1. CARLOS SUPERDRUG CORP.

, doing business under the name and style "Carlos

Superdrug," ELSIE M. CANO, doing business under the name and style "Advance
Drug," Dr. SIMPLICIO L. YAP, JR., doing business under the name and style "City
Pharmacy," MELVIN S. DELA SERNA, doing business under the name and style
"Botica dela Serna," and LEYTE SERV-WELL CORP., doing business under the
name and style "Leyte Serv-Well Drugstore," petitioners, 
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD), DEPARTMENT
OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF), DEPARTMENT OF JUSTICE
(DOJ), and DEPARTMENT OF INTERIOR and LOCAL GOVERNMENT
(DILG), respondents.

DECISION

AZCUNA, J.:

This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the
"Expanded Senior Citizens Act of 2003."

Petitioners are domestic corporations and proprietors operating drugstores in the

Philippines.

Public respondents, on the other hand, include the Department of Social Welfare and
Development (DSWD), the Department of Health (DOH), the Department of Finance
(DOF), the Department of Justice (DOJ), and the Department of Interior and Local
Government (DILG) which have been specifically tasked to monitor the drugstores’
compliance with the law; promulgate the implementing rules and regulations for the
effective implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.

The antecedents are as follows:

On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432, 3 was signed into law by
President Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section
4(a) of the Act states:

SEC. 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use
or enjoyment of senior citizens, including funeral and burial services for the death of
senior citizens;

...

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended.4

On May 28, 2004, the DSWD approved and adopted the Implementing Rules and
Regulations of R.A. No. 9257, Rule VI, Article 8 of which states:

Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts
granted under Rule V, Section 4 – Discounts for Establishments;5 Section 9, Medical and
Dental Services in Private Facilities[,]6 and Sections 107 and 118 – Air, Sea and Land
Transportation as tax deduction based on the net cost of the goods sold or services
rendered. Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted; Provided,
further, That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended; Provided, finally, that the implementation of the tax deduction shall
be subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue
(BIR) and approved by the Department of Finance (DOF).9

On July 10, 2004, in reference to the query of the Drug Stores Association of the
Philippines (DSAP) concerning the meaning of a tax deduction under the Expanded
Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B. Recente, clarified as
follows:

1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax
Deduction (under the Expanded Senior Citizens Act).

1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants
twenty percent (20%) discount from all establishments relative to the utilization of
transportation services, hotels and similar lodging establishment, restaurants and
recreation centers and purchase of medicines anywhere in the country, the costs of
which may be claimed by the private establishments concerned as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a taxpayer’s tax liability due to
the government of the amount of discounts such establishment has granted to a senior
citizen. The establishment recovers the full amount of discount given to a senior citizen
and hence, the government shoulders 100% of the discounts granted.

It must be noted, however, that conceptually, a tax credit scheme under the Philippine
tax system, necessitates that prior payments of taxes have been made and the taxpayer
is attempting to recover this tax payment from his/her income tax due. The tax credit
scheme under R.A. No. 7432 is, therefore, inapplicable since no tax payments have
previously occurred.

1.2. The provision under R.A. No. 9257, on the other hand, provides that the
establishment concerned may claim the discounts under Section 4(a), (f), (g) and (h)
as tax deduction from gross income, based on the net cost of goods sold or services
rendered.

Under this scheme, the establishment concerned is allowed to deduct from gross income,
in computing for its tax liability, the amount of discounts granted to senior citizens.
Effectively, the government loses in terms of foregone revenues an amount equivalent to
the marginal tax rate the said establishment is liable to pay the government. This will be
an amount equivalent to 32% of the twenty percent (20%) discounts so granted. The
establishment shoulders the remaining portion of the granted discounts.

It may be necessary to note that while the burden on [the] government is slightly
diminished in terms of its percentage share on the discounts granted to senior citizens,
the number of potential establishments that may claim tax deductions, have however,
been broadened. Aside from the establishments that may claim tax credits under the old
law, more establishments were added under the new law such as: establishments
providing medical and dental services, diagnostic and laboratory services, including
professional fees of attending doctors in all private hospitals and medical facilities,
operators of domestic air and sea transport services, public railways and skyways and
bus transport services.

A simple illustration might help amplify the points discussed above, as follows:

Tax Deduction Tax Credit

Gross Sales x x x x x x x x x x x x

Less : Cost of goods sold x x x x x x x x x x

Net Sales x x x x x x x x x x x x

Less: Operating Expenses:

Tax Deduction on Discounts x x x x --

Other deductions: x x x x x x x x

Net Taxable Income x x x x x x x x x x

Tax Due x x x x x x

Less: Tax Credit -- ______x x

Net Tax Due -- x x

As shown above, under a tax deduction scheme, the tax deduction on discounts was

subtracted from Net Sales together with other deductions which are considered as
operating expenses before the Tax Due was computed based on the Net Taxable
Income. On the other hand, under a tax credit scheme, the amount of discounts which is
the tax credit item, was deducted directly from the tax due amount.10

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known
as the "Expanded Senior Citizens Act of 2003" 11was issued by the DOH, providing the
grant of twenty percent (20%) discount in the purchase of unbranded generic medicines
from all establishments dispensing medicines for the exclusive use of the senior citizens.

On November 12, 2004, the DOH issued Administrative Order No 177 12 amending A.O.
No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the
purchase of unbranded generic medicines only, but shall extend to both prescription and
non-prescription medicines whether branded or generic. Thus, it stated that "[t]he grant of
twenty percent (20%) discount shall be provided in the purchase of medicines from all
establishments dispensing medicines for the exclusive use of the senior citizens."

Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act
based on the following grounds:13

1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which
provides that private property shall not be taken for public use without just compensation;

2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution
which states that "no person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied of the equal protection of the laws;" and

3) The 20% discount on medicines violates the constitutional guarantee in Article XIII,
Section 11 that makes "essential goods, health and other social services available to all
people at affordable cost."14
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant
the discount will result in a loss of profit

and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded

medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly
compensated for the discount.

Examining petitioners’ arguments, it is apparent that what petitioners are ultimately

questioning is the validity of the tax deduction scheme as a reimbursement mechanism
for the twenty percent (20%) discount that they extend to senior citizens.

Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is
because the discount is treated as a deduction, a tax-deductible expense that is
subtracted from the gross income and results in a lower taxable income. Stated
otherwise, it is an amount that is allowed by law 15 to reduce the income prior to the
application of the tax rate to compute the amount of tax which is due. 16 Being a tax
deduction, the discount does not reduce taxes owed on a peso for peso basis but merely
offers a fractional reduction in taxes owed.

Theoretically, the treatment of the discount as a deduction reduces the net income of the
private establishments concerned. The discounts given would have entered the coffers
and formed part of the gross sales of the private establishments, were it not for R.A. No.
9257.

The permanent reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.17 This constitutes compensable taking
for which petitioners would ordinarily become entitled to a just compensation.

Just compensation is defined as the full and fair equivalent of the property taken from its
owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The
word just is used to intensify the meaning of the word compensation, and to convey the
idea that the equivalent to be rendered for the property to be taken shall be real,
substantial, full and ample.18

A tax deduction does not offer full reimbursement of the senior citizen discount. As such,
it would not meet the definition of just compensation.19

Having said that, this raises the question of whether the State, in promoting the health
and welfare of a special group of citizens, can impose upon private establishments the
burden of partly subsidizing a government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior
citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our society.20

The priority given to senior citizens finds its basis in the Constitution as set forth in the
law itself. Thus, the Act provides:

SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. – Pursuant to Article XV, Section 4

of the Constitution, it is the duty of the family to take care of its elderly members while the
State may design programs of social security for them. In addition to this, Section 10 in
the Declaration of Principles and State Policies provides: "The State shall provide social
justice in all phases of national development." Further, Article XIII, Section 11, provides:
"The State shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available
to all the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women and children." Consonant with these
constitutional principles the following are the declared policies of this Act:

...

(f) To recognize the important role of the private sector in the improvement of the
welfare of senior citizens and to actively seek their partnership.21

To implement the above policy, the law grants a twenty percent discount to senior
citizens for medical and dental services, and diagnostic and laboratory fees; admission
fees charged by theaters, concert halls, circuses, carnivals, and other similar places of
culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers;
and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a
form of reimbursement, the law provides that business establishments extending the
twenty percent discount to senior citizens may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power of eminent
domain, has general welfare for its object. Police power is not capable of an exact
definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus assuring the greatest
benefits. 22 Accordingly, it has been described as "the most essential, insistent and the
least limitable of powers, extending as it does to all the great public needs." 23 It is "[t]he
power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same."24

For this reason, when the conditions so demand as determined by the legislature,
property rights must bow to the primacy of police power because property rights, though
sheltered by due process, must yield to general welfare.25

Police power as an attribute to promote the common good would be diluted considerably
if on the mere plea of petitioners that they will suffer loss of earnings and capital, the
questioned provision is invalidated. Moreover, in the absence of evidence demonstrating
the alleged confiscatory effect of the provision in question, there is no basis for its
nullification in view of the presumption of validity which every law has in its favor.26

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen
discount is unduly oppressive to their business, because petitioners have not taken time
to calculate correctly and come up with a financial report, so that they have not been able
to show properly whether or not the tax deduction scheme really works greatly to their
disadvantage.27

In treating the discount as a tax deduction, petitioners insist that they will incur losses
because, referring to the DOF Opinion, for every ₱1.00 senior citizen discount that
petitioners would give, ₱0.68 will be shouldered by them as only ₱0.32 will be refunded
by the government by way of a tax deduction.

To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive
maintenance drug Norvasc as an example. According to the latter, it
acquires Norvasc from the distributors at ₱37.57 per tablet, and retails it at ₱39.60 (or at
a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent to
₱7.92, then it would have to sell Norvasc at ₱31.68 which translates to a loss from
capital of ₱5.89 per tablet. Even if the government will allow a tax deduction, only ₱2.53
per tablet will be refunded and not the full amount of the discount which is ₱7.92. In
short, only 32% of the 20% discount will be reimbursed to the drugstores.28

Petitioners’ computation is flawed. For purposes of reimbursement, the law states that
the cost of the discount shall be deducted from gross income,29 the amount of income
derived from all sources before deducting allowable expenses, which will result in net
income. Here, petitioners tried to show a loss on a per transaction basis, which should
not be the case. An income statement, showing an accounting of petitioners’ sales,
expenses, and net profit (or loss) for a given period could have accurately reflected the
effect of the discount on their income. Absent any financial statement, petitioners cannot
substantiate their claim that they will be operating at a loss should they give the discount.
In addition, the computation was erroneously based on the assumption that their
customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed
on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the
prices of their medicines given the cutthroat nature of the players in the industry. It is a
business decision on the part of petitioners to peg the mark-up at 5%. Selling the
medicines below acquisition cost, as alleged by petitioners, is merely a result of this
decision. Inasmuch as pricing is a property right, petitioners cannot reproach the law for
being oppressive, simply because they cannot afford to raise their prices for fear of losing
their customers to competition.

The Court is not oblivious of the retail side of the pharmaceutical industry and the
competitive pricing component of the business. While the Constitution protects property
rights, petitioners must accept the realities of business and the State, in the exercise of
police power, can intervene in the operations of a business which may result in an
impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continuously serve as a reminder that the right to property can be relinquished
upon the command of the State for the promotion of public good.30

Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being the
case, the means employed in invoking the active participation of the private sector, in
order to achieve the purpose or objective of the law, is reasonably and directly related.
Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act.31

WHEREFORE, the petition is DISMISSED for lack of merit.

No costs.

SO ORDERED.
 2. DRUGSTORES ASSOCIATION OF THE PHILIPPINES, INC. AND
NORTHERN LUZON DRUG CORPORATION, PETITIONERS, VS. NATIONAL
COUNCIL ON DISABILITY AFFAIRS; DEPARTMENT OF HEALTH;
DEPARTMENT OF FINANCE; BUREAU OF INTERNAL REVENUE; DEPARTMENT
OF THE INTERIOR AND LOCAL GOVERNMENT; AND DEPARTMENT OF
SOCIAL WELFARE AND DEVELOPMENT, RESPONDENTS.

D E C I S I O N

PERALTA, J.:

Before us is a Petition for Review on Certiorari[1] with a Prayer for a

Temporary Restraining Order and/or Writ of Preliminary Injunction which
seeks to annul and set aside the Decision [2] dated July 26, 2010, and the
Resolution[3] dated November 19, 2010 of the Court of Appeals (CA) in CA-
G.R. SP No. 109903. The CA dismissed petitioners' Petition for
Prohibition[4]and upheld the constitutionality of the mandatory twenty percent
(20%) discount on the purchase of medicine by persons with disability (PWD).

The antecedents are as follows:

On March 24, 1992, Republic Act (R.A.) No. 7277, entitled "An Act Providing
for the Rehabilitation, Self-Development and Self-Reliance of Disabled
Persons and their Integration into the Mainstream of Society and for Other
Purposes," otherwise known as the "Magna Carta for Disabled Persons," was
passed into law.[5] The law defines "disabled persons", "impairment" and
"disability" as follows:
SECTION 4. Definition of Terms. - For purposes of this
Act, these terms are defined as follows:

(a) Disabled Persons are those suffering from

restriction of different abilities, as a result of a
mental, physical or sensory impairment, to perform an
activity in the manner or within the range considered
normal for a human being;

(b) Impairment is any loss, diminution or aberration of

psychological, physiological, or anatomical structure of
function;

(c) Disability shall mean (1) a physical or mental

impairment that substantially limits one or more
psychological, physiological or anatomical function of an
individual or activities of such individual; (2) a record
 of such an impairment; or (3) being regarded as having
such an impairment.[6]
On April 30, 2007, Republic Act No. 9442 [7] was enacted amending R.A. No.
7277. The Title of R.A. No. 7277 was amended to read as "Magna Carta for
Persons with Disability" and all references on the law to "disabled persons"
were amended to read as "persons with disability" (PWD).[8] Specifically, R.A.
No. 9442 granted the PWDs a twenty (20) percent discount on the purchase
of medicine, and a tax deduction scheme was adopted wherein covered
establishments may deduct the discount granted from gross income based on
the net cost of goods sold or services rendered:
CHAPTER 8. Other Privileges and Incentives. SEC. 32.
Persons with disability shall be entitled to the
following: 

x x x x
 
At least twenty percent (20%) discount for the purchase of
(d) medicines in all drugstores for the exclusive use or enjoyment of
persons with disability;

x x x x

The abovementioned privileges are available only to

persons with disability who are Filipino citizens upon
submission of any of the following as proof of his/her
entitlement thereto:
An identification card issued by the city or municipal mayor or
(i) the barangay captain of the place where the person with
disability resides;

(ii
The passport of the person with disability concerned; or
)

(ii Transportation discount fare Identification Card (ID) issued by

) the National Council for the Welfare of Disabled Persons (NCWDP).

x x x x

The establishments may claim the discounts granted in

subsections (a), (b), (c), (f) and (g) as tax deductions
based on the net cost of the goods sold or services
rendered: Provided, however, That the cost of the
discount shall be allowed as deduction from gross income
for the same taxable year that the discount is
 granted: Provided, further, That the total amount of
the claimed tax deduction net of value-added tax if
applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National
Internal Revenue Code (NIRC), as amended.[9]
The Implementing Rules and Regulations (IRR) of R.A. No. 9442[10] was jointly
promulgated by the Department of Social Welfare and Development (DSWD),
Department of Education, Department of Finance (DOF), Department of
Tourism, Department of Transportation and Communication, Department of
the Interior and Local Government (DILG) and Department of Agriculture.
Insofar as pertinent to this petition, the salient portions of the IRR are
hereunder quoted:[11]
RULE III. DEFINITION OF TERMS

Section 5. Definition of Terms. For purposes of these

Rules and Regulations, these terms are defined as
follows:

5.1. Persons with Disability - are those individuals

defined under Section 4 of RA 7277 "An Act Providing for
the Rehabilitation, Self-Development and Self-Reliance of
Persons with Disability as amended and their integration
into the Mainstream of Society and for Other Purposes".
This is defined as a person suffering from restriction or
different abilities, as a result of a mental, physical or
sensory impairment, to perform an activity in a manner or
within the range considered normal for human being.
Disability shall mean (1) a physical or mental impairment
that substantially limits one or more psychological,
physiological or anatomical function of an individual or
activities of such individual; (2) a record of such an
impairment; or (3) being regarded as having such an
impairment.

x x x x

RULE IV. PRIVILEGES AND INCENTIVES FOR THE PERSONS WITH

DISABILITY

Section 6. Other Privileges and Incentives. Persons with

disability shall be entitled to the following:

x x x x
6.1.d. Purchase of Medicine - at least twenty percent
(20%) discount on the purchase of medicine for the
exclusive use and enjoyment of persons with disability.
All drugstores, hospital, pharmacies, clinics and other
similar establishments selling medicines are required to
provide at least twenty percent (20%) discount subject
to the guidelines issued by DOH and PHILHEALTH.[12]

x x x x

6.11 The abovementioned privileges are available only to

persons with disability who are Filipino citizens upon
submission of any of the following as proof of his/her
entitlement thereto subject to the guidelines issued by
the NCWDP in coordination with DSWD, DOH and DILG.
6.11.1 An identification card issued by the
city or municipal mayor or the barangay
captain of the place where the person with
disability resides;

6.11.2 The passport of the persons with

disability concerned; or

6.11.3 Transportation discount fare

Identification Card (ID) issued by the
National Council for the Welfare of Disabled
Persons (NCWDP). However, upon effectivity
of this Implementing Rules and Regulations,
NCWDP will already adopt the Identification
Card issued by the Local Government Unit for
purposes of uniformity in the implementation.
NCWDP will provide the design and
specification of the identification card that
will be issued by the Local Government Units.
[13]

6.14. Availmenl of Tax Deductions by Establishment

Granting Twenty Percent. 20% Discount - The
establishments may claim the discounts granted in sub-
sections (6.1), (6.2), (6.4), (6.5) and (6.6) as tax
deductions based on the net cost of the goods sold or
services rendered: Provided, however, that the cost of
the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is
 granted: Provided, further, That the total amount of the
claimed tax deduction net of value-added tax if
applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National
Internal Revenue Code, as amended.
On April 23, 2008, the National Council on Disability Affairs (NCDA)[14] issued
Administrative Order (A.O.) No. 1, Series of 2008, [15] prescribing guidelines
which should serve as a mechanism for the issuance of a PWD Identification
Card (IDC) which shall be the basis for providing privileges and discounts
to bona fide PWDs in accordance with R.A. 9442:
IV. INSTITUTIONAL ARRANGEMENTS

1. The Local Government Unit of the City or

Municipal Office shall implement these guidelines
in the issuance of the PWD-IDC

x x x x

D. Issuance of the appropriate document to confirm the

medical condition of the applicant is as follows:
Disability Document Issuing Entity
Licensed Private or
Apparent Disability Medical Certificate
Government Physician
Licensed Teacher duly
  School Assessment signed by the School
Principal
Certificate of Head of the Business
Disability Establishment or Head
 
of Non-Government
Organization
Licensed Private or
Non-Apparent Disability Medical Certificate
Government Physician
E. PWD Registration Forms and ID Cards shall be issued
and signed by the City or Municipal Mayor, or Barangay
Captain.

x x x x
V. IMPLEMENTING GUIDELINES AND PROCEDURES
Any bonafide person with permanent disability can apply
for the issuance of the PWD-IDC. His/her caregiver can
assist in the application process. Procedures for the
issuance of the ID Cards are as follows:
 A. Completion of the Requirements. Complete and/or make
available the following requirements:

1. Two "1x1" recent ID pictures with

the names, and signatures or thumbmarks
at the back of the picture
2. One (1) Valid ID
3. Document to confirm the medical or
disability condition (See Section IV, D
for the required document).

On December 9, 2008, the DOF issued Revenue Regulations No. 1-

2009[16] prescribing rules and regulations to implement R.A. 9442 relative to
the tax privileges of PWDs and tax incentives for establishments granting the
discount. Section 4 of Revenue Regulations No. 001-09 states that drugstores
can only deduct the 20% discount from their gross income subject to some
conditions.[17]

On May 20, 2009, the DOH issued A.O. No. 2009-0011[18] specifically stating

that the grant of 20% discount shall be provided in the purchase of branded
medicines and unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the PWDs. [19] It also detailed the
guidelines for the provision of medical and related discounts and special
privileges to PWDs pursuant to R.A. 9442.[20]

On July 28, 2009, petitioners filed a Petition for Prohibition with application
for a Temporary Restraining Order and/or a Writ of Preliminary
Injunction[21] before the Court of Appeals to annul and enjoin the
implementation of the following laws:
1) Section 32 of R.A. No. 7277 as amended by R.A. No.
9442;

2) Section 6, Rule IV of the Implementing Rules and

Regulations of R.A. No. 9442;

3) NCDA A.O. No. 1;

4) DOF Revenue Regulation No. 1-2009;

5) DOH A.O. No. 2009-0011.

On July 26, 2010, the CA rendered a Decision upholding the constitutionality
of R.A. 7277 as amended, as well as the assailed administrative issuances.
However, the CA suspended the effectivity of NCDA A.O. No. 1 pending proof
of respondent NCDA's compliance with filing of said administrative order with
the Office of the National Administrative Register (ONAR) and its publication
in a newspaper of general circulation. The dispositive portion of the Decision
states:
WHEREFORE, the petition is PARTLY GRANTED. The
effectivity of NCDA Administrative Order No. 1 is hereby
SUSPENDED pending Respondent's compliance with the proof
of filing of NCDA Administrative Order No. 1 with the
Office of the National Administrative Register and its
publication in a newspaper of general circulation.
Respondent NCDA filed a motion for reconsideration before the CA to lift the
suspension of the implementation of NCDA A.O. No. 1 attaching thereto proof
of its publication in the Philippine Star and Daily Tribune on August 12, 2010,
as well as a certification from the ONAR showing that the same was filed with
the said office on October 22, 2009.[22] Likewise, petitioners filed a motion for
reconsideration of the CA Decision.

In a Resolution dated November 19, 2010, the CA dismissed petitioners'

motion for reconsideration and lifted the suspension of the effectivity of NCDA
A.O. No. 1 considering the filing of the same with ONAR and its publication in
a newspaper of general circulation.

Hence, the instant petition raising the following issues:

I. THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN
IT RULED THAT THE MANDATED PWD DISCOUNT IS A VALID
EXERCISE OF POLICE POWER. ON THE CONTRARY, IT IS AN
INVALID EXERCISE OF THE POWER OF EMINENT DOMAIN BECAUSE
IT FAILS TO PROVIDE JUST COMPENSATION TO PETITIONERS AND
OTHER SIMILARLY SITUATED DRUGSTORES;

II. THE CA SERIOUSLY ERRED WHEN IT RULED THAT SECTION 32

OF RA 7277 AS AMENDED BY RA 9442, NCDA AO 1 AND THE OTHER
IMPLEMENTING REGULATIONS DID NOT VIOLATE THE DUE PROCESS
CLAUSE;

III. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE

DEFINITIONS OF DISABILITIES UNDER SECTION 4(A), SECTION
4(B) AND SECTION 4(C) OF RA 7277 AS AMENDED BY RA 9442,
RULE 1 OF THE IMPLEMENTING RULES AND REGULATIONS [23] OF
RA 7277, SECTION 5.1 OF THE IMPLEMENTING RULES AND
REGULATIONS OF RA 9442, NCDA AO 1 AND DOH AO 2009-11 ARE
NOT VAGUE, AMBIGUOUS AND UNCONSTITUTIONAL;

IV. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE

 MANDATED PWD DISCOUNT DOES NOT VIOLATE THE EQUAL
PROTECTION CLAUSE.
We deny the petition.

The CA is correct when it applied by analogy the case of Carlos Superdrug

Corporation et al. v. DSWD, et al.[24] wherein We pronouced that Section 4 of
R.A. No. 9257 which grants 20% discount on the purchase of medicine of
senior citizens is a legitimate exercise of police power:
The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general
welfare for its object. Police power is not capable of an
exact definition, but has been purposely veiled in
general terms to underscore its comprehensiveness to meet
all exigencies and provide enough room for an efficient
and flexible response to conditions and circumstances,
thus assuring the greatest benefits.[25] Accordingly, it
has been described as the most essential, insistent and
the least limitable of powers, extending as it does to
all the great public needs.[26] It is [t]he power vested
in the legislature by the constitution to make, ordain,
and establish all manner of wholesome and reasonable
laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall
judge to be for the good and welfare of the commonwealth,
and of the subjects of the same.[27]

For this reason, when the conditions so demand as

determined by the legislature, property rights must bow
to the primacy of police power because property rights,
though sheltered by due process, must yield to general
welfare.[28]

Police power as an attribute to promote the common good

would be diluted considerably if on the mere plea of
petitioners that they will suffer loss of earnings and
capital, the questioned provision is invalidated.
Moreover, in the absence of evidence demonstrating the
alleged confiscatory effect of the provision in question,
there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.
[29]

Police power is the power of the state to promote public welfare by restraining
and regulating the use of liberty and property. On the other hand, the power
of eminent domain is the inherent right of the state (and of those entities to
which the power has been lawfully delegated) to condemn private property to
public use upon payment of just compensation. In the exercise of police
power, property rights of private individuals are subjected to restraints and
burdens in order to secure the general comfort, health, and prosperity of the
state.[30] A legislative act based on the police power requires the concurrence
of a lawful subject and a lawful method. In more familiar words, (a) the
interests of the public generally, as distinguished from those of a particular
class, should justify the interference of the state; and (b) the means
employed are reasonably necessary for the accomplishment of the purpose
and not unduly oppressive upon individuals.[31]

R.A. No. 7277 was enacted primarily to provide full support to the
improvement of the total well-being of PWDs and their integration into the
mainstream of society. The priority given to PWDs finds its basis in the
Constitution:
ARTICLE XII

NATIONAL ECONOMY AND PATRIMONY

x x x x

Section 6. The use of property bears a social

function, and all economic agents shall
contribute to the common good. Individuals
and private groups, including corporations,
cooperatives, and similar collective
organizations, shall have the right to own,
establish, and operate economic enterprises,
subject to the duty of the State topromote
distributive justice and to intervene when
the common good so demands.[32]
ARTICLE XIII 

SOCIAL JUSTICE AND HUMAN RIGHTS

x x x x

Section 11. The State shall adopt an integrated and

comprehensive approach to health development which
shall endeavor to make essential goods, health and other
social services available to all the people at affordable
cost. There shall be priority for the needs of the
underprivileged, sick, elderly, disabled, women, and
 children. The State shall endeavor to provide free
medical care to paupers.[33]
Thus, R.A. No. 7277 provides:
SECTION 2. Declaration of Policy. The grant of the
rights and privileges for disabled persons shall be
guided by the following principles:

(a). Disabled persons are part of the Philippine

society, thus the Senate shall give full support to the
improvement of the total well-being of disabled persons
and their integration into the mainstream of society.

Toward this end, the State shall adopt policies ensuring

the rehabilitation, self-development and self-reliance of
disabled persons.

It shall develop their skills and potentials to enable

them to compete favorably for available opportunities.

(b). Disabled persons have the same rights as other

people to take their proper place in society. They should
be able to live freely and as independently as possible.
This must be the concern of everyone - the family,
community and all government and non-government
organizations.

Disabled person's rights must never be perceived as

welfare services by the Government. 
x x x x

(d). The State also recognizes the role of

the private sector in promoting the welfare
of disabled persons and shall encourage
partnership in programs that address their
needs and concerns.[34]
To implement the above policies, R.A. No. 9442 which amended R.A. No.
7277 grants incentives and benefits including a twenty percent (20%)
discount to PWDs in the purchase of medicines; fares for domestic air, sea
and land travels including public railways and skyways; recreation and
amusement centers including theaters, food chains and restaurants. [35] This is
specifically stated in Section 4 of the IRR of R.A. No. 9442:
Section 4. Policies and Objectives - It is the
objective of Republic Act No. 9442 to provide persons
with disability, the opportunity to participate fully
 into the mainstream of society by granting them at least
twenty percent (20%) discount in all basic services. It
is a declared policy of RA 7277 that persons with
disability are part of Philippine society, and thus the
State shall give full support to the improvement of
their total wellbeing and their integration into the
mainstream of society. They have the same rights as other
people to take their proper place in society. They should
be able to live freely and as independently as possible.
This must be the concern of everyone the family,
community and all government and non-government
organizations. Rights of persons with disability must
never be perceived as welfare services. Prohibitions on
verbal, non-verbal ridicule and vilification against
persons with disability shall always be observed at all
times.[36]
Hence, the PWD mandatory discount on the purchase of medicine is
supported by a valid objective or purpose as aforementioned. It has a valid
subject considering that the concept of public use is no longer confined to the
traditional notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public convenience. As in the case
of senior citizens,[37] the discount privilege to which the PWDs are entitled is
actually a benefit enjoyed by the general public to which these citizens
belong. The means employed in invoking the active participation of the
private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related.[38] Also, the means employed to provide a
fair, just and quality health care to PWDs are reasonably related to its
accomplishment, and are not oppressive, considering that as a form of
reimbursement, the discount extended to PWDs in the purchase of medicine
can be claimed by the establishments as allowable tax deductions pursuant to
Section 32 of R.A. No. 9442 as implemented in Section 4 of DOF Revenue
Regulations No. 1-2009. Otherwise stated, the discount reduces taxable
income upon which the tax liability of the establishments is computed.

Further, petitioners aver that Section 32 of R.A. No. 7277 as amended by

R.A. No. 9442 is unconstitutional and void for violating the due process clause
of the Constitution since entitlement to the 20% discount is allegedly merely
based on any of the three documents mentioned in the provision, namely: (i)
an identification card issued by the city or municipal mayor or the barangay
captain of the place where the PWD resides; (ii) the passport of the PWD; or
(iii) transportation discount fare identification card issued by NCDA.
Petitioners, thus, maintain that none of the said documents has any relation
to a medical finding of disability, and the grant of the discount is allegedly
without any process for the determination of a PWD in accordance with law.
Section 32 of R.A. No. 7277, as amended by R.A. No. 9442, must be read
with its IRR which stated that upon its effectivity, NCWDP (which is the
government agency tasked to ensure the implementation of RA 7277), would
adopt the IDC issued by the local government units for purposes of uniformity
in the implementation.[39] Thus, NCDA A.O. No. 1 provides the reasonable
guidelines in the issuance of IDCs to PWDs as proof of their entitlement to the
privileges and incentives under the law[40] and fills the details in the
implementation of the law.

As stated in NCDA A.O. No. 1, before an IDC is issued by the city or municipal
mayor or the barangay captain,[41] or the Chairman of the NCDA,[42] the
applicant must first secure a medical certificate issued by a licensed private or
government physician that will confirm his medical or disability condition. If
an applicant is an employee with apparent disability, a "certificate of
disability" issued by the head of the business establishment or the head of
the non-governmental organization is needed for him to be issued a PWD-
IDC. For a student with apparent disability, the "school assessment" issued by
the teacher and signed by the school principal should be presented to avail of
a PWD-ID.

Petitioners' insistence that Part IV (D) of NCDA Administrative Order No. 1 is

void because it allows allegedly non-competent persons like teachers, head of
establishments and heads of Non-Governmental Organizations (NGOs) to
confirm the medical condition of the applicant is misplaced. It must be
stressed that only for apparent disabilities can the teacher or head of a
business establishment validly issue the mentioned required document
because, obviously, the disability is easily seen or clearly visible. It is,
therefore, not an unqualified grant of authority for the said non-medical
persons as it is simply limited to apparent disabilities. For a non-apparent
disability or a disability condition that is not easily seen or clearly visible, the
disability can only be validated by a licensed private or government physician,
and a medical certificate has to be presented in the procurement of an IDC.
Relative to this issue, the CA validly ruled, thus:
We agree with the Office of the Solicitor General's (OSG)
ratiocination that teachers, heads of business
establishments and heads of NGOs can validly confirm the
medical condition of their students/employees with
apparent disability for obvious reasons as compared to
non-apparent disability which can only be determined by
licensed physicians. Under the Labor Code, disabled
persons are eligible as apprentices or learnersprovided
that their handicap are not as much as to effectively
impede the performance of their job. We find that heads
 of business establishments can validly issue certificates
of disability of their employees because aside from the
fact that they can obviously validate the disability,
they also have medical records of the employees as
a pre-requisite in the hiring of employees. Hence, Part
IV (D) of NCDA AO No. 1 is logical and valid.[43]
Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines for the
20% discount in the purchase of all medicines for the exclusive use of PWD.
[44]
 To avail of the discount, the PWD must not only present his I.D. but also
the doctor's prescription stating, among others, the generic name of the
medicine, the physician's address, contact number and professional license
number, professional tax receipt number and narcotic license number, if
applicable. A purchase booklet issued by the local social/health office is also
required in the purchase of over-the-counter medicines. Likewise, any single
dispensing of medicine must be in accordance with the prescription issued by
the physician and should not exceed a one (1) month supply. Therefore, as
correctly argued by the respondents, Section 32 of R.A. No. 7277 as amended
by R.A. No. 9442 complies with the standards of substantive due process.

