TAXATION – DEFINITION

TIO VS VRB 151 SCRA [June 18, 1987, G.R. No. L-75697]

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and
took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported
blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their
rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy."
The Intervenors were thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the
operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least
forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and
other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of
the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend
for their livelihood, but also provide an additional source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear
and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with dispatch;
... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government
is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of
the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon
him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed
in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title. 2 An act having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign
to the general subject, and may be considered in furtherance of such subject by providing for the method and
means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of
a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given
practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to
regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and
5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all
those objectives in the title or that the latter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject
to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In
imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of
the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for
any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying
the national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we
reserve resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of
other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the
power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is
for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and
control of the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be
without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of the offense." It is petitioner's position that
Section 15 of the DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for private showing and/or public
exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration
of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence"
(People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the
burden of proof provided there be a rational connection between the facts proved and the ultimate facts
presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because
of lack of connection between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides
the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out
of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question
that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On
the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax
imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain
unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged
provision likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be
sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find
no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.
LIFEBLOOD DOCTRINE

COMMISIONER VS. ALGUE, 158 SCRA [G.R. No. L-28896, February 17, 1988]

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax
returns. The corollary issue is whether or not the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965,
Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day
in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced
his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April
7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was
only then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days later, on
April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with
the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true that as a rule
the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed
rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted
doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it
filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara
gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and
was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it
was filed, the reglementary period which started on the date the assessment was received, viz., January 14,
1965. The period started running again only on April 7, 1965, when the private respondent was definitely
informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the
appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not
an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently.
Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
personal holding company income 12 but later conformed to the decision of the respondent court rejecting this
assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the persons
among whom it was distributed It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a commission
of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns
and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of the same
family in control of Algue. It is argued that no indication was made as to how such payments were made,
whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner
suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum
but periodically and in different amounts as each payee's need arose. 19 It should be remembered that this
was a family corporation where strict business procedures were not applied and immediate issuance of
receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee
made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. 20
Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the
close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00.
21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction.
The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering
that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is
in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred
in carrying on any trade or business may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments
purely for service. This test and its practical application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is
likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely
that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The
private respondent has proved that the payment of the fees was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part
of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in
the running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law
has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.
CAMP JOHN HAY DEVELOPMENT CORPORATION VS CBAA 706 SCRA 547

DECISION

PEREZ, J.:

A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to assess
real property tax. Such claim questions the correctness of the assessment and compliance with the Q
applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code (LGC) of 1991, particularly
as to requirement of payment under protest, is mandatory.

Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July 2005
Decision1 of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the Resolutions
dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment Appeals (CBAA) in
CBAA Case No. L-37 remanding the case to the Local Board of Assessment Appeals (LBAA) of Baguio City for
further proceedings.

The facts

The factual antecedents of the case as found by the CTA En Banc areas follows:

In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp John Hay
Development Corporation about the issuance against it of thirty-six (36) Owner’s Copy of Assessment of Real
Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering various buildings of petitioner
and two (2) parcels of land owned by the Bases Conversion Development Authority (BCDA) in the John Hay
Special Economic Zone (JHSEZ), Baguio City, which were leased out to petitioner.

In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal basis due to
the City Assessor’s failure to identify the specific properties and its corresponding assessed values. The City
Assessor replied in a letter dated 11 April 2002 that the subject ARPs (with an additional ARP on another
building bringing the total number of ARPs to thirty-seven [37]) against the buildings of petitioner located within
the JHSEZ were issued on the basis of the approved building permits obtained from the City Engineer’s Office
of Baguio City and pursuant to Sections 201 to 206 of RA No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA) of Baguio
City an appeal under Section 2262 of the LGC of 1991 challenging the validity and propriety of the issuances
of the City Assessor. The appeal was docketed as Tax Appeal Case No. 2002-003. Petitioner claimed that
there was no legal basis for the issuance of the assessments because it was allegedly exempted from paying
taxes, national and local, including real property taxes, pursuant to RA No. 7227, otherwise known as the
Bases Conversion and Development Act of 1992.3

The Ruling of the BTAA

In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure Before the
LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment under protest of the
subject real property taxes before the hearing of its appeal. Subsequently, the BTAA dismissed petitioner’s
Motion for Reconsideration in the 20 September 2002 Resolution6 for lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal docketed as
CBAA Case No. L-37.

The Ruling of the CBAA

The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003,7 set aside the BTAA’s order of
deferment of hearing, and remanded the case to the LBAA of Baguio City for further proceedings subject to a
full and up-to-date payment of the realty taxes on subject properties as assessed by the respondent City
Assessor of Baguio City, either in cash or in bond.

Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by the LBAA
was merely in compliance with the mandate of the law. The governing provision in this case is Section 231, not
Section 226, of RA No. 7160 which provides that "appeal on assessments of real property made under the
provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the
property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal." In addition, as to the issue raised pertaining to the propriety
of the subject assessments issued against petitioner, allegedly claimed to be a tax-exemptentity, the CBAA
expressed that it has yet to acquire jurisdiction over it since the same has not been resolved by the LBAA.

On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of merit.9

Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the CTA En
Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by Section 9 of RA No.
9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the following issues for its
consideration: (1) whether or not respondent City Assessor of the City of Baguio has legal basis to issue
against petitioner the subject assessments with serial nos. 01-07040-008887 to 01-07040-008922for real
property taxation of the buildings of the petitioner, a tax-exemptentity, or land owned by the BCDA under lease
to the petitioner; and (2)whether or not the CBAA, in its Resolutions dated 23 May 2003 and 8September 2004,
has legal basis to order the remand of the case to the LBAA of Baguio City for further proceedings subject to a
full and up-to- date payment, in cash or bond, of the realty taxes on the subject properties as assessed by the
City Assessor of the City of Baguio.10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005,11 the CTA En Banc found that petitioner has indeed failed to
comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the petition and affirmed the
subject Resolutions of the CBAA which remanded the case to the LBAA for further proceedings subject to
compliance with said Section, in relation to Section 7, Rule V of the Rules of Procedure before the LBAA.

Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue on whether
petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity considering that the LBAA
has not decided the case on the merits. To do otherwise would not only be procedurally wrong but legally
wrong. It therefore concluded that before a protest may be entertained, the tax should have been paid first
without prejudice to subsequent adjustment depending upon the final outcome of the appeal and that the tax or
portion thereof paid under protest, shall be held in trust by the treasurer concerned.

Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks to set aside
the 27 July 2005 Decision, and to nullify the assessments of real property tax issued against it by respondent
City Assessor of Baguio City.12

The Issue

The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of merit the
petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the case to the LBAA
of Baguio City for further proceedings subject to a full and up-to-date payment of realty taxes, either in cash or
in bond, on the subject properties assessed by the City Assessor of Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be Section
252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-exemptentity; and
(b) Under the doctrine of operative fact, petitioner is not liable for the payment of the real property taxes subject
of this petition.13

Our Ruling
The Court finds the petition unmeritorious and therefore rules against petitioner.

Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:

SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words "paid under protest." The protest in writing must be filed
within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the
case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from
receipt.

(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph
(a), the tax payer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code.
(Emphasis and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the LGC of
1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to the procedural and
substantive aspects of appeal before the LBAA and CBAA, including its effect on the payment of real property
taxes, follow:

SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the property
who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his
property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the
Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for
the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support
of the appeal.

SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the appeal within
one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render
its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might
accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces
tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts
without necessarily adhering to technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or
the person having legal interest therein of such fact using the form prescribed for the purpose. The owner of
the property or the person having legal interest therein or the assessor who is not satisfied with the decision of
the Board may, within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of
Assessment Appeals, as here in provided. The decision of the Central Board shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of real property
made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty
taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal. (Emphasis supplied)
The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative remedies
available to a taxpayer or real property owner who does not agree with the assessment of the real property tax
sought to be collected.

The language of the law is clear. No interpretation is needed. The elementary rule in statutory construction is
that if a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without
attempted interpretation. Verba legis non est recedendum. From the words of a statute there should be no
departure.15

To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact, the words
"paid under protest" shall be annotated on the tax receipts. Consequently, only after such payment has been
made by the taxpayer may he file a protest in writing (within thirty (30) days from said payment of tax) to the
provincial, city, or municipal treasurer, who shall decide the protest within sixty (60)days from its receipt. In no
case is the local treasurer obliged to entertain the protest unless the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the property not
satisfied with the action of the provincial, city, or municipal assessor in the assessment of his property may file
an appeal with the LBAA of the province or city concerned, as provided in Section 226 of RA No. 7160 or the
LGC of 1991. Thereafter, within thirty (30) days from receipt, he may elevate, by filing a notice of appeal, the
adverse decision of the LBAA with the CBAA, which exercises exclusive jurisdiction to hear and decide all
appeals from the decisions, orders, and resolutions of the Local Boards involving contested assessments of
real properties, claims for tax refund and/or tax credits, or overpayments of taxes.16

Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the occasion to extensively discuss the
subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct recourse
before the courts on issue of the correctness of assessment of real estate taxes. The pertinent articulations
follow:

x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Parañaque on petitioners’ properties. The
allegations in the said petition purportedly questioning the assessor’s authority to assess and collect the taxes
were obviously made in order to justify the filing of the petition with the RTC. In fact, there is nothing in the said
petition that supports their claim regarding the assessor’s alleged lack of authority. What petitioners raise are
the following:

(1) some of the taxes being collected have already prescribed and may no longer be collected as provided in
Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed;
(3) some properties being taxed are no longer existent;

(4)some properties are exempt from taxation as they are being used exclusively for educational purposes; and
(5) some errors are made in the assessment and collection of taxes due on petitioners’ properties, and that
respondents committed grave abuse of discretion in making the "improper, excessive and unlawful the
collection of taxes against the petitioners."

Moreover, these arguments essentially involve questions of fact. Hence, the petition should have been
brought, at the very first instance, to the LBAA.

Under the doctrine of primacy of administrative remedies, an error in the assessment must be administratively
pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction. But an
appeal shall not suspend the collection of the tax assessed without prejudice to a later adjustment pending the
outcome of the appeal.

Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in order for the
court a quo to resolve the petition, the issues of the correctness of the tax assessment and collection must also
necessarily be dealt with.
xxxx

In the present case, the authority of the assessor is not being questioned. Despite petitioners’ protestations,
the petition filed before the court a quo primarily involves the correctness of the assessments, which are
questions of fact, that are not allowed in a petition for certiorari, prohibition and mandamus. The court a quo is
therefore precluded from entertaining the petition, and it appropriately dismissed the petition.18 (Emphasis and
underlining supplied)

By analogy, the rationale of the mandatory compliance with the requirement of "payment under protest"
similarly provided under Section 64of the Real Property Tax Code (RPTC)19 was earlier emphasized in
Meralcov. Barlis,20 wherein the Court held:

We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to entertain a Petition
for Prohibition absent petitioner’s payment under protest, of the tax assessed as required by Sec.64 of the
RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the trial court could
assume jurisdiction over the petition and failure to do so, the RTC has no jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under protest, of
the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their
collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local
government unit, shall be crippled in dispensing the needed services to the people, and its machinery gravely
disabled.

xxxx

There is no merit in petitioner’s argument that the trial court could take cognizance of the petition as it only
questions the validity of the issuance of the warrants of garnishment on its bank deposits and not the tax
assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC was in truth assailing the
validity of the tax assessment and collection. To resolve the petition, it would not only be the question of
validity of the warrants of garnishments that would have to be tackled, but in addition the issues of tax
assessment and collection would necessarily have to be dealt with too. As the warrants of garnishment were
issued to collect back taxes from petitioner, the petition for prohibition would be for no other reason than to
forestall the collection of back taxes on the basis of tax assessment arguments. This, petitioner cannot do
without first resorting to the proper administrative remedies, or as previously discussed, by paying under
protest the tax assessed, to allow the court to assume jurisdiction over the petition.

xxxx

It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first opportunity
- upon receipt of the3 September 1986 notices of assessment signed by Municipal Treasurer Norberto A. San
Mateo. Thereafter, it should have availed of the proper administrative remedies in protesting an erroneous tax
assessment, i.e., to question the correctness of the assessments before the Local Board of Assessment
Appeals (LBAA), and later, invoke the appellate jurisdiction of the Central Board of Assessment
Appeals(CBAA).

Under the doctrine of primacy of administrative remedies, an error in the assessment must be administratively
pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction. But an
appeal shall not suspend the collection of the tax assessed without prejudice to a later adjustment pending the
outcome of the appeal. The failure to appeal within the statutory period shall render the assessment final and
unappealable.

Petitioner having failed to exhaust the administrative remedies available to it, the assessment attained finality
and collection would be in order. (Emphasis and underscoring supplied)
From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment under protest"
is a condition sine qua non before a protest or an appeal questioning the correctness of an assessment of real
property tax may be entertained.

Moreover, a claim for exemption from payment of real property taxes does not actually question the assessor’s
authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the
assessment by the local assessor, a question of fact which should be resolved, at the very first instance, by the
LBAA. This may be inferred from Section 206 of RA No. 7160 or the LGC of 1991which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real property is
declared, who shall claim tax exemption for such property under this Title shall file with the provincial, city or
municipal assessor within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim including corporate charters, title of ownership, articles of
incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be listed as
taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be
dropped from the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and proved as tax-exempt shall be included in the
assessment roll, the above-quoted provision implies that the local assessor has the authority to assess the
property for realty taxes, and any subsequent claim for exemption shall be allowed only when sufficient proof
has been adduced supporting the claim.21

Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be paid
under protest if the exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002 issued by
respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to 01-07040-008922)
attached thereto, it filed its protest through a letter dated 3 April 2002seeking clarification as to the legal basis
of said assessments, without payment of the assessed real property taxes. Afterwards, respondent City
Assessor replied thereto in a letter dated 11 April 2002 which explained the legal basis of the subject
assessments and even included an additional ARP against another real property of petitioner. Subsequently,
petitioner then filed before the BTAA its appeal questioning the validity and propriety of the subject ARPs.

Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the "action"
referred to in Section 226 which speaks of the local assessor’s act of denying the protest filed pursuant to
Section252. However, applying the above-cited jurisprudence in the present case, it is evident that petitioner’s
failure to comply with the mandatory requirement of payment under protest in accordance with Section 252 of
the LGC of 1991 was fatal to its appeal. Notwithstanding such failure to comply therewith, the BTAA elected
not to immediately dismiss the case but instead took cognizance of petitioner’s appeal subject to the condition
that payment of the real property tax should first be made before proceeding with the hearing of its appeal, as
provided for under Section 7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply
recognized the importance of the requirement of "payment under protest" before an appeal may be
entertained, pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension
of collection of the realty tax pending appeal.

Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner contends
that the requirement of paying the tax under protest is not applicable when the person being assessed is a tax-
exempt entity, and thus could not be deemed a "taxpayer" within the meaning of the law. In support thereto,
petitioner alleges that it is exempted from paying taxes, including real property taxes, since it is entitled to the
tax incentives and exemptions under the provisions of RA No. 7227 and Presidential Proclamation No. 420,
Series of 1994,22 as stated in and confirmed by the lease agreement it entered into with the BCDA.23

This Court is not persuaded.

