EN BANC forms of gambling are outlawed, together with prostitution, drug
trafficking and other vices;
G.R. No. 91649             May 14, 1991
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES
MARANAN AND LORENZO SANCHEZ, petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION
(PAGCOR), respondent.
H.B. Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.
PARAS, J.:
A TV ad proudly announces:
"The new PAGCOR — responding through responsible gaming."
But the petitioners think otherwise, that is why, they filed the instant
petition seeking to annul the Philippine Amusement and Gaming
Corporation (PAGCOR) Charter — PD 1869, because it is allegedly
contrary to morals, public policy and order, and because —
A. It constitutes a waiver of a right prejudicial to a third person
with a right recognized by law. It waived the Manila City
government's right to impose taxes and license fees, which is
recognized by law;
B. For the same reason stated in the immediately preceding
paragraph, the law has intruded into the local government's right
to impose local taxes and license fees. This, in contravention of
the constitutionally enshrined principle of local autonomy;
C. It violates the equal protection clause of the constitution in that
it legalizes PAGCOR — conducted gambling, while most other
D. It violates the avowed trend of the Cory government away from
monopolistic and crony economy, and toward free enterprise and
privatization. (p. 2, Amended Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim that PD 1869 is
contrary to the declared national policy of the "new restored democracy"
and the people's will as expressed in the 1987 Constitution. The decree
is said to have a "gambling objective" and therefore is contrary to
Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2)
of Article XIV, of the present Constitution (p. 3, Second Amended
Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing
lawyers (petitioner Basco being also the Chairman of the Committee on
Laws of the City Council of Manila), can question and seek the
annulment of PD 1869 on the alleged grounds mentioned above.
The Philippine Amusements and Gaming Corporation (PAGCOR) was
created by virtue of P.D. 1067-A dated January 1, 1977 and was granted
a franchise under P.D. 1067-B also dated January 1, 1977 "to establish,
operate and maintain gambling casinos on land or water within the
territorial jurisdiction of the Philippines." Its operation was originally
conducted in the well known floating casino "Philippine Tourist." The
operation was considered a success for it proved to be a potential source
of revenue to fund infrastructure and socio-economic projects, thus, P.D.
1399 was passed on June 2, 1978 for PAGCOR to fully attain this
objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869
to enable the Government to regulate and centralize all games of chance
authorized by existing franchise or permitted by law, under the following
declared policy —
Sec. 1. Declaration of Policy. — It is hereby declared to be the
policy of the State to centralize and integrate all games of chance
not heretofore authorized by existing franchises or permitted by
law in order to attain the following objectives:
 (a) To centralize and integrate the right and authority to operate
and conduct games of chance into one corporate entity to be
controlled, administered and supervised by the Government.
(b) To establish and operate clubs and casinos, for amusement
and recreation, including sports gaming pools, (basketball,
football, lotteries, etc.) and such other forms of amusement and
recreation including games of chance, which may be allowed by
law within the territorial jurisdiction of the Philippines and which
will: (1) generate sources of additional revenue to fund
infrastructure and socio-civic projects, such as flood control
programs, beautification, sewerage and sewage projects,
Tulungan ng Bayan Centers, Nutritional Programs, Population
Control and such other essential public services; (2) create
recreation and integrated facilities which will expand and improve
the country's existing tourist attractions; and (3) minimize, if not
totally eradicate, all the evils, malpractices and corruptions that
are normally prevalent on the conduct and operation of gambling
clubs and casinos without direct government involvement.
(Section 1, P.D. 1869)
To attain these objectives PAGCOR is given territorial jurisdiction all over
the Philippines. Under its Charter's repealing clause, all laws, decrees,
executive orders, rules and regulations, inconsistent therewith, are
accordingly repealed, amended or modified.
It is reported that PAGCOR is the third largest source of government
revenue, next to the Bureau of Internal Revenue and the Bureau of
Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly
remitted to the National Government a total of P2.5 Billion in form of
franchise tax, government's income share, the President's Social Fund
and Host Cities' share. In addition, PAGCOR sponsored other socio-
cultural and charitable projects on its own or in cooperation with various
governmental agencies, and other private associations and
organizations. In its 3 1/2 years of operation under the present
administration, PAGCOR remitted to the government a total of P6.2
Billion. As of December 31, 1989, PAGCOR was employing 4,494
employees in its nine (9) casinos nationwide, directly supporting the
livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.
But the petitioners, are questioning the validity of P.D. No. 1869. They
allege that the same is "null and void" for being "contrary to morals,
public policy and public order," monopolistic and tends toward "crony
economy", and is violative of the equal protection clause and local
autonomy as well as for running counter to the state policies enunciated
in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13
(Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987 Constitution.
This challenge to P.D. No. 1869 deserves a searching and thorough
scrutiny and the most deliberate consideration by the Court, involving as
it does the exercise of what has been described as "the highest and most
delicate function which belongs to the judicial department of the
government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146
SCRA 323).
As We enter upon the task of passing on the validity of an act of a co-
equal and coordinate branch of the government We need not be
reminded of the time-honored principle, deeply ingrained in our
jurisprudence, that a statute is presumed to be valid. Every presumption
must be indulged in favor of its constitutionality. This is not to say that We
approach Our task with diffidence or timidity. Where it is clear that the
legislature or the executive for that matter, has over-stepped the limits of
its authority under the constitution, We should not hesitate to wield the
axe and let it fall heavily, as fall it must, on the offending statute (Lozano
v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the
Court thru Mr. Justice Zaldivar underscored the —
. . . thoroughly established principle which must be followed in all
cases where questions of constitutionality as obtain in the instant
cases are involved. All presumptions are indulged in favor of
constitutionality; one who attacks a statute alleging
unconstitutionality must prove its invalidity beyond a reasonable
doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld and the challenger
must negate all possible basis; that the courts are not concerned
with the wisdom, justice, policy or expediency of a statute and
that a liberal interpretation of the constitution in favor of the
constitutionality of legislation should be adopted. (Danner v.
Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106
N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio,
46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections,
82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125
SCRA 220, 241-242 [1983] cited in Citizens Alliance for
 Consumer Protection v. Energy Regulatory Board, 162 SCRA
521, 540)
Of course, there is first, the procedural issue. The respondents are
questioning the legal personality of petitioners to file the instant petition.