We are likewise not persuaded by the argument of petitioners that the

definition of "disabilities" under the subject laws is vague and ambiguous
because it is allegedly so general and broad that the person tasked with
implementing the law will undoubtedly arrive at different interpretations and
applications of the law. Aside from the definitions of a "person with disability"
or "disabled persons" under Section 4 of R.A. No. 7277 as amended by R.A.
No. 9442 and in the IRR of RA 9442, NCDA A.O. No. 1 also provides:

1. Identification Cards shall be issued to

any bonafide PWD with permanent disabilities due
to any one or more of the following conditions:
psychosocial, chronic illness, learning, mental,
visual, orthopedic, speech and hearing conditions.
This includes persons suffering from disabling
diseases resulting to the person's limitations to
do day to day activities as normally as possible
such as but not limited to those undergoing
dialysis, heart disorders, severe cancer cases and
such other similar cases resulting to temporary or
permanent disability.[45]

Similarly, DOH A.O. No. 2009-0011 defines the different categories of

disability as follows:
Rule IV, Section 4, Paragraph B of the Implementing Rules
and Regulations (IRR) of this Act required the Department
 of Health to address the health concerns of seven (7)
different categories of disability, which include the
following: (1) Psychological and behavioral disabilities
(2) Chronic illness with disabilities
(3)Learning(cognitive or intellectual) disabilities (4)
Mental disabilities (5) Visual/seeing disabilities (6)
Orthopedic/moving, and (7) communication deficits.[46]
Elementary is the rule that when laws or rules are clear, when the law is
unambiguous and unequivocal, application not interpretation thereof is
imperative. However, where the language of a statute is vague and
ambiguous, an interpretation thereof is resorted to. A law is deemed
ambiguous when it is capable of being understood by reasonably well-
informed persons in either of two or more senses. The fact that a law admits
of different interpretations is the best evidence that it is vague and
ambiguous.[47]

In the instant case, We do not find the aforestated definition of terms as

vague and ambiguous. Settled is the rule that courts will not interfere in
matters which are addressed to the sound discretion of the government
agency entrusted with the regulation of activities coming under the special
and technical training and knowledge of such agency. [48] As a matter of policy,
We accord great respect to the decisions and/or actions of administrative
authorities not only because of the doctrine of separation of powers but also
for their presumed knowledge, ability, and expertise in the enforcement of
laws and regulations entrusted to their jurisdiction. The rationale for this rule
relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies
for addressing and satisfying those needs; it also relates to the accumulation
of experience and growth of specialized capabilities by the administrative
agency charged with implementing a particular statute. [49]

Lastly, petitioners contend that R.A. No. 7227, as amended by R.A. No. 9442,
violates the equal protection clause of the Constitution because it fairly
singles out drugstores to bear the burden of the discount, and that it can
hardly be said to "rationally" meet a legitimate government objective which is
the purpose of the law. The law allegedly targets only retailers such as
petitioners, and that the other enterprises in the drug industry are not
imposed with similar burden. This same argument had been raised in the case
of Carlos Superdrug Corp., et al. v. DSWD, et al.,[50] and We reaffirm and
apply the ruling therein in the case at bar:
The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive pricing
component of the business. While the Constitution
protects property rights, petitioners must accept the
 realities of business and the State, in the exercise of
police power, can intervene in the operations of a
business which may result in an impairment of property
rights in the process.

Moreover, the right to property has a social dimension.

While Article XIII of the Constitution provides the
precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the
regulation of contracts and public utilities,
continuously serve as a reminder that the right to
property can be relinquished upon the command of the
State for the promotion of public good.[51]
Under the equal protection clause, all persons or things similarly situated
must be treated alike, both in the privileges conferred and the obligations
imposed. Conversely, all persons or things differently situated should be
treated differently.[52] In the case of ABAKADA Guro Party List, et al. v. Hon.
Purisima, et al.,[53] We held:
Equality guaranteed under the equal protection clause is
equality under the same conditions and among persons
similarly situated; it is equality among equals, not
similarity of treatment of persons who are classified
based on substantial differences in relation to the
object to be accomplished. When things or persons are
different in fact or circumstance, they may be treated in
law differently. In Victoriano v. Elizalde Rope Workers'
Union, this Court declared:
The guaranty of equal protection of the laws
is not a guaranty of equality in the
application of the laws upon all citizens of
the State. It is not, therefore, a
requirement, in order to avoid the
constitutional prohibition against
inequality, that every man, woman and child
should be affected alike by a statute.
Equality of operation of statutes does not
mean indiscriminate operation on persons
merely as such, but on persons according to
the circumstances surrounding them. It
guarantees equality, not identity of
rights. The Constitution does not require
that things which are different in fact be
treated in law as though they were the same.
The equal protection clause does not forbid
discrimination as to things that are
different. It does not prohibit legislation
which is limited either in the object to
which it is directed or by the territory
within which it is to operate.

The equal protection of the laws clause of

the Constitution allows classification.
Classification in law, as in the other
departments of knowledge or practice, is the
grouping of things in speculation or practice
because they agree with one another in
certain particulars. A law is not invalid
because of simple inequality. The very idea
of classification is that of inequality, so
that it goes without saying that the mere
fact of inequality in no manner determines
the matter of constitutionality. All that is
required of a valid classification is that it
be reasonable, which means that the
classification should be based on substantial
distinctions which make for real differences,
that it must be germane to the purpose of the
law; that it must not be limited to existing
conditions only; and that it must apply
equally to each member of the class. This
Court has held that the standard is satisfied
if the classification or distinction is based
on a reasonable foundation or rational basis
and is not palpably arbitrary.

In the exercise of its power to make

classifications for the purpose of enacting
laws over matters within its jurisdiction,
the state is recognized as enjoying a wide
range of discretion. It is not necessary that
the classification be based on scientific or
marked differences of things or in their
relation. Neither is it necessary that the
classification be made with mathematical
nicety. Hence, legislative classification may
in many cases properly rest on narrow
distinctions, for the equal protection
guaranty does not preclude the legislature
 from recognizing degrees of evil or harm, and
legislation is addressed to evils as they may
appear.
The equal protection clause recognizes a valid classification, that is, a
classification that has a reasonable foundation or rational basis and not
arbitrary.[54] With respect to R.A. No. 9442, its expressed public policy is the
rehabilitation, self-development and self-reliance of PWDs. Persons with
disability form a class separate and distinct from the other citizens of the
country. Indubitably, such substantial distinction is germane and intimately
related to the purpose of the law. Hence, the classification and treatment
accorded to the PWDs fully satisfy the demands of equal protection. Thus,
Congress may pass a law providing for a different treatment to persons with
disability apart from the other citizens of the country.

Subject to the determination of the courts as to what is a proper exercise of

police power using the due process clause and the equal protection clause as
yardsticks, the State may interfere wherever the public interests demand it,
and in this particular, a large discretion is necessarily vested in the legislature
to determine, not only what interests of the public require, but what
measures are necessary for the protection of such interests. [55] Thus, We are
mindful of the fundamental criteria in cases of this nature that all reasonable
doubts should be resolved in favor of the constitutionality of a statute. [56]The
burden of proof is on him who claims that a statute is unconstitutional.
Petitioners failed to discharge such burden of proof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals

dated July 26, 2010, and the Resolution dated November 19, 2010, in CA-
G.R. SP No. 109903 are AFFIRMED.

SO ORDERED.

3. SOUTHERN LUZON DRUG CORPORATION, Petitioner, 

vs.
THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, THE NATIONAL
COUNCIL FOR THE WELFARE OF DISABLED PERSONS, THE DEPARTMENT OF
FINANCE, and THE BUREAU OF INTERNAL REVENUE, Respondents

DECISION

REYES, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
1

Court, assailing the Decision dated June 17, 2011, and Resolution  dated November 25,
2 3

2011 of the Court of Appeals (CA) in CA-G.R. SP No. 102486, which dismissed the
petition for prohibition filed by Southern Luzon Drug Corporation (petitioner) against the
Department of1 Social Welfare and Development (DSWD), the National Council for the
Welfare of Disabled Persons (NCWDP) (now National Council on Disability Affairs or
NCDA), the Department of Finance (DOF) and the Bureau of: Internal Revenue
(collectively, the respondents), which sought to prohibit the implementation of Section
4(a) of Republic Act (R.A.) No. 9257, otherwise known as the "Expanded Senior Citizens
Act of 2003" and Section 32 of R.A. No. 9442, which amends the "Magna Carta for
Disabled Persons," particularly the granting of 20% discount on the purchase of
medicines by senior citizens and persons with disability (PWD),: respectively, and
treating them as tax deduction.

The petitioner is a domestic corporation engaged in the business of: drugstore operation
in the Philippines while the respondents are government' agencies, office and bureau
tasked to monitor compliance with R.A. Nos. 9257 and 9442, promulgate implementing
rules and regulations for their effective implementation, as well as prosecute and revoke
licenses of erring1 establishments.

Factual Antecedents

On April 23, 1992, R.A. No. 7432, entitled "An Act to Maximize the Contribution of Senior
Citizens to Nation-Building, Grant Benefits and Special Privileges and For Other
Purposes," was enacted. Under the said law, a senior citizen, who must be at least 60
years old and has an annual income of not more than P60,000.00,  may avail of the
4

privileges provided in Section 4 thereof, one of which is 20% discount on the purchase of
medicines. The said provision states:

Sec. 4. Privileges for the Senior Citizen. - x x x:

a) the grant of twenty percent (20%) discount from all establishments

relative to utilization of transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and purchase of
medicine anywhere in the country: Provided, That private
establishments may claim the cost as tax credit[.]

x x x x (Emphasis ours)

To recoup the amount given as discount to qualified senior citizens, covered

establishments can claim an equal amount as tax credit which can be applied against the
income tax due from them.
On February 26, 2004, then President Gloria Macapagal-Arroyo signed R.A. No. 9257,
amending some provisions of R.A. No. 7432. The new law retained the 20% discount on
the purchase of medicines but removed the annual income ceiling thereby qualifying all
senior citizens to the privileges under the law. Further, R.A. No. 9257 modified the tax
treatment of the discount granted to senior citizens, from tax credit to tax deduction from
gross income, computed based on the net cost of goods sold or services rendered. The
pertinent provision, as amended by R.A. No. 9257, reads as follows:

SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be
entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments
relative to the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of
senior citizens, including funeral and burial services for the death of
senior citizens;

xxxx

The establishment may claim the discounts granted under (a), (f), (g)
and (h) as tax deduction based on the net cost of the goods sold or
services rendered: Provided, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year
that the discount is granted. Provided, further, That the total amount of
the claimed tax deduction net of value-added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject
to proper documentation and to the provisions of the National Internal
Revenue Code, as amended. (Emphasis ours)

On May 28, 2004, the DSWD issued the Implementing Rules and Regulations (IRR) of
R.A. No. 9257. Article 8 of Rule VI of the said IRR provides:

Article 8. Tax Deduction of Establishments. - The establishment may

claim the discounts granted under Rule V, Section 4 - Discounts for
Establishments; Section 9, Medical and Dental Services in Private
Facilities and Sections 10 and 11 -Air, Sea and Land Transportation as
tax deduction based on the net cost of the goods sold or services
rendered. Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the
discount is granted; Provided, further, That the total amount of the
claimed tax deduction net of value-added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject
to proper documentation and to the provisions of the National Internal
 Revenue Code, as amended; Provided, finally, that the implementation of
the tax deduction shall be subject to the Revenue Regulations to be
issued by the Bureau of Internal Revenue (BIR) and approved by the
Department of Finance (DOF). (Emphasis ours)

The change in the tax treatment of the discount given to senior citizens did not sit well
with some drug store owners and corporations, claiming it affected the profitability of their
business. Thus, on January 13, 2005, I Carlos Superdrug Corporation (Carlos
Superdrug), together with other. corporation and proprietors operating drugstores in the
Philippines, filed a Petition for Prohibition with Prayer for Temporary Restraining Order
(TRO) I and/or Preliminary Injunction before this Court, entitled Carlos
Superdrug I Corporation v. DSWD, docketed as G.R. No. 166494, assailing the
5

constitutionality of Section 4(a) of R.A. No. 9257 primarily on the ground that it amounts
to taking of private property without payment of just compensation. In a Decision dated
June 29, 2007, the Court upheld the constitutionality of the assailed provision, holding
that the same is a legitimate exercise of police power. The relevant portions of the
decision read, thus:

The law is a legitimate exercise of police power which, similar to the

power of eminent domain, has general welfare for its object. Police power
is not capable of an exact definition, but has been purposely veiled in
general terms to underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest
benefits. Accordingly, it has been described as "the most essential,
insistent and the least limitable of powers, extending as it does to all the
great public needs." It is "[t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the

legislature, property rights must bow to the primacy of police power
because property rights, though sheltered by due process, must yield to
general welfare.

xxxx

Moreover, the right to property has a social dimension. While Article XIII
of the Constitution provides the precept for the protection of property,
various laws and jurisprudence, particularly on agrarian reform and the
regulation of contracts and public utilities, continuously serve as a
reminder that the right to property can be relinquished upon the command
 of the State for the promotion of public good. Undeniably, the success of
the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being
the case, the means employed in invoking the active participation of the
private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related. Without sufficient proof that Section 4(a)
of RA. No. 9257 is arbitrary, and that the continued implementation of the
same would be unconscionably detrimental to petitioners, the Court will
refrain from quashing a legislative act.

WHEREFORE, the petition is DISMISSED for lack of merit.  (Citations

6

omitted)

On August 1, 2007, Carlos Superdrug filed a motion for reconsideration of the foregoing
decision. Subsequently, the Court issued Resolution dated August 21, 2007, denying the
said motion with finality. 
7

Meanwhile, on March 24, 1992, R.A. No. 7277 pertaining to the "Magna Carta for
Disabled Persons" was enacted, codifying the rights and privileges of PWDs. Thereafter,
on April 30, 2007, R.A. No. 9442 was enacted, amending R.A. No. 7277. One of the
salient amendments in the law is the insertion of Chapter 8 in Title 2 thereof, which
enumerates the other privileges and incentives of PWDs, including the grant of 20%
discount on the purchase of medicines. Similar to R.A. No. 9257, covered establishments
shall claim the discounts given to PWDs as tax deductions from the gross income, based
on the net cost of goods sold or services rendered. Section 32 ofR.A. No. 9442 reads:

CHAPTER 8. Other Privileges and Incentives

SEC. 32. Persons with disability shall be entitled to the following:

xxxx

(c) At least twenty percent (20%) discount for the purchase of medicines
in all drugstores for the exclusive use or enjoyment of persons with
disability;

xxxx

The establishments may claim the discounts granted in subsections

(a), (b), (c), (e), (t) and (g) as taxdeductions based on the net cost of
the goods sold or services rendered: Provided, however, That the cost
of the discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted: Provided, further, That
the total amount of the claimed tax deduction net of value-added tax if
 applicable, shall be included in their gross sales receipts for tax purposes
and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code (NIRC), as amended. (Emphasis ours)

Pursuant to the foregoing, the IRR of R.A. No. 9442 was promulgated by the DSWD,
Department of Education, DOF, Department of Tourism and the Department of
Transportation and Communications. Sections 5 .1 and 6.1.d thereof provide:
8

Sec. 5. Definition of Terms. For purposes of these Rules and

Regulations, these terms are defined as follows:

5.1. Persons with Disability are those individuals defined under Section

4 of RA 7277, "An Act Providing for the Rehabilitation, Self-Development
and Self-Reliance of Persons with Disability as amended and their
integration into the Mainstream of Society and for Other Purposes." This
is defined as a person suffering from restriction or different abilities, as a
result of a mental, physical or sensory impairment, to perform an activity
in a manner or within the range considered normal for human being.
Disability shall mean: (1) a physical or mental impairment that
substantially limits one or more psychological, physiological or anatomical
function of an individual or activities of such individual; (2) a record of
such an impairment; or (3) being regarded as having such an impairment.

xxxx

6.1.d Purchase of Medicine - At least twenty percent (20%) discount on

the purchase of medicine for the exclusive use and enjoyment of persons
with disability. All drug stores, hospital, pharmacies, clinics and other
similar establishments selling medicines are required to provide at least
twenty percent (20%) discount subject to the guidelines issued by DOH
and PHILHEALTH.

On February 26, 2008, the petitioner filed a Petition for Prohibition with Application for
TRO and/or Writ of Preliminary Injunction9 with the CA, seeking to declare as
unconstitutional (a) Section 4(a) of R.A. No. 9257, and (b) Section 32 of R.A. No. 9442
and Section 5.1 of its IRR, insofar as these provisions only allow tax deduction on the
gross income based on the net cost of goods sold or services rendered as compensation
to private establishments for the 20% discount that they are required to grant to senior
citizens and PWDs. Further, the petitioner prayed that the respondents be permanently
enjoined from implementing the assailed provisions.

Ruling of the CA
On June 17, 2011, the CA dismissed the petition, reiterating the ruling of the Court
in Carlos Superdrug particularly that Section 4(a) of R.A. No. 9257 was a valid exercise
10

of police power. Moreover, the CA held that considering that the same question had been
raised by parties similarly situated and was resolved in Carlos Superdrug, the rule
of stare decisis stood as a hindrance to any further attempt to relitigate the same issue. It
further noted that jurisdictional considerations also compel the dismissal of the action. It
particularly emphasized that it has no original or appellate jurisdiction to pass upon the
constitutionality of the assailed laws,   the same pertaining to the Regional Trial Court
11

(RTC). Even assuming that it had concurrent jurisdiction with the RTC, the principle of
hierarchy of courts mandates that the case be commenced and heard by the lower
court.   The CA further ruled that the petitioner resorted to the wrong remedy as a petition
12

for prohibition will not lie to restrain the actions of the respondents for the simple reason
that they do not exercise judicial, quasi-judicial or ministerial duties relative to the
issuance or implementation of the questioned provisions. Also, the petition was wanting
of the allegations of the specific acts committed by the respondents that demonstrate the
exercise of these powers which may be properly challenged in a petition for prohibition. 13

The petitioner filed its Motion for Reconsideration   of the Decision dated June 17, 2011
14

of the CA, but the same was denied in a Resolution   dated November 25, 2011.
15

Unyielding, the petitioner filed the instant petition, raising the following assignment of
errors, to wit:

THE CA SERIOUSLY ERRED WHEN IT RULED THAT A PETITION

FOR PROHIBITION FILED WITH THE CA IS AN IMPROPER REMEDY
TO ASSAIL THE CONSTITUTIONALITY OF THE 20%, SALES
DISCOUNT FOR SENIOR CITIZENS AND PWDs;

II

THE CA SERIOUSLY ERRED WHEN IT HELD THAT THE SUPREME

COURT'S RULING IN CARLOS SUPERDRUG CONSTITUTES STARE
DECISIS;

III

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE

WHEN IT RULED THAT THE 20%, SALES DISCOUNT FOR SENIOR
CITIZENS AND PWDs IS A VALID EXERCISE OF POLICE POWER.
ON THE CONTRARY, IT IS AN INVALID EXERCISE OF THE POWER
OF EMINENT DOMAIN BECAUSE IT FAILS TO PROVIDE JUST
 COMPENSATION TO THE PETITIONER AND OTHER SIMILARLY
SITUATED DRUGSTORES;

IV

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE

WHEN IT RULED THAT THE 20°/o SALES DISCOUNT FOR SENIOR
CITIZENS AND PWDs DOES NOT VIOLATE THE PETITIONER'S
RIGHT TO EQUAL PROTECTION OF THE LAW; and

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE

WHEN IT RULED THAT THE DEFINITIONS OF DISABILITIES AND
PWDs ARE NOT VAGUE AND DO NOT VIOLATE THE PETITIONER'S
RIGHT TO DUE PROCESS OF LAW. 16

Ruling of the Court

Prohibition may be filed to question

the constitutionality of a law

In the assailed decision, the CA noted that the action, although denominated as one for
prohibition, seeks the declaration of the unconstitutionality of Section 4(a) of R.A. No.
9257 and Section 32 of R.A. No.9442. It held that in such a case, the proper remedy is
not a special civil 1 action but a petition for declaratory relief, which falls under the
exclusive original jurisdiction of the RTC, in the first instance, and of the Supreme Court,
on appeal. 17

The Court clarifies.

Generally, the office of prohibition is to prevent the unlawful and oppressive exercise of
authority and is directed against proceedings that are done without or in excess of
jurisdiction, or with grave abuse of discretion, there being no appeal or other plain,
speedy, and adequate remedy in the ordinary course of law. It is the remedy to prevent
inferior courts, corporations, boards, or persons from usurping or exercising a jurisdiction
or power with which they have not been vested by law.   This is, however, not the lone
18

office of an action for prohibition. In Diaz, et al. v. The Secretary of Finance, et

al.,   prohibition was also recognized as a proper remedy to prohibit or nullify acts of
19

executive officials that amount to usurpation of legislative authority.   And, in a number of

20

jurisprudence, prohibition was allowed as a proper action to assail the constitutionality of

a law or prohibit its implementation.

In Social Weather Stations, Inc. v. Commission on Elections, therein petitioner filed a

21

petition for prohibition to assail the constitutionality of Section 5.4 of R.A. No. 9006, or
the "Fair Elections Act," which prohibited the publication of surveys within 15 days before
an election for national candidates, and seven days for local candidates. Included in the
petition is a prayer to prohibit the Commission on Elections from enforcing the said
provision. The Court granted the Petition and struck down the assailed provision for
being unconstitutional. 22

In Social Justice Society (SJS) v. Dangerous Drugs Board, et al.,  therein petitioner
23

assailed the constitutionality of paragraphs (c ), (d), (f) and (g) of Section 36 of R.A. No.
9165, otherwise known as the "Comprehensive Dangerous Drugs Act of 2002," on the
ground that they constitute undue delegation of legislative power for granting unbridled
discretion to schools and private employers in determining the manner of drug 'testing of
their employees, and that the law constitutes a violation of the right against unreasonable
searches and seizures. It also sought to enjoin the Dangerous Drugs Board and the
Philippine Drug Enforcement Agency from enforcing the challenged provision. The Court
24

partially granted the petition by declaring Section 36(f) and (g) of R.A. No. 9165
unconstitutional, and permanently enjoined the concerned agencies from implementing
them. 25

In another instance, consolidated petitions for prohibitions  questioning the

26

constitutionality of the Priority Development Assistance Fund were deliberated upon by

this Court which ultimately granted the same.

Clearly, prohibition has been found an appropriate remedy to challenge the

constitutionality of various laws, rules, and regulations.

There is also no question regarding the jurisdiction of the CA to hear and decide a
petition for prohibition. By express provision of the law, particularly Section 9(1) of Batas
Pambansa Bilang 129,  the CA was granted "original jurisdiction to issue writs
27

of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and auxiliary

writs or I processes, whether or not in aid of its appellate jurisdiction." This authority· the
CA enjoys concurrently with RTCs and this Court.

In the same manner, the supposed violation of the principle of the ·. hierarchy of courts
does not pose any hindrance to the full deliberation of the issues at hand. It is well to
remember that "the judicial hierarchy of courts is not an iron-clad rule. It generally applies
to cases involving warring factual allegations. For this reason, litigants are required to
[refer] to the trial courts at the first instance to determine the truth or falsity of these
contending allegations on the basis of the evidence of the parties. Cases which depend
on disputed facts for decision cannot be brought immediately before appellate courts as
they are not triers of facts. Therefore, a strict application of the rule of hierarchy of courts
is not necessary when the cases brought before the appellate courts do not involve
factual but legal questions." 28
Moreover, the principle of hierarchy of courts may be set aside for special and important
reasons, such as when dictated by public welfare and ' the advancement of public policy,
or demanded by the broader interest of justice. Thus, when based on the good judgment
29

of the court, the urgency and significance of the issues presented calls for its
intervention, it should not hesitate to exercise its duty to resolve.

The instant petition presents an exception to the principle as it basically raises a legal
question on the constitutionality of the mandatory discount and the breadth of its rightful
beneficiaries. More importantly, the resolution of the issues will redound to the benefit of
the public as it will put to rest the questions on the propriety of the granting of discounts
to senior citizens and PWDs amid the fervent insistence of affected establishments that
the measure transgresses their property rights. The Court, therefore, finds it to the best
interest of justice that the instant petition be resolved.

The instant case is not barred by stare decisis

The petitioner contends that the CA erred in holding that the ruling in Carlos
Superdrug constitutes as stare decisis or law of the case which bars the relitigation of the
issues that had been resolved therein and had been raised anew in the instant petition. It
argues that there are substantial differences between Carlos Superdrug and the
circumstances in the instant case which take it out from the operation of the doctrine
of stare decisis. It cites that in Carlos Superdrug, the Court denied the petition because
the petitioner therein failed to prove the confiscatory effect of the tax deduction scheme
as no proof of actual loss was submitted. It believes that its submission of financial
statements for the years 2006 and 2007 to prove the confiscatory effect of the law is a
material fact that distinguishes the instant case from that of Carlos Superdrug. 30

The Court agrees that the ruling in Carlos Superdrug does not constitute stare decisis to
the instant case, not because of the petitioner's submission of financial statements which
were wanting in the first case, but because it had the good sense of including questions
that had not been raised or deliberated in the former case of Carlos Superdrug,
i.e., validity of the 20% discount granted to PWDs, the supposed vagueness of the
provisions of R.A. No. 9442 and violation of the equal protection clause.

Nonetheless, the Court finds nothing in the instant case that merits a reversal of the
earlier ruling of the Court in Carlos Superdrug. Contrary to the petitioner's claim, there is
a very slim difference between the issues in Carlos Superdrug and the instant case with
respect to the nature of the senior citizen discount. A perfunctory reading of the
circumstances of the two cases easily discloses marked similarities in the issues and the
arguments raised by the petitioners in both cases that semantics nor careful play of
words can hardly obscure.

In both cases, it is apparent that what the petitioners are ultimately questioning is not the
grant of the senior citizen discount per se, but the manner by which they were allowed to
recoup the said discount. In particular, they are protesting the change in the tax treatment
of the senior citizen discount from tax credit to being merely a deduction from gross
income which they claimed to have significantly reduced their profits.

This question had been settled in Carlos Superdrug, where the Court ruled that the
change in the tax treatment of the discount was a valid exercise of police power, thus:

Theoretically, the treatment of the discount as a deduction reduces the

net income of the private establishments concerned. The discounts given
would have entered the coffers and formed part of the gross sales of the
private establishments, were it not for R.A. No. 9257.

xxxx

A tax deduction does not offer full reimbursement of the senior citizen
discount. As such, it would not meet the definition of just compensation.

Having said that, this raises the question of whether the State, in
promoting the health and welfare of a special group of citizens, can
impose upon private establishments the burden of partly subsidizing a
government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the

contribution of senior citizens to nation-building, and to grant benefits and
privileges to them for their improvement and well-being as the State
considers them an integral part of our society.

The priority given to senior citizens finds its basis in the Constitution as
set forth in the law itself. Thus, the Act provides:

SEC. 2. [R.A.] No. 7432 is hereby amended to read as

follows:

SEC. 1. Declaration of Policies and Objectives.- Pursuant

to Article XV, Section 4 of the Constitution, it is the duty of
the family to take care of its elderly members while the
State may design programs of social security for them. In
addition to this, Section 10 in the Declaration of Principles
and State Policies provides: "The State shall provide
social justice in all phases of national development."
Further, Article XIII, Section 11, provides: "The State shall
adopt an integrated and comprehensive approach to
health development which shall endeavor to make
 essential goods, health and other social services available
to all the people at affordable cost. There shall be priority
for the needs of the underprivileged sick, elderly, disabled,
women and children." Consonant with these constitutional
principles the following are the declared policies of this
Act:

xxxx

(f) To recognize the important role of the private

sector in the improvement of the welfare of senior
citizens and to actively seek their partnership. 

To implement the above policy, the law grants a twenty percent discount
to senior citizens for medical and dental services, and diagnostic and
laboratory fees; admission fees charged by theaters, concert halls,
circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of
services in hotels and similar lodging establishments, restaurants and
recreation centers; and purchases of medicines for the exclusive use or
enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent
discount to senior citizens may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the

power of eminent domain, has general welfare for its object. Police power
is not capable of an exact definition, but has been purposely veiled in
general terms to underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest
benefits. Accordingly, it has been described as "the most essential,
insistent and the least limitable of powers, extending as it does to all the
great public needs." It is "[t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the

legislature, property rights must bow to the primacy of police power
because proper rights, though sheltered by due process, must yield to
general welfare.   (Citations omitted and emphasis in the original)
31
Verily, it is the bounden duty of the State to care for the elderly as they reach the point in
their lives when the vigor of their youth has diminished and resources have become
scarce. Not much because of choice, they become needing of support from the society
for whom they presumably spent their productive days and for whose betterment they'
exhausted their energy, know-how and experience to make our days better to live.

In the same way, providing aid for the disabled persons is an equally important State
responsibility. Thus, the State is obliged to give full support to the improvement of the
total well-being of disabled persons and their integration into the mainstream of
society.  This entails the creation of opportunities for them and according them privileges
32

if only to balance the playing field which had been unduly tilted against them because of
their limitations.

The duty to care for the elderly and the disabled lies not only upon the State, but also on
the community and even private entities. As to the State, the duty emanates from its role
as parens patriae which holds it under obligation to provide protection and look after the
welfare of its people especially those who cannot tend to themselves. Parens
patriae means parent of his or her country, and refers to the State in its role as
"sovereign", or the State in its capacity as a provider of protection to those unable to care
for themselves.   In fulfilling this duty, the State may resort to the exercise of its inherent
33

powers: police power, eminent domain and power of taxation.

In Gerochi v. Department of Energy, the Court passed upon one of the inherent powers
34

of the state, the police power, where it emphasized, thus:

[P]olice power is the power of the state to promote public welfare by

restraining and regulating the use of liberty and property. It is the most
pervasive, the least limitable, and the most demanding of the three
fundamental powers of the State. The justification is found in the Latin
maxim salus populi est suprema lex (the welfare of the people is the
supreme law) and sic utere tuo ut alienum non laedas (so use your
property as not to injure the property of others). As an inherent attribute of
sovereignty which virtually extends to all public needs, police power
grants a wide panoply of instruments through which the State, as parens
patriae, gives effect to a host of its regulatory powers. We have held that
the power to "regulate" means the power to protect, foster, promote,
preserve, and control, with due regard for the interests, first and foremost,
of the public, then of the utility and of its patrons.   (Citations omitted)
35

It is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and
9442, the laws mandating a 20% discount on purchases of medicines made by senior
citizens and PWDs. It is also in further exercise of this power that the legislature opted
that the said discount be claimed as tax deduction, rather than tax credit, by covered
establishments.
The petitioner, however, claims that the change in the tax treatment of the discount is
illegal as it constitutes taking without just compensation. It even submitted financial
statements for the years 2006 and 2007 to support its claim of declining profits when the
change in the policy was implemented.

The Court is not swayed.

To begin with, the issue of just compensation finds no relevance in the instant case as it
had already been made clear in Carlos Superdrug that the power being exercised by the
State in the imposition of senior citizen discount was its police power. Unlike in the
exercise of the power of eminent domain, just compensation is not required in wielding
police power. This is precisely because there is no taking involved, but only an imposition
of burden.

In Manila Memorial Park, Inc., et al. v. Secretary of the DSWD, et al.,   the Court ruled
36

that by examining the nature and the effects of R.A. No. 9257, it becomes apparent that
the challenged governmental act was an exercise of police power. It was held, thus:

[W]e now look at the nature and effects of the 20% discount to determine
if it constitutes an exercise of police power or eminent domain.

The 20% discount is intended to improve the welfare of senior citizens

who, at their age, are less likely to be gainfully employed, more prone to
illnesses and other disabilities, and, thus, in need of subsidy in
purchasing basic commodities. It may not be amiss to mention also that
the discount serves to honor senior citizens who presumably spent the
productive years of their lives on contributing to the development and
progress of the nation. This distinct cultural Filipino practice of honoring
the elderly is an integral part of this law.

As to its nature and effects, the 20% discount is a regulation affecting the
ability of private establishments to price their products and services
relative to a special class of individuals, senior citizens, for which the
Constitution affords preferential concern. In turn, this affects the amount
of profits or income/gross sales that a private establishment can derive
from senior citizens. In other words, the subject regulation affects the
pricing, and, hence, the profitability of a private establishment. However, it
does not purport to appropriate or burden specific properties, used in the
operation or conduct of the business of private establishments, for the
use or benefit of the public, or senior citizens for that matter, but merely
regulates the pricing of goods and services relative to, and the amount of
profits or income/gross sales that such private establishments may derive
from, senior citizens.
 The subject regulation may be said to be similar to, but with substantial
distinctions from, price control or rate of 'return on investment control laws
which are traditionally regarded as police power measures. x x
x.  (Citations omitted)
37

In the exercise of police power, "property rights of private individuals are subjected to
restraints and burdens in order to secure the general comfort, health, and prosperity of
the State."  Even then, the State's claim of police power cannot be arbitrary or
38

unreasonable. After all, the overriding purpose of the exercise of the power is to promote
general welfare, public health and safety, among others. It is a measure, which by sheer
necessity, the State exercises, even to the point of interfering with personal liberties or
property rights in order to advance common good. To warrant such interference, two
requisites must concur: (a) the interests of the public generally, as distinguished from
those of a particular class, require the interference of the! State; and (b) the means
employed are reasonably necessary to the: attainment of the object sought to be
accomplished and not unduly oppressive upon individuals. In other words, the proper
exercise of the police power requires the concurrence of a lawful subject and a lawful
method. 39

The subjects of R.A. Nos. 9257 and 9442, i.e., senior citizens and PWDs, are individuals
whose well-being is a recognized public duty. As a public duty, the responsibility for their
care devolves upon the concerted efforts of the State, the family and the community. In
Article XIII, Section 1 of the Constitution, the State is mandated to give highest priority to
the enactment of measures that protect and enhance the right of all the people to human
dignity, reduce social, economic, and political inequalities, and remove cultural inequities
by equitably diffusing wealth and political power1 for the common good. The more
apparent manifestation of these social inequities is the unequal distribution or access to
healthcare services. To: abet in alleviating this concern, the State is committed to adopt
an integrated! and comprehensive approach to health development which shall endeavor
to make essential goods, health and other social services available to all the people at
affordable cost, with priority for the needs of the underprivileged sick, elderly, disabled,
women, and children. 40

In the same manner, the family and the community have equally significant duties to
perform in reducing social inequality. The family as the basic social institution has the
foremost duty to care for its elderly members.  On the other hand, the community, which
41

include the private sector, is recognized as an active partner of the State in pursuing
greater causes. The private sector, being recipients of the privilege to engage business in
our land, utilize our goods as well as the services of our people for proprietary purposes,
it is only fitting to expect their support in measures that contribute to common good.
Moreover, their right to own, establish and operate economic enterprises is always
subject to the duty of the State to promote distributive justice and to intervene when the
common good so demands. 42
The Court also entertains no doubt on the legality of the method taken by the legislature
to implement the declared policies of the subject laws, that is, to impose discounts on the
medical services and purchases of senior citizens and PWDs and to treat the said
discounts as tax deduction rather than tax credit. The measure is fair and reasonable and
no credible proof was presented to prove the claim that it was confiscatory. To be
considered confiscatory, there must be taking of property without just compensation.

Illuminating on this point is the discussion of the Court on the concept of taking in City of
Manila v. Hon. Laguio, Jr., viz.:
43

There are two different types of taking that can be identified. A

"possessory" taking occurs when the government confiscates or
physically occupies property. A "regulatory" taking occurs when the
government's regulation leaves no reasonable economically viable use of
the property.

xxxx

No formula or rule can be devised to answer the questions of what is too

far and when regulation becomes a taking. In Mahon, Justice Holmes
recognized that it was "a question of degree and therefore cannot be
disposed of by general propositions." On many other occasions as well,
the U.S. Supreme Court has said that the issue of when regulation
constitutes a taking is a matter of considering the facts in each case. x x
x.

