Section 30.
Exemptions from Tax on Corporations
G.R. No. 196596, November 09, 2016
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE
UNIVERSITY, INC., Respondent.
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE,Respondent.
G.R. No. 198941
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE
UNIVERSITY, INC., Respondent.
DECISION
BRION, J.:
Before the Court are consolidated petitions for review on certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal Revenue
(Commissioner) to assail the December 10, 2010 decision and March 29, 2011
resolution of the Court of Tax Appeals (CTA) in En Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail the
June 8, 2011 decision and October 4, 2011 resolution in CTA En Banc Case
No. 671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 decision
and October 4, 2011 resolution in CTA En Banc Case No. 671.4
G.R. Nos. 196596, 198841 and 198941 all originated from CTA Special First Division
(CTA Division) Case No. 7303. G.R. No. 196596 stemmed from CTA En BancCase
No. 622 filed by the Commissioner to challenge CTA Case No. 7303. G.R. No. 198841
and 198941 both stemmed from CTA En Banc Case No. 671 filed by DLSU to also
challenge CTA Case No. 7303.chanroblesvirtuallawlibrary
The Factual Antecedents
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of
Authority (LOA) No. 2794 authorizing its revenue officers to examine the latter's books
of accounts and other accounting records for all internal revenue taxes for the
period Fiscal Year Ending 2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6
Subsequently on August 18, 2004, the BIR through a Formal Letter of Demand assessed
DLSU the following deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the campus; (2) value-added
tax (VAT) on business income; and (3) documentary stamp tax (DST) on loans and lease
contracts. The BIR demanded the payment of P17,303,001.12, inclusive of surcharge,
interest and penalty for taxable years 2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner failed to act on the protest; thus,
DLSU filed on August 3, 2005 a petition for review with the CTA Division.8
DLSU, a non-stock, non-profit educational institution, principally anchored its petition
on Article XIV, Section 4 (3) of the Constitution, which reads:
chanRoblesvirtualLawlibrary
(3) All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted DLSU's petition for review. The
dispositive portion of the decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST
assessment on the loan transactions of [DLSU] in the amount of P1,1681,774.00 is
hereby CANCELLED. However, [DLSU] is ORDERED TO PAY deficiency income
tax, VAT and DST on its lease contracts, plus 25% surcharge for the fiscal years 2001,
2002 and 2003 in the total amount of P18,421,363.53...xxx.
In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on the total
amount due computed from September 30, 2004 until full payment thereof pursuant to
Section 249(C)(3) of the [National Internal Revenue Code]. Further, the compromise
penalties imposed by [the Commissioner] were excluded, there. being no compromise
agreement between the parties.
SO ORDERED.9ChanRoblesVirtualawlibrary
Both the Commissioner and DLSU moved for the reconsideration of the January 5,
2010 decision.10 On April 6, 2010, the CTA Division denied the Commissioner's motion
for reconsideration while it held in abeyance the resolution on DLSU's motion for
reconsideration.11
On May 13, 2010, the Commissioner appealed to the CTA En Banc (CTA En Banc Case
No. 622) arguing that DLSU's use of its revenues and assets for non-educational or
commercial purposes removed these items from the exemption coverage under the
Constitution.12
On May 18, 2010, DLSU formally offered to the CTA Division supplemental pieces of
documentary evidence to prove that its rental income was used actually, directly and
exclusively for educational purposes.13The Commissioner did not promptly object to the formal
offer of supplemental evidence despite notice.14
On July 29, 2010, the CTA Division, in view of the supplemental evidence submitted,
reduced the amount of DLSU's tax deficiencies. The dispositive portion of the amended
decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is hereby PARTIALLY
GRANTED. [DLSU] is hereby ORDERED TO PAY for deficiency income tax, VAT
and DST plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the total
adjusted amount of P5,506,456.71...xxx.
In addition, [DLSU] is hereby held liable to pay 20% per annum deficiency interest on
the...basic deficiency taxes...until full payment thereof pursuant to Section 249(B) of the
[National Internal Revenue Code]...xxx.
Further, [DLSU] is hereby held liable to pay 20% per annum delinquency interest on the
deficiency taxes, surcharge and deficiency interest which have accrued...from September
30, 2004 until fully paid.15ChanRoblesVirtualawlibrary
Consequently, the Commissioner supplemented its petition with the CTA En Banc and
argued that the CTA Division erred in admitting DLSU's additional evidence.16
Dissatisfied with the partial reduction of its tax liabilities, DLSU filed a separate petition
for review with the CTA En Banc (CTA En Banc Case No. 671) on the following
grounds: (1) the entire assessment should have been cancelled because it was based on
an invalid LOA; (2) assuming the LOA was valid, the CTA Division should still have
cancelled the entire assessment because DLSU submitted evidence similar to those
submitted by Ateneo De Manila University (Ateneo) in a separate case where the CTA
cancelled Ateneo's tax assessment;17 and (3) the CTA Division erred in finding that
a portion of DLSU's rental income was not proved to have been used actually, directly
and exclusively for educational purposes.18chanroblesvirtuallawlibrary
The CTA En Banc Rulings
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for review and sustained the
findings of the CTA Division.19
Tax on rental income
Relying on the findings of the court-commissioned Independent Certified Public
Accountant (Independent CPA), the CTA En Banc found that DLSU was able to prove
that a portion of the assessed rental income was used actually, directly and exclusively for
educational purposes; hence, exempt from tax.20 The CTA En Banc was satisfied with
DLSU's supporting evidence confirming that part of its rental income had indeed been
used to pay the loan it obtained to build the university's Physical Education - Sports
Complex.21
Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its income
that was not shown by supporting documents to have been actually, directly and
exclusively used for educational purposes, must be subjected to income tax and VAT. 22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention, DLSU proved its remittance of the DST due on
its loan and mortgage documents.23 The CTA En Banc found that DLSU's DST payments had
been remitted to the BIR, evidenced by the stamp on the documents made by a DST
imprinting machine, which is allowed under Section 200 (D) of the National Internal
Revenue Code (Tax Code)24 and Section 2 of Revenue Regulations (RR) No. 15-
2001.25cralawred
Admissibility of DLSU's supplemental evidence
The CTA En Banc held that the supplemental pieces of documentary evidence were
admissible even if DLSU formally offered them only when it moved for reconsideration
of the CTA Division's original decision. Notably, the law creating the CTA provides
that proceedings before it shall not be governed strictly by the technical rules of
evidence.26
The Commissioner moved but failed to obtain a reconsideration of the CTA En Banc's
December 10, 2010 decision.27 Thus, she came to this court for relief through a petition
for review on certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review and further reduced its
tax liabilities to P2,554,825.47 inclusive of surcharge.28
On the validity of the Letter of Authority
The issue of the LOA's validity was raised during trial;29 hence, the issue was deemed
properly submitted for decision and reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable
period and that the practice of issuing a LOA covering audit of unverified prior years is
prohibited.30 The prohibition is consistent with Revenue Memorandum Order (RMO)
No. 43-90, which provides that if the audit includes more than one taxable period, the
other periods or years shall be specifically indicated in the LOA.31
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. Hence, the assessments for deficiency income tax, VAT and DST for taxable
years 2001 and 2002 are void, but the assessment for taxable year 2003 is valid.32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid precedent because it involved
different parties, factual settings, bases of assessments, sets of evidence, and defenses. 33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation of DLSU's evidence. It
held that while DLSU successfully proved that a portion of its rental income was
transmitted and used to pay the loan obtained to fund the construction of the Sports
Complex, the rental income from other sources were not shown to have been actually,
directly and exclusively used for educational purposes.34
Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No. 198841) and the
Commissioner (G.R. No. 198941) came to this Court for
relief.chanroblesvirtuallawlibrary
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First, DLSU's rental income is taxable regardless of how such income is derived, used or
disposed of.35 DLSU's operations of canteens and bookstores within its campus even
though exclusively serving the university community do not negate income tax liability. 36
The Commissioner contends that Article XIV, Section 4 (3) of the Constitution must be
harmonized with Section 30 (H) of the Tax Code, which states among others, that the
income of whatever kind and character of [a non-stock and non-profit educational
institution] from any of [its] properties, real or personal, or from any of (its] activities
conducted for profit regardless of the disposition made of such income, shall be subject to tax
imposed by this Code.37
The Commissioner argues that the CTA En Banc misread and misapplied the case
of Commissioner of Internal Revenue v. YMCA38 to support its conclusion that
revenues however generated are covered by the constitutional exemption, provided that,
the revenues will be used for educational purposes or will be held in reserve for such
purposes.39
On the contrary, the Commissioner posits that a tax-exempt organization like DLSU is
exempt only from property tax but not from income tax on the rentals earned from
property.40 Thus, DLSU's income from the leases of its real properties is not exempt
from taxation even if the income would be used for educational purposes.41
Second, the Commissioner insists that DLSU did not prove the fact of DST
payment42 and that it is not qualified to use the On-Line Electronic DST Imprinting Machine,
which is available only to certain classes of taxpayers under RR No. 9-2000.43
Finally, the Commissioner objects to the admission of DLSU's supplemental offer of
evidence. The belated submission of supplemental evidence reopened the case for trial,
and worse, DLSU offered the supplemental evidence only after it received the
unfavorable CTA Division's original decision.44 In any case, DLSU's submission of
supplemental documentary evidence was unnecessary since its rental income was taxable
regardless of its disposition.45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication
of unverified prior years. A LOA issued contrary to RMO No. 43-90 is void, thus, an
assessment issued based on such defective LOA must also be void.46
DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 and
Unverified Prior Years. On the basis of this defective LOA, the Commissioner assessed
DLSU for deficiency income tax, VAT and DST for taxable years 2001, 2002 and
2003.47 DLSU objects to the CTA En Banc's conclusion that the LOA is valid for
taxable year 2003. According to DLSU, when RMO No. 43-90 provides that:
chanRoblesvirtualLawlibrary
The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby
prohibited.ChanRoblesVirtualawlibrary
it refers to the LOA which has the format "Base Year + Unverified Prior Years." Since the
LOA issued to DLSU follows this format, then any assessment arising from it must
be entirely voided.48
Second, DLSU invokes the principle of uniformity in taxation, which mandates that for
similarly situated parties, the same set of evidence should be appreciated and weighed in the
same manner.49 The CTA En Banc erred when it did not similarly appreciate DLSU's
evidence as it did to the pieces of evidence submitted by Ateneo, also a non-stock, non-
profit educational institution.50
G.R. No. 198941
The issues and arguments raised by the Commissioner in G.R. No. 198941 petition
are exactly the same as those she raised in her: (1) petition docketed as G.R. No. 196596
and (2) comment on DLSU's petition docketed as G.R. No.
198841.51chanroblesvirtuallawlibrary
Counter-arguments
DLSU's Comment on G.R. No. 196596
First, DLSU questions the defective verification attached to the petition. 52

Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all
assets and revenues of non-stock, non-profit educational institutions used actually, directly
and exclusively for educational purposes are exempt from taxes and duties. 53
On this point, DLSU explains that: (1) the tax exemption of nonstock, non-profit
educational institutions is novel to the 1987 Constitution and that Section 30 (H) of
the 1997 Tax Code cannot amend the 1987 Constitution;54 (2) Section 30 of the 1997
Tax Code is almost an exact replica of Section 26 of the 1977 Tax Code - with the
addition of non-stock, non-profit educational institutions to the list of tax-exempt
entities; and (3) that the 1977 Tax Code was promulgated when the 1973
Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private educational institution
under the 1973 Constitution was only for real property tax. Back then, the special tax
treatment on income of private educational institutions only emanates from statute, i.e.,
the 1977 Tax Code. Only under the 1987 Constitution that exemption from tax of all
the assets and revenues of non-stock, non-profit educational institutions used actually,
directly and exclusively for educational purposes, was expressly and categorically
enshrined.55
DLSU thus invokes the doctrine of constitutional supremacy, which renders any
subsequent law that is contrary to the Constitution void and without any force and
effect.56 Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the income of
whatever kind and character of a nonstock and non-profit educational institution from
any of its properties, real or personal, or from any of its activities conducted for
profit regardless of the disposition made of such income, should be declared without force and
effect in view of the constitutionally granted tax exemption on "all revenues and assets of
non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes."57
DLSU further submits that it complies with the requirements enunciated in
the YMCA case, that for an exemption to be granted under Article XIV, Section 4 (3) of
the Constitution, the taxpayer must prove that: (1) it falls under the classification non-
stock, non-profit educational institution; and (2) the income it seeks to be exempted
from taxation is used actually, directly and exclusively for educational purposes. 58 Unlike
YMCA, which is not an educational institution, DLSU is undisputedly a non-stock, non-
profit educational institution. It had also submitted evidence to prove that it actually,
directly and exclusively used its income for educational purposes. 59
DLSU also cites the deliberations of the 1986 Constitutional Commission where they
recognized that the tax exemption was granted "to incentivize private educational
institutions to share with the State the responsibility of educating the youth." 60
Third, DLSU highlights that both the CTA En Banc and Division found that the bank
that handled DLSU's loan and mortgage transactions had remitted to the BIR the DST
through an imprinting machine, a method allowed under RR No. 15-2001.61 In any case,
DLSU argues that it cannot be held liable for DST owmg to the exemption granted
under the Constitution.62
Finally, DLSU underscores that the Commissioner, despite notice, did not oppose the
formal offer of supplemental evidence. Because of the Commissioner's failure to timely
object, she became bound by the results of the submission of such supplemental
evidence.63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from questioning the LOA's validity
because it failed to raise this issue in both the administrative and judicial
proceedings.64 That it was asked on crossexamination during the trial does not make it
an issue that the CTA could resolve.65 The Commissioner also maintains that DLSU's
rental income is not tax-exempt because an educational institution is only exempt from
property tax but not from tax on the income earned from the property.66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments discussed above.67
In addition, DLSU prays that the Court award attorney's fees in its favor because it was
constrained to unnecessarily retain the services of counsel in this separate
petition.68chanroblesvirtuallawlibrary
Issues
Although the parties raised a number of issues, the Court shall decide only the pivotal
issues, which we summarize as follows:
I. Whether DLSU's income and revenues proved to have been used actually,
directly and exclusively for educational purposes are exempt from duties and
taxes;chanrobleslaw
II. Whether the entire assessment should be voided because of the defective
LOA;chanrobleslaw
III. Whether the CTA correctly admitted DLSU's supplemental pieces of evidence;
and
IV. Whether the CTA's appreciation of the sufficiency ofDLSU's evidence may be
disturbed by the Court.
Our Ruling
As we explain in full below, we rule that:
 I. The income, revenues and assets of non-stock, non-profit educational
institutions proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment for taxable year
2003 is valid.
III. The CTA correctly admitted DLSU's formal offer of supplemental evidence;
and
IV. The CTA's appreciation of evidence is conclusive unless the CTA is shown to
have manifestly overlooked certain relevant facts not disputed by the parties
and which, if properly considered, would justify a different conclusion.
The parties failed to convince the Court that the CTA overlooked or failed to
consider relevant facts. We thus sustain the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income was used actually,
directly and exclusively for educational purposes; and
b. DLSU proved the payment of the DST through its bank's on-line
imprinting machine.
I. The revenues and assets of non-stock, non-profit educational institutions
proved to have been used actually, directly, and exclusively for educational
purposes are exempt from duties and taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads:
chanRoblesvirtualLawlibrary
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the dissolution
or cessation of the corporate existence of such institutions, their assets shall
be disposed of in the manner provided by law. Proprietary educational
institutions, including those cooperatively owned, may likewise be
entitled to such exemptions subject to the limitations provided by
law including restrictions on dividends and provisions for reinvestment
[underscoring and emphasis supplied]
Before fully discussing the merits of the case, we observe that:
First, the constitutional provision refers to two kinds of educational institutions: (1) non-
stock, non-profit educational institutions and (2) proprietary educational institutions. 69
Second, DLSU falls under the first category. Even the Commissioner admits the status of
DLSU as a non-stock, non-profit educational institution.70
Third, while DLSU's claim for tax exemption arises from and is based on the
Constitution, the Constitution, in the same provision, also imposes certain conditions to
avail of the exemption. We discuss below the import of the constitutional text vis-a-vis
the Commissioner's counter-arguments.
Fourth, there is a marked distinction between the treatment of nonstock, non-profit
educational institutions and proprietary educational institutions. The tax exemption
granted to non-stock, non-profit educational institutions is conditioned only on the
actual, direct and exclusive use of their revenues and assets for educational purposes.
While tax exemptions may also be granted to proprietary educational institutions, these
exemptions may be subject to limitations imposed by Congress.
As we explain below, the marked distinction between a non-stock, non-profit and a
proprietary educational institution is crucial in determining the nature and extent of the
tax exemption granted to non-stock, non-profit educational institutions.
The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30
(H) of the Tax Code. The relevant text reads:
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The following organizations shall not be taxed under this Title [Tax on Income] in
respect to income received by them as such:
xxxx
(H) A non-stock and non-profit educational institution
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the
disposition made of such income shall be subject to tax imposed under this
Code. [underscoring and emphasis supplied]ChanRoblesVirtualawlibrary
The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted
to non-stock, non-profit educational institutions such that the revenues and income
they derived from their assets, or from any of their activities conducted for profit, are
taxable even if these revenues and income are used for educational purposes.
Did the 1997 Tax Code qualifY the tax exemption constitutionally-granted to non-stock, non-profit
educational institutions?
We answer in the negative.
While the present petition appears to be a case of first impression, 71 the Court in
the YMCA case had in fact already analyzed and explained the meaning of Article XIV,
Section 4 (3) of the Constitution. The Court in that case made doctrinal
pronouncements that are relevant to the present case.

The issue in YMCA was whether the income derived from rentals of real property
owned by the YMCA, established as a "welfare, educational and charitable non-profit
corporation," was subject to income tax under the Tax Code and the Constitution. 72
The Court denied YMCA's claim for exemption on the ground that as a charitable
institution falling under Article VI, Section 28 (3) of the Constitution,73 the YMCA is
not tax-exempt per se; "what is exempted is not the institution itself...those
exempted from real estate taxes are lands, buildings and improvements actually, directly
and exclusively used for religious, charitable or educational purposes."74
The Court held that the exemption claimed by the YMCA is expressly disallowed by
the last paragraph of then Section 27 (now Section 30) of the Tax Code, which mandates
that the income of exempt organizations from any of their properties, real or personal,
are subject to the same tax imposed by the Tax Code, regardless of how that income is used.
The Court ruled that the last paragraph of Section 27 unequivocally subjects to tax the
rent income of the YMCA from its property.75
In short, the YMCA is exempt only from property tax but not from income tax.
As a last ditch effort to avoid paying the taxes on its rental income, the YMCA invoked
the tax privilege granted under Article XIV, Section 4 (3) of the Constitution.
The Court denied YMCA's claim that it falls under Article XIV, Section 4 (3) of the
Constitution holding that the term educational institution, when used in laws granting tax
exemptions, refers to the school system (synonymous with formal education); it includes
a college or an educational establishment; it refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal school system. 76
The Court then significantly laid down the requisites for availing the tax exemption
under Article XIV, Section 4 (3), namely: (1) the taxpayer falls under the
classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly and exclusively for
educational purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without force and effect
with respect to non-stock, non-profit educational institutions, provided, that the
non-stock, non-profit educational institutions prove that its assets and
revenues are used actually, directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non profit
educational institutions, is not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive
use of their assets, revenues and income 78for educational purposes.
We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to
charitable institutions, churches, parsonages or convents, mosques, and non-profit
cemeteries), which exempts from tax only the assets, i.e., "all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes...," Article XIV, Section 4 (3) categorically states that
"[a]ll revenues and assets... used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties."
The addition and express use of the word revenues in Article XIV, Section 4 (3) of the
Constitution is not without significance.
We find that the text demonstrates the policy of the 1987 Constitution, discernible from
the records of the 1986 Constitutional Commission79 to provide broader tax privilege to
non-stock, non-profit educational institutions as recognition of their role in assisting the
State provide a public good. The tax exemption was seen as beneficial to students who
may otherwise be charged unreasonable tuition fees if not for the tax exemption
extended to all revenues and assets of non-stock, non-profit educational institutions.80
Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3)
does not require that the revenues and income must have also been sourced from
educational activities or activities related to the purposes of an educational institution.
The phrase all revenues is unqualified by any reference to the source of revenues. Thus, so
long as the revenues and income are used actually, directly and exclusively for
educational purposes, then said revenues and income shall be exempt from taxes and
duties.81
We find it helpful to discuss at this point the taxation of revenues versus the taxation
of assets.
Revenues consist of the amounts earned by a person or entity from the conduct of
business operations.82 It may refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the tax base in income
tax,83 VAT,84 and local business tax (LBT).85
Assets, on the other hand, are the tangible and intangible properties owned by a person
or entity.86 It may refer to real estate, cash deposit in a bank, investment in the stocks of
a corporation, inventory of goods, or any property from which the person or entity may
derive income or use to generate the same. In Philippine taxation, the fair market value
of real property is a component of the tax base in real property tax (RPT).87 Also, the
landed cost of imported goods is a component of the tax base in VAT on
importation88 and tariff duties.89
Thus, when a non-stock, non-profit educational institution proves that it uses
its revenues actually, directly, and exclusively for educational purposes, it shall be
exempted from income tax, VAT, and LBT. On the other hand, when it also shows that
it uses its assets in the form of real property for educational purposes, it shall be
exempted from RPT.
To be clear, proving the actual use of the taxable item will result in an exemption, but
the specific tax from which the entity shall be exempted from shall depend on whether
the item is an item of revenue or asset.
To illustrate, if a university leases a portion of its school building to a bookstore or
cafeteria, the leased portion is not actually, directly and exclusively used for educational
purposes, even if the bookstore or canteen caters only to university students, faculty and
staff.
The leased portion of the building may be subject to real property tax, as held in Abra
Valley College, Inc. v. Aquino.90 We ruled in that case that the test of exemption from
taxation is the use of the property for purposes mentioned in the Constitution. We also
held that the exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes.
In concrete terms, the lease of a portion of a school building for commercial purposes,
removes such asset from the property tax exemption granted under the
Constitution.91 There is no exemption because the asset is not used actually, directly and
exclusively for educational purposes. The commercial use of the property is also not incidental
to and reasonably necessary for the accomplishment of the main purpose of a
university, which is to educate its students.
However, if the university actually, directly and exclusively uses for educational
purposes the revenues earned from the lease of its school building, such revenues shall be
exempt from taxes and duties. The tax exemption no longer hinges on the use of the
asset from which the revenues were earned, but on the actual, direct and exclusive use of the
revenues for educational purposes.
Parenthetically, income and revenues of non-stock, non-profit educational
institution not used actually, directly and exclusively for educational purposes are not
exempt from duties and taxes. To avail of the exemption, the taxpayer must factually
prove that it used actually, directly and exclusively for educational purposes the
revenues or income sought to be exempted.
The crucial point of inquiry then is on the use of the assets or on the use of the
revenues. These are two things that must be viewed and treated separately. But so long
as the assets or revenues are used actually, directly and exclusively for educational purposes, they
are exempt from duties and taxes.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions, unlike the exemption that may be availed of by
proprietary educational institutions, is not subject to limitations imposed by law.
That the Constitution treats non-stock, non-profit educational institutions differently
from proprietary educational institutions cannot be doubted. As discussed, the privilege
granted to the former is conditioned only on the actual, direct and exclusive use of their
revenues and assets for educational purposes. In clear contrast, the tax privilege granted
to the latter may be subject to limitations imposed by law.
We spell out below the difference in treatment if only to highlight the privileged status
of non-stock, non-profit educational institutions compared with their proprietary
counterparts.
While a non-stock, non-profit educational institution is classified as a tax-exempt entity
under Section 30 (Exemptions from Tax on Corporations) of the Tax Code, a proprietary
educational institution is covered by Section 27 (Rates of Income Tax on Domestic
Corporations).
To be specific, Section 30 provides that exempt organizations like non-stock, non-profit
educational institutions shall not be taxed on income received by them as such.
Section 27 (B), on the other hand, states that [p]roprietary educational
institutions...which are nonprofit shall pay a tax of ten percent (10%) on their taxable
income...Provided, that if the gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross income derived by such
educational institutions...[the regular corporate income tax of 30%] shall be imposed on
the entire taxable income...92
By the Tax Code's clear terms, a proprietary educational institution is entitled only to
the reduced rate of 10% corporate income tax. The reduced rate is applicable only if: (1)
the proprietary educational institution is non profit and (2) its gross income from
unrelated trade, business or activity does not exceed 50% of its total gross income.
Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not
apply to non-stock, non-profit educational institutions.
Thus, we declare the last paragraph of Section 30 of the Tax Code without force and
effect for being contrary to the Constitution insofar as it subjects to tax the income and
revenues of non-stock, non-profit educational institutions used actually, directly and
exclusively for educational purpose. We make this declaration in the exercise of and
consistent with our duty93 to uphold the primacy of the Constitution.94
Finally, we stress that our holding here pertains only to non-stock, non-profit
educational institutions and does not cover the other exempt organizations under
Section 30 of the Tax Code.
For all these reasons, we hold that the income and revenues of DLSU proven to have
been used actually, directly and exclusively for educational purposes are exempt from
duties and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment for taxable
year 2003 is valid.
DLSU objects to the CTA En Banc's conclusion that the LOA is valid for taxable year
2003 and insists that the entire LOA should be voided for being contrary to RMO No.
43-90, which provides that if tax audit includes more than one taxable period, the other
periods or years shall be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to examine the books
of account and other accounting records of the taxpayer in order to determine the
taxpayer's correct internal revenue liabilities95 and for the purpose of collecting the
correct amount oftax,96 in accordance with Section 5 of the Tax Code, which gives the
CIR the power to obtain information, to summon/examine, and take testimony of
persons. The LOA commences the audit process97 and informs the taxpayer that it is
under audit for possible deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely nullify the LOA issued to
DLSU, and consequently, disregard the BIR and the CTA's findings of tax deficiency
for taxable year 2003?
We answer in the negative.
The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which
reads:
chanRoblesvirtualLawlibrary
3. A Letter of Authority [LOA] should cover a taxable period not
exceeding one taxable year. The practice of issuing [LOAs] covering
audit of unverified prior years is hereby prohibited. If the audit of a
taxpayer shall include more than one taxable period, the other
periods or years shall be specifically indicated in the [LOA]. 98
What this provision clearly prohibits is the practice of issuing LOAs covering audit
of unverified prior years. RMO 43-90 does not say that a LOA which contains unverified
prior years is void. It merely prescribes that if the audit includes more than one taxable
period, the other periods or years must be specified. The provision read as a whole
requires that if a taxpayer is audited for more than one taxable year, the BIR must
specify each taxable year or taxable period on separate LOAs.
Read in this light, the requirement to specify the taxable period covered by the LOA is
simply to inform the taxpayer of the extent of the audit and the scope of the revenue
officer's authority. Without this rule, a revenue officer can unduly burden the taxpayer
by demanding random accounting records from random unverified years, which may
include documents from as far back as ten years in cases of fraud audit.99
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. The LOA does not strictly comply with RMO 43-90 because it includes
unverified prior years. This does not mean, however, that the entire LOA is void.
As the CTA correctly held, the assessment for taxable year 2003 is valid because this
taxable period is specified in the LOA. DLSU was fully apprised that it was being
audited for taxable year 2003. Corollarily, the assessments for taxable years 2001 and
2002 are void for having been unspecified on separate LOAs as required under RMO No.
43-90.
Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA's
validity at the CTA Division, and thus, should not have been entertained on appeal, is
not accurate.
On the contrary, the CTA En Banc found that the issue of the LOA's validity came up
during the trial.100 DLSU then raised the issue in its memorandum and motion for partial
reconsideration with the CTA Division. DLSU raised it again on appeal to the CTA En
Banc. Thus, the CTA En Banc could, as it did, pass upon the validity of the
LOA.101 Besides, the Commissioner had the opportunity to argue for the validity of the
LOA at the CTA En Banc but she chose not to file her comment and memorandum
despite notice.102
III. The CTA correctly admitted the supplemental evidence formally offered by
DLSU.
The Commissioner objects to the CTA Division's admission of DLSU's supplemental
pieces of documentary evidence.
To recall, DLSU formally offered its supplemental evidence upon filing its motion for
reconsideration with the CTA Division.103 The CTA Division admitted the
supplemental evidence, which proved that a portion of DLSU's rental income was used
actually, directly and exclusively for educational purposes. Consequently, the CTA
Division reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the supplemental evidence on distinct but
mutually reinforcing grounds, to wit: (1) the Commissioner failed to timely object to the formal
offer of supplemental evidence; and (2) the CTA is not governed strictly by the technical rules of
evidence.
First, the failure to object to the offered evidence renders it admissible, and the court
cannot, on its own, disregard such evidence.104
The Court has held that if a party desires the court to reject the evidence offered, it
must so state in the form of a timely objection and it cannot raise the objection to the
evidence for the first time on appeal.105
Because of a party's failure to timely object, the evidence offered becomes part of the
evidence in the case. As a consequence, all the parties are considered bound by any
outcome arising from the offer of evidence properly presented. 106
As disclosed by DLSU, the Commissioner did not oppose the supplemental formal
offer of evidence despite notice.107 The Commissioner objected to the admission of the
supplemental evidence only when the case was on appeal to the CTA En Banc. By the
time the Commissioner raised her objection, it was too late; the formal offer,
admission and evaluation of the supplemental evidence were all fait accompli. compelling reasons justify otherwise.

We clarify that while the Commissioner's failure to promptly object had no bearing on It is doctrinal that the Court will not lightly set aside the conclusions reached by the
the materiality or sufficiency of the supplemental evidence admitted, she was bound by CTA which, by the very nature of its function of being dedicated exclusively to the
the outcome of the CTA Division's assessment of the evidence.108 resolution of tax problems, has developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority.116 We thus accord the findings of
Second, the CTA is not governed strictly by the technical rules of evidence. The CTA fact by the CTA with the highest respect. These findings of facts can only be disturbed
Division's admission of the formal offer of supplemental evidence, without prompt on appeal if they are not supported by substantial evidence or there is a showing of
objection from the Commissioner, was thus justified. gross error or abuse on the part of the CTA. In the absence of any clear and convincing
proof to the contrary, this Court must presume that the CTA rendered a decision which
Notably, this Court had in the past admitted and considered evidence attached to the is valid in every respect.117
taxpayers' motion for reconsideration.
