TAXATION CASES
1954), a "tax" (noun) is:
6 Wis. 2d 299 (1959)
CITY OF MILWAUKEE, Respondent, v. MILWAUKEE & SUBURBAN TRANSPORT CORPORATION,
Appellant.
Supreme Court of Wisconsin.
January 7, 1959.
February 3, 1959.
*303 For the appellant there were briefs by Quarles, Herriott & Clemons, attorneys, and
Lester S. Clemons and Arthur H. Laun, Jr., of counsel, all of Milwaukee, and oral argument by
Mr. Lester S. Clemons and Mr. Laun.
For the respondent there was a brief by Walter J. Mattison, city attorney, and Harry G. Slater,
deputy city attorney, and oral argument by Mr. Slater.
MARTIN, C. J.
The question is whether or not the "license fees" exacted under these ordinances constitute
a tax for revenue or a charge for regulation or a contract. It is undisputed that at the time the
ordinances were adopted the city had authority to tax the company for revenue as well as for
regulatory purposes.
As stated in Wisconsin Telephone Co. v. Milwaukee (1905), 126 Wis. 1, 13, 104 N.W. 1009,
where the power to license exists, a reasonable discretion is vested in the municipality, but
courts will look into ordinances with a view of determining whether they are passed for the
purpose of revenue, although sought to be upheld as police regulations. Cities should not be
permitted, under the guise of their regulatory power, to collect revenue for the benefit of the
city regardless of the amount necessary to defray the expense of its regulation.
In its decision the trial court called attention to the fact that in the conversion ordinances the
city undertook to repave and widen streets to accommodate the trackless trolleys and bear
the expense of the obligation, formerly that of the company, to repave and maintain the
track zones; that the city obligated itself to prohibit parking of automobiles along portions of
the routes, in connection with which the court took judicial notice of the fact that the city has
been put to the *304 expense of acquiring property for off-street parking, an expense due in
part to such parking limitations. The court stated that the ordinances reveal substantial
benefits proceeding to the company and a concurring disadvantage and expense to the city.
Therefore, it reasoned, the fees did not constitute a tax for revenue but, rather,
compensation for the costs assumed and services rendered by the city.
According to Webster's New International Dictionary (2d ed.
"A charge, esp. a pecuniary burden imposed by authority; specif., a charge or burden, usually
pecuniary, laid upon persons or property for public purposes; a forced contribution of wealth
to meet the public needs of a government."
To "tax" (verb) is defined as:
"To assess with, or subject to the payment of, a tax or taxes; esp., to exact money from for
the support of government; ..."
In 51 Am. Jur., Taxation, p. 35, sec. 3, it is stated:
"A tax is a forced burden, charge, exaction, imposition, or contribution assessed in
accordance with some reasonable rule of apportionment by authority of a sovereign state
upon the persons or property within its jurisdiction, to provide public revenue for the
support of the government, the administration of the law, or the payment of public
expenses. Any payment exacted by the state or its municipal subdivisions as a contribution
toward the cost of maintaining governmental functions, where the special benefits derived
from their performance is merged in the general benefit, is a tax."
In 51 Am. Jur., Taxation, p. 34, sec. 2, it is stated:
"The term `taxation' defines the power by which the sovereign raises revenue to defray the
necessary expenses of government. Taxation is merely a way of apportioning the cost of
government among those who in some measure are *305 privileged to enjoy its benefits and
must bear its burdens. The purpose of taxation on the part of government is to provide funds
or property with which to promote the general welfare and protection of its citizens.
Taxation, in its broadest and most general sense, includes every charge or burden imposed
by the sovereign power upon persons, property, or property rights for the use and support of
the government and to enable it to discharge its appropriate functions, and in that broad
definition there is included a proportionate levy upon persons or property and all the various
other methods and devices by which revenue is exacted from persons and property for public
purposes."
In 38 Am. Jur., Municipal Corporations, p. 13, sec. 321, it is stated:
"... there is a sharp distinction between a municipal license for revenue and one for
regulation under the police power; the first named is a tax and is to be construed under the
principles and rules governing taxing powers, while the latter is under the police power,
looking toward the health, morals, safety, or general welfare of the community."
The substance, and not the form, of the imposition is the test of its true character. It is stated
in 4 Cooley, Taxation (4th ed.), p. 3511, sec. 1784:
"The distinction between a demand of money under the police power and one made under
the power to tax is not so much one of form as of substance. The proceedings may be the
same in the two cases, though the purpose is essentially different. The one is made for
regulation and the other for revenue. If the purpose is regulation the imposition ordinarily is
an exercise of the police power, while if the purpose is revenue the imposition is an exercise
of the taxing power and is a tax."
See also 9 McQuillin, Mun. Corp. (3d ed.), p. 26, sec. 26.15. The distinction between taxation
for revenue and for regulation is determined by the relationship between the cost *306 to, or
services provided by, the city and the charge imposed. In 1 Cooley, Taxation (4th ed.), p. 98,
sec. 27, it is stated:
"... a charge of a fixed sum which bears no relation to the cost of inspection and which is
payable into the general revenue of the state is a tax rather than an exercise of the police
power. Whether an imposition is called a license `fee' or a license `tax' is worthy of little
consideration, since its real nature is the test."
Following these rules, in Chesapeake & Potomac Telephone Co. v. Morgantown (W. Va.
1958), 105 S. E. (2d) 260, the court held "use fees" involving no regulatory features which
would bring them within the category of license fees were imposed purely for revenue
purposes, and in the absence of any delegation by the state to the municipality of the power
to exact such fees the ordinance which attempted to do so was invalid.
Apparently the trial court took the view that it is sufficientin order to bring the charge under
the police power for the city to show that by adopting the conversion ordinances it assumed
expenses and inconveniences not previously borne by it. That does not satisfy the test. In the
first place, we do not read out of these ordinances the same evidence of expense and
disadvantage to the city that the trial court did. In most of the instances where the city
agreed to restore the track zone and where expenses for repairs or supervision were
anticipated, the company either paid a lump sum in discharge of its obligations in that
respect or agreed to pay in the future as the expenses were incurred. In one ordinance the
lump-sum payment by the company amounted to $275,000.
The trial court also attributed the city's need to acquire off-street parking lots, at least in
part, to the prohibition of parking at the curb for 50 feet at trackless trolley loading *307
zones and other parking restrictions along the routes. We cannot take judicial notice of such
fact. All cities in the state have been faced with parking problems, necessitating the
acquisition of off-street parking facilities for various reasons such as the increased use of
automobiles, the increased number of automobiles, and the increased population of cities.
At $10 per passenger seat the annual fees charged under these ordinances amount to over
$100,000. This, we repeat, is in addition to all charges for repaving, etc., referred to above. In
Milwaukee v. Milwaukee E. R. & L. Co. (1911), 147 Wis. 458, 462, 133 N.W. 593, where the
city attempted to impose an annual license fee of $15 per streetcar, this court said:
"It is apparent on the face of the ordinance and from the amount of the fee imposed that it is
an imposition for the purpose of revenue, and hence it cannot be treated as an exaction for
the purpose of covering the expense incident to the supervision and regulation of the street
railway business."
In another such case, Milwaukee E. R. & L. Co. v. Milwaukee (1918), 167 Wis. 384, 387, 167
N.W. 428, where the city again attempted to impose the $15 fee, it was said:
"Under the ordinance in question the fee exacted was a revenue measure, therefore the
ordinance cannot be upheld. ...
"Whether under the police power the city still has authority to regulate street railways by
ordinance we need not consider, because it is clear that the ordinance under consideration
was not passed as a regulation but as a revenue measure."