Considering however the importance to the public of the case at bar, and
in keeping with the Court's duty, under the 1987 Constitution, to
determine whether or not the other branches of government have kept
themselves within the limits of the Constitution and the laws and that they
have not abused the discretion given to them, the Court has brushed
aside technicalities of procedure and has taken cognizance of this
petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc.
v. Tan, 163 SCRA 371)
With particular regard to the requirement of proper party as
applied in the cases before us, We hold that the same is satisfied
by the petitioners and intervenors because each of them has
sustained or is in danger of sustaining an immediate injury as a
result of the acts or measures complained of. And even if, strictly
speaking they are not covered by the definition, it is still within the
wide discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving the
serious constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens and
taxpayers were allowed to question the constitutionality of several
executive orders issued by President Quirino although they were
involving only an indirect and general interest shared in common
with the public. The Court dismissed the objection that they were
not proper parties and ruled that "the transcendental importance
to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must technicalities
of procedure." We have since then applied the exception in many
other cases. (Association of Small Landowners in the Philippines,
Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now discuss the
substantive issues raised.
Gambling in all its forms, unless allowed by law, is generally prohibited.
But the prohibition of gambling does not mean that the Government
cannot regulate it in the exercise of its police power.
The concept of police power is well-established in this jurisdiction. It has
been defined as the "state authority to enact legislation that may interfere
with personal liberty or property in order to promote the general welfare."
(Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an
imposition or restraint upon liberty or property, (2) in order to foster the
common good. It is not capable of an exact definition but has been,
purposely, veiled in general terms to underscore its all-comprehensive
embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163
SCRA 386).
Its scope, ever-expanding to meet the exigencies of the times, even to
anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus
assuming the greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain reason that it does not
owe its origin to the charter. Along with the taxing power and eminent
domain, it is inborn in the very fact of statehood and sovereignty. It is a
fundamental attribute of government that has enabled it to perform the
most vital functions of governance. Marshall, to whom the expression has
been credited, refers to it succinctly as the plenary power of the state "to
govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The
police power of the State is a power co-extensive with self-protection and
is most aptly termed the "law of overwhelming necessity." (Rubi v.
Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential,
insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil.
136) It is a dynamic force that enables the state to meet the agencies of
the winds of change.
What was the reason behind the enactment of P.D. 1869?
P.D. 1869 was enacted pursuant to the policy of the government to
"regulate and centralize thru an appropriate institution all games of
chance authorized by existing franchise or permitted by law" (1st
whereas clause, PD 1869). As was subsequently proved, regulating and
centralizing gambling operations in one corporate entity — the PAGCOR,
was beneficial not just to the Government but to society in general. It is a
reliable source of much needed revenue for the cash strapped
Government. It provided funds for social impact projects and subjected
gambling to "close scrutiny, regulation, supervision and control of the
Government" (4th Whereas Clause, PD 1869). With the creation of
PAGCOR and the direct intervention of the Government, the evil
practices and corruptions that go with gambling will be minimized if not
totally eradicated. Public welfare, then, lies at the bottom of the
enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the
City of Manila to impose taxes and legal fees; that the exemption clause
in P.D. 1869 is violative of the principle of local autonomy. They must be
referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as
the franchise holder from paying any "tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local."
(2) Income and other taxes. — a) Franchise Holder: No tax of any
kind or form, income or otherwise as well as fees, charges or
levies of whatever nature, whether National or Local, shall be
assessed and collected under this franchise from the Corporation;
nor shall any form or tax or charge attach in any way to the
earnings of the Corporation, except a franchise tax of five (5%)
percent of the gross revenues or earnings derived by the
Corporation from its operations under this franchise. Such tax
shall be due and payable quarterly to the National Government
and shall be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied,
established or collected by any municipal, provincial or national
government authority (Section 13 [2]).
Their contention stated hereinabove is without merit for the following
reasons:
(a) The City of Manila, being a mere Municipal corporation has no
inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City
of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7
SCRA 643). Thus, "the Charter or statute must plainly show an intent to
confer that power or the municipality cannot assume it" (Medina v. City of
Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a
legislative act which is superior having been passed upon by the state
itself which has the "inherent power to tax" (Bernas, the Revised [1973]
Philippine Constitution, Vol. 1, 1983 ed. p. 445).
(b) The Charter of the City of Manila is subject to control by Congress. It
should be stressed that "municipal corporations are mere creatures of
Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which
has the power to "create and abolish municipal corporations" due to its
"general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo
v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control
over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950).
And if Congress can grant the City of Manila the power to tax certain
matters, it can also provide for exemptions or even take back the power.
(c) The City of Manila's power to impose license fees on gambling, has
long been revoked. As early as 1975, the power of local governments to
regulate gambling thru the grant of "franchise, licenses or permits" was
withdrawn by P.D. No. 771 and was vested exclusively on the National
Government, thus:
Sec. 1. Any provision of law to the contrary notwithstanding, the
authority of chartered cities and other local governments to issue
license, permit or other form of franchise to operate, maintain and
establish horse and dog race tracks, jai-alai and other forms of
gambling is hereby revoked.
Sec. 2. Hereafter, all permits or franchises to operate, maintain
and establish, horse and dog race tracks, jai-alai and other forms
of gambling shall be issued by the national government upon
proper application and verification of the qualification of the
applicant . . .
Therefore, only the National Government has the power to issue
"licenses or permits" for the operation of gambling. Necessarily, the
power to demand or collect license fees which is a consequence of the
issuance of "licenses or permits" is no longer vested in the City of Manila.
(d) Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or controlled
corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. In addition to its corporate
powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers
thus:
Sec. 9. Regulatory Power. — The Corporation shall maintain a
Registry of the affiliated entities, and shall exercise all the
powers, authority and the responsibilities vested in the Securities
and Exchange Commission over such affiliating entities
mentioned under the preceding section, including, but not limited
to amendments of Articles of Incorporation and By-Laws,
changes in corporate term, structure, capitalization and other
matters concerning the operation of the affiliated entities, the
 provisions of the Corporation Code of the Philippines to the
contrary notwithstanding, except only with respect to original
incorporation.
PAGCOR has a dual role, to operate and to regulate gambling casinos.
The latter role is governmental, which places it in the category of an
agency or instrumentality of the Government. Being an instrumentality 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.
