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Tax Exemption

Maceda vs. Macaraig


1. This involves a case whereby the imposition of tax exemption of

NAPOCOR from the payment of indirect taxes was questioned by herein
petitioner. The case looked back to the development of the NAPOCOR
statute from its creation in 1936 down to the legislative developments
initiated and the more controversial amendments introduced by former
President Ferdinand Marcos.
2. In November 3, 1936, National Power Corporation (NAPOCOR), a public
corporation, was created by virtue of CA 120 to mainly develop
hydraulic power from all waters in the country. It was funded by
floatation funds and was intended to be exempted from all taxes.
3. Subsequent amendments were initiated regarding the PH Presidents
authority to negotiate on behalf of it and its ceiling of indebtedness
was increased for the next two decades.
4. In 1954, its tax exemption for real estate taxes was withdrawn.
5. From 1958 to 1967, its authorized capital stock was consistently
increased by various laws as its foreign loan ceiling also new heights
but during these times, no tax exemption was incorporated in the said
6. In 1971, RA 6395 revised the NAPOCOR charter indicating that:
a. The issuance of bonds is exempted from all tazes;
b. The foreign loans it incurred are exempted from all taxes;
c. And it also provided for a new section: that it is now a non-profit
corporation and all its returns must be allocated for its capital
investment and its excess revenues for its expansion. Thus, it
shall be exempted from all taxes.
7. A year after, PD 40 put the responsibility of setting up transmission line
grids all over the country on the shoulders of NAPOCOR as the
authorized agency of the State for such a task.
8. Its authorized capital stock now at 2B pesos and indebtedness (both
domestic and foreign) ceiling- 3B at any one time and 1B US dollars,
respectively--- continued to rise by virtue of the PD 380.
9. In 1975, PD 758 was enacted to appropriate Php200 M annually to
cover unpaid subscriptions of the government in the NAPOCOR.
10. However, after a year, it was declared that the NAPOCOR capital
was insufficient and thus, reiterated that it should be exempted from
paying taxes by virtue of PD 938.
11. In 1977, PD 1177 was enacted directing all GOCCs to pay
income taxes provided organizations otherwise exempted by law may
ask for a subsidy from the General Fund in the amount of tax due.
12. E.O. 93 then came into play and provided for the creation of
Fiscal Incentives Review Board which was created to restore, revise,
impose conditions tax exemption given to various entities.

The petitioner now assails the indirect tax exemption of NAPOCOR

based on these developments and on the following issues raised:


1. What is the difference between direct and indirect taxation?

2. W/N PD 938 repealed the indirect tax exemption because RA 6395
and PD 380 do not expressly include indirect taxes.
3. W/N both PDs 380 and 938 are valid considering that these were
issued by one man- President Ferdinand Marcos and it was very
easy for him to retain the similar language if his intention was to
preserve indirect tax exemption.
4. What is the effect of PD 1177 abolishing the tax exemption
privileges in this case?
5. Who pays the tax in this case?


1. Direct Tax-person really pays it without transferring the burden.

Indirect tax- imposed on goods before reaching the consumer
who ultimately pays for it, not as a tax but as a part of the
purchase price.

2. This contention is unmeritorious. A chronological review of the

legislative intention concerning the public corporation will show
that it was indeed exempted from all taxes-both direct and
indirect. Besides, under PD 380, it stated that NAPOCOR shall be
exempted :
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.

3. This, according to the SC, displayed Pres. Marcos ingenousness. PD 938

lumped it up by stating: ALL forms of taxes, etc. The court said that he
considered all NAPOCOR-related statutes from its conception and came up
with PD 938.

One common theme was recurring for all statutes: that NAPOCOR must be
able to pay its indebtedness. That NAPOCOR must be and has to be exempt
from all taxes if this goal was to be achieved.

He did not do the same for tax exemption provision for foreign loans
precisely because there was no other subject matter to lump it with. Thus, its
crystal clear that tax exemption for direct and indirect taxes was indeed
sought in favour of NAPOCOR.

4. The subsidy provided by PD 1177 repealed PD 1931 as the Fiscal

Incentives Revenue Board (FIRB) was tasked with recommending partial or
total restoration of tax exemptions withdrawn by PD 1931. It was proved that
NPC availed of such subsidy. FIRB did not create a new tax exemption
statute but merely restored it.

Pres. Marcoss power to enact laws was also questioned in this case but the
SC ruled that his measure was just timely considering that it was considered
as a grave emergency at that time---considering there was a moratorium on
foreign debt payments due to the economic crisis brought about by the loss
of confidence on the PH market due to the Aquino Assasination.

5. The oil companies. The tax exemption is broad enough to include all taxes
which NAPOCOR may be required to pay such as the specific tax on
petroleum products.

Even if indirect taxation means that the economic burden of paying it is

passed on through the channels of commerce to the user, the oil companies
supplying bunker fuel to the corporation must pay for it since NAPOCOR is
exempted from paying all taxes.

However this issue is already moot and academic because of EO 195 of 1987
which reduced the ad valorem tax rate on bunker fuel to 0%.>>> badtrip
diba? Haha.