POWER OF TAXATION

Basco v. PAGCOR
G.R. No. 91649, May 14, 1991
FACTS:
On July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and
centralize all games of chance authorized by existing franchise or permitted by law. Petitioners
contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and
legal fees, and that the exemption clause in P.D. 1869 is violative of the principle of local autonomy.
Section 13 par. (2) of P.D. 1869 exempts PAGCOR, as the franchise holder, from paying any "tax of
any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local."

ISSUE:
Whether or not a Local Government Unit (LGU) can tax an instrumentality of the National
Government.

RULING:
No, LGUs have no power to tax instrumentalities of the National Government. A local government
does not have the inherent power to tax. The Charter or statute must plainly show an intent to
confer that power or the municipality cannot assume it. Its power to tax therefore must always
yield to a legislative act which is superior having passed upon by the state itself which has the
inherent power to tax.
Municipal corporations are mere creatures of Congress, which can create and abolish municipal
corporations due to its general legislative powers. Congress, therefore, has the power of control over
Local governments. If Congress can grant the power to tax certain matters, it can also provide for
exemptions or even take back the power. The power of local government to "impose taxes and fees"
is always subject to "limitations" which Congress may provide by law.

Pimentel, Jr. v. Hon. Aguirre

G.R. No. 132988, July 19, 2000
FACTS:
On December 27, 1997, AO 372 was issued providing that the amount equivalent to 10% of the
internal revenue allotment to local government units shall be withheld. Subsequently, on December
10, 1998, AO 43 amended Section 4 of AO 372, by reducing to 5% the amount of internal revenue
allotment (IRA) to be withheld from the LGUs.
Petitioner contends that the President, in issuing AO 372, was in effect exercising the power
of control over LGUs. The Constitution vests in the President, however, only the power of general
supervision over LGUs, consistent with the principle of local autonomy. Petitioner further argues that
the directive to withhold ten percent (10%) of their IRA is in contravention of Section 286 of the Local
Government Code and of Section 6, Article X of the Constitution, providing for the automatic
release to each of these units its share in the national internal revenue.
The respondents claim that AO 372 was issued to alleviate the "economic difficulties brought about
by the peso devaluation" and constituted merely an exercise of the President's power of supervision
over LGUs. It allegedly does not violate local fiscal autonomy, because it merely directs local
governments to identify measures that will reduce their total expenditures for non-personal services
by at least 25 percent. Likewise, the withholding of 10 percent of the LGUs IRA does not violate the

statutory prohibition on the imposition of any lien or holdback on their revenue shares, because such
withholding is "temporary in nature pending the assessment and evaluation by the Development
Coordination Committee of the emerging fiscal situation."

ISSUE:
Whether or not: (a) Section 1 of AO 372, insofar as it "directs" LGUs to reduce their expenditures by
25 percent; and (b) Section 4 of the same issuance, which withholds 10 percent of their internal
revenue allotments, are valid exercises of the President's power of general supervision over local
governments.

RULING:
Yes, Section 1 of AO 372 is a valid exercise of the Presidents power of general supervision over local
governments. The provision is merely an advisory to prevail upon local executives to recognize the
need for fiscal restraint in a period of economic difficulty While the wordings of Section 1 of AO 372
have a rather commanding tone, the directive to "identify and implement measures x x x that will
reduce total expenditures x x x by at least 25% of authorized regular appropriation" is merely
advisory in character, and does not constitute a mandatory or binding order that interferes with local
autonomy. No legal sanction may be imposed upon LGUs and their officials who do not follow such
advice.
Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the national internal revenue. This is mandated by no
less than the Constitution. The Local Government Code[ specifies further that the release shall be
made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not
be subject to any lien or holdback that may be imposed by the national government for whatever
purpose." As a rule, the term "shall" is a word of command that must be given a compulsory
meaning. The provision is, therefore, imperative.
Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the
LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating
Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the
Constitution and the law. Although temporary, it is equivalent to a holdback, which means
"something held back or withheld, often temporarily." Hence, the "temporary" nature of the retention
by the national government does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis,
Section 4 thereof has no color of validity at all.

