Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 120082 September 11, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch
20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
CESA, respondents.

FACTS:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act No. 6958.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter.

On October 11, 1994, however, Office of the Treasurer of the City of Cebu, demanded
payment for realty taxes on several parcels of land belonging to the petitioner.

Petitioner also asserted that it is an instrumentality of the government performing

governmental functions, citing section 133 of the Local Government Code of 1991 which puts
limitations on the taxing powers of local government units.

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that
the MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that took effect
on January 1, 1992.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner,
the latter was compelled to pay its tax account "under protest" and thereafter filed a Petition
for Declaratory Relief with the Regional Trial Court of Cebu.

MCIAA basically contended that the taxing powers of local government units do not extend to
the levy of taxes or fees of any kind on an instrumentality of the national government.

Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands on

the same footing as an agency or instrumentality of the national government by the very nature of its
powers and functions.

The trial court dismissed the petition.

ISSUE: WON PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.

HELD: YES.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging
in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions. Our Constitution, for instance, provides
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that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of
taxation. So potent indeed is the power that it was once opined that "the power to tax involves the power to
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destroy." Verily, taxation is a destructive power which interferes with the personal and property for the
15

support of the government. Accordingly, tax statutes must be construed strictly against the government and
liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood
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of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. A claim of
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exemption from tax payment must be clearly shown and based on language in the law too plain to be
mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. However, if the
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grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not
apply because the practical effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. 21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter,
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the exercise of the power may be subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions,
agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual and is thus covered by the non-
impairment clause of the Constitution. 23

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by
local government units of their power to tax, the scope thereof or its limitations, and the exemption
from taxation.

Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid
down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia,
"taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and
local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has
been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.

Since the last paragraph of Section 234 of the LGC unequivocally withdrew, upon the effectivity of
the LGC, exemptions from real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been withdrawn.
Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Section 232 and 234.

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment
of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the
National Government mentioned in Section 133(o), then it should have restated the wording of the latter.
Yet, it did not. Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a)
to include real property owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code.

Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled
corporation so exempt by its charter" was excluded. The justification for this restricted exemption in Section
234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general provision on
withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in the
last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local
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autonomy to enable them to attain their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. The power to tax is the most effective instrument to
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raise needed revenues to finance and support myriad activities of local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of
tax exemption privileges granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment
of similarly situated enterprises, and there was a need for this entities to share in the requirements of the
development, fiscal or otherwise, by paying the taxes and other charges due from them. 35

Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only
exempted from the payment of real property taxes . The grant of the privilege only in respect of this
tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes,
except real property tax.

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.