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PELIZLOY VS PROVINCE OF BENGUET
The principal issue in this case is the scope of authority of a province to impose an amusement tax. This is a Petition for
Review on Certiorari under Rule 45 of the Rules of Court praying that the December 10, 2007 decision of the Regional Trial
Comi,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-2232 be reversed and set aside and a new one issued in
which: ( 1) respondent (} Decision 2 G.R. No. 183137 Province of Benguet is declared as having no authority to levy
amusement taxes on admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots, and other places for
recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of 2005 is declared null and void; and (3) the
respondent Province of Benguet is permanently enjoined from enforcing Section 59, Article X of the Benguet Provincial
Revenue Code of 2005. Petitioner Pelizloy Realty Corporation (“Pelizloy”) owns Palm Grove Resort, which is designed for
recreation and which has facilities like swimming pools, a spa and function halls. It is located at Asin, Angalisan,
Municipality of Tuba, Province of Benguet. On December 8, 2005, the Provincial Board of the Province of Benguet
approved Provincial Tax Ordinance No. 05-107, otherwise known as the Benguet Revenue Code of 2005 (“Tax Ordinance”).
Section 59, Article X of the Tax Ordinance levied a ten percent (10%) amusement tax on gross receipts from admissions to
“resorts, swimming pools, bath houses, hot springs and tourist spots.” Specifically, it provides the following: Article Ten:
Amusement Tax on Admission Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night
or day clubs, and other places of amusement at the rate of thirty percent (30%) of the gross receipts from admission fees; and
A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming pools, bath houses, hot
springs, and tourist spots is likewise levied. [Emphasis and underscoring supplied] Section 162 of the Tax Ordinance
provided that the Tax Ordinance shall take effect on January 1, 2006. It was Pelizloy's position that the Tax Ordinance's
imposition of a 10% amusement tax on gross receipts from admission fees for resorts, swimming pools, bath houses, hot
springs, and tourist spots is an ultra vires act on the part of the Province of Benguet. Thus, it filed an appeal/petition before
the Secretary of Justice on January 27, 2006. The appeal/petition was filed within the thirty (30)-day period from the
effectivity of a tax ordinance allowed by Section 187 of Republic Act No. 7160, otherwise known as the Local Government
Code (LGC).1 The 1 Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures;
Mandatory Public Hearings. - The procedure for approval of local tax ordinances and revenue Decision 3 G.R. No. 183137
appeal/petition was docketed as MSO-OSJ Case No. 03-2006. Under Section 187 of the LGC, the Secretary of Justice has
sixty (60) days from receipt of the appeal to render a decision. After the lapse of which, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction. Treating the Secretary of Justice's failure to decide on its
appeal/petition within the sixty (60) days provided by Section 187 of the LGC as an implied denial of such appeal/petition,
Pelizloy filed a Petition for Declaratory Relief and Injunction before the Regional Trial Court, Branch 62, La Trinidad,
Benguet. The petition was docketed as Civil Case No. 06-CV-2232. Pelizloy argued that Section 59, Article X of the Tax
Ordinance imposed a percentage tax in violation of the limitation on the taxing powers of local government units (LGUs)
under Section 133 (i) of the LGC. Thus, it was null and void ab initio. Section 133 (i) of the LGC provides: Section 133.
Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x (i)
Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as
otherwise provided herein The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an improper
remedy. It alleged that once a tax liability has attached, the only remedy of a taxpayer is to pay the tax and to sue for recovery
after exhausting administrative remedies.2 On substantive grounds, the Province of Benguet argued that the measures shall
be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to
the enactment thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue

measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not
have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied
therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without
the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of
competent jurisdiction. 2 Rollo, p. 91. Decision 4 G.R. No. 183137 phrase ‘other places of amusement’ in Section 140 (a) of
the LGC3 encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since “Article 220 (b) (sic)” of
the LGC defines “amusement” as “pleasurable diversion and entertainment x x x synonymous to relaxation, avocation,
pastime, or fun.”4 However, the Province of Benguet erroneously cited Section 220 (b) of the LGC. Section 220 of the LGC
refers to valuation of real property for real estate tax purposes. Section 131 (b) of the LGC, the provision which actually
defines “amusement”, states: Section 131. Definition of Terms. - When used in this Title, the term: x x x (b) "Amusement" is
a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation, pastime, or fun On December 10, 2007,
the RTC rendered the assailed Decision dismissing the Petition for Declaratory Relief and Injunction for lack of merit.
Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of Section 59, Article X of the Tax
Ordinance, the RTC noted that, while Section 59, Article X imposes a percentage tax, Section 133 (i) of the LGC itself
allowed for exceptions. It noted that what the LGC prohibits is not the imposition by LGUs of percentage taxes in general but
the “imposition and levy of percentage tax on sales, barters, etc., on goods and services only.”5 It further gave credence to
the Province of Benguet's assertion that resorts, swimming pools, bath houses, hot springs, and tourist spots are encompassed
by the phrase ‘other places of amusement’ in Section 140 of the LGC. On May 21, 2008, the RTC denied Pelizloy’s Motion
for Reconsideration. Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It assailed the
legality of Section 59, Article X of the Tax Ordinance as being a (supposedly) prohibited percentage tax per Section 133 (i)
of the LGC. In its Comment, the Province of Benguet, erroneously citing Section 3 Section 140. Amusement Tax - (a) The
province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross
receipts from admission fees. 4 Rollo, p. 92. 5 Id. at 101. Decision 5 G.R. No. 183137 40 of the LGC, argued that Section 59,
Article X of the Tax Ordinance does not levy a percentage tax “because the imposition is not based on the total gross receipts
of services of the petitioner but solely and actually limited on the gross receipts of the admission fees collected.”6 In
addition, it argued that provinces can validly impose amusement taxes on resorts, swimming pools, bath houses, hot springs,
and tourist spots, these being ‘amusement places’. For resolution in this petition are the following issues: 1. Whether or not
Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise known as the Benguet Revenue Code of 2005,
levies a percentage tax. 2. Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs, and tourist spots for being “amusement places” under the Local Government
Code. The power to tax “is an attribute of sovereignty,”7 and as such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are not the sovereign;8 rather, they are mere “territorial and political
subdivisions of the Republic of the Philippines”.9 The rule governing the taxing power of provinces, cities, muncipalities and
barangays is summarized in Icard v. City Council of Baguio: 10 It is settled that a municipal corporation unlike a sovereign
state is clothed with no inherent power of taxation. The charter or statute must plainly show an intent to confer that power or
the municipality, cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences,
implications, deductions – all these – have no place in the interpretation of the taxing power of a municipal corporation.11
[Underscoring supplied] Therefore, the power of a province to tax is limited to the extent that 6 Id. at 123. 7 Reyes v.
Almanzor, 273 Phil. 558, 564 (1991). 8 Icard v. City Council of Baguio, 83 Phil 870, 873 (1949) and City of Iloilo v.
Villanueva, 105 Phil. 337 (1959). 9 CONSTITUTION, Art. X, Sec. 1. 10 Supra note 8. 11 Id., citing Cu Unjieng vs. Patstone,
42 Phil. 818, 830 (1922); Pacific Commercial Co.vs. Romualdez, 49 Phil. 917, 924 (1927); Batangas Transportation Co. vs.

Provincial Treasure of Batangas, 52 Phil. 190,196 (1928); Baldwin vs. Coty Council 53 Ala., p. 437; State vs. Smith 31
Lowa, p. 493; 38 Am Jur pp. 68, 72-73. Decision 6 G.R. No. 183137 such power is delegated to it either by the Constitution
or by statute. Section 5, Article X of the 1987 Constitution is clear on this point: Section 5. Each local government unit shall
have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local governments. [Underscoring supplied] Per Section 5, Article X of the 1987 Constitution,
“the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges.”12 Nevertheless, such authority is “subject to such guidelines and limitations as the Congress
may provide”.13 In conformity with Section 3, Article X of the 1987 Constitution,14 Congress enacted Republic Act No.
7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal
matters. Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUS found below.
First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs: 1. Taxation shall
be uniform in each LGU. 2. Taxes, fees, charges and other impositions shall: a. be equitable and based as far as practicable on
the taxpayer's ability to pay; b. be levied and collected only for public purposes; c. not be unjust, excessive, oppressive, or
confiscatory; 12 National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 248 (2003), citing Mactan Cebu
International Airport Authority vs. Marcos, G.R. No. 120082, September 11. 1996, 261 SCRA 667, 680, citing Cruz, Isagani
A., CONSTITUTIONAL LAW (1991) at 84. 13 CONSTITUTION, Art. X, Sec. 5. 14 Section 3. The Congress shall enact a
local government code which shall provide for a more responsive and accountable local government structure instituted
through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to
the organization and operation of the local units. Decision 7 G.R. No. 183137 d. not be contrary to law, public policy,
national economic policy, or in the restraint of trade. 3. The collection of local taxes, fees, charges and other impositions shall
in no case be let to any private person. 4. The revenue collected pursuant to the provisions of the LGC shall inure solely to
the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC. 5. Each LGU shall, as far as practicable, evolve a progressive system of taxation. Second,
Section 133 provides for the common limitations on the taxing powers of LGUs. Specifically, Section 133 (i) prohibits the
levy by LGUs of percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided by the LGC. As it is Pelizloy’s contention that Section 59, Article X of the Tax
Ordinance levies a prohibited percentage tax, it is crucial to understand first the concept of a percentage tax. In
Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc.,15 the Supreme Court defined percentage tax as a “tax
measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of
the gross receipts or earnings derived by any person engaged in the sale of services.” Also, Republic Act No. 8424, otherwise
known as the National Internal Revenue Code (NIRC), in Section 125, Title V,16 lists amusement taxes as among the (other)
percentage taxes 15 534 Phil. 517, 536 (2006), citing Commissioner of Internal Revenue v. Solidbank Corporation, G.R. No.
148191, November 25, 2003. 16 TITLE V OTHER PERCENTAGE TAXES x x x SECTION 125. Amusement Taxes. - There
shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks, a tax equivalent to: (a) Eighteen percent (18%) in the case of
cockpits; (b) Eighteen percent (18%) in the case of cabarets, night or day clubs; (c) Ten percent (10%) in the case of boxing
exhibitions: Provided, however, That boxing exhibitions wherein World or Oriental Championships in any division is at stake
shall be exempt from amusement tax: Provided, further, That at least one of the contenders for World or Oriental
Championship is a citizen of the Philippines and said exhibitions are promoted by a citizen/s of the Philippines or by a
corporation or association at least sixty percent (60%) of the capital of which is owned by such citizens; (d) Fifteen percent
(15%) in the case of professional basketball games as envisioned in Presidential Decree No. 871: Provided, however, That

