Humberto Basco vs Philippine Amusements and Gaming

Corporation 
 
197 SCRA 52 – Political Law – Constitutional Law – Bill of Rights – Equal Protection Clause
Municipal Corporation – Local Autonomy – Imperium in Imperio

I n 1977, the Philippine Amusements and Gaming Corporation (PAGCOR) was

created by Presidential Decree 1067-A. PD 1067-B meanwhile granted PAGCOR the power
“to establish, operate and maintain gambling casinos on land or water within the territorial
jurisdiction of the Philippines.”  PAGCOR’s operation was a success hence in 1978, PD
1399 was passed which expanded PAGCOR’s power. In 1983, PAGCOR’s charter was
updated through PD 1869. PAGCOR’s charter provides that PAGCOR shall regulate and
centralize all games of chance authorized by existing franchise or permitted by law. Section
1 of PD 1869 provides:
Section 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.
Atty. Humberto Basco and several other lawyers assailed the validity of the law creating
PAGCOR. They claim that PD 1869 is unconstitutional because a) it violates the equal
protection clause and b) it violates the local autonomy clause of the constitution.
Basco et al argued that PD 1869 violates the equal protection clause because it legalizes
PAGCOR-conducted gambling, while most other forms of gambling are outlawed, together
with prostitution, drug trafficking and other vices.
Anent the issue of local autonomy, Basco et al contend that P.D. 1869 forced cities
like Manila to waive its right to impose taxes and legal fees as far as PAGCOR is
concerned; that 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” is violative of the local
autonomy principle.
ISSUE: 
1. Whether or not PD 1869 violates the equal protection clause.
2. Whether or not PD 1869 violates the local autonomy clause.
HELD:
1. No. Just how PD 1869 in legalizing gambling conducted by PAGCOR is violative of the
equal protection is not clearly explained in Basco’s petition. The mere fact that some
gambling activities like cockfighting (PD 449) horse racing (RA 306 as amended by RA
983), sweepstakes, lotteries and races (RA 1169 as amended by BP 42) are legalized
under certain conditions, while others are prohibited, does not render the applicable laws,
PD. 1869 for one, unconstitutional.
Basco’s 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. A law does not have to operate in equal force on all persons or things to be
conformable to Article III, Sec 1 of the Constitution. The “equal protection clause” does not
prohibit the Legislature from establishing classes of individuals or objects upon which
different rules shall operate. The Constitution does not require situations which are different
in fact or opinion to be treated in law as though they were the same.
2. No. Section 5, Article 10 of the 1987 Constitution provides:
Each local government unit shall have the power to create its own source of revenue and to
levy taxes, fees, and other charges subject to such guidelines and limitation as the
congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees
and charges shall accrue exclusively to the local government.
A close reading of the above provision does not violate local autonomy (particularly on
taxing powers) as it was clearly stated that the taxing power of LGUs are subject to such
guidelines and limitation as Congress may provide.
Further, the City of Manila, being a mere Municipal corporation has no inherent right to
impose taxes. The Charter of the City of Manila is subject to control by Congress. It should
be stressed that “municipal corporations are mere creatures of Congress” which has the
power to “create and abolish municipal corporations” due to its “general legislative powers”.
Congress, therefore, has the power of control over Local governments. 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.
Further still, 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.
Otherwise, its operation might be burdened, impeded or subjected to control by a mere
Local government.
This doctrine emanates from the “supremacy” of the National Government over local
governments.
VV
Pimentel vs. Aguirre

