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G.R. No.

81311 June 30, 1988

C. VILLANUEVA, petitioners,
HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated
labor federations and alliances,petitioners,
BUDGET, respondents.
G.R. No. 81921 June 30, 1988
and JESUS B. BANAL, petitioners,
REVENUE, respondent.
G.R. No. 82152 June 30, 1988
RICARDO C. VALMONTE, petitioner,
BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual petitioners in G.R. No. 81311.
Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners
in G.R. No 81820.

Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

These four (4) petitions, which have been consolidated because of the
similarity of the main issues involved therein, seek to nullify Executive Order
No. 273 (EO 273, for short), issued by the President of the Philippines on 25
July 1987, to take effect on 1 January 1988, and which amended certain
sections of the National Internal Revenue Code and adopted the value-added
tax (VAT, for short), for being unconstitutional in that its enactment is not
alledgedly within the powers of the President; that the VAT is oppressive,
discriminatory, regressive, and violates the due process and equal protection
clauses and other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground
that the petitioners have failed to show justification for the exercise of its
judicial powers, viz. (1) the existence of an appropriate case; (2) an interest,
personal and substantial, of the party raising the constitutional questions; (3)
the constitutional question should be raised at the earliest opportunity; and (4)
the question of constitutionality is directly and necessarily involved in a
justiciable controversy and its resolution is essential to the protection of the
rights of the parties. According to the Solicitor General, only the third requisite
that the constitutional question should be raised at the earliest opportunity
has been complied with. He also questions the legal standing of the
petitioners who, he contends, are merely asking for an advisory opinion from
the Court, there being no justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or
interest are, however, in the main procedural matters. Considering the
importance to the public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine wether or not the other
branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given
to them, the Court has brushed aside technicalities of procedure and has
taken cognizance of these petitions.

But, before resolving the issues raised, a brief look into the tax law in question
is in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on
the value, added by every seller, with aggregate gross annual sales of articles
and/or services, exceeding P200,00.00, to his purchase of goods and
services, unless exempt. VAT is computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts realized from the sale of
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales tax, and compensating tax on
importations. The framers of EO 273 that it is principally aimed to rationalize
the system of taxing goods and services; simplify tax administration; and
make the tax system more equitable, to enable the country to attain economic
The VAT is not entirely new. It was already in force, in a modified form, before
EO 273 was issued. As pointed out by the Solicitor General, the Philippine
sales tax system, prior to the issuance of EO 273, was essentially a single
stage value added tax system computed under the "cost subtraction method"
or "cost deduction method" and was imposed only on original sale, barter or
exchange of articles by manufacturers, producers, or importers. Subsequent
sales of such articles were not subject to sales tax. However, with the
issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second
sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31
December 1985, to take effect 1 January 1986. Reduced sales taxes were
imposed not only on the second sale, but on every subsequent sale, as well.
EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or
Petitioners first contend that EO 273 is unconstitutional on the Ground that the
President had no authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a
Provisional Constitution, sole legislative authority was vested upon the
President. Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new

Constitution, the President shall continue to exercise legislative
On 15 October 1986, the Constitutional Commission of 1986 adopted a new
Constitution for the Republic of the Philippines which was ratified in a
plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions,
the President is vested with legislative powers until a legislature under a new
Constitution is convened. The first Congress, created and elected under the
1987 Constitution, was convened on 27 July 1987. Hence, the enactment of
EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July
1987, was within the President's constitutional power and authority to
Petitioner Valmonte claims, additionally, that Congress was really convened
on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is
synonymous with "the date when the elected members of Congress assumed
The contention is without merit. The word "convene" which has been
interpreted to mean "to call together, cause to assemble, or convoke," 1 is clearly
different from assumption of office by the individual members of Congress or their taking the oath of
office. As an example, we call to mind the interim National Assembly created under the 1973 Constitution,
which had not been "convened" but some members of the body, more particularly the delegates to the
1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the approval of
said Constitution, had taken their oath of office.

To uphold the submission of petitioner Valmonte would stretch the definition of

the word "convene" a bit too far. It would also defeat the purpose of the
framers of the 1987 Constitutional and render meaningless some other
provisions of said Constitution. For example, the provisions of Art. VI, sec. 15,
requiring Congress to convene once every year on the fourth Monday of July
for its regular session would be a contrariety, since Congress would already
be deemed to be in session after the individual members have taken their
oath of office. A portion of the provisions of Art. VII, sec. 10, requiring
Congress to convene for the purpose of enacting a law calling for a special
election to elect a President and Vice-President in case a vacancy occurs in

said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third
paragraph, requiring Congress to convene, if not in session, to decide a
conflict between the President and the Cabinet as to whether or not the
President and the Cabinet as to whether or not the President can re-assume
the powers and duties of his office, would also be redundant. The same is true
with the portion of Art. VII, sec. 18, which requires Congress to convene within
twenty-four (24) hours following the declaration of martial law or the
suspension of the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her
power to legislate. If the framers of said Constitution had intended to terminate
the exercise of legislative powers by the President at the beginning of the term
of office of the members of Congress, they should have so stated (but did not)
in clear and unequivocal terms. The Court has not power to re-write the
Constitution and give it a meaning different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued
by the President in grave abuse of discretion amounting to lack or excess of
jurisdiction. "Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction (Abad
Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other
words, where the power is exercised in an arbitrary or despotic
manner by reason of passion or personal hostility, and it must be
so patent and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz.
62). 2
Petitioners have failed to show that EO 273 was issued capriciously and
whimsically or in an arbitrary or despotic manner by reason of passion or
personal hostility. It appears that a comprehensive study of the VAT had been
extensively discussed by this framers and other government agencies
involved in its implementation, even under the past administration. As the
Solicitor General correctly sated. "The signing of E.O. 273 was merely the last
stage in the exercise of her legislative powers. The legislative process started
long before the signing when the data were gathered, proposals were
weighed and the final wordings of the measure were drafted, revised and
finalized. Certainly, it cannot be said that the President made a jump, so to
speak, on the Congress, two days before it convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust

and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987
Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and
circumstances to warrant their conclusions. They have failed to adequately
show that the VAT is oppressive, discriminatory or unjust. Petitioners merely
rely upon newspaper articles which are actually hearsay and have evidentiary
value. To justify the nullification of a law. there must be a clear and
unequivocal breach of the Constitution, not a doubtful and argumentative
implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. The court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice
Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with the same force and effect in every
place where the subject may be found."
There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a
classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for
purposes of taxation; . . ." About two years later, Justice Tuason,
speaking for this Court in Manila Race Horses Trainers Assn. v. de
la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his
opinion and continued; "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to
the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in
another case decided two years later, (Uy Matias v. City of Cebu,
93 Phil. 300) is that the statute or ordinance in question "applies
equally to all persons, firms and corporations placed in similar

situation." This Court is on record as accepting the view in a

leading American case (Carmichael v. Southern Coal and Coke
Co., 301 US 495) that "inequalities which result from a singling out
of one particular class for taxation or exemption infringe no
constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods
or services by persons engage in business with an aggregate gross annual
sales exceeding P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax are sales of farm
and marine products, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated
Customs Brokers Association of the Philippines that EO 273, more particularly
the new Sec. 103 (r) of the National Internal Revenue Code, unduly
discriminates against customs brokers. The contested provision states:
Sec. 103. Exempt transactions. The following shall be exempt
from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling
(except customs brokers) subject to the occupation tax under the
Local Tax Code, and professional services performed by
registered general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against
customs brokers. It was inserted in Sec. 103(r) to complement the provisions
of Sec. 102 of the Code, which makes the services of customs brokers subject
to the payment of the VAT and to distinguish customs brokers from other
professionals who are subject to the payment of an occupation tax under the
Local Tax Code. Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. There shall be
levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in
the sale of services. The phrase sale of services" means the

performance of all kinds of services for others for a fee,

remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
personal property; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of
whether or not the performance thereof call for the exercise or use
of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec.
103(r), a potential conflict between the two sections, (Secs. 102 and 103),
insofar as customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals
who are subject to occupation tax under the Local Tax Code is based upon
material differences, in that the activities of customs brokers (like those of
stock, real estate and immigration brokers) partake more of a business, rather
than a profession and were thus subjected to the percentage tax under Sec.
174 of the National Internal Revenue Code prior to its amendment by EO 273.
EO 273 abolished the percentage tax and replaced it with the VAT. If the
petitioner Association did not protest the classification of customs brokers
then, the Court sees no reason why it should protest now.
The Court takes note that EO 273 has been in effect for more than five (5)
months now, so that the fears expressed by the petitioners that the adoption
of the VAT will trigger skyrocketing of prices of basic commodities and
services, as well as mass actions and demonstrations against the VAT should
by now be evident. The fact that nothing of the sort has happened shows that
the fears and apprehensions of the petitioners appear to be more imagined
than real. It would seem that the VAT is not as bad as we are made to believe.
In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of
the majority of the people, they should seek recourse and relief from the
political branches of the government. The Court, following the time-honored
doctrine of separation of powers, cannot substitute its judgment for that of the
President as to the wisdom, justice and advisability of the adoption of the VAT.
The Court can only look into and determine whether or not EO 273 was
enacted and made effective as law, in the manner required by, and consistent
with, the Constitution, and to make sure that it was not issued in grave abuse
of discretion amounting to lack or excess of jurisdiction; and, in this regard,

the Court finds no reason to impede its application or continued

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to


OSCAR E. ALA, in their collective official capacities as Chairman and Members of
the Board (ERB), respectively; CATALINO MACARAIG, in his quadruple official
capacities as Executive Secretary, Chairman of Philippine National Oil Company;
Office of the Energy Affairs, and with MANUEL ESTRELLA, in their respective
official capacities as Chairman and President of the Petron Corporation; PILIPINAS
as chairman and President, respectively; CALTEX PHILIPPINES with FRANCIS
ABLAN, President and Chief Executive Officer; and the Presidents of Philippine
Petroleum Dealer's Association, Caltex Dealer's Co., Petron Dealer's Asso., Shell
Dealer's Asso. of the Phil., Liquefied Petroleum Gas Institute of the Phils., any and
all concerned gasoline and petrol dealers or stations; and such other persons,
officials, and parties, acting for and on their behalf; or in representation of and/or
under their authority, Respondents.
[G.R. Nos. 95119-21 : December 18, 1990.]
192 SCRA 363
CORPORATION, Respondents.
The petitioners pray for injunctive relief, to stop the Energy Regulatory Board (Board
hereinafter) from implementing its Order, dated September 21, 1990, mandating a
provisional increase in the prices of petroleum and petroleum products, as follows:
Premium Gasoline 1.7700
Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400

Diesel Oil 1.2400

Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum
Corporation, and Petron Corporation proferred separate applications with the Board for
permission to increase the wholesale posted prices of petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2
and meanwhile, for provisional authority to increase temporarily such wholesale posted
prices pending further proceedings.