the tax herein shall be in lieu of all Decision 8 G.R. No. 183137 which are levied regardless of whether or not a taxpayer is
already liable to pay value-added tax (VAT). Amusement taxes are fixed at a certain percentage of the gross receipts incurred
by certain specified establishments. Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of
amusement taxes by the NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy. However, provinces
are not barred from levying amusement taxes even if amusement taxes are a form of percentage taxes. Section 133 (i) of the
LGC prohibits the levy of percentage taxes “except as otherwise provided” by the LGC. Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected from the proprietors, lessees,
or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more
than thirty percent (30%) of the gross receipts from admission fees. (b) In the case of theaters of cinemas, the tax shall first
be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross
receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films. (c) The
holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and
oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of
fraud or failure to pay the tax, the Sangguniang Panlalawigan may impose such other percentage taxes of whatever nature
and description; and (e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective, of
whether or not any amount is charged for admission. For the purpose of the amusement tax, the term "gross receipts"
embraces all the receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income
from television, radio and motion picture rights, if any. A person or entity or association conducting any activity subject to
the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor, lessee or
operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter, to make a true and
complete return of the amount of the gross receipts derived during the preceding quarter and pay the tax due thereon.
Decision 9 G.R. No. 183137 surcharges, interests and penalties. (e) The proceeds from the amusement tax shall be shared
equally by the province and the municipality where such amusement places are located. [Underscoring supplied] Evidently,
Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). Section 140 expressly allows for the
imposition by provinces of amusement taxes on “the proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement.” However, resorts, swimming pools, bath houses, hot springs, and
tourist spots are not among those places expressly mentioned by Section 140 of the LGC as being subject to amusement
taxes. Thus, the determination of whether amusement taxes may be levied on admissions to resorts, swimming pools, bath
houses, hot springs, and tourist spots hinges on whether the phrase ‘other places of amusement’ encompasses resorts,
swimming pools, bath houses, hot springs, and tourist spots. Under the principle of ejusdem generis, “where a general word
or phrase follows an enumeration of particular and specific words of the same class or where the latter follow the former, the
general word or phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or of
the same kind or class as those specifically mentioned.”17 The purpose and rationale of the principle was explained by the
Court in National Power Corporation v. Angas18 as follows: The purpose of the rule on ejusdem generis is to give effect to
both the particular and general words, by treating the particular words as indicating the class and the general words as
including all that is embraced in said class, although not specifically named by the particular words. This is justified on the
ground that if the lawmaking body intended the general terms to be used in their unrestricted sense, it would have not made
an enumeration of particular subjects but would have used only general terms. [2 Sutherland, Statutory Construction, 3rd ed.,
pp. 395-400]. 19 In Philippine Basketball Association v. Court of Appeals, 20 the Supreme Court had an opportunity to
interpret a starkly similar provision or the counterpart provision of Section 140 of the LGC in the Local Tax Code then in
effect. Petitioner Philippine Basketball Association (PBA) contended that it was subject to the imposition by LGUs of
amusement taxes (as 17 Miranda v. Abaya, 370 Phil. 642, 658, citing Vera v. Cuevas, G.R. Nos. L-33693-94, May 31, 1979,

circuses. and boxing stadia are bound by a common typifying characteristic in that they are all venues 21 Id. or operators of theaters. and other events meant to be viewed by an audience. 18 G. bath houses. otherwise known as the Local Tax Code of 1973. There is no reason for going beyond such basis. the term: x x x (c) "Amusement Places" include theaters.”24 As such. hot springs and tourist spots cannot be considered venues primarily “where one seeks admission to entertain oneself by seeing or viewing the show or performances”. hot springs and tourist spots do not belong to the same category or class as theaters. theaters. Section 140 specifically mentions 'boxing stadia' in addition to “theaters. exhibitions. one must refer to the prior enumeration of theaters. 183137 primarily for the staging of spectacles or the holding of public shows. 141 (2000). at 1264. 25 Supra note 8. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the [province]. When used in this Title. Also.l83137 In this case. concert halls. it is clear that resorts. performances. Section 131 (c) of the LGC already provides a clear definition of ‘amusement places’: Section 131. ‘other places of amusement’ must be interpreted in light of the typifying characteristic of being venues “where one seeks admission to entertain oneself by seeing or viewing the show or performances” or being venues primarily used to stage spectacles or hold public shows. concert halls.. bath houses. and (correspondingly) perceived by an audience. cinematographs. 60225-26. implications.e.90 SCRA 379. it will be noted that it is only . the seeing or viewing of things) but also active doing (e. Amusement tax on admission. it is helpful to recall this Court’s pronouncements in Icard: [T]he power [to tax] when granted [to a province] is to be construed in strictissimi juris. Accordingly. cinemas. and boxing stadia. lessees. To do otherwise would be to countenance an arbitrary interpretation/application of a tax law and to inflict an injustice on unassuming taxpayers. Section 140 of the LGC adds to the enumeration of 'places of amusement' which may properly be subject to amusement tax. Inferences. stage or present shows and/or performances. 20 392 Phil. the Supreme Court rejected PBA's assertions and noted that: [I]n determining the meaning of the phrase 'other places of amusement'. concert halls [and] circuses” which were already mentioned in PD No.g. deductions – all these – have no place in the interpretation of the taxing power of a [province]. 24 Id. exhibitions. Decision 12 G. the ordinary definitions of the words ‘show’ and ‘performance’ denote not only visual engagement (i. Considering these. At this juncture. circuses and other places of amusement xxx. 231.25 22 THE NEW OXFORD AMERICAN DICTIONARY (2nd ed. concert halls and circuses with artistic expression as their common characteristic. at 366. Decision 10 G. Professional basketball games do not fall under the same category as theaters. Decision 11 G. In support of its contentions.23 while ‘performance’ means “an act of staging or presenting a play. cinematographs. Definition of Terms. the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis for determining what constitutes the 'other places of amusement' which may properly be subject to amusement tax impositions by provinces. Nos.. and other events meant to be viewed by an audience. staging or presenting) such that actions are manifested to. circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances [Underscoring supplied] Indeed.R.R.No. (which is analogous to Section 140 of the LGC) providing the following: Section 13. The previous pronouncements notwithstanding. 231. or other form of entertainment. 183137 opposed to amusement taxes imposed by the national government). typically an impressive one”. concert halls.22 ‘show’ means “a spectacle or display of something. Applying the principle of ejusdem generis. .R. at 547. cinematographs.R.. cinemas. 208 SCRA 542 (1992). 133. cinematographs. No. 19 Id. 'artistic expression' as a characteristic does not pertain to 'boxing stadia'. even as the phrase ‘other places of amusement’ was already clarified in Philippine Basketball Association. 2005). it cited Section 13 of Presidential Decree No. May 8. cinemas. at 1571. concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming.The province shall impose a tax on admission to be collected from the proprietors. performances. 23 Id. a concert. resorts. the Court need not embark on a laborious effort at statutory construction. No. In the present case. While it is true that they may be venues where people are visually engaged. they are not primarily venues for their proprietors or operators to actively display. circuses. concert halls. Thus. It follows that they cannot be considered as among the ‘other places of amusement’ contemplated by Section 140 of the LGC and which may properly be subject to amusement taxes.21 [Underscoring supplied] However. 1992. swimming pools. As defined in The New Oxford American Dictionary. swimming pools. displaying.

Both are engaged in the business of operating cinema houses. ·bath houses. Assoc ·ate Justice C airperson G. cockpits.[7] CTA Case No. 7079 On September 26. swimming pools. SERENO Chief Justice COMMISSIONER OF INTERNAL REVENUE VS SM PRIME HOLDINGS When the intent of the law is not apparent as worded. concert halls. the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales in the amount . and tourist spots". dancing halls. Inc. Associate Justice Decision WE CONCUR: 13 PRESBITERO . In such cases.[2] as well as prior laws on the same subject matter[3] to ascertain the true intent or spirit of the law. the petition for review on certiorari is GRANTED. JR. WHEREFORE. SO ORDERED. Article X of the Tax Ordinance which imposes amusement taxes on "resorts. Article X of the Benguet Provincial Revenue Code of 2005. As Section 140 of the LGC allows for the imposition of amusement taxes on gross receipts from admission fees to boxing stadia. hot springs and tourist spots. Any declaration as to the Province of Benguet's lack of authority to levy amusement taxes must be limited to admission fees to resorts. or when the application of the law would lead to absurdity or injustice. (SM Prime) and First Asia Realty Development Corporation (First Asia) are domestic corporations duly organized and existing under the laws of the Republic of thePhilippines. 2008 Decision [5] and the June 24. ABAD Associate Justice JOSE CA~NDOZA Ass~~~ Justice ATTESTATION I attest that the conclusions in the above Decision had be reached in consultation before the case was assigned to the writer of the pinion of the Court's Division. 2008 Resolution[6] of the Court of Tax Appeals (CTA).e. 183137 ROBERTO ~ A. cir-cuses. legislative history is all important. in so far as it imposes amusement taxes on admission fees to resorts. bath houses. hot springs. in relation to Republic Act (RA) No. Respondent Province of Benguet is permanently enjoined from enforcing the second paragraph of Section 59. and tourist spots but also covers admission fees for boxing. 9282. Thus. hot springs and tourist spots. This Petition for Review on Certiorari under Rule 45 of the Rules of Court. the second paragraph of Section 59. In any case. cinemas. Third Division CERTIFICATION Pursuant to Section 13. Factual Antecedents Respondents SM Prime Holdings.R.[1] the deliberations during the enactment. No. Article X of the Tax Ordinance is not limited to resorts.the second paragraph of Section 59. swimming pools. there is no reason to invalidate the first paragraph of Section 59. and other places of amusement". Article VIII of the Constitution and the Division Chairperson's Attestation. Article X of the Tax Ordinance refers to "theaters. MARIA LOURDES P. dancing schools. Section 59. swimming pools. VELASCO. night or day clubs. hot springs. Article X of the Tax Ordinance. is declared null and void. Article X of the Tax Ordinanc. the issues raised by Pelizloy are pertinent only with respect to the second paragraph of Section 59. A. swimming pools. I certify that the conclusions in the above Dt?cision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Moreover. PRES BITE As ociate Justice Chairp rson. among others. courts may take judicial notice of the origin and history of the law. hot springs and tourist spots. bath houses. bath houses. Article X of the Tax Ordinance must be sustained with respect to admission fees from boxing stadia. bath houses. 2003. swimming pools.[4] seeks to set aside the April 30. The first paragraph of Section 59. Article X of the Benguet Provincial Revenue Code of 2005 with respect to resorts. The second paragraph of Section 59.

