G.R. No. 149110 April 9, 2003 under R.A. No.
under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and July
10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City
of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.4 It is tasked to undertake the "development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain
power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and
supplying such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year.9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax
assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall
devote all its return 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 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, 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 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." 12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the
assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. 13Respondent
alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160,14 which reads
as follows:
"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
upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is
a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No.
7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the Order reads:
"The question of whether a particular law has been repealed or not by a subsequent law is a matter of
legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions
which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to
be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law,
identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A.
No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to be
repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know
the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-
settled rule that, generally, general law does not repeal a special law unless it clearly appears that the
legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the
passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax exemption
privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs.
Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the National Government.
PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All
of its shares of stocks are owned by the National Government. xxx 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 mere local government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its
shares of stocks owned by the National Government, is beyond the taxing power of the Local Government.
Corollary to this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared
that: 'xxx (2) the total electrification of the Philippines through the development of power from all services
to meet the needs of industrial development and dispersal and needs of rural electrification are primary
objectives of the nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To allow plaintiff to
subject defendant to its tax-ordinance would be to impede the avowed goal of this government
instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that
which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly,
with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not
impose the subject tax on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in relation to sections
137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. 18 It ordered the petitioner to pay
the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on
gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all
cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied by
the appellate court, viz:
 "The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the
taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private
persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a
general law may not impliedly repeal the NPC Charter which is a special law—finds the answer in Section
193 of the LGC to the effect that '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 xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT CORPORATION,
IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF
TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF
A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL
LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER
THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an
annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as
provided herein." (emphasis supplied)
x x x regulation' (U.S. v. Sanchez, 340 US 42).
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees
and charges levied and collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city
government to private entities that are engaged in trade or occupation for profit. 22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is conferred
upon private persons or corporations, under such terms and conditions as the government and its political subdivisions
may impose in the interest of the public welfare, security and safety." From the phraseology of this provision, the
petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC uses the
term "franchise," petitioner submits that it should refer specifically to franchises granted to private natural persons and
to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the
franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged in as
means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as
its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation
of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and
improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be taxed by the
respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26where this
Court held that local governments have no power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role 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. (MC Culloch v. Maryland, 4 Wheat 316,
4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference 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 seriously burden it from accomplishment of
them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures 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 tool
The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified
impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from
all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and
as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be
conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a
basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be
 construed to have repealed a special law. Where there is a conflict between a general law and a special
statute, the special statute should prevail since it evinces the legislative intent more clearly than the general
statute."28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC.
It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from
taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the
power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government, 30 for without taxes, the government can neither exist nor endure. A principal
attribute of sovereignty,31 the exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of
the power to tax emanates from necessity;32 without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. 33 Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges 34 pursuant to Article X, section 5 of
the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that genuine development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve
this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that
will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing
powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to
the organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code of 1991 (LGC),
various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959,37 the Local
Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of 1983.40 Despite these
initiatives, however, the shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited
authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e)
limited supervisory control over personnel of national line agencies. 41
Considered as the most revolutionary piece of legislation on local autonomy, 42
the LGC effectively deals with the fiscal
constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as
the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The
LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination
of the actual rates to the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies
of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the 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:
x x x
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was
decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities
of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport
Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions
of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real
property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid
down in section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes,
fees and charges of any kind on the national government, its agencies and instrumentalities, and local
government units'; however, pursuant to section 232, provinces, cities and 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 use thereof has
been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first
paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to
impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens
of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the corporation.49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the corporation
itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the
right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary
or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a
public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise.
This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise
tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the
state."53 It is not levied on the corporation simply for existing as a corporation, upon its property 54 or its income,55 but on
its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax
from the time it ceased to do business and exercise its franchise. 56 It is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of the LGC should be interpreted and understood. Verily, to determine
whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that
petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or
privileges under this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes
petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition,
capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its
secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not
available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the
purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and
from persons owning or interested in waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in
streams or water channels intersecting or connecting therewith or contiguous to its works or any part
thereof: Provided, That just compensation shall be paid to any person or persons whose property is, directly
or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing hydraulic
power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of
electric power; to establish, develop, operate, maintain and administer power and lighting systems for the
transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial
enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric
cooperatives, (4) franchise holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of
property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation
was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of
way shall only be sought: Provided, however, That in case the property itself shall be acquired by purchase,
the cost thereof shall be the fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for
instituting condemnation proceedings by the national, provincial and municipal governments;
x x x basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do
(m) To cooperate with, and to coordinate its operations with those of the National Electrification
Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants
and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the
Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation,
forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to
existing private rights, the needs of waterworks systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural
resources xxx "58
With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This
monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry.
Although Exec. Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial jurisdiction
pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly
owned by the National Government, and its charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to
do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue
and be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code. 62
To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that
petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or controlled
corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by special law or if organized under the
general corporation law is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital
stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute
obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of
advancing the general interest of society, and are merely optional on the government. 64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide
not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit
imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph
companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice
plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at
advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve percent (12%), viz:68
 "(n) When essential to the proper administration of its corporate affairs or necessary for the proper
transaction of its business or to carry out the purposes for which it was organized, to contract indebtedness
and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business
and purposes for which it was organized, or which, from time to time, may be declared by the Board to be
necessary, useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference is
that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from its
operation, for expansion"70 while other franchise holders have the option to distribute their profits to its stockholders by
declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the
passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of Rep.
Act No. 6395 exempting from, among others, "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." However, section
193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and
public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal
of all statutes granting tax exemptions from local taxes.72 It reads:
"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. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73 Not being a local water
district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution,
petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does not
admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of
franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila
Electric Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the
franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support
their position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137
which authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law
or other special law' is all-encompassing and clear. The franchise tax is imposable despite any exemption
enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1) local water districts,
(2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to
the three enumerated entities. It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius
est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other
provision in point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was
clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit
may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding
calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on
(sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general,
withdrawal of such exemptions or privileges. No more unequivocal language could have been
used."76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax
exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise
tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not
intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the 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. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to government-owned or 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."78 With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals dated
March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-appellees.
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint, with
costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of
business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board and
its City Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of Butuan — hereinafter referred to as the
City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No.
122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft
drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan. These
"Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff
for distribution and sale in the City of Butuan and all municipalities of Agusan. .
 2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently
amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of
24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid
under protest and those that if may later on pay until the termination of this case on the ground that
Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form
to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith
as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of
its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss
Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff
differs only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance
with the findings of the representative of the undersigned City Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92
which price is uniform throughout the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance
No. 110, as amended of the City of Butuan in their respective memoranda.
xxx xxx x x x1äwphï1.ñët
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section
2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local,
in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning
of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the
end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or
bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated
drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes
within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in
Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or
record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft
drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides
that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2)
it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory;
and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation
of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed — independently of whether or not the tax in
question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on
which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental law.
We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United
States and of some States of the Union.1 Then, again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one well-established exception, namely: legislative
powers may be delegated to local governments — to which said theory does not apply 3 — in respect of matters of local
concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks —
in the production and sale of which plaintiff is engaged — or less than P0.0042 per bottle, is manifestly too small to be
excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax
prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft
drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise.
As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any person,
association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to
section 3-A, which was inserted by said Ordinance No. 122:
... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a consignee of agent
shall mean any person, association, partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to whom is consigned or shipped no
less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless
they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000
cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based
and computed from the cargo manifest or bill of lading ... showing the number of cases" — not sold — but "received" by
the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the
City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty,
which is beyond defendant's authority to impose by express provision of law. 4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales
by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf
of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality
under all circumstances, or negate the authority to classify the objects of taxation. 5 The classification made in the
exercise of this authority, to be valid, must, however, be reasonable 6 and this requirement is not deemed satisfied unless:
(1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of the
legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who belong to the same
class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a burden
upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents
or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No.
110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts
collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the
promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It is so ordered.
Sison v Ancheta G.R. No. L-59431. July 25, 1984.
Facts:
Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended
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.
Petitioner as taxpayer alleged that "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." He characterizes the above section as arbitrary amounting to class legislation, oppressive
and capricious in character.
For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation.
The OSG prayed for dismissal of the petition due to lack of merit.
Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.
(WON there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the
rule requiring uniformity in taxation)
Held: No. Petition dismissed
Ratio:
The need for more revenues is rationalized by the government's role to fill the gap not done by public enterprise in order
to meet the needs of the times. It is better equipped to administer for the public welfare.
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.
The power to tax is an attribute of sovereignty and the strongest power of the government. There are restrictions,
however, diversely affecting as it does property rights, both the due process and equal protection clauses may properly
be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would
be a destructive power.
The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness as basis without a
factual foundation. 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.
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 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.
For equal protection, the applicable standard to determine whether this was denied in the exercise of police power or
eminent domain was the presence of the purpose of hostility or unreasonable discrimination.
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 circumstances, which if not identical are analogous. If law be looks 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.
The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws's 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.
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, addressed 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.
Lutz v Araneta- 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.
Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly attainable
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
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"
There was a difference 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.
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. As
there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes
because they are in the same situation more or less.
Taxpayers who are recipients of compensation income are set apart as a class.
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 was a lack of a factual foundation, the forcer of doctrines on due process and equal protection, and he
reasonableness of the distinction between compensation and taxable net income of professionals and businessmen not
being a dubious classification.
Ericsson Telecom vs. Pasig G.R. NO. 176667 November 22, 2007 City Power of Local Taxation
FACTS:
Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City (respondent), is engaged in
the design, engineering, and marketing of telecommunication facilities/system. In an Assessment Notice dated October
25, 2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years 1998
and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its
audited financial statements for the years 1997 and 1998. Petitioner filed a Protest claiming that the computation of the
local business tax should be based on gross receipts and not on gross revenue.
Respondent issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax
deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its
gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest, reiterating its position that the local
business tax should be based on gross receipts and not gross revenue. Respondent denied petitioner’s protest and gave
the latter 30 days within which to appeal the denial.
Petitioner filed a petition for review with the RTC of Pasig, praying for the annulment and cancellation of petitioner’s
deficiency local business taxes totaling P17,262,205.66.
ISSUE: What is the extent of the Power of Local Taxation?
RULING: The power to tax is primarily vested in the Congress; however, it may be exercised by local legislative bodies
pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the
power may be subject to such guidelines and limitations as Congress may provide. Respondent assessed deficiency local
business taxes on petitioner based on the latter’s gross revenue as reported in its financial statements, arguing that gross
receipts is synonymous with gross earnings/revenue, which, in turn, includes uncollected earnings. Petitioner, however,
contends that only the portion of the revenues which were actually and constructively received should be considered in
determining its tax base.
Thus, respondent committed a palpable error when it assessed petitioner’s local business tax based on its gross revenue
as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the
Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.
The Province of Bulacan vs Court of Appeals 299 SCRA 442 [GR No. 126232 November 27, 1998]
Facts: On June 26, 1992, the Sangguniang Panlalawigan passed provincial ordinance no. 3 known as “Ordinance Enacting
The Revenue Code Of The Bulacan Province” which was to take effect on July 1, 1992 Section 21 of the ordinance
provides as follows:
Sec 21. Imposition of Tax – There is hereby levied and collected a tax of 10% of the fair market value in the locality per
cubic meter of ordinary stores, sand, gravel, earth and other quarry resources, such but not limited to marble, granite,
volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams,
creeks and other public waters within its territorial jurisdiction.
Pursuant thereto, the provincial treasurer of Bulacan in a letter dated November 11, 1992, assessed private respondent
Republic Cement Corporation Php2,524,692.13 for extracting lime stones, shale and silica from several parcels of private
land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the
bases of the above-said ordinance, had no authority to impose taxes on quarry resources extracted from private lands,
Republic Cement formally contested the same on December 23, 1993. The same was, however, denied by the provincial
treasurer on January 17, 1994. Republic Cement, consequently filed a petition for declaratory relief with the Regional
Trial Court (RTC) of Bulacan on February 14, 1993. The province filed a motion to dismiss Republic Cement’s petition
which was granted by the trial court on May 13, 1993, which ruled that declaratory relief was improper, allegedly
because a breach of the ordinance had been committed by Republic Cement.
Issue: Whether or not provincial ordinance no. 3 is valid to allow the petitioner to impose taxes on ordinary stones, sand,
gravel, earth, and other quarry resources.
Held: No. On the basis of section 134 of Republic Act No. 7169, the local government code, ruled that a province was
empowered to impose taxes only on sand, gravel, and other quarry resources extracted from public lands, its authority to
tax being limited to by said provision only to those taxes, fees and charges provided in article 1, chapter 2, title I of Book II
of the local government code.
As correctly pointed out by petitioners, section 186 of the same code allows petitioners to levy taxes other than those
specifically enumerated under the code, subject to the conditions specified therein.
The tax imposed by the province of Bulacan is an excise tax, being a tax upon the performance, carrying or an excise of an
activity. Under section 133 of the local government code, a province may not, therefore, levy excise taxes on articles
already taxed by the National Internal Revenue Code (NIRC).
The NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a
province may not ordinarily impose taxes on stones, sand,gravel, earth and other quarry resources, as the same are
already taxed under NIRC. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry
resources extracted from public lands because it is expressly empowered to do so under the local government code. As
to stones, sand, gravel, earth and other quarry resources extracted from private land, however it may not do so, because
of the limitation provided by section 133 of the code in relation to section 151 of the NIRC.
Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the power to
create their sources of revenue, their assessment of taxes against Republic Cement being ultra vires, traversing as it does
the limitations set by the local government code.
Furthermore, section 21 of provincial ordinance no. 3 is practically only a reproduction of section 138 of the local
government code. A cursory reading of both could show that both refer to ordinary sand, gravel, stone, earth and other
quarry resources extracted from public lands. Even if we disregard the limitation set by section 133 of the local
government code, petitioners, may not impose taxes on stone, sand, gravel, earth and other quarry resources extracted
from private lands. Petitioners may not involve the regalian doctrine to extend coverage of their ordinance to quarry
resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable
statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government.
MCIAA vs. MARCOS G.R. No. 120082, September 11, 1996 261 SCRA 667 Public Corporation, Taxation, Local Government
Code, Realty Tax,
FACTS: Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act 6958. Since the time
of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of
its Charter. However on 11 October 1994, the Office of the Treasurer of Cebu, demanded for the payment of realty taxes
on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified and asserted that it is an instrumentality of
the government performing governmental functions, which puts limitations on the taxing powers of local government
units.
The 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
Government Code (LGC), and not an instrumentality of the government but merely a government owned corporation
performing proprietary functions. MCIAA paid its tax account “under protest” when City is about to issue a warrant of
levy against the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC contending that the taxing power of local government units do
not extend to the levy of taxes or fees on an instrumentality of the national government. It contends that by the nature
of its powers and functions, it has the footing of an agency or instrumentality of the national government; which claim
the City rejects. The trial court dismissed the petition, citing that close reading of the LGC provides the express
cancellation and withdrawal of tax exemptions of Government Owned and Controlled Corporations.
ISSUE: Whether the MCIAA is exempted from realty taxes.
RULING: Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But since taxes
are paid for civilized society, 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 taxpayer and liberally in favor of the
taxing authority.
A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken. Taxation is the rule, exemption therefrom is the exception. 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.
Further, since taxation is the rule and exemption therefrom the exception, the exemption may 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.
MCIAA is a “taxable person” under its Charter (RA 6958), and 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.
Since Republic Act 7160 or the Local Government Code (LGC) expressly provides that “All general and special laws, acts,
city charters, decrees [sic], executive orders, proclamations and administrative regulations, or part of parts thereof which
are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly.”
With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had been expressly repealed by the
provisions of the LGC. Therefore, MCIAA has to pay the assessed realty tax of its properties effective after January 1, 1992
until the present.
G.R. No. 119122 August 8, 2000 On November 21, 1994, the Court of Appeals rendered its questioned Decision, 6 affirming the decision of the CTA and
dismissing petitioner's appeal. Petitioner filed a Motion for Reconsideration of said decision but to no avail. The same was
denied by the Court of Appeals in a Resolution7 dated January 31, 1995. Hence, this petition.1âwphi1.nêt
PHILIPPINE BASKETBALL ASSOCIATION, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS, AND COMMISSIONER
OF INTERNAL REVENUE
Undaunted, petitioner found its way to this Court via the present petition, contending that:

decision 1 of
At bar is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a review of the the
Court of Appeals in CA-G.R. SP No. 34095 which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 4419. "1. Respondent Court of Appeals erred in holding that the jurisdiction to collect amusement taxes of PBA games is vested
in the national government to the exclusion of the local governments.

The facts that matter are as follows: On June 21, 1989, the petitioner received an assessment letter from the
Commissioner of Internal Revenue (respondent Commissioner) for the payment of deficiency amusement tax computed "2. Respondent Court of Appeals erred in holding that Section 13 of the Local Tax Code of 1973 limits local government
thus: units to theaters, cinematographs, concert halls, circuses and other places of amusement in the collection of the
amusement tax.

Deficiency Amusement Tax "3. Respondent Court of Appeals erred in holding that Revenue Regulations No. 8-88 dated February 19, 1988 is an
erroneous interpretation of law.
Total gross receipts 1987 P19,970,928.00

"4. Respondent Court of Appeals erred in giving retroactive effect to the revocation of Revenue Regulations 8-88.
===========

"5. Respondent Court of Appeals erred when it failed to consider the provisions of P.D. 851 the franchise of Petitioner,
15% tax due thereon 2,995,639.20
Section 8 of which provides that amusement tax on admission receipts of Petitioner is 5%.

Less: Tax paid 602,063.35

"6. Respondent Court of Appeals erred in holding that the cession of advertising and streamer spaces in the venue to a
third person is subject to amusement taxes.
Deficiency amusement tax P2,393,575.85

Add: 75% surcharge 1,795,181.89 "7. Respondent Court of Appeals erred in holding that the cession of advertising and streamer spaces inside the venue is
embraced within the term 'gross receipts' as defined in Section 123 (6) of the Tax Code.
20% interest (2 years) 1,675,503.10
"8. Respondent Court of Appeals erred in holding that the amusement tax liability of Petitioner is subject to a 75%
P5,864,260.84 surcharge."

Total Amount Due & Collectible =========== The issues for resolution in this case may be simplified as follows:

1. Is the amusement tax on admission tickets to PBA games a national or local tax? Otherwise put, who between the
On July 18, 1989, petitioner contested the assessment by filing a protest with respondent Commissioner who denied the national government and local government should petitioner pay amusement taxes?
same on November 6, 1989.

2. Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. (VEI) subject to the payment of
On January 8, 1990, petitioner filed a petition for review2 with the Court of Tax Appeals (respondent CTA) questioning the amusement tax?
denial by respondent Commissioner of its tax protest.

3. If ever petitioner is liable for the payment of deficiency amusement tax, is it liable to pay a seventy-five percent (75%)
On December 24, 1993, respondent CTA dismissed petitioner's petition, holding: surcharge on the deficiency amount due?

"WHEREFORE, in all the foregoing, herein petition for review is hereby DISMISSED for lack of merit and the
Petitioner is hereby ORDERED to PAY to the Respondent the amount of P5,864,260.84 as deficiency
amusement tax for the year 1987 plus 20% annual delinquency interest from July 22, 1989 which is the due
date appearing on the notice and demand of the Commissioner (i.e. 30 days from receipt of the assessment)
until fully paid pursuant to the provisions of Sections 248 and 249 (c) (3) of the Tax Code, as amended." 3
Petitioner presented a motion for reconsideration4 of the said decision but the same was denied by respondent CTA in a
resolution5 ALF dated April 8, 1994. Thereafter and within the reglementary period for interposing appeals, petitioner
appealed the CTA decision to the Court of Appeals.
Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973, transferred the power and authority to
levy and collect amusement taxes from the sale of admission tickets to places of amusement from the national
government to the local governments. Petitioner cited BIR Memorandum Circular No. 49-73 providing that the power to
levy and collect amusement tax on admission tickets was transferred to the local governments by virtue of the Local Tax
Code; and BIR Ruling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross receipts from
admission tickets to places of amusement was transferred to local governments under P.D. No. 231, as
amended."8 Further, petitioner opined that even assuming arguendo that respondent Commissioner revoked BIR Ruling
No. 231-86, the reversal, modification or revocation cannot be given retroactive effect since even as late as 1988 (BIR
Memorandum Circular No. 8-88), respondent Commissioner still recognized the jurisdiction of local governments to
collect amusement taxes.

The Court is not persuaded by petitioner's asseverations.