On September 21, 1990, the Board, in a joint (on three applications) Order granted
provisional relief as follows:
WHEREFORE, considering the foregoing, and pursuant to Section 8 of Executive Order No.
172, this Board hereby grants herein applicants' prayer for provisional relief and,
accordingly, authorizes said applicants a weighted average provisional increase of ONE PESO
AND FORTY-TWO CENTAVOS (P1.42) per liter in the wholesale posted prices of their various
petroleum products enumerated below, refined and/or marketed by them locally. 3
The petitioners submit that the above Order had been issued with grave abuse of discretion,
tantamount to lack of jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that the same was issued without
proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No.
172; that the Board, in decreeing an increase, had created a new source for the Oil Price
Stabilization Fund (OPSF), or otherwise that it had levied a tax, a power vested in the
legislature, and/or that it had "re-collected", by an act of taxation, ad valorem taxes on oil
which Republic Act No. 6965 had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order was issued
without notice and hearing, and hence, without due process of law.
The intervenor, the Trade Union of the Philippines and Allied Services (TUPAS/FSM)-W.F.T.U.,
6 argues on the other hand, that the increase cannot be allowed since the respondents oil
companies had not exhausted their existing oil stock which they had bought at old prices
and that they cannot be allowed to charge new rates for stock purchased at such lower
The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25, 1990, in which
Senator Maceda and his counsel, Atty. Alexander Padilla, argued. The Solicitor General, on
behalf of the Board, also presented his arguments, together with Board Commissioner Rex
Tantiangco. Attys. Federico Alikpala, Jr. and Joselia Poblador represented the oil firms
(Petron and Caltex, respectively).
The parties were thereafter required to submit their memorandums after which, the Court
considered the cases submitted for resolution.

On November 20, 1990, the Court ordered these cases consolidated.

On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked the
provisions of Section 8 of Executive Order No. 172, which we quote:
"SECTION 8. Authority to Grant Provisional Relief . The Board may, upon the filing of an
application, petition or complaint or at any stage thereafter and without prior hearing, on
the basis of supporting papers duly verified or authenticated, grant provisional relief on
motion of a party in the case or on its own initiative, without prejudice to a final decision
after hearing, should the Board find that the pleadings, together with such affidavits,
documents and other evidence which may be submitted in support of the motion,
substantially support the provisional order: Provided, That the Board shall immediately
schedule and conduct a hearing thereon within thirty (30) days thereafter, upon publication
and notice to all affected parties.
: nad

As the Order itself indicates, the authority for provisional increase falls within the above
There is no merit in the Senator's contention that the "applicable" provision is Section 3,
paragraph (e) of the Executive Order, which we quote:
(e) Whenever the Board has determined that there is a shortage of any petroleum product,
or when public interest so requires, it may take such steps as it may consider necessary,
including the temporary adjustment of the levels of prices of petroleum products and the
payment to the Oil Price Stabilization Fund created under Presidential Decree No. 1956 by
persons or entities engaged in the petroleum industry of such amounts as may be
determined by the Board, which will enable the importer to recover its cost of importation.
What must be stressed is that while under Executive Order No. 172, a hearing is
indispensable, it does not preclude the Board from ordering, ex parte, a provisional
increase, as it did here, subject to its final disposition of whether or not: (1) to make it
permanent; (2) to reduce or increase it further; or (3) to deny the application. Section 37
paragraph (e) is akin to a temporary restraining order or a writ of preliminary attachment
issued by the courts, which are given ex parte, and which are subject to the resolution of
the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate
exclusively of the other, in that the Board may resort to one but not to both at the same
time. Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may
decree a price adjustment, subject to the requirements of notice and hearing. Pending that,
however, it may order, under Section 8, an authority to increase provisionally, without need
of a hearing, subject to the final outcome of the proceeding. The Board, of course, is not
prevented from conducting a hearing on the grant of provisional authority which is of
course, the better procedure however, it cannot be stigmatized later if it failed to conduct
one. As we held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7
In the light of Section 8 quoted above, public respondent Board need not even have
conducted formal hearings in these cases prior to issuance of its Order of 14 August 1987
granting a provisional increase of prices. The Board, upon its own discretion and on the
basis of documents and evidence submitted by private respondents, could have issued an
order granting provisional relief immediately upon filing by private respondents of their
respective applications. In this respect, the Court considers the evidence presented by
private respondents in support of their applications i.e., evidence showing that
importation costs of petroleum products had gone up; that the peso had depreciated in

value; and that the Oil Price Stabilization Fund (OPSF) had by then been depleted as
substantial and hence constitutive of at least prima facie basis for issuance by the Board of
a provisional relief order granting an increase in the prices of petroleum products. 8
We do not therefore find the challenged action of the Board to have been done in violation
of the due process clause. The petitioners may contest however, the applications at the
hearings proper.
Senator Maceda's attack on the Order in question on premises that it constitutes an act of
taxation or that it negates the effects of Republic Act No. 6965, cannot prosper. Republic Act
No. 6965 operated to lower taxes on petroleum and petroleum products by imposing specific
taxes rather than ad valorem taxes thereon; it is, not, however, an insurance against an "oil
hike", whenever warranted, or is it a price control mechanism on petroleum and petroleum
products. The statute had possibly forestalled a larger hike, but it operated no more.
: nad

The Board Order authorizing the proceeds generated by the increase to be deposited to the
OPSF is not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended
by Executive Order No. 137, as follows:
SECTION 8. There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of
minimizing frequent price changes brought about by exchange rate adjustments and/or
changes in world market prices of crude oil and imported petroleum products. The Oil Price
Stabilization Fund (OPSF) may be sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on
petroleum products subject to tax under this Decree arising from exchange rate adjustment,
as may be determined by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of
government corporations, as may be determined by the Minister of Finance in consultation
with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to augment the resources of
the Fund through an appropriate Order that may be issued by the Board of Energy requiring
payment by persons or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in
the importation of crude oil and petroleum products is less than the peso costs computed
using the reference foreign exchange rates as fixed by the Board of Energy.
Anent claims that oil companies cannot charge new prices for oil purchased at old rates,
suffice it to say that the increase in question was not prompted alone by the increase in
world oil prices arising from tension in the Persian Gulf. What the Court gathers from the
pleadings as well as events of which it takes judicial notice, is that: (1) as of June 30, 1990,
the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to
$1.00; (3) the country's balance of payments is expected to reach $1 Billion; (4) our trade
deficit is at $2.855 Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough taxes necessary to replenish the
OPSF as provided by Presidential Decree No. 1956, and hence, there was no available
alternative but to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a
funding designed to guarantee oil firms' profits although as a subsidy, or a trust account,
the Court has no doubt that oil firms make money from it. As we held there, however, the
OPSF was established precisely to protect the consuming public from the erratic movement

of oil prices and to preclude oil companies from taking advantage of fluctuations occurring
every so often. As a buffer mechanism, it stabilizes domestic prices by bringing about a
uniform rate rather than leaving pricing to the caprices of the market.
In all likelihood, therefore, an oil hike would have probably been imminent, with or without
trouble in the Gulf, although trouble would have probably aggravated it.
: nad