Facts:
In 1997, President Ramos issued AO 372 which: (1) required all government departments and
agencies, including SUCs, GOCCs and LGUs to identify and implement measures in FY 1998
that will reduce total expenditures for the year by at least 25% of authorized regular
appropriations for non-personal services items (Section 1) and (2) ordered the withholding of
10% of the IRA to LGUs (Section 4). On 10 December 1998, President Estrada issued AO 43,
reducing to 5% the amount of IRA to be withheld from LGU.
Issues:
1. Whether or not the president committed grave abuse of discretion in ordering all LGUS to
adopt a 25% cost reduction program in violation of the LGU'S fiscal autonomy
2. Whether Section 4 of the same issuance, which withholds 10 percent of their internal revenue
allotments, are valid exercises of the President's power of general supervision over local
governments
Held:
1. Section 1 of AO 372 does not violate local fiscal autonomy. Local fiscal autonomy does not
rule out any manner of national government intervention by way of supervision, in order to
ensure that local programs, fiscal and otherwise, are consistent with national goals.
Significantly, the President, by constitutional fiat, is the head of the economic and planning
agency of the government, primarily responsible for formulating and implementing continuing,
coordinated and integrated social and economic policies, plans and programs for the entire
country. However, under the Constitution, the formulation and the implementation of such
policies and programs are subject to "consultations with the appropriate public agencies, various
private sectors, and local government units." The President cannot do so unilaterally.
Consequently, the Local Government Code provides:
"x x x [I]n the event the national government incurs an unmanaged public sector deficit, the
President of the Philippines is hereby authorized, upon the recommendation of [the] Secretary
of Finance, Secretary of the Interior and Local Government and Secretary of Budget and
Management, and subject to consultation with the presiding officers of both Houses of Congress
and the presidents of the liga, to make the necessary adjustments in the internal revenue
allotment of local government units but in no case shall the allotment be less than thirty percent
(30%) of the collection of national internal revenue taxes of the third fiscal year preceding the
current fiscal year x x x."
There are therefore several requisites before the President may interfere in local fiscal matters:
(1) an unmanaged public sector deficit of the national government; (2) consultations with the
presiding officers of the Senate and the House of Representatives and the presidents of the
various local leagues; and (3) the corresponding recommendation of the secretaries of the
Department of Finance, Interior and Local Government, and Budget and Management.
Furthermore, any adjustment in the allotment shall in no case be less than thirty percent (30%)
of the collection of national internal revenue taxes of the third fiscal year preceding the current
one.
Petitioner points out that respondents failed to comply with these requisites before the issuance
and the implementation of AO 372. At the very least, they did not even try to show that the
national government was suffering from an unmanageable public sector deficit. Neither did they
claim having conducted consultations with the different leagues of local governments. Without
these requisites, the President has no authority to adjust, much less to reduce, unilaterally the
LGU's internal revenue allotment.
AO 372, however, is merely directory and has been issued by the President consistent with his
power of supervision over local governments. It is intended only to advise all government
agencies and instrumentalities to undertake cost-reduction measures that will help maintain
economic stability in the country, which is facing economic difficulties. Besides, it does not
contain any sanction in case of noncompliance. Being merely an advisory, therefore, Section 1
of AO 372 is well within the powers of the President. Since it is not a mandatory imposition, the
directive cannot be characterized as an exercise of the power of control.
2. Section 4 of AO 372 cannot be upheld. A basic feature of local fiscal autonomy is the
automatic release of the shares of LGUs in the national internal revenue. This is mandated by
no less than the Constitution. The Local Government Code specifies further that the release
shall be made directly to the LGU concerned within five (5) days after every quarter of the year
and "shall not be subject to any lien or holdback that may be imposed by the national
government for whatever purpose." As a rule, the term "shall" is a word of command that must
be given a compulsory meaning. The provision is, therefore, imperative. (Pimentel vs. Aguirre,
G.R. No. 132988, July 19, 2000)

 Sections 1 & 2. ..shall enjoy local/fiscal  autonomy

PROVINCE OF BATANGAS VS. HON. ALBERTO ROMULO, ET AL., May 27, 2004
Local Autonomy; automatic release of  funds of Local Government Units, particularly the IRA.

The petitioner is questioning the constitutionality of the General Appropriations Act of 1999, 2000
and 2001 insofar as they uniformly earmarked for each year the amount of P5B of the Internal
Revenue Allotment (IRA) for the Local Government Service Equalization Fund (LGSEF) and imposed
conditions for the release thereof.

Likewise, the President of the Philippines issued Executive Order No. 48 entitled “Establishing a
Program fro Devolution Adjustment and Equalization “ with the purpose of facilitating the process
of enhancing the capacities of LGU’s in the discharge of the functions and services  devolved tot
hem by the national government agencies concerned pursuant to the Local Government Code.

Issue:
May the Congress or the President impose conditions for the use of the IRA by the different local
government units?

Held:

The provision of the GAA for the years 1999, 2000 and 2001 are unconstitutional as they encroach
on the fiscal autonomy of the local government units in violation of the Constitution. And even if
this case is already moot and academic because said provisions have been implemented, there is a
possibility that the same be incorporated in the future GAA or it is capable of repetition and as
such, it must be decided before another GAA is enacted. It behooves this Court to make a
categorical ruling on the substantive issue now to formulate controlling principles to guide the
bench, bar and the public.