What is crucial in judicial consideration of regulatory takings is that

government regulation is a taking if it leaves no reasonable economically
viable use of property in a manner that interferes with reasonable
expectations for use. A regulation that permanently denies all
economically beneficial or productive use of land is, from the owner's
point of view, equivalent to a "taking" unless principles of nuisance or
property law that existed when the owner acquired the land make the use
prohibitable. When the owner of real property has been called upon to
sacrifice all economically beneficial uses in the name of the common
good, that is, to leave his property economically idle, he has suffered a
taking.

xxxx

A restriction on use of property may also constitute a "taking" if not

reasonably necessary to the effectuation of a substantial public purpose
or if it has an unduly harsh impact on the distinct investment-backed
expectations of the owner.  (Citations omitted)
44
 The petitioner herein attempts to prove its claim that the pertinent
provisions of R.A. Nos. 9257 and 9442 amount to taking by presenting
financial statements purportedly showing financial losses incurred by
them due to the adoption of the tax deduction scheme.

For the petitioner's clarification, the presentation of the financial statement is not of
compelling significance in justifying its claim for just compensation. What is imperative is
for it to establish that there was taking in the constitutional sense or that, in the imposition
of the mandatory discount, the power exercised by the state was eminent domain.

According to Republic of the Philippines v. Vda. de Castellvi, five circumstances must be

45

present in order to qualify "taking" as an exercise of eminent domain. First, the

expropriator must enter a private property. Second, the entrance into private property
must be for more than a momentary period. Third, the entry into the property should be
under warrant or color of legal authority. Fourth, the property must be devoted to a public
use or otherwise informally appropriated or injuriously affected. Fifth, the utilization of the
property for public use must be in such a way as to oust the owner and deprive him of all
beneficial enjoyment of the property.  46

The first requirement speaks of entry into a private property which clearly does not obtain
in this case. There is no private property that is; invaded or appropriated by the State. As
it is, the petitioner precipitately deemed future profits as private property and then
proceeded to argue that the State took it away without full compensation. This seemed
preposterous considering that the subject of what the petitioner supposed as taking was
not even earned profits but merely an expectation of profits, which may not even occur.
For obvious reasons, there cannot be taking of a contingency or of a mere possibility
because it lacks physical existence that is necessary before there could be any taking.
Further, it is impossible to quantify the compensation for the loss of supposed profits
before it is earned.

The supposed taking also lacked the characteristics of permanence   and 47

consistency.  The presence of these characteristics is significant because they can

1âwphi1

establish that the effect of the questioned provisions is the same on all establishments
and those losses are indeed its unavoidable consequence. But apparently these
indications are wanting in this case. The reason is that the impact on the establishments
varies depending on their response to the changes brought about by the subject
provisions. To be clear, establishments, are not prevented from adjusting their prices to
accommodate the effects of the granting of the discount and retain their profitability while
being fully compliant to the laws. It follows that losses are not inevitable because
establishments are free to take business measures to accommodate the contingency.
Lacking in permanence and consistency, there can be no taking in the constitutional
sense. There cannot be taking in one establishment and none in another, such that the
former can claim compensation but the other may not. Simply told, there is no taking to
justify compensation; there is only poor business decision to blame.
There is also no ousting of the owner or deprivation of ownership. Establishments are
neither divested of ownership of any of their properties nor is anything forcibly taken from
them. They remain the owner of their goods and their profit or loss still depends on the
performance of their sales.

Apart from the foregoing, covered establishments are also provided with a mechanism to
recoup the amount of discounts they grant the senior citizens and PWDs. It is provided in
Section 4(a) of R.A. No. 9257 and Section 32 of R.A. No. 9442 that establishments may
claim the discounts as "tax deduction based on the net cost of the goods sold or services
rendered." Basically, whatever amount was given as discount, covered establishments
may claim an equal amount as an expense or tax deduction. The trouble is that the
petitioner, in protesting the change in the tax treatment of the discounts, apparently
seeks tax incentive and not merely a return of the amount given as discounts. It premised
its interpretation of financial losses in terms of the effect of the change in the tax
treatment of the discount on its tax liability; hence, the claim that the measure was
confiscatory. However, as mentioned earlier in the discussion, loss of profits is not the
inevitable result of the change in tax treatment of the discounts; it is more appropriately a
consequence of poor business decision.

It bears emphasizing that the law does not place a cap on the amount of mark up that
covered establishments may impose on their items. This rests on the discretion of the
establishment which, of course, is expected to put in the price of the overhead costs,
expectation of profits and other considerations into the selling price of an item. In a
simple illustration, here is Drug A, with acquisition cost of ₱8.00, and selling price of
₱10.00. Then comes a law that imposes 20% on senior citizens and PWDs, which
affected Establishments 1, 2 and 3. Let us suppose that the approximate number of
patrons who purchases Drug A is 100, half of which are senior citizens and PWDs.
Before the passage of the law, all of the establishments are earning the same amount
from profit from the sale of Drug A, viz.:

Before the passage of the law:

Drug A

Acquisition cost ₱8.00

Selling price ₱10.00

Number of patrons 100

Sales:

100 x ₱10.00 = ₱1,000.00

Profit: ₱200
After the passage of the law, the three establishments reacted differently. Establishment
1 was passive and maintained the price of Drug A at ₱8.00 which understandably
resulted in diminution of profits.

Establishment 1

Drug A

Acquisition cost ₱8.00

Selling price ;₱10.00

Number of patrons 100

Senior Citizens/PWD 50

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱100.00

Profit: ₱100.00

On the other hand, Establishment 2, mindful that the new law will affect the profitability of
the business, made a calculated decision by increasing the mark up of Drug A to ₱3.20,
instead of only ₱2.00. This brought a positive result to the earnings of the company.

Establishment 2

Drug A

Acquisition cost ;₱8.00

Selling price ₱11.20

Number of patron 100

Senior Citizens/PWDs 50

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱112.00

Profit: ₱208.00

For its part, Establishment 3 raised the mark up on Drug A to only ₱3.00 just to even out
the effect of the law. This measure left a negligible effect on its profit, but Establishment 3
took it as a social duty: to share in the cause being promoted by the government while
still maintaining profitability.
Establishment 3

Drug A

Acquisition cost ₱8.00

Selling price ₱11.20

Number of patrons 100

Senior Citizens/PWD 50

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱110.00

Profit: ₱190.00

The foregoing demonstrates that it is not the law per se which occasioned the losses in
the covered establishments but bad business I judgment. One of the main considerations
in making business decisions is the law because its effect is widespread and inevitable.
Literally, anything can be a subject of legislation. It is therefore incumbent upon business
managers to cover this contingency and consider it in making business strategies. As
shown in the illustration, the better responses were exemplified by Establishments 2 and
3 which promptly put in the additional costs brought about by the law into the price
of Drug A. In doing so, they were able to maintain the profitability of the business, even
earning some more, while at the same time being fully compliant with the law. This is not
to mention that the illustration is even too simplistic and not' the most ideal since it dealt
only with a single drug being purchased by both regular patrons and senior citizens and
PWDs. It did not consider the accumulated profits from the other medical and non-
medical products being sold by the establishments which are expected to further curb the
effect of the granting of the discounts in the business.

It is therefore unthinkable how the petitioner could have suffered losses due to the
mandated discounts in R.A. Nos. 9257 and 9442, when a fractional increase in the prices
of items could bring the business standing at a balance even with the introduction of the
subject laws. A level adjustment in the pricing of items is a reasonable business measure
to take in order to adapt to the contingency. This could even make establishments earn
more, as shown in the illustration, since every fractional increase in the price of covered
items translates to a wider cushion to taper off the effect of the granting of discounts and
ultimately results to additional profits gained from the purchases of the same items by
regular patrons who are not entitled to the discount. Clearly, the effect of the subject laws
in the financial standing of covered companies depends largely on how they respond and
forge a balance between profitability and their sense of social responsibility. The
adaptation is entirely up to them and they are not powerless to make adjustments to
accommodate the subject legislations.
Still, the petitioner argues that the law is confiscatory in the sense that the State takes
away a portion of its supposed profits which could have gone into its coffers and utilizes it
for public purpose. The petitioner claims that the action of the State amounts to taking for
which it should be compensated.

To reiterate, the subject provisions only affect the petitioner's right to profit, and not
earned profits. Unfortunately for the petitioner, the right to profit is not a vested right or an
entitlement that has accrued on the person or entity such that its invasion or deprivation
warrants compensation. Vested rights are "fixed, unalterable, or irrevocable."48 More
extensively, they are depicted as follows:

Rights which have so completely and definitely accrued to or settled in a

person that they are not subject to be defeated or cancelled by the act of
any other private person, and which it is right and equitable that the
government should recognize and protect, as being lawful in themselves,
and settled according to the then current rules of law, and of which the
individual could not be deprived arbitrarily without injustice, or of which he
could not justly be deprived otherwise than by the established methods of
procedure and for the public welfare. x x x A right is not 'vested' unless it
is more than a mere expectation based on the anticipated continuance of
present laws; it must be an established interest in property, not open to
doubt. x x x To be vested in its accurate legal sense, a right must be
complete and consummated, and one of which the person to whom it
belongs cannot be divested without his consent.x x x.  (Emphasis ours)
49

Right to profits does not give the petitioner the cause of action to ask for just
compensation, it being only an inchoate right or one that has not fully developed  and 50

therefore cannot be claimed as one's own. An inchoate right is a mere expectation, which
may or may not come into existence. It is contingent as it only comes "into existence on
an event or condition which may not happen or be performed until some other event may
prevent their vesting." Certainly, the petitioner cannot claim confiscation or taking of
51

something that has yet to exist. It cannot claim deprivation of profit before the
consummation of a sale and the purchase by a senior citizen or PWD.

Right to profit is not an accrued right; it is not fixed, absolute nor indefeasible. It does not
come into being until the occurrence or realization of a condition precedent. It is a mere
"contingency that might never eventuate into a right. It stands for a mere possibility of
profit but nothing might ever be payable under it." 52

The inchoate nature of the right to profit precludes the possibility of compensation
because it lacks the quality or characteristic which is necessary before any act of taking
or expropriation can be effected. Moreover, there is no yardstick fitting to quantify a
contingency or to determine compensation for a mere possibility. Certainly, "taking"
presupposes the existence of a subject that has a quantifiable or determinable value,
characteristics which a mere contingency does not possess.

Anent the question regarding the shift from tax credit to tax deduction, suffice it is to say
that it is within the province of Congress to do so in the exercise of its legislative power. It
has the authority to choose the subject of legislation, outline the effective measures to
achieve its declared policies and even impose penalties in case of non-compliance. It has
the sole discretion to decide which policies to pursue and devise means to achieve them,
and courts often do not interfere in this exercise for as long as it does not transcend
constitutional limitations. "In performing this duty, the legislature has no guide but its
judgment and discretion and the wisdom of experience."  In Carter v. Carter Coal
53

Co., legislative discretion has been described as follows:

54

Legislative congressional discretion begins with the choice of means,

and ends with the adoption of methods and details to carry the delegated
powers into effect. x x x [W]hile the powers are rigidly limited to the
enumerations of the Constitution, the means which may be employed to
carry the powers into effect are not restricted, save that they must be
appropriate, plainly adapted to the end, and not prohibited by, but
consistent with, the letter and spirit of the Constitution. x x x.   (Emphasis
55

ours)

Corollary, whether to treat the discount as a tax deduction or tax credit is a matter
addressed to the wisdom of the legislature. After all, it is within its prerogative to enact
laws which it deems sufficient to address a specific public concern. And, in the process of
legislation, a bill goes through rigorous tests of validity, necessity and sufficiency in both
houses of Congress before enrolment. It undergoes close scrutiny of the members of
Congress and necessarily had to surpass the arguments hurled against its passage.
Thus, the presumption of validity that goes with every law as a form of deference to the
process it had gone through and also to the legislature's exercise of discretion. Thus,
in lchong, etc., et al. v. Hernandez) etc., and Sarmiento, the Court emphasized, thus:
56

It must not be overlooked, in the first place, that the legislature, which is

the constitutional repository of police power and exercises the prerogative
of determining the policy of the State, is by force of circumstances
primarily the judge of necessity, adequacy or reasonableness and
wisdom, of any law promulgated in the exercise of the police power,
or of the measures adopted to implement the public policy or to
achieve public interest.x x x.  (Emphasis ours)
57

The legislature may also grant rights and impose additional burdens: It may also regulate
industries, in the exercise of police power, for the protection of the public. R.A. Nos. 9257
and 9442 are akin to regulatory laws, the issuance of which is within the ambit of police
power. The minimum wage law, zoning ordinances, price control laws, laws regulating
the operation of motels and hotels, laws limiting the working hours to eight, and the like
fall under this category. 
58

Indeed, regulatory laws are within the category of police power measures from which
affected persons or entities cannot claim exclusion or compensation. For instance,
private establishments cannot protest that the imposition of the minimum wage is
confiscatory since it eats up a considerable chunk of its profits or that the mandated
remuneration is not commensurate for the work done. The compulsory nature of the
provision for minimum wages underlies the effort of the State; as R.A. No.
6727  expresses it, to promote productivity-improvement and gain-sharing measures to
59

ensure a decent standard of living for the workers and their families; to guarantee the
rights of labor to its just share in the fruits of production; to enhance employment
generation in the countryside through industry dispersal; and to allow business and
industry reasonable returns on investment, expansion and growth, and as the
Constitution expresses it, to affirm labor as a primary social economic force.  60

Similarly, the imposition of price control on staple goods in R.A. No. 7581  is likewise a
61

valid exercise of police power and affected establishments cannot argue that the law was
depriving them of supposed gains. The law seeks to ensure the availability of basic
necessities and prime commodities at reasonable prices at all times without denying
legitimate business a fair return on investment. It likewise aims to provide effective and
sufficient protection to consumers against hoarding, profiteering and cartels with respect
to the supply, distribution, marketing and pricing of said goods, especially during periods
of calamity, emergency, widespread illegal price manipulation and other similar
situations.
62

More relevantly, in Manila Memorial Park, Inc., it was ruled that it is within the bounds of
63

the police power of the state to impose burden on private entities, even if it may affect
their profits, such as in the imposition of price control measures. There is no
compensable taking but only a recognition of the fact that they are subject to the
regulation of the State and that all personal or private interests must bow down to the
more paramount interest of the State.

This notwithstanding, the regulatory power of the State does not authorize the destruction
of the business. While a business may be regulated, such regulation must be within the
bounds of reason, i.e., the regulatory ordinance must be reasonable, and its provision
cannot be oppressive amounting to an arbitrary interference with the business or calling
subject of regulation. A lawful business or calling may not, under the guise of regulation,
be unreasonably interfered with even by the exercise of police power.   After all, 64

regulation only signifies control or restraint, it does not mean suppression or absolute
prohibition. Thus, in Philippine Communications Satellite Corporation v. Alcuaz,  the 65

Court emphasized:
 The power to regulate is not the power to destroy useful and harmless
enterprises, but is the power to protect, foster, promote, preserve, and
control with due regard for the interest, first and foremost, of the public,
then of the utility and of its patrons. Any regulation, therefore, which
operates as an effective confiscation of private property or constitutes an
arbitrary or unreasonable infringement of property rights is void, because
it is repugnant to the constitutional guaranties of due process and equal
protection of the laws.   (Citation omitted)
66

Here, the petitioner failed to show that R.A. Nos. 9257 and 9442, under the guise of
regulation, allow undue interference in an otherwise legitimate business.  On the contrary,
1avvphi1

it was shown that the questioned laws do not meddle in the business or take anything
from it but only regulate its realization of profits.

The subject laws do not violate the

equal protection clause

The petitioner argues that R.A. Nos. 9257 and 9442 are violative of the equal protection
clause in that it failed to distinguish between those who have the capacity to pay and
those who do not, in granting the 20% discount. R.A. No. 9257, in particular, removed the
income qualification in R.A. No. 7432 of'₱60,000.00 per annum before a senior citizen
may be entitled to the 20o/o discount.

The contention lacks merit.

The petitioner's argument is dismissive of the reasonable qualification on which the

subject laws were based. In City of Manila v. Hon. Laguio, Jr.,   the Court emphasized:
67

Equal protection requires that all persons or things similarly situated

should be treated alike, both as to rights conferred and responsibilities
imposed. Similar subjects, in other words, should not be treated
differently, so as to give undue favor to some and unjustly discriminate
against others. The guarantee means that no person or class of persons
shall be denied the same protection of laws which is enjoyed by other
persons or other classes in like circumstances.  (Citations omitted)
68

"The equal protection clause is not infringed by legislation which applies only to those
persons falling within a specified class. If the groupings are characterized by substantial
distinctions that make real differences, one class may be treated and regulated differently
from another."  For a classification to be valid, (1) it must be based upon substantial
69

distinctions, (2) it must be germane to the purposes of the law, (3) it must not be limited
to existing conditions only, and (4) it must apply equally to all members of the same
class. 
70
To recognize all senior citizens as a group, without distinction as to income, is a valid
classification. The Constitution itself considered the elderly as a class of their own and
deemed it a priority to address their needs. When the Constitution declared its intention
to prioritize the predicament of the underprivileged sick, elderly, disabled, women, and
children,  it did not make any reservation as to income, race, religion or any other
71

personal circumstances. It was a blanket privilege afforded the group of citizens in the
enumeration in view of the vulnerability of their class.

R.A. No. 9257 is an implementation of the avowed policy of the Constitution to enact
measures that protect and enhance the right of all the people to human dignity, reduce
social, economic, and political inequalities. 72 Specifically, it caters to the welfare of all
senior citizens. The classification is based on age and therefore qualifies all who have
attained the age of 60. Senior citizens are a class of their own, who are in need and
should be entitled to government support, and the fact that they may still be earning for
their own sustenance should not disqualify them from the privilege.

It is well to consider that our senior citizens have already reached the age when work
opportunities have dwindled concurrently as their physical health.  They are no longer
1âwphi1

expected to work, but there are still those who continue to work and contribute what they
can to the country. Thus, to single them out and take them out of the privileges of the law
for continuing to strive and earn income to fend for themselves is inimical to a welfare
state that the Constitution envisions. It is tantamount to penalizing them for their
persistence. It is commending indolence rather than rewarding diligence. It encourages
them to become wards of the State rather than productive partners.

Our senior citizens were the laborers, professionals and overseas contract workers of the
past. While some may be well to do or may have the capacity to support their
sustenance, the discretion to avail of the privileges of the law is up to them. But to
instantly tag them. as undeserving of the privilege would be the height of ingratitude; it is
an outright discrimination.

The same ratiocination may be said of the recognition of PWDs as a class in R.A. No.
9442 and in granting them discounts.  It needs no further explanation that PWDs have
1âwphi1

special needs which, for most,' last their entire lifetime. They constitute a class of their
own, equally deserving of government support as our elderlies. While some of them
maybe willing to work and earn income for themselves, their disability deters them from
living their full potential. Thus, the need for assistance from the government to augment
the reduced income or productivity brought about by their physical or intellectual
limitations.

There is also no question that the grant of mandatory discount is germane to the purpose
of R.A. Nos. 9257 and 9442, that is, to adopt an integrated and comprehensive approach
to health development and make essential goods and other social services available to
all the people at affordable cost, with special priority given to the elderlies and the
disabled, among others. The privileges granted by the laws ease their concerns and
allow them to live more comfortably.

The subject laws also address a continuing concern of the government for the welfare of
the senior citizens and PWDs. It is not some random predicament but an actual,
continuing and pressing concern that requires preferential attention. Also, the laws apply
to all senior citizens and PWDs, respectively, without further distinction or reservation.
Without a doubt, all the elements for a valid classification were met.

The definitions of "disabilities" and

"PWDs" are clear and unequivocal

Undeterred, the petitioner claims that R.A. No. 9442 is ambiguous particularly in defining
the terms "disability" and "PWDs," such that it lack comprehensible standards that men of
common intelligence must guess at its meaning. It likewise bewails the futility of the given
safeguards to prevent abuse since government officials who are neither experts nor
practitioners of medicine are given the authority to issue identification cards that
authorizes the granting of the privileges under the law.

The Court disagrees.

Section 4(a) of R.A. No. 7277, the precursor of R.A. No. 94421 defines "disabled
persons" as follows:

(a) Disabled persons are those suffering from restriction or different

abilities, as a result of a mental, physical or sensory impairment, to
perform an activity in the manner or within the range considered normal
for a human being[.]

On the other hand, the term "PWDs" is defined in Section 5.1 of the IRR of R.A. No. 9442
as follows:

5.1. PersonswithDisability are those individuals defined under Section 4

of [R.A. No.] 7277 [or] An Act Providing for the Rehabilitation, Self-
Development and Self-Reliance of Persons with Disability as amended
and their integration into the Mainstream of Society and for Other
Purposes. This is defined as a person suffering from restriction or
different abilities, as a result of a mental, physical or sensory impairment,
to perform an activity in a manner or within the range considered normal
for human being. Disability shall mean (1) a physical 1or mental
impairment that substantially limits one or more psychological,
physiological or anatomical function of an individual or activities of such
individual; (2) a record of such an impairment; or (3) being regarded as
having such an impairment.
The foregoing definitions have a striking conformity with the definition of "PWDs" in
Article 1 of the United Nations Convention on the Rights of Persons with
Disabilities which reads:

Persons with disabilities include those who have long-term physical,

mental, intellectual or sensory impairments which in interaction with
various barriers may hinder their full and effective participation in society
on an equal basis with others. (Emphasis and italics ours)

The seemingly broad definition of the terms was not without good
reasons. It recognizes that "disability is an evolving concept"  and 73

appreciates the "diversity of PWDs."  The terms were given

74

comprehensive definitions so as to accommodate the various forms of

disabilities, and not confine it to a particular case as this would effectively
exclude other forms of physical, intellectual or psychological impairments.

Moreover, in Estrada v. Sandiganbayan,   it was declared, thus:

75

A statute is not rendered uncertain and void merely because general

terms are used therein, or because of the employment of terms without
defining them; much less do we have to define every word we use.
Besides, there is no positive constitutional or statutory command requiring
the legislature to define each and every word in an enactment. Congress
is not restricted in the form of expression of its will, and its inability to so
define the words employed in a statute will not necessarily result in the
vagueness or ambiguity of the law so long as the legislative will is clear,
or at least, can be gathered from the whole act x x x.  (Citation omitted)
76

At any rate, the Court gathers no ambiguity in the provisions of R.A. No. 9442. As
regards the petitioner's claim that the law lacked reasonable standards in determining the
persons entitled to the discount, Section 32 thereof is on point as it identifies who may
avail of the privilege and the manner of its availment. It states:

Sec. 32. x x x

The abovementioned privileges are available only to persons with

disability who are Filipino citizens upon submission of any of the following
as proof of his/her entitlement thereto:

(I) An identification card issued by the city or municipal mayor or the

barangay captain of the place where the persons with disability resides;

(II) The passport of the persons with disability concerned; or

 (III) Transportation discount fare Identification Card (ID) issued by the
National Council for the Welfare of Disabled Persons (NCWDP).

It is, however, the petitioner's contention that the foregoing authorizes government
officials who had no medical background to exercise discretion in issuing identification
cards to those claiming to be PWDs. It argues that the provision lends to the
indiscriminate availment of the privileges even by those who are not qualified.

The petitioner's apprehension demonstrates a superficial understanding of the law and its
implementing rules. To be clear, the issuance of identification cards to PWDs does not
depend on the authority of the city or municipal mayor, the DSWD or officials of the
NCDA (formerly NCWDP). It is well to remember that what entitles a person to the
privileges of the law is his disability, the fact of which he must prove to qualify. Thus, in
NCDA Administrative Order (A.O.) No. 001, series of 2008,   it is required that the person
77

claiming disability must submit the following requirements before he shall be issued a
PWD Identification Card:

1. Two "1 x l" recent ID pictures with the names, and signatures or thumb
marks at the back of the picture.

2. One (1) Valid ID

3. Document to confirm the medical or disability condition 78

To confirm his disability, the person must obtain a medical certificate or assessment, as
the case maybe, issued by a licensed private or government physician, licensed teacher
or head of a business establishment attesting to his impairment. The issuing entity
depends on whether the disability is apparent or non-apparent. NCDAA.O. No. 001
further provides: 79

DISABILITY DOCUMENT ISSUING ENTITY

Apparent  Medical  Licensed Private or 

Disability  Certificate Government Physician
 

  School  Licensed Teacher duly 

Assessment signed by the School 
Principal

  Certificate of   Head of the

Disability Business

Establishment
  Head of Non-
Government Organization

Non-Apparent  Medical  Licensed Private or 

Disability  Certificate Government Physician
 

To provide further safeguard, the Department of Health issued A.O. No. 2009-0011,

providing guidelines for the availment of the 20% discount on the purchase of medicines
by PWDs. In making a purchase, the individual must present the documents enumerated
in Section VI(4)(b ), to wit:

i. PWD identification card x x x

ii. Doctor's prescription stating the name of the PWD, age, sex, address, date, generic
name of the medicine, dosage form, dosage strength, quantity, signature over printed
name of physician, physician's address, contact number of physician or dentist,
professional license number, professional tax receipt number and narcotic license
number, if applicable. To safeguard the health of PWDs and to prevent abuse of [R.A.
No.] 9257, a doctor's prescription is required in the purchase of over-the-counter
medicines. x x x.

iii. Purchase booklet issued by the local social/health office to PWDs for free containing
the following basic information:

a) PWD ID number

b) Booklet control number

c) Name of PWD

d) Sex

e) Address

f) Date of Birth

g) Picture

h) Signature of PWD

i) Information of medicine purchased:

i.1 Name of medicine

i.2 Quantity

i.3 Attending Physician

i.4 License Number

i.5 Servicing drug store name

i.6 Name of dispensing pharmacist

j) Authorization letter of the PWD x x x in case the medicine is bought by the

representative or caregiver of the PWD.

The PWD identification card also has a validity period of only three years which facilitate
in the monitoring of those who may need continued support and who have been relieved
of their disability, and therefore may be taken out of the coverage of the law.

At any rate, the law has penal provisions which give concerned establishments the option
to file a case against those abusing the privilege Section 46(b) of R.A. No. 9442 provides
that "[a]ny person who abuses the privileges granted herein shall be punished with
imprisonment of not less than six months or a fine of not less than Five Thousand pesos
(₱5,000.00), but not more than Fifty Thousand pesos (₱50,000.00), or both, at the
discretion of the court." Thus, concerned establishments, together with the proper
government agencies, must actively participate in monitoring compliance with the law so
that only the intended beneficiaries of the law can avail of the privileges.

Indubitably, the law is clear and unequivocal, and the petitioner claim of vagueness to
cast uncertainty in the validity of the law does not stand.

WHEREFORE, in view of the foregoing disquisition, Section 4(a) of Republic Act No.
9257 and Section 32 of Republic Act No. 9442 are hereby declared CONSTITUTIONAL.

<<page>> 

SO ORDERED.

DISSENTING OPINION

CARPIO, J.:
The provisions in contention in the case before the Court are Section 4(a) of Republic Act
No. 9257  (R.A. 9257) and Section 32 of Republic Act No. 9442  (R.A. 9442) which grant
1 2

a 20% discount on the purchase of medicines, respectively, to senior citizens and

persons with disability. Southern Luzon Drug Corporation (Southern Luzon Drug) assails
the constitutionality of the provisions and the tax treatment of the 20% discount as tax
deduction from gross income computed from the net cost of the goods sold or services
rendered. Southern Luzon Drug alleges, among other things, that the 20% discount is an
invalid exercise of the power of eminent domain insofar as it fails to provide just
compensation to establishments that grant the discount.

The majority opinion affirms the constitutionality of the assailed provisions and reiterated
the rulings in Carlos Superdrug Corporation v. Department of Social Welfare and
Development and Manila Memorial Park, Inc. v. Secretary of the Department of Social
3

Welfare and Development that the challenged provisions constitute a valid exercise of
4

police power.

I maintain my dissent in the Manila Memorial Park case. I assert that Carlos Superdrug

Corporation barely distinguished between police power and eminent domain. While it is
true that police power is similar to the power of eminent domain because both have the
general welfare of the people for their object, we need to clarify the concept of taking in
eminent domain as against taking in police power to prevent any claim of police power
when the power actually exercised is eminent domain. When police power is
exercised, there is no just compensation to the citizen who loses his private
property. When eminent domain is exercised, there must be just compensation.
Thus, the Court must distinguish and clarify taking in police power and taking in
eminent domain. Government officials cannot just invoke police power when the
act constitutes eminent domain.

In People v. Pomar,   the Court acknowledged that "[b ]y reason of the constant growth of
5

public opinion in a developing civilization, the term 'police power' has never been, and we
do not believe can be, clearly and definitely defined and circumscribed."  The Court
6

stated that the "definition of the police power of the [S]tate must depend upon the
particular law and the particular facts to which it is to be applied."   However, it was
7

considered even then that police power, when applied to taking 1of property
without compensation, refers to property that is destroyed pr placed outside the
commerce of man. The Court declared in Pomar:

It is believed and confidently asserted that no case can be found, in

civilized society and well-organized governments, where individuals
have been deprived of their property, under the police power of the
state, without compensation, except in cases where the property in
question was used for the purpose of violating some law legally
adopted, or constitutes a nuisance. Among such cases may be
mentioned: Apparatus used in counterfeiting the money of the state;
 firearms illegally possessed; opium possessed in violation of law;
apparatus used for gambling in violation of law; buildings and property
used for the purpose of violating laws prohibiting the manufacture and
sale of intoxicating liquors; and all cases in which the property itself has
become a nuisance and dangerous and detrimental to the public health,
morals and general welfare of the state. In all of such cases, and in many
more which might be cited, the destruction of the property is permitted in
the exercise of the police power of the state. But it must first be
established that such property was used as the instrument for the
violation of a valid existing law. (Mugler vs. Kansan, 123 U.S. 623;
Slaughter House Cases, 16 Wall. [U.S.] 36; Butchers' Union, etc.,
Co. vs. Crescent City, etc., Co., 111 U.S. 746; John Stuart Mill - "On
Liberty," 28, 29)

Without further attempting to define what are the peculiar subjects or

limits of the police power, it may safely be affirmed, that every law for the
restraint and punishment of crimes, for the preservation of the public
peace, health, and morals, must come within this category. But the state,
when providing by legislation for the protection of the public health, the
public morals, or the public safety, is subject to and is controlled by the
paramount authority of the constitution of the state, and will not be
permitted to violate rights secured or guaranteed by that instrument or
interfere with the execution of the powers and rights guaranteed to the
people under their law - the constitution. (Mugler vs. Kansas, 123 U.S.
623)  (Emphasis supplied)
8

In City Government of Quezon City v. Hon. Judge Ericta, the Court quoted with approval
9

the trial court's decision declaring null and void Section 9 of Ordinance No. 6118, S-64, of
the Quezon City Council, thus:

We start the discussion with a restatement of certain basic principles.

Occupying the forefront in the bill of rights is the provision which states
that 'no person shall be deprived of life, liberty or property without due
process of law. (Art. III, Section 1 subparagraph 1, Constitution)

On the other hand, there are three inherent powers of government by

which the state interferes with the property rights, namely- (1) police
power, (2) eminent domain, [and] (3) taxation. These are said to exist
independently of the Constitution as necessary attributes of sovereignty.

Police power is defined by Freund as 'the power of promoting the

public welfare by restraining and regulating the use of liberty and
property' (Quoted in Political Law by Tafiada and Carreon, V-11, p.
50). It is usually exerted in order to merely regulate the use and
 enjoyment of property of the owner. If he is deprived of his property
outright, it is not taken for public use but rather to destroy in order
to promote the general welfare. In police power, the owner does not
recover from the government for injury sustained in consequence
thereof (12 C.J. 623). It has been said that police power is the most
essential of government powers, at times the most insistent, and always
one of the least !imitable of the powers of government (Ruby vs.
Provincial Board, 3 9 Phil. 660; le hong vs. Hernandez, L-7995, May 31,
1957). This power embraces the whole system of public regulation (U.S.
vs. Linsuya Fan, 10 Phil. 104). The Supreme Court has said that police
power is so far-reaching in scope that it has almost become impossible to
limit its sweep. As it derives its existence from the very existence of the
state itself, it does not need to be expressed or defined in its scope. Being
coextensive with self-preservation and survival itself, it is the most
positive and active of all governmental processes, the most essential,
insistent and illimitable. Especially it is so under the modern democratic
framework where the demands of society and nations have multiplied to
almost unimaginable proportions. The field and scope of police power
have become almost boundless, just as the fields of public interest and
public welfare have become almost all embracing and have transcended
human foresight. Since the Court cannot foresee the needs and demands
of public interest and welfare, they cannot delimit beforehand the extent
or scope of the police power by which and through which the state seeks
to attain or achieve public interest and welfare. (Ichong vs. Hernandez, L-
7995, May 31, 1957).

The police power being the most active power of the government and the
due process clause being the broadest limitation on governmental power,
the conflict between this power of government and the due process
clause of the Constitution is oftentimes inevitable.

It will be seen from the foregoing authorities that police power is

usually exercised in the form of mere regulation or restriction in the
use of liberty or property for the promotion of the general welfare. It
does not involve the taking or confiscation of property with the
exception of a few cases where there is a necessity to confiscate
private property in order to destroy it for the purpose of protecting
the peace and order and of promoting the general welfare as for
instance, the confiscation of an illegally possessed article, such as
opium and firearms.   (Boldfacing and italicization supplied)
10

It is very clear that taking under the exercise of police power does not require any
compensation because the property taken is either destroyed or placed outside
the commerce of man.
On the other hand, the power of eminent domain has been described as –

x x x 'the highest and most exact idea of property remaining in the

government' that may be acquired for some public purpose through a
method in the nature of a forced purchase by the State. It is a right to take
or reassert dominion over property within the state for public use or to
meet public exigency. It is said to be an essential part of governance
even in its most primitive form and thus inseparable from sovereignty.
The only direct constitutional qualification is that 'private property should
not be taken for public use without just compensation.' This proscription is
intended to provide a safeguard against possible abuse and so to protect
as well the individual against whose property the power is sought to be
enforced. 11

In order to be valid, the taking of private property by the government under eminent
domain has to be for public use and there must be just compensation.  12

Fr. Joaquin G. Bernas, SJ., expounded:

Both police power and the power of eminent domain have the general
welfare for their object. The former achieves its object by regulation while
the latter by "taking". When property right is impaired by regulation,
compensation is not required; whereas, when property is taken, the
Constitution prescribes just compensation. Hence, a sharp distinction
must be made between regulation and taking.

When title to property is transferred to the expropriating authority, there is

a clear case of compensable taking. However, as will be seen, it isa
settled rule that neither acquisition of title nor total destruction of value is
essential to taking. It is in cases where title remains with the private
owner that inquiry must be made whether the impairment of property right
is merely regulation or already amounts to compensable taking.