The Court is not to be understood as having prejudged the justness of an oil price increase
amid the above premises. What the Court is saying is that it thinks that based thereon, the
Government has made out a prima facie case to justify the provisional increase in question.
Let the Court therefore make clear that these findings are not final; the burden, however, is
on the petitioners' shoulders to demonstrate the fact that the present economic picture does
not warrant a permanent increase.
There is no doubt that the increase in oil prices in question (not to mention another one
impending, which the Court understands has been under consideration by policy-makers)
spells hard(er) times for the Filipino people. The Court can not, however, debate the wisdom
of policy or the logic behind it (unless it is otherwise arbitrary), not because the Court
agrees with policy, but because the Court is not the suitable forum for debate. It is a
question best judged by the political leadership which after all, determines policy, and
ultimately, by the electorate, that stands to be better for it or worse off, either in the short
or long run.
At this point, the Court shares the indignation of the people over the conspiracy of events
and regrets its own powerlessness, if by this Decision it has been powerless. The
constitutional scheme of things has simply left it with no choice.
In fine, we find no grave abuse of discretion committed by the respondent Board in issuing
its questioned Order.
WHEREFORE, these petitions are DISMISSED. No costs.

G.R. No. 91649 May 14, 1991

(PAGCOR), respondent.
H.B. Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.


A TV ad proudly announces:
"The new PAGCOR responding through responsible gaming."
But the petitioners think otherwise, that is why, they filed the instant petition
seeking to annul the Philippine Amusement and Gaming Corporation
(PAGCOR) Charter PD 1869, because it is allegedly contrary to morals,
public policy and order, and because
A. It constitutes a waiver of a right prejudicial to a third person
with a right recognized by law. It waived the Manila City
government's right to impose taxes and license fees, which is
recognized by law;
B. For the same reason stated in the immediately preceding
paragraph, the law has intruded into the local government's right
to impose local taxes and license fees. This, in contravention of
the constitutionally enshrined principle of local autonomy;
C. It violates the equal protection clause of the constitution in that
it legalizes PAGCOR conducted gambling, while most other
forms of gambling are outlawed, together with prostitution, drug
trafficking and other vices;
D. It violates the avowed trend of the Cory government away from
monopolistic and crony economy, and toward free enterprise and
privatization. (p. 2, Amended Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim that PD 1869 is
contrary to the declared national policy of the "new restored democracy" and
the people's will as expressed in the 1987 Constitution. The decree is said to
have a "gambling objective" and therefore is contrary to Sections 11, 12 and
13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the
present Constitution (p. 3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing
lawyers (petitioner Basco being also the Chairman of the Committee on Laws
of the City Council of Manila), can question and seek the annulment of PD
1869 on the alleged grounds mentioned above.
The Philippine Amusements and Gaming Corporation (PAGCOR) was created
by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise

under P.D. 1067-B also dated January 1, 1977 "to establish, operate and
maintain gambling casinos on land or water within the territorial jurisdiction of
the Philippines." Its operation was originally conducted in the well known
floating casino "Philippine Tourist." The operation was considered a success
for it proved to be a potential source of revenue to fund infrastructure and
socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for
PAGCOR to fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to
enable the Government to regulate and centralize all games of chance
authorized by existing franchise or permitted by law, under the following
declared policy
Sec. 1. Declaration of Policy. It is hereby declared to be the
policy of the State to centralize and integrate all games of chance
not heretofore authorized by existing franchises or permitted by
law in order to attain the following objectives:
(a) To centralize and integrate the right and authority to operate
and conduct games of chance into one corporate entity to be
controlled, administered and supervised by the Government.
(b) To establish and operate clubs and casinos, for amusement
and recreation, including sports gaming pools, (basketball,
football, lotteries, etc.) and such other forms of amusement and
recreation including games of chance, which may be allowed by
law within the territorial jurisdiction of the Philippines and which
will: (1) generate sources of additional revenue to fund
infrastructure and socio-civic projects, such as flood control
programs, beautification, sewerage and sewage projects,
Tulungan ng Bayan Centers, Nutritional Programs, Population
Control and such other essential public services; (2) create
recreation and integrated facilities which will expand and improve
the country's existing tourist attractions; and (3) minimize, if not
totally eradicate, all the evils, malpractices and corruptions that
are normally prevalent on the conduct and operation of gambling
clubs and casinos without direct government involvement.
(Section 1, P.D. 1869)
To attain these objectives PAGCOR is given territorial jurisdiction all over the
Philippines. Under its Charter's repealing clause, all laws, decrees, executive