[22] . The case was docketed as CTA Case No. the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for taxable year 2000 in the amount of P35.[21] This prompted First Asia to file a Petition for Review before the CTA on December 16.[17] CTA Case No. the BIR denied the protest filed by SM Prime and ordered it to pay the VAT deficiency for taxable year 2000 in the amount of P124.[14] Subsequently.823. 2003.[10] On September 6.78 for taxable year 2000. First Asia filed a Petition for Review before the CTA.276. 2002.[8] In response. 2004.[20] On October 5. 2004.ofP119.93.[18] [19] Thereafter.[15] On September 6. the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested by First Asia in a letter dated December 12. 7111 On April 16.40 for taxable year 2000.[11] On October 15.78. 7079. SM Prime filed a letter-protest dated December 15.[9] On December 12. 2002.895.840.874. the BIR sent First Asia a PAN for VAT deficiency on cinema ticket sales for taxable year 1999 in the total amount of P35.047. 2004. 7085. 7111. SM Prime filed a Petition for Review before the CTA docketed as CTA Case No. 2004. 2004. First Asia protested the PAN through a letter dated April 22.823. 2004. on October 20.[12] CTA Case No.12. the BIR issued a Formal Letter of Demand for alleged VAT deficiency. 7085 On May 15.[16] Accordingly. 2003. which the latter protested in a letter dated January 14. the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency.93 for VAT deficiency for taxable year 1999.840. the BIR denied the protest and ordered First Asia to pay the VAT deficiency in the amount of P35. First Asia protested the same in a letter dated July 9.[13] First Asia protested the PAN in a letter dated July 9. 2002.680. docketed as CTA Case No. the BIR rendered a Decision denying the protest and ordering First Asia to pay the amount of P35.035.895. 2004. 2004. 2004. 2004.680.

First Asia filed a protest-letter datedNovember 11. SM Prime filed a Motion to Consolidate CTA Case Nos.[23] Re: Assessment Notice No. which the latter protested through a letter dated November 11. 2005. It ordered First Asia to pay the amounts of P33.[27] On July 1.[28] Upon submission of the parties respective memoranda. the consolidated cases were submitted for decision on the sole issue of whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT.91 and P28.202. First Asia protested the PAN. which was protested by First Asia on December 14.CTA Case No.46 for the taxable year 2003 was issued by the BIR against First Asia. First Asia filed a Petition for Review before the CTA.[25] Thus. 7272 Re: Assessment Notice No.21 was issued against First Asia by the BIR. The motion was granted.802.912. 2005.[26] Consolidated Petitions The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime and First Asia. 008-02 A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of P32.590. [24] On May 11. The BIR then sent a Formal Letter of Demand.196. In response. 7079 on the grounds that the issues raised therein are identical and that SM Prime is a majority shareholder of First Asia. docketed as CTA Case No. 2005. 003-03 A PAN for VAT deficiency on cinema ticket sales in the total amount of P28. 2004. A Formal Letter of Demand was thereafter issued by the BIR to First Asia. 7272. In a letter dated September 23. 2004. 2004.376.[29] Ruling of the CTA First Division . 2004. the BIR rendered a Decision denying the protests.826.610. 7085. on June 22.50 for VAT deficiency for taxable years 2002 and 2003. 7111 and 7272 with CTA Case No. respectively.

Resorting to the language used and the legislative history of the law. 28-2001. the CIR moved for reconsideration which was denied by the First Division in its Resolution dated December 14. films. this Court hereby GRANTS the Petitions for Review. films or movies by cinema operators or proprietors is not among the enumerated activities contemplated in the phrase sale or exchange of services. As regards the validity of RMC No.[31] Thus. it held that consistent with the States policy to have a viable. it ruled that the activity of showing cinematographic films is not a service covered by VAT under the National Internal Revenue Code (NIRC) of 1997. which is the 30% amusement tax imposed by cities and provinces under the LGC of 1991. The CTA First Division likewise found that Revenue Memorandum Circular (RMC) No. The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are intended to be subject to VAT. or movies is instead subject to amusement tax under the LGC of 1991. And since the showing or exhibition of motion pictures. cannot be given force and effect because it failed to comply with the procedural due process for tax issuances under RMC No.[32] Aggrieved. VT-99000057. Further. the national government should be precluded from imposing its own business tax in addition to that already imposed and collected by local government units. as amended. the First Division of the CTA rendered a Decision granting the Petition for Review. Assessment Notices Nos. the . sustainable and competitive theater and film industry. SO ORDERED. otherwise known as the Local Government Code (LGC) of 1991. 20-86. [35] The CTA En Banc however denied[36] the Petition for Review and dismissed[37] as well petitioners Motion for Reconsideration. It reiterated that the exhibition or showing of motion pictures. VT-00-000122. 2006. it disposed of the case as follows: IN VIEW OF ALL THE FOREGOING.[33] Ruling of the CTA En Banc Thus. 244. 2006. then gross receipts derived by cinema/ theater operators or proprietors from admission tickets in showing motion pictures. but an activity subject to amusement tax under RA 7160. Sustainable and Competitive Theater and Film Industry as One of its Partners in National Development. which imposes VAT on gross receipts from admission to cinema houses.[34] The case was docketed as CTA EB No. Citing House Joint Resolution No. 28-2001. 003-03 and 008-02 are ORDERED cancelled and set aside. the CIR appealed to the CTA En Banc.[30] the CTA First Division held that the House of Representatives resolved that there should only be one business tax applicable to theaters and movie houses. film or movie are not subject to VAT. Accordingly. Respondents Decisions denying petitioners protests against deficiency value-added taxes are hereby REVERSED. entitled Joint Resolution Expressing the True Intent of Congress with Respect to the Prevailing Tax Regime in the Theater and Local Film Industry Consistent with the States Policy to Have a Viable.On September 22. 13. VT-00-000098.

(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO BE TRIED BY THE HONORABLE COURT. EXISTING PROVISION OF LAW EXEMPTING RESPONDENTS SERVICES FROM THE VAT IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997. . (d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE APPLICABLE HEREIN.CTA En Banc agreed with its First Division that the same cannot be given force and effect for failure to comply with RMC No. (e) THERE IS NO VALID. STILL THE HONORABLE COURT ERRONEOUSLY APPLIED THE SAME AND PROMULGATED DANGEROUS PRECEDENTS. In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in coverage. where petitioner alleges that the CTA En Banc seriously erred: (1) (2) In not finding/holding that the gross receipts derived by operators/proprietors of cinema houses from admission tickets [are] subject to the 10% VAT because: (a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS A SALE OF SERVICE. 20-86. the present recourse. Issue Hence. and (g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108 OF THE NIRC. (b) UNLESS EXEMPTED BY LAW. ALL SALES OF SERVICES ARE EXPRESSLY SUBJECT TO VAT UNDER SECTION 108 OF THE NIRC OF 1997. (c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW AND THE APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS UNWARRANTED.

and (4) In invalidating Revenue Memorandum Circular (RMC) No. The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive Section 108 of the NIRC of the 1997 reads: SEC. 28-2001 on which the deficiency assessments were based is an unpublished administrative ruling. Petitioners Arguments Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because it covers all sales of services unless exempted by law. .(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is merely subject to the amusement tax imposed by the Local Government Code. being a sale of service. 28-2001. on the other hand. Thus.[38] Simply put. the absence of gross receipts from cinema/theater admission tickets from the list of services which are subject to the national amusement tax under Section 125 of the NIRC of 1997 reinforces this legislative intent. According to them. He claims that the CTA erred in applying the rules on statutory construction and in using extrinsic aids in interpreting Section 108 because the provision is clear and unambiguous.Respondents also highlight the fact that RMC No. Respondents Arguments Respondents. 108. he maintains that the exhibition of movies by cinema operators or proprietors to the paying public. Respondents insist that gross receipts from cinema/theater admission tickets were never intended to be subject to any tax imposed by the national government. is subject to VAT. Value-added Tax on Sale of Services and Use or Lease of Properties. Our Ruling The petition is bereft of merit. the issue in this case is whether the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets are subject to VAT. argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the services subject to VAT.

including the use or lease of properties. including. goodwill. secret formula or process. operators or keepers of hotels.[39] Among those included in the enumeration is the lease of motion picture films. indemnity and bonding companies. transportation contractors on their transport of goods or cargoes. lessors of property. television. similar services. air and water relative to their transport of goods or cargoes. commercial. services of banks. including surety. real estate. pension houses. rest houses. whether personal or real. xxxx (7) The lease of motion picture films. warehousing services. and (8) The lease or the use of or the right to use radio. manufacturing or repacking goods for others. The phrase sale or exchange of services shall likewise include: (1) The lease or the use of or the right or privilege to use any copyright. satellite transmission and cable television time. stock. persons engaged in milling. films. trade brand or other like property or right. radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code. As pointed out by the CTA En Banc: . processing. lending investors. trademark. including those performed or rendered by construction and service contractors. non-bank financial intermediaries and finance companies. including clubs and caterers. The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee. resorts. patent. plan. fidelity. cafes and other eating places. a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services. and similar servicesregardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. indicate that the enumeration is by way of example only. assessed and collected. The words. tapes and discs. and shall likewise include. dealers in securities. motels.(A) Rate and Base of Tax. however. and non-life insurance companies (except their crop insurances). lessors or distributors of cinematographic films. services of franchise grantees of telephone and telegraph. including persons who transport goods or cargoes for hire and other domestic common carriers by land. remuneration or consideration. refreshment parlors. x x x x (Emphasis supplied) A cursory reading of the foregoing provision clearly shows that the enumeration of the sale or exchange of services subject to VAT is not exhaustive. customs and immigration brokers. proprietors or operators of restaurants. design or model. tapes and discs. films. is not the same as the showing or exhibition of motion pictures or films. There shall be levied. proprietors. inns. This.