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch,
in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed
that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accomplishment of them. (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, emphasis supplied)
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" (Mc 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.
(e) Petitioners also argue that the Local Autonomy Clause of the
Constitution will be violated by P.D. 1869. This is a pointless argument.
Article X of the 1987 Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create
its own source of revenue and to levy taxes, fees, and other
charges subject to such guidelines and limitation as the congress
may provide, consistent with the basic policy on local autonomy.
Such taxes, fees and charges shall accrue exclusively to the local
government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always
subject to "limitations" which Congress may provide by law. Since PD
1869 remains an "operative" law until "amended, repealed or revoked"
(Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as
an exception to the exercise of the power of local governments to impose
taxes and fees. It cannot therefore be violative but rather is consistent
with the principle of local autonomy.
Besides, the principle of local autonomy under the 1987 Constitution
simply means "decentralization" (III Records of the 1987 Constitutional
Commission, pp. 435-436, as cited in Bernas, The Constitution of the
Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not
make local governments sovereign within the state or an "imperium in
imperio."
Local Government has been described as a political subdivision
of a nation or state which is constituted by law and has
substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine
Constitution, local governments can only be an intra sovereign
subdivision of one sovereign nation, it cannot be
an imperium in imperio. Local government in such a system can
only mean a measure of decentralization of the function of
government. (emphasis supplied)
As to what state powers should be "decentralized" and what may be
delegated to local government units remains a matter of policy, which
concerns wisdom. It is therefore a political question. (Citizens Alliance for
Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).
What is settled is that the matter of regulating, taxing or otherwise dealing
with gambling is a State concern and hence, it is the sole prerogative of
the State to retain it or delegate it to local governments.
As gambling is usually an offense against the State, legislative
grant or express charter power is generally necessary to
 empower the local corporation to deal with the subject. . . . In the
absence of express grant of power to enact, ordinance provisions
on this subject which are inconsistent with the state laws are void.
(Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9,
Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25
PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc
Quinllan Vol. 3 Ibid, p. 548, emphasis supplied)
Petitioners next contend that P.D. 1869 violates the equal protection
clause of the Constitution, because "it legalized PAGCOR — conducted
gambling, while most gambling are outlawed together with prostitution,
drug trafficking and other vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this contention. The
petitioners' posture ignores the well-accepted meaning of the clause
"equal protection of the laws." The clause does not preclude classification
of individuals who may be accorded different treatment under the law as
long as the classification is not unreasonable or arbitrary (Itchong v.
Hernandez, 101 Phil. 1155). A law does not have to operate in equal
force on all persons or things to be conformable to Article III, Section 1 of
the Constitution (DECS v. San Diego, G.R. No. 89572, December 21,
1989).
The "equal protection clause" does not prohibit the Legislature from
establishing classes of individuals or objects upon which different rules
shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not
require situations which are different in fact or opinion to be treated in law
as though they were the same (Gomez v. Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is
violative of the equal protection is not clearly explained in the petition.
The mere fact that some gambling activities like cockfighting (P.D 449)
horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries
and races (RA 1169 as amended by B.P. 42) are legalized under certain
conditions, while others are prohibited, does not render the applicable
laws, P.D. 1869 for one, unconstitutional.
If the law presumably hits the evil where it is most felt, it is not to
be overthrown because there are other instances to which it
might have been applied. (Gomez v. Palomar, 25 SCRA 827)
The equal protection clause of the 14th Amendment does not
mean that all occupations called by the same name must be
treated the same way; the state may do what it can to prevent
which is deemed as evil and stop short of those cases in which
harm to the few concerned is not less than the harm to the public
that would insure if the rule laid down were made mathematically
exact. (Dominican Hotel v. Arizona, 249 US 2651).
Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of
the Cory Government away from monopolies and crony economy and
toward free enterprise and privatization" suffice it to state that this is not a
ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs
counter to the government's policies then it is for the Executive
Department to recommend to Congress its repeal or amendment.
The judiciary does not settle policy issues. The Court can only
declare what the law is and not what the law should be.  Under
1âwphi1
our system of government, policy issues are within the domain of
the political branches of government and of the people
themselves as the repository of all state power. (Valmonte v.
Belmonte, Jr., 170 SCRA 256).
On the issue of "monopoly," however, the Constitution provides that:
Sec. 19. The State shall regulate or prohibit monopolies when
public interest so requires. No combinations in restraint of trade
or unfair competition shall be allowed. (Art. XII, National Economy
and Patrimony)
It should be noted that, as the provision is worded, monopolies are not
necessarily prohibited by the Constitution. The state must still decide
whether public interest demands that monopolies be regulated or
prohibited. Again, this is a matter of policy for the Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality
Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13
(Social Justice) of Article XIII and Section 2 (Educational Values) of
Article XIV of the 1987 Constitution, suffice it to state also that these are
merely statements of principles and, policies. As such, they are basically
not self-executing, meaning a law should be passed by Congress to
clearly define and effectuate such principles.
In general, therefore, the 1935 provisions were not intended to be
self-executing principles ready for enforcement through the
courts. They were rather directives addressed to the executive
 and the legislature. If the executive and the legislature failed to
heed the directives of the articles the available remedy was not
judicial or political. The electorate could express their displeasure
with the failure of the executive and the legislature through the
language of the ballot. (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of constitutionality (Yu Cong
Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v.
Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore,
for PD 1869 to be nullified, it must be shown that there is a clear and
unequivocal breach of the Constitution, not merely a doubtful and
equivocal one. In other words, the grounds for nullity must be clear and
beyond reasonable doubt. (Peralta v. Comelec, supra) Those who
petition this Court to declare a law, or parts thereof, unconstitutional must
clearly establish the basis for such a declaration. Otherwise, their petition
must fail. Based on the grounds raised by petitioners to challenge the
constitutionality of P.D. 1869, the Court finds that petitioners have failed
to overcome the presumption. The dismissal of this petition is therefore,
inevitable. But as to whether P.D. 1869 remains a wise legislation
considering the issues of "morality, monopoly, trend to free enterprise,
privatization as well as the state principles on social justice, role of youth
and educational values" being raised, is up for Congress to determine.