Likewise, the act of the President as embodied in EO No. 48 is unconstitutional because  it

amounts to control to local government units when the President’s power over local government
units is confined to general supervision, not power of control. The distinctions of the two powers
were enunciated in Drilon vs. Lim, 235 SCRA 135. Thus:

An officer in control lays down the rules in the doing of an act. If they are not followed, he may in
his discretion, order the act undone or re-done by his subordinate or he may even decide to do it
himself. Supervision does not cover such authority. The supervisor merely sees to it that the rules
are followed, but he himself does not lay down such rules, nor does he have any discretion to
modify or replace them. If the rules are not observed, he may order the work done or re-done but
only to conform to the prescribed rules. He may not prescribe his own manner of doing the act.
He has no judgment on this matter except to see to it that the rules are followed.

Section 286 of the Local Government Code is very clear since it provides that the share of each
local government unit shall be released without need of any further action, DIRECTLY TO THE
PROVINCIAL, CITY, MUNICIPAL OR BARANGAY TREASURER as the case may be on a quarterly basis…
and which may not be the subject to any lien or holdback that may be imposed by the national
government for whatever purpose.

Finally, Section 2, Art. X of the Constitution expressly mandates that the local government units
shall enjoy local autonomy as well as Section 25, Art. II of the Constitution.

2.  Section 3.. there shall be a LGC which shall provide a more responsive and accountable local
government with effective mechanisms of recall, initiative and referendum….

Read:

1)   1991 Local Government Code on Recall, requisites, grounds and procedures) and other
important aspects.
2. Exec. Order 249

Luz Yamane vs BA Lepanto

Condominium Corporation
ADVERTISEMENTS 
 
 

Taxation – Tax Remedies – Local Taxation – Original & Appellate Jurisdiction in Tax
Cases 
In 1998, BA Lepanto Condominium Corporation (Lepanto) received a tax assessment in the
amount of P1.6 million from Luz Yamane, the City Treasurer of Makati, for business taxes.
Lepanto protested the assessment as it averred that Lepanto, as a corporation, is not
organized for profit; that it merely exists for the maintenance of the condominium. Yamane
denied the protest. Lepanto then appealed the denial to the RTC of Makati. RTC Makati
affirmed the decision of Yamane. Lepanto then filed a petition for review under Rule 42 with
the Court of Appeals. The Court of Appeals reversed the RTC.
Yamane now filed a petition for review under Rule 45 with the Supreme Court. Yamane
avers that a.) Lepanto is liable for local taxation because its act of maintaining the
condominium is an activity for profit because the end result of such activity is the betterment
of the market value of the condominium which makes it easier to sell it; that Lepanto is
earning profit from fees collected from condominium unit owners; and that b.) Lepanto’s
petition for review of the decision of the RTC to the CA is erroneous because when the RTC
decided on the appeal brought to it by Lepanto, the RTC was exercising its original
jurisdiction and not its appellate jurisdiction; that as such, what Lepanto should have done is
to file an ordinary appeal under Rule 41.
ISSUE: Whether or not a RTC deciding an appeal from the decision of a city treasurer on
tax protests is exercising original jurisdiction. Whether or not a condominium corporation
organized solely for the maintenance of a condominium is liable for local taxation.
HELD:
1.        Yes. Although the LGC (Section 195) provides that the remedy of the taxpayer
whose protest is denied by the local treasurer is “to appeal with the court of competent
jurisdiction” or in this case the RTC (considering the amount of tax liability is P1.6 million),
such appeal when decided by the RTC is still in the exercise of its original jurisdiction and
not its appellate jurisdiction. This is because appellate jurisdiction is defined as the authority
of a court higher in rank to re-examine the final order or judgment of a lower court which
tried the case now elevated for judicial review. Here, the City Treasurer is not a lower
court.
The Supreme Court however clarifies that this ruling is only applicable to similar cases
before the passage of Republic Act 9282 (effective April 2004). Under RA 9282, the Court
of Tax Appeals (CTA), not CA, exercises exclusive appellate jurisdiction to review on appeal
decisions, orders or resolutions of the Regional Trial Courts in local tax cases whether
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction.
2.        No. Lepanto was not organized for profit. The fees it was collecting from the
condominium unit owners redound to the owners themselves because the fees collected
are being used for the maintenance of the condo. Further, it appears that the assessment
issued by Yamane did not state the legal basis for the tax being imposed on Lepanto – it
merely states that Makati is authorized to collect business taxes under the Local
Government Code (LGC) but no other reference specific reference to specific laws were
cited.