An analysis of existing jurisprudence yields the rule that when a

property interest is appropriated and applied to some public
purpose, there is compensable taking. Where, however, a property
interest is merely restricted because continued unrestricted use
would be injurious to public welfare or where property is destroyed
because continued existence of the property would be injurious to
public interest, there is no compensable taking.  (Emphasis supplied)
13

Both Section 4(a) of R.A. 9257 and Section 32 of R.A. 9442 undeniably contemplate
taking of property for public use. Private property is anything that is subject to private
ownership. The property taken for public use applies not only to land but also to other
proprietary property, including the mandatory discounts given to senior citizens and
persons with disability which form part of the gross sales of the private establishments
that are forced to give them. The amount of mandatory discount is money that
belongs to the private establishment. For sure, money or cash is private property
because it is something of value that is subject to private ownership. The taking of
property under Section 4(a) of R.A. 9257 and Section 32 of R.A. 9442 is an exercise of
the power of eminent domain and not an exercise of the police power of the State. A
clear and sharp distinction should be made because private property owners will
be left at the mercy of government officials if these officials are allowed to invoke
police power when what is actually exercised is the power of eminent domain.

Section 9, Article III of the 1987 Constitution speaks of private property without any
distinction. It does not state that there should be profit before the taking of property is
subject to just compensation. The private property referred to for purposes of taking
could be inherited, donated, purchased, mortgaged, or as in this case, part of the gross
sales of private establishments. They are all private property and any taking should be
attended by a corresponding payment of just compensation. The 20% discount granted
to senior citizens and persons with disability belongs to private establishments, whether
these establishments make a profit or suffer a loss.

Just compensation is "the full and fair equivalent of the property taken from its
owner by the expropriator."  The Court explained:
14

x x x. The measure is not the taker's gain, but the owner's loss. The word
'just' is used to qualify the meaning of the word 'compensation' and to
convey thereby the idea that the amount to be tendered for the
property to be taken shall be real, substantial, full and ample. x x
x.   (Emphasis supplied)
15

The 32% of the discount that the private establishments could recover under the tax
deduction scheme cannot be considered real, substantial, full, and ample compensation.
In Carlos Superdrug Corporation, the Court conceded that "[t]he permanent reduction
in [private establishments'] total revenue is a forced subsidy corresponding to the
taking of private property for public use or benefit."  The Court ruled that "[t]his
16

constitutes compensable taking for which petitioners would ordinarily become

entitled to a just compensation."  Despite these pronouncements admitting there was
17

compensable taking, the Court still proceeded to rule that "the State, in promoting
the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program."

There may be valid instances when the State can impose burdens on private
establishments that effectively subsidize a government program. However, the moment a
constitutional threshold is crossed - when the burden constitutes a taking of private
property for public use - then the burden becomes an exercise of eminent domain for
which just compensation is required.

An example of a burden that can be validly imposed on private establishments is the

requirement under Article 157 of the Labor Code that employers with a certain number of
employees should maintain a clinic and employ a registered nurse, a physician, and a
dentist, depending on the number of employees. Article 157 of the Labor Code provides:

Art. 157. Emergency medical and dental services. - It shall be the duty of
every employer to furnish his employees in any locality with free medical
and dental attendance and facilities consisting of:

a. The services of a full-time registered nurse when the number of

employees exceeds fifty (50) but not more than two hundred (200) except
when the employer does not maintain hazardous workplaces, in which
case, the services of a graduate first-aider shall be provided for the
protection of workers, where no registered nurse is available. The
Secretary of Labor and Employment shall provide by appropriate
regulations, the services that shall be required where the number of
employees does not exceed fifty (50) and shall determine by appropriate
order, hazardous workplaces for purposes of this Article;

b. The services of a full-time registered nurse, a part-time physician and

dentist, and an emergency clinic, when the number of employees
exceeds two hundred (200) but not more than three hundred (300); and

c. The services of a full-time physician, dentist and a full-time registered

nurse as well as a dental clinic and an infirmary or emergency hospital
with one bed capacity for every one hundred (100) employees when the
number of employees exceeds three hundred (300). x x x.

xxxx

Article 157 of the Labor Code is a burden imposed by the State on private employers to
complement a government program of promoting a healthy workplace.  The employer
1âwphi1

itself, however, benefits fully from this burden because the health of its workers while in
the workplace is a legitimate concern of the private employer. Moreover, the cost of
maintaining the clinic and staff is part of the legislated wages for which the private
employer is fully compensated by the services of the employees. In the case of
discounts to senior citizens and persons with disability, private establishments are
compensated only in the equivalent amount of 32% of the mandatory discount. There are
no services rendered by the senior citizens, or any other form of payment, that could
make up for the 68% balance of the mandatory discount. Clearly, private establishments
cannot recover the full amount of the discount they give and thus there is taking to the
extent of the amount that cannot be recovered.

Another example of a burden that can be validly imposed on private establishments is the
requirement under Section 19 in relation to Section 18 of the Social Security Law   and18

Section 7 of the Pag-IBIG Fund  for the employer to contribute a certain amount to fund
19

the benefits of its employees. The amounts contributed by private employers form part of
the legislated wages of employees. The private employers are deemed fully
compensated for these amounts by the services rendered by the employees.

Here, the private establishments are only compensated about 32% of the 20% discount
granted to senior citizens and persons with disability.  They shoulder 68% of the discount
1avvphi1

they are forced to give to senior citizens. The Court should correct this situation as it
clearly violates Section 9, Article III of the Constitution which provides that "[p]rivate
property shall not be taken for public use without just compensation." I reiterate
that Carlos Superdrug Corporation should be abandoned by this Court
and Commissioner of Internal Revenue v. Central Luzon Drug Corporation, holding that
20

"the tax credit benefit granted to these establishments can be deemed as their just
compensation for private property taken by the State for public use" should be reaffirmed.

Carlos Superdrug Corporation admitted that the permanent reduction in the total

revenues of private establishments is a "compensable taking for which petitioners
would ordinarily become entitled to a just compensation." However, Carlos 21

Superdrug Corporation considered that there was sufficient basis for taking without
compensation by invoking the exercise of police power of the State. In doing so, the
Court failed to consider that a permanent taking of property for public use is an exercise
of eminent domain for which the government must pay compensation. Eminent domain is
distinct from police power and its exercise is subject to certain conditions, that is, the
taking of property for public use and payment of just compensation.

It is incorrect to say that private establishments only suffer a minimal loss when they give
a 20% discount to senior citizens and persons with disability. Under R.A. 9257, the 20%
discount applies to "all establishments relative to the utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;"  "admission fees
22

charged by theaters, cinema houses and concert halls, circuses, carnivals, and other
similar places of culture, leisure and amusement for the exclusive use or enjoyment of
senior citizens;"23 "medical and dental services, and diagnostic and laboratory fees
provided under Section 4(e) including professional fees of attending doctors in all private
hospitals and medical facilities, in accordance with the rules and regulations to be issued
by the Department of Health, in coordination with the Philippine Health Insurance
Corporation;"  "fare for domestic air and sea travel for the exclusive use or enjoyment of
24
senior citizens;"  and "public railways, skyways and bus fare for the exclusive use and
25

enjoyment of senior citizens. "26

Likewise, the 20% discount under R.A. 9442 applies to "all establishments relative to
the utilization of all services in hotels and similar lodging establishments; restaurants and
recreation centers for the exclusive use or enjoyment of persons with
disability;"  admission fees charged by theaters, cinema houses, concert halls, circuses,
27

carnivals and other similar places of culture, leisure and amusement for the exclusive use
or enjoyment of persons with disability;"  "purchase of medicines in all drugstores for the
28

exclusive use or enjoyment of persons with disability; " "medical and dental services
29

including diagnostic and laboratory fees such as, but not limited to, x-rays, computerized
tomography scans and blood tests in all government facilities, in accordance with the
rules and regulations to ,be issued by the Department of Health (DOH), in coordination
with the Philippine Health Insurance Corporation (PHILHEALTH);"  "medical and dental
30

services including diagnostic and laboratory fees, and professional 'fees of attending
doctors in all private hospitals and medical facilities, in accordance with the rules and
regulations issued by the DOH, in coordination with the PHILHEALTH;31 "fare for
domestic air and sea travel for the exclusive use or enjoyment of persons with
disability," and "public railways, skyways and bus fare for the exclusive use or enjoyment
32

of persons with disability."  The 20% discount cannot be considered minimal

33

because not all private establishments make a 20% margin of profit. Besides, on
its face alone, a 20% mandatory discount based on the gross selling price is huge.
The 20% mandatory discount is more than the 12%Value Added Tax, itself not an
insignificant amount.

According to the majority opinion, R.A. Nos. 9257 and 9442 are akin to regulatory laws
which are within the ambit of police power, such as the minimum wage law, zoning
ordinances, price control laws, laws regulating the operation of motels or hotels, law
limiting the working hours to eight, and similar laws falling under the same category.  The
34

majority opinion states that private establishments cannot protest that the imposition of
the minimum wage law is confiscatory, or that the imposition of the price control law
deprives the affected establishments of their supposed gains. 35

There are instances when the State can regulate the profits of establishments but only in
specific cases. For instance, the profits of public utilities can be regulated because they
operate under franchises granted by the State. Only those who are granted franchises by
the State can operate public utilities, and these franchisees have agreed to limit their
profits as condition for the grant of the franchises. The profits of industries imbued with
public interest, but which do not enjoy franchises from the State, can also be regulated
but only temporarily during emergencies like calamities. There has to be an emergency
to trigger price control on businesses and only for the duration of the emergency. The
profits of private establishments which are non-franchisees cannot be
regulated permanently, and there is no such law regulating their profits permanently.
The State can take over private property without compensation in times of war or other
national emergency under Section 23(2), Article VI of the Constitution but only for a
limited period and subject to such restrictions as Congress may provide. Under its
police power, the State may also temporarily limit or suspend business activities. One
example is the two-day liquor ban during elections under Article 261 of the Omnibus
Election Code but this, again, is only for a limited period. This is a valid exercise of
police power of the State.

However, any form of permanent taking of private property is an exercise of eminent

domain that requires the State to pay just compensation. The police power to regulate
business cannot negate another provision of the Constitution like the eminent
domain clause, which requires just compensation to be paid for the taking of
private property for public use. The State has the power to regulate the conduct of
the business of private establishments as long as the regulation is reasonable, but
when the regulation amounts to permanent taking of private property for public
use, there must be just compensation because the regulation now reaches the
level of eminent domain.

The majority opinion states that the laws do not place a cap on the amount of markup
that private establishments may impose on their prices.   Hence, according to the
36

majority opinion, the laws per se do not cause the losses but bad business judgment on
the part of the establishments.   The majority opinion adds that a level adjustment in the
37

pricing of items is a reasonable business measure and could even make establishments
earn more.  However, such an economic justification is self-defeating, for more
38

consumers will suffer from the price increase than will benefit from the 20% discount.
Even then, such ability to increase prices cannot legally validate a violation of the
eminent domain clause.

I maintain that while the 20% discount granted to senior citizens and persons with
disability is not per se unreasonable, the tax treatment of the 20% discount as tax
deduction from gross income computed from the net cost of the goods sold or services
rendered is oppressive and confiscatory. Section 4(a) of R.A. 9257, providing that private
establishments may claim the 20% discount to senior citizens as tax deduction, is
patently unconstitutional. As such, Section 4 of R.A. 7432, the old law prior to the
amendment by R.A. No. 9257, which allows the 20% discount as tax credit, should be
automatically reinstated. I reiterate that where amendments to a statute are declared
unconstitutional, the original statute as it existed before the amendment remains in
force.   An amendatory law, if declared null and void, in legal contemplation does not
39

exist.  The private establishments should therefore be allowed to claim the 20% discount
40

granted to senior citizens as tax credit. Likewise, Section 32 of R.A. 9442, providing that
the establishments may claim the discounts given as tax deductions based on the net
cost of the goods sold or services rendered, is also, unconstitutional. Instead,
establishments should be allowed to claim the 20o/o discount given to persons with
disability as tax credit.
ACCORDINGLY, I vote to GRANT the petition.

ANTONIO T. CARPIO
Associate Justice

4. CRISOSTOMO B. AQUINO, Petitioner, 
vs.
MUNICIPALITY OF MALAY, AKLAN, represented by HON. MAYOR JOHN P. YAP,
SANGGUNIANG BA YAN OF MALAY, AKLAN, represented by HON. EZEL FLORES,
DANTE PASUGUIRON, ROWEN AGUIRRE, WILBEC GELITO, JUPITER
GALLENERO, OFFICE OF THE MUNICIPAL ENGINEER, OFFICE OF THE
MUNICIPAL TREASURER, BORACAY PNP CHIEF, BORACAY FOUNDATION, INC.,
represented by NENETTE GRAF, MUNICIPAL AUXILIARY POLICE, and JOHN and
JANE DOES, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari challenging the Decision  and the
1

Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 120042 dated August 13,
2013 and February 3, 2014, respectively. The assailed rulings denied Crisostomo
Aquino's Petition for Certiorari for not being the proper remedy to question the issuance
and implementation of Executive Order No. 10, Series of 2011 (EO 10), ordering the
demolition of his hotel establishment.

The Facts

Petitioner is the president and chief executive officer of Boracay Island West Cove
Management Philippines, Inc. (Boracay West Cove). On January 7, 2010, the company
applied for a zoning compliance with the municipal government of Malay, Aklan.  While
2

the company was already operating a resort in the area, the application sought the
issuance of a building permit covering the construction of a three-storey hotel over a
parcel of land measuring 998 sqm. located in Sitio Diniwid, Barangay Balagab, Boracay
Island, Malay, Aklan,which is covered by a Forest Land Use Agreement for Tourism
Purposes (FLAgT) issued by the Department of Environment and Natural Resources
(DENR) in favor of Boracay West Cove.
Through a Decision on Zoning dated January 20, 2010, the Municipal Zoning
Administrator denied petitioner’s application on the ground that the proposed construction
site was withinthe "no build zone" demarcated in Municipal Ordinance 2000-131
(Ordinance).  As provided in the Ordinance:
3

SECTION 2. – Definition of Terms. Asused in this Ordinance, the following words, terms
and phrases shall mean as follows:

xxxx

(b) No Build Zone – the space twenty-five (25) meters from the edge of the mean high
water mark measured inland;

xxxx

SECTION 3. – No building or structure of any kind whether temporary or permanent shall

be allowed to be set up, erected or constructed on the beaches around the Island of
Boracay and in its offshore waters. During the conduct of special activities or special
events, the Sangguniang Bayan may, through a Resolution, authorize the Office of the
Mayor to issue Special Permits for construction of temporary structures on the beach for
the duration of the special activity as embodied in the Resolution.

In due time, petitioner appealed the denial action to the Office of the Mayor on February
1, 2010. On May 13, 2010, petitioner followed up his appeal through a letter but no action
was ever taken by the respondent mayor. On April 5, 2011, however, a Notice of
Assessment was sent to petitioner asking for the settlement of Boracay West Cove’s
unpaid taxes and other liabilities under pain of a recommendation for closure in view of
its continuous commercial operation since 2009 sans the necessaryzoning clearance,
building permit, and business and mayor’s permit. In reply, petitioner expressed
willingness to settle the company’s obligations, butthe municipal treasurer refused to
accept the tendered payment. Meanwhile, petitioner continued with the construction,
expansion, and operation of the resort hotel.

Subsequently, on March 28, 2011, a Cease and Desist Order was issued by the
municipal government, enjoining the expansion of the resort, and on June 7, 2011, the
Office of the Mayor of Malay, Aklan issued the assailed EO 10, ordering the closure and
demolition of Boracay West Cove’s hotel.

EO 10 was partially implemented on June 10, 2011. Thereafter, two more instances
followed wherein respondents demolished the improvements introduced by Boracay
West Cove, the most recent of which was made in February 2014.

Alleging that the order was issued and executed with grave abuse of discretion, petitioner
filed a Petition for Certiorari with prayer for injunctive relief with the CA. He argued that
judicial proceedings should first be conducted before the respondent mayor could order
the demolition of the company’s establishment; that Boracay West Cove was granted a
FLAgT by the DENR, which bestowed the company the right to construct permanent
improvements on the area in question; thatsince the area is a forestland, it is the DENR
—and not the municipality of Malay, or any other local government unit for that matter—
that has primary jurisdiction over the area, and that the Regional Executive Director of
DENR-Region 6 had officially issued an opinion regarding the legal issues involved in the
present case; that the Ordinance admits of exceptions; and lastly, that it is the mayor who
should be blamed for not issuing the necessary clearances in the company’s favor.

In rebuttal, respondents contended that the FLAgT does not excuse the company from
complying with the Ordinance and Presidential Decree No. 1096 (PD 1096), otherwise
known as the National Building Code of the Philippines. Respondents also argued that
the demolition needed no court order because the municipal mayor has the express
power under the Local Government Code (LGC) to order the removal of illegally
constructed buildings.

Ruling of the Court of Appeals

In its assailed Decision dated August 13, 2013, the CA dismissed the petition solely on
procedural ground, i.e., the special writ of certiorari can only be directed against a
tribunal, board, or officer exercising judicial or quasi-judicial functions and since the
issuance of EO 10 was done in the exercise of executive functions, and not of judicial or
quasi-judicial functions, certiorari will not lie. Instead, the proper remedy for the petitioner,
according to the CA, is to file a petition for declaratory relief with the Regional Trial Court.

Petitioner sought reconsideration but this was denied by the CA on February 3, 2014
through the challenged Resolution. Hence, the instant petition raising arguments on both
procedure and substance.

The Issues

Stripped to the essentials, the pivotal issues in the extant case are as follows:

1. The propriety under the premises ofthe filing of a petition for certiorari instead of a
petition for declaratory relief;

a. Whether or not declaratory reliefis still available to petitioner;

b. Whether or not the CA correctly ruled that the respondent mayor was performing
neither a judicial nor quasi-judicial function when he ordered the closure and demolition
of Boracay West Cove’s hotel;

2. Whether or not respondent mayor committed grave abuse of discretion when he

issued EO 10;
a. Whether or not petitioner’s right to due process was violated when the respondent
mayor ordered the closure and demolition of Boracay West Cove’s hotel without first
conducting judicial proceedings;

b. Whether or not the LGU’s refusal to issue petitioner the necessary building permit and
clearances was justified;

c. Whether or not petitioner’s rights under the FLAgT prevail over the municipal
ordinance providing for a no-build zone; and

d. Whether or not the DENR has primary jurisdiction over the controversy, not the LGU.

The Court’s Ruling

We deny the petition.

Certiorari, not declaratory relief, is the proper remedy

a. Declaratory relief no longer viable

Resolving first the procedural aspect of the case, We find merit in petitioner’s contention
that the special writ of certiorari, and not declaratory relief, is the proper remedy for
assailing EO 10. As provided under Sec. 1, Rule 63 of the Rules of Court:

SECTION 1. Who may file petition. – Any person interested under a deed, will, contract
or other written instrument, whose rights are affected by a statute, executive order or
regulation, ordinance or any other governmental regulation may, before breach or
violation thereof, bring an action in the appropriate Regional Trial Court to determine any
question of construction or validity arising, and for a declaration of his rights or duties,
thereunder. x x x (emphasis added)

An action for declaratory relief presupposes that there has been no actual breach of the
instruments involved or of the rights arising thereunder. Since the purpose of an action
for declaratory relief is to secure an authoritative statement of the rights and obligations
of the parties under a statute, deed, or contract for their guidance in the enforcement
thereof, or compliance therewith, and not to settle issues arising from an alleged breach
thereof, it may be entertained before the breach or violation of the statute, deed or
contract to which it refers. A petition for declaratory relief gives a practical remedy for
ending controversies that have not reached the state where another relief is immediately
available; and supplies the need for a form of action that will set controversies at rest
before they lead to a repudiation of obligations, an invasion of rights, and a commission
of wrongs. 4

In the case at bar, the petition for declaratory relief became unavailable by EO 10’s
enforcement and implementation. The closure and demolition of the hotel rendered futile
any possible guidelines that may be issued by the trial court for carrying outthe directives
in the challenged EO 10. Indubitably, the CA erred when it ruled that declaratory relief is
the proper remedy given such a situation.

b. Petitioner correctly resorted to certiorari

On the propriety of filing a petition for certiorari, Sec. 1, Rule 65 of the Rules of Court
provides:

Section 1. Petition for certiorari. — When any tribunal, board or officer exercising judicial
or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging the facts
with certainty and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require. x x x

For certiorari to prosper, the petitioner must establish the concurrence of the following
requisites, namely:

1. The writ is directed against a tribunal, board, or officer exercising judicial or quasi-
judicial functions;

2. Such tribunal, board, or officer has acted without or in excess of jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction; and

3. There is no appeal or any plain speedy, and adequate remedy in the ordinary course
of law.5

Guilty of reiteration, the CA immediately dismissed the Petition for Certiorari upon
determining that the first element is wanting—that respondent mayor was allegedly not
exercising judicial or quasi-judicial functions when he issued EO 10.

We are not persuaded.

The CA fell into a trapwhen it ruled that a mayor, an officer from the executive
department, exercises an executive function whenever he issues an Executive Order.
This is tad too presumptive for it is the nature of the act to be performed, rather than of
the office,board, or body which performs it, that determines whether or not a particular
act is a discharge of judicial or quasijudicial functions. The first requirement for certiorari
is satisfied if the officers act judicially in making their decision, whatever may be their
public character. 6
It is not essential that the challenged proceedings should be strictly and technically
judicial, in the sense in which that word is used when applied to courts of justice, but it
issufficient if they are quasi-judicial.  To contrast, a party is said to be exercising ajudicial
7

function where he has the power to determine what the law is and what legal rights of the
parties are, and then undertakes to determine these questions and adjudicate upon the
rights of the parties, whereas quasi-judicial functionis "a term which applies to the
actions, discretion, etc., of public administrative officers or bodies x x x required to
investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions
from themas a basis for their official action and to exercise discretion of a judicial
nature."8

In the case at bench, the assailed EO 10 was issued upon the respondent mayor’s
finding that Boracay West Cove’s construction, expansion, and operation of its hotel
inMalay, Aklan is illegal. Such a finding of illegality required the respondent mayor’s
exercise of quasijudicial functions, against which the special writ of certiorari may lie.
Apropos hereto is Our ruling in City Engineer of Baguio v. Baniqued: 9

There is no gainsaying that a city mayor is an executive official nor is the matter of
issuing demolition notices or orders not a ministerial one. In determining whether or not a
structure is illegal or it should be demolished, property rights are involved thereby
needing notices and opportunity to be heard as provided for in the constitutionally
guaranteed right of due process. In pursuit of these functions, the city mayor has to
exercise quasi-judicial powers.

With the foregoing discussion, the CA erred in ruling that the respondent mayor was
merely exercising his executive functions, for clearly, the first requisite for the special writ
has been satisfied.

Aside from the first requisite, We likewise hold that the third element, i.e., the
unavailability of a plain, speedy,or adequate remedy, is also present herein. While it may
be argued that, under the LGC, Executive Orders issued by mayors are subject to review
by provincial governors,  this cannot be considered as an adequate remedy given the
10

exigencies of petitioner’s predicament. In a litany of cases, We have held that it is

inadequacy, not the mere absence of all other legal remedies and the danger of failure of
justice without the writ, that must usually determine the propriety of certiorari. A remedy is
plain, speedy and adequate ifit will promptly relieve the petitioner from the injurious
effects of the judgment, order, or resolution of the lower court or agency. It is understood,
then, that a litigant need not mark time by resorting to the less speedy remedy of appeal
in order to have an order annulled and set aside for being patently void for failureof the
trial court to comply with the Rules of Court. 11

Before applying this doctrine, it must first be borne in mind that respondents in this case
have already taken measures towards implementing EO 10. In fact, substantial segments
of the hotel have already been demolished pursuant to the mayor’s directive. It is then
understandable why petitioner prayed for the issuance ofan injunctive writ––a provisional
remedy that would otherwise have been unavailable had he sought a reversal from the
office of the provincial governor of Aklan. Evidently, petitioner correctly saw the urgent
need for judicial intervention via certiorari.

In light of the foregoing, the CA should have proceeded to grab the bull by its horns and
determine the existence of the second element of certiorari––whether or not there was
grave abuse of discretion on the part of respondents.

Upon Our finding that a petition for certiorari under Rule 65 is the appropriate remedy,
We will proceed to resolve the core issues in view of the urgency of the reliefs prayed for
in the petition. Respondents did not commit grave abuse of discretion

a. The hotel’s classification as a nuisance

Article 694 of the Civil Code defines "nuisance" as any act, omission, establishment,
business, condition or property, or anything else that (1) injures or endangers the health
or safety of others; (2) annoys or offends the senses; (3) shocks, defies or disregards
decency or morality; (4) obstructs or interferes with the free passage of any public
highway or street, or any body of water; or (5) hinders or impairs the use of property. 12

In establishing a no build zone through local legislation, the LGU effectively made a
determination that constructions therein, without first securing exemptions from the local
council, qualify as nuisances for they pose a threat to public safety. No buildzones are
intended for the protection of the public because the stability ofthe ground’s foundation is
adversely affected by the nearby body of water. The ever present threat of high rising
storm surges also justifies the ban on permanent constructions near the shoreline.
Indeed, the area’s exposure to potential geo-hazards cannot be ignored and ample
protection to the residents of Malay, Aklan should be afforded.

Challenging the validity of the public respondents’ actuations, petitioner posits that the
hotel cannot summarily be abated because it is not a nuisance per se, given the hundred
million peso-worth of capital infused in the venture. Citing Asilo, Jr. v. People,  petitioner
13

also argues that respondents should have first secured a court order before proceeding
with the demolition. Preliminarily, We agree with petitioner’s posture that the property
involved cannot be classified as a nuisance per se, but not for the reason he so offers.
Property valuation, after all, is not the litmus test for such a determination. More
controlling is the property’s nature and conditions, which should be evaluated to see if it
qualifies as a nuisance as defined under the law.

As jurisprudence elucidates, nuisances are of two kinds: nuisanceper se and

nuisanceper accidens. The first is recognized as a nuisance under any and all
circumstances, because it constitutes a direct menace to public health or safety, and, for
that reason, may be abated summarily under the undefined law of necessity. The second
is thatwhich depends upon certain conditions and circumstances, and its existence being
a question of fact, it cannot be abated without due hearing thereon in a tribunal
authorized to decide whether such a thing does in law constitute a nuisance. 14

In the case at bar, the hotel, in itself, cannot be considered as a nuisance per sesince
this type of nuisance is generally defined as an act, occupation, or structure, which is a
nuisance at all timesand under any circumstances, regardless of locationor
surrounding.  Here, it is merely the hotel’s particular incident––its location––and not its
15

inherent qualities that rendered it a nuisance. Otherwise stated, had it not been
constructed in the no build zone, Boracay West Cove could have secured the necessary
permits without issue. As such, petitioner is correct that the hotel is not a nuisance per
se, but to Our mind, it is still a nuisance per accidens.

b. Respondent mayor has the power to order the demolition of

illegal constructions

Generally, LGUs have no power to declare a particular thing as a nuisance unless such a
thing is a nuisance per se.  So it was held in AC Enterprises v. Frabelle Properties Corp:
16 17

We agree with petitioner’s contention that, under Section 447(a)(3)(i) of R.A. No. 7160,
otherwise known as the Local Government Code, the Sangguniang Panglungsod is
empowered to enact ordinances declaring, preventing or abating noise and other forms
of nuisance. It bears stressing, however, that the Sangguniang Bayan cannot declare a
particular thing as a nuisance per se and order its condemnation. It does not have the
power to find, as a fact, that a particular thing is a nuisance when such thing is not a
nuisance per se; nor can it authorize the extrajudicial condemnation and destruction of
that as a nuisance which in its nature, situation or use is not such. Those things must be
determined and resolved in the ordinary courts of law.If a thing, be in fact, a nuisance
due to the manner of its operation, that question cannot be determined by a mere
resolution of the Sangguniang Bayan. (emphasis supplied)

Despite the hotel’s classification as a nuisance per accidens, however, We still find in this
case that the LGU may nevertheless properly order the hotel’s demolition. This is
because, in the exercise of police power and the general welfare clause,  property rights
18

of individuals may be subjected to restraints and burdens in order to fulfil the objectives
of the government.

Otherwise stated, the government may enact legislation that may interfere with personal
liberty, property, lawfulbusinesses and occupations to promote the general welfare. 19

One such piece of legislation is the LGC, which authorizes city and municipal
governments, acting through their local chief executives, to issue demolition orders.
Under existing laws, the office of the mayor is given powers not only relative to its
function asthe executive official of the town; it has also been endowed with authorityto
hear issues involving property rights of individuals and to come out with an effective order
or resolution thereon.  Pertinent herein is Sec. 444 (b)(3)(vi) of the LGC, which
20

empowered the mayor to order the closure and removal of illegally constructed
establishments for failing tosecure the necessary permits, to wit:

Section 444.The Chief Executive: Powers, Duties, Functions and Compensation. –

xxxx

(b) For efficient, effective and economical governance the purpose of which is the
general welfare of the municipality and its inhabitants pursuant to Section 16 of this
Code, the municipal mayor shall:

xxxx

(3) Initiate and maximize the generation of resources and revenues, and apply the same
to the implementation of development plans, program objectives and priorities as
provided for under Section 18 of this Code, particularly those resources and revenues
programmed for agro-industrial development and country-wide growth and progress, and
relative thereto, shall:

xxxx

(vi) Require owners of illegally constructed houses, buildings or other structures to obtain
the necessary permit, subject to such fines and penalties as may be imposed by law or
ordinance, or to make necessary changes in the construction of the same when said
construction violates any law or ordinance, or to order the demolition or removal of said
house, building or structure within the period prescribed by law or ordinance. (emphasis
supplied)

c. Requirements for the exercise of the power are present

i. Illegality of structures

In the case at bar, petitioner admittedly failed to secure the necessary permits,
clearances, and exemptions before the construction, expansion, and operation of
Boracay Wet Cove’s hotel in Malay, Aklan. To recall, petitioner declared that the
application for zoning compliance was still pending with the office of the mayor even
though construction and operation were already ongoing at the same time. As such, it
could no longer be denied that petitioner openly violated Municipal Ordinance 2000-131,
which provides:

SECTION 9. – Permits and Clearances.

(a) No building or structure shall beallowed to start construction unless a Building Permit
therefore has been duly issued by the Office of the Municipal Engineer.Once issued, the
building owner or any person in charge of the construction shall display on the lot or on
the building undergoing construction a placard containing the Building Permit Number
and the date of its issue. The office of the Municipal Engineer shall not issue any building
permit unless:

1. The proposed construction has been duly issued a Zoning Clearance by the Office of
the Municipal Zoning Officer;

2. The proposed construction has been duly endorsed by the Sangguniang Bayan
through a Letter of Endorsement.

(b) Only buildings/structures which has complied with all the requirements for its
construction asverified to by the Building Inspector and the Sangguniang Bayan shall be
issued a Certificate of Occupancy by the Office of the Municipal Engineer.

(c) No Business or Mayor’s Permit shall be issued to businesses being undertaken on

buildings or structures which were not issued a certificate of Occupancy beginning
January 2001 and thereafter.

xxxx

SECTION 10. – Penalties.

xxxx

(e) Any building, structure, or contraption erected in any public place within the
Municipality of Malay such as but not limited to streets, thoroughfares, sidewalks, plazas,
beachesor in any other public place are hereby declared as nuisance and illegal
structure.Such building structure or contraption shall be demolished by the owner thereof
or any of his authorized representative within ten (10) days from receipt of the notice to
demolish. Failure or refusal on the part of the owner or any of his authorized
representative to demolish the illegal structure within the period here inabove specified
shall automatically authorize the government of the Municipality of Malay to demolish the
same, gather and keep the construction materials of the demolished structure. (emphasis
supplied)

Petitioner cannot justify his position by passing the blame onto the respondent mayor and
the latter’s failure to act on his appeal for this does not, in any way, imply that petitioner
can proceed with his infrastructure projects. On the contrary,this only means that the
decision of the zoning administrator denying theapplication still stands and that petitioner
acquired no right to construct on the no build zone. The illegality of the construction
cannot be cured by merely tendering payment for the necessary fees and permits since
the LGU’s refusal rests on valid grounds.

Instead of taking the law into his own hands, petitioner could have filed, as an alternative,
a petition for mandamus to compel the respondent mayor to exercise discretion and
resolve the controversy pending before his office. There is indeed an exception to the
rule that matters involving judgment and discretion are beyond the reach of a writ of
mandamus, for such writ may be issued to compel action in those matters, when refused.
Whether or not the decision would be for or against petitioner would be for the
respondent mayor to decide, for while mandamus may be invoked to compel the exercise
of discretion, it cannot compel such discretion to be exercised in a particular way.  What
21

would have been important was for the respondent mayor to immediately resolve the
case for petitioner to be able to go through the motions that the zoning clearance
application process entailed.

Alas, petitioner opted to defy the zoning administrator’s ruling. He consciously chose to
violate not only the Ordinance but also Sec. 301 of PD 1096, laying down the
requirement of building permits, which provides:

Section 301. Building Permits. No person, firm or corporation, including any agency or
instrumentality of the government shall erect, construct, alter, repair, move, convert or
demolish any building or structure or cause the same to be done without first obtaining a
building permit therefor from the Building Official assigned in the place where the subject
building is located or the building work is to be done.

