G.R. No.

91649 May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN

AND LORENZO SANCHEZ, petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR),
respondent.

H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

FACTS:

A television advertisement proudly proclaims: "The new PAGCOR — responding

through responsible gaming." However, the petitioners hold a different view, leading
them to file the present petition aimed at annulling the Philippine Amusement and
Gaming Corporation (PAGCOR) Charter — PD 1869. They argue that it allegedly goes
against morals, public policy, and order. Additionally, they assert:

A. It involves the waiver of a right that negatively impacts a third party with a right
protected by law. Specifically, it waives the Manila City government's authority to
impose taxes and license fees, a right acknowledged by law.

B. Along the same lines as the previous point, the law encroaches on the local
government's power to levy local taxes and license fees. This is seen as a violation of
the constitutionally established principle of local autonomy.

In their Second Amended Petition, the petitioners further contend that PD 1869
contradicts the stated national policy of the "new restored democracy" and the
expressed will of the people as outlined in the 1987 Constitution. They assert that the
decree is driven by a "gambling objective" and thus conflicts with Sections 11, 12, and
13 of Article II, Section 1 of Article VIII, and Section 3 (2) of Article XIV of the present
Constitution.
 The Philippine Amusements and Gaming Corporation (PAGCOR) was
established under P.D. 1067-A dated January 1, 1977 and was granted a franchise
under P.D. 1067-B, also dated January 1, 1977, to operate and maintain gambling
casinos. Initially, its operation was conducted on the well-known floating casino
"Philippine Tourist." This operation proved successful as it emerged as a potential
revenue source for funding infrastructure and socio-economic projects, leading to the
passage of P.D. 1399 on June 2, 1978, aimed at furthering PAGCOR's objectives.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to
enable the Government to regulate and centralize all games of chance authorized by
existing franchises or permitted by law, under a declared policy to achieve the following
objectives:

(a) Centralize and integrate the right and authority to operate and conduct games
of chance into one corporate entity controlled, administered, and supervised by the
Government.

(b) Establish and operate clubs and casinos for amusement and recreation,
including sports gaming pools and other forms of amusement and recreation allowed by
law within the Philippines' territorial jurisdiction. These initiatives aimed to generate
additional revenue for funding crucial public services and improving existing tourist
attractions while reducing the prevalence of corruption in the operation of gambling
clubs and casinos without direct government involvement.

However, the petitioners question the validity of P.D. No. 1869, alleging that it is
"null and void" for being "contrary to morals, public policy, and public order." They also
argue that it fosters a monopolistic and cronyistic economy, violates the equal protection
clause and local autonomy, and runs counter to state policies outlined in various
sections of the 1987 Constitution.

ISSUE:

Whether P.D. No. 1869 violates the principle of local autonomy.

HELD::

The act of gambling in all its forms is generally prohibited unless explicitly
permitted by law. However, this does not preclude the Government from regulating it as
part of its police power. P.D. 1869 was established in line with the government's policy
to "regulate and centralize through an appropriate institution all games of chance
authorized by existing franchise or permitted by law."

The petitioners argue that P.D. 1869 entails a waiver of the City of Manila's right
to impose taxes and legal fees, and that the exemption clause within P.D. 1869 violates
the principle of local autonomy. They may be referring to Section 13 par. (2) of P.D.
1869, which exempts PAGCOR, as the franchise holder, from paying any "tax of any
kind or form, income or otherwise, as well as fees, charges or levies of whatever nature,
whether National or Local."

Their argument stated above lacks merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation, lacks the inherent
right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer
that power or the municipality cannot assume it." Its "power to tax" must therefore
always yield to a legislative act that is superior, having been passed by the state itself,
which possesses the "inherent power to tax."

-xxx-

(c) The City of Manila's authority to impose license fees on gambling was
revoked long ago. As early as 1975, the power of local governments to regulate
gambling through the grant of "franchise, licenses, or permits" was withdrawn by P.D.
No. 771 and vested exclusively in the National Government. Consequently, only the
National Government holds the power to issue "licenses or permits" for the operation of
gambling. Therefore, the power to demand or collect license fees, a consequence of the
issuance of "licenses or permits," is no longer vested in the City of Manila.

(d) Local governments do not possess the power to tax instrumentalities of the
National Government. PAGCOR is a government-owned or controlled corporation with
an original charter, PD 1869. All of its shares of stocks are owned by the National
Government. PAGCOR plays a dual role, both operating and regulating gambling
casinos. The regulatory role is governmental, placing it in the category of an agency or
instrumentality of the Government. As such, PAGCOR should rightfully be exempt from
local taxes. Otherwise, its operation could be burdened, hindered, or subject to control
by a mere Local government.

(e) Petitioners also contend that P.D. 1869 would violate the Local Autonomy
Clause of the Constitution. This argument is without basis. Article X of the 1987
Constitution, pertaining to Local Autonomy, states:
 Sec. 5. Each local government unit shall have the power to create its own source
of revenue and to levy taxes, fees, and other charges subject to such guidelines and
limitations as Congress may provide, consistent with the basic policy on local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local government.
(emphasis added)

The authority of local government to "impose taxes and fees" is always subject to
"limitations" which Congress may enact into law. Since PD 1869 remains an "operative"
law until "amended, repealed, or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its
"exemption clause" remains an exception to the exercise of the power of local
governments to impose taxes and fees. It is, therefore, not violative but rather in line
with the principle of local autonomy.

Furthermore, the principle of local autonomy under the 1987 Constitution simply
signifies "decentralization." It does not grant local governments sovereignty within the
state or establish an "imperium in imperio."

Local government is described as a political subdivision of a nation or state

constituted by law, granted substantial control over local affairs. In a unitary system of
government, such as the government under the Philippine Constitution, local
governments can only serve as an intra-sovereign subdivision of one sovereign nation;
it cannot function as an imperium within an imperio. In such a system, local government
merely represents a degree of decentralization in the functions of government.
(emphasis added)