Republika ng Pilipinas KAGAWARAN NG KAT NGAN Department of Justice Manila MEMORANDUM To : MR. LORENZ TACA THRU : MS. IRENE DULIN SUBJECT : DEPARTMENT OF JUSTICE OPINION NO. 71 s. 1995 DATE : 17 JANUARY 2018 Greetings! This has reference to the inquiry you sent through the eFOI Portal dated 16 January 2018 requesting for a signed copy of the Department of Justice (DOJ) Opinion No. 71s. 1995. Attached herewith is the copy of the DOJ Opinion no. 71 s. 1995 for your perusal. Thank you.Republika ng Pilipinas KAGAWARAN NG KATARUNGAN Department of Justice OPINION'NO, 7, S. 19.25 Taly 26, 1995 Mr. Manuel L. Morato Chairma Acting General Manager Philippine Charity Sweepstakes Office 970 San Marcelino Street Ermita, Manila Sir: This has reference to your query on whether or not Lotto sales agents of the Philippine Charity Sweepstakes Office (PCSO) are required by law to secure business permits/licenses from the municipality or city where they operate. You state that PCSO is the principal government agency tasked to raise and provide funds for the health programs, medical assistance/services and charities ‘of _ national character; that in line with said mandate, it is authorized by ite charter (R.A. No. 1169, as amended) “to hold and conduct charity sweepstakes races, lotteries and other similar activities"; that to increase ite revenue base and diversify its sources of funds, PCSO introduced to the country the first “On-Line Lottery System", otherwise known as “Lotto”: that, as in the case of ordinary sweepstakes, Lotto tickets are sold by — PCSO— appointed sales agents through terminals installed on. gales counters or other convenient places in existing establishments and which are linked to the central computer system; that this on-line lottery system enables PCSO to appoint sales agents nationwide and for which reason. it will need the cooperation of the local government units (LGUs) concerned to extend support to facilitate the establishment of the system in their respective localities. } You point out that PCSO has a franchise “to conduct national lotteries" and with — the introduction of the Lotto, it now conducts | two kinds of lotteries — the traditional sweepstakes. which is passive, and Lotto, which is active. | Its lottery ticket sellers/agente have always been considered as mere extensions of the PCSO. and, as such. they do not secure business permite from the LGUs where they operate. The specific authority of the municipality, or city to issue business permit/license is derived from | Sections — 447(3)(ii) and 458(3)(ii), respectively, of the Local Government Code of 1991 GRA. No. 7260) which provide, respectively, as ‘ollows: “SRC. 447. Powers, Duties, Functions and Compensation - (a) The eangguniang payan, as the legislative body of the municipality, shall enact ordinances. approve resolutions and appropriate funds 265PINION NO. 27 SIE for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality ae provided for under Section 22 of this Code, and shall: nox sat xx (3) Subject to the provisions of Book II of this Code, grant franchises. enact ordinances authorizing the issuance of. permits or licenses, or enact ordinances levying taxes. fees and Ghargee upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the municipality, and pursuant to this legislative authority shall: 2k XXX (44) Regulate any _ business, occupation, or practice of profession or calling which does not require government examination within the municipality and he condition under which the license for said business or practice of profession may be issued or revoked; xx: “SEC. 458. Powers, Duties, Functions and Compensation - (a) The sangguniang panlungsod, as the legislative of the city, shall enact ordinances, approve fesdiutions and appropriate funds for the general welfare of the city and, ite fnhabitante pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the city as provided. for under Section 22 of this Code, and shal prod xxx HH (3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises,and authorizing the fesuance of permits or licenses,upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the city, and pursuant to this legislative authority shall: xonx x sent (ii) Regulate or fix license fees for any business or practice of profession within the city | and the Gonditions under which the license for said business or practice of profession may be revoked and enact ordinances levying taxes thereon. xxxSPINION NO, 57 _, S. 192 The aforequoted provisions — empower the municipality or city to regulate “any business” within its territorial jurisdiction in line with the general welfare clause provided in Section 16 of the Code. To make the exercise of the power effective, the LGUs concerned are further vested with the