This twin violation of law and ordinance warranted the LGU’s invocation of Sec. 444 (b)
(3)(vi) of the LGC, which power is separate and distinct from the power to summarily
abate nuisances per se. Under the law, insofar as illegal constructions are concerned,
the mayor can, after satisfying the requirement of due notice and hearing, order their
closure and demolition.

ii. Observance of procedural due process rights

In the case at bench, the due process requirement is deemed to have been sufficiently
complied with. First, basic is the rule that public officers enjoy the presumption of
regularity in the performance of their duties.  The burden is on the petitioner herein to
22

prove that Boracay West Cove was deprived of the opportunity to beheard before EO 10
was issued. Regrettably, copies of the Cease and Desist Order issued by the LGU and of
the assailed EO 10 itself were never attached to the petition before this Court, which
documents could have readily shed light on whether or not petitioner has been accorded
the 10-day grace period provided in Section 10 of the Ordinance. In view of this fact, the
presumption of regularity must be sustained. Second, as quoted by petitioner in his
petition before the CA, the assailed EO 10 states that petitioner received notices from the
municipality government on March 7 and 28, 2011, requiring Boracay West Cove to
comply with the zoning ordinance and yet it failed to do so.  If such was the case, the
23

grace period can be deemed observed and the establishment was already ripe for
closure and demolition by the time EO 10 was issued in June. Third, the observance of
the 10-day allowance for the owner to demolish the hotel was never questioned by
petitioner so there is no need to discuss the same. Verily, the only grounds invoked by
petitioner in crying due process violation are (1) the absence of a court order prior to
demolition and (2) the municipal government’s exercise of jurisdiction over the
controversy instead of the DENR. Therefore, it can no longer be belatedly argued that the
10-day grace period was not observed because to entertain the same would result in the
violation of the respondents’ own due process rights. Given the presence of the
requirements under Sec. 444 (b)(3)(vi) of the LGC, whether the building constituted a
nuisance per seor a nuisance per accidensbecomes immaterial. The hotelwas
demolished not exactly because it is a nuisance but because it failed to comply with the
legal requirements prior to construction. It justso happened that, in the case at bar, the
hotel’s incident that qualified it as a nuisance per accidens––its being constructed within
the no build zone––further resulted in the non-issuance of the necessary permits and
clearances, which is a ground for demolition under the LGC. Under the premises, a court
order that is required under normal circumstances is hereby dispensed with.

d. The FLAgT cannot prevail over the municipal ordinance and PD 1096

Petitioner next directs our attention to the following FLAgT provision:

VII. The SECOND PARTY may construct permanent and/or temporary improvements or
infrastructure in the FLAgT Area necessary and appropriate for its development for
tourism purposes pursuant to the approved SMP. "Permanent Improvements" refer to
access roads, and buildings or structures which adhere to the ground in a fixed and
permanent manner. On the other hand, "Temporary Improvements" include those which
are detachablefrom the foundation or the ground introduced by the SECOND PARTY
inthe FLAgT Area and which the SECOND PARTY may remove or dismantle upon
expiration or cancellation of this AGREEMENT x x x. 24

Taken in conjunction with the exceptions laid down in Sections 6 and 8 of the Ordinance,
petitioner argues that Boracay West Cove is exempted from securing permits from the
LGU. Said exceptions read:

SECTION 6. – No building or structure shall be allowed to be constructed on a slope

Twenty Five Percent (25%) or higher unless provided with soil erosion protective
structures and authorized by the Department of Environment and Natural Resources.

xxxx
SECTION 8. – No building or structure shall be allowed to be constructed on a swamp or
other water-clogged areas unless authorized by the Department of Environment and
Natural Resources.

According to petitioner, the fact that it was issued a FLAgT constitutes sufficient
authorization from the DENR to proceed with the construction of the three-storey hotel.

The argument does not persuade.

The rights granted to petitioner under the FLAgT are not unbridled. Forestlands, although
under the management of the DENR, are not exempt from the territorial application of
municipal laws, for local government units legitimately exercise their powers of
government over their defined territorial jurisdiction.

Furthermore, the conditions set forth in the FLAgT and the limitations circumscribed in
the ordinance are not mutually exclusive and are, in fact, cumulative. As sourced from
Sec. 447 (a)(5)(i) of the LGC:

Section 447.Powers, Duties, Functions and Compensation. –

(a) The sangguniang bayan, as the legislative body of the municipality, shall enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
municipalityand its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the municipality as provided for under Section 22 of
this Code, and shall:

xxxx

(5) Approve ordinances which shall ensure the efficient and effective delivery of the basic
services and facilities as provided for under Section 17 of this Code, and in addition to
said services and facilities, shall:

(i) Provide for the establishment, maintenance, protection, and conservation of communal
forests and watersheds, tree parks,greenbelts, mangroves, and other similar forest
development projectsx x x. (emphasis added)

Thus, aside from complying with the provisions in the FLAgT granted by the DENR, it
was incumbent on petitioner to likewise comply with the no build zone restriction under
Municipal Ordinance 2000-131, which was already in force even before the FLAgT was
entered into. On this point, it is well to stress that Sections 6 and 8 of the Ordinance do
not exempt petitioner from complying with the restrictions since these provisions adverted
to grant exemptions from the ban on constructions on slopes and swamps, not on the no
build zone.
Additionally, the FLAgT does not excuse petitioner from complying with PD 1096. As
correctly pointed out by respondents, the agreement cannot and will not amend or
change the law because a legislative act cannot be altered by mere contractual
agreement. Hence, petitioner has no valid reason for its failure to secure a building
permit pursuant to Sec. 301 of the National Building Code.

e. The DENR does not have primary jurisdiction over the controversy

Lastly, in ascribing grave abuse ofdiscretion on the part of the respondent mayor,
petitioner argued that the hotel site is a forestland under the primary jurisdiction of the
DENR. Assuch, the merits of the case should have been passed upon by the agency and
not by the LGU. In the alternative, petitioner explains that even if jurisdiction over the
matter has been devolved in favor of the LGU, the DENR still has the power of review
and supervision over the former’s rulings. As cited by the petitioner, the LGC reads:

Section 17.Basic Services and Facilities. –

xxxx

(b) Such basic services and facilities include, but are not limited to, the following:

xxxx

(2) For a Municipality:

xxxx

(ii) Pursuant to national policies and subject to supervision, control and review of the
DENR, implementation of community-based forestry projects which include integrated
social forestry programs and similar projects; management and control of communal
forests with an area not exceeding fifty (50) square kilometers; establishment of tree
parks, greenbelts, and similar forest development projects. (emphasis added)

Petitioner has made much of the fact that in line with this provision, the DENR Region 6
had issued anopinion favourable to petitioner.  To petitioner, the adverted opinion
25

effectively reversed the findings of the respondent mayor that the structure introduced
was illegally constructed.

We disagree.

In alleging that the case concernsthe development and the proper use of the country’s
environment and natural resources, petitioner is skirting the principal issue, which is
Boracay West Cove's non-compliance with the permit, clearance, and zoning
requirements for building constructions under national and municipal laws. He downplays
Boracay West Cove's omission in a bid to justify ousting the LGU of jurisdiction over the
case and transferring the same to the DENR. He attempts to blow the issue out of
proportion when it all boils down to whether or not the construction of the three-storey
hotel was supported by the necessary documentary requirements.

Based on law and jurisprudence, the office of the mayor has quasijudicial powers to order
the closing and demolition of establishments.  This power granted by the LGC, as earlier
1âwphi1

explained, We believe, is not the same power devolved in favor of the LGU under Sec.
17 (b )(2)(ii), as abovequoted, which is subject to review by the DENR. The fact that the
building to be demolished is located within a forestland under the administration of the
DENR is of no moment, for what is involved herein, strictly speaking, is not an issue on
environmental protection, conservation of natural resources, and the maintenance of
ecological balance, but the legality or illegality of the structure.  Rather than treating this
1âwphi1

as an environmental issue then, focus should not be diverted from the root cause of this
debacle-compliance.

Ultimately, the purported power of review by a regional office of the DENR over
respondents' actions exercised through an instrumentality of an ex-parte opinion, in this
case, finds no sufficient basis. At best, the legal opinion rendered, though perhaps
informative, is not conclusive on the courts and should be taken with a grain of salt.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED for lack of merit.
The Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 120042
dated August 13, 2013 and February 3, 2014, respectively, are hereby AFFIRMED.

SO ORDERED.

5. JOSE J. FERRER, JR., PETITIONER, VS. CITY MAYOR HERBERT

BAUTISTA, CITY COUNCIL OF QUEZON CITY, CITY TREASURER OF
QUEZON CITY, AND CITY ASSESSOR OF QUEZON CITY, RESPONDENTS.

DECISION

PERALTA, J.: 
Before this Court is a petition for certiorari under Rule 65 of the Rules of
Court with prayer for the issuance of a temporary restraining order (TRO)
seeking to declare unconstitutional and illegal Ordinance Nos. SP-2095, S-
2011 and SP-2235, S-2013 on the Socialized Housing Tax and Garbage Fee,
respectively, which are being imposed by the respondents.
The Case

On October 17, 2011,[1] respondent Quezon City Council enacted Ordinance

No. SP-2095, S-2011,[2] or the Socialized Housing Tax of Quezon City,
Section 3 of which provides:
 SECTION 3. IMPOSITION. A special assessment equivalent to
one-half percent (0.5%) on the assessed value of land in
excess of One Hundred Thousand Pesos (Php100,000.00)
shall be collected by the City Treasurer which shall
accrue to the Socialized Housing Programs of the Quezon
City Government. The special assessment shall accrue to
the General Fund under a special account to be
established for the purpose.
Effective for five (5) years, the Socialized Housing Tax (SHT) shall be utilized
by the Quezon City Government for the following projects: (a) land
purchase/land banking; (b) improvement of current/existing socialized
housing facilities; (c) land development; (d) construction of core houses,
sanitary cores, medium-rise buildings and other similar structures; and (e)
financing of public-private partnership agreement of the Quezon City
Government and National Housing Authority (NHA) with the private sector.
[3]
 Under certain conditions, a tax credit shall be enjoyed by taxpayers
regularly paying the special assessment:
SECTION 7. TAX CREDIT. Taxpayers dutifully paying the
special assessment tax as imposed by this ordinance shall
enjoy a tax credit. The tax credit may be availed of only
after five (5) years of continue[d] payment. Further, the
taxpayer availing this tax credit must be a taxpayer in
good standing as certified by the City Treasurer and City
Assessor.

The tax credit to be granted shall be equivalent to the

total amount of the special assessment paid by the
property owner, which shall be given as follows:
1.  6th year  -   20%

2.  7th year  -   20%

3.  8th year  -   20%

4.  9th year  -   20%

5.  10th year  -   20%

Furthermore, only the registered owners may avail of the
tax credit and may not be continued by the subsequent
property owners even if they are buyers in good faith,
heirs or possessor of a right in whatever legal capacity
over the subject property.[4]
On the other hand, Ordinance No. SP-2235, S-2013[5] was enacted on
December 16, 2013 and took effect ten days after when it was approved by
respondent City Mayor.[6] The proceeds collected from the garbage fees on
residential properties shall be deposited solely and exclusively in an
earmarked special account under the general fund to be utilized for garbage
collections.[7] Section 1 of the Ordinance set forth the schedule and manner
for the collection of garbage fees:
SECTION 1. The City Government of Quezon City in
conformity with and in relation to Republic Act No. 7160,
otherwise known as the Local Government Code of 1991
HEREBY IMPOSES THE FOLLOWING SCHEDULE AND MANNER FOR THE
ANNUAL COLLECTION OF GARBAGE FEES, AS FOLLOWS:

On all domestic households in Quezon City;

LAND AREA IMPOSABLE FEE
Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
1,501 sq. m. – 2,000 sq. m. or
PHP 500.00
more
On all condominium unit and socialized housing
projects/units in Quezon City;
FLOOR AREA IMPOSABLE FEE
Less than 40 sq. m. PHP25.00
41 sq. m. – 60 sq. m. PHP50.00
61 sq. m. – 100 sq. m. PHP75.00
101 sq. m. – 150 sq. m. PHP100.00
151 sq. m. – 200 sq. [m.] or more PHP200.00
On high-rise Condominium Units
High-rise Condominium – The Homeowners Association of high- rise
condominiums shall pay the annual garbage fee on the total size
a) of the entire condominium and socialized Housing Unit and an
additional garbage fee shall be collected based on area occupied
for every unit already sold or being amortized.

High-rise apartment units – Owners of high-rise apartment units

shall pay the annual garbage fee on the total lot size of the
b)
entire apartment and an additional garbage fee based on the
schedule prescribed herein for every unit occupied.
The collection of the garbage fee shall accrue on the first day of January and
shall be paid simultaneously with the payment of the real property tax, but
not later than the first quarter installment. [8] In case a household owner
refuses to pay, a penalty of 25% of the garbage fee due, plus an interest of
2% per month or a fraction thereof, shall be charged. [9]

Petitioner alleges that he is a registered co-owner of a 371-square-meter

residential property in Quezon City which is covered by Transfer Certificate of
Title (TCT) No. 216288, and that, on January 7, 2014, he paid his realty tax
which already included the garbage fee in the sum of Php100.00. [10]

The instant petition was filed on January 17, 2014. We issued a TRO on
February 5, 2014, which enjoined the enforcement of Ordinance Nos. SP-
2095 and SP-2235 and required respondents to comment on the petition
without necessarily giving due course thereto. [11]

Respondents filed their Comment[12] with urgent motion to dissolve the TRO

on February 17, 2014. Thereafter, petitioner filed a Reply and a Memorandum
on March 3, 2014 and September 8, 2014, respectively.
Procedural Matters

A.  Propriety of a Petition for Certiorari

Respondents are of the view that this petition for certiorari is improper since
they are not tribunals, boards or officers exercising judicial or quasi-judicial
functions. Petitioner, however, counters that in enacting Ordinance Nos. SP-
2095 and SP-2235, the Quezon City Council exercised quasi-judicial function
because the ordinances ruled against the property owners who must pay the
SHT and the garbage fee, exacting from them funds for basic essential public
services that they should not be held liable. Even if a Rule 65 petition is
improper, petitioner still asserts that this Court, in a number of cases like
in Rosario v. Court of Appeals,[13] has taken cognizance of an improper
remedy in the interest of justice.

We agree that respondents neither acted in any judicial or quasi-judicial

capacity nor arrogated unto themselves any judicial or quasi-judicial
prerogatives.
A respondent is said to be exercising judicial
function where he has the power to determine what the
law is and what the legal rights of the parties are, and
then undertakes to determine these questions and
adjudicate upon the rights of the parties.

Quasi-judicial function, on the other hand, is “a term

which applies to the actions, discretion, etc., of
public administrative officers or bodies required to
investigate facts or ascertain the existence of facts,
hold hearings, and draw conclusions from them as a basis
 for their official action and to exercise discretion of a
judicial nature.”

Before a tribunal, board, or officer may exercise

judicial or quasi-judicial acts, it is necessary that
there be a law that gives rise to some specific rights of
persons or property under which adverse claims to such
rights are made, and the controversy ensuing therefrom is
brought before a tribunal, board, or officer clothed with
power and authority to determine the law and adjudicate
the respective rights of the contending parties.[14]
For a writ of certiorari to issue, the following requisites must concur: (1) it
must be directed against a tribunal, board, or officer exercising judicial or
quasi-judicial functions; (2) the tribunal, board, or officer must have acted
without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction; and (3) there is no appeal or any
plain, speedy, and adequate remedy in the ordinary course of law. The
enactment by the Quezon City Council of the assailed ordinances was done in
the exercise of its legislative, not judicial or quasi-judicial, function. Under
Republic Act (R.A.) No. 7160, or the Local Government Code of 1991 (LGC),
local legislative power shall be exercised by the Sangguniang Panlungsod for
the city.[15] Said law likewise is specific in providing that the power to impose
a tax, fee, or charge, or to generate revenue shall be exercised by
the sanggunian of the local government unit concerned through an
appropriate ordinance.[16]

Also, although the instant petition is styled as a petition for certiorari, it

essentially seeks to declare the unconstitutionality and illegality of the
questioned ordinances. It, thus, partakes of the nature of a petition for
declaratory relief over which this Court has only appellate, not original,
jurisdiction.[17]

Despite these, a petition for declaratory relief may be treated as one for
prohibition or mandamus, over which We exercise original jurisdiction, in
cases with far-reaching implications or one which raises transcendental issues
or questions that need to be resolved for the public good. [18] The judicial
policy is that this Court will entertain direct resort to it when the redress
sought cannot be obtained in the proper courts or when exceptional and
compelling circumstances warrant availment of a remedy within and calling
for the exercise of Our primary jurisdiction. [19]

Section 2, Rule 65 of the Rules of Court lay down under what circumstances a
petition for prohibition may be filed:
 SEC. 2. Petition for prohibition. - When the proceedings
of any tribunal, corporation, board, officer or person,
whether exercising judicial, quasi-judicial or
ministerial functions, are without or in excess of its or
his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is
no appeal or any other plain, speedy, and adequate remedy
in the ordinary course of law, a person aggrieved thereby
may file a verified petition in the proper court,
alleging the facts with certainty and praying that
judgment be rendered commanding the respondent to desist
from further proceeding in the action or matter specified
therein, or otherwise granting such incidental reliefs as
law and justice may require.
In a petition for prohibition against any tribunal, corporation, board, or person
– whether exercising judicial, quasi-judicial, or ministerial functions – who has
acted without or in excess of jurisdiction or with grave abuse of discretion,
the petitioner prays that judgment be rendered, commanding the
respondents to desist from further proceeding in the action or matter
specified in the petition. In this case, petitioner's primary intention is to
prevent respondents from implementing Ordinance Nos. SP-2095 and SP-
2235. Obviously, the writ being sought is in the nature of a prohibition,
commanding desistance.

We consider that respondents City Mayor, City Treasurer, and City Assessor
are performing ministerial functions. A ministerial function is one that an
officer or tribunal performs in the context of a given set of facts, in a
prescribed manner and without regard for the exercise of his or its own
judgment, upon the propriety or impropriety of the act done. [20]Respondent
Mayor, as chief executive of the city government, exercises such powers and
performs such duties and functions as provided for by the LGC and other
laws.[21] Particularly, he has the duty to ensure that all taxes and other
revenues of the city are collected, and that city funds are applied to the
payment of expenses and settlement of obligations of the city, in accordance
with law or ordinance.[22] On the other hand, under the LGC, all local taxes,
fees, and charges shall be collected by the provincial, city, municipal, or
barangay treasurer, or their duly-authorized deputies, while the assessor
shall take charge, among others, of ensuring that all laws and policies
governing the appraisal and assessment of real properties for taxation
purposes are properly executed.[23] Anent the SHT, the Department of Finance
(DOF) Local Finance Circular No. 1-97, dated April 16, 1997, is more specific:
6.3 The Assessor’s office of the Id.ntified LGU shall:
 1. immediately undertake an inventory of lands
within its jurisdiction which shall be subject to
the levy of the Social Housing Tax (SHT) by the
local sanggunian concerned;
2. inform the affected registered owners of the
effectivity of the SHT; a list of the lands and
registered owners shall also be posted in 3
conspicuous places in the city/municipality;
3. furnish the Treasurer’s office and the local
sanggunian concerned of the list of lands affected;

6.4 The Treasurer’s office shall:

1. collect the Social Housing Tax on top of the Real

Property Tax, SEF Tax and other special
assessments;
2. report to the DOF, thru the Bureau of Local
Government Finance, and the Mayor’s office the
monthly collections on Social Housing Tax (SHT). An
annual report should likewise be submitted to the
HUDCC on the total revenues raised during the year
pursuant to Sec. 43, R.A. 7279 and the manner in
which the same was disbursed.

Petitioner has adduced special and important reasons as to why direct

recourse to Us should be allowed. Aside from presenting a novel question of
law, this case calls for immediate resolution since the challenged ordinances
adversely affect the property interests of all paying constituents of Quezon
City. As well, this petition serves as a test case for the guidance of other local
government units (LGUs). Indeed, the petition at bar is of transcendental
importance warranting a relaxation of the doctrine of hierarchy of courts.
In Social Justice Society (SJS) Officers, et al. v. Lim,[24] the Court cited the
case of Senator Jaworski v. Phil. Amusement & Gaming Corp.,[25] where We
ratiocinated:
Granting arguendo that the present action cannot be
properly treated as a petition for prohibition, the
transcendental importance of the issues involved in this
case warrants that we set aside the technical defects and
take primary jurisdiction over the petition at bar. x x
x This is in accordance with the well-entrenched
principle that rules of procedure are not inflexible
tools designed to hinder or delay, but to facilitate and
promote the administration of justice. Their strict and
rigid application, which would result in technicalities
 that tend to frustrate, rather than promote substantial
justice, must always be eschewed.[26]
B.  Locus Standi of Petitioner

Respondents challenge petitioner’s legal standing to file this case on the

ground that, in relation to Section 3 of Ordinance No. SP-2095, petitioner
failed to allege his ownership of a property that has an assessed value of
more than Php100,000.00 and, with respect to Ordinance No. SP-2335, by
what standing or personality he filed the case to nullify the same. According
to respondents, the petition is not a class suit, and that, for not having
specifically alleged that petitioner filed the case as a taxpayer, it could only
be surmised whether he is a party-in-interest who stands to be directly
benefited or injured by the judgment in this case.
It is a general rule that every action must be prosecuted
or defended in the name of the real party-in-interest,
who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the
suit.

Jurisprudence defines interest as "material interest, an

interest in issue and to be affected by the decree, as
distinguished from mere interest in the question
involved, or a mere incidental interest. By real interest
is meant a present substantial interest, as distinguished
from a mere expectancy or a future, contingent,
subordinate, or consequential interest." "To qualify a
person to be a real party-in-interest in whose name an
action must be prosecuted, he must appear to be the
present real owner of the right sought to be
enforced."[27]
“Legal standing” or locus standi calls for more than just a generalized
grievance.[28] The concept has been defined as a personal and substantial
interest in the case such that the party has sustained or will sustain direct
injury as a result of the governmental act that is being challenged. [29] The gist
of the question of standing is whether a party alleges such personal stake in
the outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.[30]

A party challenging the constitutionality of a law, act, or statute must show

“not only that the law is invalid, but also that he has sustained or is in
immediate, or imminent danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some indefinite
way.” It must be shown that he has been, or is about to be, denied some
right or privilege to which he is lawfully entitled, or that he is about to be
subjected to some burdens or penalties by reason of the statute complained
of.[31]

Tested by the foregoing, petitioner in this case clearly has legal standing to
file the petition. He is a real party-in-interest to assail the constitutionality
and legality of Ordinance Nos. SP-2095 and SP-2235 because respondents did
not dispute that he is a registered co-owner of a residential property in
Quezon City and that he paid property tax which already included the SHT
and the garbage fee. He has substantial right to seek a refund of the
payments he made and to stop future imposition. While he is a lone
petitioner, his cause of action to declare the validity of the subject ordinances
is substantial and of paramount interest to similarly situated property owners
in Quezon City.

C.  Litis Pendentia

Respondents move for the dismissal of this petition on the ground of litis
pendentia. They claim that, as early as February 22, 2012, a case
entitled Alliance of Quezon City Homeowners, Inc., et al., v. Hon. Herbert
Bautista, et al., docketed as Civil Case No. Q-12-7-820, has been pending in
the Quezon City Regional Trial Court, Branch 104, which assails the legality of
Ordinance No. SP-2095. Relying on City of Makati, et al. v. Municipality (now
City) of Taguig, et al.,[32]respondents assert that there is substantial identity
of parties between the two cases because petitioner herein and plaintiffs in
the civil case filed their respective cases as taxpayers of Quezon City.

For petitioner, however, respondents’ contention is untenable since he is not

a party in Alliance and does not even have the remotest identity or
association with the plaintiffs in said civil case. Moreover, respondents’
arguments would deprive this Court of its jurisdiction to determine the
constitutionality of laws under Section 5, Article VIII of the 1987 Constitution.
[33]

Litis pendentia is a Latin term which literally means “a pending suit” and is
variously referred to in some decisions as lis pendens and auter action
pendant.[34] While it is normally connected with the control which the court
has on a property involved in a suit during the continuance proceedings, it is
more interposed as a ground for the dismissal of a civil action pending in
court.[35] In Film Development Council of the Philippines v. SM Prime Holdings,
Inc.,[36] We elucidated:
Litis pendentia, as a ground for the dismissal of a civil
action, refers to a situation where two actions are
pending between the same parties for the same cause of
action, so that one of them becomes unnecessary and
vexatious. It is based on the policy against multiplicity
of suit and authorizes a court to dismiss a case motu
proprio.

x x x x

The requisites in order that an action may be dismissed

on the ground of litis pendentia are: (a) the identity
of parties, or at least such as representing the same
interest in both actions; (b) the identity of rights
asserted and relief prayed for, the relief being founded
on the same facts, and (c) the identity of the two cases
such that judgment in one, regardless of which party is
successful, would amount to res judicata in the other.

x x x x

The underlying principle of litis pendentia is the

theory that a party is not allowed to vex another more
than once regarding the same subject matter and for the
same cause of action. This theory is founded on the
public policy that the same subject matter should not be
the subject of controversy in courts more than once, in
order that possible conflicting judgments may be avoided
for the sake of the stability of the rights and status of
persons, and also to avoid the costs and expenses
incident to numerous suits.

Among the several tests resorted to in ascertaining

whether two suits relate to a single or common cause of
action are: (1) whether the same evidence would support
and sustain both the first and second causes of action;
and (2) whether the defenses in one case may be used to
substantiate the complaint in the other.

The determination of whether there is an identity of

causes of action for purposes of litis pendentia is
inextricably linked with that of res judicata, each
constituting an element of the other. In either case,
both relate to the sound practice of including, in a
single litigation, the disposition of all issues relating
to a cause of action that is before a court.[37]
There is substantial identity of the parties when there is a community of
interest between a party in the first case and a party in the second case albeit
the latter was not impleaded in the first case.[38] Moreover, the fact that the
positions of the parties are reversed, i.e., the plaintiffs in the first case are
the defendants in the second case or vice-versa, does not negate the identity
of parties for purposes of determining whether the case is dismissible on the
ground of litis pendentia.[39]

In this case, it is notable that respondents failed to attach any pleading

connected with the alleged civil case pending before the Quezon City trial
court. Granting that there is substantial identity of parties between said case
and this petition, dismissal on the ground of litis pendentia still cannot be had
in view of the absence of the second and third requisites. There is no way for
Us to determine whether both cases are based on the same set of facts that
require the presentation of the same evidence. Even if founded on the same
set of facts, the rights asserted and reliefs prayed for could be different.
Moreover, there is no basis to rule that the two cases are intimately related
and/or intertwined with one another such that the judgment that may be
rendered in one, regardless of which party would be successful, would
amount to res judicata in the other.

D. Failure to Exhaust Administrative Remedies

Respondents contend that petitioner failed to exhaust administrative

remedies for his non-compliance with Section 187 of the LGC, which
mandates:
Section 187. Procedure for Approval and Effectivity of
Tax Ordinances and Revenue Measures; Mandatory Public
Hearings. – The procedure for approval of local tax
ordinances and revenue measures shall be in accordance
with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the
enactment thereof: Provided, further, That any question
on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty
(30) days from the effectivity thereof to the Secretary
of Justice who shall render a decision within sixty (60)
days from the date of receipt of the appeal: Provided,
however, That such appeal shall not have the effect of
suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied
therein: Provided, finally, That within thirty (30) days
after receipt of the decision or the lapse of the sixty-
day period without the Secretary of Justice acting upon
 the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
The provision, the constitutionality of which was sustained in Drilon v. Lim,
[40]
 has been construed as mandatory[41]considering that –
A municipal tax ordinance empowers a local government
unit to impose taxes. The power to tax is the most
effective instrument to raise needed revenues to finance
and support the myriad activities of local government
units for the delivery of basic services essential to the
promotion of the general welfare and enhancement of
peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures
would be to the detriment of the public. It is for this
reason that protests over tax ordinances are required to
be done within certain time frames. x x x.[42]
The obligatory nature of Section 187 was underscored in Hagonoy Market
Vendor Asso. v. Municipality of Hagonoy:[43]
x x x [T]he timeframe fixed by law for parties to avail
of their legal remedies before competent courts is not a
“mere technicality” that can be easily brushed aside.
The periods stated in Section 187 of the Local Government
Code are mandatory. x x x Being its lifeblood, collection
of revenues by the government is of paramount importance.
The funds for the operation of its agencies and provision
of basic services to its inhabitants are largely derived
from its revenues and collections. Thus, it is essential
that the validity of revenue measures is not left
uncertain for a considerable length of time. Hence, the
law provided a time limit for an aggrieved party to
assail the legality of revenue measures and tax
ordinances.[44]
Despite these cases, the Court, in Ongsuco, et al. v. Hon. Malones,[45] held
that there was no need for petitioners therein to exhaust administrative
remedies before resorting to the courts, considering that there was only a
pure question of law, the parties did not dispute any factual matter on which
they had to present evidence. Likewise, in Cagayan Electric Power and Light
Co., Inc. v. City of Cagayan de Oro,[46] We relaxed the application of the rules
in view of the more substantive matters. For the same reasons, this petition
is an exception to the general rule.
Substantive Issues

Petitioner asserts that the protection of real properties from informal settlers
and the collection of garbage are basic and essential duties and functions of
the Quezon City Government. By imposing the SHT and the garbage fee, the
latter has shown a penchant and pattern to collect taxes to pay for public
services that could be covered by its revenues from taxes imposed on
property, idle land, business, transfer, amusement, etc., as well as the
Internal Revenue Allotment (IRA) from the National Government. For
petitioner, it is noteworthy that respondents did not raise the issue that the
Quezon City Government is in dire financial state and desperately needs
money to fund housing for informal settlers and to pay for garbage collection.
In fact, it has not denied that its revenue collection in 2012 is in the sum of
P13.69 billion.

Moreover, the imposition of the SHT and the garbage fee cannot be justified
by the Quezon City Government as an exercise of its power to create sources
of income under Section 5, Article X of the 1987 Constitution. [47] According to
petitioner, the constitutional provision is not a carte blanche for the LGU to
tax everything under its territorial and political jurisdiction as the provision
itself admits of guidelines and limitations.

Petitioner further claims that the annual property tax is an ad valorem tax, a
percentage of the assessed value of the property, which is subject to revision
every three (3) years in order to reflect an increase in the market value of the
property. The SHT and the garbage fee are actually increases in the property
tax which are not based on the assessed value of the property or its
reassessment every three years; hence, in violation of Sections 232 and 233
of the LGC.[48]

For their part, respondents relied on the presumption in favor of the

constitutionality of Ordinance Nos. SP-2095 and SP-2235, invoking Victorias
Milling Co., Inc. v. Municipality of Victorias, etc.,[49] People v. Siton, et al.,
[50]
 and Hon. Ermita v. Hon. Aldecoa-Delorino.[51] They argue that the burden
of establishing the invalidity of an ordinance rests heavily upon the party
challenging its constitutionality. They insist that the questioned ordinances
are proper exercises of police power similar to Telecom. & Broadcast Attys. of
the Phils., Inc. v. COMELEC[52] and Social Justice Society (SJS), et al. v. Hon.
Atienza, Jr.[53] and that their enactment finds basis in the social justice
principle enshrined in Section 9,[54] Article II of the 1987 Constitution.

As to the issue of publication, respondents argue that where the law provides
for its own effectivity, publication in the Official Gazette is not necessary so
long as it is not punitive in character, citing Balbuna, et al. v. Hon. Secretary
of Education, et al.[55] and Askay v. Cosalan.[56] Thus, Ordinance No. SP-2095
took effect after its publication, while Ordinance No. SP-2235 became
effective after its approval on December 26, 2013.

Additionally, the parties articulate the following positions:

On the Socialized Housing Tax

Respondents emphasize that the SHT is pursuant to the social justice principle
found in Sections 1 and 2, Article XIII [57]of the 1987 Constitution and Sections
2 (a)[58] and 43[59] of R.A. No. 7279, or the “Urban Development and Housing
Act of 1992 (UDHA).

Relying on Manila Race Horse Trainers Assn., Inc. v. De La Fuente,

[60]
 and Victorias Milling Co., Inc. v. Municipality of Victorias, etc.,
[61]
 respondents assert that Ordinance No. SP-2095 applies equally to all real
property owners without discrimination. There is no way that the ordinance
could violate the equal protection clause because real property owners and
informal settlers do not belong to the same class.

Ordinance No. SP-2095 is also not oppressive since the tax rate being
imposed is consistent with the UDHA. While the law authorizes LGUs to collect
SHT on properties with an assessed value of more than P50,000.00, the
questioned ordinance only covers properties with an assessed value
exceeding P100,000.00. As well, the ordinance provides for a tax credit
equivalent to the total amount of the special assessment paid by the property
owner beginning in the sixth (6th) year of the effectivity of the ordinance.

On the contrary, petitioner claims that the collection of the SHT is tantamount
to a penalty imposed on real property owners due to the failure of respondent
Quezon City Mayor and Council to perform their duty to secure and protect
real property owners from informal settlers, thereby burdening them with the
expenses to provide funds for housing. For petitioner, the SHT cannot be
viewed as a “charity” from real property owners since it is forced, not
voluntary.

Also, petitioner argues that the collection of the SHT is a kind of class
legislation that violates the right of property owners to equal protection of the
laws since it favors informal settlers who occupy property not their own and
pay no taxes over law-abiding real property owners who pay income and
realty taxes.

Petitioner further contends that respondents’ characterization of the SHT as

“nothing more than an advance payment on the real property tax” has no
statutory basis. Allegedly, property tax cannot be collected before it is due
because, under the LGC, chartered cities are authorized to impose property
tax based on the assessed value and the general revision of assessment that
is made every three (3) years.
As to the rationale of SHT stated in Ordinance No. SP-2095, which, in turn,
was based on Section 43 of the UDHA, petitioner asserts that there is no
specific provision in the 1987 Constitution stating that the ownership and
enjoyment of property bear a social function. And even if there is, it is
seriously doubtful and far-fetched that the principle means that property
owners should provide funds for the housing of informal settlers and for home
site development. Social justice and police power, petitioner believes, does
not mean imposing a tax on one, or that one has to give up something, for
the benefit of another. At best, the principle that property ownership and
enjoyment bear a social function is but a reiteration of the Civil Law principle
that property should not be enjoyed and abused to the injury of other
properties and the community, and that the use of the property may be
restricted by police power, the exercise of which is not involved in this case.

Finally, petitioner alleges that 6 Bistekvilles will be constructed out of the SHT

collected. Bistek is the monicker of respondent City Mayor.
The Bistekvilles makes it clear, therefore, that politicians will take the credit
for the tax imposed on real property owners.

On the Garbage Fee

Respondents claim that Ordinance No. S-2235, which is an exercise of police

power, collects on the average from every household a garbage fee in the
meager amount of thirty-three (33) centavos per day compared with the sum
of P1,659.83 that the Quezon City Government annually spends for every
household for garbage collection and waste management. [62]

In addition, there is no double taxation because the ordinance involves a fee.

Even assuming that the garbage fee is a tax, the same cannot be a direct
duplicate tax as it is imposed on a different subject matter and is of a
different kind or character. Based on Villanueva, et al. v. City of
Iloilo[63] and Victorias Milling Co., Inc. v. Municipality of Victorias, etc.,[64]there
is no “taxing twice” because the real property tax is imposed on ownership
based on its assessed value, while the garbage fee is required on the
domestic household. The only reference to the property is the determination
of the applicable rate and the facility of collection.

Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as

an exercise of police power. The cases of Calalang v. Williams,[65] Patalinghug
v. Court of Appeals,[66] and Social Justice Society (SJS), et al. v. Hon. Atienza,
Jr.,[67] which were cited by respondents, are inapplicable since the assailed
ordinance is a revenue measure and does not regulate the disposal or other
aspect of garbage.
The subject ordinance, for petitioner, is discriminatory as it collects garbage
fee only from domestic households and not from restaurants, food courts, fast
food chains, and other commercial dining places that spew garbage much
more than residential property owners.

Petitioner likewise contends that the imposition of garbage fee is tantamount

to double taxation because garbage collection is a basic and essential public
service that should be paid out from property tax, business tax, transfer tax,
amusement tax, community tax certificate, other taxes, and the IRA of the
Quezon City Government. To bolster the claim, he states that the revenue
collection of the Quezon City Government reached Php13.69 billion in 2012. A
small portion of said amount could be spent for garbage collection and other
essential services.

It is further noted that the Quezon City Government already collects garbage
fee under Section 47[68] of R.A. No. 9003, or the Ecological Solid Waste
Management Act of 2000, which authorizes LGUs to impose fees in amounts
sufficient to pay the costs of preparing, adopting, and implementing a solid
waste management plan, and that LGUs have access to the Solid Waste
Management (SWM) Fund created under Section 46[69] of the same law. Also,
according to petitioner, it is evident that Ordinance No. S-2235 is inconsistent
with R.A. No. 9003 for while the law encourages segregation, composting,
and recycling of waste, the ordinance only emphasizes the collection and
payment of garbage fee; while the law calls for an active involvement of the
barangay in the collection, segregation, and recycling of garbage, the
ordinance skips such mandate.

Lastly, in challenging the ordinance, petitioner avers that the garbage fee was
collected even if the required publication of its approval had not yet elapsed.
He notes that on January 7, 2014, he paid his realty tax which already
included the garbage fee.
The Court’s Ruling

Respondents correctly argued that an ordinance, as in every law, is presumed

valid.
An ordinance carries with it the presumption of validity.
The question of reasonableness though is open to judicial
inquiry. Much should be left thus to the discretion of
municipal authorities. Courts will go slow in writing off
an ordinance as unreasonable unless the amount is so
excessive as to be prohibitive, arbitrary, unreasonable,
oppressive, or confiscatory. A rule which has gained
acceptance is that factors relevant to such an inquiry
 are the municipal conditions as a whole and the nature of
the business made subject to imposition.[70]
For an ordinance to be valid though, it must not only be within the corporate
powers of the LGU to enact and must be passed according to the procedure
prescribed by law, it should also conform to the following requirements: (1)
not contrary to the Constitution or any statute; (2) not unfair or oppressive;
(3) not partial or discriminatory; (4) not prohibit but may regulate trade; (5)
general and consistent with public policy; and (6) not unreasonable. [71] As
jurisprudence indicates, the tests are divided into the formal (i.e., whether
the ordinance was enacted within the corporate powers of the LGU and
whether it was passed in accordance with the procedure prescribed by law),
and the substantive (i.e., involving inherent merit, like the conformity of the
ordinance with the limitations under the Constitution and the statutes, as well
as with the requirements of fairness and reason, and its consistency with
public policy).[72]

An ordinance must pass muster under the test of constitutionality and the
test of consistency with the prevailing laws.[73]If not, it is void.[74] Ordinance
should uphold the principle of the supremacy of the Constitution. [75] As to
conformity with existing statutes, Batangas CATV, Inc. v. Court of
Appeals[76] has this to say:
It is a fundamental principle that municipal ordinances
are inferior in status and subordinate to the laws of the
state. An ordinance in conflict with a state law of
general character and statewide application is
universally held to be invalid. The principle is
frequently expressed in the declaration that municipal
authorities, under a general grant of power, cannot adopt
ordinances which infringe the spirit of a state law or
repugnant to the general policy of the state. In every
power to pass ordinances given to a municipality, there
is an implied restriction that the ordinances shall be
consistent with the general law. In the language of
Justice Isagani Cruz (ret.), this Court, in Magtajas vs.
Pryce Properties Corp., Inc., ruled that:
The rationale of the requirement that the
ordinances should not contravene a statute is
obvious. Municipal governments are only
agents of the national government. Local
councils exercise only delegated legislative
powers conferred on them by Congress as the
national lawmaking body. The delegate cannot
be superior to the principal or exercise
powers higher than those of the latter. It is
 a heresy to suggest that the local government
units can undo the acts of Congress, from
which they have derived their power in the
first place, and negate by mere ordinance the
mandate of the statute.
Municipal corporations owe their origin to, and derive
their powers and rights wholly from the legislature. It
breathes into them the breath of life, without which they
cannot exist. As it creates, so it may destroy. As it may
destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature
might, by a single act, and if we can suppose it capable
of so great a folly and so great a wrong, sweep from
existence all of the municipal corporations in the State,
and the corporation could not prevent it. We know of no
limitation on the right so far as to the corporation
themselves are concerned. They are, so to phrase it, the
mere tenants at will of the legislature.

This basic relationship between the national legislature

and the local government units has not been enfeebled by
the new provisions in the Constitution strengthening the
policy of local autonomy. Without meaning to detract from
that policy, we here confirm that Congress retains
control of the local government units although in
significantly reduced degree now than under our previous
Constitutions. The power to create still includes the
power to destroy. The power to grant still includes the
power to withhold or recall. True, there are certain
notable innovations in the Constitution, like the direct
conferment on the local government units of the power to
tax, which cannot now be withdrawn by mere statute. By
and large, however, the national legislature is still the
principal of the local government units, which cannot
defy its will or modify or violate it.[77]
LGUs must be reminded that they merely form part of the whole; that the
policy of ensuring the autonomy of local governments was never intended by
the drafters of the 1987 Constitution to create an imperium in imperio and
install an intra-sovereign political subdivision independent of a single
sovereign state.[78] “[M]unicipal corporations are bodies politic and corporate,
created not only as local units of local self-government, but as governmental
agencies of the state. The legislature, by establishing a municipal corporation,
does not divest the State of any of its sovereignty; absolve itself from its
right and duty to administer the public affairs of the entire state; or divest
itself of any power over the inhabitants of the district which it possesses
before the charter was granted.”[79]

LGUs are able to legislate only by virtue of a valid delegation of legislative

power from the national legislature; they are mere agents vested with what is
called the power of subordinate legislation.[80] “Congress enacted the LGC as
the implementing law for the delegation to the various LGUs of the State’s
great powers, namely: the police power, the power of eminent domain, and
the power of taxation. The LGC was fashioned to delineate the specific
parameters and limitations to be complied with by each LGU in the exercise of
these delegated powers with the view of making each LGU a fully functioning
subdivision of the State subject to the constitutional and statutory
limitations.”[81]

Specifically, with regard to the power of taxation, it is indubitably the most

effective instrument to raise needed revenues in financing and supporting
myriad activities of the LGUs 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.[82] As this Court opined in National Power Corp.
v. City of Cabanatuan:[83]
In recent years, the increasing social challenges of the
times expanded the scope of state activity, and taxation
has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and
the protection of local industries as well as public
welfare and similar objectives. Taxation assumes even
greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer
vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, Section 5 of the
1987 Constitution, viz:
“Section 5. Each Local Government unit shall
have the power to create its own sources of
revenue, to levy taxes, fees and charges
subject to such guidelines and limitations as
the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to
the local governments.”
This paradigm shift results from the realization that
genuine development can be achieved only by strengthening
local autonomy and promoting decentralization of
governance. For a long time, the country’s highly
 centralized government structure has bred a culture of
dependence among local government leaders upon the
national leadership. It has also “dampened the spirit of
initiative, innovation and imaginative resilience in
matters of local development on the part of local
government leaders.” The only way to shatter this
culture of dependence is to give the LGUs a wider role in
the delivery of basic services, and confer them
sufficient powers to generate their own sources for the
purpose. To achieve this goal, Section 3 of Article X of
the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic
policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers x x x[84]
Fairly recently, We also stated in Pelizloy Realty Corporation v. Province of
Benguet[85] that:
The rule governing the taxing power of provinces, cities,
municipalities and barangays is summarized in Icard v.
City Council of Baguio:
It is settled that a municipal corporation
unlike a sovereign state is clothed with no
inherent power of taxation. The charter or
statute must plainly show an intent to confer
that power or the municipality, cannot assume
it. And the power when granted is to be
construed in strictissimi juris. Any doubt
or ambiguity arising out of the term used in
granting that power must be resolved against
the municipality. Inferences, implications,
deductions – all these – have no place in
the interpretation of the taxing power of a
municipal corporation. [Underscoring
supplied]

x x x x

Per Section 5, Article X of the 1987

Constitution, “the power to tax is no longer
vested exclusively on Congress; local
legislative bodies are now given direct
authority to levy taxes, fees and other
charges.” Nevertheless, such authority is
“subject to such guidelines and limitations
as the Congress may provide.”
 In conformity with Section 3, Article X of the 1987
Constitution, Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991.
Book II of the LGC governs local taxation and fiscal
matters.[86]
Indeed, LGUs have no inherent power to tax except to the extent that such
power might be delegated to them either by the basic law or by the statute.
[87]
 “Under the now prevailing Constitution, where there is neither a grant nor
a prohibition by statute, the tax power must be deemed to exist although
Congress may provide statutory limitations and guidelines. The
basic rationale for the current rule is to safeguard the viability and self-
sufficiency of local government units by directly granting them general and
broad tax powers. Nevertheless, the fundamental law did not intend the
delegation to be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it
that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will be fair, uniform, and
just.”[88]

Subject to the provisions of the LGC and consistent with the basic policy of
local autonomy, every LGU is now empowered and authorized to create its
own sources of revenue and to levy taxes, fees, and charges which shall
accrue exclusively to the local government unit as well as to apply its
resources and assets for productive, developmental, or welfare purposes, in
the exercise or furtherance of their governmental or proprietary powers and
functions.[89] The relevant provisions of the LGC which establish the
parameters of the taxing power of the LGUs are as follows:
SECTION 130. Fundamental Principles. – The following
fundamental principles shall govern the exercise of the
taxing and other revenue-raising powers of local
government units:

(a) Taxation shall be uniform in each local government

unit;

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as
practicable on the taxpayer’s ability to
pay;

(2) be levied and collected only for public

 purposes;

(3) not be unjust, excessive, oppressive, or

confiscatory;

(4) not be contrary to law, public policy,

national economic policy, or in restraint of
trade;

(c) The collection of local taxes, fees,

charges and other impositions shall in no
case be let to any private person;

(d) The revenue collected pursuant to the

provisions of this Code shall inure solely to
the benefit of, and be subject to the
disposition by, the local government unit
levying the tax, fee, charge or other
imposition unless otherwise specifically
provided herein; and,

(e) Each local government unit shall, as far

as practicable, evolve a progressive system
of taxation.
SECTION 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 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

vessel 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
impositions upon goods carried into or out
of, or passing through, the territorial
jurisdictions of local government units in
the guise of charges for wharfage, 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 enterprises certified

to by the Board of Investments 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 contractors and persons
engaged in the transportation of passengers
or freight by hire and common carriers by
air, land or water, except as provided in
this Code;

(k) Taxes on premiums paid by way of

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 thereof, except tricycles;
 (m) Taxes, fees, or other charges on
Philippine products actually exported, except
as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside

and Barangay Business Enterprises 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” respectively; and

(o) Taxes, fees or charges of any kind on the

National Government, its agencies and
instrumentalities, and local government
units.
SECTION 151. Scope of Taxing Powers. – Except as
otherwise provided in this Code, the city, may levy the
taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue
to them and distributed in accordance with the provisions
of this Code.

The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by
not more than fifty percent (50%) except the rates of
professional and amusement taxes.

SECTION 186. Power To Levy Other Taxes, Fees or Charges.

– Local government units may exercise the power to levy
taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under
the provisions of the National Internal Revenue Code, as
amended, or other applicable laws: Provided, That the
taxes, fees, or charges shall not be unjust, excessive,
oppressive, confiscatory or contrary to declared national
policy: Provided, further, That the ordinance levying
such taxes, fees or charges shall not be enacted without
any prior public hearing conducted for the purpose.
On the Socialized Housing Tax
Contrary to petitioner’s submission, the 1987 Constitution explicitly espouses
the view that the use of property bears a social function and that all economic
agents shall contribute to the common good.[90] The Court already recognized
this in Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.:[91]
Property has not only an individual function, insofar as
it has to provide for the needs of the owner, but also a
social function insofar as it has to provide for the
needs of the other members of society. The principle is
this:
Police power proceeds from the principle that
every holder of property, however absolute
and unqualified may be his title, holds it
under the implied liability that his use of
it shall not be injurious to the equal
enjoyment of others having an equal right to
the enjoyment of their property, nor
injurious to the right of the community.
Rights of property, like all other social and
conventional rights, are subject to
reasonable limitations in their enjoyment as
shall prevent them from being injurious, and
to such reasonable restraints and regulations
established by law as the legislature, under
the governing and controlling power vested in
them by the constitution, may think necessary
and expedient.[92]
Police power, which flows from the recognition that salus populi est suprema
lex (the welfare of the people is the supreme law), is the plenary power
vested in the legislature to make statutes and ordinances to promote the
health, morals, peace, education, good order or safety and general welfare of
the people.[93] Property rights of individuals may be subjected to restraints
and burdens in order to fulfill the objectives of the government in the exercise
of police power.[94]In this jurisdiction, it is well-entrenched that taxation may
be made the implement of the state’s police power.[95]

Ordinance No. SP-2095 imposes a Socialized Housing Tax equivalent to 0.5%

on the assessed value of land in excess of Php100,000.00. This special
assessment is the same tax referred to in R.A. No. 7279 or the UDHA. [96] The
SHT is one of the sources of funds for urban development and housing
program.[97] Section 43 of the law provides:
Sec. 43. Socialized Housing Tax. – Consistent with the
constitutional principle that the ownership and enjoyment
of property bear a social function and to raise funds for
 the Program, all local government units are hereby
authorized to impose an additional one-half percent
(0.5%) tax on the assessed value of all lands in urban
areas in excess of Fifty thousand pesos (P50,000.00).
The rationale of the SHT is found in the preambular clauses of the subject
ordinance, to wit:
WHEREAS, the imposition of additional tax is intended to
provide the City Government with sufficient funds to
initiate, implement and undertake Socialized Housing
Projects and other related preliminary activities;

WHEREAS, the imposition of 0.5% tax will benefit the

Socialized Housing Programs and Projects of the City
Government, specifically the marginalized sector through
the acquisition of properties for human settlements;

WHEREAS, the removal of the urban blight will definitely

increase fair market value of properties in the city[.]
The above-quoted are consistent with the UDHA, which the LGUs are charged
to implement in their respective localities in coordination with the Housing
and Urban Development Coordinating Council, the national housing agencies,
the Presidential Commission for the Urban Poor, the private sector, and other
non-government organizations.[98] It is the declared policy of the State to
undertake a comprehensive and continuing urban development and housing
program that shall, among others, uplift the conditions of the underprivileged
and homeless citizens in urban areas and in resettlement areas, and provide
for the rational use and development of urban land in order to bring about,
among others, reduction in urban dysfunctions, particularly those that
adversely affect public health, safety and ecology, and access to land and
housing by the underprivileged and homeless citizens.[99] Urban renewal and
resettlement shall include the rehabilitation and development of blighted and
slum areas[100] and the resettlement of program beneficiaries in accordance
with the provisions of the UDHA. [101]

Under the UDHA, socialized housing[102] shall be the primary strategy in

providing shelter for the underprivileged and homeless.[103] The LGU or the
NHA, in cooperation with the private developers and concerned agencies,
shall provide socialized housing or resettlement areas with basic services and
facilities such as potable water, power and electricity, and an adequate power
distribution system, sewerage facilities, and an efficient and adequate solid
waste disposal system; and access to primary roads and transportation
facilities.[104] The provisions for health, education, communications, security,
recreation, relief and welfare shall also be planned and be given priority for
implementation by the LGU and concerned agencies in cooperation with the
private sector and the beneficiaries themselves. [105]

Moreover, within two years from the effectivity of the UDHA, the LGUs, in
coordination with the NHA, are directed to implement the relocation and
resettlement of persons living in danger areas such as esteros, railroad
tracks, garbage dumps, riverbanks, shorelines, waterways, and other public
places like sidewalks, roads, parks, and playgrounds. [106] In coordination with
the NHA, the LGUs shall provide relocation or resettlement sites with basic
services and facilities and access to employment and livelihood opportunities
sufficient to meet the basic needs of the affected families. [107]

Clearly, the SHT charged by the Quezon City Government is a tax which is
within its power to impose. Aside from the specific authority vested by
Section 43 of the UDHA, cities are allowed to exercise such other powers and
discharge such other functions and responsibilities as are necessary,
appropriate, or incidental to efficient and effective provision of the basic
services and facilities which include, among others, programs and projects for
low-cost housing and other mass dwellings.[108] The collections made accrue to
its socialized housing programs and projects. The tax is not a pure exercise of
taxing power or merely to raise revenue; it is levied with a regulatory
purpose. The levy is primarily in the exercise of the police power for the
general welfare of the entire city. It is greatly imbued with public interest.
Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real
property owners as well. The situation will improve the value of the their
property investments, fully enjoying the same in view of an orderly, secure,
and safe community, and will enhance the quality of life of the poor, making
them law-abiding constituents and better consumers of business products.

Though broad and far-reaching, police power is subordinate to constitutional

limitations and is subject to the requirement that its exercise must be
reasonable and for the public good.[109] In the words of City of Manila v. Hon.
Laguio, Jr.:[110]
The police power granted to local government units must
always be exercised with utmost observance of the rights
of the people to due process and equal protection of the
law. Such power cannot be exercised whimsically,
arbitrarily or despotically as its exercise is subject to
a qualification, limitation or restriction demanded by
the respect and regard due to the prescription of the
fundamental law, particularly those forming part of the
Bill of Rights. Individual rights, it bears emphasis, may
be adversely affected only to the extent that may fairly
be required by the legitimate demands of public interest
 or public welfare. Due process requires the intrinsic
validity of the law in interfering with the rights of the
person to his life, liberty and property.

x x x x

To successfully invoke the exercise of police power as

the rationale for the enactment of the Ordinance, and to
free it from the imputation of constitutional infirmity,
not only must it appear that the interests of the public
generally, as distinguished from those of a particular
class, require an interference with private rights, but
the means adopted must be reasonably necessary for the
accomplishment of the purpose and not unduly oppressive
upon individuals. It must be evident that no other
alternative for the accomplishment of the purpose less
intrusive of private rights can work. A reasonable
relation must exist between the purposes of the police
measure and the means employed for its accomplishment,
for even under the guise of protecting the public
interest, personal rights and those pertaining to private
property will not be permitted to be arbitrarily invaded.

Lacking a concurrence of these two requisites, the police

measure shall be struck down as an arbitrary intrusion
into private rights – a violation of the due process
clause.[111]
As with the State, LGUs may be considered as having properly exercised their
police power only if there is a lawful subject and a lawful method or, to be
precise, if the following requisites are met: (1) the interests of the public
generally, as distinguished from those of a particular class, require its
exercise and (2) the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals.
[112]

In this case, petitioner argues that the SHT is a penalty imposed on real
property owners because it burdens them with expenses to provide funds for
the housing of informal settlers, and that it is a class legislation since it favors
the latter who occupy properties which is not their own and pay no taxes.

We disagree.

Equal protection requires that all persons or things similarly situated should
be treated alike, both as to rights conferred and responsibilities imposed.
[113]
 The guarantee means that no person or class of persons shall be denied
the same protection of laws which is enjoyed by other persons or other
classes in like circumstances.[114] Similar subjects should not be treated
differently so as to give undue favor to some and unjustly discriminate
against others.[115] The law may, therefore, treat and regulate one class
differently from another class provided there are real and substantial
differences to distinguish one class from another.[116]

An ordinance based on reasonable classification does not violate the

constitutional guaranty of the equal protection of the law. The requirements
for a valid and reasonable classification are: (1) it must rest on substantial
distinctions; (2) it must be germane to the purpose of the law; (3) it must not
be limited to existing conditions only; and (4) it must apply equally to all
members of the same class.[117]

For the purpose of undertaking a comprehensive and continuing urban

development and housing program, the disparities between a real property
owner and an informal settler as two distinct classes are too obvious and
need not be discussed at length. The differentiation conforms to the practical
dictates of justice and equity and is not discriminatory within the meaning of
the Constitution. Notably, the public purpose of a tax may legally exist even if
the motive which impelled the legislature to impose the tax was to favor one
over another.[118] It is inherent in the power to tax that a State is free to
select the subjects of taxation.[119] Inequities which result from a singling out
of one particular class for taxation or exemption infringe no constitutional
limitation.[120]

Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It

is not confiscatory or oppressive since the tax being imposed therein is below
what the UDHA actually allows. As pointed out by respondents, while the law
authorizes LGUs to collect SHT on lands with an assessed value of more than
P50,000.00, the questioned ordinance only covers lands with an assessed
value exceeding P100,000.00. Even better, on certain conditions, the
ordinance grants a tax credit equivalent to the total amount of the special
assessment paid beginning in the sixth (6th) year of its effectivity. Far from
being obnoxious, the provisions of the subject ordinance are fair and just.

On the Garbage Fee

In the United States of America, it has been held that the authority of a
municipality to regulate garbage falls within its police power to protect public
health, safety, and welfare.[121] As opined, the purposes and policy
underpinnings of the police power to regulate the collection and disposal of
solid waste are: (1) to preserve and protect the public health and welfare as
well as the environment by minimizing or eliminating a source of disease and
preventing and abating nuisances; and (2) to defray costs and ensure
financial stability of the system for the benefit of the entire community, with
the sum of all charges marshalled and designed to pay for the expense of a
systemic refuse disposal scheme.[122]

Ordinances regulating waste removal carry a strong presumption of validity.

[123]
 Not surprisingly, the overwhelming majority of U.S. cases addressing a
city's authority to impose mandatory garbage service and fees have upheld
the ordinances against constitutional and statutory challenges.[124]

A municipality has an affirmative duty to supervise and control the collection

of garbage within its corporate limits.[125]The LGC specifically assigns the
responsibility of regulation and oversight of solid waste to local governing
bodies because the Legislature determined that such bodies were in the best
position to develop efficient waste management programs. [126] To impose on
local governments the responsibility to regulate solid waste but not grant
them the authority necessary to fulfill the same would lead to an absurd
result.[127] As held in one U.S. case:
x x x When a municipality has general authority to
regulate a particular subject matter, the manner and
means of exercising those powers, where not specifically
prescribed by the legislature, are left to the discretion
of the municipal authorities. x x x Leaving the manner of
exercising municipal powers to the discretion of
municipal authorities "implies a range of reasonableness
within which a municipality's exercise of discretion will
not be interfered with or upset by the judiciary."[128]
In this jurisdiction, pursuant to Section 16 of the LGC and in the proper
exercise of its corporate powers under Section 22 of the same,
the Sangguniang Panlungsod of Quezon City, like other local legislative
bodies, is empowered to enact ordinances, approve resolutions, and
appropriate funds for the general welfare of the city and its inhabitants.
[129]
 Section 16 of the LGC provides:
SECTION 16. General Welfare. – Every local government
unit shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient
and effective governance, and those which are essential
to the promotion of the general welfare. Within their
respective territorial jurisdictions, local government
units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health
and safety, enhance the right of the people to a balanced
 ecology, encourage and support the development of
appropriate and self-reliant scientific and technological
capabilities, improve public morals, enhance economic
prosperity and social justice, promote full employment
among their residents, maintain peace and order, and
preserve the comfort and convenience of their
inhabitants.
The general welfare clause is the delegation in statutory form of the police
power of the State to LGUs.[130] The provisions related thereto are liberally
interpreted to give more powers to LGUs in accelerating economic
development and upgrading the quality of life for the people in the
community.[131] Wide discretion is vested on the legislative authority to
determine not only what the interests of the public require but also what
measures are necessary for the protection of such interests since
the Sanggunian is in the best position to determine the needs of its
constituents.[132]

One of the operative principles of decentralization is that, subject to the

provisions of the LGC and national policies, the LGUs shall share with the
national government the responsibility in the management and maintenance
of ecological balance within their territorial jurisdiction. [133] In this regard,
cities are allowed to exercise such other powers and discharge such other
functions and responsibilities as are necessary, appropriate, or incidental to
efficient and effective provision of the basic services and facilities which
include, among others, solid waste disposal system or environmental
management system and services or facilities related to general hygiene and
sanitation.[134] R.A. No. 9003, or the Ecological Solid Waste Management Act
of 2000,[135] affirms this authority as it expresses that the LGUs shall be
primarily responsible for the implementation and enforcement of its
provisions within their respective jurisdictions while establishing a cooperative
effort among the national government, other local government units, non-
government organizations, and the private sector.[136]

Necessarily, LGUs are statutorily sanctioned to impose and collect such

reasonable fees and charges for services rendered. [137] “Charges” refer to
pecuniary liability, as rents or fees against persons or property, while “Fee”
means a charge fixed by law or ordinance for the regulation or inspection of a
business or activity.[138]

The fee imposed for garbage collections under Ordinance No. SP-2235 is a
charge fixed for the regulation of an activity. The basis for this could be
discerned from the foreword of said Ordinance, to wit:
WHEREAS, Quezon City being the largest and premiere city
in the Philippines in terms of population and urban
 geographical areas, apart from being competent and
efficient in the delivery of public service, apparently
requires a big budgetary allocation in order to address
the problems relative and connected to the prompt and
efficient delivery of basic services such as the
effective system of waste management, public information
programs on proper garbage and proper waste disposal,
including the imposition of waste regulatory measures;

WHEREAS, to help augment the funds to be spent for the

city’s waste management system, the City Government
through the Sangguniang Panlungsod deems it necessary
to impose a schedule of reasonable fees or charges for
the garbage collection services for residential (domestic
household) that it renders to the public.
Certainly, as opposed to petitioner’s opinion, the garbage fee is not a tax.
In Smart Communications, Inc. v. Municipality of Malvar, Batangas,[139] the
Court had the occasion to distinguish these two concepts:
In Progressive Development Corporation v. Quezon City,
the Court declared that “if the generating of revenue is
the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary
purpose, the fact that incidentally revenue is also
obtained does not make the imposition a tax.”

In Victorias Milling Co., Inc. v. Municipality of

Victorias, the Court reiterated that the purpose and
effect of the imposition determine whether it is a tax or
a fee, and that the lack of any standards for such
imposition gives the presumption that the same is a tax.
We accordingly say that the designation given
by the municipal authorities does not decide
whether the imposition is properly a license
tax or a license fee. The determining factors
are the purpose and effect of the imposition
as may be apparent from the provisions of the
ordinance. Thus, “[w]hen no police
inspection, supervision, or regulation is
provided, nor any standard set for the
applicant to establish, or that he agrees to
attain or maintain, but any and all persons
engaged in the business designated, without
qualification or hindrance, may come, and a
license on payment of the stipulated sum will
 issue, to do business, subject to no
prescribed rule of conduct and under no
guardian eye, but according to the
unrestrained judgment or fancy of the
applicant and licensee, the presumption is
strong that the power of taxation, and not
the police power, is being exercised.”
In Georgia, U.S.A., assessments for garbage collection services have been
consistently treated as a fee and not a tax. [140] In another U.S. case,[141] the
garbage fee was considered as a "service charge" rather than a tax as it was
actually a fee for a service given by the city which had previously been
provided at no cost to its citizens.

Hence, not being a tax, the contention that the garbage fee under Ordinance
No. SP-2235 violates the rule on double taxation [142] must necessarily fail.

Nonetheless, although a special charge, tax, or assessment may be imposed

by a municipal corporation, it must be reasonably commensurate to the cost
of providing the garbage service.[143] To pass judicial scrutiny, a regulatory fee
must not produce revenue in excess of the cost of the regulation because
such fee will be construed as an illegal tax when the revenue generated by
the regulation exceeds the cost of the regulation. [144]

Petitioner argues that the Quezon City Government already collects garbage
fee under Section 47 of R.A. No. 9003, which authorizes LGUs to impose fees
in amounts sufficient to pay the costs of preparing, adopting, and
implementing a solid waste management plan, and that it has access to the
SWM Fund under Section 46 of the same law. Moreover, Ordinance No. S-
2235 is inconsistent with R.A. No. 9003, because the ordinance emphasizes
the collection and payment of garbage fee with no concern for segregation,
composting and recycling of wastes. It also skips the mandate of the law
calling for the active involvement of the barangay in the collection,
segregation, and recycling of garbage.

We now turn to the pertinent provisions of R.A. No. 9003.

Under R.A. No. 9003, it is the declared policy of the State to adopt a
systematic, comprehensive and ecological solid waste management program
which shall, among others, ensure the proper segregation, collection,
transport, storage, treatment and disposal of solid waste through the
formulation and adoption of the best environmental practices in ecological
waste management.[145] The law provides that segregation and collection of
solid waste shall be conducted at the barangay level, specifically for
biodegradable, compostable and reusable wastes, while the collection of non-
recyclable materials and special wastes shall be the responsibility of the
municipality or city.[146] Mandatory segregation of solid wastes shall primarily
be conducted at the source, to include household, institutional, industrial,
commercial and agricultural sources.[147] Segregation at source refers to a
solid waste management practice of separating, at the point of origin,
different materials found in solid waste in order to promote recycling and re-
use of resources and to reduce the volume of waste for collection and
disposal.[148] Based on Rule XVII of the Department of Environment and
Natural Resources (DENR) Administrative Order No. 2001-34, Series of 2001,
[149]
 which is the Implementing Rules and Regulations (IRR) of R.A. No.
9003, barangays shall be responsible for the collection, segregation, and
recycling of biodegradable, recyclable, compostable and reusable wastes.
[150]
 For the purpose, a Materials Recovery Facility (MRF), which shall receive
biodegradable wastes for composting and mixed non-biodegradable wastes
for final segregation, re-use and recycling, is to be established in every
barangay or cluster of barangays.[151]

According to R.A. 9003, an LGU, through its local solid waste management
board, is mandated by law to prepare a 10-year solid waste management
plan consistent with the National Solid Waste Management Framework.
[152]
 The plan shall be for the re-use, recycling and composting of wastes
generated in its jurisdiction; ensure the efficient management of solid waste
generated within its jurisdiction; and place primary emphasis on
implementation of all feasible re-use, recycling, and composting programs
while identifying the amount of landfill and transformation capacity that will
be needed for solid waste which cannot be re-used, recycled, or composted.
[153]
 One of the components of the solid waste management plan is source
reduction:
(e) Source reduction – The source reduction component
shall include a program and implementation schedule which
shows the methods by which the LGU will, in combination
with the recycling and composting components, reduce a
sufficient amount of solid waste disposed of in
accordance with the diversion requirements of Section 20.

The source reduction component shall describe the

following:
(1) strategies in reducing the volume of
solid waste generated at source;

(2) measures for implementing such strategies

and the resources necessary to carry out such
activities;
 (3) other appropriate waste reduction
technologies that may also be considered,
provided that such technologies conform with
the standards set pursuant to this Act;

(4) the types of wastes to be reduced

pursuant to Section 15 of this Act;

(5) the methods that the LGU will use to

determine the categories of solid wastes to
be diverted from disposal at a disposal
facility through re-use, recycling and
composting; and

(6) new facilities and of expansion of

existing facilities which will be needed to
implement re-use, recycling and composting.
The LGU source reduction component shall include the
evaluation and identification of rate structures and fees
for the purpose of reducing the amount of waste
generated, and other source reduction strategies,
including but not limited to, programs and economic
incentives provided under Sec. 45 of this Act to reduce
the use of non-recyclable materials, replace disposable
materials and products with reusable materials and
products, reduce packaging, and increase the efficiency
of the use of paper, cardboard, glass, metal, and other
materials. The waste reduction activities of the
community shall also take into account, among others,
local capability, economic viability, technical
requirements, social concerns, disposition of residual
waste and environmental impact: Provided, That,
projection of future facilities needed and estimated cost
shall be incorporated in the plan. x x x[154]
The solid waste management plan shall also include an implementation
schedule for solid waste diversion:
SEC. 20. Establishing Mandatory Solid Waste Diversion.
– Each LGU plan shall include an implementation schedule
which shows that within five (5) years after the
effectivity of this Act, the LGU shall divert at least
25% of all solid waste from waste disposal facilities
through re-use, recycling, and composting activities and
other resource recovery activities: Provided, That the
 waste diversion goals shall be increased every three (3)
years thereafter: Provided, further, That nothing in
this Section prohibits a local government unit from
implementing re-use, recycling, and composting activities
designed to exceed the goal.
The baseline for the twenty-five percent (25%) shall be derived from the
waste characterization result[155] that each LGU is mandated to undertake. [156]

In accordance with Section 46 of R.A. No. 9003, the LGUs are entitled to avail
of the SWM Fund on the basis of their approved solid waste management
plan. Aside from this, they may also impose SWM Fees under Section 47 of
the law, which states:
SEC. 47. Authority to Collect Solid Waste Management
Fees – The local government unit shall impose fees in
amounts sufficient to pay the costs of preparing,
adopting, and implementing a solid waste management plan
prepared pursuant to this Act. The fees shall be based on
the following minimum factors:
(a) types of solid waste;

(b) amount/volume of waste; and

(c) distance of the transfer station to the

waste management facility.
The fees shall be used to pay the actual costs incurred
by the LGU in collecting the local fees. In determining
the amounts of the fees, an LGU shall include only those
costs directly related to the adoption and implementation
of the plan and the setting and collection of the local
fees.
Rule XVII of the IRR of R.A. No. 9003 sets forth the details:
Section 1. Power to Collect Solid Waste Management Fees.
– The Local SWM Board/Local SWM Cluster Board shall
impose fees on the SWM services provided for by the LGU
and/or any authorized organization or unit. In
determining the amounts of the fees, a Local SWM
Board/Local SWM Cluster Board shall include only those
costs directly related to the adoption and implementation
of the SWM Plan and the setting and collection of the
local fees. This power to impose fees may be ceded to the
private sector and civil society groups which have been
duly accredited by the Local SWM Board/Local SWM Cluster
Board; provided, the SWM fees shall be covered by a
Contract or Memorandum of Agreement between the
respective board and the private sector or civil society
group.

The fees shall pay for the costs of preparing, adopting

and implementing a SWM Plan prepared pursuant to the Act.
Further, the fees shall also be used to pay the actual
costs incurred in collecting the local fees and for
project sustainability.