First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that every
person by or for whom real property is declared, who shall claim exemption from payment of real property
taxes imposed against said property, shall file with the provincial, city or municipal assessor sufficient
documentary evidence in support of such claim. Clearly, the burden of proving exemption from local taxation is
upon whom the subject real property is declared; thus, said person shall be considered by law as the taxpayer
thereof. Failure to do so, said property shall be listed as taxable in the assessment roll.

In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in the letters
dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various buildings owned by
petitioner and parcels of land (leased out to petitioner) all located within the JHSEZ, Baguio City. The subject
letters expressed that the assessments were based on the approved building permits obtained from the City
Engineer’s Office of Baguio City and pursuant to Sections 201 to 206 of RA No. 7160 or the LGC of 1991
which pertains to whom the subject real properties were declared.

Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of fact, it
expressly admitted ownership of the various buildings subject of the assessment and thereafter focused on the
argument of its exemption under RA No. 7227. But petitioner did not present any documentary evidence to
establish that the subject properties being tax exempt have already been dropped from the assessment roll, in
accordance with Section 206. Consequently, the City Assessor acted in accordance with her mandate and in
the regular performance of her official function when the subject ARPs were issued against petitioner herein,
being the owner of the buildings, and therefore considered as the person with the obligation to shoulder tax
liability thereof, if any, as contemplated by law.

It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same for taxation
purposes. As discussed above, the duty to declare the true value of real property for taxation purposes is
imposed upon the owner, or administrator, or their duly authorized representatives. They are thus considered
the taxpayers. Hence, when these persons fail or refuse to make a declaration of the true value of their real
property within the prescribed period, the provincial or city assessor shall declare the property in the name of
the defaulting owner and assess the property for taxation. In this wise, the taxpayer assumes the character of a
defaulting owner, or defaulting administrator, or defaulting authorized representative, liable to pay back taxes.
For that reason, since petitioner herein is the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of paying the
subject tax in the present case; and accordingly, in questioning the reasonableness or correctness of the
assessment of real property tax, petitioner is mandated by law to comply with the requirement of payment
under protest of the tax assessed, particularly Section 252 of RA No. 7160 or the LGC of 1991.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. The
law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify
it by words too plain to be mistaken and too categorical to be misinterpreted.26 Thus applying the rule of strict
construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, this Court holds that petitioner is considered a taxable entity in this case.

Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on whether or
not it is entitled to exemption from paying taxes, national and local, including real property taxes, is a matter
which would be better resolved, at the very instance, before the LBAA, for the following grounds: (a)
petitioner’s reliance on its entitlement for exemption under the provisions of RA No. 7227 and Presidential
Proclamation No. 420, was allegedly confirmed by Section 18,27 Article XVI of the Lease Agreement dated 19
October 1996 it entered with the BCDA. However, it appears from the records that said Lease Agreement has
yet to be presented nor formally offered before any administrative or judicial body for scrutiny; (b) the subject
provision of the Lease Agreement declared a condition that in order to be allegedly exempted from the
payment of taxes, petitioner should have first paid and remitted 5% of the gross income earned by it within
ninety (90) days from the close of the calendar year through the JPDC. Unfortunately, petitioner has neither
established nor presented any evidence to show that it has indeed paid and remitted 5% of said gross income
tax; (c) the right to appeal is a privilege of statutory origin, meaning a right granted only by the law, and not a
constitutional right, natural or inherent. Therefore, it follows that petitioner may avail of such opportunity only
upon strict compliance with the procedures and rules prescribed by the law itself, i.e. RA No. 7160 or the LGC
of 1991; and (d) at any rate, petitioner’s position of exemption is weakened by its own admission and
recognition of this Court’s previous ruling that the tax incentives granted in RA No. 7227 are exclusive only to
the Subic Special Economic and Free Port Zone; and thus, the extension of the same to the JHSEZ (as
provided in the second sentence of Section 3 of Presidential Proclamation No. 420)28 finds no support therein
and therefore declared null and void and of no legal force and effect.29 Hence, petitioner needs more than
mere arguments and/or allegations contained in its pleadings to establish and prove its exemption, making
prior proceedings before the LBAA a necessity.

With the above-enumerated reasons, it is obvious that in order for a complete determination of petitioner’s
alleged exemption from payment of real property tax under RA No. 7160 or the LGC of 1991, there are factual
issues needed to be confirmed. Hence, being a question of fact, petitioner cannot do without first resorting to
the proper administrative remedies, or as previously discussed, by paying under protest the tax assessed in
compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be paid before
any protest thereon may be considered. It is without a doubt that such requirement of "payment under protest"
is a condition sine qua non before an appeal may be entertained. Thus, remanding the case to the LBAA for
further proceedings subject to a full and up-to-date payment, either in cash or surety, of realty tax on the
subject properties was proper.

To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior payment,
under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this
case, the local government unit, shall be crippled in dispensing the needed services to the people, and its
machinery gravely disabled.30 The right of local government units to collect taxes due must always be upheld
to avoid severe erosion. This consideration is consistent with the State policy to guarantee the autonomy of
local governments and the objective of RA No. 7160 or the LGC of 1991 that they enjoy genuine and
meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals.31

All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether full or
partial, does not question the authority of local assessor to assess real property tax, but merely raises a
question of the reasonableness or correctness of such assessment, which requires compliance with Section
252 of the LGC of 1991. Such argument which may involve a question of fact should be resolved at the first
instance by the LBAA.

The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the CBAA's
position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground of exemption since
the LBAA has not decided the case on the merits. This is in compliance with the procedural steps prescribed in
the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En Bane in
C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment Appeals of Baguio
City for further proceedings. No costs.

SO ORDERED.
NATURE OF TAXATION

1. INHERENT ATTRIBUTE OF SOVEREIGNTY

LUZON STEVEDORING CORPORATION VS. CTA [G.R. No. L-30232 July 29, 1988]

PARAS, J.:

This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No.
1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue",
denying the various claims for tax refund; and the February 20, 1969 Resolution of the same court denying the
motion for reconsideration.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various
engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to
secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for
Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying
among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however,
in a Decision dated October 21, 1969 (Ibid., pp. 22-27), denied the various claims for tax refund. The decretal
portion of the said decision reads:

WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient legal
justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.

On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the same
was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.

This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40). Petitioner-
appellant raised three (3) assignments of error, to wit:

The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the work of
unloading and loading of a vessel in port, contrary to the evidence on record.

II

The lower court erred in not holding that the business in which petitioner-appellant is engaged, is part and
parcel of the shipping industry.

III

The lower court erred in not allowing the refund sought by petitioner-appellant.

The instant petition is without merit.

The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the
term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal
Revenue Code, as amended by Republic Act No. 3176.

Said law provides:

Sec. 190. Compensating tax. — ... And Provided further, That the tax imposed in this section shall not
apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to
specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the
importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and
spare parts of said vessel. ....

Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption
provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in
legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading
and unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare
parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from
compensating tax (Rollo, p. 23).

On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel"
because they are neither designed nor used for carrying and/or transporting persons or goods by themselves
but are mainly employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats in
question are used in carrying and transporting passengers or cargoes as a common carrier by water, either
coastwise or oceangoing and, therefore, not within the purview of Section 190 of the Tax Code, as amended
by Republic Act No. 3176 (Brief for Respondents-Appellees, pp. 45).

This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate,
must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may
be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that any claim for exemption
from the tax statute should be strictly construed against the taxpayer (Acting Commissioner of Customs v.
Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd.,
et al., 65 SCRA 142 [1975]).

As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared
exempt from the compensating tax, it is indispensable that the requirements of the amendatory law be
complied with, namely: (1) the engines and spare parts must be used by the importer himself as a passenger
and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing
navigation (Decision, CTA Case No. 1484; Rollo, p. 24).

As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax
exemption from the compensating tax to imported items to be used by the importer himself as operator of
passenger and/or cargo vessel (Ibid., p. 25).

As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for
attendance on vessel. (Webster New International Dictionary, 2nd Ed.)

A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers for
towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier, Vol. 18, p. 256).

A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo, p. 24).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger
and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law
speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify
non-compliance. All that has to be done is to apply it in every case that falls within its terms (Allied Brokerage
Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA
270 [1970]).

And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that
statutes are to be construed in the light of purposes to be achieved and the evils sought to be remedied
(People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in
amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the records, intended to provide
incentives and inducements to bolster the shipping industry and not the business of stevedoring, as manifested
in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was
adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping
industry as an independent business. On the contrary, petitioner-appellant's own evidence supports the view
that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port; and towing of
barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its trade name is
indicative that its sole and principal business is stevedoring and lighterage, taxed under Section 191 of the
National Internal Revenue Code as a contractor, and not an entity which transports passengers or freight for
hire which is taxed under Section 192 of the same Code as a common carrier by water (Decision, CTA Case
No. 1484; Rollo, p. 25).

Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion of the
Court of Tax Appeals.

As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of
Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration
of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority (Reyes v. Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is
not present in the instant case.

PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is
AFFIRMED.

SO ORDERED.

2. LEGISLATIVE IN CHARACTER
BASIS OF TAXATION (THEORIES)

1. NECESSITY THEORY

CIR VS. ALGUE, 158 SCRA [G.R. No. L-28896, February 17, 1988]

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax
returns. The corollary issue is whether or not the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965,
Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day
in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced
his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April
7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was
only then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days later, on
April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with
the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true that as a rule
the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed
rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted
doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it
filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara
gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and
was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it
was filed, the reglementary period which started on the date the assessment was received, viz., January 14,
1965. The period started running again only on April 7, 1965, when the private respondent was definitely
informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the
appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not
an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently.
Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
personal holding company income 12 but later conformed to the decision of the respondent court rejecting this
assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the persons
among whom it was distributed It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a commission
of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns
and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of the same
family in control of Algue. It is argued that no indication was made as to how such payments were made,
whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner
suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum
but periodically and in different amounts as each payee's need arose. 19 It should be remembered that this
was a family corporation where strict business procedures were not applied and immediate issuance of
receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee
made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. 20
Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the
close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00.
21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction.
The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering
that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is
in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred
in carrying on any trade or business may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments
purely for service. This test and its practical application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is
likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely
that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The
private respondent has proved that the payment of the fees was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part
of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in
the running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law
has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.
VERA VS. FERNANDEZ 89 SCRA [G.R. No. L-31364 March 30, 1979]

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special Proceedings
No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969 dismissing the Motion for
Allowance of Claim and for an Order of Payment of Taxes by the Government of the Republic of the
Philippines against the Estate of the late Luis D. Tongoy, for deficiency income taxes for the years 1963 and
1964 of the decedent in the total amount of P3,254.80, inclusive 5% surcharge, 1% monthly interest and
compromise penalties, and the second, dated October 7, 1969, denying the Motion for reconsideration of the
Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3, 1969 in
the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim represents the
indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in the total sum of
P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1
10875-64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The
Administrator opposed the motion solely on the ground that the claim was barred under Section 5, Rule 86 of
the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the
opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of
claim filed by herein petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated July 29,
1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of the
order of July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against the estate of Luis D.
Tongoy was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the government was already barred under
Section 5, Rule 86 of the Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of
Court, bars claim of the government for unpaid taxes, still within the period of limitation prescribed in Section
331 and 332 of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for Allowance
of Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied, whether the same be
due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent,
and judgment for money against the decedent, must be filed within the time limited in they notice; otherwise
they are barred forever, except that they may be set forth as counter claims in any action that the executor or
administrator may bring against the claimants. Where the executor or administrator commence an action, or
prosecutes an action already commenced by the deceased in his lifetime, the debtor may set forth may answer
the claims he has against the decedents, instead of presenting them independently to the court has herein
provided, and mutual claims may be set off against each other in such action; and in final judgment is rendered
in favored of the decedent, the amount to determined shall be considered the true balance against the estate,
as though the claim has been presented directly before the court in the administration proceedings. Claims not
yet due, or contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation of
the decedent created by law, such as taxes which is entirely of different character from the claims expressly
enumerated therein, such as: "all claims for money against the decedent arising from contract, express or
implied, whether the same be due, not due or contingent, all claim for funeral expenses and expenses for the
last sickness of the decedent and judgment for money against the decedent." Under the familiar rule of
statutory construction of expressio unius est exclusio alterius, the mention of one thing implies the exclusion of
another thing not mentioned. Thus, if a statute enumerates the things upon which it is to operate, everything
else must necessarily, and by implication be excluded from its operation and effect (Crawford, Statutory
Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of
prescription thereof are governed by the provisions of the National Internal revenue Code, particularly Sections
331 and 332 thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of
Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958). Even without being
specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be
presumed to have been also in the mind of the Court as not affecting the aforecited Section of the National
Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes assessed
against the estate of a deceased person ... need not be submitted to the committee on claims in the ordinary
course of administration. In the exercise of its control over the administrator, the court may direct the payment
of such taxes upon motion showing that the taxes have been assessed against the estate." The abolition of the
Committee on Claims does not alter the basic ruling laid down giving exception to the claim for taxes from
being filed as the other claims mentioned in the Rule should be filed before the Court. Claims for taxes may be
collected even after the distribution of the decedent's estate among his heirs who shall be liable therefor in
proportion of their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the
Government and their prompt and certain availability are imperious need. (Commissioner of Internal Revenue
vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the Government
ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or
omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private persons may be made to suffer individually on account
of his own negligence, the presumption being that they take good care of their personal affairs. This should not
hold true to government officials with respect to matters not of their own personal concern. This is the
philosophy behind the government's exception, as a general rule, from the operation of the principle of
estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73
SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs.
Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company,
L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36
SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As
already shown, taxes may be collected even after the distribution of the estate of the decedent among his heirs
(Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco
Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of
Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the
Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid with
interests, penalties, etc. By virtue of such lien, this court held that the property of the estate already in the
hands of an heir or transferee may be subject to the payment of the tax due the estate. A fortiori before the
inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected, even without its
having been presented under Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the
property of the estate of the decedent has vested in the heirs, the decedent, represented by his estate,
continues as if he were still alive, subject to the payment of such taxes as would be collectible from the estate
even after his death. Thus in the case above cited, the income taxes sought to be collected were due from the
estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86
of the Rules of Court, the claim in question may be filed even after the expiration of the time originally fixed
therein, as may be gleaned from the italicized portion of the Rule herein cited which reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section, the court
shall state the time for the filing of claims against the estate, which shall not be more than twelve (12) nor less
than six (6) months after the date of the first publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to file his claim within the time previously
limited the court may, for cause shown and on such terms as are equitable, allow such claim to be flied within a
time not exceeding one (1) month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of Payment
of Taxes) which, though filed after the expiration of the time previously limited but before an order of the
distribution is entered, should have been granted by the respondent court, in the absence of any valid ground,
as none was shown, justifying denial of the motion, specially considering that it was for allowance Of claim for
taxes due from the estate, which in effect represents a claim of the people at large, the only reason given for
the denial that the claim was filed out of the previously limited period, sustaining thereby private respondents'
contention, erroneously as has been demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total
amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final one
and the respondent estate's sole defense of prescription has been herein overruled, the Motion for Allowance
of Claim is herein granted and respondent estate is ordered to pay and discharge the same, subject only to the
limitation of the interest collectible thereon as provided by the Tax Code. No pronouncement as to costs.