We sustain the factual findings of the CTA.
In the case of BPI-Family Savings Bank v. Court of Appeals,109 the tax refund claimant
attached to its motion for reconsideration with the CTA its Final Adjustment Return. The The parties failed to raise credible basis for us to disturb the CTA's findings that DLSU
Commissioner, as in the present case, did not oppose the taxpayer's motion for had used actually, directly and exclusively for educational purposes a portion of its
reconsideration and the admission of the Final Adjustment Return.110 We thus admitted assessed income and that it had remitted the DST payments though an online
and gave weight to the Final Adjustment Return although it was only submitted upon imprinting machine.
motion for reconsideration.
a. DLSU used actually, directly, and exclusively for educational purposes a portion of its
We held that while it is true that strict procedural rules generally frown upon the assessed income.
submission of documents after the trial, the law creating the CTA specifically provides
that proceedings before it shall not be governed strictly by the technical rules of
To see how the CTA arrived at its factual findings, we review the process undertaken,
evidence111 and that the paramount consideration remains the ascertainment of truth.
from which it deduced that DLSU successfully proved that it used actually, directly and
We ruled that procedural rules should not bar courts from considering undisputed facts to
exclusively for educational purposes a portion of its rental income.
arrive at a just determination of a controversy.112
The CTA reduced DLSU's deficiency income tax and VAT liabilities in view of the
We applied the same reasoning in the subsequent cases of Filinvest Development Corporation
submission of the supplemental evidence, which consisted of statement of receipts, statement
v. Commissioner of Internal Revenue113 and Commissioner of Internal Revenue v. PERF Realty
of disbursement and fund balance and statement of fund changes.118
Corporation,114 where the taxpayers also submitted the supplemental supporting
document only upon filing their motions for reconsideration.
These documents showed that DLSU borrowed P93.86 Million,119 which was used to
build the university's Sports Complex. Based on these pieces of evidence, the CTA
Although the cited cases involved claims for tax refunds, we also dispense with the strict
found that DLSU's rental income from its concessionaires were indeed transmitted and
application of the technical rules of evidence in the present tax assessmentcase. If
used for the payment of this loan. The CTA held that the degree of preponderance of
anything, the liberal application of the rules assumes greater force and significance in the
evidence was sufficiently met to prove actual, direct and exclusive use for educational
case of a taxpayer who claims a constitutionally granted tax exemption. While the
purposes.
taxpayers in the cited cases claimed refund of excess tax payments based on the Tax
Code,115 DLSU is claiming tax exemption based on the Constitution. If liberality is
The CTA also found that DLSU's rental income from other concessionaires, which were
afforded to taxpayers who paid more than they should have under a statute, then with
allegedly deposited to a fund (CF-CPA Account),120 intended for the university's capital
more reason that we should allow a taxpayer to prove its exemption from tax based on
projects, was not proved to have been used actually, directly and exclusively for
the Constitution.
educational purposes. The CTA observed that "[DLSU]...failed to fully account for
and substantiate all the disbursements from the [fund]." Thus, the CTA "cannot
Hence, we sustain the CTA's admission of DLSU's supplemental offer of evidence not
ascertain whether rental income from the [other] concessionaires was indeed used for
only because the Commissioner failed to promptly object, but more so because the
educational purposes."121
strict application of the technical tules of evidence may defeat the intent of the
Constitution.
To stress, the CTA's factual findings were based on and supported by the report of the
Independent CPA who reviewed, audited and examined the voluminous documents
IV. The CTA's appreciation of evidence is generally binding on the Court unless
submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's functions include: (a)
examination and verification of receipts, invoices, vouchers and other long accounts; (b)
reproduction of, and comparison of such reproduction with, and certification that the
same are faithful copies of original documents, and pre-marking of documentary
exhibits consisting of voluminous documents; (c) preparation of schedules or
summaries containing a chronological listing of the numbers, dates and amounts
covered by receipts or invoices or other relevant documents and the amount(s) of taxes
paid; (d) making findings as to compliance with substantiation requirements
under pertinent tax laws, regulations and jurisprudence; (e) submission of a formal
report with certification of authenticity and veracity of findings and conclusions in the
performance of the audit; (f) testifying on such formal report; and (g) performing such
other functions as the CTA may direct.122
Based on the Independent CPA's report and on its own appreciation of the evidence,
the CTA held that only the portion of the rental income pertaining to the substantiated
disbursements (i.e., proved by receipts, vouchers, etc.) from the CF-CPA Account was
considered as used actually, directly and exclusively for educational purposes.
Consequently, the unaccounted and unsubstantiated disbursements must be subjected
to income tax and VAT.123
The CTA then further reduced DLSU's tax liabilities by cancelling the assessments for
taxable years 2001 and 2002 due to the defective LOA.124
The Court finds that the above fact-finding process undertaken by the CTA shows that
it based its ruling on the evidence on record, which we reiterate, were examined and
verified by the Independent CPA. Thus, we see no persuasive reason to deviate from
these factual findings.
However, while we generally respect the factual findings of the CTA, it does not mean that
we are bound by its conclusions. In the present case, we do not agree with the method used
by the CTA to arrive at DLSU's unsubstantiated rental income (i.e., income not proved
to have been actually, directly and exclusively used for educational purposes).
To recall, the CTA found that DLSU earned a rental income of P10,610,379.00 in taxable
year 2003.125 DLSU earned this income from leasing a portion of its premises to:
1) MTO-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide Food Corp., 5) Capri
International, and 6) MTO Bookstore.126
To prove that its rental income was used for educational purposes, DLSU identified the
transactions where the rental income was expended, viz.: 1) P4,007,724.00127 used to
pay the loan obtained by DLSU to build the Sports Complex; and
2) P6,602,655.00 transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA to prove that the
P6,602,655.00 transferred to the CF-CPA Account was used actually, directly and
exclusively for educational purposes. According to the Independent CPA' findings,
DLSU was able to substantiate disbursements from the CF-CPA Account amounting
to P6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA concluded that out of
the P10,610,379.00 rental income, P4,841,066.65 was unsubstantiated, and thus, subject to
income tax and VAT.129
The CTA then concluded that the ratio of substantiated disbursements to the total
disbursements from the CF-CPA Account for taxable year 2003 is only 26.68%. 130The
CTA held as follows:
chanRoblesvirtualLawlibrary
However, as regards petitioner's rental income from Alarey, Inc., Zaide Food Corp.,
Capri International and MTO Bookstore, which were transmitted to the CF-CPA
Account, petitioner again failed to fully account for and substantiate all the
disbursements from the CF-CPA Account; thus failing to prove that the rental income
derived therein were actually, directly and exclusively used for educational purposes.
Likewise, the findings of the Court-Commissioned Independent CPA show that the
disbursements from the CF-CPA Account for fiscal year 2003 amounts to P-
6,259,078.30 only. Hence, this portion of the rental income, being the substantiated
disbursements of the CF-CPA Account, was considered by the Special First Division as
used actually, directly and exclusively for educational purposes. Since for fiscal year
2003, the total disbursements per voucher is P6,259,078.3 (Exhibit "LL-25-C"), and the
total disbursements per subsidiary ledger amounts to P23,463,543.02 (Exhibit "LL-29-
C"), the ratio of substantiated disbursements for fiscal year 2003 is 26.68%
(P6,259,078.30/P23,463,543.02). Thus, the substantiated portion of CF-CPA
Disbursements for fiscal year 2003, arrived at by multiplying the ratio of 26.68% with
the total rent income added to and used in the CF-CPA Account in the amount of
P6,602,655.00 ts P1,761,588.35.131 (emphasis supplied)ChanRoblesVirtualawlibrary
For better understanding, we summarize the CTA's computation as follows:
1. The CTA subtracted the rent income used in the construction of the Sports
Complex (P4,007,724.00) from the rental income (P10,610,379.00) earned
from the abovementioned concessionaries. The difference (P6,602,655.00) was
the portion claimed to have been deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated portion of CF-CPA
disbursements (P1,761,308.37) from the P6,602,655.00 to arrive at the supposed
unsubstantiated portion of the rental income (P4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements (P1,761,308.37)133 was
derived by multiplying the rental income claimed to have been added to the
CF-CPA Account (P6,602,655.00) by 26.68% or the ratio
of substantiated disbursements to total disbursements (P23,463,543.02).
4. The 26.68% ratio134 was the result of dividing the substantiated disbursements
from the CF-CPA Account as found by the Independent CPA (P6,259,078.30)
by the total disbursements (P23,463,543.02) from the same account.
We find that this system of calculation is incorrect and does not truly give effect to the
constitutional grant of tax exemption to non-stock, nonprofit educational institutions.
The CTA's reasoning is flawed because it required DLSU to substantiate an amount that
is greater than the rental income deposited in the CF-CPA Account in 2003.
To reiterate, to be exempt from tax, DLSU has the burden of proving that the proceeds
of its rental income (which amounted to a total of P10.61 million) 135 were used for
educational purposes. This amount was divided into two parts: (a) the P4.01 million,
which was used to pay the loan obtained for the construction of the Sports Complex;
and (b) the P6.60 million,136 which was transferred to the CF-CPA account.
For year 2003, the total disbursement from the CF-CPA account amounted to P23.46
million.137 These figures, read in light of the constitutional exemption, raises the
question: does DLSU claim that the whole total CF-CPA disbursement of P23.46
million is tax-exempt so that it is required to prove that all these disbursements
had been made for educational purposes?
We answer in the negative.
The records show that DLSU never claimed that the total CF-CPA disbursements of
P23.46 million had been for educational purposes and should thus be tax-exempt;
DLSU only claimed P10.61 million for taxexemption and should thus be required to
prove that this amount had been used as claimed.
purposes via the CF-CPA. That the CF-CPA might have had other sources of funding is
irrelevant because the assessment in the present case pertains only to the rental income
which DLSU indisputably earned as revenue in 2003. That the proven CF-CPA funds
used for educational purposes should not be prorated as part of its total CF-CPA
disbursements for purposes of crediting to DLSU is also logical because no claim
whatsoever had been made that the totality of the CF-CPA disbursements had been for
educational purposes. No prorating is necessary; to state the obvious, exemption is
based on actual and direct use and this DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be liable only for the difference
between what it claimed and what it has proven. In more concrete terms,
DLSU only had to prove that its rental income for taxable year 2003 (P10,610,379.00)
was used for educational purposes. Hence, while the total disbursements from the CF-
CPA Account amounted to P23,463,543.02, DLSU only had to substantiate its P10.6
million rental income, part of which was the P6,602,655.00 transferred to the CF-CPA
account. Of this latter amount, P6.259 million was substantiated to have been used for
educational purposes.
To summarize, we thus revise the tax base for deficiency income tax and VAT for
taxable year 2003 as follows:
chanRoblesvirtualLawlibrary
CTA Decision138 Revised

Of this amount, P4.01 had been proven to have been used for educational purposes, as Rental income 10,610,379.00 10,610,379.00
confirmed by the Independent CPA. The amount in issue is therefore the balance of
P6.60 million which was transferred to the CF-CPA which in turn made disbursements
of P23.46 million for various general purposes, among them the P6.60 million Less: Rent income used in
4,007,724.00 4,007,724.00
construction of the Sports Complex
transferred by DLSU.

Significantly, the Independent CPA confirmed that the CF-CPA made disbursements
for educational purposes in year 2003 in the amount P6.26 million. Based on these given
figures, the CTA concluded that the expenses for educational purposes that had been Rental income deposited to the CF-
coursed through the CF-CPA should be prorated so that only the portion that P6.26 6,602,655.00 6,602.655.00
CPA Account
million bears to the total CF-CPA disbursements should be credited to DLSU for tax
exemption.

This approach, in our view, is flawed given the constitutional requirement that
revenues actually and directly used for educational purposes should be tax-exempt. As Less: Substantiated portion of CF-
1,761,588.35 6,259,078.30
already mentioned above, DLSU is not claiming that the whole P23.46 million CF-CPA CPA disbursements
disbursement had been used for educational purposes; it only claims that P6.60 million
transferred to CF-CPA had been used for educational purposes. This was what DLSU
needed to prove to have actually and directly used for educational purposes.
Tax base for deficiency income tax
That this fund had been first deposited into a separate fund (the CF-CPA established to 4,841,066.65 343,576.70
and VAT
fund capital projects) lends peculiarity to the facts of this case, but does not detract
from the fact that the deposited funds were DLSU revenue funds that had been
confirmed and proven to have been actually and directly used for educational
On DLSU's argument that the CTA should have appreciated its evidence in the same
way as it did with the evidence submitted by Ateneo in another separate case, the CTA
explained that the issue in the Ateneo case was not the same as the issue in the present
case.
The issue in the Ateneo case was whether or not Ateneo could be held liable to pay
income taxes and VAT under certain BIR and Department of Finance issuances 139that
required the educational institution to own and operate the canteens, or other commercial
enterprises within its campus, as condition for tax exemption. The CTA held that the
Constitution does not require the educational institution to own or operate these
commercial establishments to avail of the exemption.140
Given the lack of complete identity of the issues involved, the CTA held that it had to
evaluate the separate sets of evidence differently. The CTA likewise stressed that DLSU
and Ateneo gave distinct defenses and that its wisdom "cannot be equated on its
decision on two different cases with two different issues."141
DLSU disagrees with the CTA and argues that the entire assessment must be cancelled
because it submitted similar, if not stronger sets of evidence, as Ateneo. We reject
DLSU's argument for being non sequitur. Its reliance on the concept of uniformity of
taxation is also incorrect.
First, even granting that Ateneo and DLSU submitted similar evidence, the sufficiency
and materiality of the evidence supporting their respective claims for tax exemption
would necessarily differ because their attendant issues and facts differ.
To state the obvious, the amount of income received by DLSU and by Ateneo during
the taxable years they were assessed varied. The amount of tax assessment also varied.
The amount of income proven to have been used for educational purposes also varied
because the amount substantiated varied.142 Thus, the amount of tax assessment cancelled by
the CTA varied.
On the one hand, the BIR assessed DLSU a total tax deficiency of P17,303,001.12 for
taxable years 2001, 2002 and 2003. On the other hand, the BIR assessed Ateneo a total
deficiency tax of P8,864,042.35 for the same period. Notably, DLSU was assessed
deficiency DST, while Ateneo was not.143
Thus, although both Ateneo and DLSU claimed that they used their rental income
actually, directly and exclusively for educational purposes by submitting similar
evidence, e.g., the testimony of their employees on the use of university revenues, the
report of the Independent CPA, their income summaries, financial statements,
vouchers, etc., the fact remains that DLSU failed to prove that a portion of its income and
revenues had indeed been used for educational purposes.
The CTA significantly found that some documents that could have fully supported DLSU's claim were
not produced in court. Indeed, the Independent CPA testified that some disbursements had
not been proven to have been used actually, directly and exclusively for educational
purposes.144
The final nail on the question of evidence is DLSU's own admission that the original of
these documents had not in fact been produced before the CTA although it claimed that there
was no bad faith on its part.145 To our mind, this admission is a good indicator of how
the Ateneo and the DLSU cases varied, resulting in DLSU's failure to substantiate a
portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the Revised Rules on Evidence,
that the contents of the missing supporting documents were proven by its recital in
some other authentic documents on record,146 can no longer be entertained at this late stage
of the proceeding. The CTA did not rule on this particular claim. The CTA also made
no finding on DLSU's assertion of lack of bad faith. Besides, it is not our duty to go
over these documents to test the truthfulness of their contents, this Court not being a
trier of facts.
Second, DLSU misunderstands the concept of uniformity oftaxation. Equality and
uniformity of taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate.147 A tax is uniform when it operates with the same
force and effect in every place where the subject of it is found. 148 The concept requires
that all subjects of taxation similarly situated should be treated alike and placed in equal
footing.149
In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA treated
them alike because their income proved to have been used actually, directly and
exclusively for educational purposes were exempted from taxes. The CTA equally
applied the requirements in the YMCA case to test if they indeed used their revenues
for educational purposes.
DLSU can only assert that the CTA violated the rule on uniformity if it can show that,
despite proving that it used actually, directly and exclusively for educational purposes its
income and revenues, the CTA still affirmed the imposition of taxes. That the DLSU
secured a different result happened because it failed to fully prove that it used actually,
directly and exclusively for educational purposes its revenues and income.
On this point, we remind DLSU that the rule on uniformity of taxation does not mean
that subjects of taxation similarly situated are treated in literally the same way in all and
every occasion. The fact that the Ateneo and DLSU are both non-stock, non-profit
educational institutions, does not mean that the CTA or this Court would similarly
decide every case for (or against) both universities. Success in tax litigation, like in any
other litigation, depends to a large extent on the sufficiency of evidence. DLSU's
evidence was wanting, thus, the CTA was correct in not fully cancelling its tax liabilities.
b. DLSU proved its payment of the DST
The CTA affirmed DLSU's claim that the DST due on its mortgage and loan
transactions were paid and remitted through its bank's On-Line Electronic DST Imprinting
Machine. The Commissioner argues that DLSU is not allowed to use this method of
payment because an educational institution is excluded from the class of taxpayers who
can use the On-Line Electronic DST Imprinting Machine.
We sustain the findings of the CTA. The Commissioner's argument lacks basis in both
the Tax Code and the relevant revenue regulations.
DST on documents, loan agreements, and papers shall be levied, collected and paid for
by the person making, signing, issuing, accepting, or transferring the same.150 The Tax
Code provides that whenever one party to the document enjoys exemption from DST,
the other party not exempt from DST shall be directly liable for the tax. Thus, it is clear
that DST shall be payable by any party to the document, such that the payment and
compliance by one shall mean the full settlement of the DST due on the document.
In the present case, DLSU entered into mortgage and loan agreements with banks.
These agreements are subject to DST.151 For the purpose of showing that the DST on
the loan agreement has been paid, DLSU presented its agreements bearing the imprint
showing that DST on the document has been paid by the bank, its counterparty. The
imprint should be sufficient proof that DST has been paid. Thus, DLSU cannot be
further assessed for deficiency DST on the said documents.
Finally, it is true that educational institutions are not included in the class of taxpayers
who can pay and remit DST through the On-Line Electronic DST Imprinting Machine under
RR No. 9-2000. As correctly held by the CTA, this is irrelevant because it was not
DLSU who used the On-Line Electronic DST Imprinting Machine but the bank that handled
its mortgage and loan transactions. RR No. 9-2000 expressly includes banks in the class
of taxpayers that can use the On-Line Electronic DST Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU proved the payment of the
assessed DST deficiency, except for the unpaid balance of P13,265.48.152
WHEREFORE, premises considered, we DENY the petition of the Commissioner of
Internal Revenue in G.R. No. 196596 and AFFIRM the December 10, 2010 decision
and March 29, 2011 resolution of the Court of Tax Appeals En Banc in CTA En
Banc Case No. 622, except for the total amount of deficiency tax liabilities of De La Salle
University, Inc., which had been reduced.
We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841
and the petition of the Commissioner of Internal Revenue in G.R. No. 198941 and
thus AFFIRM the June 8, 2011 decision and October 4, 2011 resolution of the Court
of Tax Appeals En Banc in CTA En Banc Case No. 671, with
the MODIFICATIONthat the base for the deficiency income tax and VAT for taxable
year 2003 is P343,576.70.
SO ORDERED.cralawlawlibrary
G.R. No. 196596, November 09, 2016
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE
UNIVERSITY, INC., Respondent.
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE,Respondent.
G.R. No. 198941
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE
UNIVERSITY, INC., Respondent.
DECISION
BRION, J.:
Before the Court are consolidated petitions for review on certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal Revenue
(Commissioner) to assail the December 10, 2010 decision and March 29, 2011
resolution of the Court of Tax Appeals (CTA) in En Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail the
June 8, 2011 decision and October 4, 2011 resolution in CTA En Banc Case
No. 671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 decision
and October 4, 2011 resolution in CTA En Banc Case No. 671.4
G.R. Nos. 196596, 198841 and 198941 all originated from CTA Special First Division
(CTA Division) Case No. 7303. G.R. No. 196596 stemmed from CTA En BancCase
No. 622 filed by the Commissioner to challenge CTA Case No. 7303. G.R. No. 198841
and 198941 both stemmed from CTA En Banc Case No. 671 filed by DLSU to also
challenge CTA Case No. 7303.chanroblesvirtuallawlibrary
The Factual Antecedents
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of
Authority (LOA) No. 2794 authorizing its revenue officers to examine the latter's books
of accounts and other accounting records for all internal revenue taxes for the
period Fiscal Year Ending 2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6
Subsequently on August 18, 2004, the BIR through a Formal Letter of Demand assessed
DLSU the following deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the campus; (2) value-added
tax (VAT) on business income; and (3) documentary stamp tax (DST) on loans and lease
contracts. The BIR demanded the payment of P17,303,001.12, inclusive of surcharge,
interest and penalty for taxable years 2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner failed to act on the protest; thus,
DLSU filed on August 3, 2005 a petition for review with the CTA Division.8
DLSU, a non-stock, non-profit educational institution, principally anchored its petition
on Article XIV, Section 4 (3) of the Constitution, which reads:
chanRoblesvirtualLawlibrary
 (3) All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted DLSU's petition for review. The
dispositive portion of the decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST
assessment on the loan transactions of [DLSU] in the amount of P1,1681,774.00 is
hereby CANCELLED. However, [DLSU] is ORDERED TO PAY deficiency income
tax, VAT and DST on its lease contracts, plus 25% surcharge for the fiscal years 2001,
2002 and 2003 in the total amount of P18,421,363.53...xxx.
In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on the total
amount due computed from September 30, 2004 until full payment thereof pursuant to
Section 249(C)(3) of the [National Internal Revenue Code]. Further, the compromise
penalties imposed by [the Commissioner] were excluded, there. being no compromise
agreement between the parties.
SO ORDERED.9ChanRoblesVirtualawlibrary
Both the Commissioner and DLSU moved for the reconsideration of the January 5,
2010 decision.10 On April 6, 2010, the CTA Division denied the Commissioner's motion
for reconsideration while it held in abeyance the resolution on DLSU's motion for
reconsideration.11
On May 13, 2010, the Commissioner appealed to the CTA En Banc (CTA En Banc Case
No. 622) arguing that DLSU's use of its revenues and assets for non-educational or
commercial purposes removed these items from the exemption coverage under the
Constitution.12
On May 18, 2010, DLSU formally offered to the CTA Division supplemental pieces of
documentary evidence to prove that its rental income was used actually, directly and
exclusively for educational purposes.13The Commissioner did not promptly object to the formal
offer of supplemental evidence despite notice.14
On July 29, 2010, the CTA Division, in view of the supplemental evidence submitted,
reduced the amount of DLSU's tax deficiencies. The dispositive portion of the amended
decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is hereby PARTIALLY
GRANTED. [DLSU] is hereby ORDERED TO PAY for deficiency income tax, VAT
and DST plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the total
adjusted amount of P5,506,456.71...xxx.
In addition, [DLSU] is hereby held liable to pay 20% per annum deficiency interest on
the...basic deficiency taxes...until full payment thereof pursuant to Section 249(B) of the
[National Internal Revenue Code]...xxx.
Further, [DLSU] is hereby held liable to pay 20% per annum delinquency interest on the
deficiency taxes, surcharge and deficiency interest which have accrued...from September
30, 2004 until fully paid.15ChanRoblesVirtualawlibrary
Consequently, the Commissioner supplemented its petition with the CTA En Banc and
argued that the CTA Division erred in admitting DLSU's additional evidence. 16
Dissatisfied with the partial reduction of its tax liabilities, DLSU filed a separate petition
for review with the CTA En Banc (CTA En Banc Case No. 671) on the following
grounds: (1) the entire assessment should have been cancelled because it was based on
an invalid LOA; (2) assuming the LOA was valid, the CTA Division should still have
cancelled the entire assessment because DLSU submitted evidence similar to those
submitted by Ateneo De Manila University (Ateneo) in a separate case where the CTA
cancelled Ateneo's tax assessment;17 and (3) the CTA Division erred in finding that
a portion of DLSU's rental income was not proved to have been used actually, directly
and exclusively for educational purposes.18chanroblesvirtuallawlibrary
The CTA En Banc Rulings
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for review and sustained the
findings of the CTA Division.19
Tax on rental income
Relying on the findings of the court-commissioned Independent Certified Public
Accountant (Independent CPA), the CTA En Banc found that DLSU was able to prove
that a portion of the assessed rental income was used actually, directly and exclusively for
educational purposes; hence, exempt from tax.20 The CTA En Banc was satisfied with
DLSU's supporting evidence confirming that part of its rental income had indeed been
used to pay the loan it obtained to build the university's Physical Education - Sports
Complex.21
Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its income
that was not shown by supporting documents to have been actually, directly and
exclusively used for educational purposes, must be subjected to income tax and VAT. 22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention, DLSU proved its remittance of the DST due on
its loan and mortgage documents.23 The CTA En Banc found that DLSU's DST payments had
been remitted to the BIR, evidenced by the stamp on the documents made by a DST
imprinting machine, which is allowed under Section 200 (D) of the National Internal
Revenue Code (Tax Code)24 and Section 2 of Revenue Regulations (RR) No. 15-
2001.25cralawred
Admissibility of DLSU's supplemental evidence
The CTA En Banc held that the supplemental pieces of documentary evidence were
admissible even if DLSU formally offered them only when it moved for reconsideration
of the CTA Division's original decision. Notably, the law creating the CTA provides
that proceedings before it shall not be governed strictly by the technical rules of
evidence.26
The Commissioner moved but failed to obtain a reconsideration of the CTA En Banc's
December 10, 2010 decision.27 Thus, she came to this court for relief through a petition
for review on certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review and further reduced its
tax liabilities to P2,554,825.47 inclusive of surcharge.28
On the validity of the Letter of Authority
The issue of the LOA's validity was raised during trial;29 hence, the issue was deemed
properly submitted for decision and reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable
period and that the practice of issuing a LOA covering audit of unverified prior years is
prohibited.30 The prohibition is consistent with Revenue Memorandum Order (RMO)
No. 43-90, which provides that if the audit includes more than one taxable period, the
other periods or years shall be specifically indicated in the LOA. 31
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. Hence, the assessments for deficiency income tax, VAT and DST for taxable
years 2001 and 2002 are void, but the assessment for taxable year 2003 is valid.32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid precedent because it involved
different parties, factual settings, bases of assessments, sets of evidence, and defenses. 33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation of DLSU's evidence. It
held that while DLSU successfully proved that a portion of its rental income was
transmitted and used to pay the loan obtained to fund the construction of the Sports
Complex, the rental income from other sources were not shown to have been actually,
directly and exclusively used for educational purposes.34
Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No. 198841) and the
Commissioner (G.R. No. 198941) came to this Court for
relief.chanroblesvirtuallawlibrary
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First, DLSU's rental income is taxable regardless of how such income is derived, used or
disposed of.35 DLSU's operations of canteens and bookstores within its campus even
though exclusively serving the university community do not negate income tax liability. 36
The Commissioner contends that Article XIV, Section 4 (3) of the Constitution must be
harmonized with Section 30 (H) of the Tax Code, which states among others, that the
income of whatever kind and character of [a non-stock and non-profit educational
institution] from any of [its] properties, real or personal, or from any of (its] activities
conducted for profit regardless of the disposition made of such income, shall be subject to tax
imposed by this Code.37
The Commissioner argues that the CTA En Banc misread and misapplied the case
of Commissioner of Internal Revenue v. YMCA38 to support its conclusion that
revenues however generated are covered by the constitutional exemption, provided that,
the revenues will be used for educational purposes or will be held in reserve for such
purposes.39
On the contrary, the Commissioner posits that a tax-exempt organization like DLSU is
exempt only from property tax but not from income tax on the rentals earned from
property.40 Thus, DLSU's income from the leases of its real properties is not exempt
from taxation even if the income would be used for educational purposes. 41
Second, the Commissioner insists that DLSU did not prove the fact of DST
payment42 and that it is not qualified to use the On-Line Electronic DST Imprinting Machine,
which is available only to certain classes of taxpayers under RR No. 9-2000.43
Finally, the Commissioner objects to the admission of DLSU's supplemental offer of
evidence. The belated submission of supplemental evidence reopened the case for trial,
and worse, DLSU offered the supplemental evidence only after it received the
unfavorable CTA Division's original decision.44 In any case, DLSU's submission of
supplemental documentary evidence was unnecessary since its rental income was taxable
regardless of its disposition.45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication
of unverified prior years. A LOA issued contrary to RMO No. 43-90 is void, thus, an
assessment issued based on such defective LOA must also be void.46
DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 and
Unverified Prior Years. On the basis of this defective LOA, the Commissioner assessed
DLSU for deficiency income tax, VAT and DST for taxable years 2001, 2002 and
2003.47 DLSU objects to the CTA En Banc's conclusion that the LOA is valid for
taxable year 2003. According to DLSU, when RMO No. 43-90 provides that:
chanRoblesvirtualLawlibrary
The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby
prohibited.ChanRoblesVirtualawlibrary
it refers to the LOA which has the format "Base Year + Unverified Prior Years." Since the
LOA issued to DLSU follows this format, then any assessment arising from it must
be entirely voided.48
Second, DLSU invokes the principle of uniformity in taxation, which mandates that for
similarly situated parties, the same set of evidence should be appreciated and weighed in the
same manner.49 The CTA En Banc erred when it did not similarly appreciate DLSU's
evidence as it did to the pieces of evidence submitted by Ateneo, also a non-stock, non-
profit educational institution.50
G.R. No. 198941
The issues and arguments raised by the Commissioner in G.R. No. 198941 petition
are exactly the same as those she raised in her: (1) petition docketed as G.R. No. 196596
and (2) comment on DLSU's petition docketed as G.R. No.