In holding the ordinances here to be regulatory measures, the trial court relied upon Oshkosh
v. Eastern Wisconsin E. Co. (1920), 172 Wis. 85, 89, 178 N.W. 308. There the city, in granting
a franchise to the defendant to extend its interurban electric railroad from Fond du Lac to
Oshkosh, required the payment of $35,000 in annual instalments of *308 $1,000 each for
thirty-five years. The court held that "upon the pleadings as they stand we cannot now say as
a matter of law that it clearly appears or is to be presumed" that the provision for the annual
payment was a revenue-producing measure. In that instance the city of Oshkosh had no
authority to tax for revenue purposes. Thus, the court was forced to presume the legality of
the charges under the conditions set forth, and this distinguishes the case from the instant
one. At the time the ordinances involved here were adopted the city of Milwaukee had the
authority to tax both for revenue and for regulation.
The factors presented in this case are, (1) the fact that at the time the ordinances were
adopted the city had authority to impose upon the company both a tax for revenue and fees
for regulation; (2) the large amount of the fees; and (3) the fact that the city has not
attempted to show that the fees bear a relation to, or are an approximation of, the expenses
suffered and the services rendered by the city, directly attributable to the operation of the
trackless trolley service. From a consideration of these factors we are compelled to conclude
that the charges imposed constitute a tax for revenue and are thus invalid under sec. 76.54,
Stats.
In the past ten or more years while the city of Milwaukee was authorized to tax the company
for revenue, municipalities generally have been seeking new sources of revenue. Under such
circumstances it is difficult to believe that the city took no advantage of its authority and that
the charges imposed by these ordinances in no way constituted the exaction of such a tax.
The basic argument of the city on appeal is that the ordinances in question are binding
contracts entered into between the city and the company, effective only upon acceptance of
their terms by the company, and that the legislature has no power to impair the obligation of
such contracts.
*309 It is well established that the control of streets and highways is a governmental
function. As stated in 10 McQuillin, Mun. Corp. (3d ed.), Streets and Alleys, p. 603, sec. 30.39:
"The use of streets is designed for the public at large, as distinguished from the legal entity
known as the city, or municipal corporation. The management of highways may be
characterized as a municipal duty relating to governmental affairs. ... In this country the
control of highways is primarily a state duty, subject to the property rights and easements of
the abutting owner, except to the extent that such control has been delegated to the
municipality. ... The reason for this is that `the highways belong to the state,' and are subject
to its control and regulation."
In sec. 30.40 of the same text the author states that the extent of a city's control of its streets
depends upon the legislative grant of authority, its control pursuant to such delegation being
exercised as the state's agent. In 12 McQuillin, Mun. Corp. (3d ed.), Franchises, p. 45, sec.
34.13, it is stated:
"Primarily the legislature, representing the people at large, possesses full and paramount
power over all highways, streets, and alleys in the state. Therefore, the power to grant
franchises to use the streets resides primarily in the legislature, and it has the power to grant
to a public service corporation the right to use streets without compensation to, or the
consent of, the municipality, unless the particular state constitution provides for such
consent."
Further, in sec. 34.14, p. 51:
"It is undisputed that a municipal corporation has no inherent power to grant a franchise or
license to use the streets and that its authority is limited to that conferred upon it expressly
or by implication by the state constitution or the legislature."
*310 See also Frederick v. Douglas County (1897), 96 Wis. 411, 71 N.W. 798; Commissioners
v. Lucas (1876), 93 U.S. 108, 23 L. Ed. 822.
This fundamental concept is the basis of the rule, as stated in Douglas County v. Industrial
Comm. (1957), 275 Wis. 309, 314, 81 N. W. (2d) 807:
"... the legislature may, with the consent of the other party, revoke any contract entered into
by a county or other municipal corporation in performance of a governmental function, and
in so doing there is no violation of the constitutional prohibition against a state taking action
to impair the obligation of a contract. This rule is stated in 37 Am. Jur., Municipal
Corporations, pp. 699, 700, sec. 89, as follows:
"`A contract to which a municipal corporation is a party, relating to a public and
governmental matter, may, however, be revoked by the legislature with the consent of the
other party without thereby violating the right of the municipality.'"
The court in that case went on to discuss the decision in Worcester v. Worcester
Consolidated Street R. Co. (1905), 196 U.S. 539, 25 Sup. Ct. 327, 49 L. Ed. 591, enunciating
the rule, and which was cited with approval in Madison Metropolitan Sewerage Dist. v.
Committee (1951), 260 Wis. 229, 50 N. W. (2d) 424. It further quoted from Trenton v. New
Jersey (1923), 262 U.S. 182, 188, 43 Sup. Ct. 534, 67 L. Ed. 937, as follows:
"`The power of the state, unrestrained by the contract clause or the Fourteenth amendment,
over the rights and property of cities held and used for "governmental purposes" cannot be
questioned.'"
And from Holland v. Cedar Grove (1939), 230 Wis. 177, 189, 282 N.W. 111, 282 N. W. 448:
"`Municipal corporations have no private powers or rights as against the state. They may
have lawfully entered into contracts with third persons which contracts will be protected
*311 by the constitution, but beyond that they hold their powers from the state and they can
be taken away by the state at pleasure.'" (Citing cases.)
Then the court in the Douglas County Case, supra, page 315, went on to say:
"The contract rights arising under an agreement entered into by a municipality, acting in a
governmental capacity, and third persons, which are protected by the constitution against
impairment by the legislature, are those of the third persons, not those of the municipality.
Worcester v. Worcester Consolidated Street R. Co., supra. This is because whenever a
municipal corporation makes a contract in its governmental capacity with a third party it is
the same as if the state itself were one of the two contracting parties, the municipality being
but an arm of the state."
Respondent city places a great deal of significance on the fact that the conversion ordinances
called for acceptance by the company before they would become effective, arguing that the
fees therein agreed upon cannot be considered a tax because the power to tax is not
exercised subject to approval of the taxpayer. This argument would seem to ignore the fact
that in a case such as this the company always has the right to contest the reasonableness of
a license fee. State ex rel. Cream City R. Co. v. Hilbert (1888), 72 Wis. 184, 39 N.W. 326. The
approval of the company in these ordinances was merely a waiver of its right to contest the
reasonableness of the fees. It was certainly to the advantage of the city to obtain such a
waiver, since it thereby avoided the expense and delay of litigation.
Franchise ordinances may (as they did here) combine contractual and governmental
regulations, without changing the result or affecting the essential character of the power
exercised. See 5 McQuillin, Mun. Corp. (3d ed.), Requisites and Operation of Ordinances, p.
80, sec. 15.13. The contractual aspects of these ordinances do not change the character of
the *312 fees therein imposed as the exercise of the city's authority to tax.
The city argues that it had the right to insist upon the payment of reasonable compensation
for granting the company valuable rights which it needed in order to effectuate its
substitution of service, and that the reasonableness of the compensation is attested to by the
fact that the company accepted the terms and paid the fees for many years. We see no
particular significance in this. At the time the ordinances were adopted by the common
council and accepted by the company, the city had the authority to tax for revenue. The
company's acceptance, under those circumstances, could only mean that it considered the DAVIDE, JR., J.:
fees reasonable as a tax for revenue.
Nor can we see how the nature of the license fees changed in any way because the
compensation provided for in the ordinances was paid for in annual instalments rather than a
lump sum. There is no evidence that a lump-sum compensation was ever considered by the
parties as due the city, with the exception of those instances in which, the city having agreed
to take over repaving of the track zones, the company obligated itself to pay certain lump
sums in discharge of its obligations with respect to the abandoned railway lines. The nature
of the fees is not determined by the method of payment but by the test, as dealt with above,
of whether or not they bear any relation to the city's cost of regulationa relationship which
the city has failed to show.
The same answer applies to the city's argument that the license fees are in effect a charge for
rental of the streets. Cases from other jurisdictions are cited but we do not consider it
necessary to discuss them. There are no cases in this state supporting such a view. Calling the
fees a rental charge does not change the fact that there is no evidence showing a relationship
between the charge imposed and the cost to the city.