SO ORDERED.
CEBU PORTLAND VS. CTA

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CEBU PORTLAND CEMENT COMPANY and
COURT OF TAX APPEALS, respondents. [G.R. No. L-29059 December 15, 1987]

CRUZ, J.:

By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the
Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the
Cebu Portland Cement Company the amount of P 359,408.98, representing overpayments of ad valorem taxes
on cement produced and sold by it after October 1957. 1

On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private
respondent, the latter moved for a writ of execution to enforce the said judgment . 2

The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales
tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a
balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge. 3

On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales tax liability of
the private respondent was still being questioned and therefore could not be set-off against the refund. 4

In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the refund
should be charged against the tax deficiency of the private respondent on the sales of cement under Section
186 of the Tax Code. His position is that cement is a manufactured and not a mineral product and therefore not
exempt from sales taxes. He adds that enforcement of the said tax deficiency was properly effected through
his power of distraint of personal property under Sections 316 and 318 5 of the said Code and, moreover, the
collection of any national internal revenue tax may not be enjoined under Section 305, 6 subject only to the
exception prescribed in Rep. Act No. 1125. 7 This is not applicable to the instant case. The petitioner also
denies that the sales tax assessments have already prescribed because the prescriptive period should be
counted from the filing of the sales tax returns, which had not yet been done by the private respondent.

For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement is not a
manufactured product but a mineral product. 8 As such, it was exempted from sales taxes under Section 188
of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu Portland
Cement Co. v. Collector of Internal Revenue, 9 decided in 1968. Here Justice Eugenio Angeles declared that
"before the effectivity of Rep. Act No. 1299, amending Section 246 of the National Internal Revenue Code,
cement was taxable as a manufactured product under Section 186, in connection with Section 194(4) of the
said Code," thereby implying that it was not considered a manufactured product afterwards. Also, the alleged
sales tax deficiency could not as yet be enforced against it because the tax assessment was not yet final, the
same being still under protest and still to be definitely resolved on the merits. Besides, the assessment had
already prescribed, not having been made within the reglementary five-year period from the filing of the tax
returns. 10

Our ruling is that the sales tax was properly imposed upon the private respondent for the reason that cement
has always been considered a manufactured product and not a mineral product. This matter was extensively
discussed and categorically resolved in Commissioner of Internal Revenue v. Republic Cement Corporation,
11 decided on August 10, 1983, where Justice Efren L. Plana, after an exhaustive review of the pertinent
cases, declared for a unanimous Court:

From all the foregoing cases, it is clear that cement qua cement was never considered as a mineral product
within the meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its components are
minerals, for the simple reason that cement is the product of a manufacturing process and is no longer the
mineral product contemplated in the Tax Code (i.e.; minerals subjected to simple treatments) for the purpose of
imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their present posture is the case of Cebu
Portland Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789) penned by
Justice Eugenio Angeles. For some portions of that decision give the impression that Republic Act No. 1299,
which amended Section 246, reclassified cement as a mineral product that was not subject to sales tax. ...

xxx xxx xxx

After a careful study of the foregoing, we conclude that reliance on the decision penned by Justice Angeles is
misplaced. The said decision is no authority for the proposition that after the enactment of Republic Act No.
1299 in 1955 (defining mineral product as things with at least 80% mineral content), cement became a 'mineral
product," as distinguished from a "manufactured product," and therefore ceased to be subject to sales tax. It
was not necessary for the Court to so rule. It was enough for the Court to say in effect that even assuming
Republic Act No. 1299 had reclassified cement was a mineral product, the reclassification could not be given
retrospective application (so as to justify the refund of sales taxes paid before Republic Act 1299 was adopted)
because laws operate prospectively only, unless the legislative intent to the contrary is manifest, which was not
so in the case of Republic Act 1266. [The situation would have been different if the Court instead had ruled in
favor of refund, in which case it would have been absolutely necessary (1) to make an unconditional ruling that
Republic Act 1299 re-classified cement as a mineral product (not subject to sales tax), and (2) to declare the
law retroactive, as a basis for granting refund of sales tax paid before Republic Act 1299.]

In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-20563) insofar as its
pronouncements or any implication therefrom conflict with the instant decision.

The above views were reiterated in the resolution 12 denying reconsideration of the said decision, thus:

The nature of cement as a "manufactured product" (rather than a "mineral product") is well-settled. The issue
has repeatedly presented itself as a threshold question for determining the basis for computing the ad valorem
mining tax to be paid by cement Companies. No pronouncement was made in these cases that as a
"manufactured product" cement is subject to sales tax because this was not at issue.

The decision sought to be reconsidered here referred to the legislative history of Republic Act No. 1299 which
introduced a definition of the terms "mineral" and "mineral products" in Sec. 246 of the Tax Code. Given the
legislative intent, the holding in the CEPOC case (G.R. No. L-20563) that cement was subject to sales tax prior
to the effectivity f Republic Act No. 1299 cannot be construed to mean that, after the law took effect, cement
ceased to be so subject to the tax. To erase any and all misconceptions that may have been spawned by
reliance on the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, October 29,
1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court has expressly overruled it insofar as it
may conflict with the decision of August 10, 1983, now subject of these motions for reconsideration.

On the question of prescription, the private respondent claims that the five-year reglementary period for the
assessment of its tax liability started from the time it filed its gross sales returns on June 30, 1962. Hence, the
assessment for sales taxes made on January 16, 1968 and March 4, 1968, were already out of time. We
disagree. This contention must fail for what CEPOC filed was not the sales returns required in Section 183(n)
but the ad valorem tax returns required under Section 245 of the Tax Code. As Justice Irene R. Cortes
emphasized in the aforestated resolution:

In order to avail itself of the benefits of the five-year prescription period under Section 331 of the Tax Code, the
taxpayer should have filed the required return for the tax involved, that is, a sales tax return. (Butuan Sawmill,
Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have filed sales tax
returns of its gross sales for the subject periods. Both parties admit that returns were made for the ad valorem
mining tax. CEPOC argues that said returns contain the information necessary for the assessment of the sales
tax. The Commissioner does not consider such returns as compliance with the requirement for the filing of tax
returns so as to start the running of the five-year prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA, supra, that the filing of an
income tax return cannot be considered as substantial compliance with the requirement of filing sales tax
returns, in the same way that an income tax return cannot be considered as a return for compensating tax for
the purpose of computing the period of prescription under Sec. 331. (Citing Bisaya Land Transportation Co.,
Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 and L-11812, May 29, 1959). There being no sales
tax returns filed by CEPOC, the statute of stations in Sec. 331 did not begin to run against the government.
The assessment made by the Commissioner in 1968 on CEPOC's cement sales during the period from July 1,
1959 to December 31, 1960 is not barred by the five-year prescriptive period. Absent a return or when the
return is false or fraudulent, the applicable period is ten (10) days from the discovery of the fraud, falsity or
omission. The question in this case is: When was CEPOC's omission to file tha return deemed discovered by
the government, so as to start the running of said period? 13

The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of
the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be
postponed by simply questioning their validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed. That is the reason why, save for the exception already noted, the
Tax Code provides:

Sec. 291. Injunction not available to restrain collection of tax. — No court shall have authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-
and only-on the administrative level. There is all the more reason to apply the rule here because it appears that
even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still due from
the private respondent.

To require the petitioner to actually refund to the private respondent the amount of the judgment debt, which he
will later have the right to distrain for payment of its sales tax liability is in our view an Idle ritual. We hold that
the respondent Court of Tax Appeals erred in ordering such a charade.

WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is SET
ASIDE, without any pronouncement as to costs.

SO ORDERED.
2. DOCTRINE OF SYMBIOTIC RELATIONSHIP

CIR VS. ALGUE, 158 SCRA [G.R. No. L-28896, February 17, 1988]

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax
returns. The corollary issue is whether or not the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965,
Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day
in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced
his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April
7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was
only then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days later, on
April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with
the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true that as a rule
the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed
rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted
doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it
filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara
gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and
was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it
was filed, the reglementary period which started on the date the assessment was received, viz., January 14,
1965. The period started running again only on April 7, 1965, when the private respondent was definitely
informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the
appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not
an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently.
Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
personal holding company income 12 but later conformed to the decision of the respondent court rejecting this
assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the persons
among whom it was distributed It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a commission
of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns
and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of the same
family in control of Algue. It is argued that no indication was made as to how such payments were made,
whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner
suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum
but periodically and in different amounts as each payee's need arose. 19 It should be remembered that this
was a family corporation where strict business procedures were not applied and immediate issuance of
receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee
made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. 20
Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the
close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00.
21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction.
The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering
that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is
in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred
in carrying on any trade or business may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments
purely for service. This test and its practical application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is
likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely
that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The
private respondent has proved that the payment of the fees was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part
of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in
the running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law
has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.
EXTENT OF THE TAXING POWER

SISON VS ANCHETA, 130 SCRA [G.R. No. L-59431 July 25, 1984]

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity
of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed
provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates
of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the
net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue
thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income
arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation,
oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the equal
protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May
28, 1982. 8 The facts as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their]
Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise
of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not
support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly
set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or group of individuals,' continue to
lose their well-defined boundaries and to be absorbed within activities that the government must undertake in
its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more
revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital
state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the
lifeblood of the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the
power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due process and equal protection clauses inay properly be
invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there
would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times
following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is
not the power to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative
or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged
statutory provision — as petitioner here alleges — fails to abide by its command, then this Court must so
declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax
rate on taxable net income derived from business or profession than on compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely
to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked,
considering that they arc not fixed rules but rather broad standards, there is a need for of such persuasive
character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.
18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the
application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent
domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the
common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is
that equal protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated
in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That
same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by
the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men
being governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There
is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection
of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are
expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that classification if rational
in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through
Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out
of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco,25 decided in 1940, when the tax "operates with the same force and effect in every
place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did not
present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required
is that the tax "applies equally to all persons, firms and corporations placed in similar situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers
may be classified into different categories. To repeat, it. is enough that the classification must rest upon
substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application
of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced
tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for
income tax purposes because they are in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There
is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as regards professional and
business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling
doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and businessman certainly not a
suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

TIO VS. VRB, 151 SCRA

TIO VS VRB 151 SCRA [June 18, 1987, G.R. No. L-75697]

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and
took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported
blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their
rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy."
The Intervenors were thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the
operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least
forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and
other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of
the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend
for their livelihood, but also provide an additional source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear
and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with dispatch;
... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government
is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of
the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon
him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed
in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title. 2 An act having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign
to the general subject, and may be considered in furtherance of such subject by providing for the method and
means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of
a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given
practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to
regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and
5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all
those objectives in the title or that the latter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject
to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In
imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of
the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for
any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying
the national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we
reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of
other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the
power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is
for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and
control of the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be
without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of the offense." It is petitioner's position that
Section 15 of the DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for private showing and/or public
exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration
of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence"
(People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the
burden of proof provided there be a rational connection between the facts proved and the ultimate facts
presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because
of lack of connection between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides
the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out
of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question
that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On
the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax
imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain
unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged
provision likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be
sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find
no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.
IMPORTANCE OF TAXATION

LUTZ VS. ARANETA, 98 PHIL 148 [G.R. No. L-7859 December 22, 1955]

Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat
to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act,
and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy
was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component
elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its
preferential position in the United States market and the imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar,
on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in
control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or
otherwise —

a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land.

According to section 6 of the law —

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be
known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the
following purposes or to attain any or all of the following objectives, as may be provided by law.

First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial
position of the Philippine sugar in the United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of meeting competition in the free
markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof —
the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field — so that
all might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and working
conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular
session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the
establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to
increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to
produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in
the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured
alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the
industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane
lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2)
for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to
organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to
carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund
herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been
dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act,
section 17).

The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No.
567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted
in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police
power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation,
sugar occupying a leading position among its export products; that it gives employment to thousands of
laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy
of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general
welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar
industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide
that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added
strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson
vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —
The protection of a large industry constituting one of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such
an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857).

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject
only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl.
& Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477;
M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint;
indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the
expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling
out of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs.
Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most
felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that
"the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R.
B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution
of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations,
without any part of such money being channeled directly to private persons, constitutes expenditure of tax
money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.
OBJECTIVES AND PURPOSES OF TAXATION

1. PRIMARY PURPOSE

BAGATSING VS. RAMIREZ, 74 SCRA [G.R. No. L-41631 December 17, 1976]

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

MARTIN, J.:

The chief question to be decided in this case is what law shall govern the publication of a tax ordinance
enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires
publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231),
which only demands publication after approval.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS
OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES."
The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787
before the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of
nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of
the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the
enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt
Practices Act has been violated; and (d) the ordinance would violate Presidential Decree No. 7 of September
30, 1972 prescribing the collection of fees and charges on livestock and animal products.

Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge
issued an order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market
Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.

After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the
nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the
requirement of publication under the Revised City Charter. Respondent Judge ruled:

There is, therefore, no question that the ordinance in question was not published at all in two daily newspapers
of general circulation in the City of Manila before its enactment. Neither was it published in the same manner
after approval, although it was posted in the legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory requirement of publication before and after approval,
the ordinance in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is
required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before
instituting an action in court.

On September 26, 1975, respondent Judge denied the motion.

Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.

We find the petition impressed with merits.

1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City
of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board
of Manila. For, while Section 17 of the Revised Charter provides:

Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and
shall not be discussed or enacted by the Board until after the third day following such publication. * * * Each
approved ordinance * * * shall be published in two daily newspapers of general circulation in the city, within ten
days after its approval; and shall take effect and be in force on and after the twentieth day following its
publication, if no date is fixed in the ordinance.

Section 43 of the Local Tax Code directs:

Within ten days after their approval, certified true copies of all provincial, city, municipal and barrio ordinances
levying or imposing taxes, fees or other charges shall be published for three consecutive days in a newspaper
or publication widely circulated within the jurisdiction of the local government, or posted in the local legislative
hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government.
In either case, copies of all provincial, city, municipal and barrio ordinances shall be furnished the treasurers of
the respective component and mother units of a local government for dissemination.

In other words, while the Revised Charter of the City of Manila requires publication before the enactment of the
ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the Local
Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or
other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local
government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. Petitioners' compliance with the Local Tax Code
rather than with the Revised Charter of the City spawned this litigation.

There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the
City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local
governments. Blackstone defines general law as a universal rule affecting the entire community and special
law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a prior
special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other
general creates a presumption that the special is to be considered as remaining an exception of the general,
one as a general law of the land, the other as the law of a particular case. 2 However, the rule readily yields to
a situation where the special statute refers to a subject in general, which the general statute treats in particular.
The exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised Charter of the City of
Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43
of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant,
but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision. 3 Special provision governs. 4 This is especially true where
the law containing the particular provision was enacted later than the one containing the general provision. The
City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed
on June 1, 1973. The law-making power cannot be said to have intended the establishment of conflicting and
hostile systems upon the same subject, or to leave in force provisions of a prior law by which the new will of
the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and
Idle ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5

The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages
arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin or manhole on
P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the
City of Manila from any liability for damages or injury to persons or property arising from the failure of the city
officers to enforce the provisions of the charter or any other law or ordinance, or from negligence of the City
Mayor, Municipal Board, or other officers while enforcing or attempting to enforce the provisions of the charter
or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for
damages for the death of, or injury suffered by any persons by reason of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control or supervision. On review, the
Court held the Civil Code controlling. It is true that, insofar as its territorial application is concerned, the
Revised City Charter is a special law and the subject matter of the two laws, the Revised City Charter
establishes a general rule of liability arising from negligence in general, regardless of the object thereof,
whereas the Civil Code constitutes a particular prescription for liability due to defective streets in particular. In
the same manner, the Revised Charter of the City prescribes a rule for the publication of "ordinance" in
general, while the Local Tax Code establishes a rule for the publication of "ordinance levying or imposing taxes
fees or other charges in particular.