198841.51chanroblesvirtuallawlibrary
Counter-arguments
DLSU's Comment on G.R. No. 196596
First, DLSU questions the defective verification attached to the petition. 52
Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all
assets and revenues of non-stock, non-profit educational institutions used actually, directly
and exclusively for educational purposes are exempt from taxes and duties. 53
On this point, DLSU explains that: (1) the tax exemption of nonstock, non-profit
educational institutions is novel to the 1987 Constitution and that Section 30 (H) of
the 1997 Tax Code cannot amend the 1987 Constitution;54 (2) Section 30 of the 1997
Tax Code is almost an exact replica of Section 26 of the 1977 Tax Code - with the
addition of non-stock, non-profit educational institutions to the list of tax-exempt
entities; and (3) that the 1977 Tax Code was promulgated when the 1973
Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private educational institution
under the 1973 Constitution was only for real property tax. Back then, the special tax
treatment on income of private educational institutions only emanates from statute, i.e.,
the 1977 Tax Code. Only under the 1987 Constitution that exemption from tax of all
the assets and revenues of non-stock, non-profit educational institutions used actually,
directly and exclusively for educational purposes, was expressly and categorically
enshrined.55
DLSU thus invokes the doctrine of constitutional supremacy, which renders any
subsequent law that is contrary to the Constitution void and without any force and
effect.56 Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the income of
whatever kind and character of a nonstock and non-profit educational institution from
any of its properties, real or personal, or from any of its activities conducted for
profit regardless of the disposition made of such income, should be declared without force and
effect in view of the constitutionally granted tax exemption on "all revenues and assets of
non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes."57
DLSU further submits that it complies with the requirements enunciated in
the YMCA case, that for an exemption to be granted under Article XIV, Section 4 (3) of
the Constitution, the taxpayer must prove that: (1) it falls under the classification non-
stock, non-profit educational institution; and (2) the income it seeks to be exempted
from taxation is used actually, directly and exclusively for educational purposes. 58 Unlike
YMCA, which is not an educational institution, DLSU is undisputedly a non-stock, non-
profit educational institution. It had also submitted evidence to prove that it actually,
directly and exclusively used its income for educational purposes. 59
DLSU also cites the deliberations of the 1986 Constitutional Commission where they
recognized that the tax exemption was granted "to incentivize private educational
institutions to share with the State the responsibility of educating the youth." 60
Third, DLSU highlights that both the CTA En Banc and Division found that the bank
that handled DLSU's loan and mortgage transactions had remitted to the BIR the DST
through an imprinting machine, a method allowed under RR No. 15-2001.61 In any case,
DLSU argues that it cannot be held liable for DST owmg to the exemption granted
under the Constitution.62
Finally, DLSU underscores that the Commissioner, despite notice, did not oppose the
formal offer of supplemental evidence. Because of the Commissioner's failure to timely
object, she became bound by the results of the submission of such supplemental
evidence.63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from questioning the LOA's validity
because it failed to raise this issue in both the administrative and judicial
proceedings.64 That it was asked on crossexamination during the trial does not make it
an issue that the CTA could resolve.65 The Commissioner also maintains that DLSU's
rental income is not tax-exempt because an educational institution is only exempt from
property tax but not from tax on the income earned from the property. 66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments discussed above.67
In addition, DLSU prays that the Court award attorney's fees in its favor because it was
constrained to unnecessarily retain the services of counsel in this separate
petition.68chanroblesvirtuallawlibrary
Issues
Although the parties raised a number of issues, the Court shall decide only the pivotal
issues, which we summarize as follows:
I. Whether DLSU's income and revenues proved to have been used actually,
directly and exclusively for educational purposes are exempt from duties and
taxes;chanrobleslaw
II. Whether the entire assessment should be voided because of the defective
LOA;chanrobleslaw
III. Whether the CTA correctly admitted DLSU's supplemental pieces of evidence;
and
IV. Whether the CTA's appreciation of the sufficiency ofDLSU's evidence may be
disturbed by the Court.
Our Ruling
As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock, non-profit educational
institutions proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment for taxable year
2003 is valid.
III. The CTA correctly admitted DLSU's formal offer of supplemental evidence;
and
IV. The CTA's appreciation of evidence is conclusive unless the CTA is shown to
have manifestly overlooked certain relevant facts not disputed by the parties
and which, if properly considered, would justify a different conclusion.
The parties failed to convince the Court that the CTA overlooked or failed to
consider relevant facts. We thus sustain the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income was used actually,
directly and exclusively for educational purposes; and
b. DLSU proved the payment of the DST through its bank's on-line
imprinting machine.
I. The revenues and assets of non-stock, non-profit educational institutions
proved to have been used actually, directly, and exclusively for educational
purposes are exempt from duties and taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads:
chanRoblesvirtualLawlibrary
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the dissolution
or cessation of the corporate existence of such institutions, their assets shall
be disposed of in the manner provided by law. Proprietary educational
institutions, including those cooperatively owned, may likewise be
entitled to such exemptions subject to the limitations provided by
law including restrictions on dividends and provisions for reinvestment
[underscoring and emphasis supplied]
Before fully discussing the merits of the case, we observe that:
First, the constitutional provision refers to two kinds of educational institutions: (1) non-
stock, non-profit educational institutions and (2) proprietary educational institutions. 69
Second, DLSU falls under the first category. Even the Commissioner admits the status of
DLSU as a non-stock, non-profit educational institution.70
Third, while DLSU's claim for tax exemption arises from and is based on the
Constitution, the Constitution, in the same provision, also imposes certain conditions to
avail of the exemption. We discuss below the import of the constitutional text vis-a-vis
the Commissioner's counter-arguments.
Fourth, there is a marked distinction between the treatment of nonstock, non-profit
educational institutions and proprietary educational institutions. The tax exemption
granted to non-stock, non-profit educational institutions is conditioned only on the
actual, direct and exclusive use of their revenues and assets for educational purposes.
While tax exemptions may also be granted to proprietary educational institutions, these
exemptions may be subject to limitations imposed by Congress.
As we explain below, the marked distinction between a non-stock, non-profit and a
proprietary educational institution is crucial in determining the nature and extent of the
tax exemption granted to non-stock, non-profit educational institutions.
The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30
(H) of the Tax Code. The relevant text reads:
chanRoblesvirtualLawlibrary
The following organizations shall not be taxed under this Title [Tax on Income] in
respect to income received by them as such:
xxxx
(H) A non-stock and non-profit educational institution
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the
disposition made of such income shall be subject to tax imposed under this
Code. [underscoring and emphasis supplied]ChanRoblesVirtualawlibrary
The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted
to non-stock, non-profit educational institutions such that the revenues and income
they derived from their assets, or from any of their activities conducted for profit, are
taxable even if these revenues and income are used for educational purposes.
Did the 1997 Tax Code qualifY the tax exemption constitutionally-granted to non-stock, non-profit
educational institutions?
We answer in the negative.
While the present petition appears to be a case of first impression, 71 the Court in
the YMCA case had in fact already analyzed and explained the meaning of Article XIV,
Section 4 (3) of the Constitution. The Court in that case made doctrinal
pronouncements that are relevant to the present case.
The issue in YMCA was whether the income derived from rentals of real property
owned by the YMCA, established as a "welfare, educational and charitable non-profit
corporation," was subject to income tax under the Tax Code and the Constitution. 72
The Court denied YMCA's claim for exemption on the ground that as a charitable
institution falling under Article VI, Section 28 (3) of the Constitution,73 the YMCA is
not tax-exempt per se; "what is exempted is not the institution itself...those
exempted from real estate taxes are lands, buildings and improvements actually, directly
and exclusively used for religious, charitable or educational purposes." 74
The Court held that the exemption claimed by the YMCA is expressly disallowed by
the last paragraph of then Section 27 (now Section 30) of the Tax Code, which mandates
that the income of exempt organizations from any of their properties, real or personal,
are subject to the same tax imposed by the Tax Code, regardless of how that income is used.
The Court ruled that the last paragraph of Section 27 unequivocally subjects to tax the
rent income of the YMCA from its property.75
In short, the YMCA is exempt only from property tax but not from income tax.
As a last ditch effort to avoid paying the taxes on its rental income, the YMCA invoked
the tax privilege granted under Article XIV, Section 4 (3) of the Constitution.
The Court denied YMCA's claim that it falls under Article XIV, Section 4 (3) of the
Constitution holding that the term educational institution, when used in laws granting tax
exemptions, refers to the school system (synonymous with formal education); it includes
a college or an educational establishment; it refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal school system. 76
The Court then significantly laid down the requisites for availing the tax exemption
under Article XIV, Section 4 (3), namely: (1) the taxpayer falls under the
classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly and exclusively for
educational purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without force and effect
with respect to non-stock, non-profit educational institutions, provided, that the
non-stock, non-profit educational institutions prove that its assets and
revenues are used actually, directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non profit
educational institutions, is not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive
use of their assets, revenues and income 78for educational purposes.
We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to
charitable institutions, churches, parsonages or convents, mosques, and non-profit
cemeteries), which exempts from tax only the assets, i.e., "all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes...," Article XIV, Section 4 (3) categorically states that
"[a]ll revenues and assets... used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties."
The addition and express use of the word revenues in Article XIV, Section 4 (3) of the
Constitution is not without significance.
We find that the text demonstrates the policy of the 1987 Constitution, discernible from
the records of the 1986 Constitutional Commission79 to provide broader tax privilege to
non-stock, non-profit educational institutions as recognition of their role in assisting the
State provide a public good. The tax exemption was seen as beneficial to students who
may otherwise be charged unreasonable tuition fees if not for the tax exemption
extended to all revenues and assets of non-stock, non-profit educational institutions.80
Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3)
does not require that the revenues and income must have also been sourced from
educational activities or activities related to the purposes of an educational institution.
The phrase all revenues is unqualified by any reference to the source of revenues. Thus, so
long as the revenues and income are used actually, directly and exclusively for
educational purposes, then said revenues and income shall be exempt from taxes and
duties.81
We find it helpful to discuss at this point the taxation of revenues versus the taxation
of assets.
Revenues consist of the amounts earned by a person or entity from the conduct of
business operations.82 It may refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the tax base in income
tax,83 VAT,84 and local business tax (LBT).85
Assets, on the other hand, are the tangible and intangible properties owned by a person
or entity.86 It may refer to real estate, cash deposit in a bank, investment in the stocks of
a corporation, inventory of goods, or any property from which the person or entity may
derive income or use to generate the same. In Philippine taxation, the fair market value
of real property is a component of the tax base in real property tax (RPT).87 Also, the
landed cost of imported goods is a component of the tax base in VAT on
importation88 and tariff duties.89
Thus, when a non-stock, non-profit educational institution proves that it uses
its revenues actually, directly, and exclusively for educational purposes, it shall be
exempted from income tax, VAT, and LBT. On the other hand, when it also shows that
it uses its assets in the form of real property for educational purposes, it shall be
exempted from RPT.
To be clear, proving the actual use of the taxable item will result in an exemption, but
the specific tax from which the entity shall be exempted from shall depend on whether
the item is an item of revenue or asset.
To illustrate, if a university leases a portion of its school building to a bookstore or
cafeteria, the leased portion is not actually, directly and exclusively used for educational
purposes, even if the bookstore or canteen caters only to university students, faculty and
staff.
The leased portion of the building may be subject to real property tax, as held in Abra
Valley College, Inc. v. Aquino.90 We ruled in that case that the test of exemption from
taxation is the use of the property for purposes mentioned in the Constitution. We also
held that the exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes.
In concrete terms, the lease of a portion of a school building for commercial purposes,
removes such asset from the property tax exemption granted under the
Constitution.91 There is no exemption because the asset is not used actually, directly and
exclusively for educational purposes. The commercial use of the property is also not incidental
to and reasonably necessary for the accomplishment of the main purpose of a
university, which is to educate its students.
However, if the university actually, directly and exclusively uses for educational
purposes the revenues earned from the lease of its school building, such revenues shall be
exempt from taxes and duties. The tax exemption no longer hinges on the use of the
asset from which the revenues were earned, but on the actual, direct and exclusive use of the
revenues for educational purposes.
Parenthetically, income and revenues of non-stock, non-profit educational
institution not used actually, directly and exclusively for educational purposes are not
exempt from duties and taxes. To avail of the exemption, the taxpayer must factually
prove that it used actually, directly and exclusively for educational purposes the
revenues or income sought to be exempted.
The crucial point of inquiry then is on the use of the assets or on the use of the
revenues. These are two things that must be viewed and treated separately. But so long
as the assets or revenues are used actually, directly and exclusively for educational purposes, they
are exempt from duties and taxes.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions, unlike the exemption that may be availed of by
proprietary educational institutions, is not subject to limitations imposed by law.
That the Constitution treats non-stock, non-profit educational institutions differently
from proprietary educational institutions cannot be doubted. As discussed, the privilege
granted to the former is conditioned only on the actual, direct and exclusive use of their
revenues and assets for educational purposes. In clear contrast, the tax privilege granted
to the latter may be subject to limitations imposed by law.
We spell out below the difference in treatment if only to highlight the privileged status
of non-stock, non-profit educational institutions compared with their proprietary
counterparts.
While a non-stock, non-profit educational institution is classified as a tax-exempt entity
under Section 30 (Exemptions from Tax on Corporations) of the Tax Code, a proprietary
educational institution is covered by Section 27 (Rates of Income Tax on Domestic
Corporations).
To be specific, Section 30 provides that exempt organizations like non-stock, non-profit
educational institutions shall not be taxed on income received by them as such.
Section 27 (B), on the other hand, states that [p]roprietary educational
institutions...which are nonprofit shall pay a tax of ten percent (10%) on their taxable
income...Provided, that if the gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross income derived by such
educational institutions...[the regular corporate income tax of 30%] shall be imposed on
the entire taxable income...92
By the Tax Code's clear terms, a proprietary educational institution is entitled only to
the reduced rate of 10% corporate income tax. The reduced rate is applicable only if: (1)
the proprietary educational institution is non profit and (2) its gross income from
unrelated trade, business or activity does not exceed 50% of its total gross income.
Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not
apply to non-stock, non-profit educational institutions.
Thus, we declare the last paragraph of Section 30 of the Tax Code without force and
effect for being contrary to the Constitution insofar as it subjects to tax the income and
revenues of non-stock, non-profit educational institutions used actually, directly and
exclusively for educational purpose. We make this declaration in the exercise of and
consistent with our duty93 to uphold the primacy of the Constitution.94
Finally, we stress that our holding here pertains only to non-stock, non-profit
educational institutions and does not cover the other exempt organizations under
Section 30 of the Tax Code.
For all these reasons, we hold that the income and revenues of DLSU proven to have
been used actually, directly and exclusively for educational purposes are exempt from
duties and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment for taxable
year 2003 is valid.
DLSU objects to the CTA En Banc's conclusion that the LOA is valid for taxable year
2003 and insists that the entire LOA should be voided for being contrary to RMO No.
43-90, which provides that if tax audit includes more than one taxable period, the other
periods or years shall be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to examine the books
of account and other accounting records of the taxpayer in order to determine the
taxpayer's correct internal revenue liabilities95 and for the purpose of collecting the
correct amount oftax,96 in accordance with Section 5 of the Tax Code, which gives the
CIR the power to obtain information, to summon/examine, and take testimony of
persons. The LOA commences the audit process97 and informs the taxpayer that it is
under audit for possible deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely nullify the LOA issued to
DLSU, and consequently, disregard the BIR and the CTA's findings of tax deficiency
for taxable year 2003?
We answer in the negative.
The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which
reads:
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3. A Letter of Authority [LOA] should cover a taxable period not exceeding one
taxable year. The practice of issuing [LOAs] covering audit of unverified prior
years is hereby prohibited. If the audit of a taxpayer shall include more than
one taxable period, the other periods or years shall be specifically indicated in
the [LOA].98
What this provision clearly prohibits is the practice of issuing LOAs covering audit
of unverified prior years. RMO 43-90 does not say that a LOA which contains unverified
prior years is void. It merely prescribes that if the audit includes more than one taxable
period, the other periods or years must be specified. The provision read as a whole
requires that if a taxpayer is audited for more than one taxable year, the BIR must
specify each taxable year or taxable period on separate LOAs.
Read in this light, the requirement to specify the taxable period covered by the LOA is
simply to inform the taxpayer of the extent of the audit and the scope of the revenue
officer's authority. Without this rule, a revenue officer can unduly burden the taxpayer
by demanding random accounting records from random unverified years, which may
include documents from as far back as ten years in cases of fraud audit.99
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. The LOA does not strictly comply with RMO 43-90 because it includes
unverified prior years. This does not mean, however, that the entire LOA is void.
As the CTA correctly held, the assessment for taxable year 2003 is valid because this
taxable period is specified in the LOA. DLSU was fully apprised that it was being
audited for taxable year 2003. Corollarily, the assessments for taxable years 2001 and
2002 are void for having been unspecified on separate LOAs as required under RMO No.
43-90.
Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA's
validity at the CTA Division, and thus, should not have been entertained on appeal, is
not accurate.
On the contrary, the CTA En Banc found that the issue of the LOA's validity came up
during the trial.100 DLSU then raised the issue in its memorandum and motion for partial
reconsideration with the CTA Division. DLSU raised it again on appeal to the CTA En
Banc. Thus, the CTA En Banc could, as it did, pass upon the validity of the
LOA.101 Besides, the Commissioner had the opportunity to argue for the validity of the
LOA at the CTA En Banc but she chose not to file her comment and memorandum
despite notice.102
III. The CTA correctly admitted the supplemental evidence formally offered by
DLSU.
The Commissioner objects to the CTA Division's admission of DLSU's supplemental
pieces of documentary evidence.
To recall, DLSU formally offered its supplemental evidence upon filing its motion for
reconsideration with the CTA Division.103 The CTA Division admitted the
supplemental evidence, which proved that a portion of DLSU's rental income was used
actually, directly and exclusively for educational purposes. Consequently, the CTA
Division reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the supplemental evidence on distinct but
mutually reinforcing grounds, to wit: (1) the Commissioner failed to timely object to the formal
offer of supplemental evidence; and (2) the CTA is not governed strictly by the technical rules of
evidence.
First, the failure to object to the offered evidence renders it admissible, and the court
cannot, on its own, disregard such evidence.104
The Court has held that if a party desires the court to reject the evidence offered, it
must so state in the form of a timely objection and it cannot raise the objection to the
evidence for the first time on appeal.105
Because of a party's failure to timely object, the evidence offered becomes part of the
evidence in the case. As a consequence, all the parties are considered bound by any
outcome arising from the offer of evidence properly presented. 106

As disclosed by DLSU, the Commissioner did not oppose the supplemental formal
offer of evidence despite notice.107 The Commissioner objected to the admission of the
supplemental evidence only when the case was on appeal to the CTA En Banc. By the
time the Commissioner raised her objection, it was too late; the formal offer,
admission and evaluation of the supplemental evidence were all fait accompli.
We clarify that while the Commissioner's failure to promptly object had no bearing on
the materiality or sufficiency of the supplemental evidence admitted, she was bound by
the outcome of the CTA Division's assessment of the evidence.108
Second, the CTA is not governed strictly by the technical rules of evidence. The CTA
Division's admission of the formal offer of supplemental evidence, without prompt
objection from the Commissioner, was thus justified.
Notably, this Court had in the past admitted and considered evidence attached to the
taxpayers' motion for reconsideration.
In the case of BPI-Family Savings Bank v. Court of Appeals,109 the tax refund claimant
attached to its motion for reconsideration with the CTA its Final Adjustment Return. The
Commissioner, as in the present case, did not oppose the taxpayer's motion for
reconsideration and the admission of the Final Adjustment Return.110 We thus admitted
and gave weight to the Final Adjustment Return although it was only submitted upon
motion for reconsideration.
We held that while it is true that strict procedural rules generally frown upon the
submission of documents after the trial, the law creating the CTA specifically provides
that proceedings before it shall not be governed strictly by the technical rules of
evidence111 and that the paramount consideration remains the ascertainment of truth.
We ruled that procedural rules should not bar courts from considering undisputed facts to
arrive at a just determination of a controversy.112
We applied the same reasoning in the subsequent cases of Filinvest Development Corporation
v. Commissioner of Internal Revenue113 and Commissioner of Internal Revenue v. PERF Realty
Corporation,114 where the taxpayers also submitted the supplemental supporting
document only upon filing their motions for reconsideration.
Although the cited cases involved claims for tax refunds, we also dispense with the strict
application of the technical rules of evidence in the present tax assessmentcase. If
anything, the liberal application of the rules assumes greater force and significance in the
case of a taxpayer who claims a constitutionally granted tax exemption. While the
taxpayers in the cited cases claimed refund of excess tax payments based on the Tax
Code,115 DLSU is claiming tax exemption based on the Constitution. If liberality is
afforded to taxpayers who paid more than they should have under a statute, then with
more reason that we should allow a taxpayer to prove its exemption from tax based on
the Constitution.
Hence, we sustain the CTA's admission of DLSU's supplemental offer of evidence not
only because the Commissioner failed to promptly object, but more so because the
strict application of the technical tules of evidence may defeat the intent of the
Constitution.
IV. The CTA's appreciation of evidence is generally binding on the Court unless
compelling reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the conclusions reached by the
CTA which, by the very nature of its function of being dedicated exclusively to the
resolution of tax problems, has developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority.116 We thus accord the findings of
fact by the CTA with the highest respect. These findings of facts can only be disturbed
on appeal if they are not supported by substantial evidence or there is a showing of
gross error or abuse on the part of the CTA. In the absence of any clear and convincing
proof to the contrary, this Court must presume that the CTA rendered a decision which
is valid in every respect.117
We sustain the factual findings of the CTA.
The parties failed to raise credible basis for us to disturb the CTA's findings that DLSU
had used actually, directly and exclusively for educational purposes a portion of its
assessed income and that it had remitted the DST payments though an online
imprinting machine.
a. DLSU used actually, directly, and exclusively for educational purposes a portion of its
assessed income.
To see how the CTA arrived at its factual findings, we review the process undertaken,
from which it deduced that DLSU successfully proved that it used actually, directly and
exclusively for educational purposes a portion of its rental income.
The CTA reduced DLSU's deficiency income tax and VAT liabilities in view of the
submission of the supplemental evidence, which consisted of statement of receipts, statement
of disbursement and fund balance and statement of fund changes.118
These documents showed that DLSU borrowed P93.86 Million,119 which was used to
build the university's Sports Complex. Based on these pieces of evidence, the CTA
found that DLSU's rental income from its concessionaires were indeed transmitted and
used for the payment of this loan. The CTA held that the degree of preponderance of
evidence was sufficiently met to prove actual, direct and exclusive use for educational
purposes.
The CTA also found that DLSU's rental income from other concessionaires, which were
allegedly deposited to a fund (CF-CPA Account),120 intended for the university's capital
projects, was not proved to have been used actually, directly and exclusively for
educational purposes. The CTA observed that "[DLSU]...failed to fully account for
and substantiate all the disbursements from the [fund]." Thus, the CTA "cannot
ascertain whether rental income from the [other] concessionaires was indeed used for
educational purposes."121
To stress, the CTA's factual findings were based on and supported by the report of the
Independent CPA who reviewed, audited and examined the voluminous documents
submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's functions include: (a)
examination and verification of receipts, invoices, vouchers and other long accounts; (b)
reproduction of, and comparison of such reproduction with, and certification that the
same are faithful copies of original documents, and pre-marking of documentary
exhibits consisting of voluminous documents; (c) preparation of schedules or
summaries containing a chronological listing of the numbers, dates and amounts
covered by receipts or invoices or other relevant documents and the amount(s) of taxes
paid; (d) making findings as to compliance with substantiation requirements
under pertinent tax laws, regulations and jurisprudence; (e) submission of a formal
report with certification of authenticity and veracity of findings and conclusions in the
performance of the audit; (f) testifying on such formal report; and (g) performing such
other functions as the CTA may direct.122
Based on the Independent CPA's report and on its own appreciation of the evidence,
the CTA held that only the portion of the rental income pertaining to the substantiated
disbursements (i.e., proved by receipts, vouchers, etc.) from the CF-CPA Account was
considered as used actually, directly and exclusively for educational purposes.
Consequently, the unaccounted and unsubstantiated disbursements must be subjected
to income tax and VAT.123
The CTA then further reduced DLSU's tax liabilities by cancelling the assessments for
taxable years 2001 and 2002 due to the defective LOA.124
The Court finds that the above fact-finding process undertaken by the CTA shows that
it based its ruling on the evidence on record, which we reiterate, were examined and
verified by the Independent CPA. Thus, we see no persuasive reason to deviate from
these factual findings.
However, while we generally respect the factual findings of the CTA, it does not mean that
we are bound by its conclusions. In the present case, we do not agree with the method used
by the CTA to arrive at DLSU's unsubstantiated rental income (i.e., income not proved
to have been actually, directly and exclusively used for educational purposes).
To recall, the CTA found that DLSU earned a rental income of P10,610,379.00 in taxable
year 2003.125 DLSU earned this income from leasing a portion of its premises to:
1) MTO-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide Food Corp., 5) Capri
International, and 6) MTO Bookstore.126
To prove that its rental income was used for educational purposes, DLSU identified the
transactions where the rental income was expended, viz.: 1) P4,007,724.00127 used to
pay the loan obtained by DLSU to build the Sports Complex; and
2) P6,602,655.00 transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA to prove that the
P6,602,655.00 transferred to the CF-CPA Account was used actually, directly and
exclusively for educational purposes. According to the Independent CPA' findings,
DLSU was able to substantiate disbursements from the CF-CPA Account amounting
to P6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA concluded that out of
the P10,610,379.00 rental income, P4,841,066.65 was unsubstantiated, and thus, subject to
income tax and VAT.129
The CTA then concluded that the ratio of substantiated disbursements to the total
disbursements from the CF-CPA Account for taxable year 2003 is only 26.68%. 130The
CTA held as follows:
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However, as regards petitioner's rental income from Alarey, Inc., Zaide Food Corp.,
Capri International and MTO Bookstore, which were transmitted to the CF-CPA
Account, petitioner again failed to fully account for and substantiate all the
disbursements from the CF-CPA Account; thus failing to prove that the rental income
derived therein were actually, directly and exclusively used for educational purposes.
Likewise, the findings of the Court-Commissioned Independent CPA show that the
disbursements from the CF-CPA Account for fiscal year 2003 amounts to P-
6,259,078.30 only. Hence, this portion of the rental income, being the substantiated
disbursements of the CF-CPA Account, was considered by the Special First Division as
used actually, directly and exclusively for educational purposes. Since for fiscal year
2003, the total disbursements per voucher is P6,259,078.3 (Exhibit "LL-25-C"), and the
total disbursements per subsidiary ledger amounts to P23,463,543.02 (Exhibit "LL-29-
C"), the ratio of substantiated disbursements for fiscal year 2003 is 26.68%
(P6,259,078.30/P23,463,543.02). Thus, the substantiated portion of CF-CPA
Disbursements for fiscal year 2003, arrived at by multiplying the ratio of 26.68% with
the total rent income added to and used in the CF-CPA Account in the amount of
P6,602,655.00 ts P1,761,588.35.131 (emphasis supplied)ChanRoblesVirtualawlibrary
For better understanding, we summarize the CTA's computation as follows:
1. The CTA subtracted the rent income used in the construction of the Sports
Complex (P4,007,724.00) from the rental income (P10,610,379.00) earned
from the abovementioned concessionaries. The difference (P6,602,655.00) was
the portion claimed to have been deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated portion of CF-CPA
disbursements (P1,761,308.37) from the P6,602,655.00 to arrive at the supposed
unsubstantiated portion of the rental income (P4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements (P1,761,308.37)133 was
derived by multiplying the rental income claimed to have been added to the
CF-CPA Account (P6,602,655.00) by 26.68% or the ratio
of substantiated disbursements to total disbursements (P23,463,543.02).
4. The 26.68% ratio134 was the result of dividing the substantiated disbursements
from the CF-CPA Account as found by the Independent CPA (P6,259,078.30)
by the total disbursements (P23,463,543.02) from the same account.
We find that this system of calculation is incorrect and does not truly give effect to the
constitutional grant of tax exemption to non-stock, nonprofit educational institutions.
The CTA's reasoning is flawed because it required DLSU to substantiate an amount that
is greater than the rental income deposited in the CF-CPA Account in 2003.
To reiterate, to be exempt from tax, DLSU has the burden of proving that the proceeds
of its rental income (which amounted to a total of P10.61 million) 135 were used for
educational purposes. This amount was divided into two parts: (a) the P4.01 million,
which was used to pay the loan obtained for the construction of the Sports Complex;
and (b) the P6.60 million,136 which was transferred to the CF-CPA account.
For year 2003, the total disbursement from the CF-CPA account amounted to P23.46
million.137 These figures, read in light of the constitutional exemption, raises the
question: does DLSU claim that the whole total CF-CPA disbursement of P23.46
million is tax-exempt so that it is required to prove that all these disbursements
had been made for educational purposes?
We answer in the negative.
The records show that DLSU never claimed that the total CF-CPA disbursements of
P23.46 million had been for educational purposes and should thus be tax-exempt;
DLSU only claimed P10.61 million for taxexemption and should thus be required to
prove that this amount had been used as claimed.
used for educational purposes should not be prorated as part of its total CF-CPA
disbursements for purposes of crediting to DLSU is also logical because no claim
whatsoever had been made that the totality of the CF-CPA disbursements had been for
educational purposes. No prorating is necessary; to state the obvious, exemption is
based on actual and direct use and this DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be liable only for the difference
between what it claimed and what it has proven. In more concrete terms,
DLSU only had to prove that its rental income for taxable year 2003 (P10,610,379.00)
was used for educational purposes. Hence, while the total disbursements from the CF-
CPA Account amounted to P23,463,543.02, DLSU only had to substantiate its P10.6
million rental income, part of which was the P6,602,655.00 transferred to the CF-CPA
account. Of this latter amount, P6.259 million was substantiated to have been used for
educational purposes.
