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G.R. No. 91649, May 14,1991
Paras, J.

Facts: The Philippine Amusements and Gaming Corporation (PAGCOR)
was created in 1977 by Presidential Decree 1067-A, and was
granted a franchise under PD 1067-B “to establish, operate and
maintain gambling casinos on land or water within the territorial
jurisdiction of the Philippines.”

PAGCOR’s operation was a success, hence in 1978, PD 1399 was
passed which expanded its power. In 1983, PAGCOR’s charter was
updated through PD 1869, and its charter provides that PAGCOR
shall regulate and centralize all games of chance authorized by
existing franchise or permitted by law, and was given a territorial
jurisdiction all over the Philippines. Under its charter’s repealing
clause, all laws, decrees, executive orders, rules and regulations
inconsistent therewith, are accordingly repealed, amended or
modified. Furthermore, Section 13 par. 2 of PD 1869 states that
PAGCOR is exempted from paying any tax of any kind or form,
income or otherwise, as well as fees, charges or levies of whatever
nature, whether national or local.

Atty. Humberto Basco and several other lawyers assailed the
validity of the law creating PAGCOR. They claimed that PD 1869
was unconstitutional because (1) it violates the equal protection
clause as it legalizes PAGCOR-conducted gambling, and, (2) it
violates the local autonomy clause of the constitution, as it forced
cities like Manila to waive its right to impose taxes and legal fees
as far as PAGCOR is concerned.

Issue/s: Whether or not PD 1869 is unconstitutional and its exemption
clause violates the principle of local autonomy.

Ruling: The Court held that PD 1869 is constitutional and does not violate
the principle of local autonomy. Section 5, Article 10 of the 1987
Constitution provides:

Each local government unit shall have the power to create its
own source of revenue and to levy taxes, fees, and other
charges subject to such guidelines and limitation as the
congress may provide, consistent with the basic policy on
local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local government.

It was stressed that “municipal corporations are mere creatures of Congress” which has the power to “create and abolish municipal corporations” due to its “general legislative powers”. has the power of control over Local governments. All of its shares of stocks are owned by the National Government. the principle of local autonomy within the constitution simply means decentralization. local governments have no power to tax instrumentalities of the National Government. to operate and to regulate gambling casinos. its operation might be burdened. PAGCOR should be and actually is exempt from local taxes. The power of LGUs to impose taxes and fees is always subject to limitation provided by Congress. The principle of Local autonomy does not make local governments sovereign within the state. Otherwise. Further. PD 1869. or as an arm of the National Government. Doctrine “Supremacy” of the National Government over Local of the Governments. impeded or subjected to control by a mere Local government. which places it in the category of an agency or instrumentality of the Government. The City of Manila. being a mere Municipal Corporation has no inherent right to impose taxes. The Charter of the City of Manila is subject to control by Congress. PAGCOR also has a dual role. The latter role is governmental. As such. Congress. therefore. The principle of local autonomy does not make LGUs sovereign within a state. The power to tax cannot be allowed to defeat an instrumentality of the very entity that has the inherent power to wield it. PAGCOR is a government owned or controlled corporation with an original charter. A close reading of the above provision does not violate local autonomy (particularly on taxing powers) as it was clearly stated that the taxing power of LGUs are subject to such guidelines and limitation as Congress may provide. . It cannot be an “imperium in imperio” it can only act intra sovereign. it can also provide for exemptions or even take back the power. And if Congress can grant the City of Manila the power to tax certain matters. The National Government is supreme over local governments. Being an instrumentality of the Government. it simply means decentralization. mere creatures of the State cannot defeat national policies using the power to tax as a “tool for regulation”.

Submitted by: For: GIRLY G. MARIVIC ESTRADA-RIMANDO Student. unless a clear and unequivocal breach of the Constitution is shown. DELA PEÑA ATTY. LLB 1 Local Government Law .Case: Every law has in its favor the presumption of constitutionality.