In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or
broad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and where a
statute is controlling, it must be read into the charter notwithstanding any particular charter provision. 8 A
subsequent general law similarly applicable to all cities prevails over any conflicting charter provision, for the
reason that a charter must not be inconsistent with the general laws and public policy of the state. 9 A
chartered city is not an independent sovereignty. The state remains supreme in all matters not purely local.
Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read into it
that general law which governs the municipal corporation and which the corporation cannot set aside but to
which it must yield. When a city adopts a charter, it in effect adopts as part of its charter general law of such
character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having

been violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local
Tax Code provides that any question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the
city fiscal is appealable to the Secretary of Justice, whose decision shall be final and executory unless
contested before a competent court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law: whether it is the Revised Charter of
the City of Manila or the Local Tax Code that should govern the publication of the tax ordinance. In other
words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local Tax Code on
the point at issue, and not on the legality of the imposition of the tax. Exhaustion of administrative remedies
before resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded when it does not
provide a plain, speedy and adequate remedy. It may and should be relaxed when its application may cause
great and irreparable damage. 12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the
imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising
function, so that the procedure for publication under the Local Tax Code finds no application. The pretense
bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under
Section 5, Article XI of the New Constitution, "Each local government unit shall have the power to create its
own sources of revenue and to levy taxes, subject to such provisions as may be provided by law." 13 And one
of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect
fees or rentals for the occupancy or use of public markets and premises * * *." 14 They can provide for and
regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license,
or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30,
1972, insofar as it affects livestock and animal products, because the said decree prescribes the collection of
other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well
as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural
Resources." 16 Clearly, even the exception clause of the decree itself permits the collection of the proper fees
for livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments
may collect fees for the slaughter of animals and the use of corrals * * * "

4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in
accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the
market committee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market
code" does not infect the ordinance with any germ of invalidity. 17 The function of the committee is purely
recommendatory as the underscored phrase suggests, its recommendation is without binding effect on the
Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a
condition sine qua non before the Municipal Board could enact such ordinance. The native power of the
Municipal Board to legislate remains undisturbed even in the slightest degree. It can move in its own initiative
and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of
the Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the
gathering of the necessary data, studies and the collection of consensus for the proposal of ordinances
regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market
Committee the adoption of regulatory measures for the operation and administration of the city markets.
Potestas delegata non delegare potest.

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the
exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the
City of Manila to the said corporation in a "Management and Operating Contract." The assumption is of course
saddled on erroneous premise. The fees collected do not go direct to the private coffers of the corporation.
Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. That
is the object it serves. The entrusting of the collection of the fees does not destroy the public purpose of the
ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object for which the
fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate
agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the
direction of an individual or private corporation. 18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Act
because the increased rates of market stall fees as levied by the ordinance will necessarily inure to the
unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue whether the
ordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidated
because of consequences that may arise from its enforcement. 20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the
City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.

SO ORDERED.

2. SECONDARY PURPOSE
STAGES OF TAXATION

1. LEVY

TOLENTINO VS. SEC. OF FINANCE, 235 SCRA

RESOLUTION

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers Association, Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine
Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No.
115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed
on June 1, 1995 a rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate exclusively" in the
House of Representatives as required by Art. VI, §24 of the Constitution. Although they admit that H. No.
11197 was filed in the House of Representatives where it passed three readings and that afterward it was sent
to the Senate where after first reading it was referred to the Senate Ways and Means Committee, they
complain that the Senate did not pass it on second and third readings. Instead what the Senate did was to
pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the
Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate
version just becomes the text (only the text) of the House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a
House revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth
Congress, the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier
passed, became the enrolled bills. These were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON
CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a
consolidation of H. No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920,
which was approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May
22, 1992. This Act is a consolidation of H. No. 22232, which was approved by the House of Representatives on
August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of
House and Senate bills. These are the following, with indications of the dates on which the laws were approved
by the President and dates the separate bills of the two chambers of Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF

THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE

FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
(February 24, 1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,

INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE
OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT
(6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE

DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY

STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as
members of the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did
in this case, a separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX
AMENDMENTS

xxx xxx xxx

§68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is submitted in writing.

Any of said amendments may be withdrawn before a vote is taken thereon.

§69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a bill
(rider) shall be entertained.

xxx xxx xxx

§70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject distinct
from that proposed in the original bill or resolution. (emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual differences between constitutional provisions giving them
the power to propose or concur with amendments.

Art. I, §7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or
concur with amendments as on other Bills.

Art. VI, §24 of our Constitution reads:

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or
concur with amendments.

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a
special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of proposing amendments to the Constitution was done
by the National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving
the Assembly's lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they
proposed the following provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall
originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of
disapproval by the Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its
members, and thereupon, the bill so repassed shall be deemed enacted and may be submitted to the
President for corresponding action. In the event that the Senate should fail to finally act on any such bills, the
Assembly may, after thirty days from the opening of the next regular session of the same legislative term,
reapprove the same with a vote of two-thirds of all the members of the Assembly. And upon such reapproval,
the bill shall be deemed enacted and may be submitted to the President for corresponding action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted
everything after the first sentence. As rewritten, the proposal was approved by the National Assembly and
embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and ratified by them in
the elections held on June 18, 1940.

This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from which the
framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was not copied.
Considering the defeat of the proposal, the power of the Senate to propose amendments must be understood
to be full, plenary and complete "as on other Bills." Thus, because revenue bills are required to originate
exclusively in the House of Representatives, the Senate cannot enact revenue measures of its own without
such bills. After a revenue bill is passed and sent over to it by the House, however, the Senate certainly can
pass its own version on the same subject matter. This follows from the coequality of the two chambers of
Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from
the following commentaries:

The power of the Senate to propose or concur with amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can practically re-write a bill required to come from the House
and leave only a trace of the original bill. For example, a general revenue bill passed by the lower house of the
United States Congress contained provisions for the imposition of an inheritance tax . This was changed by the
Senate into a corporation tax. The amending authority of the Senate was declared by the United States
Supreme Court to be sufficiently broad to enable it to make the alteration. [Flint v. Stone Tracy Company, 220
U.S. 107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))

The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more
numerous in membership and therefore also more representative of the people. Moreover, its members are
presumed to be more familiar with the needs of the country in regard to the enactment of the legislation
involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with
amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill introduced in the
U.S. House of Representatives was changed by the Senate to make a proposed inheritance tax a corporation
tax. It is also accepted practice for the Senate to introduce what is known as an amendment by substitution,
which may entirely replace the bill initiated in the House of Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of
this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states
in a high school text, a committee to which a bill is referred may do any of the following:

(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or
altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be
known as a committee bill; or (4) to make no report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House by
prescribing that the number of the House bill and its other parts up to the enacting clause must be preserved
although the text of the Senate amendment may be incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute
measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S.
No. 1630 is an independent and distinct bill. Hence their repeated references to its certification that it was
passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B.
No. 11197," implying that there is something substantially different between the reference to S. No. 1129 and
the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716 originated both in the
House and in the Senate and that it is the product of two "half-baked bills because neither H. No. 11197 nor S.
No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of
the corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197
and S. No. 1630 attached as Supplement A to the basic petition of petitioner Tolentino, while showing
differences between the two bills, at the same time indicates that the provisions of the Senate bill were
precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on first reading it was referred to the Senate Committee
on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives
before the two bills could be referred to the Conference Committee.

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the
House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were
referred to a conference committee, the question was raised whether the two bills could be the subject of such
conference, considering that the bill from one house had not been passed by the other and vice versa. As
Congressman Duran put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the House
but not passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never passed in
the House, can the two bills be the subject of a conference, and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance does not refer to investments in government
securities, whereas the bill in the House, which was introduced by the Speaker, covers two subject matters: not
only investigation of deposits in banks but also investigation of investments in government securities. Now,
since the two bills differ in their subject matter, I believe that no law can be enacted.

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this where
a conference should be had. If the House bill had been approved by the Senate, there would have been no
need of a conference; but precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and
unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the immediate enactment of these measures, his certification was
ineffectual and void. The certification had to be made of the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of Congress even though the bills are merely versions of
the bill he has already certified. It is enough that he certifies the bill which, at the time he makes the
certification, is under consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was
that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H. No.
9210 for immediate enactment because it was the one which at that time was being considered by the House.
This bill was later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision that the
phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, §26 (2)
qualifies not only the requirement that "printed copies [of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for such construction but
historical basis as well.

Art. VI, §21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its final
form furnished its Members at least three calendar days prior to its passage, except when the President shall
have certified to the necessity of its immediate enactment. Upon the last reading of a bill, no amendment
thereof shall be allowed and the question upon its passage shall be taken immediately thereafter, and the yeas
and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):

(2) No bill shall become a law unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to the Members three days before its passage, except when the
Prime Minister certifies to the necessity of its immediate enactment to meet a public calamity or emergency.
Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.

This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the present
Constitution, thus:

(2) No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal.

The exception is based on the prudential consideration that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or public calamity which it is meant to address.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit
does not make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an
emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there
was an urgent need for consideration of S. No. 1630, because they responded to the call of the President by
voting on the bill on second and third readings on the same day. While the judicial department is not bound by
the Senate's acceptance of the President's certification, the respect due coequal departments of the
government in matters committed to them by the Constitution and the absence of a clear showing of grave
abuse of discretion caution a stay of the judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its final printed form was actually dispensed with by
holding the voting on second and third readings on the same day (March 24, 1994). Otherwise, sufficient time
between the submission of the bill on February 8, 1994 on second reading and its approval on March 24, 1994
elapsed before it was finally voted on by the Senate on third reading.

The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the
members of Congress of what they must vote on and (2) to give them notice that a measure is progressing
through the enacting process, thus enabling them and others interested in the measure to prepare their
positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION
§10.04, p. 282 (1972)). These purposes were substantially achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy
of full public disclosure and the people's right to know (Art. II, §28 and Art. III, §7) the Conference Committee
met for two days in executive session with only the conferees present.

As pointed out in our main decision, even in the United States it was customary to hold such sessions with only
the conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring
open sessions. Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing
open hearings for conference committees.

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff
members were present. These were staff members of the Senators and Congressmen, however, who may be
presumed to be their confidential men, not stenographers as in this case who on the last two days of the
conference were excluded. There is no showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their meetings. Above all, the public's right to know was fully
served because the Conference Committee in this case submitted a report showing the changes made on the
differing versions of the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in or other amendments." These changes are shown in
the bill attached to the Conference Committee Report. The members of both houses could thus ascertain what
changes had been made in the original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of the conference
committee regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the Rules of
this House which provides specifically that the conference report must be accompanied by a detailed
statement of the effects of the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:

MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of order
raised by the gentleman from Pangasinan.

There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this
provision applies to those cases where only portions of the bill have been amended. In this case before us an
entire bill is presented; therefore, it can be easily seen from the reading of the bill what the provisions are.
Besides, this procedure has been an established practice.

After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the
Rules, and the reason for the requirement in the provision cited by the gentleman from Pangasinan is when
there are only certain words or phrases inserted in or deleted from the provisions of the bill included in the
conference report, and we cannot understand what those words and phrases mean and their relation to the bill.
In that case, it is necessary to make a detailed statement on how those words and phrases will affect the bill as
a whole; but when the entire bill itself is copied verbatim in the conference report, that is not necessary. So
when the reason for the Rule does not exist, the Rule does not exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it
was upheld by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5.
(Id.,

p. 4058)

Nor is there any doubt about the power of a conference committee to insert new provisions as long as these
are germane to the subject of the conference. As this Court held in Philippine Judges Association v. Prado,
227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee
is not limited to resolving differences between the Senate and the House. It may propose an entirely new
provision. What is important is that its report is subsequently approved by the respective houses of Congress.
This Court ruled that it would not entertain allegations that, because new provisions had been added by the
conference committee, there was thereby a violation of the constitutional injunction that "upon the last reading
of a bill, no amendment thereto shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made
upon the last reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its final form
were not distributed among the members of each House. Both the enrolled bill and the legislative journals
certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We
are bound by such official assurances from a coordinate department of the government, to which we owe, at
the very least, a becoming courtesy.

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a 1979 study:

Conference committees may be of two types: free or instructed. These committees may be given instructions
by their parent bodies or they may be left without instructions. Normally the conference committees are without
instructions, and this is why they are often critically referred to as "the little legislatures." Once bills have been
sent to them, the conferees have almost unlimited authority to change the clauses of the bills and in fact
sometimes introduce new measures that were not in the original legislation. No minutes are kept, and
members' activities on conference committees are difficult to determine. One congressman known for his
idealism put it this way: "I killed a bill on export incentives for my interest group [copra] in the conference
committee but I could not have done so anywhere else." The conference committee submits a report to both
houses, and usually it is accepted. If the report is not accepted, then the committee is discharged and new
members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A

COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that
conference committees here are no different from their counterparts in the United States whose vast powers
we noted in Philippine Judges Association v. Prado, supra. At all events, under Art. VI, §16(3) each house has
the power "to determine the rules of its proceedings," including those of its committees. Any meaningful
change in the method and procedures of Congress or its committees must therefore be sought in that body
itself.

V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, §26 (1)
of the Constitution which provides that "Every bill passed by Congress shall embrace only one subject which
shall be expressed in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of
its exemption from the VAT is not expressed in the title of the law.

Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other
taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or description,
imposed, levied, established, assessed or collected by any municipal, city, provincial or national authority or
government agency, now or in the future."

PAL was exempted from the payment of the VAT along with other entities by §103 of the National Internal
Revenue Code, which provides as follows:

§103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to which the Philippines
is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending §103, as
follows:

§103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
Nos. 66, 529, 972, 1491, 1590. . . .

The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to
amend any provision of the NIRC which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is
§103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to
express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically
referred to §103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient
notice had been given of the pendency of these bills in Congress before they were enacted into what is now
R.A.

