PHILIPPINE LONG DISTANCE

TELEPHONE COMPANY,
INC., petitioner, vs. CITY OF DAVAO
and ADELAIDA B. BARCELONA, in her
capacity as the City Treasurer of
Davao, respondents.
[G.R. No. 143867. August 22, 2001]
SECOND DIVISION D E C I S I O N
MENDOZA, J.:
This
is
a
petition
for
review
on certiorari under Rule 45 of the 1997
Rules of Civil Procedure of the resolution,
[1]
dated June 23, 2000, of the Regional
Trial Court, Branch 13, Davao City,
affirming the tax assessment of petitioner
and the denial of its claim for tax refund by
the City Treasurer of Davao.
The facts are as follows:
On January 1999, petitioner Philippine
Long Distance Telephone Co., Inc. (PLDT)
applied for a Mayors Permit to operate its
Davao Metro Exchange. Respondent City
of Davao withheld action on the
application pending payment by petitioner
of the local franchise tax in the amount
ofP3,681,985.72 for the first to the fourth
quarter of 1999.[2] In a letter dated May 31,
1999,[3] petitioner
protested
the
assessment of the local franchise tax and
requested a refund of the franchise tax
paid by it for the year 1997 and the first to
the third quarters of 1998. Petitioner
contended that it was exempt from the
payment of franchise tax based on an
opinion of the Bureau of Local Government
Finance (BLGF), dated June 2, 1998, which
reads as follows:
PLDT:
Section 12 of RA 7082 provides as follows:
SEC. 12. The grantee, its successors or
assigns shall be liable to pay the same
taxes on their real estate, buildings, and
personal property, exclusive of this
franchise, as other persons or corporations
are now or hereafter may be required by
law to pay. In addition thereto, the
grantee, its successors or assigns shall pay
a franchise tax equivalent to three percent
(3%) of all gross receipts of the telephone

or other telecommunications businesses

transacted under this franchise by the
grantee, its successors or assigns, and the
said percentage shall be in lieu of all taxes
on this franchise or earnings thereof . . .
It appears that RA 7082 further amending
Act No. 3436 which granted to PLDT a
franchise to install, operate and maintain a
telephone system throughout the
Philippine Islands was approved on August
3, 1991. Section 12 of said franchise,
likewise, contains the in lieu of all taxes
proviso.
In this connection, Section 23 of RA 7925,
quoted hereunder, which was approved on
March 1, 1995, provides for the equality of
treatment in the telecommunications
industry:
SEC. 23. Equality of Treatment in the
Telecommunications Industry. Any
advantage, favor, privilege, exemption, or
immunity granted under existing
franchises, or may hereafter be granted,
shall ipso facto become part of previously
granted telecommunications
franchises and shall be accorded
immediately and unconditionally to the
grantees of such franchises: Provided,
however, That the foregoing shall neither
apply to nor affect provisions of
telecommunications franchises concerning
territory covered by the franchise, the life
span of the franchise, or the type of
service authorized by the franchise.
(Underscoring supplied.)
On the basis of the aforequoted Section 23
of RA 7925, PLDT as a telecommunications
franchise holder becomes automatically
covered by the tax exemption provisions of
RA 7925, which took effect on March 16,
1995.
Accordingly, PLDT shall be exempt from
the payment of franchise and business
taxes imposable by LGUs under Sections
137 and 143 (sic), respectively, of the LGC,
upon the effectivity of RA 7925 on March
16, 1995. However, PLDT shall be liable to
pay the franchise and business taxes on its
gross receipts realized from January 1,

1992 up to March 15, 1995, during which

period PLDT was not enjoying the most
favored clause proviso of RA 7025 (sic).[4]
In a letter dated September 27, 1999,
respondent Adelaida B. Barcelona, City
Treasurer of Davao, denied the protest and
claim for tax refund of petitioner,[5] citing
the legal opinion of the City Legal Officer
of Davao and Art. 10, 1 of Ordinance No.
230, Series of 1991, as amended by
Ordinance No. 519, Series of 1992, which
provides:
Notwithstanding any exemption
granted by any law or other special
law, there is hereby imposed a tax on
businesses enjoying a franchise, at a
rate of Seventy-five percent (75%) of
one percent (1%) of the gross annual
receipts for the preceding calendar
year based on the income or receipts
realized within the territorial
jurisdiction of Davao City.[6]

reasons: (1) it is clear from the wording of

193 of the Local Government Code that
Congress did not intend to exempt any
franchise holder from the payment of local
franchise and business taxes; (2) the
opinion of the Executive Director of the
Bureau of Local Government Finance to the
contrary is not binding on respondents;
and (3) petitioner failed to present any
proof that Globe and Smart were enjoying
local
franchise
and
business
tax
exemptions.
Hence, this petition for review based
on the following grounds:
I. THE LOWER COURT ERRED IN
APPLYING SECTION 137 OF THE
LOCAL GOVERNMENT CODE,
WHICH ALLOWS A CITY TO
IMPOSE A FRANCHISE TAX, AND
SECTION 193 THEREOF, WHICH
PROVIDES FOR WITHDRAWAL
OF
TAX
EXEMPTION
PRIVILEGES.

Petitioner received respondent City

Treasurers order of denial on October 1,
1999. On November 3, 1999, it filed a
petition in the Regional Trial Court of
Davao seeking a reversal of respondent
City Treasurers denial of petitioners
protest and the refund of the franchise tax
paid by it for the year 1998 in the amount
of P2,580,829.23. The petition was filed
pursuant to 195 and 196 of the Local
Government Code (R.A. No. 7160). No
claim for refund of franchise taxes paid in
1997 was made as the same had already
prescribed under 196 of the LGC, which
provides that claims for the refund of taxes
paid under it must be made within two (2)
years from the date of payment of such
taxes.[7]

II. THE LOWER COURT ERRED IN

NOT HOLDING THAT UNDER
PETITIONERS FRANCHISE, AS
IMPLICITLY
AMENDED
AND
EXPANDED BY SECTION 23 OF
REPUBLIC
ACT
NO.
7925
(PUBLIC
TELECOMMUNICATIONS POLICY
ACT), TAKING INTO ACCOUNT
THE FRANCHISES OF GLOBE
TELECOM, INC. AND SMART
COMMUNICATIONS,
INC.,
WHICH
WERE
ENACTED
SUBSEQUENT
TO
THE
LOCAL GOVERNMENT
CODE,
NO FRANCHISE AND BUSINESS
TAXES MAY BE IMPOSED ON
PETITIONER BY RESPONDENT
CITY.

The trial court denied petitioners

appeal and affirmed the City Treasurers
decision. It ruled that the LGC withdrew all
tax exemptions previously enjoyed by all
persons and authorized local government
units to impose a tax on businesses
enjoying
a
franchise
notwithstanding
the
grant
of
tax
exemption to them. The trial court likewise
denied petitioners claim for exemption
under R.A. No. 7925 for the following

III. THE LOWER COURT ERRED IN

NOT GIVING WEIGHT TO THE
RULING OF THE BUREAU OF
LOCAL GOVERNMENT FINANCE
THAT PETITIONER IS EXEMPT
FROM
THE
PAYMENT
OF
FRANCHISE
AND
BUSINESS
TAXES,
AMONG
OTHERS,
IMPOSABLE
BY
LOCAL
GOVERNMENT UNITS UNDER

THE
LOCAL
CODE.