To summarize, we thus revise the tax base for deficiency income tax and VAT for
taxable year 2003 as follows:
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CTA Decision138 Revised

Of this amount, P4.01 had been proven to have been used for educational purposes, as Rental income 10,610,379.00 10,610,379.00
confirmed by the Independent CPA. The amount in issue is therefore the balance of
P6.60 million which was transferred to the CF-CPA which in turn made disbursements
Less: Rent income used in
of P23.46 million for various general purposes, among them the P6.60 million 4,007,724.00 4,007,724.00
construction of the Sports Complex
transferred by DLSU.

Significantly, the Independent CPA confirmed that the CF-CPA made disbursements
for educational purposes in year 2003 in the amount P6.26 million. Based on these given
figures, the CTA concluded that the expenses for educational purposes that had been Rental income deposited to the CF-
coursed through the CF-CPA should be prorated so that only the portion that P6.26 6,602,655.00 6,602.655.00
CPA Account
million bears to the total CF-CPA disbursements should be credited to DLSU for tax
exemption.

This approach, in our view, is flawed given the constitutional requirement that
revenues actually and directly used for educational purposes should be tax-exempt. As Less: Substantiated portion of CF-
1,761,588.35 6,259,078.30
already mentioned above, DLSU is not claiming that the whole P23.46 million CF-CPA CPA disbursements
disbursement had been used for educational purposes; it only claims that P6.60 million
transferred to CF-CPA had been used for educational purposes. This was what DLSU
needed to prove to have actually and directly used for educational purposes.
Tax base for deficiency income tax
That this fund had been first deposited into a separate fund (the CF-CPA established to 4,841,066.65 343,576.70
and VAT
fund capital projects) lends peculiarity to the facts of this case, but does not detract
from the fact that the deposited funds were DLSU revenue funds that had been
On DLSU's argument that the CTA should have appreciated its evidence in the same
confirmed and proven to have been actually and directly used for educational
way as it did with the evidence submitted by Ateneo in another separate case, the CTA
purposes via the CF-CPA. That the CF-CPA might have had other sources of funding is explained that the issue in the Ateneo case was not the same as the issue in the present
irrelevant because the assessment in the present case pertains only to the rental income case.
which DLSU indisputably earned as revenue in 2003. That the proven CF-CPA funds

The issue in the Ateneo case was whether or not Ateneo could be held liable to pay
income taxes and VAT under certain BIR and Department of Finance issuances 139that
required the educational institution to own and operate the canteens, or other commercial
enterprises within its campus, as condition for tax exemption. The CTA held that the
Constitution does not require the educational institution to own or operate these
commercial establishments to avail of the exemption.140
Given the lack of complete identity of the issues involved, the CTA held that it had to
evaluate the separate sets of evidence differently. The CTA likewise stressed that DLSU
and Ateneo gave distinct defenses and that its wisdom "cannot be equated on its
decision on two different cases with two different issues."141
DLSU disagrees with the CTA and argues that the entire assessment must be cancelled
because it submitted similar, if not stronger sets of evidence, as Ateneo. We reject
DLSU's argument for being non sequitur. Its reliance on the concept of uniformity of
taxation is also incorrect.
First, even granting that Ateneo and DLSU submitted similar evidence, the sufficiency
and materiality of the evidence supporting their respective claims for tax exemption
would necessarily differ because their attendant issues and facts differ.
To state the obvious, the amount of income received by DLSU and by Ateneo during
the taxable years they were assessed varied. The amount of tax assessment also varied.
The amount of income proven to have been used for educational purposes also varied
because the amount substantiated varied.142 Thus, the amount of tax assessment cancelled by
the CTA varied.
On the one hand, the BIR assessed DLSU a total tax deficiency of P17,303,001.12 for
taxable years 2001, 2002 and 2003. On the other hand, the BIR assessed Ateneo a total
deficiency tax of P8,864,042.35 for the same period. Notably, DLSU was assessed
deficiency DST, while Ateneo was not.143
Thus, although both Ateneo and DLSU claimed that they used their rental income
actually, directly and exclusively for educational purposes by submitting similar
evidence, e.g., the testimony of their employees on the use of university revenues, the
report of the Independent CPA, their income summaries, financial statements,
vouchers, etc., the fact remains that DLSU failed to prove that a portion of its income and
revenues had indeed been used for educational purposes.
The CTA significantly found that some documents that could have fully supported DLSU's claim were
not produced in court. Indeed, the Independent CPA testified that some disbursements had
not been proven to have been used actually, directly and exclusively for educational
purposes.144
The final nail on the question of evidence is DLSU's own admission that the original of
these documents had not in fact been produced before the CTA although it claimed that there
was no bad faith on its part.145 To our mind, this admission is a good indicator of how
the Ateneo and the DLSU cases varied, resulting in DLSU's failure to substantiate a
portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the Revised Rules on Evidence,
that the contents of the missing supporting documents were proven by its recital in
some other authentic documents on record,146 can no longer be entertained at this late stage
of the proceeding. The CTA did not rule on this particular claim. The CTA also made
no finding on DLSU's assertion of lack of bad faith. Besides, it is not our duty to go
over these documents to test the truthfulness of their contents, this Court not being a
trier of facts.
Second, DLSU misunderstands the concept of uniformity oftaxation. Equality and
uniformity of taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate.147 A tax is uniform when it operates with the same
force and effect in every place where the subject of it is found. 148 The concept requires
that all subjects of taxation similarly situated should be treated alike and placed in equal
footing.149
In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA treated
them alike because their income proved to have been used actually, directly and
exclusively for educational purposes were exempted from taxes. The CTA equally
applied the requirements in the YMCA case to test if they indeed used their revenues
for educational purposes.
DLSU can only assert that the CTA violated the rule on uniformity if it can show that,
despite proving that it used actually, directly and exclusively for educational purposes its
income and revenues, the CTA still affirmed the imposition of taxes. That the DLSU
secured a different result happened because it failed to fully prove that it used actually,
directly and exclusively for educational purposes its revenues and income.
On this point, we remind DLSU that the rule on uniformity of taxation does not mean
that subjects of taxation similarly situated are treated in literally the same way in all and
every occasion. The fact that the Ateneo and DLSU are both non-stock, non-profit
educational institutions, does not mean that the CTA or this Court would similarly
decide every case for (or against) both universities. Success in tax litigation, like in any
other litigation, depends to a large extent on the sufficiency of evidence. DLSU's
evidence was wanting, thus, the CTA was correct in not fully cancelling its tax liabilities.
b. DLSU proved its payment of the DST
The CTA affirmed DLSU's claim that the DST due on its mortgage and loan
transactions were paid and remitted through its bank's On-Line Electronic DST Imprinting
Machine. The Commissioner argues that DLSU is not allowed to use this method of
payment because an educational institution is excluded from the class of taxpayers who
can use the On-Line Electronic DST Imprinting Machine.
We sustain the findings of the CTA. The Commissioner's argument lacks basis in both
the Tax Code and the relevant revenue regulations.

DST on documents, loan agreements, and papers shall be levied, collected and paid for
by the person making, signing, issuing, accepting, or transferring the same.150 The Tax
Code provides that whenever one party to the document enjoys exemption from DST,
the other party not exempt from DST shall be directly liable for the tax. Thus, it is clear
that DST shall be payable by any party to the document, such that the payment and
compliance by one shall mean the full settlement of the DST due on the document.
In the present case, DLSU entered into mortgage and loan agreements with banks.
These agreements are subject to DST.151 For the purpose of showing that the DST on
the loan agreement has been paid, DLSU presented its agreements bearing the imprint
showing that DST on the document has been paid by the bank, its counterparty. The
imprint should be sufficient proof that DST has been paid. Thus, DLSU cannot be
further assessed for deficiency DST on the said documents.
Finally, it is true that educational institutions are not included in the class of taxpayers
who can pay and remit DST through the On-Line Electronic DST Imprinting Machine under
RR No. 9-2000. As correctly held by the CTA, this is irrelevant because it was not
DLSU who used the On-Line Electronic DST Imprinting Machine but the bank that handled
its mortgage and loan transactions. RR No. 9-2000 expressly includes banks in the class
of taxpayers that can use the On-Line Electronic DST Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU proved the payment of the
assessed DST deficiency, except for the unpaid balance of P13,265.48.152
WHEREFORE, premises considered, we DENY the petition of the Commissioner of
Internal Revenue in G.R. No. 196596 and AFFIRM the December 10, 2010 decision
and March 29, 2011 resolution of the Court of Tax Appeals En Banc in CTA En
Banc Case No. 622, except for the total amount of deficiency tax liabilities of De La Salle
University, Inc., which had been reduced.
We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841
and the petition of the Commissioner of Internal Revenue in G.R. No. 198941 and
thus AFFIRM the June 8, 2011 decision and October 4, 2011 resolution of the Court
of Tax Appeals En Banc in CTA En Banc Case No. 671, with
the MODIFICATIONthat the base for the deficiency income tax and VAT for taxable
year 2003 is P343,576.70.
SO ORDERED.cralawlawlibrary
REVENUE MEMORANDUM CIRCULAR NO. 67-2012 issued on October 31,
2012 circularizes the relevant portions of the Supreme Court Decision in G.R. Nos.
195909 and 195960 dated September 26, 2012, entitled “Commissioner of Internal
Revenue –vs- St. Luke’s Medical Center, Inc.”.
Based on the said Supreme Court Decision, the following provisions are specified in the
Circular:
a. Private non-profit hospitals and educational institutions whose gross income from
unrelated trade, business or other activity does not exceed 50% of their total gross
income derived from all sources shall pay a tax of 10% on their taxable income except
those covered by Section 27(D) of the National Internal Revenue Code (NIRC).
However, the following shall be subject to the tax prescribed under Section 27(A) of the
NIRC or the regular corporate tax rate on their taxable income, except those covered by
Section 27(D) of the NIRC:
i. Private non-profit hospitals and educational institutions whose gross income
from unrelated trade, business or other activity exceeds 50% of their total
gross income derived from all sources, or
ii. Hospitals and educational institutions claiming to be within the coverage of
Section 27[B] of the NIRC that fail to meet the above definition of “proprietary”
and “non-profit”
In all cases, whether their Income Tax rates fall under Section 27[A] or
27[B] of the NIRC, the aforesaid institutions are likewise subject to other applicable
taxes, if warranted.
2. Non-stock, non-profit corporations or associations, which claim to be
charitable institutions, yet, they fail to meet the definition of “charitable” institutions, are
not entitled to Income Tax-exemption under Section 30[E] of the NIRC, as amended,
and their taxable income shall be subject to ordinary 30% corporate rate under Section
27(A) of the NIRC. They are likewise subject to other applicable taxes, if warranted.
3. Non-stock, non-profit corporations or associations, which claim to be
charitable or social welfare but are not organized and operated “exclusively” for
charitable or social welfare purposes are not entitled to the Income Tax-
exemption under Sections 30[E] and [G] of the NIRC, as amended, and their
taxable income shall be subject to ordinary 30% corporate rate under Section
27(A) of the NIRC, as amended. They are likewise subject to other applicable
taxes, if warranted.
4. Activities for profit should not escape the reach of taxation. Being a non-stock
and non-profit corporation does not, by this reason alone, completely exempt
an institution from tax. An institution cannot use its corporate form to prevent
its profitable activities from being taxed.
The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for
charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict interpretation of a provision granting
tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section
30(E) and (G) of the NIRC requires that an institution be “operated exclusively” for
charitable or social welfare purposes to be completely exempt from Income Tax. An
institution under Section 30(E) and (G) does not lose its tax exemption if it earns
income
from its for-profit activities. Such income from for-profit activities, under the last
paragraph of Section 30, is merely subject to Income Tax, previously at the ordinary
corporate rate but now at the preferential 10% rate pursuant to Section 27(B).
St. Luke’s fails to meet the requirements under Section 30[E] and [G] of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit
hospital under Section 27[B] of the NIRC as long as it does not distribute any of its
profits to its members and such profits are reinvested pursuant to its corporate
purposes. St. Luke’s, as a proprietary non-profit hospital, is entitled to the preferential
tax rate of 10% on its net income from its for-profit activities.
All concerned revenue officials and employees are directed to fully implement the
decision of the Supreme Court in G.R. Nos. 195909 and 195960 by ensuring that the
proper taxes are collected from private non-profit hospitals and educational institutions
starting from January 1, 1998.
SEC. 87. Purposes. – Nonstock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal, literary, scientific,
social, civic service, or similar purposes, like trade, industry, agricultural and like
chambers, or any combination thereof, subject to the special provisions of this Title
governing particular classes of nonstock corporations.
REVENUE MEMORANDUM CIRCULAR NO. 35-2012 issued on August 6, 2012
clarifies the taxability of clubs organized and operated exclusively for pleasure,
recreation, and other non- profit purposes.
The income of recreational clubs from whatever source, including but not limited to
membership fees, assessment dues, rental income and service fees are subject to Income
Tax.
Any person regardless of whether or not the person engaged therein is a non-stock,
non- profit private organization or government entity” is liable to pay Value-Added Tax
(VAT) on the sale of goods or services. The gross receipts of recreational clubs
including but not limited to membership fees, assessment dues, rental income, and
service fees are subject to VAT.
Republic Act No. 9178 November 13, 2002
AN ACT TO PROMOTE THE ESTABLISHMENT OF BARANGAY MICRO
BUSINESS ENTERPRISES (BMBEs), PROVIDING INCENTIVES AND
BENEFITS THEREFOR, AND FOR OTHER PURPOSES.
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled.
PRELIMINARY PROVISIONS
Section 1. Short Title – This Act shall be known as the "Barangay Micro Business
Enterprises (BMBE's) Act of 2002."
Section 2. Declaration of Policy – It is hereby declared to be the policy of the State to
hasten the country's economic development by encouraging the formation and growth
of barangay micro business enterprises which effectively serve as seedbeds of Filipino
entrepreneurial talents, and intergranting those in the informal sector with the
mainstream economy, through the rationalization of bureaucratic restrictions, the active
granting of incentives and benefits to generate much-needed employment and alleviate
poverty.
Section 3. Definition of Terms – As used in this Act, the following terms shall mean:
(a) "Barangay Micro Business Enterprise," hereinafter referred to as BMBE, refers to
any business entity or enterprise engaged in the production, processing or
manufacturing of products or commodities, including agro-processing, trading and
services, whose total assets including those arising from loans but exclusive of the land
on which the particular business entity's office, plant and equipment are situated, shall
not be more than Three Million Pesos (P3,000,000.00) The Above definition shall be
subjected to review and upward adjustment by the SMED Council, as mandated under
Republic Act No. 6977, as amended by Republic Act No. 8289.
For the purpose of this Act, "service" shall exclude those rendered by any one, who is
duly licensed government after having passed a government licensure examination, in
connection with the exercise of one's profession.
(b) "Certificate of Authority" is the certificate issued granting the authority to the
registered BMBE to operate and be entitled to the benefits and privileges accorded
thereto.
(c) "Assets" refers to all kinds of properties, real or personal, owned by the BMBE and
used for the conduct of its business as defined by the SMED Council: Provided, That for
the purpose of exemption from taxes and fees under this Act, this term shall mean all
kinds of properties, real or personal, owned and/or used by the BMBE for the conduct
of its business as defined by the SMED Council.
(d) "Registration" refers to the inclusion of BMBE in the BMBE Registry of a city or
municipality.
(e) "Financing" refers to all borrowings of the BMBE from all sources after registration.
REGISTRATION AND OPERATION OF BMBE
Section 4. Registration and Fees - The Office of the Treasurer of each city or municipality
shall register the BMBE's and issue a Certificate of Authority to enable the BMBE to
avail of the benefits under this Act. Any such applications shall be processed within
fifteen (15) working days upon submission of complete documents. Otherwise, the
BMBEs shall be deemed registered. The Municipal or City Mayor may appoint a BMBE
Registration Officer who shall be under the Office of the Treasurer. Local government
units (LGU's) are encouraged to establish a One-Stop-business Registration Center to
handle the efficient registration and processing of permits/licenses of BMBEs.
Likewise, LGUs shall make a periodic evaluation of the BMBE's financial status for
monitoring and reporting purposes.
The LGUs shall issue the Certificate of Authority promptly and free of charge.
However, to defray the administrative costs of registering and monitoring the BMBEs,
the LGUs may charge a fee renewal.
The Certificate of Authority shall be effective for a period of two (2) years, renewable
for a period of two (2) years for every renewal.
As much as possible, BMBEs shall be subject to minimal bureaucratic requirements and
reasonable fees and charges.
Section 5. Who are Eligible to Register – Any person, natural or juridical, or cooperative,
or association, having the qualifications as defined in Section 3(a) hereof may apply for
registration as BMBE.
Section 6. Transfer of Ownership - The BMBE shall report to the city or municipality of
any changer in the status of its ownership structure, and shall surrender the original
copy of the BMBE Certificate of Authority for notation of the transfer.
INCENTIVES AND BENEFITS
Section 7. Exemption from Taxes and Fees – All BMBEs shall be exempt from tax for
income arising from the operations of the enterprise.
The LGUs are encouraged either to reduce the amount of local taxes, fees and charges
imposed or to exempt BMBEs from local taxes, fees and charges.
Section 8. Exemption from the Coverage of the Minimum Wage Law – The BMBEs shall be
exempt from the coverage of the Minimum Wage Law: Provided, That all employees
covered under this Act shall be entitled to the same benefits given to any regular
employee such as social security and healthcare benefits.
Section 9. Credit Delivery – upon the approval of this Act, the land Bank of the
Philippines (LBP), the Development Bank of the Philippines (DBP), the Small Business
Guarantee and Finance Corporation (SBGFC), and the People's Credit and Finance
Corporation (PCFC) shall set up a special credit window that will service the financing
needs of BMBEs registered under this Act consistent with the Banko Sentral ng
Pilipinas (BSP) policies; rules and regulations. The Government Service Insurance
System (GSIS) and Social Security System (SSS) shall likewise set up a special credit
window that will serve the financing needs of their respective members who wish to
establish a BMBE. The concerned financial institutions (FIs) encouraged to wholesale
the funds to accredited private financial institutions including community-based
organizations such as credit, cooperatives, non-government organizations (NGOs) and
people's organizations, which will in turn, directly provide credit support to BMBEs.
All loans from whatever sources granted to BMBEs under this Act shall be considered
as part of alternative compliance to Presidential Decree no, 717,, otherwise known as
the Agri-Agra Law, or to Republic Act. No. 6977, known as the Magna Carta for Small
and Medium Enterprises, as amended. For purposes of compliance with presidential
Decree no. 717 and Republic Act No. 6977, as amended, loans granted to BMBEs
under this Act shall be computed at twice the amount of the face value of the loans.
To minimize the risks in lending to the BMBEs, the SBGFC and the Quedan and Rural
Credit Guarantee Corporation (QUEDANCOR) under the Department of Agriculture,
in case of agribusiness activities, shall set up a special guarantee window to provide the
necessary credit guarantee to BMBEs unde rtheir respective guarantee programs.
The LBP, DBP. PCFC, SBGFC, SSS, GSIS, and QUEDANCOR shall annually report
to the appropriate Committee of Both Houses of Congress on the status of the
implementation of this provision.
The BSP shall formulate the rules for the implementation of this provision and shall
likewise establish incentive programs to encourage and improve credit delivery to the
BMBEs.
Section 10. Technology Transfer, Production and Management Training, and marketing Assistance
– A BMBE Development Fund shall be set up with an endowment of Three Hundred
Million pesos (P300,000,000.00) from the Philippine Amusement and Gaming
Corporation (PAGCOR) and shall be administered by the SMED Council.
The Department of Trade and Industry (DTI), the Department of Science and
Technology (DOST), the university of the Philippines Institute for Small Scale
Industries (UP ISSI), Cooperative Development Authority (CDA), Technical Education
and Skills Development Authority (TESDA), and Technology and Livelihood Resource
Center (TLRC) may avail of the said Fund for technology transfer, production and
management training and marketing assistance to BMBEs.
The DTI, in coordination with the private sector and non-government organization
(NGOs), shall explore the possibilities of linking or matching-up BMBEs with small,
medium and large enterprises and likewise establish incentives therefor.
The DTI, in behalf of the DOST, UP ISSI, CDA. TESDA and TLRC shall be required
to furnish the appropriate Committees of both Houses of Congress a yearly report on
the development and accomplishments of their projects and programs in relation to
technology transfer, production and management training and marketing assistance
extended to BMBEs.
Section 11. Trade and Investment Promotions – The data gathered from business registration
shall be made accessible to and shall be utilized by private sector organizations and non-
government organizations for purposes of business matching, trade and investment
promotion.
INFORMATION DISSEMINATION
Section 12. Information Dissemination - The Philippine Information Agency (PIA), in
accordance with the Department of Labor and Employment (DOLE), the DILG and
the DTI, shall ensure the proper and adequate information dissemination of the
contents and benefits of this Act to the general public especially to its intended
beneficiaries specifically in the barangay level.
PENALTY
Section 13. Penalty - Any person who shall willfully violates any provision of this Act or
who shall in any manner commit any act to defeat any provisions of this Act shall, upon
conviction, be punished by a fine of not less than twenty-five Thousand Pesos
(P25,000.00) but not more than Fifty Thousand Pesos (P50,000.00) and suffer
imprisonment of not less than six (6) months but not more than two (2) years.
In case of non-compliance with the provisions of Section 9 of this Act, the BSP shall
impose administrative sanctions and other penalties on the concerned government
financial institutions, including a fine of not less than Five Hundred Thousand Pesos
(P500,000.00)
MISCELLANEOUS PROVISIONS
Section 14. Annual Report – The DILG, DTI, and BSP shall submit an annual report to
the Congress on the status of the implementation of this Act.
Section 15. Implementing Rules and Regulations – The Secretary of the Department of
Trade and Industry, in consultation with the Secretaries of the DILG, DOF, and the
BSP Governor shall formulate the necessary ruled and regulations to implement the
provisions of this Act within ninety (90) days after its approval. The rules and
regulations issued pursuant to this section shall take effect fifteen (15) days after its
publication in a newspaper of general circulation.
Section 16. Separably Clause - If any provision or part hereof, is held invalid or
unconstitutional, the remainder of the law or the provision not otherwise affected shall
remain valid and subsisting.
Section 17. Repealing Clause – Existing laws, presidential decrees, executive orders,
proclamations or administrative regulations that are inconsistent with the provisions of
this Act are hereby amended, modified, superseded or repealed accordingly.
Section 18. Effectivity – This Act shall take effect fifteen (15) days after its publication in
the Office Gazette or in at least two (2) newspaper of general circulation.
REPUBLIC ACT NO. 9593
AN ACT DECLARING A NATIONAL POLICY FOR TOURISM AS AN
ENGINE OF INVESTMENT, EMPLOYMENT, GROWTH AND
NATIONAL DEVELOPMENT, AND STRENGTHENING THE
DEPARTMENT OF TOUMSM AND ITS ATTACHED AGENCIES TO
EFFECTIVELY EFFICIENTLY IMPLEMENT THAT POLICY, AND
APPROPRIATING FUNDS THEREFOR
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Short Title. - This Act shall be known as "The Tourism Act of 2009".
Section 2. Declaration of Policy. - The State declares tourism as an indispensable element
of the national economy and an industry of national interest and importance, which
must be harnessed as an engine of socioeconomic growth and cultural affirmation to
generate investment, foreign exchange and employment, and to continue to mold an
enhanced sense of national pride for all Filipinos.
Towards this end, the State shall seek to:
(a) Ensure the development of Philippine tourism that is for and by the Filipino people,
conserve and promote their heritage, national identity and sense of unity;
(b) Recognize sustainable tourism development as integral to the national
socioeconomic development efforts to improve the quality of life of the Filipino people,
providing the appropriate attention and support for the growth of this industry;
(c) Promote a tourism industry that is ecologically sustainable, responsible, participative,
culturally sensitive, economically viable, and ethically and socially equitable for local
communities;
(d) Create a favorable image of the Philippines within the international community,
thereby strengthening the country’s attraction as a tourism destination and eventually
paving the way for other benefits that may result from a positive global view of the
country;
(e) Develop the country as a prime tourist hub in Asia, as well as a center of world
congresses and conventions, by promoting sustainable tourism anchored principally on
the country’s history, culture and natural endowments, and ensuring the protection,
preservation and promotion of these resources; and
(f) Encourage private sector participation and agri - tourism for countryside
development and preservation of rural life.
Section 3. Objectives. - Pursuant to the above declaration, the State shall adopt the
following objectives:
(a) Develop a national tourism action plan and work for its adoption and
implementation by national and local governments;
(b) Encourage activities and programs which promote tourism awareness, preserve the
country’s diverse cultures and heritage, and instill a sense of history and a culture of
tourism among the youth and the populace;
(c) All things being equal, grant preferential treatment to the employment of Filipino
nationals in tourism - related enterprises;
(d) Provide full government assistance by way of competitive investment incentives,
long - term development fund and other financing schemes extended to tourism -
related investments;
(e) Ensure that tourism development protects and promotes the general well - being of
the Filipino people, particularly in the area of investment, to include the monitoring and
prevention of any act of profiteering or speculation to the detriment of local residents,
as well as the exploitation of women and children in tourism;
(f) Encourage competition in the tourism industry and maximize consumer choice by
enhancing the continued viability of the retail travel industry and independent tour
operation industry;
(g) Enhance the collection, analysis and dissemination of data which accurately measure
the economic and social impact of tourism in the country to facilitate planning in the
public and private sectors;
(h) Ensure the right of the people to a balanced and healthful ecology through the
promotion of activities geared towards environmental protection, conservation and
restoration;
(i) Develop responsible tourism as a strategy for environmentally sound and community
participatory tourism programs, enlisting the participation of local communities,
including indigenous peoples, in conserving bio - physical and cultural diversity,
promoting environmental understanding and education, providing assistance in the
determination of ecotourism sites and ensuring full enjoyment of the benefits of
tourism by the concerned communities;
(j) Strengthen the role of tourism councils and encourage the participation of
nongovernment organizations (NGOs), people’s organizations (NGOs) and the private
sector in initiating programs for tourism development and environmental protection;
(k) Promote the progressive development of existing civil aviation, land and sea
transportation policies as they relate to tourism, in consonance with existing bilateral
agreements and inter - agency pronouncements;
(l)Promote and ensure the convention - handling capability of the country as a world -
class convention center;
(m) Achieve a balance in tourism development between urban and rural areas in order
to spread the benefits of tourism and contribute to poverty alleviation, better access to
infrastructure and to a reduction in regional imbalances;
(n) Enhance capability - building of local government units (LGUs), in partnership with
the private sector, in the management of local tourism projects and initiatives, thereby
ensuring accessible and affordable destinations throughout the country, especially in
areas which have shown strong comparative advantage;
(o) Maintain international standards of excellence in all tourism facilities and services,
and promote the country as a safe and wholesome tourist destination;
(p) Enhance international business relations for the support of tourism projects of the
private sector, through5 partnerships, joint ventures and other cooperative undertakings
involving local and foreign investors;
(q) Support the establishment of tourism enterprise zones (TEZs), which will provide
the necessary vehicle to coordinate actions of the public and private sectors to address
development barriers, attract and focus investment on specific geographic areas and
upgrade product and service quality; and
(r) Ensure a sustainable funding mechanism for the implementation of tourism policies,
plans, programs, projects and activities.
Section 4. Definition of Terms. - The following terms, as used in this Act, are defined as
follows:
(a) "Department" refers to the Department of Tourism created pursuant to Presidential
Decree No. 189 (1973), as amended.
(b) "Secretary" refers to the Secretary of Tourism.
(c) "Duty Free Philippines (DFP)" refers to the government agency created pursuant to
Executive Order No. 46 (1986).
(d) "Duty Free Philippines Corporation (DFPC)’’ refers to the corporate entity created
out of DFP pursuant to this Act.
(e) "Philippine Conventions and Visitors Corporation (PCVC)" refers to the corporate
entity created pursuant to Presidential Decree No. 867, as amended.
(f) "Intramuros Administration (IA)" refers to the government agency created pursuant
to Presidential Decree No. 1616 (1979), as amended.
(g) "Philippine Retirement Authority (F’RA)’’ refers to the government agency created
pursuant to Executive Order No. 1037 (1985).6
(h) "Tourism Infrastructure and Enterprise Zone Authority (TIEZA)" refers to the
government agency created pursuant to this Act.
(i) "Tourism Enterprise Zone (TEZ)" refers to tourism
(i) "TEZ overseer" refers to any person who shall be appointed by the TIEZA in
specific zones to perform such functions as may be delegated by the TIEZA in
accordance with law. enterprise zones created pursuant to this Act.
(k) "TEZ operator" refers to an entity duly incorporated under Batas Pambansa Blg. 68,
otherwise known as The Corporation Code of the Philippines, and other relevant laws,
whose capital may be provided by LGUs and/or private entities, and which shall
administer and supervise each TEZ.
(l) "TEZ Administrator" refers to the person appointed by the Board of Directors of a
TEZ operator who shall be responsible for implementing the policies, plans and
projects of the TEZ operator.
(m) "Registered enterprise" refers to au enterprise located within a TEZ that is duly -
registered with the TIEZA.
(n) "Philippine Tourism Authority (PTA)" refers to the existing implementation arm of
the Department of Tourism created pursuant to Presidential Decree No. 189 (1973), as
amended.
(o) "Tourism Promotions Board (TPB)" refers to the body corporate created under this
Act.
(p) "Tourism enterprises" refers to facilities, services and attractions involved in
tourism, such as, but not limited to: travel and tour services; tourist transport services,
whether for land, sea or air transportation; tour guides; adventure sports services
involving such sports as mountaineering, spelunking, scuba diving and other sports
activities of significant tourism potential; convention organizers; accommodation
establishments, including, but not limited to, 7 hotels, resorts, apartelles, tourist inns,
motels, pension houses and home stay operators: tourisnl estate management services,
restaurants, shops and department stores, sports and recreational centers, spas,
museums and galleries, theme parks, convention centers and zoos.