No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected.
R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS
POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY
AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking
privileges. It was contended that the withdrawal of franking privileges was not expressed in the title of the law.
In holding that there was sufficient description of the subject of the law in its title, including the repeal of
franking privileges, this Court held:

To require every end and means necessary for the accomplishment of the general objectives of the statute to
be expressed in its title would not only be unreasonable but would actually render legislation impossible.
[Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:

The details of a legislative act need not be specifically stated in its title, but matter germane to the subject as
expressed in the title, and adopted to the accomplishment of the object in view, may properly be included in the
act. Thus, it is proper to create in the same act the machinery by which the act is to be enforced, to prescribe
the penalties for its infraction, and to remove obstacles in the way of its execution. If such matters are properly
connected with the subject as expressed in the title, it is unnecessary that they should also have special
mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)

(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is
not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits
are laws which single out the press or target a group belonging to the press for special treatment or which in
any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is
none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against the press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the
law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the
PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly
circulation was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana.
These large papers were critical of Senator Huey Long who controlled the state legislature which enacted the
license tax. The censorial motivation for the law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.
Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods,
the press was not. Instead, the press was exempted from both taxes. It was, however, later made to pay a
special use tax on the cost of paper and ink which made these items "the only items subject to the use tax that
were component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of
the press "suggests that the goal of regulation is not related to suppression of expression, and such goal is
presumptively unconstitutional." It would therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more
are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden
the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which
are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these
transactions will suffice to show that by and large this is not so and that the exemptions are granted for a
purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt
transactions are:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products,
cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry
feeds) and goods or services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to
the Philippines) or for professional use, like professional instruments and implements, by persons coming to
the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum
products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

The PPI asserts that it does not really matter that the law does not discriminate against the press because
"even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First
Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it
classifies the privileges protected by the First Amendment along with the wares and merchandise of hucksters
and peddlers and treats them all alike. Such equality in treatment does not save the ordinance. Freedom of
press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee on those engaged in the sale of general
merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society
without restraining the free exercise of its right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it
to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay
so that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be
the case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to
lay an impermissible burden on the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by §7 of R.A.
No. 7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells
some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the
event it is assessed this tax by the Commissioner of Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation.
CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3) violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that
the buyer did not anticipate at the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources
are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an
old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though
such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security
of another, or may impose additional burdens upon one class and release the burdens of another, still the tax
must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any
existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567,
574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is
. . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General,
22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible
exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of
that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of
real property which is equally essential. The sale of real property for socialized and low-cost housing is
exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class,
who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716.
Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting
those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor"
and the "homeless less poor" in the example given by petitioner, because the second group or middle class
can afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes
are thus differently situated in life. "It is inherent in the power to tax that the State be free to select the subjects
of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955).
Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, §28(1) which
provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be
taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all
persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made
in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art.
VI, §28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged
in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to their ability to pay.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional
provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES
221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been
prohibited with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI,
§28(1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716,
§4, amending §103 of the NIRC).

Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products,
cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry
feeds) and goods or services to enhance agriculture (milling of palay, corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to
the Philippines) and or professional use, like professional instruments and implements, by persons coming to
the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum
products subject to excise tax and services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

On the other hand, the transactions which are subject to the VAT are those which involve goods and services
which are used or availed of mainly by higher income groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television
time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist
buses, and other common carriers, services of franchise grantees of telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering
issues not at retail but at wholesale and in the abstract. There is no fully developed record which can impart to
adjudication the impact of actuality. There is no factual foundation to show in the concrete the application of the
law to actual contracts and exemplify its effect on property rights. For the fact is that petitioner's members have
not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does
not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character
as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A test case, provided it is an actual case and not an
abstract or hypothetical one, may thus be presented.

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of advisory opinion that does not really settle legal issues.

We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government." This duty can only arise if an actual case or controversy is before us. Under
Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, §1, ¶2 can plausibly mean is that
in the exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of
discretion by any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a court to hear
and decide cases pending between parties who have the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This
power cannot be directly appropriated until it is apportioned among several courts either by the Constitution, as
in the case of Art. VIII, §5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the
Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other departments
of the government.

VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the
Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite policy
of granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives.
To subject cooperatives to the VAT would therefore be to infringe a constitutional policy. Petitioner claims that
in 1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales
taxes but in 1984, because of the crisis which menaced the national economy, this exemption was withdrawn
by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales
taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in
1987 the framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead
upheld the policy of strengthening the cooperatives by way of the grant of tax exemptions," by providing the
following in Art. XII:

§1. The goals of the national economy are a more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the
people; and an expanding productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and
agrarian reform, through industries that make full and efficient use of human and natural resources, and which
are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their ownership.

§15. The Congress shall create an agency to promote the viability and growth of cooperatives as
instruments for social justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives
by withdrawing their exemption from income and sales taxes under P.D. No. 175, §5. What P.D. No. 1955, §1
did was to withdraw the exemptions and preferential treatments theretofore granted to private business
enterprises in general, in view of the economic crisis which then beset the nation. It is true that after P.D. No.
2008, §2 had restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O.
No. 93, §1, but then again cooperatives were not the only ones whose exemptions were withdrawn. The
withdrawal of tax incentives applied to all, including government and private entities. In the second place, the
Constitution does not really require that cooperatives be granted tax exemptions in order to promote their
growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy toward
cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to
put an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of
policy cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If Congress
does not grant exemption and there is no discrimination to cooperatives, no violation of any constitutional
policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from
taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation:
charitable institutions, churches and parsonages, by reason of Art. VI, §28 (3), and non-stock, non-profit
educational institutions by reason of Art. XIV, §4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives, producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that there is greater need to provide cheaper electric power
to as many people as possible, especially those living in the rural areas, than there is to provide them with
other necessities in life. We cannot say that such classification is unreasonable.

We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We
have now come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners
and that its enactment by the other branches of the government does not constitute a grave abuse of
discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the
body which is electorally responsible, remembering that, as Justice Holmes has said, "legislators are the
ultimate guardians of the liberties and welfare of the people in quite as great a degree as are the courts."
(Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators,
that those who took part in passing the law in question by voting for it in Congress should later thrust to the
courts the burden of reviewing measures in the flush of enactment. This Court does not sit as a third branch of
the legislature, much less exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order
previously issued is hereby lifted.

SO ORDERED.
2. ASSESSMENTS AND COLLECTION

ROXAS VS. CTA, 23 SCRA [G.R. No. L-25043 April 26, 1968]

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary
succession the following properties:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas
province;

(2) A residential house and lot located at Wright St., Malate, Manila; and

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose
Roxas, formed a partnership called Roxas y Compania.

AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied.
For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and
apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings.
Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell
13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus
P300,000.00 for survey and subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of
P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the
arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and
contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly
amortizations paid by the farmers.

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and
P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital
asset held for more than one year pursuant to Section 34 of the Tax Code.
RESIDENTIAL HOUSE

During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila,
which they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere
else leaving only Jose in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the
house in the sum of P8,000.00 a year.

ASSESSMENTS

On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real
estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and
P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The
assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from
Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who
derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer
and is liable to pay the corresponding fixed tax.

The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against
Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for
the years 1953 and 1955, as follows:

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of
the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the
disallowance of deductions from gross income of various business expenses and contributions claimed by
Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and
sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the
business of real estate, hence, 100% of the profits derived therefrom was taxed.

The following deductions were disallowed:

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an
appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered
judgment on July 31, 1965 sustaining the assessment except the demand for the payment of the fixed tax on
dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel
and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:

WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas,
Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal
Revenue the amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for
the years 1953 and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the
Revenue Code; and modified with respect to the partnership Roxas y Cia. in the sense that it should pay only
P150.00, as real estate dealer's tax. With costs against petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal
Revenue did not appeal.

The issues:

(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?

(2) Are the deductions for business expenses and contributions deductible?

(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?

The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer
because it engaged in the business of selling real estate. The business activity alluded to was the act of
subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment. To bolster his
stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles of partnership,
quoted below:
4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro,
alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de
sus gerentes no deben conservarse;

The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot
be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite of the fact that
there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of
ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the ten-year
amortization period.

It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request and pursuant to the policy
of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the
agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide
them among the farmers at very reasonable terms and prices. However, the Government could not comply
with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its
way and sold lands directly to the farmers in the same way and under the same terms as would have been the
case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a
resolution expressing the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general
public's trust and confidence in the Government this power must be used justly and not treacherously. It does
not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it
a helping hand and later on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to
Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%.

DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of
Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed
as representation expenses. Representation expenses are deductible from gross income as expenditures
incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves
that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business. In
the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia.
The findings of the Court of Tax Appeals must therefore be sustained.

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and
Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest
families and Our Lady of Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police
are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas
gifts to the families of the members of said entities. Under Section 39(h), a contribution to a government entity
is deductible when used exclusively for public purposes. For this reason, the disallowance must be sustained.
On the other hand, the contribution to the Manila Police trust fund is an allowable deduction for said trust fund
belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.

The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground
that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax
Code. It should be noted however that the contributions were not made to the Philippines Herald but to a group
of civic spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no question
that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's
neediest families. Such a group of citizens may be classified as an association organized exclusively for
charitable purposes mentioned in Section 30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the
Far Eastern University on the ground that the said university gives dividends to its stockholders. Located within
the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or
any religious organization. On the other hand, the lower court found that it belongs to the Far Eastern
University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that
the net income of said university injures to the benefit of its stockholders. The disallowance should be
sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it
earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the
partners. Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving
rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals.
The law, which states: 1äwphï1.ñët

. . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or
renting property on his own account as principal and holding himself out as a full or part-time dealer in real
estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year: . . . (Emphasis supplied) .

is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1äwphï1.ñët

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose
Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00,
respectively, computed as follows: *
WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of
P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are
ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all
corresponding for the year 1955. No costs. So ordered.

3. PAYMENT OF TAXES

- IMPACT AND INCIDENCE OF TAXATION

PRINCIPLES OF A SOUND TAX SYSTEM

1. FISCAL ADEQUACY

2. THEORETICAL JUSTICE

3. ADMINISTRATIVE FEASIBILITY

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN VS. TAN, 163 SCRA [G.R. No. 81311 June 30,
1988]

PADILLA, J.:

These four (4) petitions, which have been consolidated because of the similarity of the main issues involved
therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines
on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal
Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its
enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal protection clauses and other provisions of the 1987
Constitution.

The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to
show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an
interest, personal and substantial, of the party raising the constitutional questions; (3) the constitutional
question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and
necessarily involved in a justiciable controversy and its resolution is essential to the protection of the rights of
the parties. According to the Solicitor General, only the third requisite — that the constitutional question should
be raised at the earliest opportunity — has been complied with. He also questions the legal standing of the
petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being no
justiciable controversy for resolution.

Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main
procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the
Court's duty, under the 1987 Constitution, to determine wether or not the other branches of government have
kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion
given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of these
petitions.

But, before resolving the issues raised, a brief look into the tax law in question is in order.

The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller,
with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods
and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or
gross receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers,
advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more
equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed
out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a
single stage value added tax system computed under the "cost subtraction method" or "cost deduction
method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or
importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD
1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the
issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were
imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the
VAT on every sale to 10%, unless zero-rated or exempt.

Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to
issue EO 273 on 25 July 1987.

The contention is without merit.

It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative
authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to
exercise legislative powers.

On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of
the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987 Constitution, provides:

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is
convened.

It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new Constitution is convened. The first Congress, created and
elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25
July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional
power and authority to legislate.

Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July
1987). He contends that the word "convene" is synonymous with "the date when the elected members of
Congress assumed office."

The contention is without merit. The word "convene" which has been interpreted to mean "to call together,
cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual members of
Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly
created under the 1973 Constitution, which had not been "convened" but some members of the body, more
particularly the delegates to the 1971 Constitutional Convention who had opted to serve therein by voting
affirmatively for the approval of said Constitution, had taken their oath of office.

To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far.
It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some other
provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress to convene
once every year on the fourth Monday of July for its regular session would be a contrariety, since Congress
would already be deemed to be in session after the individual members have taken their oath of office. A
portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law
calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices,
would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if
not in session, to decide a conflict between the President and the Cabinet as to whether or not the President
and the Cabinet as to whether or not the President can re-assume the powers and duties of his office, would
also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene
within twenty-four (24) hours following the declaration of martial law or the suspension of the privilage of the
writ of habeas corpus.

The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers
of said Constitution had intended to terminate the exercise of legislative powers by the President at the
beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear
and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different
from that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse
of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as
follows:

Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack
of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined
or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or
despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT
had been extensively discussed by this framers and other government agencies involved in its implementation,
even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was
merely the last stage in the exercise of her legislative powers. The legislative process started long before the
signing when the data were gathered, proposals were weighed and the final wordings of the measure were
drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the
Congress, two days before it convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the
provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful
and argumentative implication. 4

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of
Baguio vs. De Leon, 5 said:

... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject may be
found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement where
there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus:
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race
Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and
continued; "Taking everything into account, the differentiation against which the plaintiffs complain conforms to
the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy Matias
v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally to all persons, firms
and corporations placed in similar situation." This Court is on record as accepting the view in a leading
American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation." (Lutz v.
Araneta, 98 Phil. 148, 153).

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of
the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of
the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code,
unduly discriminates against customs brokers. The contested provision states:

Sec. 103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the
occupation tax under the Local Tax Code, and professional services performed by registered general
professional partnerships;

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in
Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs
brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who
are subject to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102
read:

Sec. 102. Value-added tax on sale of services. — There shall be levied, assessed and collected, a value-
added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services.
The phrase sale of services" means the performance of all kinds of services for others for a fee, remuneration
or consideration, including those performed or rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others;
and similar services regardless of whether or not the performance thereof call for the exercise or use of the
physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict
between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation
tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like
those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner
Association did not protest the classification of customs brokers then, the Court sees no reason why it should
protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears
expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic
commodities and services, as well as mass actions and demonstrations against the VAT should by now be
evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the
petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made to
believe.
In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and
relief from the political branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and
advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was
enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to
make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and,
in this regard, the Court finds no reason to impede its application or continued implementation.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.

SO ORDERED.
SIMILARITIES AND DIFFERENCES OF TAXATION WITH POLICE POWER AND EMINENT DOMAIN

INHERENT LIMITATIONS IN TAXATION

TIO VS VRB 151 SCRA [June 18, 1987, G.R. No. L-75697]

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and
took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported
blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their
rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy."
The Intervenors were thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the
operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least
forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and
other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of
the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend
for their livelihood, but also provide an additional source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear
and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with dispatch;
... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government
is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of
the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon
him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed
in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title. 2 An act having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign
to the general subject, and may be considered in furtherance of such subject by providing for the method and
means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of
a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given
practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to
regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and
5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all
those objectives in the title or that the latter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject
to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In
imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of
the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for
any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying
the national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we
reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of
other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the
power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is
for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and
control of the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be
without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of the offense." It is petitioner's position that
Section 15 of the DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for private showing and/or public
exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration
of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence"
(People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the
burden of proof provided there be a rational connection between the facts proved and the ultimate facts
presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because
of lack of connection between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides
the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out
of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question
that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On
the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax
imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain
unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged
provision likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be
sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find
no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.
PASCUAL VS. SEC, OF PUBLIC WORKS [G.R. No. L-10405 December 29, 1960]

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.

Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the
above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating
Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road
terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen. Capinpin — Gen. Segundo — Gen. Delgado
— Gen. Malvar — Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned
feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the
Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and Highway
54), which projected feeder roads "do not connect any government property or any important premises to the
main highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads
were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of the passage
and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953, respondent
Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder
roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject
to the condition "that the donor would submit a plan of the said roads and agree to change the names of two of
them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10,
1953, respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act.
No. 920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder roads in
question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer
of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected
feeder roads in question were private property at the time of the passage and approval of Republic Act No.
920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of
P85,000.00 was made by Congress because its members were made to believe that the projected feeder
roads in question were "public roads and not private streets of a private subdivision"'; that, "in order to give a
semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondents
Zulueta executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged
deed of donation — copy of which is annexed to the petition — of the four (4) parcels of land constituting said
projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of
donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous
condition, said donation partook of the nature of a contract; that, such, said donation violated the provision of
our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in
any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the
construction of the projected feeder roads in question with public funds would greatly enhance or increase the
value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of
constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder
roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court,
the respondents would continue to execute, comply with, follow and implement the aforementioned illegal
provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the
Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal";
that a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of
the Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of
the above-mentioned feeder roads project, and from making and securing any new and further releases on the
aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works
and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and
that pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned
parties respondent from making and securing any new and further releases on the aforesaid item of Republic
Act No. 920 and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and
that the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the
Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to
section 1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes
illegal the appropriation of public funds for the improvements of . . . private property"; and that, the
constitutional provision invoked by petitioner is inapplicable to the donation in question, the same being a pure
act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the
appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic Act
No. 920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial interest"
in said Act "and that its enforcement has caused or will cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the
provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the
constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power appropriate
public revenues for anything but a public purpose", that the instructions and improvement of the feeder roads
in question, if such roads where private property, would not be a public purpose; that, being subject to the
following condition:

The within donation is hereby made upon the condition that the Government of the Republic of the Philippines
will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it
being expressly understood that should the Government of the Republic of the Philippines violate the condition
hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden
by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in
existence and void from the very beginning contracts "whose cause, objector purpose is contrary to law,
morals . . . or public policy"; that the legality of said donation may not be contested, however, by petitioner
herein, because his "interest are not directly affected" thereby; and that, accordingly, the appropriation in
question "should be upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to
dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the
petition of appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of
residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had
been reserved for the projected feeder roads aforementioned, which, admittedly, were private property of said
respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken
with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of
the burden of constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance
or increase the value of the subdivision" of said respondent. The lower court held that under these
circumstances, the appropriation in question was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta
contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because Congress is the
source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the
appropriation of public funds for the improvement of what we, in the meantime, may assume as private
property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of checks
and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating
legislative enactments deemed violative of the Constitution or organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to
Ruling Case Law, is this:

It is a general rule that the legislature is without power to appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity
as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion.
Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp. 398-400;
Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only, discussed supra
sec. 14, money raised by taxation can be expended only for public purposes and not for the advantage of
private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be used only for public
purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for
one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for
other than for a public purpose.

xxx xxx xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed
to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound,
are a necessary corollary to our democratic system of government, which, as such, exists primarily for the
promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in the United
States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise,
part and parcel of our own constitutional law.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground
that petitioner may not contest the legality of the donation above referred to because the same does not affect
him directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said
donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be
annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth
in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof
depended upon whether said roads were public or private property when the bill, which, latter on, became
Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the
disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the
land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the
result is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to the
Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition,
for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its
aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For
instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said
Code, exercise the rights and actions of the latter, except only those which are inherent in his person, including
therefore, his right to the annulment of said contract, even though such creditors are not affected by the same,
except indirectly, in the manner indicated in said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury
in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an
officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such
funds," which may be enjoined at the request of a taxpayer. 6Although there are some decisions to the
contrary, 7the prevailing view in the United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers,
have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis
supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S.
447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to
its Federal Government is different from that of a taxpayer of a municipal corporation to its government.
Indeed, under the composite system of government existing in the U.S., the states of the Union are integral
part of the Federation from an international viewpoint, but, each state enjoys internally a substantial measure
of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the former
represented the people of the respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have
become binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the
respective states of the Union of which they are citizens. The peculiar nature of the relation between said
people and the Federal Government of the U.S. is reflected in the election of its President, who is chosen
directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of
the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S.
and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and
taxpayers of each state and the government thereof, except that the authority of the Republic of the Philippines
over the people of the Philippines is more fully direct than that of the states of the Union, insofar as the simple
and unitary type of our national government is not subject to limitations analogous to those imposed by the
Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the
interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of
a legislation appropriating local or state public funds — which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601) — has greater application in the Philippines than that adopted with
respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the
Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the
price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the
Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the
constitutionality of an appropriation for backpay of members of Congress. However, in Rodriguez vs. Treasurer
of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained
the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases — the
importance of the issues therein raised — is present in the case at bar. Again, like the petitioners in the
Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he
represents officially as its Provincial Governor, is our most populated political subdivision, 8and, the taxpayers
therein bear a substantial portion of the burden of taxation, in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners
action in contesting the appropriation and donation in question; that this action should not have been dismissed
by the lower court; and that the writ of preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court
for further proceedings not inconsistent with this decision, with the costs of this instance against respondent
Jose C. Zulueta.

It is so ordered.
BAGATSING VS. RAMIREZ, 74 SCRA [G.R. No. L-41631 December 17, 1976]

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

MARTIN, J.:

The chief question to be decided in this case is what law shall govern the publication of a tax ordinance
enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires
publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231),
which only demands publication after approval.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS
OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES."
The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787
before the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of
nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of
the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the
enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt
Practices Act has been violated; and (d) the ordinance would violate Presidential Decree No. 7 of September
30, 1972 prescribing the collection of fees and charges on livestock and animal products.

Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge
issued an order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market
Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.

After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the
nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the
requirement of publication under the Revised City Charter. Respondent Judge ruled:

There is, therefore, no question that the ordinance in question was not published at all in two daily newspapers
of general circulation in the City of Manila before its enactment. Neither was it published in the same manner
after approval, although it was posted in the legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory requirement of publication before and after approval,
the ordinance in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is
required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before
instituting an action in court.

On September 26, 1975, respondent Judge denied the motion.

Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.

We find the petition impressed with merits.

1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City
of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board
of Manila. For, while Section 17 of the Revised Charter provides:

Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and
shall not be discussed or enacted by the Board until after the third day following such publication. * * * Each
approved ordinance * * * shall be published in two daily newspapers of general circulation in the city, within ten
days after its approval; and shall take effect and be in force on and after the twentieth day following its
publication, if no date is fixed in the ordinance.

Section 43 of the Local Tax Code directs:

Within ten days after their approval, certified true copies of all provincial, city, municipal and barrio ordinances
levying or imposing taxes, fees or other charges shall be published for three consecutive days in a newspaper
or publication widely circulated within the jurisdiction of the local government, or posted in the local legislative
hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government.
In either case, copies of all provincial, city, municipal and barrio ordinances shall be furnished the treasurers of
the respective component and mother units of a local government for dissemination.

In other words, while the Revised Charter of the City of Manila requires publication before the enactment of the
ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the Local
Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or
other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local
government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. Petitioners' compliance with the Local Tax Code
rather than with the Revised Charter of the City spawned this litigation.

There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the
City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local
governments. Blackstone defines general law as a universal rule affecting the entire community and special
law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a prior
special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other
general creates a presumption that the special is to be considered as remaining an exception of the general,
one as a general law of the land, the other as the law of a particular case. 2 However, the rule readily yields to
a situation where the special statute refers to a subject in general, which the general statute treats in particular.
The exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised Charter of the City of
Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43
of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant,
but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision. 3 Special provision governs. 4 This is especially true where
the law containing the particular provision was enacted later than the one containing the general provision. The
City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed
on June 1, 1973. The law-making power cannot be said to have intended the establishment of conflicting and
hostile systems upon the same subject, or to leave in force provisions of a prior law by which the new will of
the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and
Idle ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5

The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages
arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin or manhole on
P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the
City of Manila from any liability for damages or injury to persons or property arising from the failure of the city
officers to enforce the provisions of the charter or any other law or ordinance, or from negligence of the City
Mayor, Municipal Board, or other officers while enforcing or attempting to enforce the provisions of the charter
or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for
damages for the death of, or injury suffered by any persons by reason of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control or supervision. On review, the
Court held the Civil Code controlling. It is true that, insofar as its territorial application is concerned, the
Revised City Charter is a special law and the subject matter of the two laws, the Revised City Charter
establishes a general rule of liability arising from negligence in general, regardless of the object thereof,
whereas the Civil Code constitutes a particular prescription for liability due to defective streets in particular. In
the same manner, the Revised Charter of the City prescribes a rule for the publication of "ordinance" in
general, while the Local Tax Code establishes a rule for the publication of "ordinance levying or imposing taxes
fees or other charges in particular.

In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or
broad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and where a
statute is controlling, it must be read into the charter notwithstanding any particular charter provision. 8 A
subsequent general law similarly applicable to all cities prevails over any conflicting charter provision, for the
reason that a charter must not be inconsistent with the general laws and public policy of the state. 9 A
chartered city is not an independent sovereignty. The state remains supreme in all matters not purely local.
Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read into it
that general law which governs the municipal corporation and which the corporation cannot set aside but to
which it must yield. When a city adopts a charter, it in effect adopts as part of its charter general law of such
character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having

been violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local
Tax Code provides that any question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the
city fiscal is appealable to the Secretary of Justice, whose decision shall be final and executory unless
contested before a competent court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law: whether it is the Revised Charter of
the City of Manila or the Local Tax Code that should govern the publication of the tax ordinance. In other
words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local Tax Code on
the point at issue, and not on the legality of the imposition of the tax. Exhaustion of administrative remedies
before resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded when it does not
provide a plain, speedy and adequate remedy. It may and should be relaxed when its application may cause
great and irreparable damage. 12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the
imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising
function, so that the procedure for publication under the Local Tax Code finds no application. The pretense
bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under
Section 5, Article XI of the New Constitution, "Each local government unit shall have the power to create its
own sources of revenue and to levy taxes, subject to such provisions as may be provided by law." 13 And one
of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect
fees or rentals for the occupancy or use of public markets and premises * * *." 14 They can provide for and
regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license,
or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30,
1972, insofar as it affects livestock and animal products, because the said decree prescribes the collection of
other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well
as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural
Resources." 16 Clearly, even the exception clause of the decree itself permits the collection of the proper fees
for livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments
may collect fees for the slaughter of animals and the use of corrals * * * "

4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in
accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the
market committee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market
code" does not infect the ordinance with any germ of invalidity. 17 The function of the committee is purely
recommendatory as the underscored phrase suggests, its recommendation is without binding effect on the
Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a
condition sine qua non before the Municipal Board could enact such ordinance. The native power of the
Municipal Board to legislate remains undisturbed even in the slightest degree. It can move in its own initiative
and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of
the Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the
gathering of the necessary data, studies and the collection of consensus for the proposal of ordinances
regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market
Committee the adoption of regulatory measures for the operation and administration of the city markets.
Potestas delegata non delegare potest.

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the
exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the
City of Manila to the said corporation in a "Management and Operating Contract." The assumption is of course
saddled on erroneous premise. The fees collected do not go direct to the private coffers of the corporation.
Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. That
is the object it serves. The entrusting of the collection of the fees does not destroy the public purpose of the
ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object for which the
fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate
agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the
direction of an individual or private corporation. 18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Act
because the increased rates of market stall fees as levied by the ordinance will necessarily inure to the
unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue whether the
ordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidated
because of consequences that may arise from its enforcement. 20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the
City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.

SO ORDERED.
NAPOCOR VS. ALBAY, 186 SCRA [G.R. No. 87479 June 4, 1990]

Romulo L. Ricafort and Jesus R. Cornago for respondents.

SARMIENTO, J.:

The National Power Corporation (NAPOCOR) questions the power of the provincial government of Albay to
collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, 1984 up to
March 10, 1987.

It appears that on March 14 and 15, 1989, the respondents caused the publication of a notice of auction sale
involving the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, machines,
and similar improvements standing on their offices at Tiwi, Albay. The amounts to be realized from this
advertised auction sale are supposed to be applied to the tax delinquencies claimed, as and for, as we said,
real property taxes. The back taxes NAPOCOR has supposedly accumulated were computed at
P214,845,184.76.

NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the Fiscal
Incentives Review Board (FIRB), which provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National
Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products,
granted under the terms and conditions of Commonwealth Act No. 120 (Creating the National Power
Corporation, defining its powers, objectives and functions, and for other purposes), as amended, are restored
effective March 10, 1987, subject to the following conditions: 1

as well as the Memorandum of Executive Secretary Catalino Macaraig, which also states thus:

Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93, series of 1986, FIRB Resolution No. 17-87,
series of 1987, restoring, subject to certain conditions prescribed therein, the tax and duty exemption privileges
of NPC as provided under Commonwealth Act No. 120, as amended, effective March 10, 1987, is hereby
confirmed and approved. 2

On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay provincial
government "to CEASE AND DESIST from selling and disposing of the NAPOCOR properties subject matter of
this petition. 3 It appears, however, that "the temporary restraining order failed to reach respondents before the
scheduled bidding at 10:00 a.m. on March 30, 1989 ... [h]ence, the respondents proceeded with the bidding
wherein the Province of Albay was the highest bidder. 4

The Court gathers from the records that:

(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No. 120 (charter of
NAPOCOR):

Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts and
Other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and
shall devote all its returns from its capital investment as well as excess revenues from its operation, for
expansion, To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries,
is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and
service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 5

(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating the Fiscal Incentives
Review Board (FIRB). Among other things, the Board was tasked as follows:

Section 2. A Fiscal Incentives Review Board is hereby created for the purpose of determining what subsidies
and tax exemptions should be modified, withdrawn, revoked or suspended, which shall be composed of the
following officials:

Chairman - Secretary of Finance

Members - Secretary of Industry

- Director General of the National Economic and

Development Authority

- Commissioner of Internal Revenue

- Commissioner of Customs

The Board may recommend to the President of the Philippines and for reasons of compatibility with the
declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of
the abovestated statutory subsidies or tax exemption grants, except those granted by the Constitution. To
attain its objectives, the Board may require the assistance of any appropriate government agency or entity. The
Board shall meet once a month, or oftener at the call of the Secretary of Finance. 6

(3) On June 11, 1984, Presidential Decree No. 1931 was promulgated, prescribing, among other things,
that:

Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the
payment of duties, taxes, fees, impost and other charges heretofore granted in favor of government-owned or
controlled corporations including their subsidiaries are hereby withdrawn. 7
(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax exemption effective
June 11, 1984 to June 30, 1985;

(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption privileges to NAPOCOR from
July 1, 1985 and indefinitely thereafter;

(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax exemption privileges
effective until March 10, 1987; 8

(7) On December 17, 1986, Executive Order No. 93 was promulgated by President Corazon Aquino,
providing, among other things, as follows:

SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty
incentives granted to government and private entities are hereby withdrawn, except. 9

and

SECTION 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is
hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant of subsidies to
deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or
preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms
and conditions for the grant thereof taking into consideration the international commitments of the Philippines
and the necessary precautions such that the grant of subsidies does not become the basis for countervailing
action. 10

(8) On October 5, 1987, the Office of the President issued the Memorandum, confirming NAPOCOR's tax
exemption aforesaid. 11
The provincial government of Albay now defends the auction sale in question on the theory that the various
FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void, under the
Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax
exemptions, the same is of no force and effect under the constitutional provision allowing the legislature alone
to accord tax exemption privileges.