*313 The only power the city has over the use of the streets, aside from its regulatory or
police power, must be delegated to it by the state. Without such delegation of authority the
city has no power to prevent the company's use of the streets in a reasonable manner
consistent with public use. We find nowhere any authority to exact from the company a price
for the privilege of operating its lines, except that the state had delegated to the city the right
to tax the company for revenue. This is the only authority it had to levy on the company. The
city has no right to call such a levy a consideration for a "valuable right" which it has and
which the company wants, and exact a price for it. La Crosse v. La Crosse Gas & Electric Co.
(1911), 145 Wis. 408, 130 N.W. 530. If the $10 per seat fee is a legal assessment, it
necessarily must be as a tax authorized by the state for revenue.
By the Court.Judgment reversed, and cause remanded with directions to dismiss plaintiff's
complaint.
For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 19951of the Regional Trial Court (RTC) of Cebu City, Branch
20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900 entitled
"Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4,
May 19952 denying the motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling on the
scope of the taxing power of local government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as
follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of Republic Act No. 6958, mandated to "principally
undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as
may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is also
mandated to:
a) encourage, promote and
develop international and
domestic air traffic in the Central
Visayas and Mindanao regions as
a means of making the regions
centers of international trade and
tourism, and accelerating the
development of the means of
transportation and
communication in the country;
and

b) upgrade the services and

facilities of the airports and to
G.R. No. 120082 September 11, 1996 formulate internationally
acceptable standards of airport
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, accommodation and service.
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Since the time of its creation, petitioner MCIAA enjoyed the privilege of
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. exemption from payment of realty taxes in accordance with Section 14 of
OSMEÑA, and EUSTAQUIO B. CESA, respondents. its Charter.

Sec. 14. Tax Exemptions. — The authority shall be

exempt from realty taxes imposed by the National
 Government or any of its political subdivisions,
agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge,
Office of the Treasurer of the City of Cebu, demanded payment for realty
taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-
G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941,
942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 of RA 6958
which exempt it from payment of realty taxes. It was also asserted that it
is an instrumentality of the government performing governmental
functions, citing section 133 of the Local Government Code of 1991 which
puts limitations on the taxing powers of local government units:
Sec. 133. Common Limitations on the Taxing Powers
of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangay shall
not extend to the levy of the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any
kind on the National
Government, its agencies and
instrumentalities, and local
government units. (Emphasis
supplied)
Respondent City refused to cancel and set aside petitioner's realty tax
account, insisting that the MCIAA is a government-controlled corporation
whose tax exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the Local Governmental Code that took effect on January
1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons whether natural or juridical, including
government-owned or controlled corporations, except local water
districts, cooperatives duly registered under RA No. 6938, non-stock, and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. — . . .
(a) . . .
xxx xxx xxx
(c) . . .
Except as provided herein, any exemption from
payment of real property tax previously granted to, or
presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled
corporations are hereby withdrawn upon the
effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against the
properties of petitioner, the latter was compelled to pay its tax account
"under protest" and thereafter filed a Petition for Declaratory Relief with
the Regional Trial Court of Cebu, Branch 20, on December 29, 1994.
MCIAA basically contended that the taxing powers of local government
units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that
while it is indeed a government-owned corporation, it nonetheless stands
on the same footing as an agency or instrumentality of the national
government. Petitioner insisted that while it is indeed a government-
owned corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the very nature
of its powers and functions.
Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-owned
corporation performing proprietary functions As such, all exemptions
previously granted to it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local Government Code
when it took effect on January 1, 1992.3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,4 the trial court dismissed the petition in light of its
findings, to wit:
 A close reading of the New Local Government Code of 1991 or RA 7160
provides the express cancellation and withdrawal of exemption of taxes
by government owned and controlled corporation per Sections after the
effectivity of said Code on January 1, 1992, to wit: [proceeds to quote
Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent City
Government of Cebu are exempted from paying realty taxes in view of
the exemption granted under RA 6958 to pay the same (citing Section 14
of RA 6958).
However, RA 7160 expressly provides that "All general and special laws,
acts, city charters, decress [sic], executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified
accordingly." ([f], Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the
tax exemption provided for in RA 6958 creating petitioner had been
expressly repealed by the provisions of the New Local Government Code
of 1991.
So that petitioner in this case has to pay the assessed realty tax of its
properties effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the
overall objectives of the New Local Government Code of 1991, RA 7160.
"It is hereby declared the policy of the State that the territorial and
political subdivisions of the State shall enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-
reliant communities and make them more effective partners in the
attainment of national goals. Towards this end, the State shall provide for
a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units
shall be given more powers, authority, responsibilities, and resources.
The process of decentralization shall proceed from the national
government to the local government units. . . .5
Its motion for reconsideration having been denied by the trial court in its 4 May
1995 order, the petitioner filed the instant petition based on the following
assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE
THAT THE PETITIONER IS VESTED WITH
GOVERNMENT POWERS AND FUNCTIONS WHICH
PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES
TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation it is mandated to perform functions
in the same category as an instrumentality of Government. An instrumentality of
Government is one created to perform governmental functions primarily to
promote certain aspects of the economic life of the people.6 Considering its task
"not merely to efficiently operate and manage the Mactan-Cebu International
Airport, but more importantly, to carry out the Government policies of promoting
and developing the Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country,"7and that it is an attached
agency of the Department of Transportation and Communication (DOTC),8 the
petitioner "may stand in [sic] the same footing as an agency or instrumentality of
the national government." Hence, its tax exemption privilege under Section 14 of
its Charter "cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof
specifically states that the taxing powers of local government units shall not extend
to the levy of taxes of fees or charges of any kind on the national government its
agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no power
nor authority to impose realty taxes upon it in accordance with the aforesaid
Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and
Gaming Corporation;9
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original character, PD 1869. All its shares of stock are owned by
the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter joke is governmental, which places it in the category of an agency
or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
 enacted by Congress to carry into execution the powers vested in the
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National
Government over local government.
Justice Holmes, speaking for the Supreme Court, make references to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau Modern
Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a toll for regulation"
(U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice
Marshall as the "power to destroy" (McCulloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say that
the questioned provisions of the Code do not contain any distinction between a
governmental function as against one performing merely proprietary ones such
that the exemption privilege withdrawn under the said Code would apply
to allgovernment corporations." For it is clear from Section 133, in relation to
Section 234, of the LGC that the legislature meant to exclude instrumentalities of
the national government from the taxing power of the local government units.
In its comment respondent City of Cebu alleges that as local a government unit and
a political subdivision, it has the power to impose, levy, assess, and collect taxes
within its jurisdiction. Such power is guaranteed by the Constitution10 and
enhanced further by the LGC. While it may be true that under its Charter the
petitioner was exempt from the payment of realty taxes,11 this exemption was
withdrawn by Section 234 of the LGC. In response to the petitioner's claim that
such exemption was not repealed because being an instrumentality of the National
Government, Section 133 of the LGC prohibits local government units from
imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points
out that the petitioner is likewise a government-owned corporation, and Section
234 thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned corporation,
and Section 234 thereof does not distinguish between government-owned or
controlled corporations performing governmental and purely proprietary functions.
Respondent city of Cebu urges this the Manila International Airport Authority is a
governmental-owned corporation, 12 and to reject the application of Basco because
it was "promulgated . . . before the enactment and the singing into law of R.A. No.