The laws on the matter are succinct and clear and need no elaborate disquisition. Section 13 of the Local Tax Code
provides:
"SECTION 13. Amusement tax on admission. — The province shall impose a tax on admission to be collected from the
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement . . .
The foregoing provision of law in point indicates that the province can only impose a tax on admission from the
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement.
The authority to tax professional basketball games is not therein included, as the same is expressly embraced in PD 1959,
which amended PD 1456 thus:
"SECTION 44. Section 268 of this Code, as amended, is hereby further amended to read as follows:
'Sec. 268. Amusement taxes. — There shall be collected from the proprietor, lessee or operator of cockpits, cabarets,
night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai, race tracks and bowling alleys, a tax
equivalent to:
'1. Eighteen per centum in the case of cockpits;
'2. Eighteen per centum in the case of cabarets, night or day clubs;
'3. Fifteen per centum in the case of boxing exhibitions;
'4. Fifteen per centum in the case of professional basketball games as envisioned in Presidential Decree No. 871. Provided,
however. That the tax herein shall be in lieu of all other percentage taxes of whatever nature and description;
'5. Thirty per centum in the case of Jai-Alai and race tracks; and
'6. Fifteen per centum in the case of bowling alleys of their gross receipts, irrespective of whether or not any amount is
charged or paid for admission. For the purpose of the amusement tax, the term gross receipts' embraces all the receipts
of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income from television,
radio and motion picture rights, if any. (A person or entity or association conducting any activity subject to the tax herein
imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.)
'The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor, lessee, or
operator concerned, as well as any party liable, within twenty days after the end of each quarter, to make a true and
complete return of the amount of the gross receipts derived during the preceding quarter and pay the tax due thereon. If
the tax is not paid within the time prescribed above, the amount of the tax shall be increased by twenty-five per centum,
the increment to be part of the tax.
'In case of willful neglect to file the return within the period prescribed herein, or in case a false or fraudulent return is
willfully made, there shall be added to the tax or to the deficiency tax, in case any payment has been made on the basis
of the return before the discovery of the falsity or fraud, a surcharge of fifty per centum of its amount. The amount so
added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has
been paid before the discovery of the falsity or fraud, in which case, the amount so assessed shall be collected in the
same manner as the tax." (emphasis ours)
From the foregoing it is clear that the "proprietor, lessee or operator of . . . professional basketball games" is required to
pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue,
which payment is a national tax. The said payment of amusement tax is in lieu of all other percentage taxes of whatever
nature and description.
While Section 13 of the Local Tax Code mentions "other places of amusement", professional basketball games are
definitely not within its scope. Under the principle of ejusdem generis, where general words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words are not to be construed in their
widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically
mentioned.9 Thus, in determining the meaning of the phrase "other places of amusement", one must refer to the prior
enumeration of theaters, cinematographs, concert halls and circuses with artistic expression as their common
characteristic. Professional basketball games do not fall under the same category as theaters, cinematographs, concert
halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and
gaming.
A historical analysis of pertinent laws does reveal the legislative intent to place professional basketball games within the
ambit of a national tax. The Local Tax Code, which became effective on June 28, 1973, allowed the province to collect a
tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and
other places of amusement. On January 6, 1976, the operation of petitioner was placed under the supervision and
regulation of the Games and Amusement Board by virtue of PD 871, with the proviso (Section 8) that ". . . all professional
basketball games conducted by the Philippine Basketball Association shall only be subject to amusement tax of five per
cent of the gross receipts from the sale of admission tickets." Then, on June 11, 1978, PD 1456 came into effect,
increasing the amusement tax to ten per cent, with a categorical referral to PD 871, to wit, "[t]en per centum in the case
of professional basketball games as envisioned in Presidential Decree No. 871 . . ." Later in 1984, PD 1959 increased the
rate of amusement tax to fifteen percent by making reference also to PD 871. With the reference to PD 871 by PD 1456
and PD 1959, there is a recognition under the laws of this country that the amusement tax on professional basketball
games is a national, and not a local, tax. Even up to the present, the category of amusement taxes on professional
basketball games as a national tax remains the same. This is so provided under Section 125 10 of the 1997 National
Internal Revenue Code. Section 14011 of the Local Government Code of 1992 (Republic Act 7160), meanwhile, retained
the areas (theaters, cinematographs, concert halls, circuses and other places of amusement) where the province may
levy an amusement tax without including therein professional basketball games.
Likewise erroneous is the stance of petitioner that respondent Commissioner's issuance of BIR Ruling No. 231-8612and
BIR Revenue Memorandum Circular No. 8-8813 — both upholding the authority of the local government to collect
amusement taxes — should bind the government or that, if there is any revocation or modification of said rule, the same
should operate prospectively.
It bears stressing that the government can never be in estoppel, particularly in matters involving taxes. It is a well-known
rule that erroneous application and enforcement of the law by public officers do not preclude subsequent correct
application of the statute, and that the Government is never estopped by mistake or error on the part of its agents. 14
Untenable is the contention that income from the cession of streamer and advertising spaces to VEI is not subject to
amusement tax. The questioned proviso may be found in Section 1 of PD 1456 which states:
"SECTION 1. Section 268 of the National Internal Revenue Code of 1977, as amended, is hereby further amended to read
as follows:
'Sec. 268. Amusement taxes. — There shall be collected from the proprietor, lessee or operator of cockpits, cabarets,
night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai, race tracks and bowling alleys, a tax
equivalent to:
of their gross receipts, irrespective of whether or not any amount is charged or paid for admission. For the purpose of the
amusement tax, the term gross receipts' embraces all the receipts of the proprietor, lessee or operator of the amusement
place. Said gross receipts also include income from television, radio and motion picture rights, if any. (A person, or entity
or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect
to such portion of the receipts derived by him or it.)" (emphasis ours)
The foregoing definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as
the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. The law being clear,
there is no need for an extended interpretation.15
The last issue for resolution concerns the liability of petitioner for the payment of surcharge and interest on the
deficiency amount due. Petitioner contends that it is not liable, as it acted in good faith, having relied upon the issuances
of the respondent Commissioner. This issue must necessarily fail as the same has never been posed as an issue before
the respondent court. Issues not raised in the court a quo cannot be raised for the first time on appeal. 16 All things
studiedly considered, the Court rules that the petitioner is liable to pay amusement tax to the national government, and
not to the local government, in accordance with the rates prescribed by PD 1959. WHEREFORE, the Petition is DENIED,
and the Decisions of the Court of Appeals and Court of Tax Appeals dated November 21, 1994 and December 24, 1993,
respectively AFFIRMED. No pronouncement as to costs.1âwphi1.nêt
G.R. No. 183505 February 26, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT
CORPORATION, Respondents.
When the intent of the law is not apparent as worded, or when the application of the law would lead to absurdity or
injustice, legislative history is all important. In such cases, courts may take judicial notice of the origin and history of the
law,1 the deliberations during the enactment,2 as well as prior laws on the same subject matter 3 to ascertain the true
intent or spirit of the law.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic Act (RA) No. 9282, 4 seeks
to set aside the April 30, 2008 Decision5 and the June 24, 2008 Resolution6 of the Court of Tax Appeals (CTA).
Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) are domestic
corporations duly organized and existing under the laws of the Republic of the Philippines. Both are engaged in the
business of operating cinema houses, among others.7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice (PAN) for
value added tax (VAT) deficiency on cinema ticket sales in the amount of ₱119,276,047.40 for taxable year 2000. 8 In
response, SM Prime filed a letter-protest dated December 15, 2003.9
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency, which the latter
protested in a letter dated January 14, 2004.10
On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the VAT deficiency for taxable
year 2000 in the amount of ₱124,035,874.12.11
On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA Case No. 7079.12
CTA Case No. 7085
On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in the total amount of ₱35,823,680.93. 13 First Asia protested the PAN in a letter
dated July 9, 2002.14
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested by First Asia
in a letter dated December 12, 2002.15
On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia to pay the amount of
₱35,823,680.93 for VAT deficiency for taxable year 1999.16
Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7085. 17
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for taxable year 2000 in the
amount of ₱35,840,895.78. First Asia protested the PAN through a letter dated April 22, 2004.18