As this Court held in Citizens' Alliance for Consumer Protection v. Energy
Regulatory Board, 162 SCRA 521 —
Presidential Decree No. 1956, as amended by Executive Order
No. 137 has, in any case, in its favor the presumption of validity
and constitutionality which petitioners Valmonte and the KMU
have not overturned. Petitioners have not undertaken to identify
the provisions in the Constitution which they claim to have been
violated by that statute. This Court, however, is not compelled to
speculate and to imagine how the assailed legislation may
possibly offend some provision of the Constitution. The Court
notes, further, in this respect that petitioners have in the main put
in question the wisdom, justice and expediency of the
establishment of the OPSF, issues which are not properly
addressed to this Court and which this Court may not
constitutionally pass upon. Those issues should be addressed
rather to the political departments of government: the President
and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and
this is precisely so when the gambling resorted to is excessive. This
excessiveness necessarily depends not only on the financial resources of
the gambler and his family but also on his mental, social, and spiritual
outlook on life. However, the mere fact that some persons may have lost
their material fortunes, mental control, physical health, or even their lives
does not necessarily mean that the same are directly attributable to
gambling. Gambling may have been the antecedent, but certainly not
necessarily the cause. For the same consequences could have been
preceded by an overdose of food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Fernan, C.J., Narvasa, Gutierrez
THIRD DIVISION
 
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding
Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY
OF CEBU, represented by its Mayor HON. TOMAS R. OSMEÑA, and
EUSTAQUIO B. CESA, respondents.
 
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law
are the decision of 22 March 19951 of the Regional Trial Court (RTC) of
Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil
Case No. CEB-16900 entitled "Mactan Cebu International Airport
Authority vs. City of Cebu", and its order of 4, May 19952 denying the
motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues
dwelling on the scope of the taxing power of local government-owned
and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant
petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of Republic Act No. 6958, mandated to "principally
undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as
may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is
also mandated to:
a) encourage, promote and develop international and domestic air traffic
in the Central Visayas and Mindanao regions as a means of making the
regions centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the
country; and
b) upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and
service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Section 14 of
its Charter.
Sec. 14. Tax Exemptions. — The authority shall be exempt from realty
taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-
Charge, Office of the Treasurer of the City of Cebu, demanded payment
for realty taxes on several parcels of land belonging to the petitioner (Lot
Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919,
913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas
and Barrio Kasambagan, Lahug, Cebu City, in the total amount of
P2,229,078.79.
Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 of RA 6958
which exempt it from payment of realty taxes. It was also asserted that it
is an instrumentality of the government performing governmental
functions, citing section 133 of the Local Government Code of 1991
which puts limitations on the taxing powers of local government units:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangay shall
not extend to the levy of the following:
a) . . .
x x x           x x x          x x x
o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis
supplied)
Respondent City refused to cancel and set aside petitioner's realty tax
account, insisting that the MCIAA is a government-controlled corporation
whose tax exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the Local Governmental Code that took effect on January
1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons whether natural or juridical, including
government-owned or controlled corporations, except local water
districts, cooperatives duly registered under RA No. 6938, non-stock, and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. — . . .
(a) . . .
x x x           x x x          x x x
(c) . . .
Except as provided herein, any exemption from payment of real property
tax previously granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against the
properties of petitioner, the latter was compelled to pay its tax account
"under protest" and thereafter filed a Petition for Declaratory Relief with
the Regional Trial Court of Cebu, Branch 20, on December 29, 1994.
MCIAA basically contended that the taxing powers of local government
units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that
while it is indeed a government-owned corporation, it nonetheless stands
on the same footing as an agency or instrumentality of the national
government. Petitioner insisted that while it is indeed a government-
owned corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the very nature
of its powers and functions.
Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-owned
corporation performing proprietary functions As such, all exemptions
previously granted to it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local Government Code
when it took effect on January 1, 1992.3
The petition for declaratory relief was docketed as Civil Case No. CEB-
16900.
In its decision of 22 March 1995,4 the trial court dismissed the petition in
light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160
provides the express cancellation and withdrawal of exemption of taxes
by government owned and controlled corporation per Sections after the
effectivity of said Code on January 1, 1992, to wit: [proceeds to quote
Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent City
Government of Cebu are exempted from paying realty taxes in view of
the exemption granted under RA 6958 to pay the same (citing Section 14
of RA 6958).
However, RA 7160 expressly provides that "All general and special laws,
acts, city charters, decress [sic], executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified
accordingly." ([f], Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the
tax exemption provided for in RA 6958 creating petitioner had been
expressly repealed by the provisions of the New Local Government Code
of 1991.
So that petitioner in this case has to pay the assessed realty tax of its
properties effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the
overall objectives of the New Local Government Code of 1991, RA 7160.
"It is hereby declared the policy of the State that the territorial and
political subdivisions of the State shall enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-
reliant communities and make them more effective partners in the
attainment of national goals. Towards this end, the State shall provide for
a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units
shall be given more powers, authority, responsibilities, and resources.
The process of decentralization shall proceed from the national
government to the local government units. . . .5
Its motion for reconsideration having been denied by the trial court in its 4
May 1995 order, the petitioner filed the instant petition based on the
following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE
PETITIONER IS VESTED WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS
LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation it is mandated to perform
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people.6 Considering its task "not merely to efficiently operate and
manage the Mactan-Cebu International Airport, but more importantly, to
carry out the Government policies of promoting and developing the
Central Visayas and Mindanao regions as centers of international trade
and tourism, and accelerating the development of the means of
transportation and communication in the country,"7 and that it is an
attached agency of the Department of Transportation and
Communication (DOTC),8 the petitioner "may stand in [sic] the same
footing as an agency or instrumentality of the national government."
Hence, its tax exemption privilege under Section 14 of its Charter "cannot
be considered withdrawn with the passage of the Local Government
Code of 1991 (hereinafter LGC) because Section 133 thereof specifically
states that the taxing powers of local government units shall not extend to
the levy of taxes of fees or charges of any kind on the national
government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has
no power nor authority to impose realty taxes upon it in accordance with
the aforesaid Section 133 of the LGC, as explained in Basco
vs. Philippine Amusement and Gaming Corporation;9
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original character, PD 1869. All its shares of stock are owned by
the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter joke is governmental, which places it in the category of an agency
or instrumentality of the Government. Being an instrumentality 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.
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National
Government over local government.