Province of Batangas v. Hon. Romulo

G.R. No. 152774, May 27, 2004
FACTS:
Petitioner alleges that the provisos in the General Appropriations Acts of 1999, 2000, 2001, relating
to the Local Government Service Equalization Fund (LGSEF) as unconstitutional and void. Similarly
assailed are the Oversight Committee's Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006,
OCD-2000-023, OCD-2001-029 and OCD-2002-001 issued pursuant thereto. The petitioner submits
that the assailed provisos in the GAAs and the OCD resolutions, insofar as they earmarked the
amount of five billion pesos of the IRA of the LGUs for 1999, 2000 and 2001 for the LGSEF and
imposed conditions for the release thereof, violate the Constitution and the Local Government Code
of 1991.

Respondents contend that the assailed provisos and resolutions issued by the Oversight Committee
are not constitutionally infirm, alleging that the constitutional phrase "as determined by law" means
that there exists no limitation on the power of Congress to determine what is the "just share" of the
LGUs in the national taxes. In other words, Congress is the arbiter of what should be the "just share"
of the LGUs in the national taxes. They further theorize that Section 285 of the Local Government
Code of 1991 was not intended to be a fixed determination of their "just share" in the national taxes.
Congress may enact other laws, including appropriations laws such as the GAAs of 1999, 2000 and
2001, providing for a different sharing formula. Section 285 of the Local Government Code of 1991
was merely intended to be the "default share" of the LGUs to do away with the need to determine
annually by law their "just share." However, the LGUs have no vested right in a permanent or fixed
percentage as Congress may increase or decrease the "just share" of the LGUs in accordance with
what it believes is appropriate for their operation. There is nothing in the Constitution which prohibits
Congress from making such determination through the appropriations laws. If the provisions of a
particular statute, the GAA in this case, are within the constitutional power of the legislature to enact,
they should be sustained whether the courts agree or not in the wisdom of their enactment.

ISSUE:
Whether or not the assailed provisos contained in the GAAs of 1999, 2000 and 2001, and the OCD
resolutions infringe the Constitution and the Local Government Code of 1991.

RULING:
Yes, the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions infringe the
Constitution and the Local Government Code of 1991.
The provisos violate the constitutional precept on local autonomy. The entire process involving the
distribution and release of the LGSEF is constitutionally impermissible. The LGSEF is part of the IRA or
"just share" of the LGUs in the national taxes. To subject its distribution and release to the vagaries of
the implementing rules and regulations, including the guidelines and mechanisms unilaterally
prescribed by the Oversight Committee from time to time, as sanctioned by the assailed provisos in
the GAAs of 1999, 2000 and 2001 and the OCD resolutions, makes the release not automatic, a
flagrant violation of the constitutional and statutory mandate that the "just share" of the LGUs "shall
be automatically released to them." The LGUs are, thus, placed at the mercy of the Oversight
Committee.
Further, the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions cannot
amend Section 285 of the Local Government Code of 1991. The contentions that the Constitution
does not specify that the "just share" of the LGUs shall only be determined by the Local Government
Code of 1991, and that it is within the power of Congress to enact other laws, including the GAAs, to
increase or decrease the "just share" of the LGUs, are untenable. The Local Government Code of
1991 is a substantive law. While it is conceded that Congress may amend any of the provisions
therein, it may not do so through appropriations laws or GAAs. Any amendment to the Local
Government Code of 1991 should be done in a separate law, not in the appropriations law, because
Congress cannot include in a general appropriation bill matters that should be more properly enacted
in a separate legislation.
Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing therein, which are
fixed in the Local Government Code of 1991, are matters of general and substantive law. To permit
Congress to undertake these amendments through the GAAs would be to give Congress the
unbridled authority to unduly infringe the fiscal autonomy of the LGUs, and thus put the same in
jeopardy every year. This, the Court cannot sanction.

Yamane v. Ba Lepanto Condominium Corporation

G.R. No. 154993, October 25, 2005
FACTS:

On 15 December 1998, the Ba Lepanto Condominium Corporation received a Notice of Assessment

