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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.
29 Section 2(2), Introductory Provisions, Administrative Code of 1987.
30 Bacani vs. National Coconut Corporation, 100 Phil. 468, 472 [1956].
31 Section 2(4), Introductory Provisions, Administrative Code of 1987.
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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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