Justice Holmes, speaking for the Supreme Court, make references to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau Modern
Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature 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 toll for regulation"
(U.S. v. Sanchez, 340 US 42). The power to tax which was called by
Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it.
(Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly
say that the questioned provisions of the Code do not contain any
distinction between a governmental function as against one performing
merely proprietary ones such that the exemption privilege withdrawn
under the said Code would apply to all government corporations." For it is
clear from Section 133, in relation to Section 234, of the LGC that the
legislature meant to exclude instrumentalities of the national
government from the taxing power of the local government units.
In its comment respondent City of Cebu alleges that as local a
government unit and a political subdivision, it has the power to impose,
levy, assess, and collect taxes within its jurisdiction. Such power is
guaranteed by the Constitution10 and enhanced further by the LGC. While
it may be true that under its Charter the petitioner was exempt from the
payment of realty taxes,11 this exemption was withdrawn by Section 234
of the LGC. In response to the petitioner's claim that such exemption was
not repealed because being an instrumentality of the National
Government, Section 133 of the LGC prohibits local government units
from imposing taxes, fees, or charges of any kind on it, respondent City
of Cebu points out that the petitioner is likewise a government-owned
corporation, and Section 234 thereof does not distinguish between
government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234
thereof does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary functions.
Respondent city of Cebu urges this the Manila International Airport
Authority is a governmental-owned corporation, 12 and to reject the
application of Basco because it was "promulgated . . . before the
enactment and the singing into law of R.A. No. 7160," and was not,
therefore, decided "in the light of the spirit and intention of the framers of
the said law.
As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people
through their Constitutions.13 Our Constitution, for instance, provides that
the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation.14 So potent indeed is the power
that it was once opined that "the power to tax involves the power to
destroy."15 Verily, taxation is a destructive power which interferes with the
personal and property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and liberally in
favor of the taxpayer.16 But since taxes are what we pay for civilized
society,17 or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of
the taxing authority.18 A claim of exemption from tax payment must be
clearly shown and based on language in the law too plain to be
mistaken.19 Elsewise stated, taxation is the rule, exemption therefrom is
the exception.20 However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the
amount of money that has to be handled by the government in the course
of its operations.21
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution. 22 Under the
latter, the exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the
petitioner is exempt from the payment of realty taxes imposed by the
National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual and is
thus covered by the non-impairment clause of the Constitution. 23
The LGC, enacted pursuant to Section 3, Article X of the constitution
provides for the exercise by local government units of their power to tax,
the scope thereof or its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing
powers of local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local
Government Units. — Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided herein
(d) Customs duties, registration fees of vessels and wharfage on
wharves, tonnage dues, and all other kinds of customs fees charges and
dues except wharfage on wharves constructed and maintained by the
local government unit concerned:
(e) Taxes, fees and charges and other imposition upon goods carried into
or out of, or passing through, the territorial jurisdictions of local
government units in the guise or charges for wharfages, tolls for bridges
or otherwise, or other taxes, fees or charges in any form whatsoever
upon such goods or merchandise;
(f) Taxes fees or charges on agricultural and aquatic products when sold
by marginal farmers or fishermen;
(g) Taxes on business enterprise certified to be the Board of Investment
as pioneer or non-pioneer for a period of six (6) and four (4) years,
respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
(i) Percentage or value added tax (VAT) on sales, barters or exchanges
or similar transactions on goods or services except as otherwise provided
herein;
(j) Taxes on the gross receipts of transportation contractor and person
engage in the transportation of passengers of freight by hire and common
carriers by air, land, or water, except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or retrocession;
(l) Taxes, fees, or charges for the registration of motor vehicles and for
the issuance of all kinds of licenses or permits for the driving of thereof,
except, tricycles;
(m) Taxes, fees, or other charges on Philippine product actually exported,
except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprise and Cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND
LOCAL GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes,
fees or charges" referred to are "of any kind", hence they include all of
these, unless otherwise provided by the LGC. The term "taxes" is well
understood so as to need no further elaboration, especially in the light of
the above enumeration. The term "fees" means charges fixed by law or
Ordinance for the regulation or inspection of business activity, 24 while
"charges" are pecuniary liabilities such as rents or fees against person or
property.25
Among the "taxes" enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or city or a
municipality within the Metropolitan Manila Area may levy on an
annual ad valorem tax on real property such as land, building, machinery
and other improvements not hereafter specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real
property taxes and withdraws previous exemptions therefrom granted to
natural and juridical persons, including government owned and controlled
corporations, except as provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been
granted, for reconsideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenants thereto, mosques nonprofits or religious cemeteries and all
lands, building and improvements actually, directly, and exclusively used
for religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided
for under R.A. No. 6938; and;
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemptions from payment of real property
tax previously granted to or presently enjoyed by, all persons whether
natural or juridical, including all government owned or controlled
corporations are hereby withdrawn upon the effectivity of his Code.