GOVERNMENT

First.
The LGC, which took effect
on January 1, 1992, provides:
SEC. 137. Franchise
Tax. Notwithstanding any exemption
granted by any law or other special law,
the province may impose a tax on
businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts
for the preceding calendar year based on
the incoming receipt, or realized, within its
territorial jurisdiction.
In the case of a newly started business,
the tax shall not exceed one-twentieth
(1/20) of one percent (1%) of the capital
investment. In the succeeding calendar
year, regardless of when the business
started to operate, the tax shall be based
on the gross receipts for the preceding
calendar year, or any fraction thereof, as
provided herein.[8]
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 institutions, are hereby
withdrawn upon the effectivity of this
Code.
The trial court held that, under these
provisions, all exemptions granted to all
persons, whether natural and juridical,
including those which in the future might
be granted, are withdrawn unless the law
granting the exemption expressly states
that the exemption also applies to local
taxes. We disagree. Sec. 137 does not
state
that
it
covers
future
exemptions. In Philippine Airlines, Inc. v.
Edu,[9] where a provision of the Tax Code
enacted on June 27, 1968 (R.A. 5431)
withdrew the exemption enjoyed by PAL, it
was held that a subsequent amendment of
PALs franchise, exempting it from all other

taxes except that imposed by its franchise,

again entitled PAL to exemption from the
date
of
the
enactment
of
such
amendment. The Tax Code provision
withdrawing the tax exemption was not
construed as prohibiting future grants of
exemptions from all taxes.
Indeed, the grant of taxing powers to
local
government
units
under
the
Constitution and the LGC does not affect
the power of Congress to grant exemptions
to certain persons, pursuant to a declared
national policy. The legal effect of the
constitutional grant to local governments
simply means that in interpreting statutory
provisions on municipal taxing powers,
doubts must be resolved in favor of
municipal corporations.[10]
The question, therefore, is whether,
after the withdrawal of its exemption by
virtue of 137 of the LGC, petitioner has
again become entitled to exemption from
local franchise tax. Petitioner answers in
the affirmative and points to 23 of R.A.
No. 7925, in relation to the franchises of
Globe
Telecom
(Globe)
and
Smart
Communications, Inc. (Smart), which
allegedly grant the latter exemption from
local franchise taxes.
To begin with, tax exemptions are
highly disfavored. The reason for this was
explained
by
this
Court
in Asiatic
Petroleum Co. v. Llanes,[11] in which it was
held:
. . . Exemptions from taxation are highly
disfavored, so much so that they may
almost be said to be odious to the law. He
who claims an exemption must be able to
point to some positive provision of law
creating the right. . . As was said by the
Supreme Court of Tennessee in
Memphis vs. U. & P. Bank (91 Tenn., 546,
550), The right of taxation is inherent in
the State. It is a prerogative essential to
the perpetuity of the government; and he
who claims an exemption from the
common burden must justify his claim by
the clearest grant of organic or statute
law. Other utterances equally or more
emphatic come readily to hand from the
highest authority. In Ohio Life Ins. and
Trust Co. vs. Debolt (16 Howard, 416), it

was said by Chief Justice Taney, that the

right of taxation will not be held to have
been surrendered, unless the intention to
surrender is manifested by words too plain
to be mistaken. In the case of the
Delaware Railroad Tax (18 Wallace, 206,
226), the Supreme Court of the United
States said that the surrender, when
claimed, must be shown by clear,
unambiguous language, which will admit
of no reasonable construction consistent
with the reservation of the power. If a
doubt arises as to the intent of the
legislature, that doubt must be solved in
favor of the State. In Erie Railway
Company vs. Commonwealth of
Pennsylvania (21 Wallace, 492, 499), Mr.
Justice Hunt, speaking of exemptions,
observed that a State cannot strip itself of
the most essential power of taxation by
doubtful words. It cannot, by ambiguous
language, be deprived of this highest
attribute of sovereignty. In Tennessee vs.
Whitworth (117 U. S., 129, 136), it was
said: In all cases of this kind the question
is as to the intent of the legislature, the
presumption always being against any
surrender of the taxing power. In
Farrington vs. Tennessee and County of
Shelby (95 U. S., 679, 686), Mr. Justice
Swayne said: . . . When exemption is
claimed, it must be shown indubitably to
exist. At the outset, every presumption is
against it. A well-founded doubt is fatal to
the claim. It is only when the terms of the
concession are too explicit to admit fairly
of any other construction that the
proposition can be supported.
The tax exemption must be expressed
in the statute in clear language that leaves
no doubt of the intention of the legislature
to grant such exemption. And, even if it is
granted,
the
exemption
must
be
interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing
authority.[12]
In the present case, petitioner justifies
its claim of tax exemption by strained
inferences. First, it cites R.A. No. 7925,
otherwise
known
as
the
Public
Telecommunications Policy Act of the
Philippines, 23 of which reads:

SEC. 23. Equality of Treatment in the

Telecommunications Industry. Any
advantage, favor, privilege, exemption, or
immunity granted under existing
franchises, or may hereafter be granted,
shall ipso facto become part of previously
granted telecommunications franchises
and shall be accorded immediately and
unconditionally to the grantees of such
franchises: Provided, however, That the
foregoing shall neither apply to nor affect
provisions of telecommunications
franchises concerning territory covered by
the franchise, the life span of the
franchise, or the type of service authorized
by the franchise.
Petitioner then claims that Smart and
Globe enjoy exemption from the payment
of the franchise tax by virtue of their
legislative franchises per opinion of the
Bureau of Local Government Finance of the
Department of Finance. Finally, it argues
that because Smart and Globe are exempt
from the franchise tax, it follows that it
must likewise be exempt from the tax
being collected by the City of Davao
because the grant of tax exemption to
Smart and Globe ipso facto extended the
same exemption to it.
The acceptance of petitioners theory
would result in absurd consequences. To
illustrate: In its franchise, Globe is
required to pay a franchise tax of only one
and one-half percentum (1%) of all gross
receipts from its transactions while Smart
is required to pay a tax of three percent
(3%) on all gross receipts from business
transacted. Petitioners
theory
would
require that, to level the playing field, any
advantage, favor, privilege, exemption, or
immunity granted to Globe must be
extended
to
all
telecommunications
companies, including Smart. If, later,
Congress again grants a franchise to
another
telecommunications
company
imposing, say, one percent (1%) franchise
tax, then all other telecommunications
franchises will have to be adjusted to
level the playing field so to speak. This
could not have been the intent of Congress
in
enacting
23
of
Rep.
Act
7925. Petitioners theory will leave the
Government with the burden of having to