7160," and was not, therefore, decided "in the light of the spirit and intention of
the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in
its range, acknowledging in its very nature no limits, so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions.13 Our
Constitution, for instance, provides that the rule of taxation shall be uniform and
equitable and Congress shall evolve a progressive system of taxation.14 So potent
indeed is the power that it was once opined that "the power to tax involves the
power to destroy."15 Verily, taxation is a destructive power which interferes with
the personal and property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and liberally in favor of
the taxpayer.16 But since taxes are what we pay for civilized society,17 or are the
lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayers and liberally in favor of the taxing authority.18 A claim of exemption from
tax payment must be clearly shown and based on language in the law too plain to
be mistaken.19 Elsewise stated, taxation is the rule, exemption therefrom is the
exception.20 However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical
effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations.21
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5,
Article X of the Constitution.22 Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may provide which,
however, must be consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or
any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since
taxation is the rule and exemption therefrom the exception, the exemption may
thus be withdrawn at the pleasure of the taxing authority. The only exception to
this rule is where the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual and is thus
covered by the non-impairment clause of the Constitution.23
The LGC, enacted pursuant to Section 3, Article X of the constitution provides for
the exercise by local government units of their power to tax, the scope thereof or
its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of
local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local Government
Units. — Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:
(a) Income tax, except when levied on banks and
other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein
(d) Customs duties, registration fees of vessels and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees charges and dues except
wharfage on wharves constructed and maintained by
the local government unit concerned:
(e) Taxes, fees and charges and other imposition upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in
the guise or charges for wharfages, tolls for bridges or
otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes fees or charges on agricultural and aquatic
products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprise certified to be the
Board of Investment as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from
the date of registration;
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales,
barters or exchanges or similar transactions on goods
or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation
contractor and person engage in the transportation of
passengers of freight by hire and common carriers by
air, land, or water, except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or
retrocession;
(l) Taxes, fees, or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving of thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine
product actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprise and Cooperatives duly
registered under R.A. No. 6810 and Republic Act
Numbered Sixty nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperative Code of
the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or
charges" referred to are "of any kind", hence they include all of these, unless
otherwise provided by the LGC. The term "taxes" is well understood so as to need
no further elaboration, especially in the light of the above enumeration. The term
"fees" means charges fixed by law or Ordinance for the regulation or inspection of
business activity,24 while "charges" are pecuniary liabilities such as rents or fees
against person or property.25
Among the "taxes" enumerated in the LGC is real property tax, which is governed
by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or city or a
municipality within the Metropolitan Manila Area may levy on an
annual ad valorem tax on real property such as land, building, machinery
and other improvements not hereafter specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions therefrom granted to natural and
juridical persons, including government owned and controlled corporations, except
as provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof had been granted, for
reconsideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenants thereto, mosques nonprofits
or religious cemeteries and all lands, building and
improvements actually, directly, and exclusively used
for religious charitable or educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts
and government-owned or controlled corporations
engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and;
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemptions from
payment of real property tax previously granted to or
presently enjoyed by, all persons whether natural or
juridical, including all government owned or
controlled corporations are hereby withdrawn upon
the effectivity of his Code.
These exemptions are based on the ownership, character, and use of the property.
Thus;
(a) Ownership Exemptions. Exemptions from real
property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province,
(iii) a city, (iv) a municipality, (v) a barangay, and (vi)
registered cooperatives.
(b) Character Exemptions. Exempted from real
property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of
prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non profit or
religious cemeteries.
(c) Usage exemptions. Exempted from real property
taxes on the basis of the actual, direct and
exclusive use to which they are devoted are: (i) all
lands buildings and improvements which are actually,
directed and exclusively used for religious, charitable
or educational purpose; (ii) all machineries and
equipment actually, directly and exclusively used or
by local water districts or by government-owned or
controlled corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power; and (iii) all machinery
and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the modernization
of the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons
including government-owned or controlled
corporations are withdrawn upon the effectivity of
the Code.26
Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this code, tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including
government-owned, or controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non stock and non
profit hospitals and educational constitutions, are hereby withdrawn
upon the effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local
government units may, through ordinances duly approved, grant tax
 exemptions, incentives or reliefs under such terms and conditions as they
may deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the taxing
powers of local government units and the exceptions to such limitations; and (b)
the rule on tax exemptions and the exceptions thereto. The use of exceptions of
provisos in these section, as shown by the following clauses:
(1) "unless otherwise provided herein" in the opening
paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in
section 193;
(3) "not hereafter specifically exempted" in Section
232; and
(4) "Except as provided herein" in the last paragraph
of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded. Instead of
the clause "unless otherwise provided herein," with the "herein" to mean, of
course, the section, it should have used the clause "unless otherwise provided in
this Code." The former results in absurdity since the section itself enumerates what
are beyond the taxing powers of local government units and, where exceptions
were intended, the exceptions were explicitly indicated in the text. For instance, in
item (a) which excepts the income taxes "when livied on banks and other financial
institutions", item (d) which excepts "wharfage on wharves constructed and
maintained by the local government until concerned"; and item (1) which excepts
taxes, fees, and charges for the registration and issuance of license or permits for
the driving of "tricycles". It may also be observed that within the body itself of the
section, there are exceptions which can be found only in other parts of the LGC, but
the section interchangeably uses therein the clause "except as otherwise provided
herein" as in items (c) and (i), or the clause "except as otherwise provided herein"
as in items (c) and (i), or the clause "excepts as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere surplus-ages if the opening
clause of the section were" "Unless otherwise provided in this Code" instead of
"Unless otherwise provided herein". In any event, even if the latter is used, since
under Section 232 local government units have the power to levy real property tax,
except those exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a
general rule, as laid down in Section 133 the taxing powers of local government
units cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of
the National Government, its agencies and instrumentalties, and local government
units"; however, pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia,
"real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or
juridical persons, including government-owned and controlled corporations,
Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon
the effectivity of the LGC, except upon the effectivity of the LGC, except those
granted to local water districts, cooperatives duly registered under R.A. No. 6938,
non stock and non-profit hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could refer to Section 234, which
enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption in so far as the real
property taxes are concerned by limiting the retention only to those enumerated
there-in; all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as the real property is owned by the
Republic of the Philippines, or any of its political subdivisions covered by item (a) of
the first paragraph of Section 234, the exemption is withdrawn if the beneficial use
of such property has been granted to taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to natural or
juridical persons, including government-owned or controlled corporations, except
as provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted
it in Section 14 of its charter, R.A. No. 6958, has been withdrawn. Any claim to the
contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the
taxing powers of the local government units cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on the National
Government, its agencies, or instrumentalities, and
local government units.
I must show that the parcels of land in question, which are real property, are any
one of those enumerated in Section 234, either by virtue of ownership, character,
or use of the property. Most likely, it could only be the first, but not under any
explicit provision of the said section, for one exists. In light of the petitioner's
theory that it is an "instrumentality of the Government", it could only be within be
first item of the first paragraph of the section by expanding the scope of the terms
Republic of the Philippines" to embrace . . . . . . "instrumentalities" and "agencies"
or expediency we quote:
(a) real property owned by the Republic of the
Philippines, or any of the Philippines, or any of its
political subdivisions except when the beneficial use
thereof has been granted, for consideration or
otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and in the second place it fails to consider
the fact that the legislature used the phrase "National Government, its agencies
and instrumentalities" "in Section 133(o),but only the phrase "Republic of the
Philippines or any of its political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government of the
Republic of the Philippines" which the Administrative Code of the 1987 defines as
the "corporate governmental entity though which the functions of the government
are exercised through at the Philippines, including, saves as the contrary appears
from the context, the various arms through which political authority is made
effective in the Philippines, whether pertaining to the autonomous reason, the
provincial, city, municipal or barangay subdivision or other forms of local
government."27 These autonomous regions, provincial, city, municipal or barangay
subdivisions" are the political subdivision.28
On the other hand, "National Government" refers "to the entire machinery of the
central government, as distinguished from the different forms of local
Governments."29 The National Government then is composed of the three great
departments the executive, the legislative and the judicial.30
An "agency" of the Government refers to "any of the various units of the
Government, including a department, bureau, office instrumentality, or
government-owned or controlled corporation, or a local government or a distinct
unit therein;"31 while an "instrumentality" refers to "any agency of the National
Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy; usually through a
charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations".32
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said
section to the agencies and instrumentalities of the National Government
mentioned in Section 133(o), then it should have restated the wording of the latter.