These exemptions are based on the ownership, character, and use of the
property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes on the
basis of ownership are real properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered
cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the
basis of their character are: (i) charitable institutions, (ii) houses and
temples of prayer like churches, parsonages or convents appurtenant
thereto, mosques, and (iii) non profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of
the actual, direct and exclusive use to which they are devoted are: (i) all
lands buildings and improvements which are actually, directed and
exclusively used for religious, charitable or educational purpose; (ii) all
machineries and equipment actually, directly and exclusively used or by
local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment used
for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization
of the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions previously granted
to natural or juridical persons including government-owned or controlled
corporations are withdrawn upon the effectivity of the Code. 26
Section 193 of the LGC is the general provision on withdrawal of tax
exemption privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this code, tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including
government-owned, or controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non stock and
non profit hospitals and educational constitutions, are hereby withdrawn
upon the effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant
tax exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local
government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they
may deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions of provisos in these section, as shown by the
following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of
Section 133;
(2) "Unless otherwise provided in this Code" in section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that
the aforementioned clause in section 133 seems to be inaccurately
worded. Instead of the clause "unless otherwise provided herein," with
the "herein" to mean, of course, the section, it should have used the
clause "unless otherwise provided in this Code." The former results in
absurdity since the section itself enumerates what are beyond the taxing
powers of local government units and, where exceptions were intended,
the exceptions were explicitly indicated in the text. For instance, in item
(a) which excepts the income taxes "when livied on banks and other
financial institutions", item (d) which excepts "wharfage on wharves
constructed and maintained by the local government until concerned";
and item (1) which excepts taxes, fees, and charges for the registration
and issuance of license or permits for the driving of "tricycles". It may also
be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the
section interchangeably uses therein the clause "except as otherwise
provided herein" as in items (c) and (i), or the clause "except as
otherwise provided herein" as in items (c) and (i), or the clause "excepts
as provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplus-ages if the opening clause of the section
were" "Unless otherwise provided in this Code" instead of "Unless
otherwise provided herein". In any event, even if the latter is used, since
under Section 232 local government units have the power to levy real
property tax, except those exempted therefrom under Section 234, then
Section 232 must be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we
conclude that as a general rule, as laid down in Section 133 the taxing
powers of local government units cannot extend to the levy of inter alia,
"taxes, fees, and charges of any kind of the National Government, its
agencies and instrumentalties, and local government units"; however,
pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except
on, inter alia, "real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial used thereof
has been granted, for consideration or otherwise, to a taxable person", as
provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz.,
they are withdrawn upon the effectivity of the LGC, except upon the
effectivity of the LGC, except those granted to local water districts,
cooperatives duly registered under R.A. No. 6938, non stock and non-
profit hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234, which
enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption
in so far as the real property taxes are concerned by limiting the retention
only to those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover,
even as the real property is owned by the Republic of the Philippines, or
any of its political subdivisions covered by item (a) of the first paragraph
of Section 234, the exemption is withdrawn if the beneficial use of such
property has been granted to taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that
its exemption from such tax granted it in Section 14 of its charter, R.A.
No. 6958, has been withdrawn. Any claim to the contrary can only be
justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Section 232 and
234.
In short, the petitioner can no longer invoke the general rule in Section
133 that the taxing powers of the local government units cannot extend to
the levy of:
(o) taxes, fees, or charges of any kind on the National Government, its
agencies, or instrumentalities, and local government units.
I must show that the parcels of land in question, which are real property,
are any one of those enumerated in Section 234, either by virtue of
ownership, character, or use of the property. Most likely, it could only be
the first, but not under any explicit provision of the said section, for one
exists. In light of the petitioner's theory that it is an "instrumentality of the
Government", it could only be within be first item of the first paragraph of
the section by expanding the scope of the terms Republic of the
Philippines" to embrace . . . . . . "instrumentalities" and "agencies" or
expediency we quote:
(a) real property owned by the Republic of the Philippines, or any of the
Philippines, or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable
person.
This view does not persuade us. In the first place, the petitioner's claim
that it is an instrumentality of the Government is based on Section
133(o), which expressly mentions the word "instrumentalities"; and in the
second place it fails to consider the fact that the legislature used the
phrase "National Government, its agencies and instrumentalities" "in
Section 133(o),but only the phrase "Republic of the Philippines or any of
its political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are
not interchangeable. The former is boarder and synonymous with
"Government of the Republic of the Philippines" which the Administrative
Code of the 1987 defines as the "corporate governmental entity though
which the functions of the government are exercised through at the
Philippines, including, saves as the contrary appears from the context,
the various arms through which political authority is made effective in the
Philippines, whether pertaining to the autonomous reason, the provincial,
city, municipal or barangay subdivision or other forms of local
government."27 These autonomous regions, provincial, city, municipal or
barangay subdivisions" are the political subdivision. 28
On the other hand, "National Government" refers "to the entire machinery
of the central government, as distinguished from the different forms of
local Governments."29 The National Government then is composed of the
three great departments the executive, the legislative and the judicial. 30
An "agency" of the Government refers to "any of the various units of the
Government, including a department, bureau, office instrumentality, or
government-owned or controlled corporation, or a local government or a
distinct unit therein;"31 while an "instrumentality" refers to "any agency of
the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and
enjoying operational autonomy; usually through a charter. This term
includes regulatory agencies, chartered institutions and government-
owned and controlled corporations".32
If Section 234(a) intended to extend the exception therein to the
withdrawal of the exemption from payment of real property taxes under
the last sentence of the said section to the agencies and instrumentalities
of the National Government mentioned in Section 133(o), then it should
have restated the wording of the latter. Yet, it did not Moreover, that
Congress did not wish to expand the scope of the exemption in Section
234(a) to include real property owned by other instrumentalities or
agencies of the government including government-owned and controlled
corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real
Property Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. — The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or controlled
corporations so exempt by is charter: Provided, however, that this
exemption shall not apply to real property of the above mentioned entities
the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any
government-owned or controlled corporation so exempt by its charter"
was excluded. The justification for this restricted exemption in Section
234(a) seems obvious: to limit further tax exemption privileges, specially
in light of the general provision on withdrawal of exemption from payment
of real property taxes in the last paragraph of property taxes in the last
paragraph of Section 234. These policy considerations are consistent
with the State policy to ensure autonomy to local governments 33 and the
objective of the LGC that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of
national goals.34 The power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to recall
that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other
units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated
enterprises, and there was a need for this entities to share in the
requirements of the development, fiscal or otherwise, by paying the taxes
and other charges due from them.35
The crucial issues then to be addressed are: (a) whether the parcels of
land in question belong to the Republic of the Philippines whose
beneficial use has been granted to the petitioner, and (b) whether the
petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other
properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests and
privileges relating on airport works, or air operations, including all
equipment which are necessary for the operations of air navigation,
acrodrome control towers, crash, fire, and rescue facilities are hereby
transferred to the Authority: Provided however, that the operations control
of all equipment necessary for the operation of radio aids to air
navigation, airways communication, the approach control office, and the
area control center shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air Transportation Office
from Mactan without the concurrence of the authority. The authority may
assist in the maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the
"Mactan International AirPort in the Province of Cebu", 36 which belonged
to the Republic of the Philippines, then under the Air Transportation
Office (ATO).37
It may be reasonable to assume that the term "lands" refer to "lands" in
Cebu City then administered by the Lahug Air Port and includes the
parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a "transfer" of the "lands" among
other things, to the petitioner and not just the transfer of the beneficial
use thereof, with the ownership being retained by the Republic of the
Philippines.