boxing exhibitions. when the NIRC of 1977[46] was enacted. 1988. The intent of the legislature must therefore be ascertained. or operators of the theaters or cinematographs and the distributors of the cinematographic films. Jai-Alai and race tracks.Exhibition in Blacks Law Dictionary is defined as To show or display. lessees or operators of cabarets. which provides: SECTION 102. or operators of theaters.. cinematographs. commercial. and other places of amusement. concert halls. It amended certain provisions of the NIRC of 1977 by imposing a multi-stage VAT to replace the tax on original and subsequent sales tax and percentage tax on certain services. the national government imposed amusement tax only on proprietors. cinematographs. a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. withheld. real estate. Thus. including those performed or rendered by construction and service contractors. lessees. circuses and other places of amusements exclusively to the local government. and paid by the proprietors. The legislature never intended operators or proprietors of cinema/theater houses to be covered by VAT Under the NIRC of 1939. customs and immigration brokers. lessees. use and enjoy it on specified period of time in exchange for periodic payment of a stipulated price. 573). x x x To produce anything in public so that it may be taken into possession (6th ed. Value-added tax on sale of services. p. processing. referred to as rent (Blacks Law Dictionary. concert halls. 889). assessed and collected. persons engaged in milling. It imposed VAT on sales of services under Section 102 thereof. including cockpits. or operators of such theaters or cinematographs before the gross receipts were divided between the proprietors. films or movies by cinema/ theater operators or proprietors is not included in the enumeration. it is incumbent upon the court to the determine whether such activity falls under the phrase similar services.[41] the national government imposed amusement tax on proprietors. (a) Rate and base of tax. Section 11[43] of the Local Tax Code. circuses. lessees.[42] In the case of theaters or cinematographs. and cabaret. While the word lease is defined as a contract by which one owning such property grants to another the right to possess. 6th ed. p. There shall be levied. . remuneration or consideration. lessors of personal property. day and night clubs. amended this provision by transferring the power to impose amusement tax[45] on admission from theaters. the taxes were first deducted. lessors or distributors of cinematographic films.[44] however. race tracks. the VAT Law[48] was promulgated. The phrase sale of services means the performance of all kinds of services for others for a fee. stock..[47] On January 1. x x x[40] Since the activity of showing motion pictures.

If the tax is not billed separately or is billed erroneously in the invoice. 231. xxxx Since the promulgation of the Local Tax Code which took effect on June 28.manufacturing or repacking goods for others. as amended. excluding the tax. Tan. (Emphasis supplied) Persons subject to amusement tax under the NIRC of 1977. the tax shall be determined by multiplying the gross receipts (including the amount intended to cover the tax or the tax billed erroneously) by 1/11. excluding value-added tax.[49] On February 19. compensation or service fee. then Commissioner Bienvenido A. (2) Tax not billed separately or is billed erroneously in the invoice. x x x xxxx Gross receipts means the total amount of money or its equivalent representing the contract price. (b) Determination of the tax. were exempted from the coverage of VAT. and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties: Provided That the following services performed in the Philippines by VAT-registered persons shall be subject to 0%: (1) Processing manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported. 1988. as amended. the jurisdiction to levy amusement tax on gross receipts arising from admission to places of amusement has been transferred to the local governments to the exclusion of the national government. If the tax is billed as a separate item in the invoice. including the amount charged for materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the service performed or to be performed for another person. 1973 none of the amendatory laws which amended the National Internal Revenue Code. (1) Tax billed as a separate item in the invoice.D. has amended the provisions of Section 11 . the tax shall be based on the gross receipts. however. including the value added tax law under Executive Order No. which clarified that the power to impose amusement tax on gross receipts derived from admission tickets was exclusive with the local government units and that only the gross receipts of amusement places derived from sources other than from admission tickets were subject to amusement tax under the NIRC of 1977. issued RMC 8-88. Jr. as amended). Pertinent portions of RMC 8-88 read: Under the Local Tax Code (P. 273.

Since the Bureau of Internal Revenue is an agency of the national government. At present. only lessors or distributors of cinematographic films are subject to VAT. In 1994. the LGC of 1991 was passed into law. then it follows that it has no legal mandate to levy amusement tax on admission receipts in the said places of amusement. 231-86 dated November 5. the provision in the Local Tax Code expressly excluding the national government from collecting tax from the proprietors. RA 7716 was amended by RA 8241. dated December 4. lessees. 231. or operators of theaters. Several amendments[52] were made to expand the coverage of VAT. circuses and other places of amusements was no longer included. or operators of theaters. The tax on gross receipts derived from admission tickets shall be levied and collected by the city government pursuant to Section 23 of Presidential Decree No. NIRC. the sole jurisdiction for collection of amusement tax on admission receipts in places of amusement rests exclusively on the local government. the NIRC of 1997[51] was signed into law. pursuant to Section 11 of P. Three years later. old NIRC) pertaining to amusement taxes on places of amusement shall be implemented in accordance with BIR RULING. However. Shortly thereafter. 1986 to wit: x x x Accordingly. otherwise known as the Local Tax Code. 273 (Sec. to the exclusion of the national government. the tax shall first be deducted and withheld by their proprietors. cinemas. circuses. 1991. none pertain to cinema/theater operators or proprietors. While persons subject to amusement tax[53] under the NIRC of 1997 are exempt from the coverage of VAT. The local government retained the power to impose amusement tax on proprietors. lessees.D. the following facts can be established: . boxing stadia. 273). or operators and paid to the local government before the gross receipts are divided between said proprietors. and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees under Section 140 thereof. lessees. Accordingly. or operators and the distributors of the cinematographic films. 228. cinematographs. However. concert halls. only the gross receipts of the amusement places derived from sources other than from admission tickets shall be subject to x x x amusement tax prescribed under Section 228 of the Tax Code. (Emphasis supplied) On October 10. lessees. concert halls.O. [50] In the case of theaters or cinemas. RA 7716 restructured the VAT system by widening its tax base and enhancing its administration.[54] Based on the foregoing.of the Local Tax Code. 1973 and BIR RULING NO. the provisions under Section 123 of the National Internal Revenue Code as renumbered by Executive Order No. as amended by E. as amended x x x or by the provincial government. 231. Considering the foregoing legal background. as amended (now Section 123.

did not intend to treat cinema/theater houses as a separate class. films or movies by cinema/theater operators or proprietors has always been considered as a form of entertainment subject to amusement tax. concert halls. concert halls. (7) When the Local Tax Code was repealed by the LGC of 1991. the national government imposed amusement tax only on proprietors. it exempted persons subject to amusement tax under the NIRC from the coverage of VAT. (5) The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage tax on certain services. circuses and other places of amusements were transferred to the local government. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local government unit and not by the national government is immaterial. Jai-Alai and race tracks. be made between the places of amusement taxed by the national government and those taxed by the local government. No distinction must. all forms of amusement tax were imposed by the national government. The Local Tax Code. who would be paying an additional 10%[55] VAT on top of the 30% amusement tax imposed . (6) When the VAT law was implemented. (3) When the Local Tax Code was enacted. circuses and other places of amusements. cinematographs. amusement tax on admission tickets from theaters.(1) Historically. (8) Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. therefore. day and night clubs. To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors. in transferring the power to tax gross receipts derived by cinema/theater operators or proprietor from admission tickets to the local government. the local government continued to impose amusement tax on admission tickets from theaters. (2) Prior to the Local Tax Code. (9) Only lessors or distributors of cinematographic films are included in the coverage of VAT. the activity of showing motion pictures. These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. cinematographs. (4) Under the NIRC of 1977. lessees or operators of cabarets.

it is apropos to quote the case of Roxas v. the power of imposing taxes on gross receipts from admission of persons to cinema/theater and other places of amusement had. or a total of 40% tax. in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. thus. the said provision containing the exclusive power of the provincial government to impose amusement tax. Local Tax Code). 7160. computed on the amount paid for admission. eliminating the statutory prohibition on the national government to impose business tax on gross receipts from admission of persons to places of amusement. 466. equally and uniformly. as amended by the Expanded VAT Law (RA No. to the exclusion of the national or municipal government (Sections 11 & 13. thereafter. it was acknowledged that a cinema/theater operator was then subject to amusement tax under Section 260 of Commonwealth Act No. And. ratiocinated that: Basically. With the enactment of the Local Tax Code under Presidential Decree (PD) No. 1996.[57] to wit: The power of taxation is sometimes called also the power to destroy. had also been repealed and/or deleted by Republic Act (RA) No. We need not belabor that a literal application of a law must be rejected if it will operate unjustly or lead to absurd results. Court of Tax Appeals. It must be exercised fairly.by Section 140 of the LGC of 1991. it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. been transferred to the provincial government. On this point. in issuing the assessment notices for deficiency VAT against respondents. the enactment of RA No. we are convinced that the legislature never intended to include cinema/theater operators or proprietors in the coverage of VAT. dated June 28. . The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT Petitioner.[58] (Emphasis supplied) We disagree. 7716) and which was implemented beginning January 1. otherwise known as the Local Government Code of 1991. However. 231. lest the tax collector kill the hen that lays the golden egg. Accordingly. otherwise known as the National Internal Revenue Code of 1939.[56] Thus. led the way to the valid imposition of the VAT pursuant to Section 102 (now Section 108) of the old Tax Code. 7160. enacted into law on October 10. Such imposition would result in injustice. 1973. Therefore. as persons taxed under the NIRC of 1997 would be in a better position than those taxed under the LGC of 1991. 1991.

tax laws must be construed strictly against the government and in favor of the taxpayer.The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. it cannot be presumed nor can it be extended by implication. 28-2001 complied with the procedural due process for tax issuances as prescribed under RMC No. and unambiguously. films or movies are not subject to value-added tax under Section 108 of the National Internal Revenue Code of 1997.[60] In view of the foregoing. Rule on tax exemption does not apply Moreover. unless a statute imposes a tax clearly. in case of doubt. 2008 Resolution denying the motion for reconsideration are AFFIRMED.[59] As it is.[63] In fact. expressly. 28-2001 which imposes VAT on the gross receipts from admission to cinema houses must be struck down. what applies is the equally well-settled rule that the imposition of a tax cannot be presumed.[64] WHEREFORE. The removal of the prohibition under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or proprietors. contrary to the view of petitioner. the power to impose amusement tax on cinema/theater operators or proprietors remains with the local government. [62] Thus. Since the imposition of a tax is a burden on the taxpayer. supplant. respondents need not prove their entitlement to an exemption from the coverage of VAT. 2008 Decision of the Court of Tax Appeals En Banc holding that gross receipts derived by respondents from admission tickets in showing motion pictures. A law will not be construed as imposing a tax unless it does so clearly. the Petition is hereby DENIED. [61] The reason is obvious: it is both illogical and impractical to determine who are exempted without first determining who are covered by the provision. The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer is clearly subject to the tax being levied against him. 28-2001 is invalid Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. RMC No. expressly and unambiguously. as amended. and its June 24. the law they seek to apply and implement. We cannot overemphasize that RMCs must not override. . or modify the law. there is no need to discuss whether RMC No. SO ORDERED. 20-86. Neither did it expand the coverage of VAT. The assailed April 30. but must remain consistent and in harmony with. Revenue Memorandum Circular No.