orders, rules and regulations, inconsistent therewith, are accordingly repealed,

amended or modified.
It is reported that PAGCOR is the third largest source of government revenue,
next to the Bureau of Internal Revenue and the Bureau of Customs. In 1989
alone, PAGCOR earned P3.43 Billion, and directly remitted to the National
Government a total of P2.5 Billion in form of franchise tax, government's
income share, the President's Social Fund and Host Cities' share. In addition,
PAGCOR sponsored other socio-cultural and charitable projects on its own or
in cooperation with various governmental agencies, and other private
associations and organizations. In its 3 1/2 years of operation under the
present administration, PAGCOR remitted to the government a total of P6.2
Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees
in its nine (9) casinos nationwide, directly supporting the livelihood of Four
Thousand Four Hundred Ninety-Four (4,494) families.
But the petitioners, are questioning the validity of P.D. No. 1869. They allege
that the same is "null and void" for being "contrary to morals, public policy and
public order," monopolistic and tends toward "crony economy", and is violative
of the equal protection clause and local autonomy as well as for running
counter to the state policies enunciated in Sections 11 (Personal Dignity and
Human Rights), 12 (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.
This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny
and the most deliberate consideration by the Court, involving as it does the
exercise of what has been described as "the highest and most delicate
function which belongs to the judicial department of the government." (State v.
Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).
As We enter upon the task of passing on the validity of an act of a co-equal
and coordinate branch of the government We need not be reminded of the
time-honored principle, deeply ingrained in our jurisprudence, that a statute is
presumed to be valid. Every presumption must be indulged in favor of its
constitutionality. This is not to say that We approach Our task with diffidence
or timidity. Where it is clear that the legislature or the executive for that matter,
has over-stepped the limits of its authority under the constitution, We should
not hesitate to wield the axe and let it fall heavily, as fall it must, on the
offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court
thru Mr. Justice Zaldivar underscored the
. . . thoroughly established principle which must be followed in all
cases where questions of constitutionality as obtain in the instant
cases are involved. All presumptions are indulged in favor of
constitutionality; one who attacks a statute alleging
unconstitutionality must prove its invalidity beyond a reasonable
doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld and the challenger
must negate all possible basis; that the courts are not concerned
with the wisdom, justice, policy or expediency of a statute and that
a liberal interpretation of the constitution in favor of the
constitutionality of legislation should be adopted. (Danner v. Hass,
194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660,
663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734,
739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55
[1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242
[1983] cited in Citizens Alliance for Consumer Protection v. Energy
Regulatory Board, 162 SCRA 521, 540)
Of course, there is first, the procedural issue. The respondents are
questioning the legal personality of petitioners to file the instant petition.
Considering however the importance to the public of the case at bar, and in
keeping with the Court's duty, under the 1987 Constitution, to determine
whether or not the other branches of government have kept themselves within
the limits of the Constitution and the laws and that they have not abused the
discretion given to them, the Court has brushed aside technicalities of
procedure and has taken cognizance of this petition. (Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)
With particular regard to the requirement of proper party as
applied in the cases before us, We hold that the same is satisfied
by the petitioners and intervenors because each of them has
sustained or is in danger of sustaining an immediate injury as a
result of the acts or measures complained of. And even if, strictly
speaking they are not covered by the definition, it is still within the
wide discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving the
serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and

taxpayers were allowed to question the constitutionality of several
executive orders issued by President Quirino although they were
involving only an indirect and general interest shared in common
with the public. The Court dismissed the objection that they were
not proper parties and ruled that "the transcendental importance
to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must technicalities of
procedure." We have since then applied the exception in many
other cases. (Association of Small Landowners in the Philippines,
Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now discuss the substantive
issues raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But
the prohibition of gambling does not mean that the Government cannot
regulate it in the exercise of its police power.
The concept of police power is well-established in this jurisdiction. It has been
defined as the "state authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare." (Edu v.
Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or
restraint upon liberty or property, (2) in order to foster the common good. It is
not capable of an exact definition but has been, purposely, veiled in general
terms to underscore its all-comprehensive embrace. (Philippine Association of
Service Exporters, Inc. v. Drilon, 163 SCRA 386).
Its scope, ever-expanding to meet the exigencies of the times, even to
anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus assuming
the greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain reason that it does not owe
its origin to the charter. Along with the taxing power and eminent domain, it is
inborn in the very fact of statehood and sovereignty. It is a fundamental
attribute of government that has enabled it to perform the most vital functions
of governance. Marshall, to whom the expression has been credited, refers to
it succinctly as the plenary power of the state "to govern its citizens". (Tribe,
American Constitutional Law, 323, 1978). The police power of the State is a
power co-extensive with self-protection and is most aptly termed the "law of
overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660,

708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell
& Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to
meet the agencies of the winds of change.
What was the reason behind the enactment of P.D. 1869?
P.D. 1869 was enacted pursuant to the policy of the government to "regulate
and centralize thru an appropriate institution all games of chance authorized
by existing franchise or permitted by law" (1st whereas clause, PD 1869). As
was subsequently proved, regulating and centralizing gambling operations in
one corporate entity the PAGCOR, was beneficial not just to the
Government but to society in general. It is a reliable source of much needed
revenue for the cash strapped Government. It provided funds for social impact
projects and subjected gambling to "close scrutiny, regulation, supervision and
control of the Government" (4th Whereas Clause, PD 1869). 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. Public welfare, then, lies at the bottom of the enactment of PD
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City
of Manila to impose taxes and legal fees; that the exemption clause in P.D.
1869 is violative of the principle of local autonomy. They must be referring to
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 stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent
right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v.
Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643).
Thus, "the Charter or statute must plainly show an intent to confer that power
or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62).
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" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983
ed. p. 445).
(b) 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" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the
power to "create and abolish municipal corporations" due to its "general
legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5
SCRA 541). Congress, therefore, has the power of control over Local
governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). 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.
(c) 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, thus:
Sec. 1. Any provision of law to the contrary notwithstanding, the
authority of chartered cities and other local governments to issue
license, permit or other form of franchise to operate, maintain and
establish horse and dog race tracks, jai-alai and other forms of
gambling is hereby revoked.
Sec. 2. Hereafter, all permits or franchises to operate, maintain
and establish, horse and dog race tracks, jai-alai and other forms
of gambling shall be issued by the national government upon
proper application and verification of the qualification of the
applicant . . .
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.