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to
"recommend to the President of the Philippines and for reasons of compatibility with the declared economic
policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the above-cited
statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to
impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature may
accomplish. 12 The question therefore is whether or not the various tax exemptions granted by virtue of FIRB
Resolutions Nos. 10-85, 1-86, and 17-87 are valid and constitutional.

We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we
sustain the provincial government of Albay.

As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to
"recommend" tax exemptions. By itself, it could not have validly prescribed exemptions or restore taxability.
Hence, as of June 11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy
tax exemption privileges.

The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax and/or
duty exemptions withdrawn hereunder in whole or in part," 13 and "impose conditions for ... tax and/or duty
exemption" 14 is of no moment. These provisions are prospective in character and can not affect the Board's
past acts.

The Court is aware that in its preamble, Executive Order No. 93 states:

WHEREAS, a number of affected entities, government and private were able to get back their tax and duty
exemption privileges through the review mechanism implemented by the Fiscal Incentives Review Board
(FIRB); 15 but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of
FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from that, Section 2 of the Executive
Order was clearly intended to amend Presidential Decree No. 776, which means, mutatis mutandis, that FIRB
did not have the right, in the first place, to grant tax exemptions or withdraw existing ones.

Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed that
the provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-87 was
affirmed by the Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's exemption
had been validly restored. What it questions is NAPOCOR's liability in the interregnum between June 11, 1984,
the date its tax privileges were withdrawn, and March 10, 1987, the date they were purportedly restored. To be
sure, it objects to Executive Order No. 93 as alledgedly a delegation of legislative power, but only insofar as its
(NAPOCOR's) June 11, 1984 to March 10, 1987 tax accumulation is concerned. We therefore leave the issue
of "delegation" to the future and its constitutionality when the proper case arises. For the nonce, we leave
Executive Order No. 93 alone, and so also, its validity as far as it grants tax exemptions (through the FIRB)
beginning December 17, 1986, the date of its promulgation.

NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held:

xxx xxx xxx

The last issue to be resolved is whether or not the private-respondent is liable for the fixed and deficiency
percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948)
before the approval of its municipal franchises. As aforestated, the franchises were approved by the President
only on February 24,1948. Therefore, before the said date, the private respondent was liable for the payment
of percentage and fixed taxes as seller of light, heat, and power which, as the petitioner claims, amounted to
P3,025.96. The legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than
the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period
before the franchise was granted, i.e. before February 24, 1948. ... 16

Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real
property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the
Government in development and nation-building, particularly in the local government level, Thus:

SEC. 86. Distribution of proceeds. — (a) The proceeds of the real property tax, except as otherwise provided in
this Code, shall accrue to the province, city or municipality where the property subject to the tax is situated and
shall be applied by the respective local government unit for its own use and benefit.

(b) Barrio shares in real property tax collections. — The annual shares of the barrios in real property tax
collections shall be as follows:

(1) Five per cent of the real property tax collections of the province and another five percent of the
collections of the municipality shall accrue to the barrio where the property subject to the tax is situated.

(2) In the case of the city, ten per cent of the collections of the tax shag likewise accrue to the barrio where
the property is situated.

Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the barrio
officials and other administrative expenses, while the remaining seventy per cent shall be utilized for
development projects approved by the Secretary of Local Government and Community Development or by
such committee created, or representatives designated, by him.

SEC. 87. Application of proceeds. — (a) The proceeds of the real property tax pertaining to the city and to the
municipality shall accrue entirely to their respective general funds. In the case of the province, one-fourth
thereof shall accrue to its road and bridge fund and the remaining three-fourths, to its general fund.
(b) The entire proceeds of the additional one per cent real property tax levied for the Special Education
Fund created under R.A. No. 5447 collected in the province or city on real property situated in their respective
territorial jurisdictions shall be distributed as follows:

(1) Collections in the provinces: Fifty per cent shall accrue to the municipality where the property subject to
the tax is situated; twenty per cent shall accrue to the province; and thirty per cent shall be remitted to the
Treasurer of the Philippines to be expended exclusively for stabilizing the Special Education Fund in
municipalities, cities and provinces in accordance with the provisions of Section seven of R.A. No. 5447.

(2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per cent shall be remitted
to the Treasurer of the Philippines to be expended exclusively for stabilizing the special education fund in
municipalities, cities and provinces as provided under Section 7 of R.A. No. 5447.

However, any increase in the shares of provinces, cities and municipalities from said additional tax accruing to
their respective local school boards commencing with fiscal year 1973-74 over what has been actually realized
during the fiscal year 1971-72 which, for purposes of this Code, shall remain as the based year, shall be
divided equally between the general fund and the special education fund of the local government units
concerned. The Secretary of Finance may, however, at his discretion, increase to not more than seventy-five
per cent the amount that shall accrue annually to the local general fund.

(c) The proceeds of all delinquent taxes and penalties, as well as the income realized from the use, lease
or other disposition of real property acquired by the province or city at a public auction in accordance with the
provisions of this Code, and the proceeds of the sale of the delinquent real property or, of the redemption
thereof shall accrue to the province, city or municipality in the same manner and proportion as if the tax or
taxes had been paid in regular course.

(d) The proceeds of the additional real property tax on Idle private lands shall accrue to the respective
general funds of the province, city and municipality where the land subject to the tax is situated. 17

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the
other. In no measure can the Government be said to have lost anything.

As a rule finally, claims of tax exemption are construed strongly against the claimant. 18 They must also be
shown to exist clearly and categorically, and supported by clear legal provisions. 19

Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds for the State to finance the
needs of the citizenry and to advance the common weal.

WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer for
real estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared valid.

SO ORDERED.
MACEDA VS. MACARAIG, 197 SCRA [G.R. No. 88291 June 8, 1993]

NOCON, J.:

Just like lightning which does strike the same place twice in some instances, this matter of indirect tax
exemption of the private respondent National Power Corporation (NPC) is brought to this Court a second time.
Unfazed by the Decision We promulgated on May 31, 19911 petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the petitioner. We have decided to
take a second look at the issues. In the process, a hearing was held on July 9, 1992 where all parties
presented their respective arguments. Etched in this Court's mind are the paradoxical claims by both petitioner
and private respondents that their respective positions are for the benefit of the Filipino people.

A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions, at the
risk of being repetitious is, therefore, in order.

On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power Corporation, a
public corporation, mainly to develop hydraulic power from all water sources in the Philippines.2 The sum of
P250,000.00 was appropriated out of the funds in the Philippine Treasury for the purpose of organizing the
NPC and conducting its preliminary work.3 The main source of funds for the NPC was the flotation of bonds in
the capital markets4 and these bonds

. . . issued under the authority of this Act shall be exempt from the payment of all taxes by the Commonwealth
of the Philippines, or by any authority, branch, division or political subdivision thereof and subject to the
provisions of the Act of Congress, approved March 24, 1934, otherwise known as the Tydings McDuffle Law,
which facts shall be stated upon the face of said bonds. . . . .5

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the initial
operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction of
any hydraulic power project was to be decided by the NPC Board.6 The provision on tax exemption in relation
to the issuance of the NPC bonds was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the bond's
principal and interest in "gold coins" but adding that payment could be made in United States dollars.7 The
provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee,
absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans.8 He was also
authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development
(IBRD) for NPC loans for the accomplishment of NPC's corporate objectives9 and for the reconstruction and
development of the economy of the country. 10 It was expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and
restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 11

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other
types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the pertinent tax
exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes,
duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and
municipalities. 13

On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the
President of the Philippines was authorized to negotiate, contract and guarantee loans with the Export-Import
Bank of of Washigton, D.C., U.S.A., or any other international financial institution. 14 The tax provision for
repayment of these loans, as stated in R.A. No. 357, was not amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes.
As enacted, the law states as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes,
except real property tax, and from all duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities, and municipalities.15

On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by the
increased indebtedness 16 should bear the National Economic Council's stamp of approval. The tax exemption
provision related to the payment of this total indebtedness was not amended nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax
provision related to the repayment of these loans was not amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31, 2000. 18 All
laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stock
corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares having a par
value of P100.00 each, with said capital stock wholly subscribed to by the Government. 20 No tax exemption
was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital stock to
P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax provision was
incorporated in said Act.

On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to P300,000,000.00,
the increase to be wholly subscribed by the Government. No tax provision was incorporated in said Act. 22

On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as
amended. Declared as primary objectives of the nation were:

Declaration of Policy. — Congress hereby declares that (1) the comprehensive development, utilization and
conservation of Philippine water resources for all beneficial uses, including power generation, and (2) the total
electrification of the Philippines through the development of power from all sources to meet the needs of
industrial development and dispersal and the needs of rural electrification are primary objectives of the nation
which shall be pursued coordinately and supported by all instrumentalities and agencies of the government,
including the financial institutions. 23

Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority to incur
Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:

The bonds issued under the authority of this subsection shall be exempt from the payment of all taxes by the
Republic of the Philippines, or by any authority, branch, division or political subdivision thereof which facts shall
be stated upon the face of said bonds. . . . 24

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest
and other charges thereon, as well as the importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall also be
exempt from all taxes, fees, imposts, other charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political subdivisions. 25

A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-
profit character and tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act,
the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines,
its provinces, cities, and municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization, and sale of electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrification of the entire
country was one of the primary concerns of the country. And in connection with this, it was specifically stated
that:

The setting up of transmission line grids and the construction of associated generation facilities in Luzon,
Mindanao and major islands of the country, including the Visayas, shall be the responsibility of the National
Power Corporation (NPC) as the authorized implementing agency of the State. 27

xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a single integrated system all
generating facilities supplying electric power to the entire area embraced by any grid set up by the NPC. 28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role
under aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of P3,000,000,000.00 at any one time, 30 and the NPC was
authorized to borrow a total of US$1,000,000,000.00 31 in foreign loans.

The relevant tax exemption provision for these foreign loans states as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest
and other charges thereon, as well as the importation of machinery, equipment, materials, supplies and
services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this
Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions,
including import restrictions previously and presently imposed, and to be imposed by the Republic of the
Philippines, or any of its agencies and political subdivisions. 32 (Emphasis supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:

(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities including
the taxes, duties, fees, imposts and other charges provided for under the Tariff and Customs Code of the
Philippines, Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as further amended by
Presidential Decree No. 34 dated October 27, 1972, and Presidential Decree No. 69, dated November 24,
1972, and costs and service fees in any court or administrative proceedings in which it may be a party;

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization
and sale of electric power. 33 (Emphasis supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of electricity to
its different customers. 34 No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated annually to
cover the unpaid subscription of the Government in the NPC authorized capital stock, which amount would be
taken from taxes accruing to the General Funds of the Government, proceeds from loans, issuance of bonds,
treasury bills or notes to be issued by the Secretary of Finance for this particular purpose. 35

On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and transmission facilities which includes
nuclear power generation, the present capitalization of National Power Corporation (NPC) and the ceilings for
domestic and foreign borrowings are deemed insufficient; 36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter, the non-profit character of NPC has
not been fully utilized because of restrictive interpretation of the taxing agencies of the government on said
provisions; 37
xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared objective of total electrification of
the country, further amendments of certain sections of Republic Act No. 6395, as amended by Presidential
Decrees Nos. 380, 395 and 758, have become imperative; 38

Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling was
increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to US$4,000,000,000.00 41 and
Section 13 of R.A. No. 6395, was amended to read as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay to its indebtedness and
obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act,
the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes,
duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds,
in any court or administrative proceedings. 42

II

On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931 and
Executive Order No. 93 (S'86).

On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports
as follows:

WHEREAS, importations by certain government agencies, including government-owned or controlled

corporation, are exempt from the payment of customs duties and compensating tax; and

WHEREAS, in order to reduce foreign exchange spending and to protect domestic industries, it is necessary to
restrict and regulate such tax-free importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested
in me by the Constitution, and do hereby decree and order the following:

Sec. 1. All importations of any government agency, including government-owned or controlled corporations
which are exempt from the payment of customs duties and internal revenue taxes, shall be subject to the prior
approval of an Inter-Agency Committee which shall insure compliance with the following conditions:
(a) That no such article of local manufacture are available in sufficient quantity and comparable quality at
reasonable prices;

(b) That the articles to be imported are directly and actually needed and will be used exclusively by the
grantee of the exemption for its operations and projects or in the conduct of its functions; and

(c) The shipping documents covering the importation are in the name of the grantee to whom the goods
shall be delivered directly by customs authorities.

xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the tax-free importation of government
agencies in accordance with the conditions set forth in Section 1 hereof and the regulations to be promulgated
to implement the provisions of this Decree. Provided, however, That any government agency or government-
owned or controlled corporation, or any local manufacturer or business firm adversely affected by any decision
or ruling of the Inter-Agency Committee may file an appeal with the Office of the President within ten days from
the date of notice thereof. . . . .

xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all general and special laws
and decrees are hereby amended accordingly.

xxx xxx xxx

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a National Budget that is an instrument of
national development, reflective of national objectives, strategies and plans. The budget shall be supportive of
and consistent with the socio-economic development plan and shall be oriented towards the achievement of
explicit objectives and expected results, to ensure that funds are utilized and operations are conducted
effectively, economically and efficiently. The national budget shall be formulated within a context of a
regionalized government structure and of the totality of revenues and other receipts, expenditures and
borrowings of all levels of government-owned or controlled corporations. The budget shall likewise be prepared
within the context of the national long-term plan and of a long-term budget program. 43

In line with such policy, the law decreed that

All units of government, including government-owned or controlled corporations, shall pay income taxes,
customs duties and other taxes and fees are imposed under revenues laws: provided, that organizations
otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General
Fund in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by the
Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be
considered as both revenue and expenditure of the General Fund. 44

The law also declared that —

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent with the
provisions of the Decree are hereby repealed and/or modified accordingly. 45

On July 11, 1984, most likely due to the economic morass the Government found itself in after the Aquino
assassination, P.D. No. 1931 was issued to reiterate that:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax privileges to any
government-owned or controlled corporation and all other units of government; 46

and since there was a

. . . need for government-owned or controlled corporations and all other units of government enjoying tax
privileges to share in the requirements of development, fiscal or otherwise, by paying the duties, taxes and
other charges due from them. 47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions from the
payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of government-owned or
controlled corporations including their subsidiaries, are hereby withdrawn.

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal
Incentives Review Board created under Presidential Decree No. 776, is hereby empowered to restore, partially
or totally, the exemptions withdrawn by Section 1 above, any applicable tax and duty, taking into account,
among others, any or all of the following:

1) The effect on the relative price levels;

2) The relative contribution of the corporation to the revenue generation effort;

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, executive orders,
administrative orders, rules, regulations or parts thereof which are inconsistent with this Decree are hereby
repealed, amended or modified accordingly.

On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grant
of tax exemption to other government and private entities without benefit of review by the Fiscal Incentives
Review Board, to wit:

WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14, 1984,
respectively, withdrew the tax and duty exemption privileges, including the preferential tax treatment, of
government and private entities with certain exceptions, in order that the requirements of national economic
development, in terms of fiscals and other resources, may be met more adequately;

xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were restored by the Fiscal Incentives
Review Board (FIRB), a number of affected entities, government and private, had their tax and duty exemption
privileges restored or granted by Presidential action without benefit or review by the Fiscal Incentives Review
Board (FIRB);

xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided where necessary by explicit subsidy
and budgetary support rather than tax and duty exemption privileges if only to improve the fiscal monitoring
aspects of government operations.