Republic Act No.01) on each gallon (128 fluid ounces. the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2. MUNICIPALITY OF TANAUAN. sought to enforce compliance by the latter of the provisions of said Ordinance No. commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No.PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES. that on January 17. 23. null and void. 2264] declaring Ordinance Nos. 1959).. On February 14. U. company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report. 27. the plaintiff-appellant. 23 and 27 legal and constitutional. THE MUNICIPAL MAYOR. vs. 1962. unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. which was approved on October 28.S. Inc. 1963. of the municipality of Tanauan. INC. 2264. as amended. levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. the person. Provincial Fiscal Zoila M. series of 1962. challenging the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. Sabido. Municipal Ordinance No. June 19.' On October 7." 4 For the purpose of computing the taxes due. 3 On the other hand. LEYTE. the person. Reyes for appellees. the parties entered into a Stipulation of Facts. On July 23. 1963. Pepsi-Cola Bottling Company of the Philippines.. Sabido & Associates for appellant. ordering the plaintiff to pay the taxes due under the oft the said Ordinances. both Ordinances Nos. plaintiff-appellant. the acting Municipal Treasurer of Tanauan. as involving only pure questions of law. 23 and 27 is denominated as "municipal production tax. 1969. J. 1963. the material portions of which state that. partnership.) of volume capacity. Leyte. MARTIN.: This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. Leyte.. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same. Leyte. levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0. 1962. 2264. first. which was approved on September 25. of the total number of bottles produced and corked during the month." 2 For the purpose of computing the taxes due. and second. fun company. 1963. Limcaoco & Solicitor Enrique M. 3294. firm. 1 otherwise known as the Local Autonomy Act. corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. which was certified to Us by the Court of Appeals on October 6. Municipal Ordinance No. ET AL. defendant appellees. 23 and 27. 27. series of 1962. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General Conrado T. and to pay the costs. 5 The tax imposed in both Ordinances Nos." . as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality. of Tanauan.

however. 13 The reason is that the State has exclusively reserved the same for its own prerogative. said theory does not apply. and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. contrary to plaintiff-appellant's pretense. the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. — Are Ordinances Nos. Legislative powers may be delegated to local governments in respect of matters of local concern. would not suffice to invalidate the said law as confiscatory and oppressive. confiscatory and oppressive? 2. local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. There are three capital questions raised in this appeal: 1. The power of taxation is an essential and inherent attribute of sovereignty. a tax is imposed on property outside the State. 7 This is sanctioned by immemorial practice. i. 23 and 27 constitute double taxation and impose percentage or specific taxes? 3. it cannot be said that Section 2 of Republic Act No." Withal. Section 5. a tax does not violate the due process clause. But. as amended. Republic Act No.e. the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals. which. 23 and 27 unjust and unfair? 1. and arbitrary or oppressive methods are used in assessing and collecting taxes. lies in the case of municipal corporations. is not forbidden by our fundamental law. — Do Ordinances Nos. extraterritorial taxation. as when (1) the tax is for a public purpose. except when the taking of the property is in the lawful exercise of the taxing power. belonging as a matter of right to every independent government. subject to such limitations as may be provided by law.. the State is not limited 6 the exact measure of that which is exercised by itself. double taxation. The plenary nature of the taxing power thus delegated. municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes. 6 It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. to which. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose. in turn. (2) the rule on uniformity of taxation is observed. without being expressly conferred by the people.From this judgment. it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Article XI provides: "Each local government unit shall have the power to create its sources of revenue and to levy taxes. In delegating the authority. The exception. elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948. (3) either the person or property taxed is within the jurisdiction of the government levying the tax. Thus. 2264 an undue delegation of power. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry. although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Moreover. 9 Under the New Constitution. 10 This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power. 12 There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. since We have not adopted as part thereof the . 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 8 By necessary implication. When it is said that the taxing power may be delegated to municipalities and the like. — Is Section 2. as applied to a particular taxpayer. in general.

injunction against double taxation found in the Constitution of the United States and some states of the Union. the same comes within the ambit of the general rule. U. U. because these two ordinances cover the same subject matter and impose practically the same tax rate. counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 16 but not in a case where one tax is imposed by the State and the other by the city or municipality." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law. but there is not set ratio between the volume of sales and the amount of the tax.) of volume capacity. in Ordinance No. series of 1962. pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies. to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline. 27." That brings Us to the question of whether the remaining Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former. 27 does not partake of the nature of a percentage tax on sales. matches firecrackers. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. the taxing authority conferred on local governments under Section 2. 21 Nor can the tax levied be treated as a specific tax. As earlier quoted. saccharine. manufactured oils and other fuels. Even the Provincial Fiscal. 27. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products. the Municipality of Tanauan enacted Ordinance No. such as distilled spirits. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. wines. series of 1962. products of tobacco other than cigars and cigarettes. it is one centavo (P0. a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. .01) on each gallon (128 fluid ounces. 22 Soft drink is not one of those specified.01) on each gallon (128 fluid ounces. 23. diesel fuel oil. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose. 27 imposes a percentage or a specific tax. 23. The thesis proceeds from its assumption that both ordinances are valid and legally enforceable. 27.S. 17 2.every bottle corked. 20But. which was approved on September 25. series of 1962 is being enforced by defendants-appellees. irrespective of the volume contents of the bottle used. and operates as a repeal of the latter. the imposition of "a tax of one centavo (P0.S. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. or other taxes in any form based thereon. Specific taxes are those imposed on specified articles.) of volume capacity. The tax is levied on the produce (whether sold or not) and not on the sales. 27. levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for . playing cards. U. 23. Undoubtedly. is broad enough as to extend to almost "everything. even without words to that effect. approved on October 28. imposing a tax of one centavo (P0. cinematographic films. it was 1/16 of a centavo for every bottle corked. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate. 1962. accepting those which are mentioned therein. 1962.01) on each gallon (128 fluid ounces. This is not so. The aforementioned admission shows that only Ordinance No. series of 1962 clearly repeals Ordinance No. The plaintiff-appellant submits that Ordinance No. bunker fuel oil. opium and other habit-forming drugs. under the provisions of the National Internal Revenue Code. particularly. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 23 and 27 constitute double taxation." For purposes of this particular limitation. 27. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan. 2264. Ordinance No. fermented liquors.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27.S. Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. Republic Act No. coal.

01) on each gallon (128 fluid ounces. or an equivalent of 1-½ centavos per case. unjust and confiscatory. 27 if the purpose of the law to further strengthen local autonomy were to be realized. Leyte. is hereby upheld and Municipal Ordinance No. of defendant Municipality. Municipal corporations are allowed much discretion in determining the reates of imposable taxes. series of 1968. U. it is not subject to tax since a documentary stamp tax is levied on the document issued and not on the transaction. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. the constitutionality of Section 2 of Republic Act No.3. and therefore not subject to value-added tax (VAT). ACCORDINGLY. 28 Finally. and even assuming that it is so. Costs against petitionerappellant. still. 29 appears not to affect the resolution of the validity of Ordinance No. Petitioner also contends that a pawn ticket is not subject to documentary stamp tax (DST) because it is not proof of the pledge transaction. as amended. courts will go slow in writing off an ordinance as unreasonable.S. just and uniform taxes. The ordinance in question (Ordinance No. repealing Municipal Ordinance No. July 1. produced or manufactured. Municipalities are empowered to impose. 24 an increase in the tax alone would not support the claim that the tax is oppressive. 27 of the Municipality of Tanauan. series of 1964. 23. 23 cannot be considered unjust and unfair.00 per corking machine with five but not more than ten crowners or P2. producers.000. The core of petitioner's argument is that it is not a lending investor within the purview of Section 108(A) of the National Internal Revenue Code (NIRC). otherwise known as the Local Autonomy Act. The facts: . 54.000. 1973). 26 Unless the amount is so excessive as to be prohibitive. series of 1962. FIRST PLANTERS VS CITY TREASURER OF PASAY CITY First Planters Pawnshop. the municipal license tax of P1. SO ORDERED. The tax of one (P0. same series. 2264. (petitioner) contests the deficiency value-added and documentary stamp taxes imposed upon it by the Bureau of Internal Revenue (BIR) for the year 2000. 231.) of volume capacity on all softdrinks. 25 This is in line with the constutional policy of according the widest possible autonomy to local governments in matters of local taxation.00 with ten but not more than twenty crowners imposed on manufacturers. 41. as amended by Ordinance No. as amended. not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes. 27. is hereby declared of valid and legal effect. importers and dealers of soft drinks and/or mineral waters under Ordinance No. Inc. 27) comes within the second power of a municipality. an aspect that is given expression in the Local Tax Code (PD No.

102. Adriano per Final Decision on Disputed Assessment dated January 29.13.[10] Petitioner sought reconsideration but this was denied by the CTA En Banc per Resolution dated August 14. The assailed Decision dated May 9.[2] Petitioner subsequently received a Formal Assessment Notice on December 29.79 and DST deficiency in the amount of P24.[6] In a Decision dated May 9. The deficiency assessment was at P541.[7] Petitioner filed a motion for reconsideration[8] which was denied in a Resolution dated October 7. 2005 and Resolution dated October 7. directing payment of VAT deficiency in the amount of P541.33 for DST.79 for VAT and P23. 2003.[9] Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7.[3] Petitioner filed a protest.[11] . 2005. 2005.In a Pre-Assessment Notice dated July 7. inclusive of surcharge and interest.102.747. 2006. 2003. petitioner was informed by the BIR that it has an existing tax deficiency on its VAT and DST liabilities for the year 2000.[1] Petitioner protested the assessment for lack of legal and factual bases. SO ORDERED.646.[5] Petitioner then filed a petition for review with the Court of Tax Appeals (CTA). 2006.[4] which was denied by Acting Regional Director Anselmo G. the 2nd Division of the CTA upheld the deficiency assessment. the Petition for Review is hereby DENIED for lack of merit. 2004. 2005 are hereby AFFIRMED. the dispositive portion of which reads as follows: WHEREFORE. premises considered.

but not what pawnshops are. as implemented by Revenue Regulations No. All that has been stated is what pawnshops are not. 45-01 dated October 12. II THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN RULING THAT PETITIONER IS LIABLE FOR DST ON PAWN TICKETS. the present petition for review under Rule 45 of the Rules of Court based on the following grounds: I THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING PETITIONER LIABLE FOR VAT. a pawnshop business was considered as akin to lending investors business activity and subject to 5% percentage tax beginning January 1. 15-91 issued on March 11.[13] With the passage of Republic Act (R. [14] the BIR abandoned its earlier position and maintained that pawnshops are subject to 10% VAT.O.) No. Initially. which provided that pawnshop operators are liable to the 10% VAT based on gross . 2001. 7-95. as amended by E. The BIR itself has maintained an ambivalent stance on this issue.A.[12] The determination of petitioner's tax liability depends on the tax treatment of a pawnshop business. in Revenue Memorandum Order No. 273. there has not been any definitive declaration in this regard despite the fact that pawnshops have long been in existence. No. under Section 116 of the Tax Code of 1977. 1991. Oddly.Hence. This was complemented by Revenue Memorandum Circular No. 1991. 7716 or the EVAT Law in 1994.