Section 2. Basis of SWM Service Fees

Reasonable SWM service fees shall be computed based on

but not limited to the following minimum factors:
a) Types of solid waste to include special
waste

b) amount/volume of waste

c) distance of the transfer station to the

waste management facility

d) capacity or type of LGU constituency

e) cost of construction

f) cost of management

g) type of technology
Section 3. Collection of Fees. – Fees may be collected
corresponding to the following levels:
a) Barangay – The Barangay may impose fees
for collection and segregation of
biodegradable, compostable and reusable
wastes from households, commerce, other
sources of domestic wastes, and for the use
of Barangay MRFs. The computation of the fees
shall be established by the respective SWM
boards. The manner of collection of the fees
shall be dependent on the style of
administration of respective Barangay
Councils. However, all transactions shall
follow the Commission on Audit rules on
collection of fees.
 b) Municipality – The municipal and city
councils may impose fees on the barangay MRFs
for the collection and transport of non-
recyclable and special wastes and for the
disposal of these into the sanitary landfill.
The level and procedure for exacting fees
shall be defined by the Local SWM Board/Local
SWM Cluster Board and supported by LGU
ordinances, however, payments shall be
consistent with the accounting system of
government.

c) Private Sector/Civil Society Group – On

the basis of the stipulations of contract or
Memorandum of Agreement, the private sector
or civil society group shall impose fees for
collection, transport and tipping in their
SLFs. Receipts and invoices shall be issued
to the paying public or to the government.
From the afore-quoted provisions, it is clear that the authority of a
municipality or city to impose fees is limited to the collection and transport
of non-recyclable and special wastes and for the disposal of these into the
sanitary landfill. Barangays, on the other hand, have the authority to impose
fees for the collection and segregation of biodegradable, compostable and
reusable wastes from households, commerce, other sources of domestic
wastes, and for the use of barangay MRFs. This is but consistent with Section
10 of R.A. No. 9003 directing that segregation and collection of
biodegradable, compostable and reusable wastes shall be conducted at the
barangay level, while the collection of non-recyclable materials and special
wastes shall be the responsibility of the municipality or city.

In this case, the alleged bases of Ordinance No. S-2235 in imposing the
garbage fee is the volume of waste currently generated by each person in
Quezon City, which purportedly stands at 0.66 kilogram per day, and the
increasing trend of waste generation for the past three years. [157] Respondents
did not elaborate any further. The figure presented does not reflect the
specific types of wastes generated – whether residential, market, commercial,
industrial, construction/demolition, street waste, agricultural, agro-industrial,
institutional, etc. It is reasonable, therefore, for the Court to presume that
such amount pertains to the totality of wastes, without any distinction,
generated by Quezon City constituents. To reiterate, however, the authority
of a municipality or city to impose fees extends only to those related to the
collection and transport of non-recyclable and special wastes.
Granting, for the sake of argument, that the 0.66 kilogram of solid waste per
day refers only to non-recyclable and special wastes, still, We cannot sustain
the validity of Ordinance No. S-2235. It violates the equal protection clause of
the Constitution and the provisions of the LGC that an ordinance must be
equitable and based as far as practicable on the taxpayer’s ability to pay, and
not unjust, excessive, oppressive, confiscatory.[158]

In the subject ordinance, the rates of the imposable fee depend on land or
floor area and whether the payee is an occupant of a lot, condominium, social
housing project or apartment. For easy reference, the relevant provision is
again quoted below:
On all domestic households in Quezon City;
LAND AREA IMPOSABLE FEE
Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq.
PHP 400.00
m.
1,501 sq. m. – 2,000 sq.
PHP 500.00
m. or more
On all condominium unit and socialized housing
projects/units in Quezon City;
FLOOR AREA IMPOSABLE FEE
Less than 40 sq. m. PHP25.00
41 sq. m. – 60 sq. m. PHP50.00
61 sq. m. – 100 sq. m. PHP75.00
101 sq. m. – 150 sq. m. PHP100.00
151 sq. m. – 200 sq. [m.]
PHP200.00
or more
On high-rise Condominium Units
High-rise Condominium – The Homeowners Association of high rise
condominiums shall pay the annual garbage fee on the total size
a) of the entire condominium and socialized Housing Unit and an
additional garbage fee shall be collected based on area occupied
for every unit already sold or being amortized.

High-rise apartment units – Owners of high-rise apartment units

shall pay the annual garbage fee on the total lot size of the
b)
entire apartment and an additional garbage fee based on the
schedule prescribed herein for every unit occupied.
For the purpose of garbage collection, there is, in fact, no substantial
distinction between an occupant of a lot, on one hand, and an occupant of a
unit in a condominium, socialized housing project or apartment, on the other
hand. Most likely, garbage output produced by these types of occupants is
uniform and does not vary to a large degree; thus, a similar schedule of fee is
both just and equitable.[159]

The rates being charged by the ordinance are unjust and inequitable: a
resident of a 200 sq. m. unit in a condominium or socialized housing project
has to pay twice the amount than a resident of a lot similar in size; unlike
unit occupants, all occupants of a lot with an area of 200 sq. m. and less have
to pay a fixed rate of Php100.00; and the same amount of garbage fee is
imposed regardless of whether the resident is from a condominium or from a
socialized housing project.

Indeed, the classifications under Ordinance No. S-2235 are not germane to its
declared purpose of “promoting shared responsibility with the residents to
attack their common mindless attitude in over-consuming the present
resources and in generating waste.”[160] Instead of simplistically categorizing
the payee into land or floor occupant of a lot or unit of a condominium,
socialized housing project or apartment, respondent City Council should have
considered factors that could truly measure the amount of wastes generated
and the appropriate fee for its collection. Factors include, among others,
household age and size, accessibility to waste collection, population density of
the barangay or district, capacity to pay, and actual occupancy of the
property. R.A. No. 9003 may also be looked into for guidance. Under said law,
SWM service fees may be computed based on minimum factors such as types
of solid waste to include special waste, amount/volume of waste, distance of
the transfer station to the waste management facility, capacity or type of LGU
constituency, cost of construction, cost of management, and type of
technology. With respect to utility rates set by municipalities, a municipality
has the right to classify consumers under reasonable classifications based
upon factors such as the cost of service, the purpose for which the service or
the product is received, the quantity or the amount received, the different
character of the service furnished, the time of its use or any other matter
which presents a substantial difference as a ground of distinction. [161]
[A] lack of uniformity in the rate charged is not
necessarily unlawful discrimination. The establishment of
classifications and the charging of different rates for
the several classes is not unreasonable and does not
violate the requirements of equality and uniformity.
Discrimination to be unlawful must draw an unfair line or
strike an unfair balance between those in like
circumstances having equal rights and privileges.
 Discrimination with respect to rates charged does not
vitiate unless it is arbitrary and without a reasonable
fact basis or justification.[162]
On top of an unreasonable classification, the penalty clause of Ordinance No.
SP-2235, which states:
SECTION 3. Penalty Clause – A penalty of 25% of the
garbage fee due plus an interest of 2% per month or a
fraction thereof (interest) shall be charged against a
household owner who refuses to pay the garbage fee herein
imposed.
lacks the limitation required by Section 168 of the LGC, which provides:
SECTION 168. Surcharges and Penalties on Unpaid Taxes,
Fees, or Charges. – The sanggunian may impose a
surcharge not exceeding twenty-five (25%) of the amount
of taxes, fees or charges not paid on time and an
interest at the rate not exceeding two percent (2%) per
month of the unpaid taxes, fees or charges including
surcharges, until such amount is fully paid but in no
case shall the total interest on the unpaid amount or
portion thereof exceed thirty-six (36) months. (Emphasis
supplied)
Finally, on the issue of publication of the two challenged ordinances.

Petitioner argues that the garbage fee was collected even if the required
publication of its approval had not yet elapsed. He notes that he paid his
realty tax on January 7, 2014 which already included the garbage fee.
Respondents counter that if the law provides for its own effectivity,
publication in the Official Gazette is not necessary so long as it is not penal in
nature. Allegedly, Ordinance No. SP-2095 took effect after its publication
while Ordinance No. SP-2235 became effective after its approval on
December 26, 2013.

The pertinent provisions of the LGC state:

SECTION 59. Effectivity of Ordinances or Resolutions. –
(a) Unless otherwise stated in the ordinance or the
resolution approving the local development plan and
public investment program, the same shall take effect
after ten (10) days from the date a copy thereof is
posted in a bulletin board at the entrance of the
provincial capitol or city, municipal, or barangay hall,
as the case may be, and in at least two (2) other
conspicuous places in the local government unit
concerned.
(b) The secretary to the sanggunian concerned shall cause
the posting of an ordinance or resolution in the bulletin
board at the entrance of the provincial capitol and the
city, municipal, or barangay hall in at least two (2)
conspicuous places in the local government unit concerned
not later than five (5) days after approval thereof.

The text of the ordinance or resolution shall be

disseminated and posted in Filipino or English and in the
language or dialect understood by the majority of the
people in the local government unit concerned, and the
secretary to the sanggunian shall record such fact in a
book kept for the purpose, stating the dates of approval
and posting.

(c) The gist of all ordinances with penal sanctions shall

be published in a newspaper of general circulation within
the province where the local legislative body concerned
belongs. In the absence of any newspaper of general
circulation within the province, posting of such
ordinances shall be made in all municipalities and cities
of the province where the sanggunian of origin is
situated.

(d) In the case of highly urbanized and independent

component cities, the main features of the ordinance or
resolution duly enacted or adopted shall, in addition to
being posted, be published once in a local newspaper of
general circulation within the city: Provided, That in
the absence thereof the ordinance or resolution shall be
published in any newspaper of general circulation.

SECTION 188. Publication of Tax Ordinances and Revenue

Measures. – Within ten (10) days after their approval,
certified true copies of all provincial, city, and
municipal tax ordinances or revenue measures shall
be published in full for three (3) consecutive days in a
newspaper of local circulation: Provided, however, That
in provinces, cities and municipalities where there are
no newspapers of local circulation, the same may be
posted in at least two (2) conspicuous and publicly
accessible places. (Emphasis supplied)
On October 17, 2011, respondent Quezon City Council enacted Ordinance No.
SP-2095, which provides that it would take effect after its publication in a
newspaper of general circulation.[163] On the other hand, Ordinance No. SP-
2235, which was passed by the City Council on December 16, 2013, provides
that it would be effective upon its approval. [164] Ten (10) days after its
enactment, or on December 26, 2013, respondent City Mayor approved the
same.[165]

The case records are bereft of any evidence to prove petitioner’s negative
allegation that respondents did not comply with the posting and publication
requirements of the law. Thus, We are constrained not to give credit to his
unsupported claim.

WHEREFORE, the petition is PARTIALLY GRANTED. The constitutionality

and legality of Ordinance No. SP-2095, S-2011, or the “Socialized Housing
Tax of Quezon City,” is SUSTAINED for being consistent with Section 43 of
Republic Act No. 7279. On the other hand, Ordinance No. SP-2235, S-2013,
which collects an annual garbage fee on all domestic households in Quezon
City, is hereby declared as UNCONSTITUTIONAL AND ILLEGAL.
Respondents are DIRECTED to REFUND with reasonable dispatch the sums
of money collected relative to its enforcement.

The temporary restraining order issued by the Court on February 5, 2014

is LIFTED with respect to Ordinance No. SP-2095. In contrast, respondents
are PERMANENTLY ENJOINED from taking any further action to enforce
Ordinance No. SP. 2235.

SO ORDERED.

6. PHILIPPINE HEALTH CARE PROVIDERS, INC., PETITIONER, VS.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. 

R E S O L U T I O N

CORONA, J.: 
 ARTICLE II
Declaration of Principles and State Policies

Section 15. The State shall protect and

promote the right to health of the people and
instill health consciousness among them.
ARTICLE XIII 
Social Justice and Human Rights

Section 11. The State shall adopt an integrated and

comprehensive approach to health development which shall
endeavor to make essential goods, health and other social
services available to all the people at affordable cost.
There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and
children. The State shall endeavor to provide free
medical care to paupers.[1]

For resolution are a motion for reconsideration and supplemental motion for
reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by
petitioner Philippine Health Care Providers, Inc. [2]

We recall the facts of this case, as follows:

Petitioner is a domestic corporation whose primary
purpose is "[t]o establish, maintain, conduct and operate
a prepaid group practice health care delivery system or a
health maintenance organization to take care of the sick
and disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial
responsibilities of the organization." Individuals
enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its
duly licensed physicians, specialists and other
professional technical staff participating in the group
practice health delivery system at a hospital or clinic
owned, operated or accredited by it.
xxx xxx xxx

On January 27, 2000, respondent Commissioner of Internal

Revenue [CIR] sent petitioner a formal demand letter and
the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in the
total amount of P224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment

was imposed on petitioner's health care agreement with
the members of its health care program pursuant to
Section 185 of the 1997 Tax Code xxxx
xxx xxx xxx

Petitioner protested the assessment in a letter dated

February 23, 2000. As respondent did not act on the
protest, petitioner filed a petition for review in the
Court of Tax Appeals (CTA) seeking the cancellation of
the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision, the

dispositive portion of which read:
WHEREFORE, in view of the foregoing, the
instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY
the deficiency VAT amounting to
P22,054,831.75 inclusive of 25% surcharge
plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and
P31,094,163.87 inclusive of 25% surcharge
plus 20% interest from January 20, 1998 until
fully paid for the 1997 VAT deficiency.
Accordingly, VAT Ruling No. [231]-88 is
declared void and without force and effect.
The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED AND
SET ASIDE. Respondent is ORDERED to DESIST
from collecting the said DST deficiency tax.

SO ORDERED.

Respondent appealed the CTA decision to the [Court of

Appeals (CA)] insofar as it cancelled the DST assessment.
He claimed that petitioner's health care agreement was a
contract of insurance subject to DST under Section 185 of
the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. It held

that petitioner's health care agreement was in the nature
of a non-life insurance contract subject to DST.
 WHEREFORE, the petition for review is
GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set
aside the 1996 and 1997 deficiency
documentary stamp tax assessment and ordered
petitioner to desist from collecting the same
is REVERSED and SET ASIDE.

Respondent is ordered to pay the amounts of

P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for
late payment and 20% interest per annum from
January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall
have been fully paid.

SO ORDERED.

Petitioner moved for reconsideration but the CA denied

it. Hence, petitioner filed this case.
xxx xxx xxx

In a decision dated June 12, 2008, the Court denied the petition and affirmed
the CA's decision. We held that petitioner's health care agreement during the
pertinent period was in the nature of non-life insurance which is a contract of
indemnity, citing Blue Cross Healthcare, Inc. v. Olivares[3] and Philamcare
Health Systems, Inc. v. CA.[4] We also ruled that petitioner's contention that it
is a health maintenance organization (HMO) and not an insurance company is
irrelevant because contracts between companies like petitioner and the
beneficiaries under their plans are treated as insurance contracts. Moreover,
DST is not a tax on the business transacted but an excise on the privilege,
opportunity or facility offered at exchanges for the transaction of the
business.

Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting the
following arguments:
The DST under Section 185 of the National Internal Revenue of
1997 is imposed only on a company engaged in the business of
(a)
fidelity bonds and other insurance policies. Petitioner, as an
HMO, is a service provider, not an insurance company.

(b) The Court, in dismissing the appeal in CIR v. Philippine

 National Bank, affirmed in effect the CA's disposition that
health care services are not in the nature of an insurance
business.

(c) Section 185 should be strictly construed.

Legislative intent to exclude health care agreements from items

(d) subject to DST is clear, especially in the light of the
amendments made in the DST law in 2002.

Assuming arguendo  that petitioner's agreements are contracts of

(e)
indemnity, they are not those contemplated under Section 185.

Assuming arguendo  that petitioner's agreements are akin to

(f)
health insurance, health insurance is not covered by Section 185.

The agreements do not fall under the phrase "other branch of

(g)
insurance" mentioned in Section 185.

(h) The June 12, 2008 decision should only apply prospectively.

Petitioner availed of the tax amnesty benefits under RA[5] 9480

for the taxable year 2005 and all prior years. Therefore, the
(i)
questioned assessments on the DST are now rendered moot and
academic.[6]

Oral arguments were held in Baguio City on April 22, 2009. The parties
submitted their memoranda on June 8, 2009.

In its motion for reconsideration, petitioner reveals for the first time that it
availed of a tax amnesty under RA 9480[7](also known as the "Tax Amnesty
Act of 2007") by fully paying the amount of P5,127,149.08 representing 5%
of its net worth as of the year ending December 31, 2005. [8]

We find merit in petitioner's motion for reconsideration.

Petitioner was formally registered and incorporated with the Securities and
Exchange Commission on June 30, 1987.[9] It is engaged in the dispensation
of the following medical services to individuals who enter into health care
agreements with it:
Preventive medical services such as periodic monitoring
of health problems, family planning counseling,
consultation and advices on diet, exercise and other
healthy habits, and immunization;
 Diagnostic medical services such as routine physical
examinations, x-rays, urinalysis, fecalysis, complete
blood count, and the like and

Curative medical services which pertain to the

performing of other remedial and therapeutic processes in
the event of an injury or sickness on the part of the
enrolled member.[10]

Individuals enrolled in its health care program pay an annual membership

fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or
accredited by petitioner, through physicians, medical and dental practitioners
under contract with it. It negotiates with such health care practitioners
regarding payment schemes, financing and other procedures for the delivery
of health services. Except in cases of emergency, the professional services
are to be provided only by petitioner's physicians, i.e. those directly employed
by it[11] or whose services are contracted by it. [12] Petitioner also provides
hospital services such as room and board accommodation, laboratory
services, operating rooms, x-ray facilities and general nursing care. [13] If and
when a member avails of the benefits under the agreement, petitioner pays
the participating physicians and other health care providers for the services
rendered, at pre-agreed rates.[14]

To avail of petitioner's health care programs, the individual members are

required to sign and execute a standard health care agreement embodying
the terms and conditions for the provision of the health care services. The
same agreement contains the various health care services that can be
engaged by the enrolled member, i.e., preventive, diagnostic and curative
medical services. Except for the curative aspect of the medical service
offered, the enrolled member may actually make use of the health care
services being offered by petitioner at any time.

HEALTH MAINTENANCE ORGANIZATIONS

ARE NOT ENGAGED IN THE INSURANCE BUSINESS 

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an
HMO and not an insurer because its agreements are treated as insurance
contracts and the DST is not a tax on the business but an excise on the
privilege, opportunity or facility used in the transaction of the business. [15]

Petitioner, however, submits that it is of critical importance to characterize

the business it is engaged in, that is, to determine whether it is an HMO or an
insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements. [16]

A second hard look at the relevant law and jurisprudence convinces the Court
that the arguments of petitioner are meritorious.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997)
provides:
Section 185. Stamp tax on fidelity bonds and other
insurance policies. - On all policies of insurance or
bonds or obligations of the nature of indemnity for
loss, damage, or liability made or renewed by any person,
association or company or corporation transacting the
business of accident, fidelity, employer's liability,
plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), and all bonds,
undertakings, or recognizances, conditioned for the
performance of the duties of any office or position, for
the doing or not doing of anything therein specified, and
on all obligations guaranteeing the validity or legality
of any bond or other obligations issued by any province,
city, municipality, or other public body or organization,
and on all obligations guaranteeing the title to any real
estate, or guaranteeing any mercantile credits, which may
be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp
tax of fifty centavos (P0.50) on each four pesos (P4.00),
or fractional part thereof, of the premium charged.
(Emphasis supplied)

It is a cardinal rule in statutory construction that no word, clause, sentence,

provision or part of a statute shall be considered surplusage or superfluous,
meaningless, void and insignificant. To this end, a construction which renders
every word operative is preferred over that which makes some words idle and
nugatory.[17] This principle is expressed in the maxim Ut magis valeat quam
pereat, that is, we choose the interpretation which gives effect to the whole of
the statute - its every word.[18]

From the language of Section 185, it is evident that two requisites must

concur before the DST can apply, namely: (1) the document must be a policy
of insurance or an obligation in the nature of indemnity and (2) the
maker should be transacting the business of accident, fidelity,
employer's liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance).

Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health

Insurance Act of 1995"), an HMO is "an entity that provides, offers or
arranges for coverage of designated health services needed by plan members
for a fixed prepaid premium."[19] The payments do not vary with the extent,
frequency or type of services provided.

The question is: was petitioner, as an HMO, engaged in the business of

insurance during the pertinent taxable years? We rule that it was not.

Section 2 (2) of PD[20] 1460 (otherwise known as the Insurance Code)

enumerates what constitutes "doing an insurance business" or "transacting an
insurance business:"
a) making or proposing to make, as insurer, any insurance contract;

making or proposing to make, as surety, any contract of

b) suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;

doing any kind of business, including a reinsurance business,

c) specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;

doing or proposing to do any business in substance equivalent to

d) any of the foregoing in a manner designed to evade the provisions
of this Code.

In the application of the provisions of this

Code, the fact that no profit is derived from
the making of insurance contracts, agreements
or transactions or that no separate or direct
consideration is received therefore, shall
not be deemed conclusive to show that the
making thereof does not constitute the doing
or transacting of an insurance business.

Various courts in the United States, whose jurisprudence has a persuasive

effect on our decisions,[21] have determined that HMOs are not in the
insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the organization
or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely
incidental and service is the principal purpose, then the business is not
insurance.

Applying the "principal object and purpose test," [22] there is significant

American case law supporting the argument that a corporation (such as an
HMO, whether or not organized for profit), whose main object is to provide
the members of a group with health services, is not engaged in the insurance
business.

The rule was enunciated in Jordan v. Group Health Association[23] wherein the

Court of Appeals of the District of Columbia Circuit held that Group Health
Association should not be considered as engaged in insurance activities since
it was created primarily for the distribution of health care services rather than
the assumption of insurance risk.
xxx Although Group Health's activities may be considered
in one aspect as creating security against loss from
illness or accident more truly they constitute the
quantity purchase of well-rounded, continuous medical
service by its members. xxx The functions of such an
organization are not identical with those of insurance or
indemnity companies. The latter are concerned primarily,
if not exclusively, with risk and the consequences of its
descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence,
not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is
concerned principally with getting service rendered to
its members and doing so at lower prices made possible by
quantity purchasing and economies in operation. Its
primary purpose is to reduce the cost rather than the
risk of medical care; to broaden the service to the
individual in kind and quantity; to enlarge the number
receiving it; to regularize it as an everyday incident of
living, like purchasing food and clothing or oil and gas,
rather than merely protecting against the financial loss
caused by extraordinary and unusual occurrences, such as
death, disaster at sea, fire and tornado. It is, in this
instance, to take care of colds, ordinary aches and
pains, minor ills and all the temporary bodily
discomforts as well as the more serious and unusual
illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension,
the bringing of physician and patient together, the
 preventive features, the regularization of service as
well as payment, the substantial reduction in cost by
quantity purchasing in short, getting the medical job
done and paid for; not, except incidentally to these
features, the indemnification for cost after the services
is rendered. Except the last, these are not distinctive
or generally characteristic of the insurance
arrangement. There is, therefore, a substantial
difference between contracting in this way for the
rendering of service, even on the contingency that it be
needed, and contracting merely to stand its cost when or
after it is rendered.

That an incidental element of risk distribution or

assumption may be present should not outweigh all other
factors. If attention is focused only on that feature,
the line between insurance or indemnity and other types
of legal arrangement and economic function becomes faint,
if not extinct. This is especially true when the contract
is for the sale of goods or services on contingency. But
obviously it was not the purpose of the insurance
statutes to regulate all arrangements for assumption or
distribution of risk. That view would cause them to
engulf practically all contracts, particularly
conditional sales and contingent service
agreements.  The fallacy is in looking only at the risk
element, to the exclusion of all others present or their
subordination to it. The question turns, not on whether
risk is involved or assumed, but on whether that or
something else to which it is related in the particular
plan is its principal object purpose.[24](Emphasis
supplied)

In California Physicians' Service v. Garrison,[25] the California court felt that,

after scrutinizing the plan of operation as a whole of the corporation, it was
service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding
that the service is not engaged in the insurance
business. Absence or presence of assumption of risk or
peril is not the sole test to be applied in determining
its status. The question, more broadly, is whether,
looking at the plan of operation as a whole, `service'
rather than `indemnity' is its principal object and
purpose. Certainly the objects and purposes of the
 corporation organized and maintained by the California
physicians have a wide scope in the field of social
service. Probably there is no more impelling need than
that of adequate medical care on a voluntary, low-cost
basis for persons of small income. The medical profession
unitedly is endeavoring to meet that need. Unquestionably
this is `service' of a high order and not
`indemnity.'[26] (Emphasis supplied)

American courts have pointed out that the main difference between an HMO
and an insurance company is that HMOs undertake to provide or arrange for
the provision of medical services through participating physicians while
insurance companies simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit.  SomersetOrthopedic Associates,
P.A. v. Horizon Blue Cross and Blue Shield of New Jersey [27] is clear on this
point:
The basic distinction between medical service
corporations and ordinary health and accident insurers is
that the former undertake to provide prepaid medical
services through participating physicians, thus
relieving subscribers of any further financial burden,
while the latter only undertake to indemnify an insured
for medical expenses up to, but not beyond, the schedule
of rates contained in the policy.
xxx xxx xxx

The primary purpose of a medical service corporation,

however, is an undertaking to provide physicians who will
render services to subscribers on a prepaid
basis. Hence, if there are no physicians participating
in the medical service corporation's plan, not only will
the subscribers be deprived of the protection which they
might reasonably have expected would be provided, but
the corporation will, in effect, be doing business solely
as a health and accident indemnity insurer without
having qualified as such and rendering itself subject to
the more stringent financial requirements of the General
Insurance Laws....

A participating provider of health care services is one

who agrees in writing to render health care services to
or for persons covered by a contract issued by health
service corporation in return for which the health
 service corporation agrees to make payment directly to
the participating provider.[28] (Emphasis supplied)

Consequently, the mere presence of risk would be insufficient to override the

primary purpose of the business to provide medical services as needed, with
payment made directly to the provider of these services. [29] In short, even if
petitioner assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it nevertheless cannot
be considered as being engaged in the insurance business.

By the same token, any indemnification resulting from the payment for
services rendered in case of emergency by non-participating health providers
would still be incidental to petitioner's purpose of providing and arranging for
health care services and does not transform it into an insurer. To fulfill its
obligations to its members under the agreements, petitioner is required to set
up a system and the facilities for the delivery of such medical services. This
indubitably shows that indemnification is not its sole object.

In fact, a substantial portion of petitioner's services covers preventive and

diagnostic medical services intended to keep members from developing
medical conditions or diseases.[30] As an HMO, it is its obligation to maintain
the good health of its members.  Accordingly, its health care programs
are designed to prevent or to minimize the possibility of any
assumption of risk on its part. Thus, its undertaking under its agreements
is not to indemnify its members against any loss or damage arising from a
medical condition but, on the contrary, to provide the health and medical
services needed to prevent such loss or damage. [31]

Overall, petitioner appears to provide insurance-type benefits to its members

(with respect to its curative medical services), but these are incidental to the
principal activity of providing them medical care. The "insurance-like" aspect
of petitioner's business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance
business.

It is important to emphasize that, in adopting the "principal purpose test"

used in the above-quoted U.S. cases, we are not saying that petitioner's
operations are identical in every respect to those of the HMOs or health
providers which were parties to those cases. What we are stating is that, for
the purpose of determining what "doing an insurance business" means, we
have to scrutinize the operations of the business as a whole and not its mere
components. This is of course only prudent and appropriate, taking into
account the burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance business. Moreover, we
are also not unmindful that there are other American authorities who have
found particular HMOs to be actually engaged in insurance activities. [32]

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance

industry. This is evident from the fact that it is not supervised by the
Insurance Commission but by the Department of Health. [33] In fact, in a letter
dated September 3, 2000, the Insurance Commissioner confirmed that
petitioner is not engaged in the insurance business. This determination of the
commissioner must be accorded great weight. It is well-settled that the
interpretation of an administrative agency which is tasked to implement a
statute is accorded great respect and ordinarily controls the interpretation of
laws by the courts. The reason behind this rule was explained in Nestle
Philippines, Inc. v. Court of Appeals:[34]
The rationale for this rule relates not only to the
emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying
those needs; it also relates to the accumulation of
experience and growth of specialized capabilities by the
administrative agency charged with implementing a
particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,[35] the Court stressed that
executive officials are presumed to have familiarized
themselves with all the considerations pertinent to the
meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion
thereon. The courts give much weight to the government
agency officials charged with the implementation of the
law, their competence, expertness, experience and
informed judgment, and the fact that they frequently are
the drafters of the law they interpret.[36]

A Health Care Agreement Is Not An 

Insurance Contract Contemplated
Under Section 185 Of The NIRC of
1997 

Section 185 states that DST is imposed on "all policies of insurance... or

obligations of the nature of indemnity for loss, damage, or liability...." In our
decision dated June 12, 2008, we ruled that petitioner's health care
agreements are contracts of indemnity and are therefore insurance contracts:
It is ... incorrect to say that the health care agreement
is not based on loss or damage because, under the said
 agreement, petitioner assumes the liability and
indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The
term "loss or damage" is broad enough to cover the
monetary expense or liability a member will incur in case
of illness or injury.

Under the health care agreement, the rendition of

hospital, medical and professional services to the member
in case of sickness, injury or emergency or his availment
of so-called "out-patient services" (including physical
examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning
counseling) is the contingent event which gives rise to
liability on the part of the member. In case of exposure
of the member to liability, he would be entitled to
indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its

member from liability by paying for expenses arising from
the stipulated contingencies belies its claim that its
services are prepaid. The expenses to be incurred by each
member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying
for the costs of the services even if they are
significantly and substantially more than what the member
has "prepaid." Petitioner does not bear the costs alone
but distributes or spreads them out among a large group
of persons bearing a similar risk, that is, among all the
other members of the health care program. This is
insurance.[37]
We reconsider. We shall quote once again the pertinent portion of Section
185:
Section 185. Stamp tax on fidelity bonds and other
insurance policies. - On all policies of insurance or
bonds or obligations of the nature of indemnity for
loss, damage, or liability made or renewed by any
person, association or company or corporation transacting
the business of accident, fidelity, employer's liability,
plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), xxxx (Emphasis
supplied)
In construing this provision, we should be guided by the principle that tax
statutes are strictly construed against the taxing authority. [38] This is because
taxation is a destructive power which interferes with the personal and
property rights of the people and takes from them a portion of their property
for the support of the government.[39] Hence, tax laws may not be extended
by implication beyond the clear import of their language, nor their operation
enlarged so as to embrace matters not specifically provided. [40]

We are aware that, in Blue Cross and Philamcare, the Court pronounced that

a health care agreement is in the nature of non-life insurance, which is
primarily a contract of indemnity. However, those cases did not involve the
interpretation of a tax provision. Instead, they dealt with the liability of a
health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally interpreted
in favor of the member and strictly against the HMO. For this reason, we
reconsider our ruling that Blue Cross and Philamcare are applicable here.

Section 2 (1) of the Insurance Code defines a contract of insurance as an

agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.
An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the
happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general
scheme to distribute actual losses among a large
group of persons bearing a similar risk and
5. In consideration of the insurer's promise, the
insured pays a premium.[41]

Do the agreements between petitioner and its members possess all these
elements? They do not.

First. In our jurisdiction, a commentator of our insurance laws has pointed out
that, even if a contract contains all the elements of an insurance contract, if
its primary purpose is the rendering of service, it is not a contract of
insurance:
It does not necessarily follow however, that a contract
containing all the four elements mentioned above would be
an insurance contract. The primary purpose of the
 parties in making the contract may negate the existence
of an insurance contract. For example, a law firm which
enters into contracts with clients whereby in
consideration of periodical payments, it promises to
represent such clients in all suits for or against them,
is not engaged in the insurance business. Its contracts
are simply for the purpose of rendering personal
services. On the other hand, a contract by which a
corporation, in consideration of a stipulated amount,
agrees at its own expense to defend a physician against
all suits for damages for malpractice is one of
insurance, and the corporation will be deemed as engaged
in the business of insurance. Unlike the lawyer's
retainer contract, the essential purpose of such a
contract is not to render personal services, but to
indemnify against loss and damage resulting from the
defense of actions for malpractice.[42] (Emphasis
supplied)

Second. Not all the necessary elements of a contract of insurance are present
in petitioner's agreements. To begin with, there is no loss, damage or liability
on the part of the member that should be indemnified by petitioner as an
HMO. Under the agreement, the member pays petitioner a predetermined
consideration in exchange for the hospital, medical and professional services
rendered by the petitioner's physician or affiliated physician to him. In case of
availment by a member of the benefits under the agreement, petitioner does
not reimburse or indemnify the member as the latter does not pay any third
party. Instead, it is the petitioner who pays the participating physicians and
other health care providers for the services rendered at pre-agreed rates. The
member does not make any such payment.

In other words, there is nothing in petitioner's agreements that gives rise to a

monetary liability on the part of the member to any third party-provider of
medical services which might in turn necessitate indemnification from
petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or
claim has already been incurred. There is no indemnity precisely because the
member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements.

Third. According to the agreement, a member can take advantage of the bulk
of the benefits anytime, e.g. laboratory services, x-ray, routine annual
physical examination and consultations, vaccine administration as well as
family planning counseling, even in the absence of any peril, loss or damage
on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member
who receives care from a non-participating physician or hospital. However,
this is only a very minor part of the list of services available. The assumption
of the expense by petitioner is not confined to the happening of a contingency
but includes incidents even in the absence of illness or injury.

In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,

[43]
 although the health care contracts called for the defendant to partially
reimburse a subscriber for treatment received from a non-designated doctor,
this did not make defendant an insurer. Citing Jordan, the Court determined
that "the primary activity of the defendant (was) the provision of podiatric
services to subscribers in consideration of prepayment for such
services."[44] Since indemnity of the insured was not the focal point of the
agreement but the extension of medical services to the member at an
affordable cost, it did not partake of the nature of a contract of insurance.

Fifth. Although risk is a primary element of an insurance contract, it is not

necessarily true that risk alone is sufficient to establish it. Almost anyone who
undertakes a contractual obligation always bears a certain degree of financial
risk. Consequently, there is a need to distinguish prepaid service contracts
(like those of petitioner) from the usual insurance contracts.

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to

provide health services: the risk that it might fail to earn a reasonable return
on its investment. But it is not the risk of the type peculiar only to insurance
companies. Insurance risk, also known as actuarial risk, is the risk that the
cost of insurance claims might be higher than the premiums paid. The
amount of premium is calculated on the basis of assumptions made relative
to the insured.[45]

However, assuming that petitioner's commitment to provide medical services

to its members can be construed as an acceptance of the risk that it will shell
out more than the prepaid fees, it still will not qualify as an insurance
contract because petitioner's objective is to provide medical services at
reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioner's agreements with its members leads us

to conclude that it is not an insurance contract within the context of our
Insurance Code.