(d) 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. In addition to its corporate powers (Sec. 3, Title II, PD
1869) it also exercises regulatory powers thus:
Sec. 9. Regulatory Power. The Corporation shall maintain a
Registry of the affiliated entities, and shall exercise all the powers,
authority and the responsibilities vested in the Securities and
Exchange Commission over such affiliating entities mentioned
under the preceding section, including, but not limited to
amendments of Articles of Incorporation and By-Laws, changes in
corporate term, structure, capitalization and other matters
concerning the operation of the affiliated entities, the provisions of
the Corporation Code of the Philippines to the contrary
notwithstanding, except only with respect to original incorporation.
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)
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.
(e) Petitioners also argue that the Local Autonomy Clause of the Constitution
will be violated by P.D. 1869. This is a pointless argument. Article X of the
1987 Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create
its own source of revenue and to levy taxes, fees, and other
charges subject to such guidelines and limitation as the congress
may provide, consistent with the basic policy on local autonomy.
Such taxes, fees and charges shall accrue exclusively to the local
government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always subject
to "limitations" which Congress may provide by law. Since PD 1869 remains
an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII,
1987 Constitution), its "exemption clause" remains as an exception to the
exercise of the power of local governments to impose taxes and fees. It
cannot therefore be violative but rather is consistent with the principle of local
Besides, the principle of local autonomy under the 1987 Constitution simply
means "decentralization" (III Records of the 1987 Constitutional Commission,
pp. 435-436, as cited in Bernas, The Constitution of the Republic of the
Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local
governments sovereign within the state or an "imperium in imperio."
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. (emphasis

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. (Citizens Alliance for
Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).
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.
As gambling is usually an offense against the State, legislative
grant or express charter power is generally necessary to
empower the local corporation to deal with the subject. . . . In the
absence of express grant of power to enact, ordinance provisions
on this subject which are inconsistent with the state laws are void.
(Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9,
Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC
974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol.
3 Ibid, p. 548, emphasis supplied)
Petitioners next contend that P.D. 1869 violates the equal protection clause of
the Constitution, because "it legalized PAGCOR conducted gambling, while
most gambling are outlawed together with prostitution, drug trafficking and
other vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this contention. The petitioners'
posture ignores the well-accepted meaning of the clause "equal protection of
the laws." The clause does not preclude classification of individuals who may
be accorded different treatment under the law as long as the classification is
not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law
does not have to operate in equal force on all persons or things to be
conformable to Article III, Section 1 of the Constitution (DECS v. San Diego,
G.R. No. 89572, December 21, 1989).
The "equal protection clause" does not prohibit the Legislature from
establishing classes of individuals or objects upon which different rules shall
operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require
situations which are different in fact or opinion to be treated in law as though
they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative

of the equal protection is not clearly explained in the petition. The mere fact
that some gambling activities like cockfighting (P.D 449) horse racing (R.A.
306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as
amended by B.P. 42) are legalized under certain conditions, while others are
prohibited, does not render the applicable laws, P.D. 1869 for one,
If the law presumably hits the evil where it is most felt, it is not to
be overthrown because there are other instances to which it might
have been applied. (Gomez v. Palomar, 25 SCRA 827)
The equal protection clause of the 14th Amendment does not
mean that all occupations called by the same name must be
treated the same way; the state may do what it can to prevent
which is deemed as evil and stop short of those cases in which
harm to the few concerned is not less than the harm to the public
that would insure if the rule laid down were made mathematically
exact. (Dominican Hotel v. Arizona, 249 US 2651).
Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the
Cory Government away from monopolies and crony economy and toward free
enterprise and privatization" suffice it to state that this is not a ground for this
Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the
government's policies then it is for the Executive Department to recommend to
Congress its repeal or amendment.
The judiciary does not settle policy issues. The Court can only
declare what the law is and not what the law should be. Under our
system of government, policy issues are within the domain of the
political branches of government and of the people themselves as
the repository of all state power. (Valmonte v. Belmonte, Jr., 170
SCRA 256).
On the issue of "monopoly," however, the Constitution provides that:
Sec. 19. The State shall regulate or prohibit monopolies when
public interest so requires. No combinations in restraint of trade or
unfair competition shall be allowed. (Art. XII, National Economy
and Patrimony)

It should be noted that, as the provision is worded, monopolies are not

necessarily prohibited by the Constitution. The state must still decide whether
public interest demands that monopolies be regulated or prohibited. Again,
this is a matter of policy for the Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality
Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social
Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the
1987 Constitution, suffice it to state also that these are merely statements of
principles and, policies. As such, they are basically not self-executing,
meaning a law should be passed by Congress to clearly define and effectuate
such principles.
In general, therefore, the 1935 provisions were not intended to be
self-executing principles ready for enforcement through the
courts. They were rather directives addressed to the executive
and the legislature. If the executive and the legislature failed to
heed the directives of the articles the available remedy was not
judicial or political. The electorate could express their displeasure
with the failure of the executive and the legislature through the
language of the ballot. (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of constitutionality (Yu Cong Eng v.
Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec,
82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to
be nullified, it must be shown that there is a clear and unequivocal breach of
the Constitution, not merely a doubtful and equivocal one. In other words, the
grounds for nullity must be clear and beyond reasonable doubt. (Peralta v.
Comelec, supra) Those who petition this Court to declare a law, or parts
thereof, unconstitutional must clearly establish the basis for such a
declaration. Otherwise, their petition must fail. Based on the grounds raised by
petitioners to challenge the constitutionality of P.D. 1869, the Court finds that
petitioners have failed to overcome the presumption. The dismissal of this
petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise
legislation considering the issues of "morality, monopoly, trend to free
enterprise, privatization as well as the state principles on social justice, role of
youth and educational values" being raised, is up for Congress to determine.
As this Court held in Citizens' Alliance for Consumer Protection v. Energy
Regulatory Board, 162 SCRA 521