keep
track
of
all
granted
telecommunications franchises, lest some
companies be treated unequally. It is
different if Congress enacts a law
specifically granting uniform advantages,
favor, privilege, exemption, or immunity to
all telecommunications entities.
The fact is that the term exemption
in 23 is too general. A cardinal rule in
statutory construction is that legislative
intent must be ascertained from a
consideration of the statute as a whole and
not merely of a particular provision. For,
taken in the abstract, a word or phrase
might easily convey a meaning which is
different from the one actually intended. A
general provision may actually have a
limited application if read together with
other provisions.[13] Hence, a consideration
of the law itself in its entirety and the
proceedings of both Houses of Congress is
in order.[14]
Art. I of Rep. Act No. 7925 contains the
general provisions, stating that the Act
shall
be
known
as
the
Public
Telecommunications Policy Act of the
Philippines, and a definition of terms.
[15]
Art. II provides for its policies and
objectives, which is to foster the
improvement
and
expansion
of
telecommunications
services
in
the
country through: (1) the construction of
telecommunications infrastructure and
interconnection facilities, having in mind
the efficient use of the radio frequency
spectrum and extension of basic services
to areas not yet served; (2) fair, just, and
reasonable rates and tariff charges; (3)
stable, transparent, and fair administrative
processes;
(4)
reliance
on
private
enterprise
for
direct
provision
of
telecommunications services; (5) dispersal
of
ownership
of
telecommunications
entities
in
compliance
with
the
constitutional mandate to democratize the
ownership
of
public
utilities;
(6)
encouragement of the establishment of
interconnection with other countries to
provide
access
to
international
communications
highways
and
development of a competitive exportoriented domestic telecommunications
manufacturing
industry;
and
(7)
development of human resources skills

and capabilities to sustain the growth and

development of telecommunications.[16]
Art.
III
provides
for
its
administration. The
operational
and
administrative functions are delegated to
the
National
Telecommunications
Commission (NTC), while policy-making,
research, and negotiations in international
telecommunications matters are left with
the Department of Transportation and
Communications.[17]
Art. IV classifies the categories of
telecommunications entities as: Local
Exchange
Operator,
Inter-Exchange
Carrier, International Carrier, Value-Added
Service Provider, Mobile Radio Services,
and Radio Paging Services.[18] Art. V
provides for the use of other services and
facilities, such as customer premises
equipment, which may be used within the
premises
of
telecommunications
subscribers
subject
only
to
the
requirement that it is type-approved by the
NTC, and radio frequency spectrum, the
assignment of which shall be subject to
periodic review.[19]
Art. VI, entitled Franchise, Rates and
Revenue Determination, provides for the
requirement to obtain a franchise from
Congress and a Certificate of Public
Convenience and Necessity from the NTC
before a telecommunications entity can
begin its operations. It also provides for
the NTCs residual power to regulate the
rates or tariffs when ruinous competition
results or when a monopoly or a cartel or
combination
in
restraint
of
free
competition exists and the rates or tariffs
are distorted or unable to function freely
and the public is adversely affected. There
is also a provision relating to revenue
sharing arrangements between interconnecting carriers.[20]
Art. VII provides for the rights of
telecommunications users.[21]
Art. VIII, entitled Telecommunications
Development, where 23 is found, provides
for
public
ownership
of
telecommunications entities, privatization
of existing facilities, and the equality of
treatment provision.[22]

Art. IX contains the Final Provisions.[23]

R.A. No. 7925 is thus a legislative
enactment designed to set the national
policy on telecommunications and provide
the structures to implement it to keep up
with the technological advances in the
industry and the needs of the public. The
thrust of the law is to promote gradually
the deregulation of the entry, pricing, and
operations
of
all
public
telecommunications entities and thus
promote a level playing field in the
telecommunications industry.[24]There is
nothing in the language of 23 nor in the
proceedings of both the House of
Representatives and the Senate in
enacting R.A. No. 7925 which shows that it
contemplates the grant of tax exemptions
to
all
telecommunications
entities,
including those whose exemptions had
been withdrawn by the LGC.
What this Court said in Asiatic
Petroleum Co. v. Llanes[25] applies mutatis
mutandis to this case: When exemption
is claimed, it must be shown indubitably to
exist. At the outset, every presumption is
against it. A well-founded doubt is fatal to
the claim. It is only when the terms of the
concession are too explicit to admit fairly
of any other construction that the
proposition can be supported. In this
case, the word exemption in 23 of R.A.
No. 7925 could contemplate exemption
from certain regulatory or reporting
requirements, bearing in mind the policy of
the law. It is noteworthy that, in holding
Smart and Globe exempt from local taxes,
the BLGF did not base its opinion on 23
but on the fact that the franchises granted
to them after the effectivity of the LGC
exempted them from the payment of local
franchise and business taxes.
Second. In the case of petitioner, the
BLGF opined that 23 of R.A. No. 7925
amended the franchise of petitioner and in
effect restored its exemptions from local
taxes. Petitioner contends that courts
should not set aside conclusions reached
by the BLGF because its function is
precisely the study of local tax problems
and it has necessarily developed an
expertise on the subject.

To be sure, the BLGF is not an

administrative agency whose findings on
questions of fact are given weight and
deference in the courts. The authorities
cited by petitioner pertain to the Court of
Tax Appeals,[26] a highly specialized court
which performs judicial functions as it was
created for the review of tax cases. [27] In
contrast, the BLGF was created merely to
provide consultative services and technical
assistance to local governments and the
general public on local taxation, real
property assessment, and other related
matters, among others.[28] The question
raised by petitioner is a legal question, to
wit, the interpretation of 23 of R.A. No.
7925. There is, therefore, no basis for
claiming expertise for the BLGF that
administrative agencies are said to
possess in their respective fields.
Petitioner likewise argues that the
BLGF enjoys the presumption of regularity
in the performance of its duty. It does
enjoy this presumption, but this has
nothing to do with the question in this
case. This case does not concern the
regularity of performance of the BLGF in
the exercise of its duties, but the
correctness of its interpretation of a
provision of law.
In sum, it does not appear that, in
approving 23 of R.A. No. 7925, Congress
intended it to operate as a blanket tax
exemption to all telecommunications
entities. Applying the rule of strict
construction
of
laws
granting
tax
exemptions and the rule that doubts
should be resolved in favor of municipal
corporations in interpreting statutory
provisions on municipal taxing powers, we
hold that 23 of R.A. No. 7925 cannot be
considered as having amended petitioners
franchise so as to entitle it to exemption
from the imposition of local franchise
taxes. Consequently,
we
hold
that
petitioner is liable to pay local franchise
taxes in the amount of P3,681,985.72 for
the period covering the first to the fourth
quarter of 1999 and that it is not entitled
to a refund of taxes paid by it for the
period covering the first to the third
quarter of 1998.