273. On July 15. In view of said ruling. inter alia: In view of the said Supreme Court decision. Inc. Commissioner of Internal Revenue.000. Section 116 of the NIRC of 1977 subjects to percentage tax dealers in securities and lending investors only. 36-2004 dated June 16. canceling the previous lending investor's tax assessments on pawnshops. the CTA ruled that the petitioner therein was subject to 10% VAT under Section 108 of the Tax Code of 1997. as amended by Executive Order No. v. This Circular is being issued for the sole purpose of resolving the tax liability of pawnshops to the 5% lending investors tax provided under the then Section 116 of the NIRC of 1977. they are not considered lending investors for the purpose of imposing percentage taxes. 15-91 and RMC 43-91 that pawnshops were not subject to the 5% percentage tax on lending investors imposed by Section 116 of the NIRC of 1977. Antam Pawnshop Corporation v. the BIR had ruled several times prior to the issuance of RMO No. Tambunting Pawnshop. the BIR issued Revenue Memorandum Circular No. the Court rendered Commissioner of Internal Revenue v. under the 1997 Tax Code. all assessments on pawnshops for percentage taxes as lending investors are hereby cancelled.receipts beginning January 1. 2004. Michel J. pursuant to Section 109(z) of the Tax Code of 1997. while pawnshops whose gross annual receipts do not exceed P550. Inc. 1996. pawnshops and lending investors were subjected to different tax treatments. as amended. Lhuillier Pawnshop. All internal revenue officials are enjoined from issuing assessments on pawnshops . third. and shall not cover issues relating to their other tax liabilities. and lastly. CTA decisions affirmed the BIR's position that pawnshops are subject to [15] VAT. Commissioner of Internal Revenue[16] reiterates said ruling. second. Congress never intended pawnshops to be treated in the same way as lending investors. [18] The Court gave the following reasons: first.00 are liable for percentage tax. 2003. In H.[17] in which it was categorically ruled that while pawnshops are engaged in the business of lending money. Said Circular stated. It was the CTA's view that the services rendered by pawnshops fall under the general definition of sale or exchange of services under Section 108(A) of the Tax Code of 1997.

No.A. the BIR issued Bank Bulletin No. 37-2004 was issued on the same date whereby pawnshop businesses were allowed to settle their VAT liabilities for the tax years 1996-2002 pursuant to a memorandum of agreement entered into by the Commissioner of Internal Revenue and the Chambers of Pawnbrokers of the Philippines. An Act Amending Certain Sections of the National Internal Revenue Code of 1997.00 of pawnshops prior to January 1. 9238 took effect on February 16. In the interim.00 or 3% percentage tax for gross annual sales/receipts not exceeding P550. under the then Section 116 of the NIRC of 1977. as amended.000.A. including increments thereto. The Circular likewise instructed all revenue officers to ensure that all VAT due from pawnshops beginningJanuary 1.[20] Pending publication of R. be covered by another issuance. 2004. 10-2004 dated October 18. however. 2005. Congress passed Republic Act (R. 2004. 2003. When R. . classifying pawnshops as Other Non-bank Financial Intermediaries. No. 2004.A. 73-2004 on November 25. the Department of Finance issued Revenue Regulations No. 2004 advising all banks and non-bank financial intermediaries that they shall remain liable under the VAT system. are assessed and collected from pawnshops under its jurisdiction. 9238 on February 5. if any. by Excluding Several Services from the Coverage of the Value-added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial Intermediaries Performing Quasi-banking Functions and Other Nonbank FinancialIntermediaries beginning January 01. prescribing the guidelines and policies on the assessment and collection of 10% VAT for gross annual sales/receipts exceedingP550. 2004. 2004-01 on February 10.000. Inc. This shall however.for percentage taxes on lending investors.The BIR then issued Revenue Memorandum Circular No.) No.[19] Revenue Memorandum Circular No. 9238. For purposes of the gross receipt tax provided for under Republic Act No. as amended. the pawnshops are now subject thereof. 2004 entitled. 9294.

[27] The levy.[23] This was restated by R.A. although the levy. collection and assessment of the 10% VAT on services rendered by banks. No. were made effective January 1. 9238 finally classified pawnshops as Other Non-bank Financial Intermediaries. 7716.A. and other financial intermediaries not performing quasibanking functions. as amended. 2002.A. 2000.In fine. 1998.[25] R. No. The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning. No. with the Court's ruling in Lhuillier.[24] which amended R. prior to the EVAT Law. thus Under the National Internal Revenue Code of 1977. . non-bank financial intermediaries.A. until December 31. No. [21] pawnshops should have been levied the 5% percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under Section 119 (now Section 121 of the Tax Code of 1997). finance companies.A. 9010. 7716 or the EVAT Law. subject to the appropriate taxes provided by law. 8241. pawnshops were then treated as VAT-able enterprises under the general classification of sale or exchange of services under Section 108(A) of the Tax Code of 1997. No.[22] pawnshops should have been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997). collection and assessment thereof were again deferred until December 31. Subsequently.A. No. collection and assessment of the 10% VAT was further deferred by R. No. and by R. 8761 until December 31. 1999. pawnshops were treated as lending investors subject to lending investor's tax. With the imposition of the VAT under R. R.A. 8424 or the Tax Reform Act of 1997[26] likewise imposed a 10% VAT under Section 108 but the levy.

Instead. that is. including the use or lease of properties.[29] At the time of the disputed assessment. non-bank financial intermediaries. The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for others for a fee. remuneration or consideration x x x. including x x x services of banks. non-bank financial intermediaries. due to the specific nature of its business. (A) Rate and Base of Tax. assessed and collected. as provided in the same Section 108(A). the services of banks. and non-life insurance companies (except their crop insurances). 108. including surety. 2003. pawnshops were not subject to 10% VAT under the general provision on sale or exchange of services as defined under Section 108(A) of the Tax Code of 1997. finance companies. with the enactment of R. which reads: SEC.With no further deferments given by law. fidelity. and other financial intermediaries not performing quasi-banking functions were finally made effective beginning January 1.A. Finally. a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services. and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. Value-added Tax on Sale of Services and Use or Lease of Properties. and other financial intermediaries not performing quasibanking functions were specifically exempted from VAT. finance companies.There shall be levied. non-bank financial intermediaries and finance companies. 9238. indemnity and bonding companies. remuneration or consideration.[28] and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997. No. . the levy. which states: 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee. for the year 2000. The phrase 'sale or exchange of services' shall likewise include: x x x (Emphasis and underscoring supplied) . collection and assessment of the 10% VAT on banks. pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries.

on the other hand. stock savings and loan associations.[33] It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover. provided that banksshall refer to entities engaged in the lending of funds obtained in the form of deposits. Islamic banks and other banks as determined by the Monetary Board of the BangkoSentral ng Pilipinas in the classification of banks. and may be used interchangeably.The tax treatment of pawnshops as non-bank financial intermediaries is not without basis. mortgage banks. acquired by them. as amended. 374 (Rules and Regulations for Pawnshops). or otherwise coursed through them. meanwhile. 8791 or the General Banking Law of 2000. 8791 also included cooperative banks. are defined as persons or entities whose principal functions include the lending.A. No.[32] Financial intermediaries. A pawnshop's business and operations are governed by Presidential Decree (P. R. and branches and agencies in the Philippines of foreign banks. 114 defines pawnshop as a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous. investing or placement of funds or evidences of indebtedness or equity deposited with them. with pawnbroker or pawn brokerage.[30] R.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular No.D. No. 337. Section 3 of P. either for their own account or for the account of others. savings bank. That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its .D. No.[31] R.A. rural banks. No.A. development banks. the nature of their business activities partakes that of a financial intermediary in that its principal function is lending. or the General Banking Act characterizes the terms banking institution and bank as synonymous and interchangeable and specifically include commercial banks.

This classification is equally supported by Subsection 4101Q. to be a person or entity engaged in the business of lending money. 204-99. 9-2004 defining Nonbank Financial Intermediaries. in fact. in relation to Sec.Whereas. lending investor. such as investment house. money broker x x x.1 Financial Intermediaries xxx Non-bank financial intermediaries shall include the following: (1) A person or entity licensed and/or registered with any government regulatory body as a nonbank financial intermediary. 9238.A. classifying pawnshops as one of Non-bank Financial Intermediaries within the supervision of the Bangko Sentral ng Pilipinas. covered by Sec. the term pawnshop as defined under Presidential Decree No. securities dealer/broker. 114 which authorized its creation. . all fall within the classification of Non-bank Financial Intermediaries and therefore. to wit: SEC. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL INTERMEDIARIES. investment company.Manual of Regulations for Non-Bank Financial Institutions. Ultimately. financing company. 10-2004. Regs No. 2. . 2.3 of Rev. (Emphasis supplied) Revenue Regulations No. R. No. No.A.1 of the BSP Manual of Regulations for Non-Bank Financial Intermediaries and reiterated in BSP Circular No. recognized these bases. viz. The Manual includes pawnshops in the list of non-bank financial intermediaries.pawnshop. 9238 categorically confirmed the classification of pawnshops as non-bank financial intermediaries.: 4101Q. 4 of R.

Inc. rights or properties incident thereto. Court of Appeals. as the case may be. with the levy. This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No.Coming now to the issue at hand . Lastly. No.Since petitioner is a non-bank financial intermediary. by virtue of R. it is subject to 10% VAT for the tax years 1996 to 2002. upon the fulfillment of which the thing pledged. rights or properties incident thereto. A pledge may be defined as an accessory. 9238. petitioner is liable for 10% VAT for said tax year. with all its accessions and accessories. assessment and collection of VAT from nonbank financial intermediaries being specifically deferred by law. Pledge. And beginning 2004 up to the present. But with the full implementation of the VAT system on non-bank financial intermediaries starting January 1. [35] in which it was ruled that the subject of DST is not limited to the document alone. as persons or entities engaged in lending money on personal property delivered as security for loans. In Philippine Home Assurance Corporation v. or the Pawnshop Regulation Act. real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation. . however. 114.[34] then petitioner is not liable for VAT during these tax years. Commissioner of Internal Revenue. A DST is an excise tax on the exercise of a right or privilege to transfer obligations. petitioner is liable for documentary stamp taxes. The Court has settled this issue in Michel J.A. thus x x x the subject of a DST is not limited to the document embodying the enumerated transactions. 2003. the exercise of which is subject to DST. which is an exercise of a privilege to transfer obligations. shall be returned to the debtor or to the third person. it was held that: xxxx Pledge is among the privileges. v. is also subject to DST. Lhuillier Pawnshop. petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5 %.

