tax cases for oct 5.docx

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Republic of the Philippines

SUPREME COURTManila

EN BANC

G.R. No. L-31156 February 27, 1976PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,vs.

MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor

General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was

certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging

the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as

amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,

commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to

declare Section 2 of Republic Act No. 2264.1otherwise known as the Local Autonomy Act, unconstitutional as

an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the

municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first,

both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates

imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal

Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in

said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series

of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and

collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every

bottle of soft drink corked." 2For the purpose of computing the taxes due, the person, firm, company or

corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number

of bottles produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects

"on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE

CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4For the purpose of computing

the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to


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the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the

month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and

upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legaland constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the

costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,

elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.

There are three capital questions raised in this appeal:

1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?

2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?

3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to

every independent government, without being expressly conferred by the people. 6It is a power that is purely

legislative and which the central legislative body cannot delegate either to the executive or judicial department

of the government without infringing upon the theory of separation of powers. The exception, however, lies in

the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated

to local governments in respect of matters of local concern. 7This is sanctioned by immemorial practice. 8By

necessary implication, the legislative power to create political corporations for purposes of local self-

government carries with it the power to confer on such local governmental agencies the power to tax. 9Under

the New Constitution, local governments are granted the autonomous authority to create their own sources ofrevenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to

create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal,

it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative

power to enact and vest in local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not

suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not

limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be

delegated to municipalities and the like, it is meant that there may be delegated such measure of power to

impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax

subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes.10

This is not to say though that the constitutional injunction against deprivation of property without due process of

law may be passed over under the guise of the taxing power, except when the taking of the property is in the

lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of

taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying

the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing

are provided. 11Due process is usually violated where the tax imposed is for a private as distinguished from a

public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary or


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oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process

clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a

benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax

to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and

the manner in which it shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theoryof double taxation. It must be observed that the delegating authority specifies the limitations and enumerates

the taxes over which local taxation may not be exercised. 13The reason is that the State has exclusively

reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our

fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the

Constitution of the United States and some states of the Union.14Double taxation becomes obnoxious only

where the taxpayer is taxed twice for the benefit of the same governmental entity 15or by the same jurisdiction

for the same purpose, 16but not in a case where one tax is imposed by the State and the other by the city or

municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two

ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds fromits assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted,

Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or

manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume

contents of the bottle used. When it was discovered that the producer or manufacturer could increase the

volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance

No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid

ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the

soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.

27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the

Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitutefor the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18

Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27,

series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan,

Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series

of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by

defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that

Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter

are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific

tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264,is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as

the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in

the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and

exceptio firmat regulum in cabisus non excepti 19The limitation applies, particularly, to the prohibition against

municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon

nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National

Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a


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set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null

and void for being outside the power of the municipality to enact. 20But, the imposition of "a tax of one centavo

(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or

manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other

taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales.

The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of

determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount

of the tax.21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such

as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches

firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,

playing cards, saccharine, opium and other habit-forming drugs. 22Soft drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced

or manufactured, or an equivalent of 1- centavos per case, 23cannot be considered unjust and unfair. 24 anincrease in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.

Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is inline with the constutional policy of according the widest possible autonomy to local governments in matters of

local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless

the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable.

27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the

law to further strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or

P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and

dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by

Ordinance No. 41, series of 1968, of defendant Municipality, 29appears not to affect the resolution of thevalidity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon

persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes.

The ordinance in question (Ordinance No. 27) comes within the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local

Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,

Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and

legal effect. Costs against petitioner-appellant.

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and Concepcion, Jr.,JJ., concur.

Separate Opinions


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FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.

Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in

agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local

Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from a

different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it iswell-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications

that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny

question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon.1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal

corporations. It is therein specifically provided: "Each local government unit shall have the power to create its

own sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2That was

not the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the

national government, was that while the President of the Philippines was vested with the power of control over

all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local

governments as may be provided by law ... 3As far as legislative power over local government was concerned,no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the

extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a

statute that enlarged the scope of the municipal taxing power. 4Thereafter, in 1959 such competence was

further expanded in the Local Autonomy Act. 5Nevertheless, as late as December of 1964, five years after its

enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City

of Butuan, 6reaffirmed the traditional concept in these words: "The rule is well-settled that municipal

corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute must

clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and

that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the

grant to be resolved against the municipality."

7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8"is an attribute ofsovereignty which municipal corporations do not enjoy." 9That case left no doubt either as to weakness of a

claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of

the power to tax of a municipal corporation." 10As the conclusion reached by the Court finds support in suchgrant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged

double taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11

Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this language:

'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due

process clause) no more forbids double taxation than it does doubling the amount of a tax, short of

(confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time whenAmerican sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To

some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the

taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent

critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a

leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be

sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.