WHEREFORE, the petition for review

on certiorari is DENIED and the decision of
the Regional Trial Court, Branch 13, Davao
City is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing,
Buena, and De Leon, Jr., JJ., concur.
[8]

This applies to cities by virtue of the

following provision:
SEC. 151. Scope
of
Taxing
Powers. Except as otherwise provided
in this Code, the city may levy the taxes,
fees, and charges which the province or
municipality
may
impose:Provided,
however, That the taxes, fees, and charges
levied and collected by highly urbanized
and independent component cities shall
accrue to them and distributed in
accordance with the provisions of this
Code.
The rates of taxes that the city may levy
may exceed the maximum rates allowed
for the province or municipality by not
more than fifty percent (50%) except the
rates of professional and amusement
taxes.
PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, INC. (PLDT) vs.
CITY OF DAVAO and ADELAIDA B.
BARCELONA, in her capacity as City
Treasurer of Davao
GR. No. 143867, March 25, 2003
Facts: PLDT paid a franchise tax equal to
three percent (3%) of its gross receipts.
The franchise tax was paid in lieu of all
taxes on this franchise or earnings thereof
pursuant to RA 7082. The exemption from
all taxes on this franchise or earnings
thereof was subsequently withdrawn by
RA 7160 (LGC), which at the same time
gave local government units the power to
tax businesses enjoying a franchise on the
basis of income received or earned by
them within their territorial jurisdiction.
The LGC took effect on January 1, 1992.
The City of Davao enacted Ordinance No.
519, Series of 1992, which in pertinent
part provides: Notwithstanding any
exemption granted by law or other special
laws, there is hereby imposed a tax on

businesses enjoying a franchise, a rate of

seventy-five percent (75%) of one percent
(1%) of the gross annual receipts for the
preceding calendar year based on the
income receipts realized within the
territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of
Globe Mackay Cable and Radio Corporation
(Globe) and Smart Information
Technologies, Inc. (Smart) franchises which
contained in leiu of all taxes provisos.
In 1995, it enacted RA 7925, or the Public
Telecommunication Policy of the
Philippines, Sec. 23 of which provides that
any advantage, favor, privilege,
exemption, or immunity granted under
existing franchises, or may hereafter be
granted, shall ipso facto become part of
previously granted telecommunications
franchises and shall be accorded
immediately and unconditionally to the
grantees of such franchises. The law took
effect on March 16, 1995.
In January 1999, when PLDT applied for a
mayors permit to operate its Davao Metro
exchange, it was required to pay the local
franchise tax which then had amounted to
P3,681,985.72. PLDT challenged the power
of the city government to collect the local
franchise tax and demanded a refund of
what had been paid as a local franchise
tax for the year 1997 and for the first to
the third quarters of 1998.
Issue: Whether or not by virtue of RA 7925,
Sec. 23, PLDT is again entitled to the
exemption from payment of the local
franchise tax in view of the grant of tax
exemption to Globe and Smart.
Held: Petitioner contends that because
their existing franchises contain in lieu of
all taxes clauses, the same grant of tax
exemption must be deemed to have
become ipso facto part of its previously
granted telecommunications franchise. But
the rule is that tax exemptions should be
granted only by a clear and unequivocal
provision of law expressed in a language
too plain to be mistaken and assuming for
the nonce that the charters of Globe and of
Smart grant tax exemptions, then this
runabout way of granting tax exemption to
PLDT is not a direct, clear and
unequivocal way of communicating the

legislative intent.
Nor does the term exemption in Sec. 23
of RA 7925 mean tax exemption. The term
refers to exemption from regulations and
requirements imposed by the National
Telecommunications Commission (NTC).
For instance, RA 7925, Sec. 17 provides:
The Commission shall exempt any specific
telecommunications service from its rate
or tariff regulations if the service has
sufficient competition to ensure fair and
reasonable rates of tariffs. Another
exemption granted by the law in line with
its policy of deregulation is the exemption
from the requirement of securing permits
from the NTC every time a
telecommunications company imports
equipment.
Tax exemptions should be granted only by
clear and unequivocal provision of law on
the basis of language too plain to be
mistaken.

The
CITY
OF
ILOILO, Mr. R
OMEO V. MANIKAN, in his capacity
as the Treasurer of Iloilo City,
Petitioners, VS.
SMART COMMUNICATIONS, INC.
(SMART), Respondent.
G.R. No. 167260
February 27,
2009
SECOND DIVISION D E C I S I O N
BRION, J.:
Before
this
Court
is
the
appeal
by certiorari filed
by
the
City
of Iloilo (petitioner) under Rule 45 of the
Rules of Court seeking to set aside the
decision of the Regional Trial Court (RTC)
of Iloilo City, Branch 28, which declared that
respondent SMART Communications, Inc.
(SMART) is exempt from the payment of
local franchise and business taxes.
BACKGROUND FACTS
The facts of the case are not in
dispute. SMART received a letter of
assessment dated February 12, 2002 from
petitioner requiring it to pay deficiency

local franchise and business taxes (in the

amount of P764,545.29, plus interests and
surcharges) which it incurred for the years
1997 to 2001. SMART protested the
assessment
by
sending
a
letter
dated February 15, 2002 to the City
Treasurer. It claimed exemption from
payment of local franchise and business
taxes based on Section 9 of its legislative
franchise under Republic Act (R.A.) No.
7294 (SMARTs franchise). Under SMARTs
franchise, it was required to pay a franchise
tax equivalent to 3% of all gross receipts,
which amount shall be in lieu of all
taxes. SMART contends that the in lieu of
all taxes clause covers local franchise and
business taxes.
SMART similarly invoked R.A. No.
7925 or the Public Telecommunications
Policy Act (Public Telecoms Act) whose
Section 23 declares that any existing
privilege,
incentive,
advantage,
or
exemption
granted
under
existing
franchises shall ipso facto become part of
previously
granted-telecommunications
franchise. SMART contends that by virtue
of Section 23, tax exemptions granted by
the legislature to other holders of
telecommunications franchise may be
extended to and availed of by SMART.
Through a letter dated April 4, 2002,
petitioner denied SMARTs protest, citing
the failure of SMART to comply with Section
252 of R.A. No. 7160 or the Local
Government Code (LGC) before filing the
protest against the assessment. Section
252 of the LGC requires payment of the tax
before any protest against the tax
assessment can be made.
SMART objected to the petitioners
denial of its protest by instituting a case
against petitioner before the RTC of Iloilo
City.[1] The trial court ruled in favour of
SMART
and
declared
the
telecommunications firm exempt from the
payment of local franchise and business
taxes;[2] it agreed with SMARTs claim of
exemption under Section 9 of its franchise
and Section 23 of the Public Telecoms Act.[3]
From this judgment, petitioner files
this petition for review on certiorari raising

the sole issue of whether SMART is exempt

from the payment of local franchise and
business taxes.

are too explicit to admit

fairly
of
any
other
construction
that
the
proposition
can
be
supported.