This "transfer" is actually an absolute conveyance of the ownership
thereof because the petitioner's authorized capital stock consists of, inter
alia "the value of such real estate owned and/or administered by the
airports."38 Hence, the petitioner is now the owner of the land in question
and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person"
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive
proof of the legislative intent to make it a taxable person subject to all
taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the forgoing disquisitions, it had
already become even if it be conceded to be an "agency" or
"instrumentality" of the Government, a taxable person for such purpose in
view of the withdrawal in the last paragraph of Section 234 of exemptions
from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Philippine Amusement and Gaming Corporation 39 is
unavailing since it was decided before the effectivity of the LGC. Besides,
nothing can prevent Congress from decreeing that even instrumentalities
or agencies of the government performing governmental functions may
be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision
and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case
No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
G.R. No. 127316               October 12, 2000
LIGHT RAIL TRANSIT AUTHORITY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF MANILA and the CITY ASSESSOR OF
MANILA, respondents.
DECISION
PANGANIBAN, J.:
The Light Rail Transit Authority and the Metro Transit Organization
function as service-oriented business entities, which provide valuable
transportation facilities to the paying public. In the absence, however, of
any express grant of exemption in their favor, they are subject to the
payment of real property taxes.
The Case
In the Petition for Review before us, the Light Rail Transit Authority
(LRTA) challenges the November 15, 1996 Decision1 of the Court of
Appeals (CA) in CA-GR SP No. 38137, which disposed as follows:
"WHEREFORE, premises considered, the appealed decision (dated
October 15, 1994) of the Central Board of Assessment Appeals is hereby
AFFIRMED, with costs against the petitioner." 2
The affirmed ruling of the Central Board of Assessment Appeals (CBAA)
upheld the June 26, 1992 Resolution of the Board of Assessment
Appeals of Manila, which had declared petitioner's carriageways and
passenger terminals as improvements subject to real property taxes.
The Facts
The undisputed facts are quoted by the Court of Appeals (CA) from the
CBAA ruling, as follows:3
"1. The LRTA is a government-owned and controlled corporation created
and organized under Executive Order No. 603, dated July 12, 1980 'x x x
primarily responsible for the construction, operation, maintenance and/or
lease of light rail transit system in the Philippines, giving due regard to
the [reasonable requirements] of the public transportation of the country'
(LRTA vs. The Hon. Commission on Audit, GR No. No. 88365);
"2. x x x [B]y reason of x x x Executive Order 603, LRTA acquired real
properties x x x constructed structural improvements, such as buildings,
carriageways, passenger terminal stations, and installed various kinds of
machinery and equipment and facilities for the purpose of its operations;
"3. x x x [F]or x x x an effective maintenance, operation and
management, it entered into a Contract of Management with the Meralco
Transit Organization (METRO) in which the latter undertook to manage,
operate and maintain the Light Rail Transit System owned by the LRTA
subject to the specific stipulations contained in said agreement, including
payments of a management fee and real property taxes (Add'l Exhibit "I",
Records)
"4. That it commenced its operations in 1984, and that sometime that
year, Respondent-Appellee City Assessor of Manila assessed the real
properties of [petitioner], consisting of lands, buildings, carriageways and
passenger terminal stations, machinery and equipment which he
considered real propert[y] under the Real Property Tax Code, to
commence with the year 1985;
"5. That [petitioner] paid its real property taxes on all its real property
holdings, except the carriageways and passenger terminal stations
including the land where it is constructed on the ground that the same are
not real properties under the Real Property Tax Code, and if the same
are real propert[y], these x x x are for public use/purpose, therefore,
exempt from realty taxation, which claim was denied by the Respondent-
Appellee City Assessor of Manila; and
"6. x x x [Petitioner], aggrieved by the action of the Respondent-Appellee
City Assessor, filed an appeal with the Local Board of Assessment
Appeals of Manila x x x. Appellee, herein, after due hearing, in its
resolution dated June 26, 1992, denied [petitioner's] appeal, and declared
that carriageways and passenger terminal stations are improvements,
therefore, are real propert[y] under the Code, and not exempt from the
payment of real property tax.
"A motion for reconsideration filed by [petitioner] was likewise denied."
The CA Ruling
The Court of Appeals held that petitioner's carriageways and passenger
terminal stations constituted real property or improvements thereon and,
as such, were taxable under the Real Property Tax Code. The appellate
court emphasized that such pieces of property did not fall under any of
the exemptions listed in Section 40 of the aforementioned law. The
reason was that they were not owned by the government or any
government-owned corporation which, as such, was exempt from the
payment of real property taxes. True, the government owned the real
property upon which the carriageways and terminal stations were built.
However, they were still taxable, because beneficial use had been
transferred to petitioner, a taxable entity.
The CA debunked the argument of petitioner that carriageways and
terminals were intended for public use. The former agreed, instead, with
the CBAA. The CBAA had concluded that since petitioner was not
engaged in purely governmental or public service, the latter's endeavors
were proprietary. Indeed, petitioner was deemed as a profit-oriented
endeavor, serving as it did, only the paying public.
Hence, this Petition.4
The Issues
In its Memorandum,5 petitioner urges the Court to resolve the following
matters:
"I
The Honorable Court of Appeals erred in not holding that the
carriageways and terminal stations of petitioner are not improvements for
purposes of the Real Property Tax Code.
"II
The Honorable Court of Appeals erred in not holding that being attached
to national roads owned by the national government, subject
carriageways and terminal stations should be considered property of the
national government.
"III
The Honorable Court of Appeals erred in not holding that payment of
charges or fares in the operation of the light rail transit system does not
alter the nature of the subject carriageways and terminal stations as
devoted for public use.
"IV
The Honorable Court of Appeals erred in failing to consider the view
advanced by the Department of Finance, which takes charge of the
overall collection of taxes, that subject carriageways and terminal stations
are not subject to realty taxes.
"V
The Honorable Court of Appeals erred in failing to consider that payment
of the realty taxes assessed is not warranted and should the legality of
the questioned assessment be upheld, the amount of the realty taxes
assessed would far exceed the annual earnings of petitioner, a
government corporation."
The foregoing all point to one main issue: whether petitioner's
carriageways and passenger terminal stations are subject to real property
taxes.
The Court's Ruling
The Petition has no merit.
Main Issue:
May Real Property Taxes be Assessed and Collected?