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Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.

Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in

agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local

Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from a

different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it is

well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications

that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny

question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon.1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal

corporations. It is therein specifically provided: "Each local government unit shall have the power to create itsown sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2That was

not the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the

national government, was that while the President of the Philippines was vested with the power of control over

all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local

governments as may be provided by law ... 3As far as legislative power over local government was concerned,no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the

extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a

statute that enlarged the scope of the municipal taxing power. 4Thereafter, in 1959 such competence was

further expanded in the Local Autonomy Act. 5Nevertheless, as late as December of 1964, five years after its

enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. Cityof Butuan, 6reaffirmed the traditional concept in these words: "The rule is well-settled that municipal

corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute must

clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and

that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the

grant to be resolved against the municipality."7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8"is an attribute ofsovereignty which municipal corporations do not enjoy." 9That case left no doubt either as to weakness of a

claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of

the power to tax of a municipal corporation." 10As the conclusion reached by the Court finds support in such

grant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an allegeddouble taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11

Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this language:

'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due

process clause) no more forbids double taxation than it does doubling the amount of a tax, short of

(confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time when

American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To

some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the


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taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent

critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a

leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be

sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.

Footnotes

1 "Sec. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities

and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in

any occupation or business, or exercising private in chartered cities, municipalities and municipal districts by

requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal

council of the municipality, or the municipal district council of the municipal district to collect fees and charges

for service rendered by the city, municipality or municipal district; to regulate and impose reasonable for

services rendered in connection with any business, profession occupation being conducted within the city,

municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or

fees: Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax onsales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except

gasoline, under the provisions of the National Internal Revenue Code: Provided, however, That no city,

municipality or municipal district may levy or impose any of the following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of any newspaper engaged in the printing and publication of any newspaper,

magazine, review or bulletin appearing at regular interval and having fixed prices for subscription and sale, and

which is not published primarily for the purpose of publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and

power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits

for the driving thereof;

(i) Customs duties registration, wharfage on wharves owned by the national government, tonnage and all other

kinds of customs fees, charges and dues;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax:

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance

companies; and


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(i) Taxes, fees or levies, of any kind, which in effect impose a burden on exports of Philippine finished,

manufactured or processed products and products of Philippine cottage industries.

2 Section 2.

3 Section 3.

4 Section 2.

5 Section 3.

6 Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.

7 Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan, L-22814, August 28, 1968, 24 SCRA 793-96.

8 Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).

9 Cooley, ante at 190.

10 Idem at 198-200.

11 Malcolm, Philippine Constitutional Law, 513-14.

12 Cooley ante at 334.

13 See footnote 1.

14 Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, 1, 2S 1 4, August 28, 1968, 24 SCRA 793-96.

See Sec. 22, Art. VI, 1935

Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution.

15 Commissioner of Internal Revenue v. Lednicky L- 18169, July 31, 1964, 11 SCRA 609.

16 SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.

17 Punzalan v. Mun. Bd of City of Manila, 50 O.G. 2485; manufacturers Life Ins. Co. v. Meer, 89 Phil. 351

(1951).

18 McQuillin. Municipal Corporations, 3rd. Ed., Vol. 6, at 206.-210.

19 Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin Bay Mining Co. v. Mun. of

Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 663-64.

20 Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975.

21 SMB, Inc. v. City of Cebu, ante, Footnote 16.

22 Shell Co. of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA No. 953, Narcotic Drugs

Law, June 20, 1953.

23 Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks contains 8 oz., or 192 oz. per

case of 24 bottles; a family-size contains 26 oz., or 312 oz. per case of 12 bottles.


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24 SeePepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14, where the tax rate is P.10

per case of 24 bottles; City of Bacolod v. Gruet, L-18290, January 31, 1963, 7 SCRA 168-69, where the tax is

P.03 on every case of bottled Coca-Coal.

25 Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January 30, 1971, 31 SCRA 308.

26 William Lines, Inc. v. City of Ozamis, L-350048, April 23, 1974, 56 SCRA 593, Second Division, perFernando, J.

27 Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRa 205.

28 Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125, January 31, 1973, 43 SCRA

133-34.

29 Subject of plaintiff-appellant's Motion for Admission and consideration of Essential Newly Dissevered

Evidence, dated April 30, 1969.

FERNANDO, J.

1 L-24756, October 31, 1968, 25 SCRA 938.

2 Article XI, Section 5 of the present Constitution.

3 Article VII, Section 10 of the 1935 Constitution.

4 Commonwealth Act 472 entitled: "An Act Revising the General Authority of Municipal Councils and Municipal

District Councils to Levy Taxes, Subject to Certain Limitations."