THE COURTS RULING

SMART relies on two provisions of
law to support its claim for tax exemption:
Section 9 of SMARTs franchise and Section
23 of the Public Telecoms Act. After a
review of pertinent laws and jurisprudence
particularly of SMART Communications,
Inc. v. City of Davao,[4] a case which,
except for the respondent, involves the
same set of facts and issues we find
SMARTs claim for exemption to be
unfounded. Consequently, we find the
petition meritorious.
The
basic
principle
in
the
construction
of
laws
granting
tax
exemptions has been very stable. As early
as 1916, in the case ofGovernment of the
Philippine Islands v. Monte de Piedad,
[5]
this Court has declared that he who
claims an exemption from his share of the
common burden of taxation must justify
his claim by showing that the Legislature
intended to exempt him by words too plain
to be beyond doubt or mistake. This
doctrine was repeated in the 1926 case
of Asiatic Petroleum v. Llanes,[6] as well as
in the case of Borja v. Commissioner of
Internal Revenue (CIR)[7] decided in 1961.
Citing American jurisprudence, the Court
stated in E. Rodriguez, Inc. v. CIR:[8]
The right of taxation is
inherent in the State. It is a
prerogative essential to the
perpetuity
of
the
government; and he who
claims an exemption from
the common burden, must
justify his claim by the
clearest grant of organic or
statute
law
xxx
When
exemption is claimed, it
must be shown indubitably
to exist. At the outset, every
presumption is against it. A
well-founded doubt is fatal
to the claim; it is only when
the terms of the concession

In
the
recent
case
of Digital
Telecommunications,
Inc.
v.
City
Government of Batangas, et al.,[9] we
adhered to the same principle when we
said:
A tax exemption cannot
arise
from
vague
inference...Tax exemptions
must
be
clear
and
unequivocal. A
taxpayer
claiming a tax exemption
must point to a specific
provision of law conferring
on the taxpayer, in clear and
plain terms, exemption from
a
common
burden. Any
doubt
whether
a
tax
exemption exists is resolved
against the taxpayer.
The burden therefore is on SMART to prove
that, based on its franchise and the Public
Telecoms Act, it is entitled to exemption
from the local franchise and business taxes
being collected by the petitioner.
Claim for Exemption under
SMARTs franchise
Section

of

SMARTs

franchise

states:
Section
9. Tax
provisions. The grantee,
its successors or assigns
shall be liable to pay the
same taxes on their real
estate
buildings
and
personal property, exclusive
of' this franchise, as other
persons
or
corporations
which are now or hereafter
may be required by law to
pay. In addition thereto, the

grantee, its successors

or assigns shall pay a
franchise tax equivalent
to three percent (3%) of
all gross receipts of the
business
transacted
under this franchise by
the
grantee,
its
successors
or
assigns
and the said percentage
shall be in lieu of all
taxes on this franchise or
earnings
thereof: Provided, That the
grantee, its successors or
assigns shall continue to be
liable for income taxes
payable under Title II of the
National Internal Revenue
Code pursuant to Section 2
of Executive Order No. 72
unless the latter enactment
is amended or repealed, in
which case the amendment
or repeal shall be applicable
thereto.
The grantee shall file
the return with and pay the
tax due thereon to the
Commissioner of Internal
Revenue
or
his
duly
authorized representative in
accordance
with
the
National Internal Revenue
Code and the return shall be
subject to audit by the
Bureau
of
Internal
Revenue. [Emphasis
supplied.]
The petitioner posits that SMARTs
claim for exemption under its franchise is
not equivocal enough to prevail over the
specific
grant
of
power
to
local
government units to exact taxes from
businesses operating within its territorial
jurisdiction under Section 137 in relation to
Section 151 of the LGC. More importantly,
it claimed that exemptions from taxation
have already been removed by Section
193 of the LGC:

Section 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 RA No. 6938, nonstock
and
non-profit
hospitals and educational
institutions, are
hereby
withdrawn
upon
the
effectivity
of
this
Code. [Emphasis supplied.]
The petitioner argues, too, that SMARTs
claim for exemption from taxes under
Section 9 of its franchise is not couched in
plain and unequivocal language such that
it restored the withdrawal of tax
exemptions under Section 193 above. It
claims that if Congress intended that the
tax exemption privileges withdrawn by
Section 193 of RA 7160 [LGC] were to be
restored
in
respondents
[SMARTs]
franchise, it would have so expressly
provided therein and not merely [restored
the exemption] by the simple expedient of
including the in lieu of all taxes provision
in said franchise.[10]
We have indeed ruled that by virtue
of Section 193 of the LGC, all tax
exemption privileges then enjoyed by all
persons, save those expressly mentioned,
have been withdrawn effective January 1,
1992 the date of effectivity of the LGC.
[11]
The first clause of Section 137 of the
LGC states the same rule.[12] However, the
withdrawal of exemptions, whether under
Section 193 or 137 of the LGC, pertains
only to those already existing when the
LGC was enacted. The intention of the
legislature was to remove all tax
exemptions or incentives granted prior to
the LGC.[13] As SMARTs franchise was
made effective on March 27, 1992 after

the effectivity of the LGC Section 193 will

therefore not apply in this case.
But while Section 193 of the LGC will
not affect the claimed tax exemption
under SMARTs franchise, we fail to find a
categorical and encompassing grant of tax
exemption to SMART covering exemption
from both national and local taxes:
R.A. No 7294 does not
expressly provide what kind
of taxes SMART is exempted
from. It is not clear whether
the in lieu of all taxes
provision in the franchise of
SMART
would
include
exemption from local or
national taxation. What is
clear is that SMART shall
pay
franchise
tax
equivalent
to
three
percent (3%) of all gross
receipts of the business
transacted
under
its
franchise. But whether
the
franchise
tax
exemption would include
exemption
from
exactions by both the
local and the national
government
is
not
unequivocal.
The uncertainty in the
in lieu of all taxes
clause in R.A. No. 7294
on whether SMART is
exempted from both local
and national franchise
tax must be construed
strictly against SMART
which
claims
the
exemption. [Emphasis
supplied.][14]
Justice Carpio, in his Separate Opinion
in PLDT v. City of Davao,[15] explains why:
The proviso in the first
paragraph of Section 9 of
Smarts franchise states that
the grantee shall continue
to be liable for income taxes
payable under Title II of the

National Internal Revenue

Code. Also, the second
paragraph of Section 9
speaks of tax returns filed
and taxes paid to the
Commissioner of Internal
Revenue
or
his
duly
authorized representative in
accordance
with
the
National Internal Revenue
Code. Moreover, the same
paragraph declares that the
tax returns shall be subject
to audit by the Bureau of
Internal Revenue. Nothing
is mentioned in Section 9
about local taxes. The clear
intent is for the in lieu of all
taxes clause to apply only
to taxes under the National
Internal Revenue Code and
not to local taxes.
Nonetheless, even if Section 9 of
SMARTs franchise can be construed as
covering local taxes as well, reliance
thereon would now be unavailing. The in
lieu of all taxes clause basically exempts
SMART from paying all other kinds of taxes
for as long as it pays the 3% franchise tax;
it is the franchise tax that shall be in lieu of
all taxes, and not any other form of tax.
[16]
Franchise taxes on telecommunications
companies, however, have been abolished
by R.A. No. 7716 or the Expanded ValueAdded Tax Law (E-VAT Law), which was
enacted by Congress on January 1, 1996.
[17]
To replace the franchise tax, the E-VAT
Law imposed a 10%[18] value-added tax on
telecommunications
companies
under
Section 108 of the National Internal
Revenue Code.[19] The in lieu of all taxes
clause in the legislative franchise of SMART
has thus become functus officio, made
inoperative for lack of a franchise tax.[20]
SMARTs claim for exemption from
local business and franchise taxes based
on Section 9 of its franchise is therefore
unfounded.
Claim for Exemption
Under Public Telecoms Act

SMART
additionally
invokes
the equality clause under Section 23

of the Public Telecoms Act:

SECTION
23. Equality of Treatment
in
the
Telecommunications
Industry.