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency. 19 First Asia protested the same in a
letter dated July 9, 2004.20
On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT deficiency in the amount of
₱35,840,895.78 for taxable year 2000.21
This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004. The case was docketed as
CTA Case No. 7111.22
CTA Case No. 7272
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of ₱32,802,912.21 was
issued against First Asia by the BIR. In response, First Asia filed a protest-letter dated November 11, 2004. The BIR then
sent a Formal Letter of Demand, which was protested by First Asia on December 14, 2004.23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of ₱28,196,376.46 for the taxable year 2003 was
issued by the BIR against First Asia. In a letter dated September 23, 2004, First Asia protested the PAN. A Formal Letter of
Demand was thereafter issued by the BIR to First Asia, which the latter protested through a letter dated November 11,
2004. 24
On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to pay the amounts of
₱33,610,202.91 and ₱28,590,826.50 for VAT deficiency for taxable years 2002 and 2003, respectively. 25
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7272.26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime and First Asia.27
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case No. 7079 on
the grounds that the issues raised therein are identical and that SM Prime is a majority shareholder of First Asia. The
motion was granted.28
Upon submission of the parties’ respective memoranda, the consolidated cases were submitted for decision on the sole
issue of whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to
VAT.29
Ruling of the CTA First Division
On September 22, 2006, the First Division of the CTA rendered a Decision granting the Petition for Review. Resorting to
the language used and the legislative history of the law, it ruled that the activity of showing cinematographic films is not a
service covered by VAT under the National Internal Revenue Code (NIRC) of 1997, as amended, but an activity subject to
amusement tax under RA 7160, otherwise known as the Local Government Code (LGC) of 1991. Citing House Joint
Resolution No. 13, entitled "Joint Resolution Expressing the True Intent of Congress with Respect to the Prevailing Tax
Regime in the Theater and Local Film Industry Consistent with the State’s Policy to Have a Viable, Sustainable and
Competitive Theater and Film Industry as One of its Partners in National Development,"30 the CTA First Division held that
the House of Representatives resolved that there should only be one business tax applicable to theaters and movie
houses, which is the 30% amusement tax imposed by cities and provinces under the LGC of 1991. Further, it held that
consistent with the State’s policy to have a viable, sustainable and competitive theater and film industry, the national
government should be precluded from imposing its own business tax in addition to that already imposed and collected by
local government units. The CTA First Division likewise found that Revenue Memorandum Circular (RMC) No. 28-2001,
which imposes VAT on gross receipts from admission to cinema houses, cannot be given force and effect because it failed
to comply with the procedural due process for tax issuances under RMC No. 20-86.31 Thus, it disposed of the case as
follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review. Respondent’s Decisions denying
petitioners’ protests against deficiency value-added taxes are hereby REVERSED. Accordingly, Assessment Notices Nos.
VT-00-000098, VT-99-000057, VT-00-000122, 003-03 and 008-02 are ORDERED cancelled and set aside.
SO ORDERED.32
Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its Resolution dated December 14,
2006.33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc.34 The case was docketed as CTA EB No. 244.35 The CTA En Banc however
denied36 the Petition for Review and dismissed37 as well petitioner’s Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are
intended to be subject to VAT. And since the showing or exhibition of motion pictures, films or movies by cinema
operators or proprietors is not among the enumerated activities contemplated in the phrase "sale or exchange of
services," then gross receipts derived by cinema/ theater operators or proprietors from admission tickets in showing
motion pictures, film or movie are not subject to VAT. It reiterated that the exhibition or showing of motion pictures,
films, or movies is instead subject to amusement tax under the LGC of 1991. As regards the validity of RMC No. 28-2001,
the CTA En Banc agreed with its First Division that the same cannot be given force and effect for failure to comply with
RMC No. 20-86.
Issue
Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by operators/proprietors of cinema houses from admission
tickets [are] subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS A SALE OF
SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE EXPRESSLY SUBJECT TO VAT UNDER SECTION
108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW AND THE APPLICATION OF RULES OF
STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS UNWARRANTED;
(d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE APPLICABLE HEREIN, STILL THE
HONORABLE COURT ERRONEOUSLY APPLIED THE SAME AND PROMULGATED DANGEROUS PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING RESPONDENTS’ SERVICES FROM THE VAT
IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO BE TRIED BY THE HONORABLE
COURT; and
(g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108 OF THE NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is merely subject to the
amusement tax imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.38
Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors of cinema/theater
houses from admission tickets are subject to VAT.
Petitioner’s Arguments
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because it
covers all sales of services unless exempted by law. He claims that the CTA erred in applying the rules on statutory
construction and in using extrinsic aids in interpreting Section 108 because the provision is clear and unambiguous. Thus,
he maintains that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale of
service, is subject to VAT.
Respondents’ Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross
receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the services
subject to VAT. Respondents insist that gross receipts from cinema/theater admission tickets were never intended to be
subject to any tax imposed by the national government. According to them, the absence of gross receipts from
cinema/theater admission tickets from the list of services which are subject to the national amusement tax under Section
125 of the NIRC of 1997 reinforces this legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on
which the deficiency assessments were based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit. The enumeration of services subject to VAT under Section 108 of the NIRC is not
exhaustive Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines 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 property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension
houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of
goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by
land, air and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code;
services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase "sale
or exchange of services" shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
xxxx
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale or exchange of services"
subject to VAT is not exhaustive. The words, "including," "similar services," and "shall likewise include," indicate that the
enumeration is by way of example only.39
Among those included in the enumeration is the "lease of motion picture films, films, tapes and discs." This, however, is
not the same as the showing or exhibition of motion pictures or films. As pointed out by the CTA En Banc:
"Exhibition" in Black’s Law Dictionary is defined as "To show or display. x x x To produce anything in public so that it may
be taken into possession" (6th ed., p. 573). While the word "lease" is defined as "a contract by which one owning such
property grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic
payment of a stipulated price, referred to as rent (Black’s Law Dictionary, 6th ed., p. 889). x x x40
Since the activity of showing motion pictures, films or movies by cinema/ theater operators or proprietors is not included
in the enumeration, it is incumbent upon the court to the determine whether such activity falls under the phrase "similar
services." The intent of the legislature must therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
Under the NIRC of 1939,41 the national government imposed amusement tax on proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses, boxing exhibitions, and other places of amusement, including cockpits,
race tracks, and cabaret.42 In the case of theaters or cinematographs, the taxes were first deducted, withheld, and paid
by the proprietors, lessees, or operators of such theaters or cinematographs before the gross receipts were divided
between the proprietors, lessees, or operators of the theaters or cinematographs and the distributors of the
cinematographic films. Section 1143 of the Local Tax Code,44 however, amended this provision by transferring the power
to impose amusement tax45 on admission from theaters, cinematographs, concert halls, circuses and other places of
amusements exclusively to the local government. Thus, when the NIRC of 1977 46 was enacted, the national government
imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race
tracks.47
On January 1, 1988, the VAT Law48 was promulgated. It amended certain provisions of the NIRC of 1977 by imposing a
multi-stage VAT to replace the tax on original and subsequent sales tax and percentage tax on certain services. It imposed
VAT on sales of services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. — (a) Rate and base of tax. — 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 calls for the exercise or use of the physical or mental faculties:
Provided That the following services performed in the Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing business outside the Philippines
which goods are subsequently exported, x x x
xxxx
"Gross receipts" means the total amount of money or its equivalent representing the contract
price, compensation or service fee, including the amount charged for materials supplied with
the services and deposits or advance payments actually or constructively received during the
taxable quarter for the service performed or to be performed for another person, excluding