(q) "Primary tourism enterprises" refers to travel and tour services; land, sea and air
transport services exclusively for tourist use; accommodation establishments;
convention and exhibition organizers; tourism estate management services; and such
other enterprises as may be identified by the Secretary, after due consultation with
concerned sectors.
(r) "Secondary tourism enterprises" refers to all other tourism enterprises not covered
by the preceding subsection.
(s) "Greenfield Tourism Zone" refers to a new or pioneer development, as determined
by the TIEZA.
(t) "Brownfield Tourism Zone" refers to an area with existing infrastructure or
development as determined by the TIEZA.
(u) "Foreign visitors" refers to all passengers using foreign passports. I
(v) "Sustainable tourism development" refers to the management of all resources that
meets the needs of tourists and host regions while protecting the opportunities for the
future, in such a way that economic, social and aesthetic needs can be fulfilled while
maintaining cultural integrity, essential ecological processes, biological diversity and life
support systems.
CHAPTER II
TOURISM GOVERNANCE
SUBCHAPTER 11 - A. STRUCTURE OF THE DFJ’ARTMENT
Section 5. Mandate. - The Department of Tourism, hereinafter referred to as the
Department, shall be the primary planning, programming, coordinating, implementing
and I8 regulatory government agency in the development and promotion of the tourism
industry, both domestic and international, in coordination with attached agencies and
other government instrumentalities. It shall instill in the Filipino the industry’s
fundamental importance in the generation of employment, investment and foreign
exchange.
Section 6. Powers and Functions. - The Department shall have the following powers and
functions:
(a) Formulate tourism policies, plans and projects for the development of tourism as an
engine of socioeconomic and cultural growth;
(b) Supervise and coordinate the implementation of tourism policies, plans and projects;
(c) Call upon all agencies of government to properly carry out their programs in relation
to and in coordination with the policies, plans and projects of the Department and to
assist in the implementation thereof;
(d) Communicate to the President, and the heads of departments, agencies and
instrumentalities of the government, the impact upon tourism and the economy of
proposed governmental actions;
(e) Provide an integrated market development program to attract people to visit the
Philippines and enhance the prestige of the country and the Filipino people in the
international community;
(f) Represent the government in all domestic and international conferences and fora,
and in all multilateral or bilateral treaties and international agreements concerning
tourism, and ensure the government’s implementation thereof and compliance with all
obligations arising therefrom;
(g) Request the President for representation in all government agencies, offices, boards,
commissions and committees that may affect tourism;
(h)Call upon relevant government departments, agencies and offices, in consultation
with the private sector, to provide access to travel, to facilitate the process of obtaining
and extending visas, to integrate and simplify travel regulations and immigration
procedures and to ensure their efficient, fair and courteous enforcement to assure
expeditious and hospitable reception of all visitors;
(i) Support, advance and promote the protection, maintenance and preservation of
historical, cultural and natural endowments, in cooperation with appropriate
government agencies and the private sector, and take appropriate measures against acts
and omissions contrary to these objectives;
(j) Monitor conditions of any community in the Philippines and, in consultation with
the LGUs and law enforcers, issue timely advisories on the safety or viability of travel to
particular places within the Philippines and on patronage of entities engaged in tourism
- related activities and of tourism products;
(k) Evaluate tourism development projects for the issuance of permits and the grant of
incentives by appropriate government agencies, establish a databank of tourism areas
and projects for investment purposes, and encourage private sector investment and
participation in tourism activities and projects;
(I) Formulate and promulgate, in consultation with the LGUs, the private sector
industries and other tourism stakeholders, rules and regulations governing the operation
and activities of all tourism enterprises including, but not limited to, a national standard
for licensing, accreditation and classification of tourism enterprises, prescribing therein
minimum levels of operating quality and efficiency for their operation in accordance
with recognized international standards, impose reasonable penalties for violation of
accreditation policies and recommend to the LGUs concerned the suspension or
prohibition of operation of a tourism enterprise;
(m) Monitor the LGUs’ compliance to national standards in the licensing of tourism
enterprises, receive and investigate10 complaints concerning these enterprises, and act
on such complaints to properly implement the provisions of this Act;
(n) Ensure the proper coordination, integration, prioritization and implementation of
local tourism development plans with that of the national government:
(o) Provide technical assistance to LGUs in destination development, standard setting
and regulatory enforcement;
(p) Undertake continuing research studies and survey to analyze economic conditions
and trends relating to tourism and travel, and compile and integrate a statistical databank
on the tourism industry;
(q) Delegate to regional offices, in coordination with LGUs, specific powers and
functions in the implementation of tourism policies, plans and projects;
(r) Collect necessary fees and charges for the proper implementation of tourism policies,
plans and projects; and
(s) Exercise such other powers and functions as are
Section 7. Structure of the Department. - The Department shall consist of the Department
Proper, Department offices, services and unit, and the regional and foreign offices.
Section 8. Department Proper. - The Department Proper shall consist of the Offices of
the Secretary, Undersecretaries and Assistant Secretaries. necessary for the
implementation of this Act.
Section 9. Office of the Secretary. - The Office of the Secretary shall consist of the
Secretary and his or her immediate staff.
Section 10. Undersecretaries and Assistant Secretaries. - The Secretary shall be assisted by at
least three (3) Undersecretaries, namely:
(a) Undersecretary for Tourism Development, who shall be responsible for the Office
of Product Development, the Office of Tourism Development Planning, Research and
Information Management and the Office of Industry Manpower Development;
(b) Undersecretary for Tourism Regulation, Coordination and Resource Generation,
who shall be responsible for the Office of Tourism Standards and Regulations, the
Office of Tourism Coordination, the Office of Tourism Resource Generation and all
regional and foreign offices; and
(c) Undersecretary for Special Concerns and Administration, who shall be responsible
for the Office of Special Concerns, the Financial and Management Service,
Administrative Affairs Service, Legal Affairs Service, Internal Audit Service and
Legislative Liaison Unit.
Each Undersecretary shall he assisted by an Assistant Secretary.
Section 11. Office of Product Development. - The Office of Product Development shall have
the following functions:
(a) Conceptualize and develop new products which will enhance tourism sites and
facilities;
(b) Undertake tests on the viability and acceptability of new tourism - related products
and programs: and
(c) Encourage and promote joint undertakings with the private sector for the
development of new tourism - related products and programs.
Section 12. Office of Tourism Development Planning, Research and Information Management. -
The Office of Tourism Development Planning, Research and Information Management
shall have the following functions:
(a) Prepare a National Tourism Development Plan identifying geographic areas with
potential tourism value and outlining approaches to developing such areas;
(b) Formulate policies and programs for global competitiveness and national tourism
development, and approve local government tourism development plans;
(c) Monitor and evaluate the implementation of policies, plans and programs of the
Department;
(d) Formulate an integrated marketing and promotions plan, identifying strategic market
areas and niches;
(e) Formulate, in coordination with the TIEZA, other government agencies and LGUs
exercising political jurisdiction over the area, development plans for TEZs and
integrating such plans with other sector plans for the area;
(f) Conduct researches and studies, disseminate all relevant data on tourism, monitor
and analyze the socioeconomic impact of tourism upon affected local communities and
the nation to maximize the benefits of tourism throughout affected local communities
and to avoid or mitigate possible negative impacts of the industry;
(g) Provide technical assistance to the LGUs and the TIEZA in the preparation of local
tourism development plans to ensure adherence to national policies and programs;
(h) Coordinate with government agencies, LGUs, NGOs and other private entities for
the development and implementation of the national tourism plans and policies and
other relevant concerns;
(i) Source grants or loans from local and foreign funding institutions to implement
tourism policies, plans and projects;
(i) Create and supervise management information systems for the entire Department;
(k) Formulate and coordinate the implementation of the Department’s information
system strategic plan; and
(l) Pursue the Department’s interests in multilateral, international and regional tourism
cooperation, agreements and treaties.
Section 13. Office of Industry Manpower Development. - The Office of Industry Manpower
Development shall have the following functions:
(a) Conduct seminars on Philippine history, culture, environment and related subjects, in
coordination with appropriate government agencies and the private sector, specifically
educational institutions;
(b) Develop training modules and conduct seminars and continuing education programs
for the industry manpower, in coordination with appropriate government agencies and
tourism enterprises and associations, thereby upgrading their quality, competence and
excellence in tourism services:
(c) Encourage the development of training courses and apprenticeship programs for
tourist guides and other similar workers jointly with concerned tourism enterprises,
appropriate government agencies and the private sector; and
(d) Enlist the participation of experts for the provision of technical assistance, training
and education programs to LGUs, tourism enterprises and other entities to improve the
quality of tourism services and issue certifications to the effect that these recipients of
assistance, training and education have passed the standards set by the said experts, in
accordance with this Act.
Section 14. Office of Tourism Standards and Regulations. - Recognizing the need for
internationally competitive standards of facilities and services, the Office of Tourism
Standards and Regulations shall have the following functions:
(a) Formulate and enforce standards for the operation and maintenance of tourism
enterprises, prescribing minimum and progressive levels of operating quality and
efficiency consistent with local and international standards;
(b) Coordinate with relevant tourism enterprise associations, including adventure sports
associations, in the formulation of rules and regulations, accreditation and enforcement;
(c) Develop and enforce a comprehensive system of mandatory accreditation for
primary tourism enterprises, and voluntary accreditation for secondary tourism
enterprises, in accordance with prescribed guidelines and standards;
(d) Establish a system of registration, information, linkage and mutual assistance among
accredited tourism enterprises to enhance the value of accreditation and improve the
quality of service rendered by such enterprises; and
(e) Evaluate tourism projects in accordance with standards and endorse the same to
appropriate government agencies for availment of incentives, and provide technical
assistance to incentive - giving institutions in the formulation of tourism incentives and
the administration of their functions.
Section 15. Office of Tourism Coordination. - Recognizing that increased linkages are
necessary between various government offices and the private sector and among the
various entities in the private sector itself to properly implement tourism policy, the
Office of Tourism Coordination shall have the following functions:
(a) Maintain close coordination with national government agencies, LGUs, NGOs and
other private entities for the development and implementation of national tourism plans
and policies;
(b) Call upon the assistance and support of any or all of the government agencies in the
implementation of the policies of the Department; and
(c) Support the private sector in all tourism activities
Section 16. Office of Tourism Resource Generation. - In line with the objective of ensuring a
sustainable funding mechanism for the implementation of tourism policies, plans,
programs, projects and activities, the Office of Tourism Resource Generation shall be
tasked with the collection of necessary fees and charges which shall be used by the
Department in the promotion and marketing efforts of the requiring governmental
coordination. TPB and the development of infrastructure facilities, utilities and services
of the TIEZA. The proceeds of such collection shall accrue directly and automatically to
the Department. The guidelines for the collection and disbursement of these proceeds
shall be defined in the implementing rules and regulations of this Act.
There is hereby created a special fund, to be disbursed and administered by the
Department, called the Tourism Development Fund, which shall be used for the
development, promotion and marketing of tourism and other projects of the
Department that will boost tourism in the country. The fund shall be sourced from the
fees and charges which will be collected by the Department. A special account shall be
established for this fund in the National Treasury. Disbursements made from the fund
shall be subject to the usual accounting and budgeting rules and regulations.
Section 17. Regional Offices. - The Department shall establish, operate and maintain a
regional office in each administrative region in the country. A regional office, headed by
a regional director, shall have the following functions:
(a) Implement laws, policies, plans, programs, rules and regulations of the Department,
particularly those relating to compliance therewith, and to the accreditation of tourism
enterprises promulgated by the Department;
(b) Coordinate with regional offices of other departments, bureaus and agencies, LGUs,
NGOs and the regional offices of the Department's attached agencies in the
implementation of such laws, policies, plans, programs and rules and regulations;
(c) Undertake research and data gathering on local tourism trends and other relevant
tourism information;
(d) Together with LGUs, establish such tourist information and assistance centers at
strategic locations as are necessary to disseminate relevant information pertaining to the
tourist locations and products and to assist tourists and tourism enterprises;
(e) Conduct trainings and information campaigns, and assist the TPB in domestic
promotions in the pertinent region on subject matters such as this Act, the functions of
the Department, tourism traffic and new tourism sites, among others; and
(f)Make recommendations to the Secretary on all matters relating to tourism in the
region.
Section 18. Foreign Offices. - The creation, operation and supervision of foreign field
offices of the Department shall be retained therein.
Section 19. Office of Special Concerns. - The Office of Special Concerns shall be
responsible in effectively coordinating and monitoring the various directives,
pronouncements and issuances of the President pertaining to the priorities of the
government and the Department.
Section 20. Financial and Management Service. - The Financial and Management Service
shall provide the Department with staff advice and assistance on budgetary, financial
and management matters and shall perform such other related functions as may be
assigned or delegated to it by the Secretary.
Section 21. Administrative Affairs Service. - The Administrative Affairs Service shall
provide the Department with staff advice and assistance on personnel information,
records, communications, supplies, equipment, collection, disbursements, security, other
custodial work and such other related duties and responsibilities as may be assigned or
delegated to it by the Secretary.
Section 22. Legal Affairs Service. - The Legal Affairs Service shall provide the
Department with staff advice and assistance on all legal matters affecting the
Department and perform such other related functions as may be assigned or delegated
to it by the Secretary.
Section 23. Internal Audit Service. - The Internal Audit Service shall be responsible for
instituting and conducting an audit program for the Department to ensure compliance
with17 existing rules and regulations for an efficient and effective fiscal administration
and performance of department affairs.
Section 24. Legislative Liaison Unit. - The Legislative Liaison Unit shall establish and
maintain regular coordination and liaison with Congress, monitor the passage of
legislative measures that are in the Department’s agenda, provide relevant information
and technical support to Members of Congress, and perform such other related
functions as may be assigned or delegated by the Secretary.
SUBCHAPTER 11 - B. RATIONALIZATION OF FUNCTIONS
Section 25. Reorganization of Offices. - The Philippine Tourism Authority is hereby
reorganized as the Tourism Infrastructure and Enterprise Zone Authority, as hereinafter
provided. The Philippine Conventions and Visitors Corporation is hereby reorganized
as the Tourism Promotions Board, as hereinafter provided. The Bureaus for Domestic
and International Tourism Promotions, and the Office of Tourism Information of the
Department are hereby absorbed into the Tourism Promotions Board.
Section 26. Human Resources. - Where certain functions are declared redundant on
account of the reorganization, the Department, the TIEZA Board and the Tourism
Board shall provide for the reassignment, insofar as practicable, of affected employees
to similar positions within the Department and its attached agencies, taking into
consideration their skills and experience, without loss of seniority or other rights and
privileges. In any case, all relevant laws, decrees, executive orders, rules and regulations
concerning the rights of government employees in the reorganization of an office shall
be respected.
Section 27. Optional Retirement and Compensation. - There shall be no mandatory
separation of any employee as a result of the reorganization of the Department and its
attached agencies and corporations. However, if any employee elects to leave the service
or retire, said employee shall be entitled to claim separation or retirement benefits as
may be provided18 under existing laws governing the civil service or other laws and
issuances, whichever may be beneficial to the employee concerned.
SUBCHAPTER 11 - C. ATTACHED AGENCIES AND CORPORATIONS
Section 28. Attached Agencies and Corporations. - The TPB, the TIEZA and the DFPC
shall be attached to the Department and shall be under the supervision of the Secretary
for program and policy coordination. Furthermore, the following agencies and
corporations shall be attached to the Department under the supervision of the Secretary
for program and policy coordination: the IA; the National Parks Development
Committee (NPDC), created under Executive Order No. 30 (1963); the Nayong
Pilipino Foundation (NPF), created under Presidential Decree No. 37 (1972), as
amended; the PRA; and the Philippine Commission on Sports Scuba Diving (PCSSD).
Except as hereinafter provided, each of the attached agencies and corporations shall
continue to operate under their respective charters.
Section 29. Intramuros Administration, National Parks Development Committee and Nayong
Pilipino Foundation. - The Intramuros Administration, the National Parks Development
Committee and the Nayong Pilipino Foundation shall continue to be attached to the
Department and operate under their respective charters. They may be authorized to
operate TEZs, under the supervision of the TIEZA, as provided under Chapters IV and
V of this Act, within their respective jurisdictions: Provided, That any restoration activity
undertaken by the IA, the NPDC or the NPF may be entitled to a tax deduction
equivalent to the full cost of the restoration activity directly incurred in accordance with
the provisions of the National Internal Revenue Code, as amended.
Section 30. Philippine Retirement Authority. - For purposes of policy and program
coordination, the Philippine Retirement Authority is hereby attached to the Department
and placed under the supervision of the Secretary. The Secretary shall be the ex officio
Chairperson of its Board of Trustees: Provided, That this provision shall apply after the
expiration of the term of office of the incumbent Chairperson.
Section 31. Philippine Commission on Sports Scuba Diving. - The Philippine Commission on
Sports Scuba Diving shall likewise be attached to the Department and placed under the
supervision of the Secretary, who shall be the ex officio Chairperson of its Board of
Trustees. It shall undertake measures to provide the standard basic dive rules to all
levels or kinds of divers, regulate scuba sports and technical diving in the country and
ensure the safety of the sport through the formulation of policies pursuant thereto, in
coordination with the Office of Tourism Standards and Regulations, including the
regulation of the accredited scuba sports and technical diving establishments.
SUBCHAPTER 11 - D. CONTROL AND SUPERVISION OF AREAS WITH
OVERLAPPING JURISDICTIONS
Section 32. Rationalization of Tourism Areas, Zones and Spots. - Any other area specifically
defined as a tourism area, zone or spot under any special or general law, decree or
presidential issuance shall, as far as practicable, be organized into a TEZ under the
provisions of this Act. With respect to tourism zones, areas or spots not organized into
TEZs, the Department, through appropriate arrangements, may transfer control over
the same or portions thereof, to another agency or office of the government, or to a
LGU. This shall only be effected upon the submission by the latter, within a reasonable
time, of comprehensive development plans for the use, preservation and promotion of
these zones, areas or spots and upon the approval thereof by the Department. Such
transfer shall not have the effect of diminishing the jurisdiction of the Department over
these zones, areas or spots.
The Department shall exercise supervisory powers over such agency, office or LGU in
accordance with the terms of the transfer or the development plan of the zone, area or
spot. Where a government agency or office or a LGU fails to implement the
comprehensive plan approved by the Department, the Department may rescind the
arrangement transferring control over the tourism zone, area or spot and regain such
control thereof.
Section 33. National Integrated Protected Areas System (NIPAS) and the National Ecotourism
Policy. - The Department, in coordination with the Department of Environment and
Natural Resources (DENR), shall identify areas covered by the NIPAS with ecotourism
potentials and cultural heritage value, and prepare policies, plans and programs for their
development, preservation, operation or conversion into TEZs. The designation of
these areas as TEZs shall be subject to the provisions of Subchapter IV - A of this Act.
The ecotourism sites in the National Ecotourism Strategy pursuant to Executive Order
No. 111 (1999) may also be developed into TEZs with the National Ecotourism
Steering Committee responsible for finding the appropriate TEZ operator for the sites.
Section 34. Tourism Infrastructure Program. - The Department, in accordance with the
National Tourism Development Plan and local government initiatives, shall coordinate
with the Department of Public Works and Highways (DPWH) and the Department of
Transportation and Communications (DOTC) in the establishment of a tourism
infrastructure program in the respective work programs of said agencies, identifying
therein vital access roads, airports, seaports and other infrastructure requirement in
identified tourism areas. The said agencies and the Department of Budget and
Management (DBM) shall accord priority status to the funding of this tourism
infrastructure program.
SUBCHAPTER 11 - E. SHARED RESPONSIBILITIES OF NATIONAL AND
LOCAL GOVERNMENTS
Section 35. Coordination Between National and Local Governments. - In view of the urgent
need to develop a national strategy for tourism development while giving due regard to
the principle of local autonomy, the Department, the Department of the Interior and
Local Government (DILG) and LGUs shall integrate and coordinate local and national
plans for tourism development. The Department may provide financial and technical
assistance, training and other capacity - building measures to LGUs for the preparation,
implementation and21 monitoring of their tourism development plans, gathering of
statistical data, and enforcement of tourism laws and regulations, giving due priority to
areas that have been identified as strategic in the implementation of the national tourism
development plan. LGUs shall ensure the implementation of such plans. The
Department, the TPB and the TIEZA shall prioritize promotion and development
assistance for LGUs which successfully adopt and implement their tourism
development plans.
Section 36. National Tourism Development Planning. - The Department, in coordination
with its attached agencies, LGUs and the private sector, shall continuously update the
existing national tourism development plan in view of evolving needs and capabilities of
LGUs and the domestic and global tourism market.
Section 37. Local Tourism Development Planning. - LGUs, in consultation with
stakeholders, are encouraged to utilize their powers under Republic Act No. 7160,
otherwise known as the Local Government Code of 1991, to ensure the preparation and
implementation of a tourism development plan, the enforcement of standards and the
collection of statistical data for tourism purposes. They shall, insofar as practicable,
prepare local tourism development plans that integrate zoning, land use, infrastructure
development, .the national system of standards for tourism enterprises, heritage and
environmental protection imperatives in a manner that encourages sustainable tourism
development.
Section 38. Reports. - In order to monitor the resources of the Department and to
ascertain the economic and social impact of tourism, all LGUs shall provide an
inventory of all the resources available to the Department for use in the implementation
of this Act. They shall likewise periodically report to the Department on the status of
tourism plans and programs, tourist arrivals and tourism enterprises, among others,
within their jurisdictions.
Section 39. Accreditation. - In order to encourage global competitiveness, strengthen data
gathering and research on tourism, and facilitate the promotion of individual enterprises
and the industry as a whole, the Department shall prescribe22 and regulate standards for
the operation of the tourism industry. Primary tourism enterprises shall be periodically
required to obtain accreditation from the Department as to the quality of their facilities
and standard of services. Accreditation shall be voluntary for secondary tourism
enterprises.
The Department shall evolve a system of standards for the accreditation of these
enterprises in accordance with the relevant tourism development plan. These standards
shall adhere, insofar as practicable, to those recognized internationally. The Department
and LGLJs shall ensure strict compliance of tourism enterprises with these standards.
The Department, through the Office of Tourism Standards and Regulations, shall act
on complaints regarding accredited tourism enterprises, and after notice and hearing,
may impose fines, or downgrade, suspend or revoke accreditation, for violation of the
terms thereof. The Department shall likewise have the power and the duty to issue
tourism advisories pertaining to tourism enterprises found to have violated the terms of
their accreditation. A tourism advisory shall contain the following:
(a) Complete identification of the pertinent tourism enterprise:
(b) Location of this entity;
(c) Its registered owner or proprietor and the business address thereof; and
(d) The specific term or terms of accreditation violated:
(e) The statement that the advisory shall only be lifted upon continued compliance of
the enterprise with the terms of accreditation.
Tourism enterprises registered with the TIEZA in accordance with the pertinent
provisions below and availing of the incentives under this Act shall further be ordered
to pay back taxes in the amount equivalent to the difference23 between the taxes that
they should have paid had they not availed of the incentives under this Act and the
actual amount of taxes being paid by them under the same incentive scheme. The back
taxes to be collected shall be computed up to three (3) years directly preceding the date
of promulgation of the decision or order finding that the tourism enterprise violated the
terms of its accreditation. For this purpose, the Department shall enlist the assistance of
the Bureau of Internal Revenue in arriving at an accurate computation of back taxes to
be paid by the pertinent tourism enterprise. The proceeds of these back taxes shall be
distributed as follows:
(a) One - third to the national government;
(b) One - third to the LGUs concerned, to be shared by them equally should there be
more than one such LGU and
(c) One - third to the TIEZA.
Nothing in this section shall diminish the powers of the LGUs under the Local
Government Code, pertaining to the issuance of business permits, licenses and the like.
When an enterprise fails to obtain or loses accreditation, the Department shall not,$ the
LGU concerned so that it may take appropriate action in relation to an enterprise’s
licenses and permits to operate.
The Department may, under such relevant terms and conditions stipulated, delegate the
enforcement of the system of accreditation to LGUs that have adopted and successfully
implemented their tourism development plans.
The Department shall promulgate the necessary implementing rules and regulations to
enforce the provisions of this section pursuant to its powers and functions as defined
under Section 6 of this Act.
Section 40. Value of Accreditation. - The Department shall develop a system to enhance
the value of accreditation among primary and secondary tourism enterprises. Only
accredited enterprises shall be beneficiaries of promotional, training and other programs
of the Department and its attached agencies and corporations.
Accredited enterprises shall, insofar as practicable, give due preference to other
accredited enterprises in obtaining relevant services.
The Department shall develop an integrated system of accreditation in coordination
with concerned agencies and entities, in order to reduce the regulatory and financial
burden on tourism - related enterprises.
Section 41. Local Government Capabilities Enhancement. - The Department shall develop
support and training programs to enhance the capability of LGUs to monitor and
administer tourism activities, and enforce tourism laws, rules and regulations in their
respective jurisdictions. Funding for such programs shall be shared equitably between
the Department and the LGUs concerned.
Section 42. Tourism Officers. - Every province, city or municipality in which tourism is a
significant industry shall have a permanent position for a tourism officer. He or she
shall be responsible for preparing, implementing and updating local tourism
development plans, and enforcing tourism laws, rules and regulations. In the
performance of his or her functions, the tourism officer shall coordinate with the
Department and its attached agencies.
Prior to appointment, every tourism officer must have obtained a relevant bachelor’s
degree and at least five (5) years of substantial involvement in the tourism industry. The
Department may also prescribe other relevant qualifications and require periodic
completion of training programs. Such qualifications and the powers and functions of
tourism officers shall be defined in the implementing rules and regulations of this Act.
Section 43. Tourism Assistance. - In coordination with the Department’s regional offices,
every province, city or municipality in which tourism is a significant industry shall
establish a tourist information and assistance center to assist tourists and tourism
enterprises.
Section 44. Tourism Site Classification. - The tourism councils established in the
administrative regions of the country shall meet, on a regular basis, to class& and
evaluate tourism destinations, sites and activities within their respective regions. Such
classifications and evaluations may be used by the Department and its attached agencies,
LGUs, and the private sector as guide in the development and implementation of their
respective programs.
CHAPTER III
TOURISM PROMOTIONS
SUBCHAPTER 111 - A. TOURISM PROMOTIONS BOARD
Section 45. Tourism Promotions Board. - Under the supervision of the Secretary and
attached to the Department for purposes of program and policy coordination shall be a
body corporate known as the Tourism Promotions Board (TPB). The TPB shall
formulate and implement an integrated domestic and international promotions and
marketing program for the Department.
Section 46. Mandate. - The TPB shall be responsible for marketing and promoting the
Philippines domestically and internationally as a major global tourism destination,
highlighting the uniqueness and assisting the development of its tourism products and
services, with the end in view of increasing tourist arrivals and tourism investment.
Specifically, it shall market the Philippines as a major convention destination in Asia. To
this end, it shall take charge of attracting, promoting, facilitating and servicing large -
scale events, international fairs and conventions, congresses, sports competitions,
expositions and the like. It shall likewise ensure the regular advertisement abroad of the
country‘s major tourism destinations and other tourism products, not limited to TEZs.
It may also provide incentives to travel agencies abroad which are able to draw tourists
and tourism investments to the country.
Section 47. Board of Directors. - The TPB shall be governed and its powers exercised by a
Board of Directors ("Tourism Board), composed as follows:
(a) The Department Secretary, as Chairperson;26
(b) The TPB Chief Operating Officer, as Vice Chairperson;
(c) The TIEZA Chief Operating Officer;
(d) The Department of Foreign Affairs (DFA) Secretary;
(e) The Department of Trade and Industry (DTI)
(f) The DOTC Secretary; and
(g) Five (5) representative directors, to be appointed by the President, upon the
recommendation of the Tourism Congress from a list of at least three (3) nominees per
group as enumerated in Section 49. They must be Filipinos with recognized competence
in business management, marketing, finance, tourism and other related fields and shall
serve a term of office of three (3) years, which term may be extended for a period not
exceeding three (3) years.
The Secretaries ,of the DFA, the DTI and the DOTC shall each designate a permanent
representative in the Board, who must possess relevant experience. The permanent
representative shall be duly authorized to act on behalf of the Secretary in his or her
absence.
The Chairperson of the Tourism Board shall have voting rights in case of a tie.
The Tourism Board shall appoint a corporate secretary whose functions shall include
the preparation of agenda for board meetings, in consultation with the Chairperson.
Section 48. The Chief Operating Officer. - The TPB shall have a Chief Operating Officer
who must be a Filipino, with a bachelor’s degree in any of the following fields: business,
law, tourism, public administration or other relevant fields and have demonstrated
expertise therein. He or she must have been engaged in a managerial capacity for at least
five (5) years prior to his or her appointment. He or she shall be elected by the Board
from a list of qualified applicants and27 appointed by the Secretary, and shall have a
term of office of six (6) years, unless removed for cause in accordance with law.
Section 49. Representative Directors. - In accordance with Section 47, paragraph (g) of this
Act, the Tourism Congress, as created under Chapter VIII, Section 104, shall elect from,
among its members the directors to represent the tourism industry in the Tourism
Board, specifically the following groups:
(a) Accommodation enterprises;
(b) Travel and tour services;
(c) Land, air and sea tourist transport services;
(d) Conventions and exhibitions services and suppliers; and
(e) Other tourism enterprises.
If a representative director ceases to be connected with the sector he or she represents,
a new representative director shall be appointed to serve the unexpired term.
Section 50. Powers and Functions of the Tourism Promotions Board. - The TPB shall have all
the general powers of a corporation provided under the Corporation Code.