Any
advantage,
favor,
privilege, exemption, or
immunity granted under
existing franchises, or
may
hereafter
be
granted,
shall ipso
facto become
part
of
previously
granted
telecommunications
franchise and shall be
accorded
immediately
and unconditionally to
the grantees of such
franchises:
Provided,
however, That the foregoing
shall neither apply to nor
affect
provisions
of
telecommunications
franchises
concerning
territory covered by the
franchise, the life span of
the franchise, or the type of
service authorized by the
franchise. [Emphasis
supplied.]
As in the case of SMART v. City of Davao,
[21]
SMART posits that since the franchise of
telecommunications companies granted
after the enactment of its franchise
contained provisions exempting these
companies from both national and local
taxes, these privileges should extend to
and benefit SMART, applying the equality
clause above. The petitioner, on the
other hand, believes that the claimed
exemption under Section 23 of the Public
Telecoms Act is similarly unfounded.
We agree with the petitioner.
Whether Section 23 of the cited law
extends tax exemptions granted by
Congress to new franchise holders to
existing ones has been answered in the
negative in the case of PLDT v. City of
Davao.[22] The term exemption in Section

23 of the Public Telecoms Act does not

mean tax exemption; rather, it refers to
exemption from certain regulatory or
reporting
requirements
imposed
by
government agencies such as the National
Telecommunications
Commission. The
thrust of the Public Telecoms Act is to
promote the gradual deregulation of entry,
pricing, and operations of all public
telecommunications entities, and thus to
level
the
playing
field
in
the
telecommunications
industry. The
language
of
Section
23
and
the
proceedings of both Houses of Congress
are bereft of anything that would signify
the grant of tax exemptions to all
telecommunications entities.[23] Intent to
grant tax exemption cannot therefore be
discerned from the law; the term
exemption is too general to include tax
exemption and runs counter to the
requirement that the grant of tax
exemption should be stated in clear and
unequivocal language too plain to be
beyond doubt or mistake.
Surcharge and Interests
Since SMART cannot validly claim
any tax exemption based either on Section
9 of its franchise or Section 23 of the
Public Telecoms Act, it follows that
petitioner can impose and collect the local
franchise and business taxes amounting
to P764,545.29
it
assessed
against
SMART. Aside from these, SMART should
also be made to pay surcharge and
interests on the taxes due.
The settled rule is that good faith
and honest belief that one is not subject to
tax on the basis of previous interpretation
of government agencies tasked to
implement the tax laws are sufficient
justification to delete the imposition of
surcharges and interest.[24] In refuting
liability for the local franchise and business
taxes, we do not believe SMART relied in
good faith in the findings and conclusion of
the Bureau of Local Government and
Finance (BLGF).
In a letter dated August 13, 1998,
the BLGF opined that SMART should be
considered exempt from the franchise tax

that the local government may impose

under Section 137 of the LGC. [25] SMART,
relying on the letter-opinion of the BLGF,
invoked the same in the administrative
protest
it
filed
against
petitioner
on February 15, 2002, as well as in the
petition for prohibition that it filed before
the
RTC
of
Iloilo
on April
30,
2002. However, in the 2001 case of PLDT
v. City of Davao,[26] we declared that we do
not find BLGFs interpretation of local tax
laws
to
be
authoritative
and
persuasive. The BLGFs function is merely
to provide consultative services and
technical
assistance
to
the
local
governments and the general public on
local taxation, real property assessment,
and other related matters.[27] Unlike the
Commissioner of Internal Revenue who has
been given the express power to interpret
the Tax Code and other national tax laws,
[28]
no such power is given to the
BLGF. SMARTs dependence on BLGFs
interpretation was thus misplaced.
WHEREFORE,
we
hereby GRANT the
petition
and REVERSE the decision of the RTC
dated January 19, 2005 in Civil Case No.
02-27144 and find SMART liable to pay the
local franchise and business taxes
amounting
to P764,545.29,
assessed
against it by petitioner, plus the
surcharges and interest due thereon.
SO ORDERED.
ARTURO D.
BRION
Associate
Justice
[12]

Section 137. Franchise

Tax.
Notwithstanding any exemption
granted by any law or other special
law, the province may impose a tax on
businesses enjoying a franchise, at the
rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual
receipts for the preceding calendar year
based on the incoming receipt, or realized

within its territorial jurisdiction. x x x.

[Emphasis supplied.]
[18]
The tax rate is now 12% per R-VAT Law.
[28]
SEC. 4. Power of the Commissioner to
Interpret Tax Laws and to Decide Cases.
The power to interpret the provisions of
this Code [NIRC] and other tax laws shall
be under the exclusive and original
jurisdictions of the Commissioner, subject
to review by the Secretary of Finance.
xxx.
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.
OSMEA, and EUSTAQUIO B.
CESA, respondents.
[G.R. No. 120082. September 11,
1996]
THIRD DIVISION D E C I S I O N
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 1995[1] of the
Regional Trial Court (RTC) of Cebu City,
Branch 20, dismissing the petition for
declaratory relief in Civil Case No. CEB16900,
entitled
Mactan
Cebu
International Airport Authority vs. City of
Cebu,
and
its
order
of 4
May
1995[2]denying the motion to reconsider
the decision.
We resolved to give due course to this
petition for it raises issues dwelling on the
scope of the taxing power of local
government units and the limits of tax
exemption privileges of governmentowned 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, x x x and such other airports as
may be established in the Province of Cebu
x x x (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 formulate
internationally acceptable standards of
airport accommodation and service.
Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption
from payment of realty taxes in
accordance with Section 14 of 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 x x x.
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 exempts 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:

Section 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 barangays shall
not extend to the levy of the following:
a)

xxx
xxx

o) Taxes, fees or charges of any kind on

the National Government, its agencies and
instrumentalities, and local government
units. (underscoring supplied)
Respondent City refused to cancel and set
aside petitioners realty tax account,
insisting that the MCIAA is a governmentcontrolled corporation whose tax
exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of the
Local Government Code that took effect
on January 1, 1992:
Section 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 nonprofit hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this Code. (underscoring
supplied)
xxx
Section 234.
Exemptions from Real
Property Taxes. x x x
(a)

xxx
xxx

(e)

xxx

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.

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).

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
by the very nature of its powers and
functions.