from the City Treasurer., stating that the Corporation is "liable to pay the correct city business taxes,
fees and charges," computed as totaling P1,601,013.77 for the years 1995 to 1997. The Corporation
responded with a written tax protest showing perplexity on the statutory basis of the tax assessment.
The protest was rejected by the City Treasurer, insisting that the collection of dues from the unit
owners was effected primarily "to sustain and maintain the expenses of the common areas, with the
end in view of getting full appreciative living values for the individual condominium occupants and to
command better marketable prices for those occupants" who would in the future sell their respective
units.
The Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati, which dismissed the
appeal for lack of merit, concluding that the activities of the Corporation fell squarely under the
definition of "business" under Section 13(b) of the Local Government Code, and thus subject to local
business taxation. The Corporation then filed a Petition for Review with the Court of Appeals which
was dismissed outright on the ground that only decisions of the RTC brought on appeal from a first
level court could be elevated for review under the mode of review prescribed under Rule 42.
However, the Corporation pointed out in its Motion for Reconsideration that, under Section 195 of the
Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local
treasurer is to appeal the denial with the court of competent jurisdiction. Persuaded by this
contention, the Court of Appeals reinstated the petition.
On 7 June 2002, the Court of Appeals reversed the RTC and declared that the Corporation was not
liable to pay business taxes to the City of Makati, concluding that the Corporation was not engaged in
profit. For one, it was held that the very statutory concept of a condominium corporation showed that
it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the
common areas in the condominium and to maintain the condominium.
Upon denial of her Motion for Reconsideration, the City Treasurer elevated the present Petition for
Review under Rule 45. It argued that the Corporation is engaged in business, for the dues collected
from the different unit owners is utilized towards the beautification and maintenance of the
Condominium, resulting in "full appreciative living values" for the condominium units which would
command better market prices should they be sold in the future. The City Treasurer likewise avers
that the rationale for business taxes is not on the income received or profit earned by the business,
but the privilege to engage in business. The fact that the Corporation is empowered "to acquire, own,
hold, enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or
personal property" allegedly qualifies "as incident to the fact of [the Corporations] act of engaging in
business.

ISSUE:
Whether or not a local government unit can, under the Local Government Code, impel a
condominium corporation to pay business taxes.

RULING:
No, condominium corporations are generally exempt from local business taxation under the Local
Government Code, irrespective of any local ordinance that seeks to declare otherwise.
Local tax on businesses is authorized under Section 143 of the Local Government Code. The word
"business" itself is defined under Section 131(d) of the Code as "trade or commercial activity
regularly engaged in as a means of livelihood or with a view to profit."
It can be elicited from the Condominium Act that a condominium corporation is precluded by statute
from engaging in corporate activities other than the holding of the common areas, the administration
of the condominium project, and other acts necessary, incidental or convenient to the
accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of

profit, fall within the scope of permissible corporate purposes of a condominium corporation under
the Condominium Act. Even though the Corporation is empowered to levy assessments or dues from
the unit owners, these amounts collected are not intended for the incurrence of profit by the
Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the
maintenance of the Condominium Project
The City Treasurer nonetheless contends that the collection of these assessments and dues are "with
the end view of getting full appreciative living values" for the condominium units, and as a result,
profit is obtained once these units are sold at higher prices. The Court cites with approval the two
counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is
obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if
the unit owner does obtain profit from the sale of the corporation, the owner is already required to
pay capital gains tax on the appreciated value of the condominium unit.
The Court shudders at the thought of upholding tax liability on the basis of the standard of "full
appreciative living values", a phrase that defies statutory explication, commonsensical meaning, the
English language, or even definition from Google. "Full appreciative living values" is nothing but
blather in search of meaning, and to impose a tax hinged on that standard is both arbitrary and
oppressive.
Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of
ownership over personal and real property is limited by its stated corporate purposes, which are by
themselves further limited by the Condominium Act. A condominium corporation, while enjoying such
powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful
profit.

Manila International Airport Authority v. Court of Appeals

G.R. No. 155650, July 20, 2006
FACTS:

Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport Complex
in Paraaque City. As operator of the international airport, MIAA administers the land, improvements
and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600
hectares of land, including the runways and buildings (Airport Lands and Buildings) then under the
Bureau of Air Transportation. The MIAA Charter further provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved
by the President of the Philippines. The Office of the Government Corporate Counsel issued Opinion
No. 061, in which it said that the Local Government Code of 1991 withdrew the exemption for real
estate tax granted to MIAA under Section 21 of the MIAA charter. Therefore, MIAA was held to be
delinquent in paying its taxes. The City of Paraaque levied upon the properties of MIAA, and posted
invitations for public biddings of MIAAs properties. The City of Paraaque averred that Section 193 of
the Local Government code expressly withdrew tax exemptions from government owned and
controlled corporations (GOCCs).

ISSUE:
Whether or not the Airport Lands and Buildings of MIAA are exempt from real estate tax under
existing laws.