Section 195 unqualifiedly subjects all pledges to DST. (7) signature of pawnbroker or his authorized agent. Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows: xxxx True. there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment of DST. It is clear. (8) signature or thumb mark of pawner or his authorized agent. at the time of every such loan or pledge. (6) description of pawn. (3) amount of principal loan. It states that [o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x x. 445. and (9) such other terms and conditions as may be agreed upon between the pawnbroker and the pawner. we scrutinized Section 195 of the NIRC. the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. Hence. However. categorical. but apawnshop ticket is not one of them. and that a tax cannot be imposed without clear and express words for that purpose. (2) date the loan is granted. Central Bank Circular No. a memorandum or ticket signed by the pawnbroker and containing the following details: (1) name and residence of the pawner. xxxx In the instant case. and needs no further interpretation or construction.Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops issued by the Central Bank to implement the Act. prescribed a standard form of pawn tickets with entries for the required details on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof. it is not said ticket that creates the pawnshops obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is therefore no basis in petitioners assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket. (4) interest rate in percent. The explicit tenor thereof requires hardly anything than a simple application. but there is no way that said provision may be interpreted in favor of petitioner. the law does not consider said ticket as an evidence of security or indebtedness. petitioners . The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government. for purposes of taxation. At any rate. require every pawnshop or pawnbroker to issue. In addition. Section 199 of the NIRC enumerated certain documents which are not subject to stamp tax. (5) period of maturity. Taking our bearing from the foregoing doctrines.

For tax exemption to be recognized. (Smart) against the City of Davao.79 for the year 2000 is REVERSED and SET ASIDE. any other case involving exactly the same point at issue. Duterte. the petition is PARTIALLY GRANTED. the pertinent portion of which reads: Notwithstanding any exemption granted by any law or other special law. the grant must be clear and express. therefore. The Facts On February 18.13. Civil Case No. Hon. once a case has been decided one way. Smart filed a special civil action for declaratory relief [3] under Rule 63 of the Rules of Court. The Decision dated June 7. as in the case at bar. Article 10 thereof. It cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must. and the Sangguniang Panlungsod of Davao City. while its assessment for DST deficiency in the amount of P24. Inc. SO ORDERED. 2002 in Sp. at a rate of seventy-five percent (75%) of one percent (1%) of the gross . there is hereby imposed a tax on businesses enjoying a franchise. SMART COMMUNICATIONS VS CITY OF DAVAO This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Smart Communications. it cannot be made to rest on doubtful implications. [4] particularly Section 1. Exemption from taxation is never presumed. 2002 of the Regional Trial Court (RTC) and its Order [2] dated September 26. 28. for the ascertainment of its rights and obligations under the Tax Code of the City ofDavao.102. inclusive of surcharge and interest. not rest on vague inference. 2006 and Resolution dated August 14. 2002.[36] WHEREFORE.747.976-2002. should be decided in the same manner.nebulous claim that it is not subject to DST is without merit. Under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled). is UPHELD. represented by its Mayor. to annul the Decision [1] dated July 19. Rodrigo R. 2006 of the Court of Tax Appeals En Banc is MODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT deficiency in the amount of P541.

2002. NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.) No. Marcos. on the following grounds: (a) the issuance of its franchise under Republic Act (R. No. WHICH CONTAINS THE IN LIEU OF ALL TAXES CLAUSE. 7294. They invoked the power granted by the Constitution to local government units to create their own sources of revenue. AND SECTION 193 OF THE CODE.[10] On July 19. 2002. The trial court noted that the ambiguity of the in lieu of all taxes provision in R. the case would be deemed submitted for resolution.[14] and declared that the citys power to tax is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the fundamental law. on whether it covers both national and local taxes. IN RELATION TO SECTION 151 THEREOF. and (d) the imposition of franchise tax by the City of Davao would amount to a violation of the constitutional provision against impairment of contracts.A. [13] On the issue of violation of the non-impairment clause of the Constitution. the RTC rendered its Decision [11] denying the petition.A. ARE NOT APPLICABLE TO THIS CASE. ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX. [9] On May 17. must be resolved against the taxpayer. [c. No.annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City. No.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE. . It added that while such power may be subject to restrictions or conditions imposed by Congress. 7294. thus. those who assert a tax exemption must justify it with words too plain to be mistaken and too categorical not to be misinterpreted. Thus. a pre-trial conference was held. 2002.A. WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES.[12] The RTC ratiocinated that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority and. the trial court cited Mactan Cebu International Airport Authority v.A. 7294 [5]subsequent to R. [b.[6] (b) Section 137 of R.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE (REPUBLIC ACT NO. (c) the power of the City of Davao to impose a franchise tax is subject to statutory limitations such as the in lieu of all taxes clause found in Section 9 of R. No. 2002. thereafter. Smart assigns the following errors: [a.A. 7160. WHICH ACCORDING TO THE COURT IS A SPECIAL LAW.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL GOVERNMENT CODE. any such legislated limitation must be consistent with the basic policy of local autonomy.[7] On March 2. 7294). 7160 shows the clear legislative intent to exempt it from the provisions of R. AND WHICH IS A SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE. Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City.[15] Smart filed a motion for reconsideration which was denied by the trial court in an Order [16] dated September 26. WHICH. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future exemptions. respondents filed their Answer [8] in which they contested the tax exemption claimed by Smart. the RTC issued an order requiring the parties to submit their respective memoranda and. the instant case.A. Inasmuch as only legal issues were involved in the case.

] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT BUT NOT TO FUTURE EXEMPTIONS. exclusive of' this franchise.[17] The Issue In sum. Smarts legislative franchise (R. THEREBY PROVIDING AN ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY. 7229). WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE. THE PUBLIC TELECOMMUNICATIONS POLICY ACT. is at the heart of the present controversy: Section 9. In addition thereto.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS FRANCHISE (REPUBLIC ACT NO. I. Tax provisions.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW. No. The grantee. TAKING INTO ACCOUNT THE FRANCHISE OF GLOBE TELECOM. its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 7294) HAS BEEN AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925. The Ruling of the Court We rule in the affirmative. quoted hereunder. 1992. (GLOBE) (REPUBLIC ACT NO. . 7160 On March 27.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST THE TAXPAYER. [g. [e. [h. the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed by the City of Davao. Section 9 thereof. its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property. Prospective Effect of R.A. as other persons or corporations which are now or hereafter may be required by law to pay. INC. its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee. in which case the amendment or repeal shall be applicable thereto. [f. 7294) took effect. [i. That the grantee. No.A.[d. THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE. THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS. its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided. 72 unless the latter enactment is amended or repealed.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE DEPARTMENT OF FINANCE. the grantee.

The grant of tax exemption by .) Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts it from all taxes. except local water districts. 7160. The intention of the legislature to remove all tax exemptions or incentives granted prior to the said law is evident in the language of Section 193 of R. because its franchise was granted after the effectivity of the said law. No. within its territorial jurisdiction. regardless of when the business started to operate. In order to ascertain its meaning. the Local Government Code (R. and charges which the province or municipality may impose: Provided. and real property tax.A.A. income tax.A. 6938. No. 1992. except the national franchise tax (now VAT). The withdrawal of tax exemptions or incentives provided in R. whether natural or juridical. the city may levy the taxes. In the case of a newly started business.A. the tax shall be based on the gross receipts for the preceding calendar year. however. as provided herein. No interpretation is necessary. Notwithstanding any exemption granted by any law or other special law.The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue. Franchise Tax. Withdrawal of Tax Exemption Privileges. Section 137. two months ahead of Smarts franchise. including government-owned or controlled corporations. cooperatives duly registered under RA No. viz. fees. or any fraction thereon. in relation to Section 151 of R. consistent with fundamentals of statutory construction. No. all the words in the statute must be considered.: Section 137. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. No. 7160. tax exemptions or incentives granted to. II. [18] On January 1. No. We agree with Smarts contention on this matter. 7160 except for those expressly mentioned therein. Except as otherwise provided in this Code. Unless otherwise provided in this Code. the province may impose a tax on businesses enjoying a franchise.A. non-stock and non-profit hospitals and educational institutions. are hereby withdrawn upon the effectivity of this Code. in relation to Section 151 of R.) Smart argues that it is not covered by Section 137. Section 193. No. Scope of Taxing Powers. or realized. both local and national. while Section 193 thereof provided for the withdrawal of tax exemption privileges granted prior to the issuance of R. No. 7294 The in lieu of all taxes clause in Smarts franchise is put in issue before the Court.A. 7160 can only affect those franchises granted prior to the effectivity of the law. 7160. or presently enjoyed by all persons. at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt. The in lieu of all taxes Clause in R. That the taxes. (Emphasis supplied. Section 151. In the succeeding calendar year. 7160) took effect. fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.A. allowed the imposition of franchise tax by the local government units. (Emphasis supplied.