Furthermore, it shall have the following powers and functions:
(a) Organize the TPB in a manner most efficient and economical for the conduct of its
business and the implementation of its mandate;
(b) Develop and implement a plan to market the Philippines as a premier tourist
destination;
(c) Direct and coordinate the resources and efforts of the government and the private
sector in the tourism and allied fields for the full realization of the tourism plans and
programs;
(d) Develop and promote the Philippines as a center for international meetings,
incentives, conventions, exhibitions, sports, medical tourism and other special events;
(e) Engage in the business of tourism and perform acts in consonance therewith, such
as, but not limited to, attending conventions and other events abroad in representation
of the country, encouraging sales promotions and advertising, and implementing
programs and projects with the objective of promoting the country and enticing tourists
to visit its tourism destinations and to enjoy its tourism products;
(f) Contract loans, indebtedness and credit, and issue commercial papers and bonds, in
any local or convertible foreign currency from international financial institutions,
foreign government entities, and local or foreign private commercial banks or similar
institutions under terms and conditions prescribed by law, rules and regulations:
(g) Execute any deed of guarantee, mortgage, pledge, trust or assignment of any
property for the purpose of financing the programs and projects deemed vital for the
early attainment of its goals and objectives, subject to the provisions of the Constitution
(Article VII, Section 20 and Article XU, Section 2, paragraphs (4) and (5));
(h) Receive donations, grants, bequests and assistance of all kinds from local and foreign
governments and private sectors and utilize the same;
(i) Extend loans through government banks and financial institutions, provide grants
and other forms of financial assistance for manpower training, heritage preservation,
infrastructure development and other programs of the Department:
(j) Obtain the services of local and foreign consultants, and enter into contracts locally
and abroad in the performance of its functions: and (k) Perform all other powers and
functions of a corporation.
Section 51. Meetings of the Board. - The Tourism Board shall meet at least once a month
at the principal office of the TPB, unless the Tourism Board previously agrees in writing
to meet at another location.
Section 52. Capitalization. - The TPB shall have an authorized capital of Two hundred
fifty million pesos (Php250,000,000.00) which shall be fully subscribed by the national
government.
Section 53. Strategic Marketing Plan. - The TPB shall draft comprehensive short - ,
medium - and long - term marketing plans for the Philippines as a destination for travel,
business and investment, particularly tourism investment. It shall coordinate, insofar as
practicable, with relevant agencies of the government and the private sector in the
preparation of such plans.
Such plans shall be duly approved by the Tourism Board. The Chief Operating Officer
shall ensure that the marketing plans are duly implemented, and shall periodically report
to the Tourism Board the status of their implementation. He or she shall also
coordinate to ensure that the other agencies of the government and the private sector
which assisted in the preparation of marketing plans perform their respective duties
under the plans.
SUBCHAPTER 111 - B. TOURISM PROMOTIONS FUNDING
Section 54. Tourism Promotions Trust. - Within one hundred and twenty (120) days from
the effectivity of this Ad, an audit shall be conducted by the Commission on Audit to
determine the true value of the assets and liabilities of the PTA. After such audit, the
TIEZA and the Department, in coordination with the Privatization Council, shall
determine which assets shall be put up for sale or lease: Provided, That concerned LGUs
interested to manage and operate said assets shall have the right of first refusal. The
TIEZA and the Department shall take into consideration the importance of maintaining
and preserving the PTA assets which may already be considered cultural treasures and
heritage sites, such as the Banaue Hotel and similar assets, which shall not be sold or in
any way disposed of and shall be placed under the ownership of the TIEZA for their
continued maintenance.
The Tourism Promotions Trust shall hereby be established from the proceeds of the
sale or lease of the assets of the PTA. The trust shall be managed by a government -
owned bank or financial institution selected by the Tourism Board. Said bank or
institution shall report the status and profitability of the trust on a quarterly basis to the
Tourism Board, the Secretary, and the Joint Congressional Tourism Oversight
Committee created under this Act.
Section 55. Tourism Promotions Fund. - The proceeds of the following shall be placed in a
special Tourism Promotions Fund to finance the activities of the TPB:
(a) The investment earnings from the Tourism Promotions Trust;
(b) An appropriation from the national government of not less than Five hundred
million pesos (Php500,000,000.00) annually for at least five (5) years from the time of its
constitution;
(c) Seventy percent (70%) of the fifty percent (50%) net income of the DFPC accruing
to^ the Department, in lieu of its statutory remittance to the national government under
Republic Act No. 7656, otherwise known as the Dividends Law of 1994;
(d) At least twenty - five percent (25%) of the fifty percent (50%) national government
share remitted by the Philippine Amusements and Gaming Corporation (PAGCOR) to
the National Treasury pursuant to Republic Act No. 7656; and
(e) At least twenty - five percent (25%) of the national government share remitted by
the international airports and seaports to the National Treasury pursuant to Republic
Act No. 7656.
In no case shall promotions and marketing activities receive less than fifty percent
(50%) of the annual utilization of the fund. Not more than ten percent (10%) of the
fund shall be used for all other administrative and operating expenses of the TPB. The
unallocated portion of the fund shall be earmarked by the TPB as follows:
(a) For use by the TIEZA in the development of TEZs;
(b) For the Department, to enhance its programs for development planning, heritage
preservation and infrastructure development, and manpower training including, but not
limited to, scholarships for trainings abroad, among others; or
(c) For such other purposes as may contribute to the development of the tourism
industry. Portions of the net income of government corporations and other enterprises
provided under this section due the TPB shall be remitted directly thereto on a quarterly
basis.
Section 56. Special Contingency and. - At the beginning of each year, ten percent (10%) of
the allocation for promotions and marketing shall be set aside as a Special Contingency
Fund of the TPB. This shall be used in the event of emergencies to provide the TPB
with sufficient resources to undertake marketing and promotions activities that will
encourage sustained tourism interest in the Philippines and that will address the adverse
effects of these emergencies.
Section 57. Exemption From Payment of Corporate Income Tax. - Notwithstanding any
provision of existing laws, decrees, executive orders to the contrary, the TPB shall be
exempt from the payment of corporate income tax, as provided under the National
Internal Revenue Code (NIRC) of 1997, as amended.
Section 58. Membership. - The TPB shall be open for membership to entities, groups and
individuals with economic, social or cultural interest in travel trade, congresses and
conventions
CHAPTER IV
TOURISM ENTERPRISE ZONES
SUBCHAPTER IV - A. TOURISM ENTEWRISE ZONES
Section 59. Tourism Enterprise Zones. - Any geographic area with the following
characteristics may be designated as a Tourism Enterprise Zone:
(a) The area is capable of being defined into one contiguous territory;
(b) It has historical and cultural significance, environmental beauty, or existing or
potential integrated leisure facilities within its bounds or within reasonable distances
from it;
(c) It has, or it may have, strategic access through transportation infrastructure, and
reasonable connection with utilities infrastructure systems;
(d) It is sufficient in size, such that it may be further utilized for bringing in new
investments in tourism establishments and services; and
(e) It is in a strategic location such as to catalyze the
Section 60. Designation of TEZs. - The TIEZA shall designate TEZs, upon the
recommendation of any LGU qr private entity, or through joint ventures between the
public and the private sectors. Such designation shall be subject to the provisions of this
Act and to minimum requirements which the TIEZA shall subsequently promulgate.
TEZs shall not proliferate in a manner that diminishes their strategic economic and
developmental value to the national economy.
Section 61. Development Planning. - Each application for designation as a TEZ shall be
accompanied by a development plan which shall, consistent with principles of
economic, socioeconomic development of neighboring communities. cultural and
environmentally sustainable development, specifically identify:
(a) Tourism focal points and resources available within the proposed TEZ and adjoining
areas;
(b) Features which satisfy the requisites for the designation of a TEZ enumerated under
Section 59 of this Act;
(c) Areas for infrastructure development, for investment, and for preservation, as well as
the kind of development, nature of investment or sustainable activities allowed within
preserved areas, respectively;
(d) Medium - and long - term studies on market trends, and corresponding development
strategies for the TEZ;
(e) Studies on the economic impact of development within the TEZ and in surrounding
communities;
(f) Studies on the environmental, cultural and social carrying capacity of the TEZ and
surrounding communities;
(g) Design plans for structures which incorporate design and sustainability principles
from local architecture and the surrounding environment; and
(h) Such other information that the TIEZA may require.
No TEZ shall be designated without a development plan duly approved by the TIEZA
and without the approval, by resolution, of the LGU concerned. Any deviation or
modification from the development plan shall require the prior authorization of the
TIEZA. The TIEZA may cause the suspension of granted incentives and withdrawal of
recognition as a TEZ operator. It may likewise impose reasonable fines and penalties
upon TEZ operators and responsible persons for any failure to properly implement the
approved development plan.
Lands identified as part of a TEZ shall qualify for exemption from the coverage of
Republic Act No. 7279, otherwise known as the Urban Development and Housing Act
of 1992, and Republic Act No. 6657, otherwise known as the Comprehensive Agrarian
Reform Law, subject to rules and regulations to be crafted by the TIEZA, the Housing
and Urban Development Coordinating Council and the Department of Agrarian
Reform.
Section 62. Operation of TEZs. - The TEZ proponent shall establish a corporate entity,
to be known as the TEZ operator, which shall administer the TEZ and supervise its
activities. The designation of a TEZ does not vest ownership of the resources therein
upon the TEZ operator. Where the TEZ operator possesses rights to land or other
resources within the TEZ, the TEZ operator shall be entitled to exercise such rights as
allowed by existing laws in a manner consistent with the duly - approved development
plan as provided above.
Where rights to land and other resources within the TEZ are vested in a private third
party, the TEZ operator shall encourage the private third party to participate in policy
making, planning and program development and implementation by encouraging its
registration as a tourism enterprise where appropriate, and through the judicious
administration of incentives and provision of services.
Except as herein provided, the LGUs which comprise, overlap, embrace or include a
TEZ in their territorial jurisdictions shall retain their basic autonomy and identity in
accordance with the Local Government Code.
The government shall encourage, facilitate and provide incentives for private sector
participation in the construction and operation of public utilities and infrastructure in
the TEZs using any of the schemes allowed under Republic Act No. 6957, as amended,
otherwise known as the Build - Operate - and - Transfer Law.
SUBCHAPTER IV - B. TOURISM INFRASTRUCTURE AND ENTERPRISE
ZONE AUTHORITY
Section 63. The Tourism Infrastructure and Enterprise Zone Authority. - Under the
supervision of the Secretary and attached to the Department for purposes of program
and policy coordination shall be a body corporate known as the Tourism Infrastructure
and Enterprise Zone Authority (TIEZA).
Section 64. Mandate. - The TIEZA shall be a body corporate which shall designate,
regulate and supervise the TEZs established under this Act, as well as develop, manage
and supervise tourism infrastructure projects in the country. It shall supervise and
regulate the cultural, economic and environmentally sustainable development of TEZs
toward the primary objective of encouraging investments therein. It shall ensure strict
compliance of the TEZ operator with the approved development plan. Pursuant
thereto, the TIEZA shall have the power to impose penalties for failure or refusal of the
tourism enterprises to comply with the approved development plan, which shall also be
considered a violation of the terms of accreditation. Such power shall further be defined
under the implementing rules and regulations of this Act.
The TIEZA shall continue to exercise functions previously exercised by the PTA under
Presidential Decree No. 564, unless otherwise inconsistent with the other provisions of
this Act. It shall however cease to operate the DFP.
In addition to its mandate to regulate and supervise TEZs, the TIEZA shall likewise be
deemed a government infrastructure corporation under the provisions of Executive
Order No. 292, otherwise known as the Administrative Code of 1987.
Tourism enterprises outside of TEZs and without accreditation shall be governed by
pertinent laws, rules and regulations.
Section 65. Board of Directors. - The TIEZA shall be governed and its powers exercised
by a Board of Directors ("TIEZA Board"), composed as follows:
(a) The Department Secretary, as Chairperson;
(b) The TIEZA Chief Operating Officer, as Vice Chairperson;
(c) The TPB Chief Operating Officer;
(d) The DPWH Secretary;
(e) The DENR Secretary;
(f) The DILG Secretary: and
(g) Five (5) representative directors, to be appointed by the President, upon the
recommendation of the Tourism Congress from a list of at least three (3) nominees per
group as enumerated in Section 67. They must be Filipinos with recognized competence
in business management, marketing, finance, tourism and other related fields and shall
serve a term of office of three (3) years, which term may be extended for a period not
exceeding three (3) years.
The Secretaries of the DPWH, the DENR and the DILG shall each designate a
permanent representative in the Board, who must possess relevant experience. The
permanent representative shall be duly authorized to act on behalf of the Secretary in his
or her absence.
The Chairperson of the TIEZA Board shall have voting rights in case of a tie.
The TIEZA Board shall appoint a corporate secretary whose functions shall include the
preparation of agenda for board meetings, in consultation with the Chairperson.
Section 66. The Chief Operating Officer. - The TIEZA shall have a Chief Operating
Officer who must be a Filipino, with a bachelor’s degree in any of the following fields:
business, law, tourism, public administration or other relevant fields and have
demonstrated expertise therein. He or she must have been engaged in a managerial
capacity for at least five (5) years prior to his or her appointment. He or she shall be
elected by the Board from a list of qualified applicants and appointed by the Secretary,
and shall have a term of office of six (6) years, unless removed for cause in accordance
with law.
Section 67. Representative Directors. - The five (5) representative directors shall represent
each of the following groups:
(a) Tourism estate development and management services;
(b) Accommodation enterprises;
(c) Air, sea and land tourism transport services;
(d) Travel and tours enterprises: and
(e) Other tourism enterprises.
If a representative director ceases to be connected with the sector he or she represents,
a new representative director shall be appointed to serve the unexpired term.
Section 68. Meetings of the Board. - The TIEZA Board shall meet at least once a month at
the principal office of the TIEZA, unless the TIEZA Board previously agreed in writing
to meet at another location.
Section 69. General Powers and Functions of the TIEZA Board. - The TIEZA Board shall
have the general powers of a corporation as provided under the Corporation Code.
Furthermore, it shall also have the following powers:
(a) Organize the TIEZA in a manner most efficient and economical for the conduct of
its business and the implementation of its mandate;
(b) Develop policies, plans and programs in coordination with the Department for the
development and operation of TEZs and adopt rules and regulations necessary for the
implementation of the provisions of this Act;
(c) Enter into, make, perform and carry out contracts of every class, kind and
description which are necessary or incidental to the realization of its purposes with any
person, firm or corporation, private or public, and with foreign government entities;
(d) Contract loans, indebtedness and credit, issue commercial papers and bonds, in any
local or convertible foreign currency from international financial ,institutions, foreign
government entities, and local or foreign private commercial banks or similar
institutions under such terms and conditions prescribed by law, rules and regulations;
(e) Execute any deed of guarantee, mortgage, pledge, trust or assignment of any
property for the purpose of financing the programs and projects deemed vital fos the
early attainment of its goals and objectives, subject to the provisions of Article VI,
Section 20 and Article XII, Section 2, paragraphs (4) and (6) of the Constitution;
(f) Construct, own or lease, operate and maintain infrastructure facilities or enter into
joint ventures, and grant franchises for, and supervise the operation of, public utilities
within TEZs, in coordination with LGUs and agencies concerned;
(g) Undertake, or authorize the undertaking of, reclamation projects within TEZs;
(h) Preserve, restore or reconstruct all national cultural treasures and shrines located
within TEZs, in coordination with the National Museum and other concerned agencies;
(i) Receive donations, grants, bequests and assistance of all kinds from local and foreign
governments and private sectors and utilize the same;
(j) Exercise eminent domain and police power, including, but not limited to, the power
to recommend to the Department the removal of structures which may be considered
nuisances per se or which impede or impair the enjoyment of historical, cultural and
natural endowments;
(k) Coordinate with LGUs and other government agencies for the provision of basic
services, utilities and infrastructure required by TEZs;
(l) Review and approve proposals for the designation of TEZs based on the criteria
provided herein, and approve, facilitate and assist in the organization of TEZ operators;
(m) Regulate and supervise the operations of TEZ operators, review and ensure
compliance with the development plans, and establish and implement other policies,
plans and programs for the development and operation of TEZs;
(n) Register, monitor and regulate enterprises seeking to invest and operate within a
TEZ, and approve and grant incentives to such registered enterprises as provided under
this Act; and
(o) Exercise the general powers of a corporation.
Section 70. Powers and Functions of the Chief Operating Officer. - In addition to those stated
in Section 23 of Presidential Decree No. 564 on the powers of the former General
Manager of the PTA, which are hereby adopted under this Act, the Chief Operating
Officer shall implement the policies, plans and programs of the TIEZA. He or she shall
likewise exercise the following powers and functions:
(a) Recommend to the TIEZA Board the designation of TEZs in accordance with set
policies and standards:
(b) Coordinate with the Philippine National Police and other concerned agencies of
government for the maintenance of peace and order within the TEZs;
(c) Ensure that all revenues of the TEZs are collected and applied in accordance with
law;
(d) Submit to the Board the ongoing and proposed projects, work and financial
programs, annual budget of receipts and expenditures of the TEZs;
(e) Receive protests, complaints and claims concerning TEZ operators, enterprises and
residents, and make recommendations to the TIEZA Board for appropriate action;
(f) Enforce all legal easements along seashores, lakeshores, riverbanks, among others, as
provided under existing laws, rules and regulations, to allow free and open access
thereto and aid in the proper development of the national patrimony;
(g) Take such emergency measures as may be necessary to avoid fires, floods and
mitigate the effects of storms and other natural or public calamities;
(h) Recommend to the TIEZA Board all necessary acts to properly supervise the
operations of TEZ operators;
(i) Coordinate with the TPB for the promotion of tourism and the encouragement of
investments in TEZs; and
(j) Exercise such other powers and functions as are necessary to the implementation of
this Act.
Section 71. Capitalization. - The TIEZA shall have an authorized capital of Two
hundred fifty million pesos (Php250,000,000.00) which shall be fully subscribed by the
national government.
Section 72. Funding. - The TIEZA shall obtain the funds for its operations from the
following:
(a) Fifty percent (50%) of the proceeds from travel tax collections;
(b) A reasonable share from the collections of the Office of Tourism Resource
Generation, to be determined by the Department;
(c) Income from projects managed by the TIEZA; and
(d) Subsidies or grants from local and foreign sources that may be received by the
TIEZA.
At least five percent (5%) from the travel tax collection which shall accrue to the
TIEZA shall be earmarked for the development of historic, cultural, religious and
heritage sites and prime tourist destinations. Another five percent (6%) shall be
earmarked for the development of ecotourism sites in depressed provinces with strong
tourism potentials.
Section 73. Collection and Allocation of Travel Taxes. - For purposes of this Act, the
TIEZA shall be the principal agency responsible for the timely collection of travel taxes.
Amounts to be collected by the TIEZA shall be distributed in the manner provided for
under this Act: Provided, That the national government shall look for alternative funding
sources for programs funded by the travel tax in the event of a phase out of travel tax
collection following international agreements.
Pursuant to Section 72 of this Act, fifty percent (50%) of the proceeds from travel tax
collections shall accrue to the TIEZA.
The government’s contribution to the Higher Education Development Fund, equivalent
to forty percent (40%) from the total gross collections of the travel tax, shall be
retained: Provided that the Commission on Higher Education (CHED) shall give
priority to tourism - related educational programs and courses. The ten percent (10%)
share of the National Commission for Culture and the Arts from the total gross
collections of the travel tax shall likewise be retained.
Section 74. Exemption from Payment of Corporate Income Tax. - Notwithstanding any
provision of existing laws, decrees, executive orders to the contrary, the TIEZA shall be
exempt from the payment of corporate income tax, as provided under the NIRC.
Section 76. Survey of Resources. - The TIEZA shall, in coordination with appropriate
authorities and neighboring cities and municipalities, conduct a survey of the physical
and natural assets and potentials of the TEZ areas under its jurisdiction.
Section 76. Registration. - Tourism enterprises within a TEZ shall register with the
TIEZA to avail of incentives and benefits provided for in this Act.
Section 77. One - Stop Shop Processing. - The TIEZA shall establish offices where
prospective TEZ investors can register to obtain the incentives and benefits under this
Act and all necessary permits and licenses from all national and local government
offices. All government agencies shall coordinate with the TIEZA for the issuance of
such permits and licenses. The TlEZA shall collect fees necessary for the issuance of
these permits and licenses.
Section 78. Investigation and Inquiries. - Upon a written formal complaint made under
oath, which on its face provides reasonable basis to believe that some anomaly or
irregularity may have been committed within TEZs, the TIEZA Chief Operating
Officer shall have the power to inquire into and investigate the conduct of TEZ
operators, registered enterprises and/or their employees. For this purpose, he or she
may subpoena witnesses, administer oaths and compel the production of books, papers
and other evidence. The TIEZA Chief Operating Officer shall thereafter make a
recommendation to the TIEZA Board for appropriate action.
SUBCHAPTER IV - C. TEZ ADMINISTRATION
Section 79. Administration of TEZs. - Each TEZ shall be administered and supervised by
a TEZ operator. A TEZ operator shall be an entity duly incorporated under the
Corporation Code and other relevant laws, unless the TEZ operator is a LGU or any
other instrumentality of the government in the pursuit of their mandates, where capital
may be provided by LGUs and/or private entities.
Section 80. Articles of Incorporation and Bylaws of TEZ Operators. - Except as provided
herein and as may be provided by rules and regulations duly promulgated by the
TIEZA, each duly incorporated TEZ operator shall draft its articles of incorporation
and bylaws in accordance with the Corporation Code.
Section 81. Boards of Directors and Consultative Bodies of TEZ Operators. - The seats of the
Board of Directors of a TEZ operator shall be allocated pro - rata according to the
respective capital contributions of the TEZ operator’s shareholders.
TEZ operators are encouraged to reserve seats on their Boards of Directors for relevant
interest groups, such as those representing environmental, religious, cultural, TEZ
investors’, TEZ residents’ and other interests. In ally case, TEZ operators may form
consultative bodies for such special interest groups to assist them in the formulation and
implementation of policies, plans and projects.
Section 82. TEZ Administrator. - The Board of Directors of each TEZ operator shall
appoint its TEZ Administrator, who shall be responsible for implementing the policies,
plans and projects of the TEZ operator's Board of Directors. The TIEZA shall provide
guidelines on the necessary educational and practical qualifications required of a TEZ
Administrator. In addition to such qualifications, all TEZ Administrators must undergo
and pass a training program of the Department to provide TEZ Administrators with
knowledge and skills relevant to the operation of the TEZ.
Section 83. Civil Dispute Resolution. - The TIEZA shall establish a civil dispute mediation
office to effectively and efficiently resolve civil disputes concerning tourism enterprises
and/or tourism - related issues within a TEZ where at least one of the parties to the
dispute was residing in the TEZ at the time the dispute arose, and is still residing within
the TEZ at the time the complaint is filed with the mediation office. No civil dispute
may be filed in court without having undergone mediation proceedings as provided
under this section except in extraordinary cases where a party may suffer irreparable
damage. The TIEZA shall charge reasonable fees for civil dispute mediation. This
provision is without prejudice to the application of the rules pertaining to Katarungang
Pambarangay with respect to other matters.
Section 84. Labor Dispute Resolution. - To resolve disputes between workers and
employers 'for any violation of Presidential Decree No. 442, as amended, otherwise
known as the Labor Code of the Philippines, the TIEZA shall, in coordination with the
Department of Labor and Employment DOLE), establish a labor dispute resolution
office to mediate between workers and employers.
CHAPTER V
INCENTIVES
Section 85. General Principles on the Grant and Administartion Incentives
(a) Recognizing the strategic economic importance of tourism, the necessity that
investments within TEZs be properly coordinated with environmental, cultural and
developmental imperatives, and the fundamental differences between the export
manufacturing and tourism industries, the TIEZA shall have sole and exclusive
jurisdiction to grant the incentives hereinafter provided.
In the formulation of rules and regulations defining and implementing these incentives,
and without derogating therefrom, the TIEZA may coordinate with the Board of
Investments and other government agencies or entities responsible for the grant and
administration of incentives to assist in the development of a rationalized national
investment incentive policy.
In the grant of incentives, it shall give equal preference to large investments, those with
great potential for employment generation and those of local small and medium
enterprises. Registered tourism enterprises owned and operated by overseas Filipino
investors shall enjoy the same incentives granted to TEZ operators and registered
enterprises in general. The amount of required investments shall be defined in the
implementing rules and regulations of this Act. The incentive schemes set forth in
Sections 86, 87 and 88 shall be in effect for a period of ten (10) years from the
effectivity of this Act, which period is subject to review by the Joint Congressional
Oversight Committee on Tourism.
The TIEZA shall further coordinate with the Bureau of Customs and the Bureau of
Internal Revenue in the preparation and enforcement of rules and regulations to prevent
the abuse of these incentives.
The jurisdiction of the TIEZA in the grant and administration of incentives shall not be
impliedly repealed or modified.
(b) The Department and the DTI shall promulgate rules and regulations to govern the
relationship between TEZs created under this Act, and economic zones created under
Republic Act No. 7227, otherwise known as the Bases Conversion and Development
Act of 1992, and Republic Act No. 7916, as amended, otherwise known as the Special
Economic Zone Act of 1995, where an area comprising a TEZ overlaps, falls within or
encompasses that of an economic zone: Provided, That such rules and regulations shall
consider the special nature and requirements of tourism in relation to other industries,
establishments and operations in economic zones. TEZs proclaimed as such prior to
the passage of this Act shall be transferred to the supervision of the TIEZA.
(c) The investment incentives offered under this Act shall be without prejudice to
availing other incentives provided under other laws, decrees and presidential issuances.
However, where such other laws, decrees or presidential issuances provide for similar or
identical incentive schemes, the investor may only elect to avail of the scheme provided
under one particular law, decree or presidential issuance.
(d) LGUs are likewise encouraged to provide incentives for tourism enterprises through,
among others, reductions in applicable real estate taxes and waivers of fees and charges,
among others. Should a LGU grant such incentives, it shall report the same to the
Department and the TPB to assist in the marketing and promotions of investment in
that LGU.
SUBCHAPTER V - A. INCENTIVES FOR TEZ OPERATORS AND
REGISTERED TOURISM ENTERPRISES
Section 86. Fiscal Incentives Available to TEZ Operators and Registered Enterprises. - The
following incentives may, in the discretion of the TIEZA Board, be granted to
registered tourism enterprises within TEZs:
(a) Income Tax Holiday. New enterprises in Greenfield and Browdeld Tourism Zones
shall, from the start of business operations, be exempt from tax on income for a period
of six (6) years. This income tax holiday may be extended if the enterprise undertakes a
substantial expansion or upgrade of its facilities prior to the expiration of the first six (6)
years.
This extension shall consider the cost of such expansion or upgrade in relation to the
original investment, but shall in no case exceed an additional six (6) years. These
enterprises shall likewise be allowed to carry over as deduction from the gross income
for the next six (6) consecutive years immediately following the year of the loss, their
net operating losses for any taxable year immediately preceding the current taxable year
which had not been previously offset as deduction from gross income.
An existing enterprise in a Brownfield Tourism Zone shall likewise enjoy the incentives
extended to new enterprises in Green6eld and Brownfield Tourism Zones mentioned in
the preceding paragraph. An existing enterprise in a Brownfield Tourism Zone shall be
entitled to avail of a non - extendible income tax holiday if it undertakes an extensive
expansion or upgrade of facilities. Such an income tax holiday shall consider the cost of
such expansion or upgrade in relation to the original investment, but shall in no case
exceed six (6) years to be counted from the time of completion of the expansion or
upgrade: Provided, That capital expenditures subject to income tax holiday shall be
understood to mean money spent to acquire or upgrade physical assets, such as
buildings, machinery and equipment, intended to extend the life of an asset or increase
the capacity or efficiency of a tourism enterprise that benefit the current and future
periods: Provided, further, That in case of expansion involving the improvement of
existing structures or constructing new ones, such expansion shall consider the
substantial amount infused, the substantial number of rooms added or constructed and,
where applicable, their change in classification from three - star to five - star
establishments.
The provisions of this subsection shall likewise apply to tourism enterprises outside the
zones.
(b) Gross Income Taxation. In lieu of all other national and local taxes, license fees,
imposts and assessments, except real estate taxes and such fees as may be imposed by
the TIEZA, a new enterprise shall pay a tax of five percent (5%) on its gross income
earned, which shall be distributed as follows:
(1) One - third to be proportionally allocated among affected LGUs;
(2) One - third to the national government; and
(3) One - third to the TIEZA for the funding of its operations and its programs in the
TEZs, which shall include the protection, maintenance and enrichment of the
environment, tangible cultural and historical heritage, and the intangible cultural heritage
of communities within and surrounding the TEZs.
Gross income as used herein is defined under Section 27(A) of the NIRC, and further
defined under relevant rules and regulations.
(c) Capital Investment and Equipment. Subject to rules and regulations which properly
define capital investments and equipment necessary for various kinds of tourism
enterprises, registered enterprises shall be entitled to an exemption of one hundred
percent (100%) of all taxes and customs duties on importations of capital investment
and equipment.
(d) Transportation and Spare Parts. Importation of transportation and the
accompanying spare parts of new and expanding registered enterprises shall be exempt
from customs duties and national taxes: Provided, That they are not manufactured
domestically in sufficient quantity, of comparable quality and at reasonable prices, and
that they are reasonably needed and will be used exclusively by an accredited tourism
enterprise.
(e) Goods and Services. Subject to rules and regulations which properly define goods
and services necessary for various kinds of tourism enterprises, registered enterprises
shall be entitled to the following: (1) Importation of goods actually consumed in the
course of services actually rendered by or through registered enterprises within a TEZ
shall enjoy one hundred percent (100%) exemption from all taxes and customs
duties: Provided, however, That no goods shall be imported for the purpose of operating a
wholesale or retail establishment in competition with the DFPC; and
(2) A tax credit equivalent to all national internal revenue taxes paid on all locally -
sourced goods and services directly or indirectly used by the registered enterprise for
services actually rendered within the TEZ.