5 Republic Act No. 2264.

6 L-18534, December 24,1964,12 SCRA 611.

7 Ibid, 619. Cf. Cuunjieng v. Potspone, 42 Phil. 818 (1922); De Linan v. Municipal Council of Daet, 44 Phil. 792

(1923); Arquiza Luta v. Municipality of Zamboanga, 50 Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga,

55 Phil. 653 (1931); Yeo Loby v. Zamboanga, 55 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap

Tak Wing v. Municipal Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso 83 Phil. 852 (1949); De la

Rosa v. City of Baguio, 91 Phil. 720 (I!)52); Medina v. City of Baguio, 91 Phil. 854 (1952); Standard-Vacuum

Oil Co. v. Antigua, 96 Phil. 909 (1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956),

Taxation 1

Case Digests

Pepsi-Cola vs Mun. of Tanauan (G.R. No. L-31156 Feb 27,1976)

The legislative power to create political corporations for purposes of localself-government courts with it the

power to confer on such local government agencies the power to tax.

Pepsi commenced a complaint with preliminary injunctionbefore the CFI of Leyte for that court to declare

Section 2 ofR.A. 2264 (Local Autonomy Act) unconstitutional as an unduedelegation of taxing authority as well


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as declare MunicipalOrdinance Nos. 23 & 27 series of 1962 of Municipality ofTanauan, Leyte null and void.

Municipal Ordinance 23 leviesand collects from softdrinks producers and manufacturers atai of 1/16

th

of a centavo for every bottle of softdrink corked.On the other hand, Municipal Ordinance 27 levies andcollects

on softdrinks produced or manufactured within theterritorial jurisdiction of the municipality a tax of 1 centavooneach gallon of volume capacity. Both are denominated asmunicipal production tax.Issues: a) WoN section 2

of R.A. 2264 is an undue delegationof power b) WoN Ordinances 23 & 27 constitute doubletaxation and

impose percentage or specific tax c) WoNOrdinances 23 and 27 are unjust and unfairHeld: a) No, it is true that

power of taxation is purelylegislative and which the central legislative body cannotdelegate either to the

executive or judicial department ofthe government without infringing upon the theory ofseparation of powers

but the exception lies in the case ofmunicipal corporations to which the said theory does notapply. Legislative

concerns may be delegated to localgovernments in respect of matters of local concerns. Bynecessary

implication, the legislative power to createpolitical corporations for purposes of local self-governmentcourts

with it the power to confer on such local governmentagencies the power to tax. The constitution grants

localgovernment the autonomous authority to create their ownsources of revenue and to levy taxes.b) No, the

difference between the two ordinances clearly liesin the tax rate of the soft drinks produced: in OrdinanceNo.23, it was 1/16 of a centavo for every bottle corked; inOrdinance No. 27, it is one centavo (P0.01) on each

gallon(128 fluid ounces, U.S.) of volume capacity. The intention of

the Municipal Council of Tanauan in enacting Ordinance No.27 is thus clear: it was intended as a plain

substitute for theprior Ordinance No. 23, and operates as a repeal of thelatter, even without words to that

effect. Plaintiff-appellantin its brief admitted that defendants-appellees are onlyseeking to enforce Ordinance

No. 27, series of 1962.Undoubtedly, the taxing authority conferred on localgovernments under Section 2,

Republic Act No. 2264, is broadenough as to extend to almost "everything, accepting thosewhich are

mentioned therein."

The limitation applies,particularly to the prohibition against municipalities andmunicipal districts to impose "any

percentage tax or othertaxes in any form

based thereon

nor impose taxes on articlessubject to

specific tax

except gasoline, under the provisionsof the National Internal Revenue Code." For purposes of thisparticular

limitation, a municipal ordinance which prescribesa set ratio between the amount of the tax and the volume

ofsale of the taxpayer imposes a sales tax and is null and voidfor being outside the power of the municipality

toenact. But, the imposition of "a tax of one centavo (P0.01)on each gallon of volume capacity" on all soft

drinksproduced or manufactured under Ordinance No. 27 does notpartake of the nature of a percentage tax on

sales, or othertaxes in any form based thereon. The tax is levied on theproduce (whether sold or not) and not

on the sales. Thevolume capacity of the taxpayer's production of soft drinks isconsidered solely for purposes of


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determining the tax rate onthe products, but there is not set ratio between the volumeof sales and the amount

of the tax.

Nor can the tax levied betreated as a specific tax. Specific taxes are those imposed onspecified articles, such

as distilled spirits, wines, fermentedliquors, products of tobacco other than cigars and cigarettes,matchesfirecrackers, manufactured oils and other fuels,coal, bunker fuel oil, diesel fuel oil, cinematographic

films,playing cards, saccharine, opium and other habit-formingdrugs. Soft drink is not one of those specified.c)

The tax of one (P0.01) on each gallon (128 fluid ounces,U.S.) of volume capacity on all softdrinks, produced

ormanufactured, or an equivalent of 1- centavos percase, cannot be considered unjust and unfair. An

increasein the tax alone would not support the claim that the tax isoppressive, unjust and confiscatory.