Presidential Decree No. 1956, as amended by Executive Order

No. 137 has, in any case, in its favor the presumption of validity
and constitutionality which petitioners Valmonte and the KMU
have not overturned. Petitioners have not undertaken to identify
the provisions in the Constitution which they claim to have been
violated by that statute. This Court, however, is not compelled to
speculate and to imagine how the assailed legislation may
possibly offend some provision of the Constitution. The Court
notes, further, in this respect that petitioners have in the main put
in question the wisdom, justice and expediency of the
establishment of the OPSF, issues which are not properly
addressed to this Court and which this Court may not
constitutionally pass upon. Those issues should be addressed
rather to the political departments of government: the President
and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and this
is precisely so when the gambling resorted to is excessive. This
excessiveness necessarily depends not only on the financial resources of the
gambler and his family but also on his mental, social, and spiritual outlook on
life. However, the mere fact that some persons may have lost their material
fortunes, mental control, physical health, or even their lives does not
necessarily mean that the same are directly attributable to
gambling. Gambling may have been the antecedent,but certainly not
necessarily the cause. For the same consequences could have been
preceded by an overdose of food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of merit.

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
capacities as appointed and Acting Members of the CENTRAL BOARD
ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting

Members of the BOARD OF ASSESSMENT APPEALS of Manila; and

NICOLAS CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

This is a petition for review on certiorari to reverse the June 10, 1977 decision
of the Central Board of Assessment Appeals 1 in CBAA Cases Nos. 72-79 entitled "J.B.L.
Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City Assessor of Manila"
which affirmed the March 29, 1976 decision of the Board of Tax Assessment Appeals 2in BTAA Cases
Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes
and Milagros Reyes v. City Assessor of Manila" upholding the classification and assessments made by
the City Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels
of land situated in Tondo and Sta. Cruz Districts, City of Manila, which are
leased and entirely occupied as dwelling sites by tenants. Said tenants were
paying monthly rentals not exceeding three hundred pesos (P300.00) in July,
1971. On July 14, 1971, the National Legislature enacted Republic Act No.
6359 prohibiting for one year from its effectivity, an increase in monthly rentals
of dwelling units or of lands on which another's dwelling is located, where
such rentals do not exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not more than 10% thereafter. The said Act
also suspended paragraph (1) of Article 1673 of the Civil Code for two years
from its effectivity thereby disallowing the ejectment of lessees upon the
expiration of the usual legal period of lease. On October 12, 1972,
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code, excepting leases
with a definite period. Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the tenants. In 1973,
respondent City Assessor of Manila re-classified and reassessed the value of
the subject properties based on the schedule of market values duly reviewed
by the Secretary of Finance. The revision, as expected, entailed an increase
in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred that
the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon

them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the
land values instead of the comparable sales approach which the City
Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals,
however, considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to
submit concrete evidence which could overcome the presumptive
regularity of the classification and assessments appear to be in
accordance with the base schedule of market values and of the
base schedule of building unit values, as approved by the
Secretary of Finance, the cases should be, as they are hereby,
SO ORDERED. (Decision of the Board of Tax Assessment
Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals. They
submitted, among others, the summary of the yearly rentals to show the
income derived from the properties. Respondent City Assessor, on the other
hand, submitted three (3) deeds of sale showing the different market values of
the real property situated in the same vicinity where the subject properties of
petitioners are located. To better appreciate the locational and physical
features of the land, the Board of Hearing Commissioners conducted an
ocular inspection with the presence of two representatives of the City
Assessor prior to the healing of the case. Neither the owners nor their
authorized representatives were present during the said ocular inspection
despite proper notices served them. It was found that certain parcels of land
were below street level and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its
decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and
assessment of the lots covered by Tax Declaration Nos. (5835)
PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD1509, 146 and (1) PD-266, the appealed Decision is modified by
allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the
corresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment

Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this
The Reyeses assigned the following error:
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach"
method would have been more realistic for in disregarding the effect of the
restrictions imposed by P.D. 20 on the market value of the properties affected,
respondent Assessor of the City of Manila unlawfully and unjustifiably set
increased new assessed values at levels so high and successive that the
resulting annual real estate taxes would admittedly exceed the sum total of
the yearly rentals paid or payable by the dweller tenants under P.D. 20.
Hence, petitioners protested against the levels of the values assigned to their
properties as revised and increased on the ground that they were arbitrarily
excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo,
p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals
admits in its decision that the income approach is used in determining land
values in some vicinities, it maintains that when income is affected by some
sort of price control, the same is rejected in the consideration and study of
land values as in the case of properties affected by the Rent Control Law for
they do not project the true market value in the open market (Rollo, p. 21).
Thus, respondents opted instead for the "Comparable Sales Approach" on the
ground that the value estimate of the properties predicated upon prices paid in
actual, market transactions would be a uniform and a more credible standards
to use especially in case of mass appraisal of properties (Ibid.). Otherwise
stated, public respondents would have this Court completely ignore the effects
of the restrictions of P.D. No. 20 on the market value of properties within its
coverage. In any event, it is unquestionable that both the "Comparable Sales
Approach" and the "Income Approach" are generally acceptable methods of
appraisal for taxation purposes (The Law on Transfer and Business Taxation