(f) Social Responsibility Incentive. A registered enterprise shall be entitled to a tax
deduction equivalent to a reasonable percentage, not exceeding fifty percent (60%), of
the cost of environmental protection or cultural heritage preservation activities,
sustainable livelihood programs for local communities, and other similar
activities.ten.lihpwal
Section 87. Non - fiscal Incentives Available to TEZ Operators and Registered Tourism
Enterprises. - The following incentives may, in the discretion of the TIEZA Board, be
granted to registered tourism enterprises within TEZs:
(a) Employment of Foreign Nationals. A registered enterprise may employ foreign
nationals in executive, supervisory, technical or advisory positions for such reasonable
periods and under such terms as may be provided by the TIEZA Board, with due regard
for the proper protection and representation of foreign investments in registered
enterprises, and the need to ensure easy travel into and out of the Philippines by such
nationals and their immediate families;
(b) Special Investor’s Resident Visa. Under such terms as may be provided by the
TIEZA Board, a foreign national who shall have made an investment with a value of at
least Two hundred thousand dollars (USD200,OOO.OO) in a registered enterprise shall
be entitled to a special investor’s resident visa. With such visa, the foreign national shall
be entitled to reside in the Philippines while his or her investment subsists. Subject to
regulations to be issued by the Bureau of Immigration (BI), the TIEZA shall issue
working visas renewable every two (2) years to foreign personnel and other aliens,
possessing highly - technical skills which no Filipino within the TEZ possesses, after
they have secured Alien Employment Permits (AEP) from the DOLE. The names of
aliens granted permanent resident status and working visas by the TIEZA shall be
reported to the BI within thirty (30) days after issuance thereof;
(c) Foreign Currency Transactions. Subject to the provisions of Section 72 of Republic
Act No. 7653, as amended, otherwise known as the New Central Bank Act:
(1) Repatriation of Investments. In the case of foreign investments, the right to
repatriate the entire proceeds of the liquidation of the investment in the currency in
which the investment was originally made and at the exchange rate prevailing at the time
of repatriation.
(2) Remittance of Foreign Exchange. The right to remit earnings from a foreign
investment in the currency in which the investment was originally made and at the
exchange rate prevailing at the time of remittance.
(3) Foreign Loans and Contracts. The right to remit at the exchange rate prevailing at
the time of remittance such sums as may be necessary to meet the payments of interest
and principal on foreign loans and foreign obligations arising from technological
assistance contracts.
(d) Requisition of Investment. There shall be no requisition of the property of registered
enterprises, except in the event of war or national emergency, and only for the duration
thereof. In any case, the affected person shall be entitled to just compensation, and shall
have the right to repatriate such compensation as provided in paragraph (c) above; and
(e) Lease and Ownership of Land. Without prejudice to existing laws regulating the
ownership of land by individuals and corporations, and consistent with the provisions
of Republic Act No. 7652, otherwise known as the Investor’s Lease Act, lands and
buildings in each TEZ may be leased to foreign investors for a period not exceeding
fifty (50) years, renewable once for a period of not more than twenty - five (25) years.
The leasehold right acquired under long - term contracts may be sold, transferred or
assigned, subject to the conditions set forth under the Investor’s Lease Act.
SUBCHAPTER V - B. TOURISM ENTERPRISES OUTSIDE TEZS
Section 88. Incentives Available to Tourism Enterprises Outside TEZs. - The grant of fiscal
and other incentives to tourism enterprises not located within TEZB shall be governed
by the following provisions:
(a) Upon compliance with the requirements provided by law, they shall be entitled to
avail of any economic incentives found under existing laws, such as Executive Order
No. 226 (1987), otherwise known as the Omnibus Investments Code; Republic Act No.
7042, as amended by Republic Act No. 8179, otherwise known as the Foreign
Investments Act; the Special Economic Zone Act; and the Bases Conversion and
Development Act, among others, subject to the last paragraph of Section 86(a), at the
option of the said enterprises.
(b) Subject to rules and regulations jointly promulgated by the Department and the
TIEZA, an existing accommodation establishment not located within a TEZ shall be
entitled to claim an income tax holiday for up to six (6) years for any significant
expansion, renovation or upgrade in its facilities in relation to the amount of the original
investment. They shall also be entitled to import capital equipment free of taxes and
duties when necessary for such expansion, renovation or upgrade.
(c) Tourism enterprises may avail of incentives under the Omnibus Investments
Code: Provided, That:
(1) Tourism activities shall always be included in the Investment Priorities Plan;
(2) Rules and regulations concerning the grant of incentives to tourism enterprises shall
be jointly formulated by the Board of Investments and the Department;
(3) The income tax holiday provided under Section 39.1 of the Omnibus Investments
Code shall also apply to existing accommodation enterprises undergoing substantial
capital infusion for expansion or substantial upgrade of facilities; and
(4) Accredited tourism enterprises shall be entitled to import transportation and
accompanying spare parts free of taxes and duties: Provided, however, That such
transportation shall be exclusively used by the enterprise in its operations, and: Provided,
further, That such are not manufactured domestically in sufficient quantity, comparable
quality and prices.
(d) Tourism enterprises located in special economic zones, created under the Special
Economic Zone Act or by special charter, shall continue to be governed by the same.
(e) The incentives offered under this Act shall be without prejudice to the availment of
other incentives provided under other laws, such as, but not limited to, those
concerning infrastructure, or micro - , small - and medium enterprises. However, where
such laws provide for similar incentive schemes as those contained herein, the investor
may elect to avail of the scheme provided only under one particular law, decree or
issuance.
CHAPTER VI
DUTY AND TAX - FREE MERCHANDISING SYSTEM FOR TOURISM
PURPOSES
Section 89. Duty Free Philippines Corporation. - The Duty Free Philippines shall be
reorganized to become the Duty Free Philippines Corporation (DFPC), which shall be
attached to the Department.
Section 90. Mandate. - The DFPC shall be a body corporate to operate the duty - and
tax - free merchandising system in the Philippines to augment the service facilities for
tourists and to generate foreign exchange and revenue for the government, as
established by the Department under Executive Order No. 46.
In the performance of its functions, the DFPC shall have all the general powers of a
corporation established under the Corporation Code, in furtherance of its charter.
The DFPC shall have the exclusive authority to operate or franchise out stores and
shops that would sell, among others, duty. and tax - free merchandise, goods and
articles, in international airports and seaports, and in TEZs and ports of entry
throughout the country in a manner that
(a) Is competitive with international standards;
(b) Effectively showcases Philippine culture, craftsmanship and industry; and
(c) Efficiently and effectively generates foreign exchange.
Such merchandise, goods and articles shall only be sold to persons departing for abroad.
Under such limitations, rules and regulations that may be provided by the Department
and in consultation with the Department of Finance (DOF), such merchandise, goods
and articles may be sold to passengers arriving into the Philippines from abroad,
including those covered by the existing Balikbayan Program, under Republic Act No.
6768, as amended.
The DFPC shall likewise be authorized to operate stores and shops within the
immediate vicinity of international airports and seaports to service the requirements of
the international duty - free market.
The DFPC shall operate without prejudice to any privatization in the future, subject to
existing laws on privatization and procedures on public bidding.
Section 91. The DFPC Board of Directors. - The DFPC shall be governed by a Board of
Directors, composed as follows:
(a) The Department Secretary, as Chairperson;
(b) The Chief Operating Officer of the DFPC, as Vice Chairperson;
(c) The DOF Secretary;
(d) The DTI Secretary; and53
(e) Three (3) representative directors, to be appointed by the President, upon the
recommendation .of the Tourism Congress, who must be Filipinos with recognized
competence in business management, marketing, finance, tourism and other related
fields and shall serve a term of office of three (3) years, which term may be extended for
a period not exceeding three (3) years: Provided, That there shall be no conflict of interest
in any matter concerning the operations of the DFPC.
The Secretaries of the DOF and the DTI shall each designate a permanent
representative in the Board, who must possess relevant experience. The permanent
representative shall be duly authorized to act on behalf of the Secretary in his or her
absence.
The Chairperson of the DFPC Board shall have voting rights in case of a tie.
The DFPC Board shall appoint a corporate secretary whose functions shall include the
preparation of agenda for board meetings, in consultation with the Chairperson.
Section 92. The Chief Operating Officer. - The DFPC shall have a Chief Operating Officer
who must be a Filipino, with a bachelor's degree in any of the following fields: business,
law, tourism, public administration or other relevant fields and have demonstrated
expertise therein. He or she must have been engaged in a managerial capacity for at least
five (5) years prior to his or her appointment. He or she shall be elected by the Board
from a list of qualified applicants and appointed by the Secretary, and shall have a term
of office of six (6) years, unless removed for cause in accordance with law.
Section 93. Capitalization and Funding. - The DFPC shall have an authorized
capitalization of Five hundred million pesos (Php500,000,000.00) which shall be fully
subscribed by the national government. A minimum of fifty percent (50%) of the annual
net profits of the DFPC shall be remitted automatically to the Office of the Secretary to
fund tourism programs and projects, in lieu of its statutory remittance to the national
government under Republic Act No. 7656, seventy percent (70%) of which shall be
given to the TPB.
Section 94. General Powers and Functions of the DFPC. - The DFPC Board shall have the
power to sue and be sued; to contract and be contracted with; to own and hold such
real and personal property as shall be necessary for corporate purposes; to receive real
and personal property by gift, devise or bequest: to adopt a seal and alter the same; to
adopt bylaws, rules and regulations; to exercise all the general powers of a corporation
under the Corporation Code; and to perform all such acts as may be necessary to carry
out this section.
Section 95. Duty and Tax Exemptions. - Consistent with the nature of its operations and
primary function to operate as a tax - and duty - free merchandising system, and to
enable it to compete in the international tax - and duty - free market, DPPC shall be
entitled to exemption from the following:
(a) Duties and taxes, including excise and VAT, relative to the importation of
merchandise for sale;
(b) Local taxes and fees imposed by the LGUs; and
(c) Corporate income taxation.
CHAPTER VII
INCREASED TOURIST ACCESS
Section 96. International and Domestic Tourist Travel. - The Department, through the
development of an inter - modal international and domestic land, sea and air access
system, and in coordination with relevant government agencies, shall increase and
improve the accessibility of the Philippines to domestic and foreign tourists. Realizing
the critical importance of the progressive development of the civil aviation environment
in the advancement of the country's international and domestic tourism sector:
(a) The Secretary shall be the ex officio Vice Chairperson of the Civil Aviation Board;
(b) The Secretary shall be the ex officio Vice Chairperson
(c) The Secretary shall be authorized to appoint a representative to the board of
directors of each international seaport of the Philippines; and of the governing boards
of all international airports;
(d) The Secretary shall be a member of the Civil Aviation Authority of the Philippines
Board.
To enhance the standards of transportation services for tourist use, the Department and
the relevant government agencies shall develop an integrated, one - stop shop system
for the speedy issuance of franchises and accreditation for tourism transport operators.
Section 97. Visas. - The Department, the DFA and the Department of Justice shall
develop a system of granting visas that encourages the arrival and longer stay of tourists
in the Philippines.
CHAPTER VIII
CREATING A CULTURE OF TOURISM
Section 98. Tourism Coordinating Council. - A council that shall serve as a coordinating
body for national tourism development efforts shall be formed, consisting of the
Secretary, as Chairperson; the TPB Chief Operating Officer; the TIEZA Chief
Operating .Officer; the heads of other agencies attached to the Department; the
Secretaries of the DOTC, the DPWH, the DFA, the DENR, the DILG, the DOLE and
the Department of Education (DepEd); and the heads of the Philippine National Police
(PNP), the BI, the National Historical Institute, the National Commission for Culture
and the Arts, the PAGCOR, the leagues of LGUs and such other government agencies
that the President may designate; a representative each from the Tourism Congress, an
accredited NGO or PO engaged in ecotourism, and a recognized indigenous people’s
federation.
The Council shall prepare a five (5) - year strategic plan to develop and enhance a
culture of tourism. It shall also approve an annual infrastructure development plan that
shall promote access to and from airports and seaports, and TEZ and other tourism
destinations which shall be accorded priority by the relevant infrastructure agencies of
the national government.
Section 99. Education. - The Department shall work closely with the DepEd for the
development of basic education programs - formal, informal and non - formal learning
systems and interventions - for in - school and out - of - school youth in the promotion
of a cultwe of tourism through the development and integration of tourism concepts
and the enhancement of education in languages, history and culture and the arts.
The Department shall also work closely with the CHED in the regulation of colleges
and universities that grant undergraduate and postgraduate degrees in tourism.
The Technical Education and Skills Development Authority is hereby mandated to
develop, in conjunction with the Department, programs for the training of tourism
entrepreneurs by providing programs for languages, history and cultural appreciation,
and small business management.
Section 100. Peace and Order. - The PNP shall establish a Tourism Security Force to
assist in maintaining peace and order within areas of high tourism traffic. A tourist
police assistance desk office shall likewise be established in such areas. The Department
shall coordinate with the DILG in training the members of the force in cultural
sensitivity, languages and relevant laws.
Section 101. Funding Grassroots Tourism Enterprises. - Insofar as allowed by applicable laws
and their respective charters, government - owned and - controlled banks and financial
institutions shall provide microfinance schemes for the assistance and development of
small - and medium - scale enterprises in the tourism industry.
Section 102. No Injunctions Clause. - No temporary restraining order or preliminary
injunction shall be issued or be effective against the TIEZA unless the same is issued by
the Supreme Court.57
Section 103. Joint Congressional Oversight committee on Tourism. - A Joint Congressional
Oversight Committee on Tourism, hereinafter referred to as the "Oversight
Committee", is hereby constituted in accordance with the provisions of this Act. The
Committee shall be composed of the Chairpersons of the Committees on Tourism of
both Houses of Congress, the Chairperson of the Committee on Appropriations of the
House of Representatives, the Chairperson of the Committee on Finance of the Senate,
and three (3) additional members from each House to be designated by the Senate
President and the Speaker of the House of Representatives. The Oversight Committee
shall be in existence for a period of ten (10) years from the effectivity of this Act.
The Secretary shall report to the Oversight Committee on a monthly basis the latest
statistics on tourist arrivals and other relevant data. He or she shall also report, on a
quarterly basis, the status of implementation of this Act based on the monthly report
submitted thereto by all attached agencies of the Department with respect to the
implementation of their respective programs.
Section 104. The Tourism Congress. - Within thirty (30) days from the publication of the
implementing rules and regulations of this Act, the Secretary shall convene a Tourism
Congress of representatives of all accredited tourism enterprises and former
government officials involved in the tourism industry to serve as the private sector
consultative body to assist the government in the development, implementation and
coordination of Philippine tourism policy.
The Tourism Congress shall adopt and ratify its constitution, shall elect its officers and
shall establish a secretariat, both for the Tourism Congress as a whole and for
component sectors. It shall also nominate such representatives as required under this Establish and Operate a Duty - and Tax - Free Merchandising System); Executive Order
Act. Finally, it shall endeavor to meet annually to carry out its mandate. No. 30 (Creating an Executive Committee for the Development of Quezon Memorial,
CHAPTER IX Luneta and Other National Parks); Presidential Decree No. 37 (Creating the Nayong
MISCELLANEOUS PROVISIONS Pilipino Foundation); Presidential Decree No. 1616 (Creating the Intramuros
Section 105. Personnel and Compensation. - The employees and management of the Administration); Presidential Decree No. 442, as amended (Labor Code); Republic Act
TIEZA, the TPB and the DFPC shall be exempt from the coverage of the Salary No. 7160 (The Local Government Code); Republic Act No. 7722 (Creating the
Standardization Law. Commission on Higher Education); Republic Act No. 9497 (Creating the Civil Aviation
Subject to existing constitutional and legal prohibitions on double compensation for Authority of the Philippines); and all other laws, presidential decrees, executive orders,
Board members in an ex officio capacity, the members of the TIEZA Board, the proclamations and administrative regulations inconsistent with the provisions of this
Tourism Board and the DFPC Board shall not be entitled to compensation but may Act are hereby amended, modified, superseded or repealed accordingly.
receive reasonable per diems for attendance at regular and special Board meetings. Section 112. Separability Clause. - In the event that any provision of this Act or parts
Section 106. Budgetary Approval. - All attached agencies of the Department shall submit thereof be declared unconstitutional, such declaration shall not affect the validity of the
their annual budgets to the Secretary for approval, and shall furnish copies of the same other provisions.
to the Oversight Committee. Section 113. Effectivity Clause. - This Act shall take effect thirty (30) days after its
The budgets of the TPB, the TIEZA and the DFPC reported to the Oversight publication in the Official Gazette or in at least two (2) newspapers of national
Committee shall contain detailed information on the compensation and benefits circulation.
received by their employees.
Section 107. Implementing Rules and Regulations. - Upon consultation with stakeholders,
the Secretary shall promulgate the implementing rules and regulations of this Act within
ninety (90) days after its effectivity. The Oversight Committee shall be furnished a copy
thereof immediately after promulgation.
Section 108. Review. - This Act shall be subject to congressional review by Congress
three (3) years after its approval and every three (3) years thereafter.lawphil
Section 109. Transitory Provisions. - The transfer of powers and functions in the
Department and agencies attached thereto, as herein provided for, shall take effect
within six (6) months after the effectivity of this Act. The foregoing transfer of powers
and functions shall include all applicable funds, personnel, records, property and
equipment, as may be necessary. The same shall apply to agencies which have been
attached to the Department by virtue of this Act.
As such, all offices under the Department and all attached agencies affected by the
provisions of this Act shall continue to function under their present mandates until
transition is effected as provided for under this Act.
All officers currently serving in the PCVC, the PTA and the DFP Boards shall continue
to serve the unexpired portion of the term of the position in the Boards of the TPB, the
TIEZA and the DFPC, respectively.
The heads of the agencies shall continue to serve until replaced as provided for under
this Act.
Section 110. Transfer of Rights and Liabilities. - The TPB, the TIEZA and the DFPC shall,
by virtue of this Act, be subrogated to all rights and assume all liabilities of the PCVC,
the PTA and the DFP, respectively, in accordance with pertinent laws, rules and
regulations.
Section 111. Repealing Clause. - The provisions of Executive Order No. 120
(Reorganizing the Ministry of Tourism, Defining its Powers and Functions and for
Other Purposes); Executive Order No. 292, as amended (The Administrative Code of
1987); Presidential Decree No. 189, as amended, (Creating the Philippine Tourism
Authority); Presidential Decree No. 1448, as amended, (Creating the Philippine
Convention and Visitors Corporation); Executive Order No. 46 (Granting the
Department of Tourism, Through the Philippine Tourism Authority, Authority to
REPUBLIC ACT NO. 10165 June 11, 2012
AN ACT TO STRENGTHEN AND PROPAGATE FOSTER CARE AND TO
PROVIDE FUNDS THEREFOR
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
ARTICLE I
GENERAL PROVISIONS
Section 1. Title. – This Act shall be known as the "Foster Care Act of 2012."
Section 2. Declaration of Policy. – Article XV of the Constitution provides that the State
shall defend the right of children to assistance, including proper care and nutrition, and
special protection from all forms of neglect, abuse, cruelty, exploitation or other
conditions prejudicial to their development.
It is hereby declared the policy of the State to provide every child who is neglected,
abused, surrendered, dependent, abandoned, under sociocultural difficulties, or with
special needs with an alternative family that will provide love and care as well as
opportunities for growth and development.
The State shall guarantee that all the lights of the child enumerated under Article 3 of
Presidential Decree No. 603, otherwise known as "The Child and Youth Welfare Code",
as amended, and the rights found under Article 20 of the United Nations Convention
on the Rights of the Child shall be observed.
The State recognizes that in most cases, a child will benefit more from foster care than
institutional care. Towards this end, the State shall systematize and enhance the foster
care program in the country. It shall ensure that the foster family shall provide a
wholesome atmosphere to the foster child. Further to this end, the State recognizes that
foster care is an important step towards the child’s return and reintegration to his
biological parents or placement with an adoptive family.
The State shall also protect the rights of the biological child of the foster family and
ensure that in no case shall the child be disadvantaged as a result of the placement of a
foster child.
In all cases, the child’s right to health shall be upheld and protected.
Section 3. Definition of Terms. – For purposes of this Act, the following terms are
defined:
(a) Agency refers to any child-caring or child-placing institution licensed and accredited
by the Department of Social Welfare and Development (DSWD) to implement the
foster care program.
(b) Child refers to a person below eighteen (18) years of age, or one who is over
eighteen (18) but is unable to fully take care of or protect oneself from abuse, neglect,
cruelty, exploitation or discrimination because of a physical or mental disability or
condition.
(c) Child Case Study Report refers to a written report prepared by a social worker
containing all the necessary information about a child.
(d) Child with Special Needs refers to a child with developmental or physical disability.
(e) Family refers to the parents or brothers and sisters, whether of the full or half-blood,
of the child.
(f) Foster Care refers to the provision of planned temporary substitute parental care to a
child by a foster parent.
(g) Foster Child refers to a child placed under foster care.
(h) Foster Family Care License refers to the document issued by the DSWD authorizing
the foster parent to provide foster care.
(i) Foster Parent refers to a person, duly licensed by the DSWD, to provide foster care.
(j) Foster Placement Authority (FPA) refers to the document issued by the DSWD
authorizing the placement of a particular child with the foster parent.
(k) Home Study Report refers to a written report prepared by a social worker containing
the necessary information on a prospective parent or family member.
(l) Matching refers to the judicious pairing of a child with foster parent and family
members based on the capacity and commitment of the foster parent to meet the
individual needs of the particular child and the capacity of the child to benefit from the
placement.
(m) Parent refers to the biological or adoptive parent or legal guardian of a child.
(n) Placement refers to the physical transfer of the child with the foster parent.
(o) Relatives refer to the relatives of a child, other than family members, within the
fourth degree of consanguinity or affinity.
(p) Social Worker refers to the registered and licensed social worker of the DSWD, local
government unit (LGU) or agency.
ARTICLE II
ELIGIBILITY
Section 4. Who May Be Placed Under Foster Care. – The following may be placed in foster
care:
(a) A child who is abandoned, surrendered, neglected, dependent or orphaned;
(b) A child who is a victim of sexual, physical, or any other form of abuse or
exploitation;
(c) A child with special needs;
(d) A child whose family members are temporarily or permanently unable or unwilling
to provide the child with adequate care;
(e) A child awaiting adoptive placement and who would have to be prepared for family
life;
(f) A child who needs long-term care and close family ties but who cannot be placed for
domestic adoption;
(g) A child whose adoption has been disrupted;
(h) A child who is under socially difficult circumstances such as, but not limited to, a
street child, a child in armed conflict or a victim of child labor or trafficking;
(i) A child who committed a minor offense but is released on recognizance, or who is in
custody supervision or whose case is dismissed; and
(j) A child who is in need of special protection as assessed by a social worker, an agency
or the DSWD.
Provided, That in the case of (b), (c), (f), (h), (i), and (j), the child must have no family
willing and capable of caring and providing for him.
Section 5. Who May Be a Foster Parent. – An applicant who meets all of the following
qualifications may be a foster parent:
(a) Must be of legal age;
(b) Must be at least sixteen (16) years older than the child unless the foster parent is a
relative;
(c) Must have a genuine interest, capacity and commitment in parenting and is able to
provide a familial atmosphere for the child;
(d) Must have a healthy and harmonious relationship with each family member living
with him or her;
(e) Must be of good moral character;
(f) Must be physically and mentally capable and emotionally mature;
(g) Must have sufficient resources to be able to provide for the family’s needs;
(h) Must be willing to further hone or be trained on knowledge, attitudes and skills in
caring for a child; and
(i) Must not already have the maximum number of children under his foster care at the
time of application or award, as may be provided in the implementing rules and
regulations (IRR) of this Act.
Provided, That in determining who is the best suited foster parent, the relatives of the
child shall be given priority, so long as they meet the above qualifications: Provided,
further, That an alien possessing the above qualifications and who has resided in the
Philippines for at least twelve (12) continuous months and maintains such residence
until the termination of placement by the DSWD or expiration of the foster family
license, may qualify as a foster parent.
ARTICLE III
PARENTAL AUTHORITY OF FOSTER PARENTS
Section 6. Parental Authority of a Foster Parent. – Foster parents shall have the rights,
duties and liabilities of persons exercising substitute parental authority, as may be
provided under the Family Code over the children under their foster care.
Section 7. Limitations on Parental Authority of Foster Parents. – Foster parents shall only
have the rights of a person with special parental authority to discipline the foster
children as defined under Section 233 of the Family Code, insofar as it prohibits the
infliction of corporal punishment upon the child.
ARTICLE IV
PROCEDURE
Section 8. Recruitment and Development of Foster Parents. – To recruit applications for foster
care, the DSWD shall reach out to various communities and LGUs and work preferably
with the Local Council for the Protection of Children (LCPC).
Section 9. Submission of Home Study Report. – The social worker shall make a detailed
Home Study Report of an applicant’s background and circumstances, carried out in a
series of planned visits and interviews, in order to determine if the applicant meets the
basic requirements for foster care and is suitable to become a foster parent.
Section 10. Issuance of License. – The DSWD shall issue a Foster Family Care License
based on the Home Study Report submitted by the agency to determine the
motivations, capacities and potentials for development of applicants. The license is
renewable every three (3) years unless earlier revoked by the DSWD.
Section 11. Matching. – Matching shall be done by the agency only after the child case
study and the home study have been conducted, save for exceptions to be determined
by the DSWD, taking into consideration the best interests of the child.
The child case study report shall establish the needs of the child for consideration in the
selection of the foster parent. Likewise, the Home Study Report shall establish said
foster parent’s capacity and resources to provide a safe, secure and losing home to the
child.
Section 12. Placement. – The physical transfer of the child to the foster parent shall be
allowed only after the FPA has been issued, save for exceptions to be determined by the
DSWD, taking into consideration the best interest of the child.
Section 13. Supervision of Foster Placement. – Supervised foster placement begins as soon
as the foster parent receives the child into his care. During the foster placement, the
social worker shall conduct regular home visits to monitor the child’s adjustment in the
foster home and shall submit progress reports to the DSWD.
In case of incident, injury or death of a foster child, or if he runs away or gets lost, such
case shall be reported immediately to the agency, which, in turn, shall immediately
report the same to the DSWD.
Section 14. Termination of Placement. – Termination of placement shall be done by the
DSWD, upon recommendation of the agency, on the following grounds:
(a) Return of the child to biological parents;
(b) Placement for adoption of the child;
(c) Death of the child;
(d) Death of both foster parents;
(e) Expiration of the FPA; and
(f) In all cases where placement becomes prejudicial to the welfare of the child, such as,
but not limited to, abandonment, maltreatment, sexual assault, violence or other forms
of abuse.
Provided, That in the case of (f), the foster child, with the assistance of a registered
social worker, shall have the option to apply for termination of placement.
ARTICLE V
LONG-TERM FOSTER PLACEMENT
Section 15. Long-Term Foster Placement Authority. – If a child has been under the care of a
foster parent for a period of at least seven (7) years, the said foster parent may apply for
Long-Term Foster Placement Authority (LTFPA), subject to the following conditions:
(a) The child’s return to his biological parents or placement in an adoptive family is not
imminent;
(b) The foster parent continues to possess the qualifications required under tins Act and
a valid foster family care license for the entire duration of the foster care;
(c) The child, if ten (10) years of age or over, duly assisted by a social worker, gives
written consent for long-term stay with the foster parent; and
(d) Aside from the regular monitoring visits, the DSWD shall reassess and reevaluate
the foster home situation every three (3) years, to determine whether it is in the best
interest of the child to continue living in the foster home on a long-term basis.
LTFPA grants the foster parent custody over the foster child without the requirement
of the eventuality of adoption of the latter by the former. During this period, the foster
child shall enjoy the rights of a child under Article 3 of the Child and Youth Welfare
Code, and under other laws: Provided, That there shall be no mandatory rights of
succession in favor of the foster child.
Section 16. Long-Term Foster Care Commitment. – Taking into consideration the stability
and best interest of the foster child, a foster parent, who unilaterally terminates the
LTFPA before the foster child reaches the age of majority or finishes tertiary education,
shall make provisions for the education and basic needs of the foster child, in
accordance with the standards in which the child has been raised or has become
accustomed to, within the said period: Provided, That the faster parent has the means to
support the foster child in keeping with the financial capacity of the family.
ARTICLE VI
ADOPTION OF A FOSTER CHILD
Section 17. Conditions. – A foster parent may adopt his foster child subject to the
following conditions:
(a) The foster parent must have all the qualifications as provided for by Republic Act
No. 8552, otherwise known as the Domestic Adoption Act of 1998 or Republic Act
No. 8043, otherwise known as the Inter-Country Adoption Act of 1995, as the case may
be;
(b) The trial custody, as required in adoption, may be waived: Provided, That a
harmonious relationship exists between the child and his foster parent and family
members; and
(c) The procedures for adoption, for purposes of this Act, shall be governed by
Domestic Adoption Act of 1998 or Inter-Country Adoption Act of 1995, as the case
may be.
ARTICLE VII
LOCAL GOVERNMENT UNITS
Section 18. Role of Local Government Units (LGUs). – LGUs shall promote the foster care
system in their respective territorial jurisdictions.
Section 19. Funding. – In accordance with the Local Government Code, LGUs shall
primarily be responsible for social welfare services which include foster care programs.
However, the national government shall provide financial support, priority given to
third (3 rd), fourth (4 th) and fifth (5 th) class municipalities.1âwphi1
Section 20. Seminars and Trainings. – The DSWD, in coordination with the Department
of the Interior and Local Government (DILG), is hereby mandated to develop and
provide programs to ensure the awareness and responsiveness of local government
officials in the promotion and development of the foster care system in every city,
municipality or barangay.
ARTICLE VIII
ASSISTANCE AND INCENTIVES
Section 21. Assistance to a Foster Child. –
(a) Foster Child Subsidy. – A foster child, through the agency, shall be entitled to a
monthly subsidy from the DSWD, subject to existing government auditing rules and
regulations. The subsidy is primarily aimed at supporting the expenses of the child to
lessen the financial burden on the foster parent: Provided, That support may be waived
if the foster parent is capable of supporting the foster child.