However, RA 7160 expressly provides that

All general and special laws, acts, city
charters, decrees [sic], executive orders,
proclamations and administrative
regulations, or part of parts thereof which
are inconsistent with any of the provisions
of this Code are hereby repealed or
modified accordingly. (/f/, Section 534, RA
7160).

Respondent City, however, asserted that

MCIAA is not an instrumentality of the
government but merely a governmentowned 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

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 Courts 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. Toward 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. x x x[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,[7] and 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 or
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
inBasco
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 charter, PD 1869. All of its shares
of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and
regulate gambling casinos. The latter role
is governmental, which places it in the
category of an agency or instrumentality
of the Government. Being an
instrumentality of the Government,
PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation
might be burdened, impeded or subjected
to control by a mere Local government.
The states have no power by taxation or
otherwise, to retard, impede, burden or in
any manner control the operation of
constitutional laws enacted by Congress to
carry into execution the powers vested in
the federal
government. (McCulloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)
This doctrine emanates from the
supremacy of the National Government
over local governments.
Justice Holmes, speaking for the Supreme
Court, made reference to the entire
absence of power on the part of the States
to touch, in that way (taxation) at least,
the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political
subdivision can regulate a federal
instrumentality in such a way as to prevent
it from consummating its federal
responsibilities, or even to seriously
burden it in the accomplishment of them.
(Antieau, Modern Constitutional Law, Vol.
2, p. 140)
Otherwise, mere creatures of the State can
defeat National policies thru extermination

of what local authorities may perceive to

be undesirable activities or enterprise
using the power to tax as a tool for
regulation (U.S. v. Sanchez, 340 US
42). The power to tax which was called by
Justice Marshall as the power to destroy
(Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or
creation of the very entity which has the
inherent power to wield it. (underscoring
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
government
corporation
performing
governmental functions as against one
performing merely proprietary ones such
that the exemption privilege withdrawn
under the said Code would apply
to all government 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
powers of the local government units.
In its comment, respondent City of
Cebu alleges that as a local 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 Constitution[10] 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 petitioners 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 or controlled
corporations performing governmental and
purely proprietary functions. Respondent
City of Cebu urges this Court to apply by
analogy its ruling that the Manila
International Airport Authority is a

government-owned corporation,[12] and to

reject the application of Basco because it
was promulgated . . . before the
enactment and the signing 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
rights of the people and takes from them a
portion of their 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
taxpayer and liberally in favor of the taxing
authority.[18] A claim of exemption from tax
payments 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.

(d)

Customs
duties,
registration fees of vessel 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;

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]

(e)

Taxes, fees and charges

and other impositions upon
goods carried into or out of, or
passing through, the territorial
jurisdictions
of
local
government units in the guise
of charges for wharfage, tolls
for bridges or otherwise, or
other taxes, fees or charges in
any form whatsoever upon
such goods or merchandise;

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 exemptions from
taxation.

(g)

Taxes
on
business
enterprises certified to by the
Board
of
Investments
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;

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)

(b)
(c)

Income
tax,
except
when levied on banks and
other financial institutions;
tax;

Documentary

stamp

Taxes
on
estates,
inheritance, gifts, legacies and
other acquisitions mortis causa,
except as otherwise provided
herein;

(f) Taxes, fees or charges on

agricultural
and
aquatic
products
when
sold
by
marginal farmers or fishermen;

(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 contractors and
persons
engaged
in
the
transportation of passengers or
freight by hire and common
carriers by air, land or water,
except as provided in this
Code;

(k)

Taxes on premiums paid

by way of 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
thereof,
except,
tricycles;
(m)
Taxes, fees, or other
charges on Philippine products
actually exported, except as
otherwise provided herein;
(n)

Taxes, fees, or charges,

on Countryside and Barangay
Business
Enterprises
and
cooperatives duly registered
under R.A. No. 6810 and
Republic Act Numbered Sixtynine hundred thirty-eight (R.A.
No. 6938) otherwise known as
the Cooperatives Code of the
Philippines respectively; and

property such as land, building, machinery,

and other improvements not hereafter
specifically exempted.
Section 234 of the 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 consideration or
otherwise, to a taxable person;

(b)

Charitable institutions,
churches,
parsonages
or
convents appurtenant thereto,
mosques, nonprofit or religious
cemeteries and all lands,
buildings and improvements
actually,
directly,
and
exclusively used for religious,
charitable
or
educational
purposes;

(c)

Among the taxes enumerated in the

LGC is real property tax, which is governed
by Section 232. It reads as follows:

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)

SEC. 232.
Power to Levy Real Property
Tax. A province or city or a municipality
within the Metropolitan Manila Area may
levy an annual ad valorem tax on real

All real property owned

by duly registered cooperatives
as provided for under R.A. No.
6938; and

(e)

Machinery
and
equipment used for pollution

(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 to 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 light of
the above enumeration. The term fees
means charges fixed by law or ordinance
for the regulation or inspection of business
or
activity,[24] while
charges
are
pecuniary liabilities such as rents or fees
against persons or property.[25]

control
and
protection.

environmental

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 all government-owned
or controlled corporations are hereby
withdrawn upon the effectivity of this
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 directly and
exclusively used for religious,
charitable
or
educational
purposes; (ii) all machineries
and
equipment
actually,
directly and exclusively used 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 institutions, 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
speak 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 or provisos in these sections,

as shown by the following clauses:
(1)

unless
otherwise
provided herein in the opening
paragraph of Section 133;

(2)

Unless
provided in this
Section 193;

otherwise
Code in

(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 are explicitly indicated in the
next. For instance, in item (a) which
excepts income taxes when levied on
banks and other financial institutions;
item (d) which excepts wharfage on
wharves constructed and maintained by
the local government unit concerned; and
item (1) which excepts taxes, fees and
charges for the registration and issuance
of licenses 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 provided in this Code in item (j). These
clauses would be obviously unnecessary or
mere surplusages 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 Sections 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 on the National Government,
its agencies and instrumentalities, and
local
government
units;
however,
pursuant to Section 232, provinces, cities,
and municipalities in the Metropolitan
Manila Area may impose the real property
tax except on, inter alia, real property
owned by the Republic of the Philippines or
any of its political subdivisions except
when the beneficial use thereof has been
granted, for consideration or otherwise, to
a taxable person, as provided in 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 governmentowned and controlled corporations, Section
193 of the LGC prescribes the general
rule, viz., they are withdrawn upon the
effectivity of the LGC, exceptthose 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 insofar as real property taxes
are concerned by limiting the retention
only to those enumerated therein; all
others not included in the enumeration lost
the privilege upon the effectivity of the
LGC. Moreover, even as to real property
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
a
taxable
person
for
consideration or otherwise.

Since the last paragraph of Section

234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from
payment of 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 Sections 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.
It 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 none
exists. In light of the petitioners theory
that it is an instrumentality of the
Government, it could only be within the
first item of the first paragraph of the
section by expanding the scope of the
term Republic of the Philippines to
embrace
its
instrumentalities
and
agencies. For expediency, we quote:
(a)
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.