Municipal corporationsare allowed much discretion in determining the rates ofimposable taxes. This is in line

with the constitutional policyof according the widest possible autonomy to localgovernments in matters of local

taxation, an aspect that isgiven expression in the Local Tax Code (PD No. 231, July 1,1973). Unless the

amount is so excessive as to be prohibitive,courts will go slow in writing off an ordinance asunreasonable.

Reluctance should not deter compliance withan ordinance such as Ordinance No. 27 if the purpose of thelaw

to further strengthen local autonomy were to berealized


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Republic of the Philippines

SUPREME COURTManila

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. OSMEA, andEUSTAQUIO B. CESA, respondents.

DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March 1995 1

of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil

Case No. CEB-16900 entitled "Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4,

May 19952denying the motion to reconsider the decision.

We resolved to give due course to this petition for its raises issues dwelling on the scope of the taxing power of

local government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No.6958, mandated to "principally undertake the economical, efficient and effective control, management and

supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, . . .

and such other Airports as may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is also

mandated to:

a) encourage, promote and develop international and domestic air traffic in the Central Visayas and Mindanao

regions as a means of making the regions centers of international trade and tourism, and accelerating the

development of the means of transportation and communication in the country; and

b) upgrade the services and facilities of the airports and to formulate internationally acceptable standards of

airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes

in accordance with Section 14 of its Charter.

Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes imposed by the National

Government or any of its political subdivisions, agencies and instrumentalities . . .


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On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of

Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-

G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A),

located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited

Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is aninstrumentality of the government performing governmental functions, citing section 133 of the Local

Government Code of 1991 which puts limitations on the taxing powers of local government units:

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise

provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangay shall not

extend to the levy of the following:

a) . . .

xxx xxx xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and loca

government units. (Emphasis supplied)

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a

government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections

193 and 234 of the Local Governmental Code that took effect on January 1, 1992:

Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions

or incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-

owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938,

non-stock, and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of

this Code. (Emphasis supplied)

xxx xxx xxx

Sec. 234. Exemptions from Real Property taxes. . . .

(a) . . .

xxx xxx xxx

(c) . . .

Except as provided herein, any exemption from payment of real property tax previously granted to, or presentlyenjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations are

hereby withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was

compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the

Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the taxing

powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentalityof

the national government. Petitioner insisted that while it is indeed a government-owned corporation, it


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nonetheless stands on the same footing as an agency or instrumentality of the national government. Petitioner

insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as

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

Respondent City, however, asserted that MACIAA is not an instrumentality of the government but merely a

government-owned corporation performing proprietary functions As such, all exemptions previously granted to

it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the LocalGovernment Code when it took effect on January 1, 1992.3

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.

In its decision of 22 March 1995,4the trial court dismissed the petition in light of its findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express cancellation and

withdrawal of exemption of taxes by government owned and controlled corporation per Sections after the

effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu are exempted

from paying realty taxes in view of the exemption granted under RA 6958 to pay the same (citing Section 14 of

RA 6958).

However, RA 7160 expressly provides that "All general and special laws, acts, city charters, decress [ sic],

executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent

with any of the provisions of this Code are hereby repealed or modified accordingly." ( [f], Section 534, RA

7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA

6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of

1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1, 1992

until the present.

This Court's ruling finds expression to give impetus and meaning to the overall objectives of the New Local

Government Code of 1991, RA 7160. "It is hereby declared the policy of the State that the territorial and

political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain

their fullest development as self-reliant communities and make them more effective partners in the attainment

of national goals. Towards this end, the State shall provide for a more responsive and accountable local

government structure instituted through a system of decentralization whereby local government units shall be

given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed

from the national government to the local government units. . . .5

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed

the instant petition based on the following assignment of errors:

I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH

GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN

INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.


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II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY

TAXES TO THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled

corporation it is mandated to perform functions in the same category as an instrumentality of Government. An

instrumentality of Government is one created to perform governmental functions primarily to promote certain

aspects of the economic life of the people.6

Considering its task "not merely to efficiently operate and managethe Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of promoting

and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and

accelerating the development of the means of transportation and communication in the country," 7and that it is

an attached agency of the Department of Transportation and Communication (DOTC),8the petitioner "may

stand in [sic] the same footing as an agency or instrumentality of the national government." Hence, its tax

exemption privilege under Section 14 of its Charter "cannot be considered withdrawn with the passage of the

Local Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the

taxing powers of local government units shall not extend to the levy of taxes of fees or charges of any kind on

the national government its agencies and instrumentalities."