6 
The Real Property Tax Code, the law in force at the time of the assailed
assessment in 1984, mandated that "there shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem
tax on real property such as lands, buildings, machinery and other
improvements affixed or attached to real property not hereinafter
specifically exempted."7
Petitioner does not dispute that its subject carriageways and stations may
be considered real property under Article 415 of the Civil Code. However,
it resolutely argues that the same are improvements, not of its properties,
but of the government-owned national roads to which they are immovably
attached. They are thus not taxable as improvements under the Real
Property Tax Code. In essence, it contends that to impose a tax on the
carriageways and terminal stations would be to impose taxes on public
roads.
The argument does not persuade. We quote with approval the solicitor
general's astute comment on this matter:
"There is no point in clarifying the concept of industrial accession to
determine the nature of the property when what is fundamentally
important for purposes of tax classification is to determine the character
of the property subject [to] tax. The character of tax as a property tax
must be determined by its incidents, and form the natural and legal effect
thereof. It is irrelevant to associate the carriageways and/or the
passenger terminals as accessory improvements when the view of
taxability is focused on the character of the property. The latter situation
is not a novel issue as it has already been resolved by this Honorable
Court in the case of City of Manila vs. IAC (GR No. 71159, November 15,
1989) wherein it was held:
'The New Civil Code divides the properties into property for public and
patrimonial property (Art. 423), and further enumerates the property for
public use as provincial road, city streets, municipal streets, squares,
fountains, public waters, public works for public service paid for by said
[provinces], cities or municipalities; all other property is
patrimonial without prejudice to provisions of special laws. (Art. 424,
Province of Zamboanga v. City of Zamboanga, 22 SCRA 1334 [1968])
xxx
'...while the following are corporate or proprietary property in character,
viz: 'municipal water works, slaughter houses, markets, stables, bathing
establishments, wharves, ferries and fisheries.' Maintenance of parks,
golf courses, cemeteries and airports, among others, are also recognized
as municipal or city activities of a proprietary character (Dept. of Treasury
v. City of Evansville; 60 NE 2nd 952)'
"The foregoing enumeration in law does not specify or include
carriageway or passenger terminals as inclusive of properties strictly for
public use to exempt petitioner's properties from taxes. Precisely, the
properties of petitioner are not exclusively considered as public roads
being improvements placed upon the public road, and this separability
nature of the structure in itself physically distinguishes it from a public
road. Considering further that carriageways or passenger terminals are
elevated structures which are not freely accessible to the public, viz-a-viz
roads which are public improvements openly utilized by the public, the
former are entirely different from the latter.
"The character of petitioner's property, be it an improvements as
otherwise distinguished by petitioner, needs no further classification
when the law already classified it as patrimonial property that can be
subject to tax. This is in line with the old ruling that if the public works is
not for such free public service, it is not within the purview of the first
paragraph of Art. 424 if the New Civil Code."8
Though the creation of the LRTA was impelled by public service -- to
provide mass transportation to alleviate the traffic and transportation
situation in Metro Manila -- its operation undeniably partakes of ordinary
business. Petitioner is clothed with corporate status and corporate
powers in the furtherance of its proprietary objectives. 9 Indeed, it operates
much like any private corporation engaged in the mass transport industry.
Given that it is engaged in a service-oriented commercial endeavor, its
carriageways and terminal stations are patrimonial property subject to
tax, notwithstanding its claim of being a government-owned or controlled
corporation.
True, petitioner's carriageways and terminal stations are anchored, at
certain points, on public roads. However, it must be emphasized that
these structures do not form part of such roads, since the former have
been constructed over the latter in such a way that the flow of vehicular
traffic would not be impeded. These carriageways and terminal stations
serve a function different from that of the public roads. The former are
part and parcel of the light rail transit (LRT) system which, unlike the
latter, are not open to use by the general public. The carriageways are
accessible only to the LRT trains, while the terminal stations have been
built for the convenience of LRTA itself and its customers who pay the
required fare.
Basis of Assessment Is Actual Use of Real Property
Under the Real Property Tax Code, real property is classified for
assessment purposes on the basis of actual use,10 which is defined as
"the purpose for which the property is principally or predominantly utilized
by the person in possession of the property."11
Petitioner argues that it merely operates and maintains the LRT system,
and that the actual users of the carriageways and terminal stations are
the commuting public. It adds that the public-use character of the LRT is
not negated by the fact that revenue is obtained from the latter's
operations.
We do not agree. Unlike public roads which are open for use by
everyone, the LRT is accessible only to those who pay the required fare.
It is thus apparent that petitioner does not exist solely for public service,
and that the LRT carriageways and terminal stations are not exclusively
for public use. Although petitioner is a public utility, it is nonetheless
profit-earning. It actually uses those carriageways and terminal stations in
its public utility business and earns money therefrom.
Petitioner Not Exempt from Payment of Real Property Taxes
In any event, there is another legal justification for upholding the assailed
CA Decision.1âwphi1 Under the Real Property Tax Code, real property
"owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so
exempt by its charter, provided, however, that this exemption shall not
apply to real property of the abovenamed entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable
person."12
Executive Order No. 603, the charter of petitioner, does not provide for
any real estate tax exemption in its favor. Its exemption is limited to direct
and indirect taxes, duties or fees in connection with the importation of
equipment not locally available, as the following provision shows:
"ARTICLE 4
TAX AND DUTY EXEMPTIONS
Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and
Materials. - The importation of equipment, machineries, spare parts,
accessories and other materials, including supplies and services, used
directly in the operations of the Light Rails Transit System, not obtainable
locally on favorable terms, out of any funds of the authority including, as
stated in Section 7 above, proceeds from foreign loans credits or
indebtedness, shall likewise be exempted from all direct and indirect
taxes, customs duties, fees, imposts, tariff duties, compensating taxes,
wharfage fees and other charges and restrictions, the provisions of
existing laws to the contrary notwithstanding."
Even granting that the national government indeed owns the
carriageways and terminal stations, the exemption would not apply
because their beneficial use has been granted to petitioner, a taxable
entity.
Taxation is the rule and exemption is the exception. Any claim for tax
exemption is strictly construed against the claimant.13 LRTA has not
shown its eligibility for exemption; hence, it is subject to the tax.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision

of the Court of Appeals AFFIRMED. Costs against the petitioner.

SO ORDERED.