by Hector S. De Leon, 1988 Edition). However, it is conceded that the

propriety of one as against the other would of course depend on several
factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that
the assessors, in finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent discretion
in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of
taxation must not only be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or
kinds of property of the same class shall be taxed at the same rate (Churchill
v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or
progressive aspects of taxation required in the 1973 Charter (Fernando "The
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to
pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of
all the powers of government. But for all its plenitude the power to tax is not
unconfined as there are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses of the Constitution
may properly be invoked to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1903 dictum of Chief
Justice Marshall that "the power to tax involves the power to destroy." The
web or unreality spun from Marshall's famous dictum was brushed away by
one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power
to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal
Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to confiscation of property. That
would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be
prompted by a spirit of hostility, or at the very least discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different both in the privileges
conferred and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is
declared that the first Fundamental Principle to guide the appraisal and
assessment of real property for taxation purposes is that the property must be
"appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered
by P.D. No. 20 be equated with the market value of properties not so covered.
The former has naturally a much lesser market value in view of the rental
Ironically, in the case at bar, not even the factors determinant of the assessed
value of subject properties under the "comparable sales approach" were
presented by the public respondents, namely: (1) that the sale must represent
a bonafide arm's length transaction between a willing seller and a willing buyer
and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered
by P.D. 20 especially during the time in question, there were hardly any willing
buyers. As a general rule, there were no takers so that there can be no
reasonable basis for the conclusion that these properties were comparable
with other residential properties not burdened by P.D. 20. Neither can the
given circumstances be nonchalantly dismissed by public respondents as
imposed under distressed conditions clearly implying that the same were
merely temporary in character. At this point in time, the falsity of such
premises cannot be more convincingly demonstrated by the fact that the law
has existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9
[1988]). Consequently, it stands to reason that petitioners who are burdened

by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D.
20) under the principle of social justice should not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income
approach would amount to only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (e) the
respondent Board of Assessment Appeals of Manila and the City Assessor of
Manila are ordered to make a new assessment by the income approach
method to guarantee a fairer and more realistic basis of computation (Rollo, p.

G.R. No. L-22814

August 28, 1968


BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
Direct appeal to this Court, from a decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic
corporation with offices and principal place of business in Quezon City. The
defendants are the City of Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff seeks to recover the sums
paid by it to the City of Butuan hereinafter referred to as the City and
collected by the latter, pursuant to its Municipal Ordinance No. 110, as

amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff
assails as null and void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a stipulation to the
1. That plaintiff's warehouse in the City of Butuan serves as a storage
for its products the "Pepsi-Cola" soft drinks for sale to customers in the
City of Butuan and all the municipalities in the Province of Agusan.
These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and
sale in the City of Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No.
110 which was subsequently amended by Ordinance No. 122 and
effective November 28, 1960. A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A"
and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the
plaintiff paid under protest the amount of P4,926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January 1 to
July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the
total amount of P14,177.03 paid under protest and those that if may
later on pay until the termination of this case on the ground that
Ordinance No. 110 as amended of the City of Butuan is illegal, that the
tax imposed is excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer
of Butuan City, has prepared a form to be accomplished by the plaintiff
for the computation of the tax. A copy of the form is enclosed herewith
as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from
January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only P1,202.55 in which case the profit of
plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff
differs only on the claim of depreciation which the company claims to be

P3,052.62. This is in accordance with the findings of the representative

of the undersigned City Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case
of 24 bottles was increased to P1.92 which price is uniform throughout
the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the
constitutionality and illegality of Ordinance No. 110, as amended of the
City of Butuan in their respective memoranda.




Section 1 of said Ordinance No. 110, as amended, states what products are
"liquors", within the purview thereof. Section 2 provides for the payment by
"any agent and/or consignee" of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at specified rates. Section 3 prescribes
a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated
beverages therein named, and "all other soft drinks or carbonated drinks."
Section 3-A, defines the meaning of the term "consignee or agent" for
purposes of the ordinance. Section 4 provides that said taxes "shall be paid at
the end of every calendar month." Pursuant to Section 5, the taxes "shall be
based and computed from the cargo manifest or bill of lading or any other
record showing the number of cases of soft drinks, liquors or all other soft
drinks or carbonated drinks received within the month." Sections 6, 7 and 8
specify the surcharge to be added for failure to pay the taxes within the period
prescribed and the penalties imposable for "deliberate and willful refusal to
pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office
of the City Treasurer a copy of the bill of lading or cargo manifest or record of
soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes
the ordinance applicable to soft drinks, liquors or carbonated drinks "received
outside" but "sold within" the City. Section 10 of the ordinance provides that
the revenue derived therefrom "shall be alloted as follows: 40% for Roads and
Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it
is excessive, oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority
of which it was enacted, is an unconstitutional delegation of legislative

The second and last objections are manifestly devoid of merit. Indeed
independently of whether or not the tax in question, when considered in
relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double
taxation, in general, is not forbidden by our fundamental law. We have not
adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union. 1 Then,
again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one wellestablished exception, namely: legislative powers may be delegated to local
governments to which said theory does not apply3 in respect of matters
of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated drinks in the production and sale of
which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too
small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In
this connection, it is noteworthy that the tax prescribed in section 3 of
Ordinance No. 110, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that
the intent was then to levy a tax upon the sale of said merchandise. As
amended by Ordinance No. 122, the tax is, however, imposed only upon "any
agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to
whom is consigned or shipped no less than 1,000 cases of hard liquors
or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated
drinks, are not subject to the tax,unless they are agents and/or consignees of
another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such
agent and/or consignee, if less than 1,000 cases of soft drinks are consigned
or shipped to him every month. When we consider, also, that the tax "shall be
based and computed from the cargo manifest or bill of lading ... showing the

number of cases" not sold but "received" by the taxpayer, the intention
to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this
angle, the tax partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of
said beverages, it would still be invalid, as discriminatory, and hence, violative
of the uniformity required by the Constitution and the law therefor, since only
sales by "agents or consignees" of outside dealers would be subject to the
tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would be exempt from the
disputed tax.
It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation.5 The classification
made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3) the classification
applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies
equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its
purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers other
than agents or consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another
one shall be entered annulling Ordinance No. 110, as amended by Ordinance
No. 122, and sentencing the City of Butuan to refund to plaintiff herein the
amounts collected from and paid under protest by the latter, with interest
thereon at the legal rate from the date of the promulgation of this decision, in
addition to the costs, and defendants herein are, accordingly, restrained and
prohibited permanently from enforcing said Ordinance, as amended. It is so

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and

Fernando, JJ., concur.