As to the second assigned error, the petitioner contends that being an instrumentality of the NationalGovernment, respondent City of Cebu has no power nor authority to impose realty taxes upon it in accordance

with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and Gaming

Corporation;9

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a

government owned or controlled corporation with an original character, PD 1869. All its shares of stock are

owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke is governmental, which

places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the

Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might beburdened, impeded or subjected to control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the

operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal

government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).

This doctrine emanates from the "supremacy" of the National Government over local government.

Justice Holmes, speaking for the Supreme Court, make references to the entire absence of power on the part

of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v.

Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal

instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to

seriously burden it in the accomplishment of them. (Antieau Modern Constitutional Law, Vol. 2, p. 140)

Otherwise mere creature of the State can defeat National policies thru extermination of what local authorities

may perceive to be undesirable activities or enterprise using the power to tax as "a toll for regulation" (U.S. v.

Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy"

(McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity

which has the inherent power to wield it. (Emphasis supplied)


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It then concludes that the respondent Judge "cannot therefore correctly say that the questioned provisions of

the Code do not contain any distinction between a governmental function as against one performing merely

proprietary ones such that the exemption privilege withdrawn under the said Code would apply to all

government corporations." For it is clear from Section 133, in relation to Section 234, of the LGC that the

legislature meant to exclude instrumentalities of the national governmentfrom the taxing power of the local

government units.

In its comment respondent City of Cebu alleges that as local a government unit and a political subdivision, it

has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by

the Constitution10and enhanced further by the LGC. While it may be true that under its Charter the petitioner

was exempt from the payment of realty taxes,11this exemption was withdrawn by Section 234 of the LGC. In

response to the petitioner's claim that such exemption was not repealed because being an instrumentality of

the National Government, Section 133 of the LGC prohibits local government units from imposing taxes, fees,

or charges of any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-

owned corporation, and Section 234 thereof does not distinguish between government-owned corporation, and

Section 234 thereof does not distinguish between government-owned corporation, and Section 234 thereof

does not distinguish between government-owned or controlled corporations performing governmental and

purely proprietary functions. Respondent city of Cebu urges this the Manila International Airport Authority is a

governmental-owned corporation, 12and to reject the application of Basco because it was "promulgated . . .

before the enactment and the singing into law of R.A. No. 7160," and was not, therefore, decided "in the light of

the spirit and intention of the framers of the said law.

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in

its very nature no limits, so that security against its abuse is to be found only in the responsibility of the

legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations

thereon may be imposed by the people through their Constitutions. 13Our Constitution, for instance, provides

that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of

taxation.

14

So potent indeed is the power that it was once opined that "the power to tax involves the power todestroy."15Verily, taxation is a destructive power which interferes with the personal and property for the

support of the government. Accordingly, tax statutes must be construed strictly against the government and

liberally in favor of the taxpayer.16But since taxes are what we pay for civilized society, 17or are the lifeblood o

the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus

construed strictissimi jurisagainst the taxpayers and liberally in favor of the taxing authority. 18A claim of

exemption from tax payment must be clearly shown and based on language in the law too plain to be

mistaken. 19Elsewise stated, taxation is the rule, exemption therefrom is the exception. 20However, if the

grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not

apply because the practical effect of the exemption is merely to reduce the amount of money that has to be

handled by the government in the course of its operations. 21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local

legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority

conferred by Section 5, Article X of the Constitution. 22Under the latter, the exercise of the power may be

subject to such guidelines and limitations as the Congress may provide which, however, must be consistent

with the basic policy of local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of

realty taxes imposed by the National Government or any of its political subdivisions, agencies, and


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instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the

exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is

where the exemption was granted to private parties based on material consideration of a mutual nature, which

then becomes contractual and is thus covered by the non-impairment clause of the Constitution. 23

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local

government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units as

follows:

Sec. 133. Common Limitations on the Taxing Power of Local Government Units. Unless otherwise provided

herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to

the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise

provided herein

(d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues, and all other kinds of

customs fees charges and dues except wharfage on wharves constructed and maintained by the local

government unit concerned:

(e) Taxes, fees and charges and other imposition upon goods carried into or out of, or passing through, the

territorial jurisdictions of local government units in the guise or charges for wharfages, tolls for bridges or

otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;

(f) Taxes fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;

(g) Taxes on business enterprise certified to be the Board of Investment as pioneer or non-pioneer for a period

of six (6) and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes,

fees or charges on petroleum products;

(i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar transactions on goods or

services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractor and person engage in the transportation ofpassengers of freight by hire and common carriers by air, land, or water, except as provided in this code;

(k) Taxes on premiums paid by ways reinsurance or retrocession;

(l) Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or

permits for the driving of thereof, except, tricycles;