This view does not persuade us. In

the first place, the petitioners 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
subdivisions in Section 234(a).
The terms Republic of the Philippines
and National Government are not
interchangeable. The former is broader
and synonymous with Government of the
Republic of the Philippines which the
Administrative Code of 1987 defines as the
corporate governmental entity through
which the functions of government are
exercised throughout the Philippines,
including, save as the contrary appears
from the context, the various arms through
which political authority is made affective
in the Philippines, whether pertaining to
the autonomous regions, the provincial,
city, municipal or barangay subdivisions or
other forms of local government.[27] These
autonomous regions, provincial, city,
municipal or barangay subdivisions are
the political subdivisions.[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.
464, otherwise known as The Real Property
Tax Code, which reads:
SEC. 40.
Exemptions 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 governmentowned or controlled corporation so exempt
by its 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 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, especially in light of
the general provision on withdrawal of tax
exemption privileges in Section 193 and
the special provision on withdrawal of
exemption from payment of real property
taxes in the last paragraph of Section
234. These policy considerations are
consistent with the State policy to ensure
autonomy to local governments[33] 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 these entities to share in the
requirements of 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 petitioners 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, aerodrome 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 petitioners 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 foregoing 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
Corporation[39] 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.
Narvasa,
C.J.,
(Chairman),
Melo,
Francisco, and Panganiban, JJ., concur.
[15]

Chief Justice Marshall in McCulloch vs.

Maryland, 4 Wheat, 316, 4 L ed. 579,
607. Later Justice Holmes brushed this
aside by declaring in Panhandle Oil Co. vs.
Mississippi (277 U.S. 218) that "the power
to tax is not the power to destroy while
this Court sits." Justice Frankfurter in
Graves vs. New York (306 U.S. 466) also
remarked that Justice Marshall's statement
was a "mere flourish or rhetoric" and a
product of the "intellectual fashion of the
times" to indulge in "a free case of
absolutes." (See SINCO, Philippine Political
Law [1954], 577-578).
SYLLABUS
1. POLITICAL LAW; GOVERNMENT; POWER
OF TAXATION; CONSTRUED. 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 Constitution. Our
Constitution, for instance, provides
that the rule of taxation shall be
uniform and equitable and Congress
shall evolve a progressive system of
taxation. So potent indeed is the
power that it was once opined that
the power to tax involves the power
to destroy. Verily, taxation is a
destructive power which interferes
with the personal and property rights
of the people and takes from them a
portion of their property for the
support
of
the
government. Accordingly, tax statutes
must be construed strictly against the
government and liberally in favor of
the taxpayer. But since taxes are
what we pay for civilized society, or
are the lifeblood of the nation, the law
frowns against exemptions from
taxation and statutes granting the
exemptions
are
thus
construed strictissimi juris against the
taxpayer and liberally in favor of the
taxing authority. A claim of exemption
from tax payments must be clearly
shown and based on language in the
law too plain to be mistaken. Elsewise
stated, taxation is the rule, exemption
therefrom is the exception. However,
if the grantee of the exemption is a
political subdivision or instrumentality,
the rigid rule of construction does not
apply because the practical effect of
the exemption is merely to reduce the
amount of money that has to be
handled by the government in the
course of its operation.
2. ID.; ID.; ID.; MAYBE EXERCISED BY THE
LOCAL LEGISLATIVE BODIES. 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. 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. 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
exemptions from taxation. Section
133 of the LGC prescribes the common
limitations on the taxing powers of
local government units.
3. ID.; ID.; ID.; EXEMPTION FROM PAYMENT
OF TAX MAYBE WITHDRAWN AT THE
PLEASURE
OF
THE
TAXING
AUTHORITY; EXCEPTION. 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
claim
of
the
Constitution.
4. ID.; LOCAL GOVERNMENT CODE; SEC.
234 PROVIDES FOR THE EXEMPTION
FROM
THE
PAYMENT
OF
REAL

PROPERTY TAX; BASIS THEREOF.

Section 234 of the 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. 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, (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, directly and
exclusively
used
for
religious,
charitable or educational purposes; (ii)
all
machineries
and
equipment
actually, directly and exclusively used
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
effectivity of the Code.
5. ID.; REPUBLIC OF THE PHILIPPINES AS
DISTINGUISED
FROM
NATIONAL
GOVERNMENT. The terms Republic
of
thePhilippines
and
National
Government
are
not
interchangeable. The
former
is
broader
and
synonymous
with
Government of the Republic of the
Philippines which the Administrative
Code of 1987 defines as the
corporate
governmental
entity
through which the functions of
government are exercised throughout
the Philippines, including, save 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 regions, the provincial,
city,
municipal
or
barangay
subdivisions or other forms of local
government.
(Section
2[1],
Introductory Provisions, Administrative
Code of 1987.) These autonomous
regions, provincial, city, municipal or
barangay
subdivisions
are
the
political
subdivisions. (Section
1,
Article X, 1987 Constitution.) On the
other hand, National Government
refers to the entire machinery of the
central government, as distinguished
from the different forms of local
government.
(Section
2[2],
Introductory Provisions, Administrative
Code
of
1987.)
The
National
Government then is composed of the
three
great
departments:
the
executive, the legislative and the
judicial.

6.

ID.;
GOVERNMENT;
AGENCY
AS
DISTINGUISHED
FROM
INSTRUMENTALITY. 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,
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.

Facts:
Petitioner Mactan Cebu International
Airport Authority was created by virtue of
R.A. 6958, mandated to principally
undertake the economical, efficient, and
effective control, management, and
supervision of the Mactan International
Airport and Lahug Airport, and such other
airports as may be established in Cebu.
Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption
from payment of realty taxes in
accordance with Section 14 of its charter.
However, on October 11, 1994, Mr.
Eustaquio B. Cesa, Officer in Charge, Office
of the Treasurer of the City of Cebu,
demanded payment from realty taxes in
the total amount of P2229078.79.
Petitioner objected to such demand for
payment as baseless and unjustified
claiming in its favor the afore cited Section
14 of R.A. 6958. 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.
Section 133. Common limitations on the
Taxing Powers of Local Government Units.
The exercise of the taxing powers of the
provinces, cities, barangays, municipalities
shall not extend to the levi of the
following:
xxx Taxes, fees or charges of any kind in
the National Government, its agencies and
instrumentalities, and LGUs. xxx
Respondent City refused to cancel and set
aside petitioners realty tax account,
insisting that the MCIAA is a governmentcontrolled corporation whose tax
exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of Labor
Code that took effect on January 1, 1992.
Issue:
Whether or not the petitioner is a taxable
person
Rulings:
Taxation is the rule and exemption is the
exception. MCIAAs exemption from
payment of taxes is withdrawn by virtue of
Sections 193 and 234 of Labor Code.
Statutes granting tax exemptions shall be
strictly construed against the taxpayer and
liberally construed in favor of the taxing
authority.
The petitioner cannot claim that it was
never a taxable person under its Charter.
It was only exempted from the payment of
realty 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.