concomitant authority to impose permit/license fees incident to regulation. However, said authority is mot absolute in character. This is clear from Sections 447 and 458, above quoted, making the statutory grant of Bower “subject to the provisions of Book II of the ‘ode. Section 133 of Book II, in particular, prohibits L@Us, including the municipality or city, from imposing taxes, fees or charges of any kind on the "National Government, its agencies and instrumentalities", as a common limitation to their taxing authority. “Said provision reads: "SEC. 133. Common Limitations on the Taxing Powers of Lacal Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx XxX ox sng (0) Takes fees, or charges of anv Kind_on the “National Government. its agencies and instrumentalities, and local government units." (underscoring supplied.) Thus, while Sections 447 and 458 confer upon the municipality or city the power to regulate businesses within their respective territorial limits and impose license fees therefor, that power cannot be exercised upon the “National Government, its agencies and instrumentalities” in view of the above limitation. Put differently, it means that IaUs have no power to issue business permits/licenses tothe agencies and instrumentalities of the State, of which the PCSO is one, nor demand or collect permit/license fees incident to the issuance of such permits/licenses. This rule has long been settled in the case of Basco vs. Philippine Amusement And Gaming Corporation (PAGCOR), 197 SCRA 52, which upheld the exemption of the PAGCOR, an instrumentality of the National Government, from the licensing authority of 2,tecal government unit. The Supreme Court held thus: "(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government-owned or controlled corporation with an originalSPINION NO._ 9 S. 199° charter, PD 1869. All of its shares of stocks are owned by the National Government . XXX od PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an inetrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. xxx xX ok This doctrine emanates from the ‘supremacy’ of the National Government ever local governments. pone ax poor Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as “a tool for regulation” (U.S. v Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the “power to destroy” (Me Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it” We do not see ‘any reason why the foregoing — rule cannot apply to the PCSO which, like PAGCOR, — is also a government instrumentality, it being a government corporation with an original charter and imbued with a governmental purpose - which is to raise funds for charities and other social welfare programs for the poor, the sick and the needy. duly-appointed sales’ agents are, as you pointed out, mere extensions of the PCSO, should, like the PCSO, be also considered exempt from the licensing authority of the LGUs where they operate. a Relevantly, the Court, in the recent case of Magtajas ve. Pryce Properties Corp., Inc., 234 SCRA 255, has declared invalid two (2) city ordinances purportedly issued in the exercise of police power under Sections 16 and 458 (1)(v) of the Local Government Code of 1991 prohibiting, the use of buildings for the operation of a casino and the to aOselNlGh NOL 2, S. Wor Ses ie operation of casinos for being contrary to P.D. No. 1869 (PAGCOR Charter) and the public policy announced therein. The Court said - “The tests of a valid ordinance are well established. A long line of decisions has held that to be valid, an ordinance must conform to the following substantive requirements: a) 2) It must not be unfair or oppressive. 3) It must not be partial or discriminatory. 4) It must not prohibit but may regulate trade. 5) It must. be general and consistent with public policy. 6) It must not be unreasonable. 2k xxx sox The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal governments are only agents of the national government. Local councils exercise only delegated legislative powers conferred on them by Congress as the national lawmaking body. The delegate cannot be superior to the principal or exercise powers higher than those of the latter. It is a heresy to suggest that the local government units can undo the act of Congress, from which they have derived their power in the first place, and negate by mere ordinance the mandate of the statute." In the light of the foregoing. we are of the opinion that. the PCSO and its’ lottery ticket sellers, including lotto sales agents, are not required to secure business permits/licenses from the province, city or municipality where they may operate and are also exempt from the authority of the LGUs to impose taxes, fees or charges on the PCSO lotto ticket outlets. Very_trujy yours, —& T. chiwowa, IR. Secretary