(m) Taxes, fees, or other charges on Philippine product actually exported, except as otherwise provided herein


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(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise and Cooperatives duly

registered under R.A. No. 6810 and Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. 6938)

otherwise known as the "Cooperative Code of the Philippines; and

(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND

INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis supplied)

Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges" referred to are "of

any kind", hence they include all of these, unless otherwise provided by the LGC. The term "taxes" is well

understood so as to need no further elaboration, especially in the light of the above enumeration. The term

"fees" means charges fixed by law or Ordinance for the regulation or inspection of business activity, 24while

"charges" are pecuniary liabilities such as rents or fees against person or property.25

Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section 232. It reads as

follows:

Sec. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan

Manila Area may levy on an annual ad valoremtax on real property such as land, building, machinery and

other improvements not hereafter specifically exempted.

Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws previous

exemptions therefrom granted to natural and juridical persons, including government owned and controlled

corporations, except as provided therein. It provides:

Sec. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real

property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the

beneficial use thereof had been granted, for reconsideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenants thereto, mosques nonprofits or

religious cemeteries and all lands, building and improvements actually, directly, and exclusively used for

religious charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and

government-owned or controlled corporations engaged in the supply and distribution of water and/or

generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and;

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemptions from payment of real property tax previously granted to or

presently enjoyed by, all persons whether natural or juridical, including all government owned or controlled

corporations are hereby withdrawn upon the effectivity of his Code.

These exemptions are based on the ownership, character, and use of the property. Thus;


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(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties

owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered

cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable

institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto,

mosques, and (iii) non profit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use

to which they are devoted are: (i) all lands buildings and improvements which are actually, directed and

exclusively used for religious, charitable or educational purpose; (ii) all machineries and equipment actually,

directly and exclusively used or by local water districts or by government-owned or controlled corporations

engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii)

all machinery and equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery and

equipment for pollution control and environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons

including government-owned or controlled corporations are withdrawn upon the effectivity of the Code. 26

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides:

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this code, tax exemptions

or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-

owned, or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938,

non stock and non profit hospitals and educational constitutions, are hereby withdrawn upon the effectivity of

this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus, Section192 thereof provides:

Sec. 192.Authority to Grant Tax Exemption Privileges. Local government units may, through ordinances

duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem

necessary.

The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local government units

and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use

of exceptions of provisosin these section, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133;

(2) "Unless otherwise provided in this Code" in section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in section

133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the


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"herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this

Code." The former results in absurdity since the section itself enumerates what are beyond the taxing powers

of local government units and, where exceptions were intended, the exceptions were explicitly indicated in the

text. For instance, in item (a) which excepts the income taxes "when livied on banks and other financial

institutions", item (d) which excepts "wharfage on wharves constructed and maintained by the local

government until concerned"; and item (1) which excepts taxes, fees, and charges for the registration and

issuance of license or permits for the driving of "tricycles". It may also be observed that within the body itself of

the section, there are exceptions which can be found only in other parts of the LGC, but the section

interchangeably uses therein the clause "except as otherwise provided herein" as in items (c) and (i), or the

clause "except as otherwise provided herein" as in items (c) and (i), or the clause "excepts as provided in this

Code" in item (j). These clauses would be obviously unnecessary or mere surplus-ages if the opening clause

of the section were" "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein". In

any event, even if the latter is used, since under Section 232 local government units have the power to levy

real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to

qualify Section 133.

Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down

in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia, "taxes, fees,

and charges of any kind of the National Government, its agencies and instrumentalties, and local government

units"; however, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may

impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or

any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or

otherwise, to a taxable person", as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including

government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they

are withdrawnupon the effectivity of the LGC, except upon the effectivity of the LGC, except those granted to

local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit hospitals andeducational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section

234, which enumerates the properties exempt from real property tax. But the last paragraph of Section 234

further qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the

retention only to those enumerated there-in; all others not included in the enumeration lost the privilege upon

the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or

any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is

withdrawn if the beneficial use of such property has been granted to taxable person for consideration or

otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions

from real property taxes granted to natural or juridical persons, including government-owned or controlledcorporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned

corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A.

No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge

under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as

shown above, the said section is qualified by Section 232 and 234.

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the local

government units cannot extend to the levy of:


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(o) taxes, fees, or charges of any kind on the National Government, its agencies, or instrumentalities, and local

government units.

I must show that the parcels of land in question, which are real property, are any one of those enumerated in

Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the

first, but not under any explicit provision of the said section, for one exists. In light of the petitioner's theory that

it is an "instrumentality of the Government", it could only be within be first item of the first paragraph of thesection by expanding the scope of the terms Republic of the Philippines" to embrace. . . . . . "instrumentalities"and "agencies" or expediency we quote:

(a) real property owned by the Republic of the Philippines, or any of the Philippines, or any of its political

subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a

taxable person.