value-added tax.
(b) Determination of the tax. — (1) Tax billed as a separate item in the invoice. — If the tax is
billed as a separate item in the invoice, the tax shall be based on the gross receipts, excluding
the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. — If the tax is not billed separately or is
billed erroneously in the invoice, the tax shall be determined by multiplying the gross receipts (including the
amount intended to cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were exempted from the coverage of
VAT.49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which clarified that the power to
impose amusement tax on gross receipts derived from admission tickets was exclusive with the local government units
and that only the gross receipts of amusement places derived from sources other than from admission tickets were
subject to amusement tax under the NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on gross receipts arising from
admission to places of amusement has been transferred to the local governments to the exclusion of the national
government.
xxxx
Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the amendatory laws which
amended the National Internal Revenue Code, including the value added tax law under Executive Order No. 273, has
amended the provisions of Section 11 of the Local Tax Code. Accordingly, the sole jurisdiction for collection of
amusement tax on admission receipts in places of amusement rests exclusively on the local government, to the exclusion
of the national government. Since the Bureau of Internal Revenue is an agency of the national government, then it
follows that it has no legal mandate to levy amusement tax on admission receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under Section 123 of the National Internal Revenue Code as
renumbered by Executive Order No. 273 (Sec. 228, old NIRC) pertaining to amusement taxes on places of amusement
shall be implemented in accordance with BIR RULING, dated December 4, 1973 and BIR RULING NO. 231-86 dated
November 5, 1986 to wit:
"x x x Accordingly, only the gross receipts of the amusement places derived from sources other than from admission tickets
shall be subject to x x x amusement tax prescribed under Section 228 of the Tax Code, as amended (now Section 123, NIRC,
as amended by E.O. 273). The tax on gross receipts derived from admission tickets shall be levied and collected by the city
government pursuant to Section 23 of Presidential Decree No. 231, as amended x x x" or by the provincial government,
pursuant to Section 11 of P.D. 231, otherwise known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local government retained the power to impose
amusement tax on proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and
other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees
under Section 140 thereof.50 In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the local government before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the cinematographic films. However, the provision in the Local
Tax Code expressly excluding the national government from collecting tax from the proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses and other places of amusements was no longer included.
In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its administration. Three years
later, RA 7716 was amended by RA 8241. Shortly thereafter, the NIRC of 1997 51 was signed into law. Several
amendments52 were made to expand the coverage of VAT. However, none pertain to cinema/theater operators or
proprietors. At present, only lessors or distributors of cinematographic films are subject to VAT. While persons subject to
amusement tax53 under the NIRC of 1997 are exempt from the coverage of VAT.54
Based on the foregoing, the following facts can be established:
(1) Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or
proprietors has always been considered as a form of entertainment subject to amusement tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the national government.
(3) When the Local Tax Code was enacted, amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of amusements were transferred to the local
government.
(4) Under the NIRC of 1977, the national government imposed amusement tax only on proprietors, lessees
or operators of cabarets, day and night clubs, Jai-Alai and race tracks.
(5) The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage tax on
certain services.
(6) When the VAT law was implemented, it exempted persons subject to amusement tax under the NIRC
from the coverage of VAT.1auuphil
(7) When the Local Tax Code was repealed by the LGC of 1991, the local government continued to impose
amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places
of amusements.
(8) Amendments to the VAT law have been consistent in exempting persons subject to amusement tax
under the NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films are included in the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true
even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended
to replace the percentage tax on certain services. The mere fact that they are taxed by the local government unit and not
by the national government is immaterial. The Local Tax Code, in transferring the power to tax gross receipts derived by
cinema/theater operators or proprietor from admission tickets to the local government, did not intend to treat
cinema/theater houses as a separate class. No distinction must, therefore, be made between the places of amusement
taxed by the national government and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who
would be paying an additional 10%55 VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991,
or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a
better position than those taxed under the LGC of 1991. We need not belabor that a literal application of a law must be
rejected if it will operate unjustly or lead to absurd results. 56 Thus, we are convinced that the legislature never intended
to include cinema/theater operators or proprietors in the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals,57 to wit:
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.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT against respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator was then subject to amusement tax under Section 260 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code of 1939, computed on the amount
paid for admission. With the enactment of the Local Tax Code under Presidential Decree (PD) No. 231, dated June 28,
1973, the power of imposing taxes on gross receipts from admission of persons to cinema/theater and other places of
amusement had, thereafter, been transferred to the provincial government, to the exclusion of the national or municipal
government (Sections 11 & 13, Local Tax Code). However, the said provision containing the exclusive power of the
provincial government to impose amusement tax, had also been repealed and/or deleted by Republic Act (RA) No. 7160,
otherwise known as the Local Government Code of 1991, enacted into law on October 10, 1991. Accordingly, the
enactment of RA No. 7160, thus, eliminating the statutory prohibition on the national government to impose business tax
on gross receipts from admission of persons to places of amusement, led the way to the valid imposition of the VAT
pursuant to Section 102 (now Section 108) of the old Tax Code, as amended by the Expanded VAT Law (RA No. 7716) and
which was implemented beginning January 1, 1996.58(Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition under the Local
Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater
operators or proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on the
taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be construed as imposing a tax
unless it does so clearly, expressly, and unambiguously.59 As it is, the power to impose amusement tax on cinema/theater
operators or proprietors remains with the local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from admission to
cinema houses must be struck down. We cannot overemphasize that RMCs must not override, supplant, or modify the
law, but must remain consistent and in harmony with, the law they seek to apply and implement. 60
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the procedural due process
for tax issuances as prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the
taxpayer is clearly subject to the tax being levied against him. 61 The reason is obvious: it is both illogical and impractical to
determine who are exempted without first determining who are covered by the provision. 62 Thus, unless a statute
imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the imposition of a
tax cannot be presumed.63 In fact, in case of doubt, tax laws must be construed strictly against the government and in
favor of the taxpayer.64
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court of Tax Appeals En
Banc holding that gross receipts derived by respondents from admission tickets in showing motion pictures, films or
movies are not subject to value-added tax under Section 108 of the National Internal Revenue Code of 1997, as
amended, and its June 24, 2008 Resolution denying the motion for reconsideration are AFFIRMED.
SO ORDERED
Luz Yamane v. BA Lepanto Condominium, GR 154993, October 25, 2005
In 1998, BA Lepanto Condominium Corporation (Lepanto) received a tax assessment in the amount of P1.6 million from
Luz Yamane, the City Treasurer of Makati, for business taxes. Lepanto protested the assessment as it averred that
Lepanto, as a corporation, is not organized for profit; that it merely exists for the maintenance of the condominium.
Yamane denied the protest. Lepanto then appealed the denial to the RTC of Makati. RTC Makati affirmed the decision of
Yamane. Lepanto then filed a petition for review under Rule 42 with the Court of Appeals. The Court of Appeals reversed
the RTC.
Yamane now filed a petition for review under Rule 45 with the Supreme Court. Yamane avers that a.) Lepanto is liable for
local taxation because its act of maintaining the condominium is an activity for profit because the end result of such
activity is the betterment of the market value of the condominium which makes it easier to sell it; that Lepanto is earning
profit from fees collected from condominium unit owners; and that b.) Lepanto’s petition for review of the decision of
the RTC to the CA is erroneous because when the RTC decided on the appeal brought to it by Lepanto, the RTC was
exercising its original jurisdiction and not its appellate jurisdiction; that as such, what Lepanto should have done is to file
an ordinary appeal under Rule 41.
ISSUE: Whether or not a RTC deciding an appeal from the decision of a city treasurer on tax protests is exercising original