There Was No Legislative Intent To 

Impose DST On Health Care 
Agreements Of HMOs 

Furthermore, militating in convincing fashion against the imposition of DST on

petitioner's health care agreements under Section 185 of the NIRC of 1997 is
the provision's legislative history. The text of Section 185 came into U.S. law
as early as 1904 when HMOs and health care agreements were not even in
existence in this jurisdiction. It was imposed under Section 116, Article XI of
Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904")
[46]
 enacted on July 2, 1904 and became effective on August 1, 1904. Except
for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim
reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied,

collected, and paid for and in respect to the
several bonds, debentures, or certificates of
stock and indebtedness, and other documents,
instruments, matters, and things mentioned
and described in this section, or for or in
respect to the vellum, parchment, or paper
upon which such instrument, matters, or
things or any of them shall be written or
printed by any person or persons who shall
make, sign, or issue the same, on and after
January first, nineteen hundred and five, the
several taxes following:
xxx xxx xxx

Third xxx (c) on all policies of insurance or bond or

obligation of the nature of indemnity for loss, damage,
or liability made or renewed by any person, association,
company, or corporation transacting the business of
accident, fidelity, employer's liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or
other branch of insurance (except life, marine, inland,
and fire insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was
enacted revising and consolidating the laws relating to internal revenue. The
aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was
completely reproduced as Section 30 (l), Article III of Act No. 2339. The very
detailed and exclusive enumeration of items subject to DST was thus
retained.

On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again
reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative
Code). Upon its amendment on March 10, 1917, the pertinent DST provision
became Section 1449 (l) of Act No. 2711, otherwise known as the
Administrative Code of 1917.

Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466
(the NIRC of 1939), which codified all the internal revenue laws of the
Philippines. In an amendment introduced by RA 40 on October 1, 1946, the
DST rate was increased but the provision remained substantially the same.

Thereafter, on June 3, 1977, the same provision with the same DST rate was
reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and
1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST
rate was again increased.

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of

the NIRC of 1977 was renumbered as Section 198. And under Section 23 of
EO[47] 273 dated July 25, 1987, it was again renumbered and became Section
185.

On December 23, 1993, under RA 7660, Section 185 was amended but,
again, only with respect to the rate of tax.

Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA

8424 (or the NIRC of 1997), the subject legal provision was retained as the
present Section 185. In 2004, amendments to the DST provisions were
introduced by RA 9243[48] but Section 185 was untouched.

On the other hand, the concept of an HMO was introduced in the Philippines
with the formation of Bancom Health Care Corporation in 1974. The same
pioneer HMO was later reorganized and renamed Integrated Health Care
Services, Inc. (or Intercare). However, there are those who claim that Health
Maintenance, Inc. is the HMO industry pioneer, having set foot in the
Philippines as early as 1965 and having been formally incorporated in 1991.
Afterwards, HMOs proliferated quickly and currently, there are 36 registered
HMOs with a total enrollment of more than 2 million. [49]

We can clearly see from these two histories (of the DST on the one hand and
HMOs on the other) that when the law imposing the DST was first passed,
HMOs were yet unknown in the Philippines. However, when the various
amendments to the DST law were enacted, they were already in existence in
the Philippines and the term had in fact already been defined by RA 7875. If it
had been the intent of the legislature to impose DST on health care
agreements, it could have done so in clear and categorical terms. It had
many opportunities to do so. But it did not. The fact that the NIRC contained
no specific provision on the DST liability of health care agreements of HMOs
at a time they were already known as such, belies any legislative intent to
impose it on them.  As a matter of fact, petitioner was assessed its DST
liability only on January 27, 2000, after more than a decade in the
business as an HMO.[50]

Considering that Section 185 did not change since 1904 (except for the rate
of tax), it would be safe to say that health care agreements were never, at
any time, recognized as insurance contracts or deemed engaged in the
business of insurance within the context of the provision.

THE POWER TO TAX IS NOT 

THE POWER TO DESTROY

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 is to pay it. [51] So
potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy."[52]

Petitioner claims that the assessed DST to date which amounts to P376
million[53] is way beyond its net worth of P259 million. [54] Respondent never
disputed these assertions. Given the realities on the ground, imposing the
DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government
ought to encourage private enterprise.[55] Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a legitimate
business.[56] As aptly held in Roxas, et al. v. CTA, et al.:[57]
The power of taxation is sometimes called also the power
to destroy. Therefore it should be exercised with caution
to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays
the golden egg."[58]

Legitimate enterprises enjoy the constitutional protection not to be taxed out

of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another matter
and should not be allowed. It is counter-productive and ultimately subversive
of the nation's thrust towards a better economy which will ultimately benefit
the majority of our people.[59]

PETITIONER'S TAX LIABILITY

WAS EXTINGUISHED UNDER
THE PROVISIONS OF RA 9840

Petitioner asserts that, regardless of the arguments, the DST assessment for
taxable years 1996 and 1997 became moot and academic [60] when it availed
of the tax amnesty under RA 9480 on December 10, 2007. It paid
P5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty.
Under Section 6(a) of RA 9480, it is entitled to immunity from payment of
taxes as well as additions thereto, and the appurtenant civil, criminal or
administrative penalties under the 1997 NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.[61]

Far from disagreeing with petitioner, respondent manifested in its

memorandum:
Section 6 of [RA 9840] provides that availment of tax
amnesty entitles a taxpayer to immunity from payment of
the tax involved, including the civil, criminal, or
administrative penalties provided under the 1997 [NIRC],
for tax liabilities arising in 2005 and the preceding
years.

In view of petitioner's availment of the benefits of [RA

9840], and without conceding the merits of this case as
discussed above, respondent concedes that such tax
amnesty extinguishes the tax liabilities of petitioner.
This admission, however, is not meant to preclude a
revocation of the amnesty granted in case it is found to
have been granted under circumstances amounting to tax
fraud under Section 10 of said amnesty law.[62] (Emphasis
supplied)

Furthermore, we held in a recent case that DST is one of the taxes covered
by the tax amnesty program under RA 9480.[63] There is no other conclusion
to draw than that petitioner's liability for DST for the taxable years 1996 and
1997 was totally extinguished by its availment of the tax amnesty under RA
9480.

Is The Court Bound By A Minute

Resolution In Another Case? 

Petitioner raises another interesting issue in its motion for reconsideration:

whether this Court is bound by the ruling of the CA[64] in CIR v. Philippine
National Bank[65] that a health care agreement of Philamcare Health Systems
is not an insurance contract for purposes of the DST.

In support of its argument, petitioner cites the August 29, 2001 minute
resolution of this Court dismissing the appeal in Philippine National
Bank  (G.R. No. 148680).[66] Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the Court
should apply the CA ruling there that a health care agreement is not an
insurance contract.

It is true that, although contained in a minute resolution, our dismissal of the

petition was a disposition of the merits of the case. When we dismissed the
petition, we effectively affirmed the CA ruling being questioned. As a result,
our ruling in that case has already become final.[67] When a minute resolution
denies or dismisses a petition for failure to comply with formal and
substantive requirements, the challenged decision, together with its findings
of fact and legal conclusions, are deemed sustained. [68] But what is its effect
on other cases?

With respect to the same subject matter and the same issues concerning the
same parties, it constitutes res judicata.[69]However, if other parties or
another subject matter (even with the same parties and issues) is involved,
the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,
[70]
 the Court noted that a previous case, CIR v. Baier-Nickel[71] involving the
same parties and the same issues, was previously disposed of by the
Court thru a minute resolution dated February 17, 2003 sustaining the ruling
of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no
bearing" on the latter case because the two cases involved different subject
matters as they were concerned with the taxable income of different taxable
years.[72]

Besides, there are substantial, not simply formal, distinctions between a

minute resolution and a decision. The constitutional requirement under the
first paragraph of Section 14, Article VIII of the Constitution that the facts
and the law on which the judgment is based must be expressed clearly and
distinctly applies only to decisions, not to minute resolutions. A minute
resolution is signed only by the clerk of court by authority of the justices,
unlike a decision. It does not require the certification of the Chief Justice.
Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of
a decision.[73] Indeed, as a rule, this Court lays down doctrines or principles of
law which constitute binding precedent in a decision duly signed by the
members of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since
petitioner's liability for DST on its health care agreement was not the subject
matter of G.R. No. 148680, petitioner cannot successfully invoke the minute
resolution in that case (which is not even binding precedent) in its favor.
Nonetheless, in view of the reasons already discussed, this does not detract in
any way from the fact that petitioner's health care agreements are not
subject to DST.

A Final Note 

Taking into account that health care agreements are clearly not within the
ambit of Section 185 of the NIRC and there was never any legislative intent
to impose the same on HMOs like petitioner, the same should not be
arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for

adequate medical services at a cost which the average wage earner can
afford. HMOs arrange, organize and manage health care treatment in the
furtherance of the goal of providing a more efficient and inexpensive health
care system made possible by quantity purchasing of services and economies
of scale. They offer advantages over the pay-for-service system (wherein
individuals are charged a fee each time they receive medical services),
including the ability to control costs. They protect their members from
exposure to the high cost of hospitalization and other medical expenses
brought about by a fluctuating economy. Accordingly, they play an important
role in society as partners of the State in achieving its constitutional mandate
of providing its citizens with affordable health services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium
charged.[74] Its imposition will elevate the cost of health care services. This
will in turn necessitate an increase in the membership fees, resulting in either
placing health services beyond the reach of the ordinary wage earner or
driving the industry to the ground. At the end of the day, neither side wins,
considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16,
2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED and SET
ASIDE.  Respondent is ordered to desist from collecting the said tax.

No costs.

SO ORDERED.

7. NATIONAL CORPORATION, PETITIONER. POWER VS. CITY OF

CABANATUAN, REPRESENTED BY ITS CITY MAYOR, HON. HONORATO
PEREZ, RESPONDENTS.

D E C I S I O N

LEONEN, J.: 

This is a petition for review[1] under Rule 45, seeking to annul and set aside
the January 15, 2007 decision[2] and April 3, 2007 resolution[3] of the Court of
Appeals in CA-G.R. SP. No. 88377. The questioned decision dismissed
petitioner's petition for certiorari and affirmed the October 25, 2004 order [4] of
the Regional Trial Court of Cabanatuan City (Branch 30) directing the
issuance of a writ of execution against petitioner for the satisfaction of the
amount of P11,172,479.55, representing the balance of petitioner's franchise
tax liabilities plus 25% surcharge from 1992 to 2002. The resolution denied
petitioner's motion for reconsideration.
Antecedents

The City of Cabanatuan (the City) assessed the National Power Corporation
(NAPOCOR) a franchise tax amounting to P808,606.41, representing 75% of
1% of its gross receipts for 1992. NAPOCOR refused to pay, arguing that it is
exempt from paying the franchise tax.[5] Consequently, on November 9, 1993,
the City filed a complaint[6] before the Regional Trial Court of Cabanatuan
City, demanding NAPOCOR to pay the assessed tax due plus 25% surcharge
and interest of 2% per month of the unpaid tax, and costs of suit.

In the order[7] dated January 25, 1996, the trial court declared that the City
could not impose a franchise tax on NAPOCOR and accordingly dismissed the
complaint for lack of merit. In the March 12, 2001 decision [8] of the Court of
Appeals (Eighth Division) in CA-G.R. CV No. 53297, the appellate court
reversed the trial court and found NAPOCOR liable to pay franchise tax, as
follows:
IN VIEW OF THE FOREGOING, the decision appealed from
is SET ASIDE and REVERSED. Defendant-appellee National
Power Corporation is hereby ordered to pay the City of
Cabanatuan, to wit:

1. The sum of P808,606.41 representing

business tax based on gross receipts
for the year 1992, and
2. The tax due every year thereafter
based [o]n the gross receipts earned by
NPC,
3. In all cases, to pay a surcharge of
25% of the tax due and unpaid, and
4. The sum of P10,000.00 as litigation
expenses.

SO ORDERED.[9]

In its April 9, 2003 decision,[10] this court affirmed the Court of Appeals' March
12, 2001 decision and July 10, 2001 resolution. In its August 27, 2003
resolution,[11] this court denied with finality NAPOCOR's motion for
reconsideration.

After the court's decision had become final, the City filed with the trial court a
motion for execution[12] dated December 1, 2003 to collect the sum of
P24,030,565.26[13] (inclusive of the 25% surcharge of P13,744,096.69). In its
comment,[14] NAPOCOR prayed that the issuance of the writ be suspended
pending resolution of its protest letter dated December 12, 2003 filed with
the City Treasurer of Cabanatuan City on the computation of the surcharge.
NAPOCOR also informed the court of its payment to the City Treasurer of
P12,868,085.71 in satisfaction of the judgment award. [15]

Subsequently, the City filed a supplemental motion for execution [16] dated

January 29, 2004, claiming that the gross receipts upon which NAPOCOR's
franchise tax liabilities are to be determined should include transactions
within the coverage area of Nueva Ecija Electric Cooperative III and sales
from the different municipalities of the provinces of Tarlac, Pangasinan, Baler,
and Dingalan, Aurora. According to information allegedly gathered by the
City, these were transacted and consummated at NAPOCOR's sub-station in
Cabanatuan City.[17]
NAPOCOR filed its comment/opposition [18] dated March 29, 2004, praying that
the supplemental motion be denied for having raised new factual matters.
NAPOCOR emphasized that "the Court of Appeals Decision limits the franchise
tax payable based on the gross receipts from sales to Cabanatuan City's
electric cooperative."[19]

The City filed an amended motion for execution dated June 29, 2004,
[20]
 praying that "a writ of execution be issued by [the] Court directing
[NAPOCOR] to pay . . . the amount of P69,751,918.19 without prejudice to
the collection of the balance, if any." [21]  NAPOCOR filed its comment[22] again,
praying that' the grant of the amended motion be denied and/or suspended
pending final resolution of its protest.

On October 25, 2004, the trial court issued the order [23] resolving the pending
motions filed by the City and NAPOCOR's corresponding comments. The trial
court agreed with NAPOCOR that "the tenor of the decision [sought to be
executed] limits the franchise tax payable on gross receipts from sales to [the
City's] electric cooperative."[24] However, the trial court sustained the City's
computation of the surcharge totalling P13,744,096.69 over NAPOCOR's claim
of P2,571,617.14 only.[25]

NAPOCOR assailed the trial court's order dated October 25, 2004 through a
petition for certiorari[26] with the Court of Appeals.

On January 15, 2007, the Court of Appeals promulgated the assailed decision
dismissing' NAPOCOR's petition for certiorari and affirming the trial court's
order. It held that since the franchise tax due was computed yearly, the 25%)
surcharge should also be computed yearly based on the total unpaid tax for
each particular year.[27] The appellate court agreed with the City's reasoning
that non-imposition of the surcharge on a cumulative basis would encourage
rather than discourage non-payment of taxes.[28] In its resolution[29] dated
April 3, 2007, the Court of Appeals also denied NAPOCOR's motion for
reconsideration.

Hence, the present petition for review[30] was filed.

According to petitioner, the trial court and the Court of Appeals disregarded
the provisions of Section 168 of Republic Act No. 7160 or the Local
Government Code of 1991, which provides:
SECTION 168. Surcharges and Penalties on Unpaid Taxes,
Fees, or Charges. — The sanggunian may impose a
surcharge not exceeding twenty-five (25%) of the amount
of taxes, fees or charges not paid on time  and an
 interest at the rate not exceeding two percent (2%) per
month of the unpaid taxes, fees or charges including
surcharges, until such amount is fully paid but in no
case shall the total interest on the unpaid amount or
portion thereof exceed thirty-six (36) months. (Emphasis
supplied)

Petitioner submits that from the foregoing provision, the surcharge should
only be P2,571,617.14, computed by applying the 25% surcharge against the
total amount of taxes not paid on time, which is the total amount of tax due
from 1992 to 2002, or P10,286,468.57. In imposing a surcharge of
P13,744,096.69 instead of P2,571,617.14, the trial court allegedly "varied
and/or exceeded the terms of the judgment sought to be executed." [31]
Issue

The sole issue before the court is the proper interpretation for purposes of
execution of the dispositive portion of the Court of Appeals' decision in CA-
G.R. CV No. 53297, promulgated on March 12, 2001 (which was affirmed by
this court's April 9, 2003 decision in G.R. No. 149110). The dispositive portion
reads:
IN VIEW OF THE FOREGOING, the decision appealed from
is SET ASIDE and REVERSED. Defendant-appellee National
Power Corporation is hereby ordered to pay the City of
Cabanatuan, to wit:
1. The sum of P808,606.41 representing
business tax based on gross receipts for the
year 1992, and
2. The tax due every year thereafter based
[o]n the gross receipts earned by NPC,
3. In all cases, to pay a surcharge of 25%
of the tax due and unpaid, and
4. The sum of P10,000.00 as litigation
expenses.[32] (Emphasis supplied)

In other words, the crucial point to be resolved is what the Court of Appeals
meant by "[i]n all cases, to pay a surcharge of 25% of the tax due and
unpaid" in the dispositive portion.

The trial court resolved the question, as follows:

[Petitioner] obtained the amount of P2,571,617.14 by
getting the 25% of PI0,256,468.57, the total unpaid tax
due. Whereas, the [respondent], by further studying the
data on record, obtained the 25% of the tax due yearly.
The total unpaid tax due for example in year 1992
 (P808,606.41) would be added the tax due for 1993
(P821.401.17), obtaining the sum of P1,630,007.58 as
unpaid tax due. From this amount of P1,630,007.58 is to
be taken the 25% surcharge, giving the amount of
P407,501.89 to be added to the amount of P202.151.60, the
25% of the unpaid amount of P80.8,606.41. The same
computation was made on the succeeding years up to the
year 2002 giving the total amount of the
surcharge/penalty of P13,744,096.69.

This Court finds the computation of the [respondent] more

in accord with the decision in this case. The
[petitioner] was imposed taxes based on the gross
receipts yearly. The tax due was computed yearly and
therefore, it can be interpreted to mean that the 25%
surcharge should also be computed yearly based on the
unpaid tax due for each particular year.

Based on these computations, by adding the total tax due

for the year 1992 to 2002 (P10,286,468.57), the total
surcharge/penalty (P13,744,096.69) and the litigation
expenses (P10,000.00) as contained in the dispositive
portion, the [petitioner] has a total liability of
P24,040,565.26. Since the [petitioner] has already paid
the sum of P12,868,085.71; its total liability therefore
is P11,172,479.55.[33] (Emphasis supplied)

The trial court sustained respondent's computation of the surcharge based on

the total unpaid tax for each year [proper tax for the year + unpaid tax of the
previous year/s], which, in effect, resulted in the imposition of the 25%
surcharge for every year of default in the payment of a franchise tax, thereby
arriving at the total amount of P13,744,096.69. Petitioner, on the other hand,
insists a one-time application of the 25% surcharge based on the total
franchise tax due and unpaid (P10,286,468.57 from 1992 to 2002), arriving
at the sum of only P2,571,617.14.
This court's ruling 

The petition is meritorious.

The trial court's order of execution,

as affirmed by the Court of Appeals, 
exceeded the judgment sought to be 
executed
Respondent's computation of the surcharge, as sustained by the trial court
and the Court of Appeals, varies the terms of the judgment sought to be
executed and contravenes Section 168 of the Local Government Code.

To repeat, respondent computed the surcharge based on the total unpaid tax
for each particular year. For example, in 1993, the proper tax due
(P821,401.17) was added the unpaid tax due in year 1992 (P808,606.41),
obtaining the sum of Pl,630,007.58 as total unpaid tax. To this amount of
P1,630,007.58 was applied the 25% surcharge, giving the amount of
P407,501.89. In 1994, the proper tax due (P1,075,855.62) was added the
unpaid taxes for 1992 and 1993 (P1,630,007.58), yielding a total unpaid tax
of P2,705,863.20. To this sum of P2,705,863.20 was applied the 25%
surcharge, obtaining the amount of P676,465.80. The same computation was
made on the succeeding years up to the year 2002. The surcharges from
1992 to 2002 were added, giving the total amount of P13,744,096.69. Thus:
Year Tax Due Unpaid Surcharge
1992 P 808,606.41 P 808,606.41 P 202,151.60
1993 821,401.17 1,630,007.58 407,501.89
1994 1,075,855.62 2,705,863.20 676,465.80
1995 1,161,016.63 3,866,879.83 966,719.96
1996 449,599.84 4,316,479.67 1,079,119.92
1997 614,608.97 4,931,088.65 1,232,722.16
1998 519,967.33 5,451,055.97 1,362,763.99
1999 238,439.87 5,689,495.84 1,422,373.96
2000 1,030,108.81 6,719,604.65 1,679,901.16
2001 1,851,231.76 8,570,836.40 2,142,709.10
2002 1.715.632.16 10,286,468.57 2.571,617.14
Total  10,286,468.57 P13,744,096.69[34]

In effect, respondent's computation resulted in the imposition of the 25%o

surcharge for every year of default in the payment of a franchise tax. To
illustrate, the surcharge for the 1992 franchise tax is 25% of P808,606.41
[proper tax due] multiplied by 11 years [1992 to 2002]; for the 1993
franchise tax, 25% of P821,401.17 [proper tax due] multiplied by 10 years
[1993 to 2002]; for the 1994 franchise tax, 25% of P1,075,855.62 [proper
tax due] multiplied by 9 years [1994 to 2002]; and so on, as detailed below:
Tax Due Surcharg
Year +
       e
(25% x 808,606.41 x
1992 P808,606.41 P2,223,668
11)
(25% x
1993 821,401.17 2,053,503
821,401.17x10)
1994 1,075,855.62 2,420,675 (25% x
 1,075,855.62x9)
(25% x
1995 1,161,016.63 2,322,033
1,161,016.63x8)
(25% x 449,599.84 x
1996 449,599.84 786,799
7)
1997 614,608.97 921,913 (25% x 614,608.97x6)
1998 519,967.33 649,959 (25% x 519,967.33x5)
1999 238,439.87 238,439 (25% x 238,439.87x4)
(25% x 1,030,108.81
2000 1,030,108.81 772,581
x 3)
(25% x
2001 1,551,231.76 925,615
1,851,231.76x2)
(25% x 1,715,632.16
2002 1,715,632.16 428,908
x 1)
Total P10,286,468.57 ~P13,744,093

There is nothing in the Court of Appeals' decision that would justify the
interpretation that the statutory penalty of 25% surcharge should be charged
yearly from due date until full payment. If that was the intention of the Court
of Appeals, it should have so expressly stated in the dispositive portion of its
decision.

Respondent contends that in its complaint before the trial court, it prayed
that petitioner be ordered to pay the franchise tax due, plus 25% surcharge
and 2% monthly interest in accordance with Section 168 of the Local
Government Code.[35]However, the appellate court allegedly did not award the
2% monthly interest, and the only probable reason why it did not do so
notwithstanding the express provision of law was because of Article 1226 [36] of
the Civil Code stating that the "penalty [25% surcharge] shall substitute the
indemnity for damages and the payment of interest in case of non-
compliance."[37]  Hence, it contended that sans the payment of monthly
interest, the "one time [sic] imposition of the [surcharge] regardless of the
number of years of delay [would] be a great transgression of [its] right." [38]

Respondent's theory is implausible.

Article 1226 of the Civil Code refers to penalties prescribed in contracts, not
to penalties embodied in a judgment. We must yield to the specific language
of the  fallo which is controlling and construe its meaning in the light of the
applicable laws.

For clarity, we reiterate the pertinent portion of the dispositive:

1. The sum of P808,606.41 representing business tax based
on gross receipts for the year 1992, and
 2. The tax due every year thereafter based [o]n the gross
receipts earned by NPC,

3. In all cases, to pay a surcharge of 25% of the tax

due and unpaid, and. . . [39] (Emphasis supplied)

The fallo says "tax due and unpaid," which simply means tax owing or owed
or "tax due that was not paid." The "and" is "a conjunction used to denote a
joinder or union, 'binding together,' 'relating the one to the other.'" [40] In the
context of the decision rendered, there is no ambiguity.

As understood from the common and usual meaning of the conjunction "and,"
the words "tax due" and "unpaid" are inseparable. Hence, when the taxpayer
does not pay its tax due for a particular year, then a surcharge is applied on
the full amount of the tax due. However, when the taxpayer makes a partial
payment of the tax due, the surcharge is applied only on the balance or the
part of the tax due that remains unpaid. It is in this sense that the fallo of the
Court of Appeals decision should be read, i.e., a 25% surcharge is to be
added to the proper franchise tax so due and unpaid for each year.

The proper franchise tax due each year is computed, with paragraphs 1 and 2
of the fallo being applied, based on the gross receipts earned by NAPOCOR:
Year Tax Due
1992 P 808,606.41
1993 821,401.17
1994 1,075,855.62
1995 1,161,016.63
1996 449,599.84
1997 614,608.97
1998 519,967.33
1999 238,439.87
2000 1,030,108.81
2001 1,851,231.76
2002 1,715,632.16
Total P10,286,468.57[41]

Since the franchise tax due was not paid on time, a surcharge of 25% is
imposed as an addition to the main tax required to be paid.  This is the
proper meaning of paragraph 3 oí the fallo. Thus:
Year Tax Due + Surcharge
(25% x
1992 P 808,606.41 P 202,151.60
808,606.41)
1993 821,401.17 205,350.29 (25% x
 821,401.17)
(25% x
1994 1,075,855.62 268,963.91
1,075,855.62)
(25% x
1995 1,161,016.63 290,254.16
1,161,016.63)
(25% x
1996 449,599.84 112,399.96
449,599.84)
(25% x
1997 614,608.97 153,652.24
614,608.97)
(25% x
1998 519,967.33 129,991.83
519,967.33)
(25% x
1999 238,439.87 59,609.97
238,439.87)
(25% x
2000 1,030,108.81 257,527.20
1,030,108.81)
(25% x
2001 1,851,231.76 462,807.94
1,851,231.76)
(25% x
2002 1.715,632.16  428.908.04
1.715.632.16) 
Total  P 10,286,468.57 P 2,571,617.14

It is a fundamental rule that the execution cannot be wider in scope or exceed

the judgment or decision on which it is based; otherwise, it has no validity.
[42]
 "It is the final judgment that determines and stands as the source of the
rights and obligations of the parties."[43] In Collector of Internal Revenue v.
Gutierrez,[44] this court did not allow the collection of the 5% surcharge and
1% monthly interest because the decision sought to be executed did not
expressly provide for the payment of the same.
It is the final judgment that determines and stands as
the source of the rights and obligations of the parties.
The judgment in this case made no pronouncement as to the
payment of surcharge and interest, but specifically
stated the amount for the payment of which respondents
were liable. The Collector by virtue of the writ of
execution, may not vary the terms of the judgment by
including in his motion for execution the payment of
surcharge and interest.
"The writ of execution must conform to the
judgment which is to be executed, as it may
not vary the terms of the judgment it seeks
to enforce. Nor may it go beyond the terms of
the judgment sought to be executed. Where the
execution is not in harmony with the judgment
which gives it life and exceeds it, it
 has pro tanto no validity." (Moran,
Comments on the Rules of Court, 1957 ed.,
Vol. I, p. 556, and authorities cited
therein.)[45]

In The Philippine American Accident Insurance Co., Inc. v. Hon. Flores,[46] the

trial court's order directing the issuance of an alias writ of execution for the
satisfaction of the compound interest computed by private respondent was
set aside by this court, ruling that the judgment sought to be executed
ordered only the payment of a simple interest:
The questioned Order cannot be sustained. The judgment
which was sought to be executed ordered the payment of
simple "legal interest" only. It said nothing about the
payment of compound interest. Accordingly, when the
respondent judge ordered the payment of compound interest
he went beyond the confines of his own judgment which had
been affirmed by the Court of Appeals and which had
become final. Fundamental is the rule that execution must
conform to that ordained or decreed in the dispositive
part of the decision. Likewise, a court can not [sic],
except for clerical errors or omissions, amend a judgment
that has become final.[47] (Citation omitted)

Respondent should have filed an appeal from the judgment or at the least
sought clarification insofar as it failed to provide for the payment of the 2%
monthly interest. Instead, it erroneously presumed that the surcharge was to
be applied yearly with the omission of the payment for monthly interest in the
judgment. Hence, respondent alone is to blame and should suffer the
consequences of its neglect. With the finality of the Court of Appeals'
judgment, all the issues between the parties are deemed resolved and laid to
rest. Neither the trial court nor even this court can amend or add to the
dispositive portion of a decision that has attained finality.
The judgment directing the
payment of surcharge on
taxes due and unpaid should
 
be read in consonance with
Section 168 of the Local
Government Code

Section 168 of the Local Government Code categorically provides that the
local government unit may impose a surcharge not exceeding 25% of the
amount of taxes, fees, or charges not paid on time.
 SECTION 168. Surcharges and Penalties on Unpaid Taxes,
Fees, or Charges. — The sanggunian may impose
a surcharge not exceeding twenty-five (25%) of the
amount of taxes, fees or charges not paid on time  and an
interest at the rate not exceeding two percent (2%) per
month of the unpaid taxes, fees or charges including
surcharges, until such amount is fully paid but in no
case shall the total interest on the unpaid amount or
portion thereof exceed thirty-six (36) months. (Emphasis
supplied)

The surcharge is a civil penalty imposed once for late payment of a tax.
[48]
 Contrast this with the succeeding provisions on interest, which was
imposable at the rate not exceeding 2% per month  of the unpaid taxes until
fully paid. The fact that the interest charge is made proportionate to the
period of delay, whereas the surcharge is not, clearly reveals the legislative
intent for the different modes in their application.

Indeed, both the surcharge and interest are imposable upon failure of the
taxpayer to pay the tax on the date fixed in the law for its payment. The
surcharge is imposed to hasten tax payments and to punish for evasion or
neglect of duty,[49]while interest is imposed to compensate the State "for the
delay in paying the tax and for the concomitant use by the taxpayer of funds
that rightfully should be in the government's hands." [50]

A surcharge regardless of how it is computed is already a deterrent. While it

is true that imposing a higher amount may be a more effective deterrent, it
cannot be done in violation of law and in such a way as to make it
confiscatory. We find this reasoning not compelling for us to deviate from the
express provisions of Section 168 of the Local Government Code. When a law
speaks unequivocally, it is not the province of this court to scan its wisdom or
its policy.

This court has steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its plain terms,
interpretation being called for only when such literal application is impossible.
Neither the court nor the City has the power to modify the penalty. [51]

If the legislative intent was to make the 25% surcharge proportionate to the
period of delay, the law should have provided for the same in clear terms.

Generally, tax statutes are construed strictly against the government and in
favor of the taxpayer. [52] "[Statutes levying taxes or duties [are] not to
extend their provisions beyond the clear import of the language used"; [53] and
"tax burdens are not to be imposed, nor presumed to be imposed beyond
what the statute[s] expressly and clearly [import]. . . ." [54]Similarly, we
cannot impose a penalty for non-payment of a tax greater than what the law
provides.[55] To do so would amount to a deprivation of property without due
process of law.

Respondent's computation of the surcharge is oppressive and

unconscionable  

The yearly accrual of the 25% surcharge is unconscionable. Respondent's

computation of the total tax due plus surcharge is reproduced below for easy
reference.
Surcharge
Year Tax Due Unpaid Total
(.25 x Unpaid)
P
1992 P 808,606.41 P 808,606.41 P 202,151.60
1,010,758.01
1993 821,401.17 1,630,007.58 407,501.89 1,228,903.06
1994 1,075,855.62 2,705,863.20 676,465.80 1,752,321.42
1995 1,161,016.63 3,866,879.83 966,719.96 2,127,736.59
1996 449,599.84 4,316,479.67 1,079,119.92 1,528,719.76
1997 614,608.97 4,931,088.65 1,232,722.16 1,847,381.13
1998 519,967.33 5,451,055.97 1,362,763.99 1,882,731.32
1999 238,439.87 5,689,495.84 1,422,373.96 1,660,813.83
2000 1,030,108.81 6,719,604.65 1,679,901.16 2,710,009.97
2001 1,851,231.76 8,570,836.40 2,142,709.10 3,993,940.86
2002 1,715,632.16 10,286,468.57 2,571,617.14 4,287,249.31
P
P P
Total P 13,744,096.69 24,030,565.26
10,286,468.57 54,976,386.76 [56]

Respondent's yearly imposition of the 25% surcharge, which was sustained

by the trial court and the Court of Appeals, resulted in an aggregate penalty
that is way higher than petitioner's basic tax liabilities.

Furthermore, it effectively exceeded the prescribed 72% ceiling for interest

under Section 168 of the Local Government Code. The law allows the local
government to collect an interest at the rate not exceeding 2% per month of
the unpaid taxes, fees, or charges including surcharges, until such amount is
fully paid. However, the law provides that the total interest on the unpaid
amount or portion thereof should not exceed thirty-six (36) months or three
(3) years. In other words, respondent cannot collect a total interest on the
unpaid tax including surcharge that is effectively higher than 72%. Here,
respondent applied the 25% cumulative surcharge for more than three years.
Its computation undoubtedly exceeded the 72% ceiling imposed under
Section 168 of the Local Government Code. Hence, respondent's computation
of the surcharge is oppressive and unconscionable.

We conclude that the trial court committed grave abuse of discretion

amounting to lack or excess of jurisdiction in issuing its order dated October
25, 2004, which adopted respondent's computation and effectively varied the
terms of the judgment sought to be executed insofar as it imposed a
surcharge of P13,744,096.69 on the total tax due (P10,286,468.57) from
1992 to 2002 instead of only P2,571,617.14.

Taxes and its surcharges and penalties cannot be construed in such a way as
to become oppressive and confiscatory. Taxes are implied burdens that
ensure that individuals and businesses prosper in a conducive environment
assured by good and effective government. A healthy balance should be
maintained such that laws are interpreted in a way that these burdens do not
amount to a confiscatory outcome. Taxes are not and should not be construed
to drive businesses into insolvency. To a certain extent, a reasonable
surcharge will provide incentive to pay; an unreasonable one delays payment
and engages government in unnecessary litigation and expense.

Since it is undisputed that petitioner had already paid the amount of f

12,868,085.71[57] (including litigation expenses of P10,000.00) to the City
Treasurer of Cabanatuan City, the judgment has accordingly been fully
satisfied.

WHEREFORE, the petition is GRANTED and the Court of Appeals decision

and resolution dated January 15, 2007 and April 3, 2007 are REVERSED
AND SET ASIDE. The order dated October 25, 2004 of the Regional Trial
Court of Cabanatuan City, Branch 30, in Civil Case No. 1659 AF granting the
writ of execution for the satisfaction of the amount of P11,172,479.55
is ANNULLED AND SET ASIDE.