This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the

Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the

second place it fails to consider the fact that the legislature used the phrase "National Government, its

agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of itspolitical subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former is

boarder and synonymous with "Government of the Republic of the Philippines" which the Administrative Code

of the 1987 defines as the "corporate governmental entity though which the functions of the government are

exercised through at the Philippines, including, saves as the contrary appears from the context, the various

arms through which political authority is made effective in the Philippines, whether pertaining to the

autonomous reason, the provincial, city, municipal or barangay subdivision or other forms of local

government."27These autonomous regions, provincial, city, municipal or barangay subdivisions" are the

political subdivision.28

On the other hand, "National Government" refers "to the entire machinery of the central government, as

distinguished from the different forms of local Governments." 29The National Government then is composed of

the three great departments the executive, the legislative and the judicial. 30

An "agency" of the Government refers to "any of the various units of the Government, including a department,

bureau, office instrumentality, or government-owned or controlled corporation, or a local government or a

distinct unit therein;"31while an "instrumentality" refers to "any agency of the National Government, not

integrated within the department framework, vested with special functions or jurisdiction by law, endowed with

some if not all corporate powers, administering special funds, and enjoying operational autonomy; usually

through a charter. This term includes regulatory agencies, chartered institutions and government-owned and

controlled corporations".32

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of

real property taxes under the last sentence of the said section to the agencies and instrumentalities of the

National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it

did not Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to

include real property owned by other instrumentalities or agencies of the government including government-

owned and controlled corporations is further borne out by the fact that the source of this exemption is Section

40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code, which reads:


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Sec 40. Exemption from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any

government-owned or controlled corporations so exempt by is charter: Provided, however, that this exemption

shall not apply to real property of the above mentioned entities the beneficial use of which has been granted,

for consideration or otherwise, to a taxable person.

Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled corporation

so exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems

obvious: to limit further tax exemption privileges, specially in light of the general provision on withdrawal of

exemption from payment of real property taxes in the last paragraph of property taxes in the last paragraph of

Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local

governments33and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable

them to attain their fullest development as self-reliant communities and make them effective partners in the

attainment of national goals.34The power to tax is the most effective instrument to raise needed revenues to

finance and support myriad activities of local government units for the delivery of basic services essential to the

promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may

also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted togovernment-owned and controlled corporations and all other units of government were that such privilege

resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and

there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by

paying the taxes and other charges due from them.35

The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the Republic

of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the petitioner is a

"taxable person".

Section 15 of the petitioner's Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways,

lands, buildings and other properties, movable or immovable, belonging to or presently administered by the

airports, and all assets, powers, rights, interests and privileges relating on airport works, or air operations,

including all equipment which are necessary for the operations of air navigation, acrodrome control towers,

crash, fire, and rescue facilities are hereby transferred to the Authority: Provided however, that the operations

control of all equipment necessary for the operation of radio aids to air navigation, airways communication, the

approach control office, and the area control center shall be retained by the Air Transportation Office. No

equipment, however, shall be removed by the Air Transportation Office from Mactan without the concurrence

of the authority. The authority may assist in the maintenance of the Air Transportation Office equipment.

The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International AirPort in theProvince of Cebu",36which belonged to the Republic of the Philippines, then under the Air Transportation

Office (ATO).37

It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by the

Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property

taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not just the

transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines.


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This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's authorized

capital stock consists of, inter alia"the value of such real estate owned and/or administered by the airports." 38

Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC

is inapplicable.

Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only

exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax isconclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property

tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the

forgoing disquisitions, it had already become even if it be conceded to be an "agency" or "instrumentality" of

the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section

234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the

petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement

and Gaming Corporation39

is unavailing since it was decided before the effectivity of the LGC. Besides,nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government

performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional

mandate and national policy, no one can doubt its wisdom.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court

of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

Footnotes

1 Rollo, 27-29. Per Judge Ferdinand J. Marcos.

2 Id., 30-31.

3 Rollo, 10-13.

4 Supranote 1.

5 Rollo, 28-29.

6 CitingGonzales vs. Hechanova, 118 Phil. 1065 [1963].

7 Citing Section 3, R.A. No. 6958.

8 CitingSection 2, Id.

9 197 SCRA 52 [1991].


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10 Section 5, Article X, 1987 Constitution.