RULING:
Yes, MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments. First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local taxation. MIAA is a
government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality; the only difference is that MIAA is
vested with corporate powers. Second, the real properties of MIAA are owned by the Republic of the

Philippines and thus exempt from real estate tax. Section 234(a) of the Local Government Code
exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines.

Spouses Ortega v. City of Cebu

G.R. No. 181562-63, October 02, 2009
FACTS:
The Sangguniang Panglungsod of Cebu City enacted City Ordinance No. 1519 to expropriate land
owned by Spouses Ciriaco and Arminda Ortega for the amount of P3,284,400.00. Pursuant to said
ordinance, Cebu City filed a Complaint for Eminent Domain against the spouses Ortega, which ruled
that Cebu City had the lawful right to take the property. Upon motion of the spouses, the RTC issued
an Order stating that the City Council of Cebu has appropriated the sum of P3,284,400 chargeable to
Account No. 101-8918-334, which is now for execution or garnishment for the same is no longer
exempt from execution. Cebu City filed an Omnibus Motion to Stay Execution, Modification of
Judgment and Withdrawal of the Case, contending that the just compensation is excessive. This
motion and the motion for reconsideration were denied.
The sheriff served a Notice of Garnishment to Philippine Postal Bank, garnishing Cebu Citys bank
deposit therein, which prompted Cebu City to file a Petition for Certiorari before the Court of Appeals.
Cebu City also filed a Motion to Dissolve, Quash or Recall the Writ of Garnishment, contending that
Account No. 101-8918-334 is not an existing bank account, and that the garnishment of Cebu Citys
bank account with Philippine Postal Bank was illegal. This motion and the motion for reconsideration
were denied by the RTC. The Spouses Ortega filed an Ex-Parte Motion to Direct the New Manager of
Philippine Postal Bank to Release to the Sheriff the Garnished Amount, which was granted by the RTC.
Cebu City filed a Motion for Reconsideration, but the same was denied. Hence, Cebu City filed
another Petition with the Court of Appeals.
The Court of Appeals annulled and set aside the RTC Orders insofar as they denied Cebu Citys
Motion to Stay Execution, but, hereby affirmed them insofar as they denied Cebu Citys Motion to
Modify Judgment and Withdraw from the Expropriation Proceedings. Furthermore, the CA also
annulled and set aside the RTCs denial of the Cebu Citys Motion to Dissolve, Quash or Recall the
Writ of Garnishment. Hence, these consolidated appeals by petitioners.

ISSUES:
1. Whether or not the CA erred in affirming the RTCs denial of Cebu Citys Omnibus Motion to Modify
Judgment and to be Allowed to Withdraw from the Expropriation Proceedings.
2. Whether or not the deposit of Cebu City with the Philippine Postal Bank, appropriated for a
different purpose by its Sangguniang Panglungsod, can be subject to garnishment as payment for
the expropriated lot covered by City Ordinance.

RULING:
1. No, the CA did not err in affirming the RTCs Order that the expropriation case had long been final
and executory. Consequently, both the Order of expropriation and the Order fixing just compensation
by the RTC can no longer be modified. In short, Cebu City cannot withdraw from the expropriation
proceedings. A final order sustaining the right to expropriate the property may be appealed by any
party aggrieved thereby. Such appeal, however, shall not prevent the court from determining the just
compensation to be paid.
Expropriation proceedings speak of two stages: (1) Determination of the authority of the plaintiff to
exercise the power of eminent domain and the propriety of its exercise; and (2) Determination of the
just compensation for the property.

An order by the trial court fixing just compensation does not affect a prior order of expropriation. As
applied to the case at bar, Cebu City can no longer ask for modification of the judgment, much less,
withdraw its complaint, after it failed to appeal even the first stage of the expropriation proceedings.
Cebu City is misguided to say that it should be allowed to withdraw its complaint as the just
compensation is too high, and the intended expropriation of the property is dependent on whether
Cebu City would have sufficient funds to pay for the same. It is well-settled in jurisprudence that the
determination of just compensation is a judicial prerogative.
2. No. While the claim of the Spouses Ortega against Cebu City is valid, the RTC cannot, by itself,
order the City Council of Cebu City to enact an appropriation ordinance in order to satisfy its
judgment. The proper remedy is to file a mandamus case against Cebu City in order to compel its
Sangguniang Panglungsod to enact an appropriation ordinance for the satisfaction of the claim. It is
a settled rule that government funds and properties may not be seized under writs of execution or
garnishment to satisfy judgments, based on obvious consideration of public policy.
While the Sangguniang Panglungsod of petitioner enacted Ordinance No. 1519 appropriating the sum
of P3,284,400 as just compensation, such ordinance cannot be considered as a source of authority
for the RTC to garnish Cebu Citys bank account with Philippine Postal Bank, which was already
appropriated for another purpose. Cebu Citys account with Philippine Postal Bank was not
specifically opened for the payment of just compensation nor was it specifically appropriated by
Ordinance No. 1519 for such purpose. Said account, therefore, is exempt from garnishment.

