G.R. No.

172087 March 15, 2011 National Internal Revenue Code of 1997, by excluding
PHILIPPINE AMUSEMENT AND GAMING CORPORATION petitioner Philippine Amusement and Gaming Corporation
(PAGCOR), Petitioner, vs. THE BUREAU OF INTERNAL from the enumeration of government-owned and controlled
REVENUE (BIR), represented herein by HON. JOSE corporations exempted from corporate income tax is valid and
MARIO BUÑAG, in his official capacity as constitutional, while BIR Revenue Regulations No. 16-2005
COMMISSIONER OF INTERNAL REVENUE, Public insofar as it subjects PAGCOR to 10% VAT is null and void for
Respondent, JOHN DOE and JANE DOE, who are persons
being contrary to the National Internal Revenue Code of 1997,
acting for, in behalf, or under the authority of
Respondent. Public and Private Respondents. as amended by Republic Act No. 9337.

645 SCRA 338 – Taxation Law – Income Taxation – Corporate

Taxpayers – PAGCOR is not exempt from income taxation
Political Law – Equal Protection Clause
The Philippine Amusement and Gaming Corporation
(PAGCOR) was created by P.D. No. 1067-A in 1977.
Obviously, it is a government owned and controlled
corporation (GOCC).
In 1998, R.A. 8424 or the National Internal Revenue Code of
1997 (NIRC) became effective. Section 27 thereof provides
that GOCC’s are NOT EXEMPT from paying income taxation
but it exempted the following GOCCs:
1. GSIS
2. SSS
3. PHILHEALTH
4. PCSO
5. PAGCOR
But in May 2005, R.A. 9337, a law amending certain
provisions of R.A. 8424, was passed. Section 1
thereof excluded PAGCOR from the exempt GOCCs hence
PAGCOR was subjected to pay income taxation. In
September 2005, the Bureau of Internal Revenue issued the
implementing rules and regulations (IRR) for R.A. 9337. In the
said IRR, it identified PAGCOR as subject to a 10% value
added tax (VAT) upon items covered by Section 108 of the
NIRC (Sale of Services and Use or Lease of Properties).
PAGCOR questions the constitutionality of Section 1 of R.A.
9337 as well as the IRR. PAGCOR avers that the said
provision violates the equal protection clause. PAGCOR
argues that it is similarly situated with SSS, GSIS, PCSO, and
PHILHEALTH, hence it should not be excluded from the
exemption.
ISSUE: Whether or not PAGCOR should be subjected to
income taxation.
HELD: Yes. Section 1 of R.A. 9337 is constitutional. It was the
express intent of Congress to exclude PAGCOR from the
exempt GOCCs hence PAGCOR is now subject to income
taxation.
PAGCOR’s contention that the law violated the constitution is
not tenable. The equal protection clause provides that all
persons or things similarly situated should be treated alike,
both as to rights conferred and responsibilities imposed.
The general rule is, ALL GOCC’s are subject to income
taxation. However, certain classes of GOCC’s may be exempt
from income taxation based on the following requisites for a
valid classification under the principle of equal protection:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.
When the Supreme Court looked into the records of the
deliberations of the lawmakers when R.A. 8424 was being
drafted, the SC found out that PAGCOR’s exemption was not
really based on substantial distinctions. In fact, the lawmakers
merely exempted PAGCOR from income taxation upon the
request of PAGCOR itself. This was changed however when
R.A. 9337 was passed and now PAGCOR is already subject
to income taxation.
Anent the issue of the imposition of the 10% VAT against
PAGCOR, the BIR had overstepped its authority. Nowhere in
R.A. 9337 does it state that PAGCOR is subject to VAT.
Therefore, that portion of the IRR issued by the BIR is void. In
fact, Section 109 of R.A. 9337 expressly exempts PAGCOR
from VAT. Further, PAGCOR’s charter exempts it from VAT.
To recapitulate, PAGCOR is subject to income taxation but not
to VAT.

WHEREFORE, the petition is PARTLY GRANTED. Section 1

of Republic Act No. 9337, amending Section 27 (c) of the