jurisdiction. Whether or not a condominium corporation organized solely for the maintenance of a condominium is liable
for local taxation.
HELD:
1. Yes. Although the LGC (Section 195) provides that the remedy of the taxpayer whose protest is denied by the local
treasurer is “to appeal with the court of competent jurisdiction” or in this case the RTC (considering the amount of tax
liability is P1.6 million), such appeal when decided by the RTC is still in the exercise of its original jurisdiction and not its
appellate jurisdiction. This is because appellate jurisdiction is defined as the authority of a court higher in rank to re-
examine the final order or judgment of a lower court which tried the case now elevated for judicial review. Here, the City
Treasurer is not a lower court.
The Supreme Court however clarifies that this ruling is only applicable to similar cases before the passage of Republic Act
9282 (effective April 2004). Under RA 9282, the Court of Tax Appeals (CTA), not CA, exercises exclusive appellate
jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases whether
originally decided or resolved by them in the exercise of their original or appellate jurisdiction.
2. No. Lepanto was not organized for profit. The fees it was collecting from the condominium unit owners redound to
the owners themselves because the fees collected are being used for the maintenance of the condo. Further, it appears
that the assessment issued by Yamane did not state the legal basis for the tax being imposed on Lepanto – it merely
states that Makati is authorized to collect business taxes under the Local Government Code (LGC) but no other reference
specific reference to specific laws were cited.
G.R. No. L-30745 January 18, 1978
PHILIPPINE MATCH CO., LTD., , vs. THE CITY OF CEBU
This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by the Philippine Match
Co., Ltd. in Cebu City but delivered to customers outside of the City.
Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved by the provincial board) is
"an ordinance imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and manufacturers of
any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or
value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter.
Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities stored in the
City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city and shall be taxable.
Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are taxable as long
as the matches sold are taken from the company's stock stored in Cebu City.
The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches. Its factory is
located at Punta, Sta. Ana, Manila. It ships cases or cartons of matches from Manila to its branch office in Cebu City for
storage, sale and distribution within the territories and districts under its Cebu branch or the whole Visayas-Mindanao
region. Cebu City itself is just one of the eleven districts under the company's Cebu City branch office.
The company does not question the tax on the matches of matches consummated in Cebu City, meaning matches sold
and delivered within the city.
It assails the legality of the tax which the city treasurer collected on out-of- town deliveries of matches, to wit: (1) sales of
matches booked and paid for in Cebu City but shipped directly to customers outside of the city; (2) transfers of matches
to newsmen assigned to different agencies outside of the city and (3) shipments of matches to provincial customers
pursuant to salesmen's instructions.
The company paid under protest to the city t the sum of P12,844.61 as one percent sales tax on those three classes of
out-of-town deliveries of matches for the second quarter of 1961 to the second quarter of 1963.
In paying the tax the company accomplished the verified forms furnished by the city treasurers office. It submitted a
statement indicating the four kinds of transactions enumerated above, the total sales, and a summary of the deliveries to
the different agencies, as well as the invoice numbers, names of customers, the value of the sales, the transfers of
matches to salesmen outside of Cebu City, and the computation of taxes.
Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city refer to orders for
matches made in the city by the company's customers, by means of personal or phone calls, for which sales invoices are
issued, and then the matches are shipped from the bodega in the city, where the matches had been stored, to the place
of business or residences of the customers outside of the city, duly covered by bills of lading The matches are used and
consumed outside of the city.
Transfers of matches to salesmen assigned to different agencies outside of the city embrace equipments of matches from
the branch office in the city to the salesmen (provided with panel cars) assigned within the province of Cebu and in the
different districts in the Visayas and Mindanao under the jurisdiction or supervision of the Cebu City branch office. The
shipments are covered by bills of lading. No sales invoices whatever are issued. The matches received by the salesmen
constitute their direct cash accountability to the company. The salesmen sell the matches within their respective
territories. They issue cash sales invoices and remit the proceeds of the sales to the company's Cebu branch office. The
value of the unsold matches constitutes their stock liability. The matches are used and consumed outside of the city.
Shipments of matches to provincial customers pursuant to newsmens instructions embrace orders, by letter or telegram
sent to the branch office by the company's salesmen assigned outside of the city. The matches are shipped from the
company's bodega in the city to the customers residing outside of the city. The salesmen issue the sales invoices. The
proceeds of the sale, for which the salesmen are accountable are remitted to the branch office. As in the first and
seconds of transactions above-mentioned, the matches are consumed and used outside of the city.
The company in its letter of April 15, 1961 to the city treasurer sought the refund of the sales tax paid for out-of-town
deliveries of matches. It invoked Shell Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, 105
Phil. 1263. In that case sales of oil and petroleum products effected outside the territorial limits of Sipocot, were held not
to be subject to the tax imposed by an ordinance of that municipality.
The city treasurer denied the request. His stand is that under section 9 of the ordinance all out-of-town deliveries of
latches stored in the city are subject to the sales tax imposed by the ordinance.
On August 12, 1963 the company filed the complaint herein, praying that the ordinance be d void insofar as it taxed the
deliveries of matches outside of Cebu City, that the city be ordered to refund to the company the said sum of P12,844.61
as excess sales tax paid, and that the city treasurer be ordered to pay damages.
After hearing, the trial court sustained the tax on the sales of matches booked and paid for in Cebu City although the
matches were shipped directly to customers outside of the city. The lower court held that the said sales were
consummated in Cebu City because delivery to the carrier in the city is deemed to be a delivery to the customers outside
of the city.
But the trial court invalidated the tax on transfers of matches to salesmen assigned to different agencies outside of the
city and on shipments of matches to provincial customers pursuant to the instructions of the newsmen It ordered the
defendants to refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town deliveries with legal rate
of interest from the respective dates of payment.
The trial court characterized the tax on the other two transactions as a "storage tax" and not a sales tax. It assumed that
the sales were consummated outside of the city and, hence, beyond the city's taxing power.
The city did not appeal from that decision. The company appealed from that portion of the decision upholding the tax on
sales of matches to customers outside of the city but which sales were booked and paid for in Cebu City, and also from
the dismissal of its claim for damages against the city treasurer.
The issue is whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but the
matches were delivered to customers outside of the City.
We hold that the appeal is devoid of merit bemuse the city can validly tax the sales of matches to customers outside of
the city as long as the orders were booked and paid for in the company's branch office in the city. Those matches can be
regarded as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier in Cebu
City. Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs. Yangco, 38
Phil. 602).
A different interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple
expedient of arranging for the delivery of the matches at the out. skirts of the city through the purchase were effected
and paid for in the company's branch office in the city.
The municipal board of Cebu City is empowered "to provide for the levy and collection of taxes for general and purposes
in accordance with law" (Sec. 17[a], Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu
city).
The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy Act, Republic Act No.
2264 (Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976, 69
SCRA 460), which took effect on June 19, 1959 and which provides:
SEC. 2. Taxation. — Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes or
fees upon persons engaged in any occupation or business, or exercising privileges in chartered
cities,. municipalities or municipal districts by requiring them to secure licenses at rates fixed by
the municipal board or city council of the city, the municipal council of the municipality, or the
municipal district council of the municipal district; to collect fees and charges for services
rendered by the city, municipality or municipal district; to regulate and impose reasonable fees
for services rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise to levy for public
purposes, just and uniform taxes, licenses or fees;
Provided, That municipalities and municipal districts shall, in no case, impose any percentage
tax on sales 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 International Revenue Code;
Provided, however, That no city, municipality or municipal districts may levy or impose any of
the following: (here follows an enumeration of internal revenue taxes)
xxx xxx xxx *
Note that the prohibition against the imposition of percentage taxes (formerly provided for in section 1 of
Commonwealth Act No. 472) refers to municipalities and municipal districts but not to chartered cities. (See Local Tax
Code, P.D. No. 231. Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan Samar, 120 Phil. 413; Ormoc
Sugar Co., Inc. vs. Treasurer of Ormoc City, L-23794, February 17, 1968, 22 SCRA 603).