Yet, it did not Moreover, that Congress did not wish to expand the scope of the
exemption in Section 234(a) to include real property owned by other
instrumentalities or agencies of the government including government-owned and
controlled corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property
Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. — The exemption shall be as
follows:
(a) Real property owned by the
Republic of the Philippines or any
of its political subdivisions and
any government-owned or
controlled corporations so
exempt by is charter: Provided,
however, that this exemption shall
not apply to real property of the
above mentioned entities the
beneficial use of which has been
granted, for consideration or
otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any government-
owned or controlled corporation so exempt by its charter" was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to limit
further tax exemption privileges, specially in light of the general provision on
withdrawal of exemption from payment of real property taxes in the last paragraph
of property taxes in the last paragraph of Section 234. These policy considerations
are consistent with the State policy to ensure autonomy to local governments33 and
the objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.34 The power to
tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises, and there was a need for this
entities to share in the requirements of the development, fiscal or otherwise, by
paying the taxes and other charges due from them.35
The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has been
granted to the petitioner, and (b) whether the petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing
public airport facilities, runways, lands, buildings and other properties,
movable or immovable, belonging to or presently administered by the
airports, and all assets, powers, rights, interests and privileges relating on
airport works, or air operations, including all equipment which are
necessary for the operations of air navigation, acrodrome control towers,
crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control center
shall be retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation Office from Mactan
without the concurrence of the authority. The authority may assist in the
maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan
International AirPort in the Province of Cebu",36 which belonged to the Republic of
the Philippines, then under the Air Transportation Office (ATO).37
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City
then administered by the Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real property taxes. This section
involves a "transfer" of the "lands" among other things, to the petitioner and not
just the transfer of the beneficial use thereof, with the ownership being retained by
the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof
because the petitioner's authorized capital stock consists of, inter alia "the value of
such real estate owned and/or administered by the airports."38 Hence, the
petitioner is now the owner of the land in question and the exception in Section
234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person" under
its Charter. It was only exempted from the payment of real property taxes. The
grant of the privilege only in respect of this tax is conclusive proof of the legislative
intent to make it a taxable person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of
real property tax, in light of the forgoing disquisitions, it had already become even
if it be conceded to be an "agency" or "instrumentality" of the Government, a
taxable person for such purpose in view of the withdrawal in the last paragraph of
Section 234 of exemptions from the payment of real property taxes, which, as
earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco
vs. Philippine Amusement and Gaming Corporation39 is unavailing since it was
decided before the effectivity of the LGC. Besides, nothing can prevent Congress
from decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt
its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order of
the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R.
OSMEÑA, and EUSTAQUIO B. CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 19951of the Regional Trial Court (RTC) of Cebu City, Branch
20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900 entitled
"Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4,
May 19952 denying the motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling on the
scope of the taxing power of local government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as
follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of Republic Act No. 6958, mandated to "principally
undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as
may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is also provinces, cities, municipalities, and barangay shall
mandated to: not extend to the levy of the following:

a) encourage, promote and a) . . .

develop international and
domestic air traffic in the Central xxx xxx xxx
Visayas and Mindanao regions as
a means of making the regions
o) Taxes, fees or charges of any
centers of international trade and
kind on the National
tourism, and accelerating the
Government, its agencies and
development of the means of
instrumentalities, and local
transportation and
government units. (Emphasis
communication in the country;
supplied)
and

Respondent City refused to cancel and set aside petitioner's realty tax
b) upgrade the services and
account, insisting that the MCIAA is a government-controlled corporation
facilities of the airports and to
whose tax exemption privilege has been withdrawn by virtue of Sections
formulate internationally
193 and 234 of the Local Governmental Code that took effect on January
acceptable standards of airport
1, 1992:
accommodation and service.

Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise

Since the time of its creation, petitioner MCIAA enjoyed the privilege of
provided in this Code, tax exemptions or incentives granted to, or
exemption from payment of realty taxes in accordance with Section 14 of
presently enjoyed by all persons whether natural or juridical, including
its Charter.
government-owned or controlled corporations, except local water
districts, cooperatives duly registered under RA No. 6938, non-stock, and
Sec. 14. Tax Exemptions. — The authority shall be non-profit hospitals and educational institutions, are hereby withdrawn
exempt from realty taxes imposed by the National upon the effectivity of this Code. (Emphasis supplied)
Government or any of its political subdivisions,
agencies and instrumentalities . . .
xxx xxx xxx

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge,

Sec. 234. Exemptions from Real Property taxes. — . . .
Office of the Treasurer of the City of Cebu, demanded payment for realty
taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-
G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, (a) . . .
942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79. xxx xxx xxx

Petitioner objected to such demand for payment as baseless and (c) . . .

unjustified, claiming in its favor the aforecited Section 14 of RA 6958
which exempt it from payment of realty taxes. It was also asserted that it Except as provided herein, any exemption from
is an instrumentality of the government performing governmental payment of real property tax previously granted to, or
functions, citing section 133 of the Local Government Code of 1991 which presently enjoyed by all persons, whether natural or
puts limitations on the taxing powers of local government units: juridical, including government-owned or controlled
corporations are hereby withdrawn upon the
Sec. 133. Common Limitations on the Taxing Powers effectivity of this Code.
of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers of
 As the City of Cebu was about to issue a warrant of levy against the
properties of petitioner, the latter was compelled to pay its tax account
"under protest" and thereafter filed a Petition for Declaratory Relief with
the Regional Trial Court of Cebu, Branch 20, on December 29, 1994.
MCIAA basically contended that the taxing powers of local government
units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that
while it is indeed a government-owned corporation, it nonetheless stands
on the same footing as an agency or instrumentality of the national
government. Petitioner insisted that while it is indeed a government-
owned corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the very nature
of its powers and functions.
Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-owned
corporation performing proprietary functions As such, all exemptions
previously granted to it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local Government Code
when it took effect on January 1, 1992.3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,4 the trial court dismissed the petition in light of its
findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160
provides the express cancellation and withdrawal of exemption of taxes
by government owned and controlled corporation per Sections after the
effectivity of said Code on January 1, 1992, to wit: [proceeds to quote
Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent City
Government of Cebu are exempted from paying realty taxes in view of
the exemption granted under RA 6958 to pay the same (citing Section 14
of RA 6958).
However, RA 7160 expressly provides that "All general and special laws,
acts, city charters, decress [sic], executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified
accordingly." ([f], Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the
tax exemption provided for in RA 6958 creating petitioner had been
expressly repealed by the provisions of the New Local Government Code
of 1991.
So that petitioner in this case has to pay the assessed realty tax of its
properties effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the
overall objectives of the New Local Government Code of 1991, RA 7160.
"It is hereby declared the policy of the State that the territorial and
political subdivisions of the State shall enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-
reliant communities and make them more effective partners in the
attainment of national goals. Towards this end, the State shall provide for
a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units
shall be given more powers, authority, responsibilities, and resources.
The process of decentralization shall proceed from the national
government to the local government units. . . .5
Its motion for reconsideration having been denied by the trial court in its 4 May
1995 order, the petitioner filed the instant petition based on the following
assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE
THAT THE PETITIONER IS VESTED WITH
GOVERNMENT POWERS AND FUNCTIONS WHICH
PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES
TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation it is mandated to perform functions
in the same category as an instrumentality of Government. An instrumentality of
Government is one created to perform governmental functions primarily to
promote certain aspects of the economic life of the people.6 Considering its task
"not merely to efficiently operate and manage the Mactan-Cebu International
Airport, but more importantly, to carry out the Government policies of promoting
and developing the Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country,"7and that it is an attached
agency of the Department of Transportation and Communication (DOTC),8 the
petitioner "may stand in [sic] the same footing as an agency or instrumentality of
the national government." Hence, its tax exemption privilege under Section 14 of
its Charter "cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof
specifically states that the taxing powers of local government units shall not extend
to the levy of taxes of fees or charges of any kind on the national government its
agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no power
nor authority to impose realty taxes upon it in accordance with the aforesaid
Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and
Gaming Corporation;9
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original character, PD 1869. All its shares of stock are owned by
the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter joke is governmental, which places it in the category of an agency
or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National
Government over local government.