It was thus ordered that:

Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives
granted to government and private entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the Government of the Republic of the
Philippines is a signatory;

c) those enjoyed by enterprises registered with:

(i) the Board of Investment pursuant to Presidential Decree No. 1789, as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66 as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to
Presidential Decree No. 538, was amended.

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instructions No.
1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby
authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant of subsidies to
deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or
preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms
and conditions for the grant thereof taking into consideration the international commitment of the Philippines
and the necessary precautions such that the grant of subsidies does not become the basis for countervailing
action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into account
any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served.

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Executive Order
are hereby repealed or modified accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to be
issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the Official
Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official Gasetter,
51 which 15th day was March 10, 1987.

III

Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in their
TAXATION I course, which fro convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:

a. Direct Tax — the where the person supposed to pay the tax really pays it. WITHOUT transferring the
burden to someone else.

Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax), residence tax,
immigration tax

b. Indirect Tax — that where the tax is imposed upon goods BEFORE reaching the consumer who
ultimately pays for it, not as a tax, but as a part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the tariff and customs
indirect taxes (import duties, special import tax and other dues) 52

IV

To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to the
following:

(1) What kind of tax exemption privileges did NPC have?

(2) For what periods in time were these privileges being enjoyed?

(3) If there are taxes to be paid, who shall pay for these taxes?
V

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of
taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not
expressly include "indirect taxes."

His point is not well-taken.

A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to
be completely tax exempt from all forms of taxes — direct and indirect.

NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon its
creation by virtue of C.A. No. 120.

When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to be
completely tax exempt.

After the NPC was authorized to borrow from other sources of funds — aside issuance of bonds — it was
again specifically exempted from all types of taxes "to facilitate payment of its indebtedness." Even when the
ceilings for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the
NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, as
above stated. The exemption was, however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Its
section 13(d) is the starting point of this bone of contention among the parties. For easy reference, it is
reproduced as follows:

[T]he Corporation is hereby declared exempt:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization
and sale of electric power. (Emphasis supplied)

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations
and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment of ALL FORMS OF taxes,
duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds,
in any court or administrative proceedings. (Emphasis supplied)

Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and Legislative. 53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been very easy for him to
retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intention were to preserve the
indirect tax exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. It
should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items:

13(a) : court or administrative proceedings;

13(b) : income, franchise, realty taxes;

13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included
13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment or
issuance as narrated above in part I hereof. President Marcos must have considered all the NPC statutes from
C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55 with
a very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.

One common theme in all these laws is that the NPC must be enable to pay its indebtedness 56 which, as of
P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign
loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be
achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to pay the
government share in its capital stock P.D. No. 758 was issued mandating that P200 Million would be
appropriated annually to cover the said unpaid subscription of the Government in NPC's authorized capital
stock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruing
to the General Fund of the Government. It does not stand to reason then that former President Marcos would
order P200 Million to be taken partially or totally from tax money to be used to pay the Government
subscription in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other.

The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the phrase
"All FORMS OF" is supported by the fact that he did not do the same for the tax exemption provision for the
foreign loans to be incurred.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest
and other charges thereon, as well as the importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be
exempt from all taxes, fees, imposts, other charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political subdivisions. 57

The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and the payment of the principal, interest and
other charges thereon, as well as the importation of machinery, equipment, materials, supplies and services,
by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions, including import
restrictions previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of
its agencies and political subdivisions. 58 (Emphasis supplied)

P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No. 6395,
as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do
only with loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO
OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is — with the express
mention of "direct

and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees,
imposts, other charges . . . to be imposed" in the future — surely, an indication that the lawmakers wanted the
NPC to be exempt from ALL FORMS of taxes — direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect
taxes under P.D. No. 938.

VI

Five (5) years on into the now discredited New Society, the Government decided to rationalize government
receipts and expenditures by formulating and implementing a National Budget. 60 The NPC, being a
government owned and controlled corporation had to be shed off its tax exemption status privileges under P.D.
No. 1177. It was, however, allowed to ask for a subsidy from the General Fund in the exact amount of
taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed,
however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation
privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue of
said P.D. No. 882. It is presumed that the NPC, being the special creation of the State, was allowed to
continue its tax-free importations.

This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's tax
exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the motion for
Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss this tax
exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No. 133 (S
'77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the
petition at bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges. 63
Applying by analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's
tax exemption privileges was not seasonably invoked 65 by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privileges
as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of any
government-owned or controlled corporation (GOCC). NPC included, was reiterated in the fourth whereas
clause of P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent
with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with
recommending the partial or total restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.

The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in Section 23,
P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had to submit to the Office
of the President its request for the P200 million mandated by P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC authorized capital stock and that under Section 22, of
the same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget for
review due to capital inputs of the government (P.D. No. 758) and to the national government's guarantee of
the domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.

There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found
themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary of
Finance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax
payment/tax subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got
from the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay.

In his memorandum filed July 16, 1992, petitioner submits:

[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and tax exemptions,
whether direct or indirect. And so there was nothing to be withdrawn or to be restored under P.D. No. 1931,
issued on June 11, 1984. This is evident from sections 1 and 2 of said P.D. No. 1931, which reads:

"Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the
payment of duties, taxes, fees, imports and other charges heretofore granted in favor of government-owned or
controlled corporations including their subsidiaries are hereby withdrawn."

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal
Incentives Review Board created under P.D. No. 776, is hereby empowered to restore partially or totally, the
exemptions withdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it had already lost all its tax
exemptions privilege with the issuance of P.D. No. 1177 seven (7) years earlier or on July 30, 1977, there were
no tax exemptions to be withdrawn by section 1 which could later be restored by the Minister of Finance upon
the recommendation of the FIRB under Section 2 of P.D. No. 1931. Consequently, FIRB resolutions No. 10-85,
and 1-86, were all illegally and validly issued since FIRB acted beyond their statutory authority by creating and
not merely restoring the tax exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax exemptions but allowed the
President upon recommendation of the FIRB to restore those abolished.

The Court disagrees.

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially the same terms the provisions of
the act or acts so revised and consolidated, the revision and consolidation shall be taken to be a continuation
of the former act or acts, although the former act or acts may be expressly repealed by the revised and
consolidated act; and all rights

and liabilities under the former act or acts are preserved and may be enforced. 66

the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D.
No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed
to be a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D.
No. 177, on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with
its institution of the FIRB recommendation of partial/total restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to
pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it
did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the
Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally
and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status
but merely restored it. 69

Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous
Amendment No. 6 70 as there was no showing that President Marcos' encroachment on legislative
prerogatives was justified under the then prevailing condition that he could legislate "only if the Batasang
Pambansa 'failed or was unable to act inadequately on any matter that in his judgment required immediate
action' to meet the 'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim
Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos')
judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It
must be remembered that said Presidential Decree was issued only around nine (9) months after the
Philippines unilaterally declared a moratorium on its foreign debt payments 72 as a result of the economic
crisis triggered by loss of confidence in the government brought about by the Aquino assassination. The
Philippines was then trying to reschedule its debt payments. 73 One of the big borrowers was the NPC 74
which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. 75 From all
indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to issue
P.D. No. 1931, under his Amendment 6 power. 76

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without
the concurrence of a majority of all the members of the Batasang Pambansa" 77 does not apply as said P.D.
No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His
Amendment No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its
section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted
under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax exemption privileges
effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no indication,
however, from the records of the case whether or not similar approvals were given by then President Marcos
for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice"
might have occurred when the Minister of Finance approved his own recommendation as Chairman of the
Fiscal Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals 80 when the
Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the
Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on
appeal to Malacañang, his own decision as Chairman of the Civil Service Commission. 83

Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when
FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were
recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board. 84

In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-
doctors, respectively. Thus, there was a need for procedural due process to be followed.

In the case of the tax exemption restoration of NPC, there is no other comparable entity — not even a single
public or private corporation — whose rights would be violated if NPC's tax exemption privileges were to be
restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State
implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its
environs. And as of 1984, there was no more MERALCO — as a producer of electricity — which could have
objected to the restoration of NPC's tax exemption privileges.

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just
asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the
recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process.

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5,
1987, the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no
authority to sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power
delegated to her thereunder.
A misconception must be cleared up.

When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers.
Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it
to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not
sub-delegating her power.

And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be carried out 85
and it fixed the standard to which the delegate had to conform in the performance of his functions, 86 both
qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11,
1984 up to the present.

VII

The next question that projects itself is — who pays the tax?

The answer to the question could be gleamed from the manner by which the Commissaries of the Armed
Forces of the Philippines sell their goods.

By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but
groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and other
taxes on the goods earmarked for AFP Commissaries as an added cost of operation and distribute it over the
total units of goods sold as it would any other cost. Thus, even the ordinary supermarket buyer probably pays
for the specific, ad valorem and other taxes which theses suppliers do not charge the AFP Commissaries. 89

IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb the taxes
they add to the bunker fuel oil they sell to NPC.

It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders an opinion,
90 wherein he stated and We quote:

xxx xxx xxx

Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties, fees, imposts, charges,
and restrictions of the Republic of the Philippines and its provinces, cities, and municipalities." This exemption
is broad enough to include all taxes, whether direct or indirect, which the National Power Corporation may be
required to pay, such as the specific tax on petroleum products. That it is indirect or is of no amount [should be
of no moment], for it is the corporation that ultimately pays it. The view which refuses to accord the exemption
because the tax is first paid by the seller disregards realities and gives more importance to form than to
substance. Equity and law always exalt substance over from.

xxx xxx xxx

Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge that many
impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption granted the
National Power Corporation to direct taxes notwithstanding the general and broad language of the statue will
be to thwrat the legislative intention in giving exemption from all forms of taxes and impositions without
distinguishing between those that are direct and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce
to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct
and indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation.
This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the
economic burden of the taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of
the "normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies — because to do so may be
more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil
from overseas — NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which
verifiably represents the tax already paid by the oil company-vendor to the BIR.

It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad valorem
tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:

EXECUTIVE ORDER NO. 195

AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS.

xxx xxx xxx

Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is hereby amended
to read as follows:
Par. (b) — For products subject to ad valorem tax only:

PRODUCT AD VALOREM TAX RATE

1. ...

2. ...

3. ...

4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the same
generating power 0%

xxx xxx xxx

Sec. 3. This Executive Order shall take effect immediately.

Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and eighty-seven.
(Emphasis supplied)

The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear
the economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints
that some indirect tax money has been illegally refunded by the Bureau of Internal Revenue to the NPC and
that more claims for refunds by the NPC are being processed for payment by the BIR.

A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC last July
7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes during the period
from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the
PNC did not have indirect tax exemptions with the enactment of P.D. No. 938. As We have already ruled
otherwise, the only questions left are whether NPC Is entitled to a tax refund for the tax component of the price
of the bunker fuel oil purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly
refunded the amount to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the

tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when the BIR issues its letter
authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB
Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive to June 11, 1984 there was a
need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad
valorem taxes on the bunker oil it sold NPC during the period above indicated and had billed NPC
correspondingly. 93 It should be noted that the NPC, in its letter-claim dated September 11, 1985 to the
Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY AND UNEQUIVOCALLY
STATE that itself paid the P58.020,110.79 as part of the bunker fuel oil price it purchased from Caltex (Phils)
Inc. 94

The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National Internal
Revenue Code of 1977, as amended which reads as follows:

Sec. 230. Recover of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any
sum alleged to have been excessive or in any Manner wrongfully collected. until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly, to have been
erroneously paid.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner correctly
issued the Tax Credit Memo in view of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the BIR from
June 11, 1984 to the early part of 1986. 96

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when the alleged
claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of the Deed of
Assignment 97 executed by and between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal Revenue amounting to
P442,887,716.16. P58.020,110.79 of which is due to Assignor's oil purchases from the Assignee (Caltex
[Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR from
refunding said amount because of Our ruling that NPC has both direct and indirect tax exemption privileges.
Neither can We order the BIR to refund said amount to NPC as there is no pending petition for review on
certiorari of a suit for its collection before Us. At any rate, at this point in time, NPC can no longer file any suit
to collect said amount EVEN IF lt has previously filed a claim with the BIR because it is time-barred under
Section 230 of the National Internal Revenue Code of 1977. as amended, which states:

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty REGARDLESS of any supervening cause that may arise after payment. . . .
(Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by NPC for the
amount of P410,580,000.00 had been made on said date. it is clear that more than two (2) years had already
elapsed from said date. At the same time, We should note that there is no legal obstacle to the BIR granting,
even without a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been
made seasonably, and assuming the amounts covered had actually been paid previously by the oil companies
to the BIR.

WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for
lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED.

SO ORDERED.
PEPSI COLA VS. TANAUAN, 69 SCRA [G.R. No. L-31156 February 27, 1976]

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. 2264.1 otherwise 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." 2 For 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." 4 For the purpose of
computing the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall
submit to 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 legal
and 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. 6 It 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. 7 This is sanctioned by
immemorial practice. 8 By 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. 9 Under the New Constitution, local governments are granted the autonomous authority to create
their own sources of revenue 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. 11 Due 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
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 theory
of 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. 13 The 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.14 Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction
for the same purpose, 16 but 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
from its 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 substitute
for 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 19 The 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
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. 20 But, 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. 22 Soft 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 1-½ centavos per case, 23 cannot be considered unjust and
unfair. 24 an increase 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 in line 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, 29 appears not to affect the resolution of the
validity 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.
MCIAA VS. MARCOS, 261 SCRA [G.R. No. 120082 September 11, 1996]

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 19951
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 19952 denying 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 . . .

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

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
local 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 presently
enjoyed 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 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. 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 Local
Government 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 1995,4 the 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.

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 manage
the 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,"7 and that it is
an attached agency of the Department of Transportation and Communication (DOTC),8 the 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 National
Government, 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 be
burdened, 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)

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 government from 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 Constitution10 and enhanced further by the LGC. While it may be true that under its Charter the petitioner
was exempt from the payment of realty taxes,11 this 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, 12 and 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.13 Our 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 to
destroy."15 Verily, 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.16 But since taxes are what we pay for civilized society,17 or are the lifeblood
of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority.18 A claim of
exemption from tax payment must be clearly shown and based on language in the law too plain to be
mistaken.19 Elsewise stated, taxation is the rule, exemption therefrom is the exception.20 However, 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.22 Under 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
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 of
passengers 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;

(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,24 while
"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 valorem tax 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;

(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, Section
192 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 provisos in 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
"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 withdrawn upon 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 and
educational 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 controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A.
No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge
under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as
shown above, the said section is qualified by Section 232 and 234.

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:

(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 the
section 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 its
political 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."27 These 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."29 The 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;"31 while 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:

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
governments33 and 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.34 The 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 to
government-owned and controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and
there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by
paying the taxes and other charges due from them.35
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 the
Province of Cebu",36 which 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.

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 is
conclusive 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.