(b) Health Insurance. – A foster child shall automatically be a PhilHealth beneficiary of
the foster parent and as such, entitled to health insurance benefits. If the foster parent is
not a PhilHealth member, he must seek enrollment with PhilHealth. LGUs and agencies
shall provide assistance to the foster parents to ensure enrollment.
Section 22. Assistance and Incentives to Foster Parent. –
(a) Support Care Services. – The DSWD, the social service units of LGUs and agencies
shall provide support care services to include, but not limited to, counseling, visits,
training on child care and development, respite care, skills training and livelihood
assistance.
(b) Additional Exemption for Dependents. – For purposes of claiming the Twenty-five
thousand pesos (PhP 25,000.00) additional exemption for foster parents for each
dependent not exceeding four (4) as provided for by Republic Act No. 9504, the
definition of the term "dependent" under Section 35(B) of the National Internal
Revenue Code (NIRC) of 1997 shall be amended to include "foster child": Provided,
That all other conditions provided for under the aforesaid section of the NIRC of 1997
must be complied with: Provided, further. That this additional exemption shall be
allowed only if the period of foster care is at least a continuous period of one (1) taxable
year.
For purposes of this section, only one (1) foster parent can treat the foster child as a
dependent for a particular taxable year. As such, no other parent or foster parent can
claim the said child as a dependent for that period.
Section 23. Incentives to Agencies. – Agencies shall be entitled to the following tax
incentives:
(a) Exemption from Income Tax. – Agencies shall be exempt from income tax on the
income derived by it as such organization pursuant to Section 30 of the NIRC of 1997,
as implemented by Revenue Regulation (RR) No. 13-98; and
(b) Qualification as a Donee Institution. – Agencies can also apply for qualification as a
donee institution.
Section 24. Incentives to Donors. – Donors of an agency shall be entitled to the following:
(a) Allowable Deductions. – Donors shall be granted allowable deductions from its
gross income to the extent of the amount donated to agencies in accordance with
Section 34(H) of the NIRC of 1997; and
(b) Exemption from Donor’s Tax. – Donors shall be exempted from donor’s tax under
Section 101 of the NIRC of 1997: Provided, That not more than thirty percent (30%) of
the amount of donations shall be spent for administrative expenses.
ARTICLE IX
PENALTIES
Section 25. Penalties. –
(a) Any foster parent, found to be committing any act of neglect, abuse, cruelty, or
exploitation and other similar acts prejudicial to the child’s development, shall be
penalized in accordance with Republic Act No. 7610, otherwise known as "An Act
Providing For Stronger Deterrence and Special Protection Against Child Abuse,
Exploitation and Discrimination, Providing For Its Violation, and For Other Purposes",
and other applicable laws.
(b) An agency which violates Sections 11, 12, 13 or any other provision of this Act and
its IRR shall suffer the following penalties:
(1) For the first violation, a fine of not less than Twenty-five thousand pesos (PhP
25,000.00) but not exceeding Fifty thousand pesos (PhP 50,000.00); and
(2) For any subsequent violation, a fine of not less than Fifty thousand pesos (PhP
50,000.00) but not exceeding One hundred thousand pesos (PhP 100,000.00), and
revocation of license to operate.
(c) Any person, natural or juridical, other than the foster parent or any agency, violating
any provision of this Act and its IRR shall be penalized with imprisonment of one (1)
month to six (6) years, depending on the gravity of the offense or a fine of not less than
Ten thousand pesos (Php 10,000.00) but not more than One hundred thousand pesos
(PhP 100,000.00), or both, at the discretion of the court.
(d) If the offender is a public official, the court may impose the additional penalty of
disqualification from office in addition to the penalties provided in the preceding
paragraph.
ARTICLE X
FINAL PROVISIONS
Section 26. Foster Care Committee. – The Regional Child Welfare Specialist Group of the
DSWD shall serve as the Foster Care Committee, which shall have the following
functions:
(a) Review and deliberate issues affecting the placement of a particular child;
(b) Make recommendations to resolve any dispute between and among the agency, the
parents, the foster parents and the child;
(c) Monitor the implementation, review, and recommend changes in policies concerning
foster care and other matters related to the child’s welfare;
(d) Submit to the Secretary of the DSWD and to Congress an annual report of the
policies, programs and activities relative to the implementation of this Act; and
(e) Perform such other functions and duties as may be prescribed by the DSWD.
Section 27. Appropriation. – The amount necessary to carry out the provisions of this
Act shall be included in the General Appropriations Act of the year following its
enactment into law and thereafter. An initial amount of Twenty-five million pesos (PhP
25,000,000.00) shall be allocated for the first year of its operation. Such sum shall be
intended to support the foster care programs of the DSWD and agencies.
Section 28. Implementing Rules and Regulations. – The DSWD, as lead agency, the
Department of Justice (DOJ), the Department of Health (DOH), the Bureau of Internal
Revenue (BIR), the Council on Welfare of Children (CWC), the DILG and other
concerned government agencies, in consultation with agencies are hereby mandated to
prepare and draft the IRR to operationalize the provisions of this Act within (3) months
from its effectivity.
Section 29. Suppletory Clause. – The provisions of Executive Order No. 209, otherwise
known as the Family Code of the Philippines and other applicable laws, shall have
suppletory application to this Act.
Section 30. Repealing Clause. – Any law, presidential decree, issuance, executive order,
letter of instruction, administrative order, rule and regulation contrary to or inconsistent
with the provisions of this Act is hereby repealed, modified or amended accordingly.
Section 31. Separability Clause. – If any provision of this Act is held invalid or
unconstitutional, the other provisions not affected hereby shall remain valid and
subsisting.
Section 32. Effectivity. – This Act shall take effect fifteen (15) days after its publication in
two (2) newspapers of general circulation or in the Official Gazette.
REPUBLIC ACT No. 9904
AN ACT PROVIDING FOR A MAGNA CARTA FOR HOMEOWNERS AND
HOMEOWNERS’ ASSOCIATIONS, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:
CHAPTER I
TITLE AND DECLARATION OF POLICY
Section 1. Title. – This Act shall be known as the "Magna Carta for Homeowners
and Homeowners’ Associations".
Section 2. Declaration of Policy. - In fulfillment of the constitutional principles directing
the State to encourage, promote and respect nongovernmental, community - based and
people’s organizations in serving their legitimate collective interests in our participatory
democracy, it is hereby declared the policy of the State to uphold the rights of the
people to form unions, associations, or societies, and to recognize and promote the
rights and the roles of homeowners as individuals and as members of the society and of
homeowners' associations. To this end, the State shall endeavor to make available
resources and assistance that will help them fulfill their roles In serving the needs and
interests of their communities, in complementing the efforts of local government units
(LGUs) in providing vital and basic services to our citizens, and in helping implement
local and national government policies, programs, rules and ordinances for the
development of the nation.
Section 3. Definition of Terms. - For purposes of this Act, the following terms shall
mean:
(a) "Accounting period" refers to the fiscal or calendar year adopted by a homeowners’
association in the recording and reporting of its fiscal transactions.
(b) "Association" refers to the homeowners’ association which is a nonstick, nonprofit
corporation registered with the Housing and Land Use Regulatory Board (HLURB), or
one previously registered with the Home Insurance Guarantee Corporation (now Home
Guaranty Corporation) or the Securities and Exchange Commission (SEC), organized
by owners or purchasers of a lot in a subdivision/village or other residential real
property located within the jurisdiction of the association; or awardees, usufructuaries,
legal occupants and/or lessees of a housing unit and/or lot in a government socialized
or economic housing or relocation project and other urban estates; or underprivileged
and homeless citizens as defined under existing laws in the process of being accredited
as usufructuaries or awardees of ownership rights under the Community Mortgage
Program (CMP), Land Tenure Assistance Program (LTAP) and other similar programs
in relation to a socialized housing project actually being Implemented by the national
government or the LGU.
(c) "Association member" refers to a homeowner who is a member of the association
where his/her housing unit or lot is situated and those defined in the articles of
incorporation and bylaws of the association.
(d) "Basic community services and facilities" refer to services and facilities that redound
to the benefit of all homeowners and from which, by reason of practicality, no
homeowner may be excluded such as, but not limited to: security; street and vicinity
lights; maintenance, repairs and cleaning of streets; garbage collection and disposal; and
other similar services and facilities.
(e) "Board" refers to the board of directors or trustees of the association which has
primary authority to manage the affairs of the association.
(f) "Common areas" refer to property owned or otherwise maintained, repaired or
administered in whole or in part by the association including, but not limited to, roads,
parks, playgrounds and open spaces as provided in Presidential Decree No. 1216.
(g) "Common expense" refers to costs incurred by the association to exercise any of the
powers provided for in this Act.
(h) "Economic housing" refers to a type of housing project with lower interest rates and
longer amortization periods provided to moderately low - income families, as defined
under existing laws, rules and regulations.
(i) "Governing document" refers to the articles of incorporation, bylaws, conditions,
rules and regulations of the association, or other written instrument by which the
association has the authority to exercise any of the powers provided for in this Act.
(j) "Homeowner" refers to any of the following;
(1) An owner or purchaser of a lot in a subdivision/village;
(2) An awardee, usufructuary, or legal occupant of a unit, house and/or lot in a
government socialized or economic housing or relocation project and other urban
estates; or
(3) An informal settler in the process of being accredited as beneficiary or awardee of
ownership rights under the CMP, LTAP, and other similar programs.
(k) "Residential real property" refers to any real property, the use of which is limited by
law to primarily residential purposes.
(l) "Simple majority" refers to fifty percent (50%) plus one (1) of the total number of
association members.
(m) "Socialized housing" refers to housing programs and projects covering houses and
lots or home lots only undertaken by the government or the private sector for the
underprivileged and homeless citizens which shall include sites and services
development, long - term financing, liberalized terms on interest payments, and other
benefits in accordance with the provisions of Republic Act No. 7279, otherwise known
as the Urban Development and Housing Act of 1992 (UDHA).
(n) "Subdivision/Village" refers to a tract or parcel of land partitioned into individual
lots, with or without improvements thereon, primarily for residential purposes.
Section 4. Registration with the HLURB. - Every association of homeowners shall be
required to register with the HLURB. This registration shall serve to grant juridical
personality to all such associations that have not previously acquired the same by
operation of the General Corporation Law or by any other general law.
The procedure for registration shall be specifically provided for in the implementing
rules and regulations to be promulgated by the HLURB pursuant to Section 28 of this
Act.1avvphi1 Such procedure shall provide for an adjudicatory mechanism that will be
observed in the event there is a dispute involving two (2) or more associations
established within the same subdivision/village), community/area, or housing project
seeking registration. In resolving this type of dispute, the HLURB shall take into
account the date each association was legally established, the date of submission of its
application for registration, the number of members, and other similar factors.
The existence of associations previously registered with the Home Insurance Guarantee
Corporation or the SEC shall be respected, and the said associations shall not be
charged a penalty when they register with the HLURB after this Act takes effect.
CHAPTER II
HOMEOWNERS
Section 5. Rights and Duties of Every Homeowner. - Every homeowner has the right to
enjoy the basic community services and facilities: Provided, That he/she pays the
necessary fees and other pertinent charges.
Section 6. Qualification of a Member. - A homeowner as defined under this Act shall be
qualified to be a member of an association: Provided, however, That a lessee, usufructuary,
or legal occupant shall have the right of a homeowner as set forth under this Act upon
procurement of a written consent or authorization from the owner of the lot or housing
unit.
Until such consent or authorization is revoked in writing, the owner of the lot or
housing unit is deemed to have waived his/her rights enumerated under Section 7 of
this Act, except subsection (b) of the same section which can be simultaneously enjoyed
by both the owner and the lessee.
For purposes of this Act, the lessee authorized in accordance with this sect shall qualify
as a member with all the rights enumerated in this Act, including the duties and
obligations enumerated under Sections 7, 8 and 9 hereof: Provided, further, That lessees in
government socialized housing projects or urban estates and those in communities of
underprivileged and homeless citizens covered under the term under Section 3 of this
Act will be considered as homeowners for the purpose of qualifying as a member of a
homeowners' association without need of such written consent or authorization.
Section 7. Rights of a Member. - An association member has full rights:
(a) to avail of and enjoy all basic community services and the use of common areas and
facilities;
(b) to inspect association books and records during office hours and to be provided
upon request with annual reports, including financial statements;
(c) to participate, vote and be eligible for any elective or appointive office of the
association subject to the qualifications as provided for in the bylaws;
(d) to demand and promptly receive deposits required by the association as soon as the
condition for the deposit has been complied with or the period has expired;
(e) to participate in association meetings, elections and referenda, as long as his/her
bona fide membership subsists; and
(f) to enjoy all other rights as may be provided for in the association bylaws.
Section 8. Duties of a Member. - A member shall have the following duties:
(a) to pay membership fees, dues and special assessments;
(b) to attend meetings of the association; and
(c) to support and participate In projects and activities of the association.
Section 9. Delinquent Member. - The bylaws shall provide for guidelines and procedures
in determining who is a delinquent member, or a member not in good standing, and to
prescribe the administrative sanctions to be imposed on such member. The right to due
process shall be observed in cases where administrative sanctions are imposed on a
delinquent member.
CHAPTER III
HOMEOWNERS’ ASSOCIATION
Section 10. Rights and Powers of the Association. - An association shall have the following
rights and shall exercise the following powers:
(a) Subject to consultation and with the approval of a simple majority of the members,
adopt and amend the articles of incorporation and bylaws, rules and regulations,
pursuant to existing laws and regulations;
(b) In behalf of its members, institute, defend, or intervene in litigation and/or
administrative proceedings affecting the welfare of the association and the
subdivision/village as a whole, excluding, however, disputes that are not the
responsibility of the association;
(c) Regulate the use, maintenance, repair, replacement and modification of common
areas and cause additional improvements to be made part of the common
areas: Provided, That the aforementioned do not contradict the provisions of the
approved subdivision plan;
(d) Regulate access to, or passage through the subdivision/village roads for purposes of
preserving privacy, tranquility, internal security, and safety and traffic
order: Provided, That: (1) public consultations are held; (2) existing laws and regulations
are met; (3) the authority of the concerned government agencies or units are obtained;
and (4) the appropriate and necessary memoranda of agreement are executed among the
concerned parties;
(e) Hire, discharge or contract managing agents and other employees, agents and
independent contractors to ensure the full functioning and operation of the association;
(I) Subject to consultation with and the approval of a simple majority of the association
members, acquire, hold, encumber and convey in its own name any right, title to or
interest in real or personal property: Provided, That such approval of a simple majority of
the association members shall not be required for the acquisition, holding, encumbrance
and conveyance of personal properties in amounts not exceeding ten percent (10%) of
the association’s cash holdings for its use in the course of its normal operations;
(g) Ensure the availability of quality water services at a reasonable price and at its option,
administer and manage the waterworks system of the subdivision;
(h) Upon consultation, grant easements, leases, concessions and authority to use
common areas and petition for or consent to the vacation of streets and
alleys: Provided, That the said grant of easements, leases, concessions and authority shall
not be applicable to access roads, main interconnecting roads, alleys and sidewalks
within the subdivision;
(i) Impose or collect reasonable fees for the use of open spaces, facilities, and services of
the association to defray necessary operational expenses, subject to the limitations and
conditions imposed under the law, the regulations of the board and the association’s
bylaws;
(j) Cause compliance with regard to height regulations, easements, use of homes,
buildings, edifices, or structures that may be built within the subdivision, in accordance
with the National Building Code, zoning laws, HLURB rules and regulations, existing
local ordinances, and existing deeds of restriction;
(k) Subject to consultation and with the approval of a simple majority of the association
members, allow the establishment of certain institutions such as, but not limited to,
schools, hospitals, markets, grocery stores and other similar establishments that will
necessarily affect the character of the subdivision/village in terms of traffic generation,
and/or opening the area to outsiders which may result in the loss of privacy, security,
safety, and tranquility to its residents, in accordance with the National Building Code,
zoning laws, existing local ordinances, HLURB rules and regulations, and existing
jurisprudence: Provided, That such prior approval shall not be necessary for the
establishment of sari - sari stores, home industries and similar small - scale business
enterprises within the subdivision/village classified as socialized housing;
(l) Suspend privileges of and services to and/or impose sanctions upon its members for
violations and/or noncompliance with the association's bylaws, and rules and
regulations;
(m) Petition for the creation of a separate barangay, independently or together with
neighboring subdivisions: Provided, That all the requirements of the Local Government
Code of 1991 are met; and
(n) Exercise any other powers conferred by the bylaws and the HLURB necessary for
the governance and operation of the association.
Section 11. Board of Directors or Trustees. - The bylaws of the association shall provide for
the qualifications and number of the directors or trustees that will comprise the board.
Section 12. Duties and Responsibilities of the Board. In addition to the duties and
responsibilities stated in the bylaws of the association, the board shall have the following
duties and responsibilities:
(a) Regularly maintain an accounting system using generally accepted accounting
principles, and keep books of accounts, which shall be open for inspection to any
homeowner and duly authorized representatives of government agencies upon request,
during reasonable hours, on business days;
(b) Collect the fees, dues and assessments that may be provided for in the bylaws and
approved by a majority of the members;
(c) Collect reasonable charges for assessments, and after due notice and hearing by the
board in accordance with the procedures as provided in the bylaws, and rules and
regulations adopted by the board, charge reasonable fines for late payments and for
violation of the bylaws, rules, and regulations of the association, in accordance with a
previously established schedule adopted by the board and furnished to the
homeowners;
(d) Propose measures to raise funds and the utilization of such funds and submit the
same for consideration of the members of the association;
(e) Undergo a free orientation by the HLURB or any other competent agency deputized
by it on how to conduct meetings, preparation of minutes, handling of accounts, laws
and pertinent rules and regulations within thirty (30) days after election or appointment;
(f) Discharge the duties and responsibilities provided for in the association’s bylaws;
and
(g) Exercise such other powers as may be necessary and proper in accordance with this
Act and for the accomplishment of the purposes for which the association was
organized.
The board shall act in all instances on behalf of the association, except to amend the
articles of incorporation, to dissolve the association, to elect members of the board or to
determine the qualifications, powers and duties, or terms of office of the board, and
other instances that require the vote or approval of the members themselves. In the
performance of their duties, the officers and members of the board shall exercise the
degree of care and loyalty required by such position.
Section 13. Removal of a Director or Trustee. - Through a signed petition of a simple
majority of the association members in good standing, subject to a verification and
validation by the HLURB, a director/trustee may be removed for causes provided in the
bylaws of the association: Provided, That if a majority of the members of the board is
removed, it shall be considered a dissolution of the entire board, in which case, Section
14 hereof shall govern.
Within sixty (60) days after the removal of a director or trustee, an election shall be
called by the remainder of the board for the purpose of determining who shall hold
office for the unexpired term of the removed director/trustee.
Section 14. Dissolution of the Board. - Through a signed petition of two - thirds (2/3) of
the association members subject to a verification and validation by the HLURB, the
board of the association may be dissolved for causes provided in the bylaws of the
association.
Within sixty (60) days from the above dissolution, an election for a new board shall be
called and conducted by the HLURB for the purpose of determining who shall hold
office for the unexpired term of the dissolved board.
Until the new board members shall have been elected and qualified, the HLURB shall
designate an interim board: Provided, That such board shall be composed of association
members in good standing: Provided, further, That such interim board members shall not
be eligible to run in the election called for the purpose of replacing the members of the
dissolved board.
Section 15. Association Bylaws. - The bylaws of the association shall be adopted by a
simple majority of the members of the association. Consistent with the provisions of
this Act, it shall provide for:
(a) The rights, duties and obligations of members;
(b) The circumstances under which membership is acquired, maintained, and lost;
(c) The schedule, venue, and manner of conducting the regular, special, and emergency
meetings of the general membership, the required quorum, and allowable proxies in
such meetings;
(d) The number, qualifications, powers and duties, terms of office, manner of electing
and removing the board and the filling of vacancies in the board: Provided, That the term
of office of the members of the board shall not exceed two (2) years;
(e) The qualifications, positions, duties, election or appointment, and compensation of
other officers and employees of the association: Provided, That the term of office of the
other officers shall not exceed two (2) years: Provided, further, That no officer of the
association holding a rank of director or trustee shall likewise be entitled to any
compensation;
(f) The schedule, venue, and manner of conducting the regular, special, and emergency
meetings of the board, the required quorum, and allowable proxies in such meetings;
(g) Such powers that the board may delegate to a managing agent, if any, or to other
persons;
(h) Which of its officers may prepare, execute, certify and record amendments to the
governing documents on behalf of the association;
(i) The grounds and procedure for removal of director or trustee, and the manner of
filling up vacancies in the board, consistent with Section 13 of this Act;
(j) The grounds and procedure for dissolution of the board, and the manner of
reconstituting the board, consistent with Sections 13 and 14 of this Act;
(k) The actions for limiting, broadening or denying the right to vote, and the extent
thereof;
(I) The designation of the presiding officer at meetings of directors or trustees and
members;
(m) The time for holding the regular election of directors or trustees and the mode or
manner of giving notice thereof;
(n) The creation of election, grievance and audit committees, and such other
committees which the association may deem necessary; as well as a conciliation or
mediation mechanism for the amicable settlement of disputes among members,
directors or trustees, officers and committee members of the association;
(o) The dues, fees, and special assessments to be imposed on a regular basis, and the
manner in which the same may be imposed and/or increased;
(p) The method of adopting, amending, repealing and abrogating the bylaws;
(q) The list of acts constituting a violation by its officers and the corresponding
penalties therefor;
(r) The penalties for violation of the bylaws; and
(s) Such other matters necessary for the proper or convenient transaction of its
corporate business and affairs.
Section 16. Proxies. - Association members may vote in person or by proxy in all
meetings of members. Proxies shall be in writing, signed by the member and filed
before the scheduled meeting with the association secretary. Unless otherwise provided
in the proxy, it shall be valid only for the meeting for which it is intended, No proxy
shall be valid and effective for a period longer than three (3) years at anyone time unless
earlier revoked by the member.
Section 17. Financial and Other Records. - The homeowners’ association is enjoined to
observe the following, with regard to its funds, financial and other records:
(a) The association or its managing agent shall keep financial and other records
sufficiently detailed to enable the association to fully declare to each member the true
statement of its financial status. All financial and other records of the association
including, but not limited to, checks, bank records and invoices, in whatever form these
are kept, are the property of the association. Each association’s managing agent shall
turn over all original books and records to the association immediately upon termination
of the management relationship with the association, or upon such other demand as is
made by the board. An association’s managing agent is entitled to keep association
records. All records which the managing agent has turned over to the association shall
be made reasonably available for the examination and copying by the managing agent;
(b) All records involving the affairs of the association shall be available for examination
by all owners, holders of mortgages on the lots, and their respective authorized agents
upon reasonable advanced notice, during normal working hours at the office of the
association: Provided, That holders of mortgages on lots may have access to the
information about the property held in mortgage with the written consent of the
registered owner;
(c) A financial statement of the association shall be prepared annually by an auditor, the
treasurer and/or an independent certified public accountant within ninety (90) days
from the end of the accounting period to be posted in the association office, bulletin
boards, or other conspicuous places within the subdivision/village, and to be submitted
to the HLURB; and
(d) The funds of the association shall be kept in accounts in the name of the association
and shall not be joined with the funds of any other association, or any person
responsible for the custody of such funds.
Section 18. Relationship with LGUs. - Homeowners' associations shall complement,
support and strengthen LGUs in providing vital services to their members and help
implement local government policies, programs, ordinances, and rules.
Associations are encouraged to actively cooperate with LGUs in furtherance of their
common goals and activities for the benefit of the residents of the subdivisions/villages
and their environs.
Where the LGUs lack resources to provide for basic services, the associations shall
endeavor to tap the means to provide for the same. In recognition of the associations’
efforts to assist the LGUs III providing such basic services, association dues and
income derived from rentals of their facilities shall be tax - exempt: Provided, That such
income and dues shall be used for the cleanliness, safety, security and other basic
services needed by the members, including the maintenance of the facilities of their
respective subdivisions or villages.
LGUs shall, upon due notice, hold public consultations with the members of the
affected associations, especially their officers and directors, where proposed rules,
zoning and other ordinances, projects and/or programs affecting their jurisdiction and
surrounding vicinity are to be implemented prior to the effectivity or implementation of
such rules, zoning, ordinances, projects or programs: Provided, That in cases of zonal
reclassification, the approval of a simple majority of homeowners shall be required.
Such public consultations shall conform to the manner as specified in Rule XI, Article
54 of the implementing rules and regulations of Republic Act No. 7160, otherwise
known as the Local Government Code of 1991.
Section 19. Relationship with National Government Agencies. - The associations shall
complement, support and strengthen the efforts of the national government agencies in
providing vital services to their members and help implement the national government
policies and programs.
Associations are encouraged to actively cooperate with national government agencies in
the furtherance of their common goals and activities for the benefit of the residents of
the subdivisions and its environs. National government agencies shall consult the
associations where proposed rules, projects and/or programs may affect their welfare.
CHAPTER IV
DUTIES AND RESPONSlBILlTIES OF THE HLURB
Section 20. Duties and Responsibilities of the HLURB. - In addition to the powers,
authorities and responsibilities vested in it by Republic Act No. 8763, Presidential
Decree No. 902 - A, Batas Pambansa Big. 68 and Executive Order No. 535, Series of
1981, as amended, the HLURB shall:
(a) Regularly conduct free orientation for officers of homeowners’ associations or
deputize another competent agency to conduct the orientation;
(b) Formulate and publish a Code of Ethics and Ethical Standards for board members
detailing prohibited conflicts of interest;
(c) Register all associations, federations, confederations or umbrella organizations of the
associations;
(d) Hear and decide inter - association and/or inter - association controversies and/or
conflicts, without prejudice to filing civil and criminal cases by the parties concerned
before the regular courts: Provided, That all decisions of the HLURB are appealable
directly to the Court of Appeals;
(e) Formulate the rules or manner of verification and validation of petitions for the
removal of director(s) or trustee(s) of the association or dissolution of the board
pursuant to Sections 13 and 14 of this Act;
(f) Exercise the same powers over federations, confederations or umbrella organizations
of the associations;
(g) Formulate, in consultation with the representatives of associations, federations, association shall be jointly and severally liable with the offending employees, agents, and
confederations or umbrella organizations of the associations, standard nomenclatures to the association.1avvphi1
be used for the associations' books of accounts, and a standard articles of incorporation Section 24. Review of Association's Bylaws. - In order to comply with the provisions of this
and bylaws for homeowners' association for reference purposes; Act, the homeowners' association shall, within six (6) months from the effectivity of this
(h) Formulate, in consultation with the representatives of associations, federations, Act, conduct a review of its bylaws, draft its own rules of procedure to be incorporated
confederations or umbrella organizations of the associations, the guidelines in regulating in the bylaws and conduct a plebiscite for the approval of the members of the
the kinds of contributions and fees that may be charged and/or collected by association. A simple majority shall be used to determine the approval of the bylaws.
associations; and Section 25. Appropriations. - The amounts necessary for the implementation of this Act
(i) Call upon the Philippine National Police, other law enforcement agencies, and other and for carrying out the additional functions and responsibilities of the HLURB shall be
instrumentalities of the government, if necessary, for the enforcement of its functions. included in the annual General Appropriations Act.
Section 21. Additional Positions and Personnel for the HLURB. - For purposes of this Act, Section 26. Separability Clause. - If any provision of this Act is declared invalid or
the HLURB shall, upon its discretion, create positions and enlist additional personnel to unconstitutional, the remainder of the Act shall remain valid and subsisting.
carry out its mandate. Section 27. Repealing Clause. - All other issuances, laws, decrees, orders, rules and
CHAPTER V regulations, or parts thereof inconsistent with this Act are hereby repealed or modified
FINAL PROVISIONS accordingly.
Section 22. Prohibited Acts. - It shall be prohibited for any person: Section 28. Implementing Rules and Regulations. - The HLURB shall formulate and
(a) To compel a homeowner to join the association, without prejudice to the provisions promulgate, in consultation with concerned sectors, rules and regulations necessary to
of the deed of restrictions, its extensions or renewals as approved by the majority vote implement the provisions of this Act within SIX (6) months of its effectivity.
of the members or as annotated on the title of the property; the contract for the No rule or regulation shall be issued which tends to undermine the organizational and
purchase of a lot in the subdivision project; or an award under a CMP project or a territorial integrity of any association.
similar tenurial arrangement; Section 29. Effectivity. - This Act shall take effect fifteen (15) days following Its
(b) To deprive any homeowner of his/her right to avail of or enjoy basic community publication ill the Official Gazette or III at least two (2) national newspapers of general
services and facilities where he/she has paid the dues, charges, and other fees for such circulation.
services;
(c) To prevent any homeowner who has paid the required fees and charges from
reasonably exercising his/her right to inspect association books and records;
(d) To prevent any member in good standing from participating in association meetings,
elections and referenda;
(e) To deny any member due process in the imposition of administrative sanctions;
(f) To exercise rights and powers as stated m Section 10 in violation of the required
consultation and approval of the required number of homeowners or members;
(g) To unreasonably fail to provide basic community services and facilities and maintain,
repair, replace, or modify such facilities;
(h) To unreasonably fail to comply with Section 17 of this Act; or
(i) To violate any other provision of this Act.
Section 23. Penalties and Sanctions. - Any person who, intentionally or by gross
negligence, violates any provision of this Act, fails to perform his/her functions under
this Act and/or violates the rights of the members, shall be punished with a fine of not
less than Five thousand pesos (Php5, 000.00) but not more than Fifty thousand pesos
(Php50, 000.00) and permanent disqualification from being elected or appointed as
member of the board, officer or employee of the association, without prejudice to being
charged before a regular court for violations of the provisions of the Revised Penal
Code, Civil Code and other pertinent laws.
If the violation is committed by the association, the members, officers, directors or
trustees of the association who have actually participated in, authorized, or ratified the
prohibited act shall be held liable.
If the violation is committed by the employees and agents who acted in gross violation
of the provisions of this Act, the officers, directors or trustees, or incorporators of the