flour Mills
by deed of exchange, with same restrictions. Plaintiff
claims that restriction is for the beautification of the
subdivision. Defendant claimed of the
commercialization of western part of EDSA. Defendant
began constructing a commercial bank building. Plaintiff
demand to stop it, which forced him to file a case,
which was later dismissed, upholding police power.
Motion for recon was denied, hence the appeal.

Issue:

Whether or Not non-impairment clause violated.

Held:

No. Resolution is a valid exercise of police power. EDSA,

a main traffic artery which runs through several cities
and municipalities in the Metro Manila area, supports
an endless stream of traffic and the resulting activity,
noise and pollution are hardly conducive to the health,
safety or welfare of the residents in its route. Health,
safety, peace, good order and general welfare of the
people in the locality are justifications for this. It should
be stressed, that while non-impairment of contracts is
constitutionally guaranteed, the rule is not absolute,
since it has to be reconciled with the legitimate exercise
of police power.