Carpio in a similar case[25] involving a demand for exemption from local franchise taxes: [T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal. and real property tax. However. from which the grantee is hereby expressly exempted." Moreover. The uncertainty in the in lieu of all taxes clause in R. [23] The surrender of the power to tax. Section 9 of R. Smart failed in this regard. Congress would have expressly mentioned the exemption from municipal and provincial taxes. No. No. The "in lieu of all taxes" clause does not apply to local taxes." Also.R. Congress intended it to be exempt from all kinds of franchise taxes whether local or national. x x x. No 7294 does not expressly provide what kind of taxes Smart is exempted from.A. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings thereof. Even with respect to national internal revenue taxes.[24] In this case. nature or description levied. Congress could have used the language in Section 9(b) of Clavecilla's old franchise. If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes. [21] We pay heed that R. the doubt must be resolved in favor of the City of Davao. No. If the intention of the legislature is open to doubt. Smart has the burden of proving that. but from a general view of the act as a whole. imposed under the National Internal Revenue Code. Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code. must be clearly shown by a language that will admit of no reasonable construction consistent with the reservation of the power. As appropriately pointed out in the separate opinion of Justice Antonio T. (Emphasis supplied).A. established or collected by any authority whatsoever.A. [20] It claims exemption from the local franchise tax because the in lieu of taxes clause in its franchise does not distinguish between national and local taxes. R. It is not clear whether the in lieu of all taxes provision in the franchise of Smart would include exemption from local or national taxation. the same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue.A. The proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue Code. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local taxes. provincial or national. the "in lieu of all taxes" clause does not apply to income tax.[22] They can only be given force when the grant is clear and categorical.A. aside from the imposed 3% franchise tax. other than income tax. then the intention of the legislature must be resolved in favor of the State. Every part of the statute must be construed with reference to the context. income tax. The in lieu of all taxes clause applies only to national internal revenue taxes and not to local taxes. 7294 on whether Smart is exempted from both local and national franchise tax must be construed strictly against Smart which claims the exemption. . 7294 is not to be interpreted from a consideration of a single portion or of isolated words or clauses." Nothing is mentioned in Section 9 about local taxes. No. 7294 is not definite in granting exemption to Smart from local taxation. when claimed. as follows: x x x in lieu of any and all taxes of any kind. [19] Smart is of the view that the only taxes it may be made to bear under its franchise are the national franchise tax (now VAT). municipal.

No. dealers in securities. the local franchise tax that may be imposed by the City must not exceed 50% of 1% of the gross annual receipts for the preceding calendar year based on the income on receipts realized within the territorial jurisdiction of Davao. No. services of banks. or modified all other laws. cafes and other eating places. rules and regulations.A. regarding the franchises of Smart and Globe. 7294 has become functus officio with the abolition of the franchise tax on telecommunications companies. refreshment parlors. including those performed or rendered byconstruction and service contractors. processing. lessors or distributors of cinematographic films. commercial. (a) Rate and base of tax. fidelity. lending investors.A. 102. including clubs and caterers. as amended by the Expanded Value Added Tax Law (R. warehousing services. [32] Smart presents the same arguments as the Philippine Long . respectively.A. Opinion of the Bureau of Local Government Finance (BLGF) In support of its argument that the in lieu of all taxes clause is to be construed as an exemption from local franchise taxes. It also repealed. 7294: SEC. 8241). 1998 and February 24.[31] However. 7160. inns. The only interpretation. There shall be levied assessed and collected. persons engaged in milling. No. [26] As admitted by Smart in its pleadings. transportation contractors on their transport of goods or cargoes. dated August 13. services of franchise grantees of telephone and telegraph.However. indemnity and bonding companies. No. radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code. real estate. including the use or lease of properties. orders. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. Value-added tax on sale of services and use or lease of properties. Smart submits the opinion of the Department of Finance. operators or keepers of hotels. The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee. Thus. and water relative to their transport of goods or cargoes. 7716. proprietors or operators of restaurants. including persons who transport goods or cargoes for hire and other domestic common carriers by land. proprietors. the pertinent portion of which is hereunder quoted. it is no longer paying the 3% franchise tax mandated in its franchise.[30] In effect. the in lieu of all taxes clause in R. x x x. under the rule on strict construction of tax exemptions. amended. non-bank financial intermediaries and finance companies. expressly repealed the provisions of all special laws relative to the rate of franchise taxes. a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services. amended Section 9 of R. rest houses.A. air. 1998. and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. lessors of property. motels. issuances. stock.A. customs and immigration brokers.A. manufacturing or repacking goods for others.[29] R. No. whether personal or real. Smart along with other telecommunications companies pays the uniform 10% value-added tax. and non-life insurance companies (except their crop insurances) including surety. pension houses. Congress did not expressly exempt Smart from local taxes.[27] The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the sale or exchange of services. is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local taxes.[28] R. remuneration or consideration. It should be noted that the in lieu of all taxes clause in R. the franchise tax that the City of Davao may impose must comply with Sections 137 and 151 of R.A. No. Currently. 7294 was rendered ineffective by the advent of the VAT Law. No. III. or parts thereof which are inconsistent with it. resorts. 7716. specifically Section 20 thereof. through the BLGF.

the life span of the franchise. or the type of service authorized by the franchise. Tax Exclusion/Tax Exemption Smart gives another perspective of the in lieu of all taxes clause in Section 9 of R. To be sure.A. [36] V.g. privilege. Equality of Treatment in the Telecommunications Industry. [35] However. 7925 To further its claim. exclusions from gross income and allowable deductions.[34] IV. The question raised by petitioner is a legal question. This case does not concern the regularity of performance of the BLGF in the exercise of its duties. viewed from another angle. No. the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation. 7294 in order to avoid the payment of local franchise tax. Petitioner contends that courts should not set aside conclusions reached by the BLGF because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject. An exclusion is. there is no essential difference between a tax exemption and a tax exclusion. but this has nothing to do with the question in this case. Smart pays VAT. No. shallipso facto become part of previously granted telecommunications franchise and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided. is the removal of otherwise taxable items from the reach of taxation. among others. and other related matters.Distance Telephone Company in the previous cases already decided by this Court.A. favor. the in lieu of all taxes clause partakes of the nature of a tax exclusion and not a tax exemption. however. An exemption is an immunity or a privilege. Section 23 of R. No. to wit. what it enjoys is more accurately a tax exclusion. and real property tax.A. or immunity granted under existing franchises. a highly specialized court which performs judicial functions as it was created for the review of tax cases. There is. therefore. No. exemption. 7925. [33] As previously held by the Court.. The authorities cited by petitioner pertain to the Court of Tax Appeals. income tax. That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise. e. also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. it is the freedom from a charge or burden to which others are subjected. the findings of the BLGF are not conclusive on the courts: [T]he BLGF opined that 23 of R. as previously held by the Court. or may hereafter be granted. Consequently. but the correctness of its interpretation of a provision of law. the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. A tax exemption means that the taxpayer does not pay any tax at all. Smart invokes Section 23 of the Public Telecommunications Policy Act (R. An exclusion.) . Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty.A. 7925 amended the franchise of petitioner and in effect restored its exemptions from local taxes. the interpretation of 23 of R. real property assessment.A. (Emphasis supplied. 7925): SECTION 23. Any advantage. both in their nature and effect. on the other hand. no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields. It does enjoy this presumption. It says that. the rule that a tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. In contrast. No. Thus. thus.

No. No. 7229). No. by virtue of Section 23 of R. 7925. Province of Pangasinan. otherwise known as the most favored treatment clause or the equality clause.[37] which was enacted on March 19. As previously explained by the Court. No.[42] The language of Section 23 of R.A. 7925. This could not have been the intent of Congress in enacting 23 of Rep. municipal. As aptly explained in the en banc decision of this Court in Philippine Long Distance Telephone Company. in the franchise of Globe (R. lest some companies be treated unequally. exemption.A.[44] Furthermore. Petitioner's theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises. 7925. the provision in the franchise of Globe exempting it from local taxes is automatically incorporated in the franchise of Smart. No. No. nature. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission. or description levied. in connection with the franchise of Globe (R. since the franchise of Globe contains a provision exempting it from municipal or local franchise tax. The acceptance of petitioner's theory would result in absurd consequences. v. in lieu of any and all taxes of any kind. privilege. Petitioner's theory would require that. then all other telecommunications franchises will have to be adjusted to "level the playing field" so to speak. no other franchise tax may be collected from Globe regardless of who the taxing power is. nature or description levied. Congress again grants a franchise to another telecommunications company imposing. 1992. 7227). to level the playing field. No. No. Globe is required to pay a franchise tax of only one and one-half percentum (1%) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. No such provision is found in the franchise of Smart.A. say.In sum. in lieu of any and all taxes of any kind. including Smart. established. from which the grantee is hereby expressly exempted. 7160.[40] and recently in Digital Telecommunications Philippines. or immunity to all telecommunications entities. exemption. Smart wants us to interpret anew Section 23 of R. [39] We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of Section 23 of R. Inc. No. If. (Digitel) v. 7229. or immunity" granted to Globe must be extended to all telecommunications companies. favor. No. later. It is different if Congress enacts a law specifically granting uniform advantages.A.A. or national. the legislature incontrovertibly stated that it will be liable for one and one-half per centum of all gross receipts from business transacted under the franchise. privilege.A. established or collected by any authority whatsoever. [45] The grant of exemption from municipal.A. 7925 and the proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all telecommunications entities. the kind of tax from which it is exempted is not clearly specified. 7925. effective from the date of the approval of Republic Act Numbered Sixteen hundred eighteen.[46] VI. provincial. or national is clear and categorical that aside from the franchise tax collected by virtue of R. Allegedly. To illustrate: In its franchise. one percent (1%) franchise tax. No.[38] Smart posits that. City of Davao. in approving Section 23 of R.A. this provision should also benefit Smart by virtue of Section 23 of R.A. any "advantage. [41] Congress. Act 7925. 7925. Non-impairment Clause of the Constitution . from which the grantee is hereby expressly exempted. 7925 does not mean tax exemption.A. favor. The provision in Globes franchise invoked by Smart reads: (b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the accounts as prescribed in this Act. municipal. one and one-half per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines. provincial. the stance of Smart would lead to absurd consequences. including those whose exemptions had been withdrawn by R.A. provincial or national. did not intend it to operate as a blanket tax exemption to all telecommunications entities. [43] The termexemption in Section 23 of R. or collected by any authority whatsoever. Inc.

[47] However. Due to this ambiguity in the law. or repeal. according to petitioner. x x x. [48] As held in Tolentino v. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. Section 10 of the 1987 Philippine Constitution. Secretary of Finance: [49] It is enough to say that the parties to a contract cannot. The franchise. No. is in the nature of a contract between the government and Smart. In truth. the Contract Clause has never been thought as a limitation on the exercise of the States power of taxation save only where a tax exemption has been granted for a valid consideration. Costs against petitioner. the franchise of Smart does not expressly provide for exemption from local taxes. Absent the express provision on such exemption under the franchise. WHEREFORE. through the exercise of prophetic discernment. The in lieu of all taxes clause in Section 9 of R.A. 7294 leaves much room for interpretation. Smarts franchise was granted with the express condition that it is subject to amendment. but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. alteration. we find that there is no violation of Article III. For not only are existing laws read into contracts in order to fix obligations as between parties. we are constrained to rule against it. As previously discussed. SO ORDERED . the doubt must be resolved against the grant of tax exemption. the instant petition is DENIED for lack of merit.Another argument of Smart is that the imposition of the local franchise tax by the City of Davao would violate the constitutional prohibition against impairment of contracts. Moreover. fetter the exercise of the taxing power of the State.