Justice Holmes, speaking for the Supreme Court, make references to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau Modern
Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a toll for regulation"
(U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice
Marshall as the "power to destroy" (McCulloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say that
the questioned provisions of the Code do not contain any distinction between a
governmental function as against one performing merely proprietary ones such
that the exemption privilege withdrawn under the said Code would apply
to allgovernment corporations." For it is clear from Section 133, in relation to
Section 234, of the LGC that the legislature meant to exclude instrumentalities of
the national government from the taxing power of the local government units.
In its comment respondent City of Cebu alleges that as local a government unit and
a political subdivision, it has the power to impose, levy, assess, and collect taxes
within its jurisdiction. Such power is guaranteed by the Constitution10 and
enhanced further by the LGC. While it may be true that under its Charter the
petitioner was exempt from the payment of realty taxes,11 this exemption was
withdrawn by Section 234 of the LGC. In response to the petitioner's claim that
such exemption was not repealed because being an instrumentality of the National
Government, Section 133 of the LGC prohibits local government units from
imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points
out that the petitioner is likewise a government-owned corporation, and Section
234 thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned corporation,
and Section 234 thereof does not distinguish between government-owned or
controlled corporations performing governmental and purely proprietary functions.
Respondent city of Cebu urges this the Manila International Airport Authority is a
governmental-owned corporation, 12 and to reject the application of Basco because
it was "promulgated . . . before the enactment and the singing into law of R.A. No.
7160," and was not, therefore, decided "in the light of the spirit and intention of
the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in
its range, acknowledging in its very nature no limits, so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions.13 Our
Constitution, for instance, provides that the rule of taxation shall be uniform and
equitable and Congress shall evolve a progressive system of taxation.14 So potent
indeed is the power that it was once opined that "the power to tax involves the
power to destroy."15 Verily, taxation is a destructive power which interferes with
the personal and property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and liberally in favor of
the taxpayer.16 But since taxes are what we pay for civilized society,17 or are the
lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayers and liberally in favor of the taxing authority.18 A claim of exemption from
tax payment must be clearly shown and based on language in the law too plain to
be mistaken.19 Elsewise stated, taxation is the rule, exemption therefrom is the
exception.20 However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical
effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations.21
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5,
Article X of the Constitution.22 Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may provide which,
however, must be consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or
any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since
taxation is the rule and exemption therefrom the exception, the exemption may
thus be withdrawn at the pleasure of the taxing authority. The only exception to
this rule is where the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual and is thus
covered by the non-impairment clause of the Constitution.23
The LGC, enacted pursuant to Section 3, Article X of the constitution provides for
the exercise by local government units of their power to tax, the scope thereof or
its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of
local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local Government
Units. — Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:
(a) Income tax, except when levied on banks and
other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein
(d) Customs duties, registration fees of vessels and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees charges and dues except
wharfage on wharves constructed and maintained by
the local government unit concerned:
(e) Taxes, fees and charges and other imposition upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in
the guise or charges for wharfages, tolls for bridges or
otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes fees or charges on agricultural and aquatic
products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprise certified to be the
Board of Investment as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from
the date of registration;
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales,
barters or exchanges or similar transactions on goods
or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation
contractor and person engage in the transportation of
passengers of freight by hire and common carriers by
air, land, or water, except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or
retrocession;
(l) Taxes, fees, or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving of thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine
product actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprise and Cooperatives duly
registered under R.A. No. 6810 and Republic Act
Numbered Sixty nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperative Code of
the Philippines; and
 (o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or
charges" referred to are "of any kind", hence they include all of these, unless
otherwise provided by the LGC. The term "taxes" is well understood so as to need
no further elaboration, especially in the light of the above enumeration. The term
"fees" means charges fixed by law or Ordinance for the regulation or inspection of
business activity,24 while "charges" are pecuniary liabilities such as rents or fees
against person or property.25
Among the "taxes" enumerated in the LGC is real property tax, which is governed
by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or city or a
municipality within the Metropolitan Manila Area may levy on an
annual ad valorem tax on real property such as land, building, machinery
and other improvements not hereafter specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions therefrom granted to natural and
juridical persons, including government owned and controlled corporations, except
as provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof had been granted, for
reconsideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenants thereto, mosques nonprofits
or religious cemeteries and all lands, building and
improvements actually, directly, and exclusively used
for religious charitable or educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts
and government-owned or controlled corporations
engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and;
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemptions from
payment of real property tax previously granted to or
presently enjoyed by, all persons whether natural or
juridical, including all government owned or
controlled corporations are hereby withdrawn upon
the effectivity of his Code.
These exemptions are based on the ownership, character, and use of the property.
Thus;
(a) Ownership Exemptions. Exemptions from real
property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province,
(iii) a city, (iv) a municipality, (v) a barangay, and (vi)
registered cooperatives.
(b) Character Exemptions. Exempted from real
property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of
prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non profit or
religious cemeteries.
(c) Usage exemptions. Exempted from real property
taxes on the basis of the actual, direct and
exclusive use to which they are devoted are: (i) all
lands buildings and improvements which are actually,
directed and exclusively used for religious, charitable
or educational purpose; (ii) all machineries and
equipment actually, directly and exclusively used or
by local water districts or by government-owned or
controlled corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power; and (iii) all machinery
and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the modernization
of the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments.
 2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons
including government-owned or controlled
corporations are withdrawn upon the effectivity of
the Code.26
Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this code, tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including
government-owned, or controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non stock and non
profit hospitals and educational constitutions, are hereby withdrawn
upon the effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local
government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they
may deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the taxing
powers of local government units and the exceptions to such limitations; and (b)
the rule on tax exemptions and the exceptions thereto. The use of exceptions of
provisos in these section, as shown by the following clauses:
(1) "unless otherwise provided herein" in the opening
paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in
section 193;
(3) "not hereafter specifically exempted" in Section
232; and
(4) "Except as provided herein" in the last paragraph
of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded. Instead of
the clause "unless otherwise provided herein," with the "herein" to mean, of
course, the section, it should have used the clause "unless otherwise provided in
this Code." The former results in absurdity since the section itself enumerates what
are beyond the taxing powers of local government units and, where exceptions
were intended, the exceptions were explicitly indicated in the text. For instance, in
item (a) which excepts the income taxes "when livied on banks and other financial
institutions", item (d) which excepts "wharfage on wharves constructed and
maintained by the local government until concerned"; and item (1) which excepts
taxes, fees, and charges for the registration and issuance of license or permits for
the driving of "tricycles". It may also be observed that within the body itself of the
section, there are exceptions which can be found only in other parts of the LGC, but
the section interchangeably uses therein the clause "except as otherwise provided
herein" as in items (c) and (i), or the clause "except as otherwise provided herein"
as in items (c) and (i), or the clause "excepts as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere surplus-ages if the opening
clause of the section were" "Unless otherwise provided in this Code" instead of
"Unless otherwise provided herein". In any event, even if the latter is used, since
under Section 232 local government units have the power to levy real property tax,
except those exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a
general rule, as laid down in Section 133 the taxing powers of local government
units cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of
the National Government, its agencies and instrumentalties, and local government
units"; however, pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia,
"real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or
juridical persons, including government-owned and controlled corporations,
Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon
the effectivity of the LGC, except upon the effectivity of the LGC, except those
granted to local water districts, cooperatives duly registered under R.A. No. 6938,
non stock and non-profit hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could refer to Section 234, which
enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption in so far as the real
property taxes are concerned by limiting the retention only to those enumerated
there-in; all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as the real property is owned by the
Republic of the Philippines, or any of its political subdivisions covered by item (a) of
the first paragraph of Section 234, the exemption is withdrawn if the beneficial use
of such property has been granted to taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to natural or
juridical persons, including government-owned or controlled corporations, except
as provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted
it in Section 14 of its charter, R.A. No. 6958, has been withdrawn. Any claim to the
contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the
taxing powers of the local government units cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on the National
Government, its agencies, or instrumentalities, and
local government units.