11 Section 14, R.A. No. 6958.

12 Manila International Airport Authority (MIAA) vs. Commission on Audit, 238 SCRA 714 [1994].

13 COOLEY on Constitutional Law, 4th ed. [1931], 62.

14 Section 28(1), Article VI, 1987 Constitution.

15 Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat, 316, 4 L. ed. 579, 607. Later Justice Holmes

brushed this aside by declaring in Panhandle Oil Co. vs. Mississippi (277 U.S. 218) that "the power to tax is not

the power to destroy while this Court sits." Justice Frankfurter in Graves vs. New York (306 U.S. 466) also

remarked that Justice Marshall's statement was a "mere flourish of rhetoric" and a product of the "intellectual

fashion of the times to indulge in a free case of absolutes." (See SINCO, Philippine Political Law [1954], 577-

578).

16 AGPALO, RUBEN E., Statutory Construction [1990 ed], 216. See alsoSANDS, DALLAS C., Statutes and

Statutory Construction, vol. 3 [1974] 179.

17 Justice Holmes in his dissent in Compania General vs. Collector of Internal Revenue, 275 U.S. 87,

100[1927].

18 AGPALO, op. cit., 217 SANDS, op. cit., 207.

19 SINCO, op. cit., 587.

20 SANDS, op. cit., 207

21 Maceda vs. Macaraig, Jr. 197 SCRA 771, 799 [1991]; citing 2 COOLEY on the Law on Taxation, 4th ed.

[1927], 1414, and SANDS, op. cit., 207.

22 CRUZ, ISAGANI, Constitutional Law [1991], 84.

23 Id., 91-92; SINCO, op. cit., 587.

24 Section 131(l), Local Government Code of 1991.

25 Section131(g), id.

26 PIMENTEL, AQUILINO JR., The Local Government Code of 1991 The Key to National Development

[1933], 329.

27 Section 2(1), Introductory Provisions, Administrative Code of 1987.

28 Section 1, Article X, 1987 Constitution.


30 Bacani vs. National Coconut Corporation, 100 Phil. 468, 472 [1956].



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32 Section 2(10), Id., Id.

33 Section25, Article II, and Section2, Article X, Constitution.

34 Section 2(a), Local Government Code of 1991.

35 P.D. No. 1931.

36 Section 3, R.A. No. 6958.

37 Section 18, Id.,

Mactan Cebu (MCIAA) vs. Marcos

GR 120082 September 11, 1996 261 SCRA 667

Davide Jr., .: (CJ)

FACTS:

Mactan Cebu International Airport Authority (MCIAA) was created to principally undertake to

economical, efficient and effective control, management and supervision of the Mactan International Airport

and such other airports as may be established in the province of Cebu Section 14 of its charter excempts

the Authority from payment of realty taxes but in 1994, the City Treasurer demanded payment for realty taxes

on several parcels of land belonging to the other. MCIAA filed a petition in RTC contending that, by nature of

its powers and functions, it has the same footing of an agency or instrumentality of the national government.

The RTC dismissed the petition based on Section 193 & 234 of the local Government Code or R.A. 7160. Thus

this petition.

ISSUE:

Whether or not the MCIAA is excempted from realty taxes?

RULING:

With the repealing clause of RA 7160 the tax exemption provided. All general and special in the

charter of the MCIAA has been expressly repeated. It state laws, acts, City Charters, decrees, executive

orders, proclamations and administrative regulations, or part of parts thereof which are inconsistent with any of

the provisions of the Code are hereby repeated or modified accordingly. Therefore the SC affirmed the

decision and order of the RTC and herein petitioner has to pay the assessed realty tax of its properties

effective January 1, 1992 up to the present.


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THIRD DIVISION

[G.R. No. 131359. May 5, 1999]

MANILA ELECTRIC COMPANY,petitioner vs.PROVINCE OF LAGUNA and BENITO R. BALAZO, in his

capacity as Provincial Treasurer of Laguna,respondents.

D E C I S I O N

VITUG, J.:

On various dates, certain municipalities of the Province of Laguna including, Bian, Sta Rosa, San Pedro,

Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their

respective municipal councils granting franchise in favor of petitioner Manila Electric Company (MERALCO)

for the supply of electric light, heat and power within their concerned areas. On 19 January 1983, MERALCO

was likewise granted a franchise by the National Electrification Administration to operate an electric light and

power service in the Municipality of Calamba, Laguna.

On 12 September 1991, Republic Act No. 7160, otherwise known as the Local Government Code of 1991,was enacted to take effect on 01 January 1992 enjoining local government units to create their own sources of

revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the

basic policy of local autonomy. Pursuant to the provisions of the Code, respondent province enacted Laguna

Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part, as follows:

Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of

fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and

sales on account realized during the preceding calendar year within this province, including the territorial limits

on any city located in the provincei[1]

On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to MERALCO forthe corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520,628.42,

under protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of

Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to

P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended

that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as

it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which read:

Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all

grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two per

cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the

generation, distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized

representative on or before the twentieth day of the month following the end of each calendar quarter or month

as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the

Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of

whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of

generation, distribution and sale of electric current.


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