Note further that the taxing power of cities, municipalities and municipal districts may be used (1) "upon any person
engaged in any occupation or business, or exercising any privilege" therein; (2) for services rendered by those political
subdivisions or rendered in connection with any business, profession or occupation being conducted therein, and (3) to
levy, for public purposes, just and uniform taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo,
117 Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City).
Applying that jurisdictional test to the instant case, it is at once obvious that sales of matches to customers outside oil
Cebu City, which sales were booked and paid for in the company's branch office in the city, are subject to the city's taxing
power. The instant case is easily distinguishable from the Shell Company case where the price of the oil sold was paid
outside of the municipality of Sipocot, the entity imposing the tax.
On the other hand, the ruling in Municipality of Jose Panganiban, Province of Camarines Norte vs. Shell Company of the
Philippines, Ltd., L-18349, July 30, 1966, 17 SCRA 778 that the place of delivery determines the taxable situs of the
property to be taxed cannot properly be invoked in this case. Republic Act No. 1435, the law which enabled the
Municipality of Jose Panganiban to levy the sales tax involved in that case, specifies that the tax may be levied upon oils
"distributed within the limits of the city or municipality", meaning the place where the oils were delivered. That feature
of the Jose Panganiban case distinguished it from this case.
The sales in the instant case were in the city and the matches sold were stored in the city. The fact that the matches were
delivered to customers, whose places of business were outside of the city, would not place those sales beyond the city's
taxing power. Those sales formed part of the merchandising business being assigned on by the company in the city. In
essence, they are the same as sales of matches fully consummated in the city.
Furthermore, because the sellers place of business is in Cebu City, it cannot be sensibly argued that such sales should be
considered as transactions subject to the taxing power of the political subdivisions where the customers resided and
accepted delivery of the matches sold.
The company in its second assignment of error contends that the trial court erred in not ordering defendant acting city
treasurer to pay exemplary damages of P20,000 and attorney's fees.
The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is argued that the city
treasurer refused and neglected without just cause to perform his duty and to act with justice and good faith. The
company faults the city treasurer for not following the opinion of the city fiscals, as legal adviser of the city, that all out-
of-town deliveries of matches are not subject to sales tax because such transactions were effected outside of the city's
territorial limits.
In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance in question he was simply complying
with his duty as collector of taxes (Sec. 50, Revised Charter of Cebu City). Moreover, he had no choice but to enforce the
ordinance because according to section 357 of the Revised Manual of Instruction to Treasurer's "a tax ordinance win be
enforced in accordance with its provisions" until d illegal or void by a competent court, or otherwise revoked by the
council or board from which it originated.
Furthermore, the Secretary of Finance had reminded the city treasurer that a tax ordinance approved by the provincial
board is operative and must be enforced without prejudice to the right of any affected taxpayer to assail its legality in the
judicial forum. The fiscals opinion on the legality of an ordinance is merely advisory and has no binding effect.
Article 27 of the Civil Code provides that "any person suffering material or moral lose because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other
relief against the latter, without prejudice to any disciplinary administrative action that may be taken."
Article 27 presupposes that the refuse or omission of a public official is attributable to malice or inexcusable negligence.
In this case, it cannot be said that the city treasurer acted wilfully or was grossly t in not refunding to the plaintiff the
taxes which it paid under protest on out-of-town sales of matches.
The record clearly reveals that the city treasurer honestly believed that he was justified under section 9 of the tax
ordinance in collecting the sales tax on out-of-town deliveries, considering that the company's branch office was located
in Cebu City and that all out-of-town purchase order for matches were filled up by the branch office and the sales were
duly reported to it.
The city treasurer acted within the scope of his authority and in consonance with his bona fide interpretation of the tax
ordinance. The fact that his action was not completely sustained by the courts would not him liable for We have upheld
his act of taxing sales of matches booked and paid for in the city.
"As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y liable to one injured in consequence of an
act performed within the scope of his official authority, and in the line of his official duty." "Where an officer is invested
with discretion and is empowered to exercise his judgment in matters brought before him. he is sometimes called a
quasi-judicial officer, and when so acting he is usually given immunity from liability to persons who may be injured as the
result or an erroneous or mistaken decision, however erroneous his judgment may be. provided the acts complained of
are done within the scope of the officer's authority and without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in
Philippine Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241).
It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith
that would entitle an aggrieved party to an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That
salutary in addition to moral temperate, liquidated or compensatory damages (Art. 2229, Civil Code). Attorney's fees are
being claimed herein as actual damages. We find that it would not be just and equitable to award attorney's fees in this
case against the City of Cebu and its (See Art. 2208, Civil Code).
WHEREFORE, the trial court's judgment is affirmed. No costs.
City Government of San Pablo, Laguna vs Reyes
305 SCRA 353 [GR No. 127708 March 25, 1999]
Facts: Act 3648 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an electric
light and power system in the city of San Pablo and nearby municipalities. Section 10 of said act provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay unto the municipal treasury of each
municipality in which it is supplying electric current to the public under this franchise, a tax equal to two percentum of
the gross earning from electric current sold or supplied under this franchise in each said municipality. Said tax shall be
due and payable quarterly and shall be in lieu of any and all taxes of any kind nature or description levied, established or
collected by any authority whatsoever, municipal, provincial or insular, now or in the future, or its pole wires, insulator,
switches, transformers, and structures, installations, conductors and accessories placed in and over and under all public
property, including public streets and highways, provincial roads, bridges and public squares, and on its franchises, rights,
privileges, receipts, revenues and profits from which taxes the grantee is hereby expressly exempted.
Escudero’s franchise was transferred to the plaintiff MERALCO under RA 2340.
On October 5, 1992, the sangguniang panlungsod of San Pablo City enacted ordinance no. 56 otherwise known as the
Revenue Code of the City of San Pablo. Pursuant to sec 2.09 article D of the said ordinance, the petitioner city treasurer
sent to private respondent a letter demanding payment of the aforesaid franchise tax.
Issue: Whether or not the city of San Pablo may impose a local franchise tax to MERALCO.
Held: Yes. A general law cannot be construed to have repealed a special law by mere implication unless the intent to
repeal or alter is manifest and it must be convincingly demonstrated that the two laws are so clearly repugnant and
patently inconsistent that they cannot co-exist.
It is our view that petitions correctly rely on the provisions of sections 137 and 193 of the LGC to support their position
that MERALCO’s tax exemption has been withdrawn. The explicit language of section 137 which authorizes the province
to impose franchise tax not withstanding any exemption granted by law or other special law is all encompassing and
clear. The franchise is imposable despite any exemption enjoyed under special law.
Sec 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this
code, tax exemptions or incentives granted to or presently enjoyed all persons whether natural or juridical, including
GOCCs except: 1.) local water districts; 2.) Cooperatives duly registered under RA 6938; 3.) Non-stock and non-profit
hospitals and education institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the
exemptions to the 3 enumerated entities. It is a basic precept of statutory construction that the express mention of one
person, thing, act or consequences excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterus. In the absence of any provision of the code to the contrary, and we find no other provision in point, any existing
tax exemption or incentive enjoyed by the MERALCO under the existing law was clearly intended to be withdrawn.
Reading together section 193 and 137 of the LGC conclude that under the LGC, the local government unit may now
impose a local tax at a rate not excluding 50% of 1% of the gross annual receipts for the preceding calendar year based
on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privilege only
enjoy and an existing law or charter is clearly manifested by the language used in sections 137 and 193 categorically
withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general withdrawal of such exemptions or privileges. No more unequivocal language could
have been used.
It is true that the phrase “in lieu of all taxes” found in special franchises has been held in several cases to exempt the
franchise holder from payment of tax on its corporate franchise imposed of the internal revenue code, as the charter is in
the nature of a private contract and the exemption is part of the inducement for the acceptance of the franchise, and
that the imposition of another franchise tax by the local authority would constitute an impairment of contract between
the government and the corporation. But these “magic words” contained in the phrase “shall be in lieu of all taxes” have
to give way to the premptory language of the LGC specifically providing for the withdrawal of such exemption privileges.