I must show that the parcels of land in question, which are real property, are any
one of those enumerated in Section 234, either by virtue of ownership, character,
or use of the property. Most likely, it could only be the first, but not under any
explicit provision of the said section, for one exists. In light of the petitioner's
theory that it is an "instrumentality of the Government", it could only be within be
first item of the first paragraph of the section by expanding the scope of the terms
Republic of the Philippines" to embrace . . . . . . "instrumentalities" and "agencies"
or expediency we quote:
(a) real property owned by the Republic of the
Philippines, or any of the Philippines, or any of its
political subdivisions except when the beneficial use
thereof has been granted, for consideration or
otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and in the second place it fails to consider
the fact that the legislature used the phrase "National Government, its agencies
and instrumentalities" "in Section 133(o),but only the phrase "Republic of the
Philippines or any of its political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government of the
Republic of the Philippines" which the Administrative Code of the 1987 defines as
the "corporate governmental entity though which the functions of the government
are exercised through at the Philippines, including, saves as the contrary appears
from the context, the various arms through which political authority is made
effective in the Philippines, whether pertaining to the autonomous reason, the
provincial, city, municipal or barangay subdivision or other forms of local
government."27 These autonomous regions, provincial, city, municipal or barangay
subdivisions" are the political subdivision.28
On the other hand, "National Government" refers "to the entire machinery of the
central government, as distinguished from the different forms of local
Governments."29 The National Government then is composed of the three great
departments the executive, the legislative and the judicial.30
An "agency" of the Government refers to "any of the various units of the
Government, including a department, bureau, office instrumentality, or
government-owned or controlled corporation, or a local government or a distinct
unit therein;"31 while an "instrumentality" refers to "any agency of the National
Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy; usually through a
charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations".32
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said
section to the agencies and instrumentalities of the National Government
mentioned in Section 133(o), then it should have restated the wording of the latter.
Yet, it did not Moreover, that Congress did not wish to expand the scope of the
exemption in Section 234(a) to include real property owned by other
instrumentalities or agencies of the government including government-owned and
controlled corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property
Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. — The exemption shall be as
follows:
(a) Real property owned by the
Republic of the Philippines or any
of its political subdivisions and
any government-owned or
controlled corporations so
exempt by is charter: Provided,
however, that this exemption shall
not apply to real property of the
above mentioned entities the
beneficial use of which has been
granted, for consideration or
otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any government-
owned or controlled corporation so exempt by its charter" was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to limit
further tax exemption privileges, specially in light of the general provision on
withdrawal of exemption from payment of real property taxes in the last paragraph
of property taxes in the last paragraph of Section 234. These policy considerations
are consistent with the State policy to ensure autonomy to local governments33 and
the objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.34 The power to
tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises, and there was a need for this
entities to share in the requirements of the development, fiscal or otherwise, by
paying the taxes and other charges due from them.35
The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has been
granted to the petitioner, and (b) whether the petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing
public airport facilities, runways, lands, buildings and other properties,
movable or immovable, belonging to or presently administered by the
airports, and all assets, powers, rights, interests and privileges relating on
airport works, or air operations, including all equipment which are
necessary for the operations of air navigation, acrodrome control towers,
crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control center
shall be retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation Office from Mactan
without the concurrence of the authority. The authority may assist in the
maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan
International AirPort in the Province of Cebu",36 which belonged to the Republic of
the Philippines, then under the Air Transportation Office (ATO).37
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City
then administered by the Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real property taxes. This section
involves a "transfer" of the "lands" among other things, to the petitioner and not
just the transfer of the beneficial use thereof, with the ownership being retained by
the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof
because the petitioner's authorized capital stock consists of, inter alia "the value of
such real estate owned and/or administered by the airports."38 Hence, the
petitioner is now the owner of the land in question and the exception in Section
234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person" under
its Charter. It was only exempted from the payment of real property taxes. The
grant of the privilege only in respect of this tax is conclusive proof of the legislative
intent to make it a taxable person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of
real property tax, in light of the forgoing disquisitions, it had already become even
if it be conceded to be an "agency" or "instrumentality" of the Government, a
taxable person for such purpose in view of the withdrawal in the last paragraph of
Section 234 of exemptions from the payment of real property taxes, which, as
earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco
vs. Philippine Amusement and Gaming Corporation39 is unavailing since it was
decided before the effectivity of the LGC. Besides, nothing can prevent Congress
from decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt
its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order of
the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing
of its constitutional infirmity. The assailed provision further amends Section 21 of the
National Internal Revenue Code of 1977, which provides for rates of tax on citizens or
residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other monetary benefit
from deposit substitutes and from trust fund and similar arrangements, (e) dividends and
share of individual partner in the net profits of taxable partnership, (f) adjusted gross
income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from
the exercise of his profession vis-a-visthose which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class
legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process clauses 6 of the Constitution as
well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within
10 days from notice. Such an answer, after two extensions were granted the Office of the
Solicitor General, was filed on May 28, 1982. 8The facts as alleged were admitted but not the
allegations which to their mind are "mere arguments, opinions or conclusions on the part of
the petitioner, the truth [for them] being those stated [in their] Special and Affirmative
Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the
State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do
not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of
merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason
was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be
left to private enterprise and initiative and which the government was called upon to enter
optionally, and only 'because it was better equipped to administer for the public welfare than
is any private individual or group of individuals,' continue to lose their well-defined
boundaries and to be absorbed within activities that the government must undertake in its
sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the
need for more revenues. The power to tax, an inherent prerogative, has to be availed of to
assure the performance of vital state functions. It is the source of the bulk of public funds. To
praphrase a recent decision, taxes being the lifeblood of the government, their prompt and
certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to be
admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions.
The Constitution sets forth such limits . Adversely affecting as it does properly rights, both
the due process and equal protection clauses inay properly be invoked, all petitioner does, to
invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be
truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power
to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after
referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free use of
absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality
spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess
pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides
any legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision — as petitioner here alleges — fails to
abide by its command, then this Court must so declare and adjudge it null. The injury thus is
centered on the question of whether the imposition of a higher tax rate on taxable net
income derived from business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision as
void or its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine that were the due process and equal protection clauses are invoked, considering
that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be
shown to amount to the confiscation of property. That would be a clear abuse of power. It
then becomes the duty of this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for the application of the Holmes
dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction
of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a
denial of this constitutional mandate whether the assailed act is in the exercise of the lice
power or the power of eminent domain is to demonstrated that the governmental act
assailed, far from being inspired by the attainment of the common weal was prompted by
the spirit of hostility, or at the very least, discrimination that finds no support in reason. It
suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and
undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumtances which if not Identical are analogous. If law
be looked upon in terms of burden or charges, those that fall within a class should be treated
in the same fashion, whatever restrictions cast on some in the group equally binding on the
rest." 20 That same formulation applies as well to taxation measures. The equal protection
clause is, of course, inspired by the noble concept of approximating the Ideal of the laws
benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the Idea of law. There is, however,
wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the
'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment
enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not
relate to abstract units A, B and C, but are expressions of policy arising out of specific
difficulties, address to the attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz
V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: "The rule of taxation shag be uniform and equitable." 24 This requirement is met
according to Justice Laurel in Philippine Trust Company v. Yatco,25 decided in 1940, when the
tax "operates with the same force and effect in every place where the subject may be found.