SMART Communications, Inc. v. Municipality of Malvar

G.R. No. 204429, February 18, 2014
FACTS:
Petitioner constructed a telecommunications tower within the territorial jurisdiction of the
Municipality of Malvar. The Municipality passed Ordinance No. 18 regulating the establishment of
special projects. SMART received an assessment letter for P389,950, and a closure notice due to the
alleged arrears in the payment of the assessment.
SMART filed a protest claiming lack of due process in the issuance of the assessment and closure
notice, and assailed the validity of the ordinance. The Municipality denied SMARTs protest, who
subsequently filed an "Appeal/Petition" assailing the validity of Ordinance No. 18. The trial court did
not rule on the legality of Ordinance No. 18, but held that the assessment covering the period prior
to the approval of the ordinance was void, but validated the assessment covering the period
thereafter. The trial court denied the motion for reconsideration.
SMART filed a petition for review with the CTA First Division, and a motion for reconsideration, which
were both denied. The CTA En Banc also affirmed the CTA First Divisions decision and resolution,
and denied the motion for reconsideration. The CTA En Banc dismissed the petition on the ground of
lack of jurisdiction.

ISSUE:
1. Whether or not the CTA En Banc was correct in ruling that it did not have jurisdiction over the
case.
2. Whether or not the imposition of the fees in Ordinance No. 18 is ultra vires.

RULING:
1. Yes, the CTA En Banc correctly dismissed the petition for lack of jurisdiction. RA No. 1125, as
amended by RA No. 9282, created the Court of Tax Appeals which vests the CTA with the exclusive
appellate jurisdiction over "decisions, orders or resolutions of the Regional Trial Courts in local tax

cases xxx." The question now is whether the trial court resolved a local tax case in order to fall
within the ambit of the CTAs appellate jurisdiction. This question, in turn, depends ultimately on
whether the fees imposed under Ordinance No. 18 are in fact taxes. The Court finds that such are
not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the
power to create its own sources of revenues and to levy taxes, fees, and charges xxx. Such taxes,
fees, and charges shall accrue exclusively to the local government."
Consistent with this
constitutional mandate, the LGC grants the taxing powers to each local government unit. The LGC
defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or
property, while the term "fee" means "a charge fixed by law or ordinance for the regulation or
inspection of a business or activity." Since the main purpose of Ordinance No. 18 is to regulate
certain construction activities of the identified special projects, the fees imposed in Ordinance No. 18
are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute
to municipal revenues, this effect is merely incidental. Thus, the fees imposed are not taxes.
2. No, the imposition of the fees in Ordinance No. 18 is not ultra vires. SMART argues that the
Municipality exceeded its power to impose taxes and fees as provided the LGC. SMART maintains that
the mayors permit fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not among
those expressly enumerated in the LGC. It has been established that the fees are not taxes.
Logically, the imposition does not appear in the enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or in the LGC, the Municipality is empowered
to impose taxes, fees and charges, not specifically enumerated in the LGC or taxed under the Tax
Code or other applicable law.
The contention that the Municipality is encroaching on the regulatory powers of the National
Telecommunications Commission (NTC) is untenable. Ordinance No. 18 aims to regulate the "placing,
stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus" within the Municipality. The fees are not
imposed to regulate the administrative, technical, financial, or marketing operations of
telecommunications entities; rather, to regulate the installation and maintenance of physical
structures, which is an exercise of the police power of the Municipality. Clearly, the Municipality does
not encroach on NTCs regulatory powers. The Court likewise rejects SMARTs contention that the
power to fix the fees for the issuance of development permits and locational clearances is exercised
by the Housing and Land Use Regulatory Board (HLURB). Suffice it to state that the HLURB itself
recognizes the local government units power to collect fees related to land use and development.