MANILA ELECTRIC COMPANY v.

PROVINCE OF
LAGUNA
May 5, 1999
Vitug, J.

SUMMARY: Certain municipalities in Laguna imposed franchise tax on MERALCO, pursuant to the
enactment of the LGC, which the latter paid under protest. The provincial treasurer denied the companys
request for refund and the RTC likewise dismissed its complaint. MERALCO contends that the tax it paid
under PD 551 already includes franchise tax. The SC ruled that the LGC withdrew all provisions granting tax
exemptions which are not contractual in nature.
DOCTRINE: Local governments do not have the inherent power to tax except to the extent that such power
might be delegated to them either by the basic law or by statute. Presently, Sec. 3 and 5, Art. 10 of the 1987
Consti, a general delegation of that power has been given to the LGUs. Under the now
prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory limitations and guidelines.

Mactan Cebu Intl Airport Authority v. Marcos

September 11, 1996
Davide, Jr., J.

SUMMARY: The City of Cebu, through the Office of the Treasurer, demanded payment of real property taxes
on seven parcels of land owned by MCIAA. MCIAA naturally objected, citing its charter that exempted it from
the payment of realty taxes. It also cited the LGC of 1991 which puts limitations on the taxing powers of
LGUs. The City of Cebu, for its part, claimed that the MCIAA was a GOCC whose tax exemption had already
been withdrawn by the LGC that took effect on 1992. The SC agreed with the City of Cebus contentions,
ruling that the MCIAA was not an instrumentality as it claimed to be but rather a GOCC whose exemption
has been withdrawn by the LGC that took effect on 1992.
DOCTRINE: 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.
xxx
Tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. x x x
[T]he law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed
strictissimi juris against the taxpayer and liberally in favor of the taxing authority. x x x [T]axation is the rule,
exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is
merely to reduce the amount of money that has to be handled by the government in the course of its
operations
xxx
The taxing powers of LGUs cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the
National Government, its agencies and instrumentalities, and local government units. However, pursuant to
Sec. 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real property

tax except on, inter alia, real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person, as provided in item (a) of the first paragraph of Sec. 234.

ILOILO BOTTLERS vs. ILOILO CITY

August 19, 1988
Justice Cortes

SUMMARY: Iloilo Bottlers, Inc. is in the business of bottling Pepsi soft drinks and selling them to customers.
Its bottling plant used to be located in Iloilo City but eventually transferred to the Municipality of Pavia.
Iloilo City passed a Tax Ordinance levying a tax on entities engaged in the distribution, manufacturing and
bottling of soft drinks. Iloilo Bottlers used to pay taxes when its plant was still in Iloilo City but stopped
paying them when it transferred to Pavia. Now, Iloilo City demanded compliance with the Ordinance. Iloilo
Bottlers paid under protest and filed an action for recovery of the amount it paid. The CFI ruled in favor of
Iloilo Bottlers. The CA certified the case to the SC. The Court held that Iloilo Bottlers is liable under the
Ordinance for being engaged in the separate business of selling soft drinks within Iloilo City through its fleet
of trucks which was characterized by the Court as rolling stores.
DOCTRINE: Territoriality of Situs of Taxation
The tax imposed under the Ordinance is an excise tax. It is a tax on the privilege of distributing,
manufacturing or bottling soft drinks. Being an excise tax, it can be levied by the taxing authority only when
the acts, privileges or businesses are done or performed within the jurisdiction of said authority.
Specifically, the situs of the act of distributing, bottling or manufacturing soft drinks must be within city
limits, before an entity engaged in any of the activities may be taxed in that particular city.