" 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable." 27 The problem of classification did not present
itself in that case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by Justice
Tuason, where "the differentiation" complained of "conforms to the practical dictates of
justice and equity" it "is not discriminatory within the meaning of this clause and is therefore
uniform." 29 There is quite a similarity then to the standard of equal protection for all that is
required is that the tax "applies equally to all persons, firms and corporations placed in
similar situation."30
8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal objection to
a broader tax base or taxable income by eliminating all deductible items and at the same
time reducing the applicable tax rate. Taxpayers may be classified into different categories.
To repeat, it. is enough that the classification must rest upon substantial distinctions that
make real differences. In the case of the gross income taxation embodied in Batas Pambansa
Blg. 135, the, discernible basis of classification is the susceptibility of the income to the
application of generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class. As there is practically no
overhead expense, these taxpayers are e not entitled to make deductions for income tax
purposes because they are in the same situation more or less. On the other hand, in the case
of professionals in the practice of their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It would not be just then to disregard
the disparities by giving all of them zero deduction and indiscriminately impose on all alike
the same tax rates on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to compensation income,
while continuing the system of net income taxation as regards professional and business
income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the
(1) lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2)
the force of controlling doctrines on due process, equal protection, and uniformity in
taxation and (3) the reasonableness of the distinction between compensation and taxable
net income of professionals and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION,
CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly
on behalf of other videogram operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board"
with broad powers to regulate and supervise the videogram industry (hereinafter briefly
referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect
on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree,
Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter
alia:
 SEC. 134. Video Tapes. — There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject
to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the Intervenors, were permitted
by the Court to intervene in the case, over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their rights and that their "survival
and very existence is threatened by the unregulated proliferation of film piracy." The
Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as
follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including,
among others, videotapes, discs, cassettes or any technical improvement or
variation thereof, have greatly prejudiced the operations of moviehouses and
theaters, and have caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales, contractor's
specific, amusement and other taxes, thereby resulting in substantial losses
estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million
per annum from rentals, sales and disposition of videograms, and such earnings
have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also
affected the viability of the movie industry, particularly the more than 1,200 movie
houses and theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for
the Government to create an environment conducive to growth and development
of all business industries, including the movie industry which has an accumulated
investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not
only alleviate the dire financial condition of the movie industry upon which more
than 75,000 families and 500,000 workers depend for their livelihood, but also
provide an additional source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the
youth, and impairs the mandate of the Constitution for the State to support the
rearing of the youth for civic efficiency and the development of moral character
and promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to
curb these blatant malpractices which have flaunted our censorship and copyright
laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of
the people and betraying the national economic recovery program, bold
emergency measures must be adopted with dispatch; ... (Numbering of paragraphs
supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to
the local government is a RIDER and the same is not germane to the subject matter
thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of
trade in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast
powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is
not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall
be expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive
enough to include the general purpose which a statute seeks to achieve. It is not necessary
that the title express each and every end that the statute wishes to accomplish. The
requirement is satisfied if all the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title. 2An act having a single general subject, indicated in the title,
may contain any number of provisions, no matter how diverse they may be, so long as they
are not inconsistent with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of carrying out the
general object." 3 The rule also is that the constitutional requirement as to the title of a bill
should not be so narrowly construed as to cripple or impede the power of legislation. 4 It
should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE
is a rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding
any provision of law to the contrary, the province shall collect a tax of thirty
percent (30%) of the purchase price or rental rate, as the case may be, for every
sale, lease or disposition of a videogram containing a reproduction of any motion
picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the other fifty percent (50%) shall acrrue
to the municipality where the tax is collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as expressed in its title. The tax provision
is not inconsistent with, nor foreign to that general subject and title. As a tool for
regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to include taxation of the video industry in
order to regulate and rationalize the heretofore uncontrolled distribution of videograms is
evident from Preambles 2 and 5, supra. Those preambles explain the motives of the
lawmaker in presenting the measure. The title of the DECREE, which is the creation of the
Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in
its Preamble and reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does
not cease to be valid merely because it regulates, discourages, or even definitely deters the
activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises it. 9 In
imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby depriving the Government of an
additional source of revenue. It is an end-user tax, imposed on retailers for every videogram
they make available for public viewing. It is similar to the 30% amusement tax imposed or
borne by the movie industry which the theater-owners pay to the government, but which is
passed on to the entire cost of the admission ticket, thus shifting the tax burden on the
buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need
for regulating the video industry, particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of pornographic video tapes.
And while it was also an objective of the DECREE to protect the movie industry, the tax
remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the state's
police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the
DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing
that "whenever in the judgment of the President ... , there exists a grave emergency or a
threat or imminence thereof, or whenever the interim Batasang Pambansa or the regular
National Assembly fails or is unable to act adequately on any matter for any reason that in his
judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the
land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas"
clause sufficiently summarizes the justification in that grave emergencies corroding the moral
values of the people and betraying the national economic recovery program necessitated
bold emergency measures to be adopted with dispatch. Whatever the reasons "in the
judgment" of the then President, considering that the issue of the validity of the exercise of
legislative power under the said Amendment still pends resolution in several other cases, we
reserve resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit
the direct assistance of other agencies and units of the government and deputize, for a fixed
and limited period, the heads or personnel of such agencies and units to perform
enforcement functions for the Board" is not a delegation of the power to legislate but merely
a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law,
which necessarily involves a discretion as to what it shall be, and conferring authority or
discretion as to its execution to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very
language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed
and limited period" with the deputized agencies concerned being "subject to the direction
and control of the BOARD." That the grant of such authority might be the source of graft and
corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among
other categories, one which "alters the legal rules of evidence, and authorizes conviction
upon less or different testimony than the law required at the time of the commission of the
offense." It is petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-
five (45) days after the effectivity of this Decree within which to register with and
secure a permit from the BOARD to engage in the videogram business and to
register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they
could be sold, leased, or otherwise disposed of. Thereafter any videogram found in
the possession of any person engaged in the videogram business without the
required proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for private
showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required
proof of registration of any videogram cannot be presented and thus partakes of the nature
of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of
Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a
law providing that the presumption of innocence may be overcome by a contrary
presumption founded upon the experience of human conduct, and enacting what
evidence shall be sufficient to overcome such presumption of innocence" (People
vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that
when certain facts have been proved that they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof provided there
be a rational connection between the facts proved and the ultimate facts presumed
so that the inference of the one from proof of the others is not unreasonable and
arbitrary because of lack of connection between the two in common
experience". 16
Applied to the challenged provision, there is no question that there is a rational connection
between the fact proved, which is non-registration, and the ultimate fact presumed which is
violation of the DECREE, besides the fact that the prima facie presumption of violation of the
DECREE attaches only after a forty-five-day period counted from its effectivity and is,
therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and
being eased out of existence as if it were a nuisance. Being a relatively new industry, the
need for its regulation was apparent. While the underlying objective of the DECREE is to
protect the moribund movie industry, there is no question that public welfare is at bottom of
its enactment, considering "the unfair competition posed by rampant film piracy; the erosion
of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical attendance, not
to mention the fact that the activities of video establishments are virtually untaxed since
mere payment of Mayor's permit and municipal license fees are required to engage in
business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the
video industry. On the contrary, video establishments are seen to have proliferated in many
places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and
expediency of the DECREE. These considerations, however, are primarily and exclusively a
matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may
be the basis for declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective authority of
each department and confined its jurisdiction to such a sphere. There would then
be intrusion not allowable under the Constitution if on a matter left to the
discretion of a coordinate branch, the judiciary would substitute its own. If there be
adherence to the rule of law, as there ought to be, the last offender should be
courts of justice, to which rightly litigants submit their controversy precisely to
maintain unimpaired the supremacy of legal norms and prescriptions. The attack
on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a
challenged statute. We find no clear violation of the Constitution which would justify us in
pronouncing Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs. SO ORDERED.