PAGCOR vs.

BIR:

ISSUE : W/N PAGCOR IS EXEMPTED FROM VAT. YES.

Facts: With the passage of Republic Act No. (RA) 9337, the Philippine Amusement and
Gaming Corporation (PAGCOR) has been excluded from the list of government-owned
and –controlled corporations (GOCCs) that are exempt from tax under Section27(c) of
the Tax Code; PAGCOR is now subject to corporate income tax.

The Supreme Court (SC) held that the omission of PAGCOR from the list of tax-
exempt GOCCs by RA 9337 does not violate the right to equal protection of the laws
under Section 1, Article III of the Constitution, because PAGCOR’s exemption from
payment of corporate income tax was not based on classification showing substantial
distinctions; rather, it was granted upon the corporation’s own request to be exempted
from corporate income tax. Legislative records likewise reveal that the legislative
intention is to require PAGCOR to pay corporate income tax.

With regard to the issue that the removal of PAGCOR from the exempted list violates
the non-impairment clause contained in Section 10, Article III of the Constitution —
which provides that no law impairing the obligation of contracts shall be passed — the
SC explained that following its previous ruling in the case of Manila Electric Company
v. Province of Laguna 366 Phil. 428(1999), this does not apply.

Franchises such as that granted to PAGCOR partake of the nature of a grant, and is thus
beyond the purview of the non-impairment clause of the Constitution.

As regards the liability of PAGCOR to VAT, the SC finds Section 4.108-3 of Revenue
Regulations No. (RR) 16- 2005, which subjects PAGCOR and its licensees and
franchisees to VAT, null and void for being contrary to the National Internal Revenue
Code (NIRC), as amended by RA 9337. According to the SC, RA 9337
does not contain any provision that subjects PAGCOR to VAT. Instead, the SC finds
support to the VAT exemption of PAGCOR under Section 109(k) of the Tax Code,
which provides that transactions exempt under international agreements to which the
Philippines is a signatory or under special laws [except Presidential Decree No. (PD)
529] are exempt from VAT. Considering that PAGCOR’s charter, i.e., PD1869 —
which grants PAGCOR exemption from taxes — is a special law, it is exempt from
payment of VAT.

Accordingly, the SC held that the BIR exceeded its authority in subjecting PAGCOR to
VAT, and thus declared RR 16-05 null and void — insofar as it subjects PAGCOR to
VAT — for being contrary to the NIRC, as amended by RA 9337.
PAGCOR is subject to income tax but remains exempt from the imposition of
value-added tax.

With the amendment by R.A. No. 9337 of Section 27 (c) of the National Internal
Revenue Code of 1997
by omitting PAGCOR from the list of government corporations exempt for income tax,
the legislative intent

is to require PAGCOR to pay corporate income tax. However, nowhere in R.A. No.
9337 is it provided that PAGCOR can be subjected to VAT. Thus, the provision of RR
No. 16-2005, which the respondent BIR issued to implement the VAT law, subjecting
PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. (Philippine
Amusement and Gaming Corporation vs. BIR, G.R. No. 172087, March 15, 2011)

With the passage of Republic Act No. (RA) 9337, the Philippine
Amusement and Gaming Corporation (PAGCOR) has been excluded from the list
of government-owned and –controlled corporations (GOCCs) that are exempt from tax
under Section27(c) of the Tax Code; PAGCOR is now subject to corporate income tax.
The Supreme Court (SC) held that the omission of PAGCOR from the list of tax-
exempt GOCCs by RA 9337 does not violate the right to equal protection of the laws
under Section1, Article III of the Constitution, because PAGCOR’s
exemptionfrom payment of corporate income tax was not based onclassification
showing substantial distinctions; rather, it wasgranted upon the corporation’s own
request to be exempted from corporate income tax. Legislative records likewise reveal
that the
legislative intention is to require PAGCOR to pay corporate incometax.

With regard to the issue that the removal of PAGCOR from the exempted list violates
the non- impairment clause contained in Section 10, Article III of the Constitution —
which provides that no law impairing the obligation of contracts shall be passed — the
SC explained that following its previous ruling in the case of Manila Electric Company
v. Province of Laguna 366 Phil. 428(1999), this does not apply. Franchises such as that
granted to PAGCOR partake of the nature of a grant, and is thus beyond the purview of
the non-impairment clause of the Constitution. As regards the liability of PAGCOR to
VAT, the SC finds Section4 . 1 0 8 -
3 of Revenue Regulations No. (RR) 16-2005, whichsubjects PAGCOR and its licensees
and franchisees to VAT, null and void for being contrary to the National Internal
Revenue Code (NIRC), as amended by RA 9337.

According to the SC, RA 9337 does not contain any provision that subjects PAGCOR
to
VAT. Instead, the SC finds support to the VAT exemption of PAGCOR under Section
109(k) of the Tax Code, which provides that transactions exempt under international
agreements to which the Philippines is a signatory or under special laws [except
Presidential Decree No. (PD) 529] are exempt from VAT. Considering that PAGCOR’s
charter, i.e., PD1869 — which grants PAGCOR exemption from taxes — is a special
law, it is exempt from payment of VAT. Accordingly, the SC held that the BIR
exceeded its authority in subjecting PAGCOR to VAT, and thus declared RR 16-05 null
and void — insofar as it subjects PAGCOR to VAT — for being contrary to the NIRC,
as amended by RA 9337. [Philippine Amusement and
Gaming Corporation (PAGCOR) v. the Bureau of Internal Revenue (BIR), et. al., GR
172087, March 15, 2011.