1

G.R. No. L-59431 July 25, 1984 1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly
set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and

ANTERO M. SISON, JR., petitioner, initiative and which the government was called upon to enter optionally, and only 'because it was better

vs. equipped to administer for the public welfare than is any private individual or group of individuals,'

RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy continue to lose their well-defined boundaries and to be absorbed within activities that the government

Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of must undertake in its sovereign capacity if it is to meet the increasing social challenges of the

Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed

Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents. of to assure the performance of vital state functions. It is the source of the bulk of public funds. To
praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain
availability is of the essence. 12
Antero Sison for petitioner and for his own behalf.

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
The Solicitor General for respondents.
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the
power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due process and equal protection clauses inay properly be
invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there
FERNANDO, C.J.: would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot
The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality
provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The
income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines.
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and
share of individual partner in the net profits of taxable partnership, (f) adjusted gross 3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative
income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the
by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a- challenged statutory provision — as petitioner here alleges — fails to abide by its command, then this
visthose which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the
Court must so declare and adjudge it null. The injury thus is centered on the question of whether the
above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5 For imposition of a higher tax rate on taxable net income derived from business or profession than on
petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the compensation is constitutionally infirm.
Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on
May 28, 1982. 8The facts as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in
their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid
exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph
do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it
This Court finds such a plea more than justified. The petition must be dismissed. finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to

say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls
for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so
harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent
domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of
the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not being different,
both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be given to every person under
circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges,
those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in
the group equally binding on the rest." 20 That same formulation applies as well to taxation measures. The
equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws
benefits being available to all and the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in
these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are
not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies.
The Constitution does not require things which are different in fact or opinion to be treated in law as
though they were the same." 21 Hence the constant reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through
Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax "operates with the same force and
effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does
not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of
classification did not present itself in that case. It did not arise until nine years later, when the Supreme
Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity
then to the standard of equal protection for all that is required is that the tax "applies equally to all
persons, firms and corporations placed in similar situation."30
2
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same time reducing the applicable tax rate.
Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must
rest upon substantial distinctions that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of
compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers
are e not entitled to make deductions for income tax purposes because they are in the same situation more
or less. On the other hand, in the case of professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then
to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the
same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa
to adopt the gross system of income taxation to compensation income, while continuing the system of net
income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling
doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and businessman certainly not
a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Republic of the Philippines
SUPREME COURT
Manila
SPECIAL FIRST DIVISION
G.R. No. 167330 September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION

CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health development which
shall endeavor to make essential goods, health and other social services available to all the people at
affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women,
and children. The State shall endeavor to provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10,
2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization to take
care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs
pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical
services provided by its duly licensed physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic owned, operated or
accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of ₱224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care
agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code
xxxx
xxx xxx xxx
3
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the
protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of
the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner
is hereby ORDERED to PAY the deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge
plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87
inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT
deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996
and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST
assessment. He claimed that petitioner’s health care agreement was a contract of insurance subject to DST
under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was in
the nature of a non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it
cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered
petitioner to desist from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20%
interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the
same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We held
that petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance
which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares3 and Philamcare Health

Systems, Inc. v. CA.4We also ruled that petitioner’s contention that it is a health maintenance organization
(HMO) and not an insurance company is irrelevant because contracts between companies like petitioner
and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on
the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the
transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental
motion for reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a
company engaged in the business of fidelity bonds and other insurance policies. Petitioner, as
an HMO, is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the
CA’s disposition that health care services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear,
especially in the light of the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not
those contemplated under Section 185.
(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health
insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in
Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and
all prior years. Therefore, the questioned assessments on the DST are now rendered moot and
academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on
June 8, 2009.
4
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under
RA 94807(also known as the "Tax Amnesty Act of 2007") by fully paying the amount of ₱5,127,149.08
representing 5% of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June
30, 1987.9 It is engaged in the dispensation of the following medical services to individuals who enter into
health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling,
consultation and advices on diet, exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete
blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes in
the event of an injury or sickness on the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-
year basis. The medical services are dispensed to enrolled members in a hospital or clinic owned, operated
or accredited by petitioner, through physicians, medical and dental practitioners under contract with it. It
negotiates with such health care practitioners regarding payment schemes, financing and other procedures
for the delivery of health services. Except in cases of emergency, the professional services are to be
provided only by petitioner's physicians, i.e. those directly employed by it11 or whose services are
contracted by it.12 Petitioner also provides hospital services such as room and board accommodation,
laboratory services, operating rooms, x-ray facilities and general nursing care.13 If and when a member
avails of the benefits under the agreement, petitioner pays the participating physicians and other health
care providers for the services rendered, at pre-agreed rates.14
To avail of petitioner’s health care programs, the individual members are required to sign and execute a
standard health care agreement embodying the terms and conditions for the provision of the health care
services. The same agreement contains the various health care services that can be engaged by the enrolled
member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect of the
medical service offered, the enrolled member may actually make use of the health care services being
offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer
because its agreements are treated as insurance contracts and the DST is not a tax on the business but an
excise on the privilege, opportunity or facility used in the transaction of the business.15
 5

Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing
that is, to determine whether it is an HMO or an insurance company, as this distinction is indispensable in an insurance business" or "transacting an insurance business:"
turn to the issue of whether or not it is liable for DST on its health care agreements.16

a) making or proposing to make, as insurer, any insurance contract;

A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of
petitioner are meritorious. b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:

c) doing any kind of business, including a reinsurance business, specifically recognized as

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or constituting the doing of an insurance business within the meaning of this Code;
bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business of accident, fidelity, d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of manner designed to evade the provisions of this Code.
insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or
recognizances, conditioned for the performance of the duties of any office or position, for the doing or not
In the application of the provisions of this Code, the fact that no profit is derived from the making of
doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond
insurance contracts, agreements or transactions or that no separate or direct consideration is received
or other obligations issued by any province, city, municipality, or other public body or organization, and on
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or
all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may
transacting of an insurance business.
be made or renewed by any such person, company or corporation, there shall be collected a documentary
stamp tax of fifty centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the premium
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,21 have
charged. (Emphasis supplied)
determined that HMOs are not in the insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an insurance business) are the
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute
principal object and purpose of the organization or whether they are merely incidental to its business. If
shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a
these are the principal objectives, the business is that of insurance. But if they are merely incidental and
construction which renders every word operative is preferred over that which makes some words idle and
service is the principal purpose, then the business is not insurance.
nugatory.17 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute – its every word.18
Applying the "principal object and purpose test,"22 there is significant American case law supporting the
argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to
From the language of Section 185, it is evident that two requisites must concur before the DST can apply,
provide the members of a group with health services, is not engaged in the insurance business.
namely: (1) the document must be a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business of accident, fidelity, employer’s
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of the
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
District of Columbia Circuit held that Group Health Association should not be considered as engaged in
of insurance (except life, marine, inland, and fire insurance).
insurance activities since it was created primarily for the distribution of health care services rather than
the assumption of insurance risk.
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO
is "an entity that provides, offers or arranges for coverage of designated health services needed by plan
xxx Although Group Health’s activities may be considered in one aspect as creating security against loss
members for a fixed prepaid premium."19 The payments do not vary with the extent, frequency or type of
from illness or accident more truly they constitute the quantity purchase of well-rounded, continuous
services provided.
medical service by its members. xxx The functions of such an organization are not identical with those
of insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent
and the consequences of its descent, not with service, or its extension in kind, quantity or distribution;
taxable years? We rule that it was not.
with the unusual occurrence, not the daily routine of living. Hazard is predominant. On the other hand,
the cooperative is concerned principally with getting service rendered to its members and doing so
 6

at lower prices made possible by quantity purchasing and economies in operation. Its primary American courts have pointed out that the main difference between an HMO and an insurance company is
purpose is to reduce the cost rather than the risk of medical care; to broaden the service to the that HMOs undertake to provide or arrange for the provision of medical services through participating
individual in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday physicians while insurance companies simply undertake to indemnify the insured for medical expenses
incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue
against the financial loss caused by extraordinary and unusual occurrences, such as death, disaster Shield of New Jersey27 is clear on this point:
at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills
and all the temporary bodily discomforts as well as the more serious and unusual illness. To summarize, The basic distinction between medical service corporations and ordinary health and accident insurers is
the distinctive features of the cooperative are the rendering of service, its extension, the bringing of that the former undertake to provide prepaid medical services through participating physicians, thus
physician and patient together, the preventive features, the regularization of service as well as relieving subscribers of any further financial burden, while the latter only undertake to indemnify an
payment, the substantial reduction in cost by quantity purchasing in short, getting the medical job insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.
done and paid for; not, except incidentally to these features, the indemnification for cost after the
services is rendered. Except the last, these are not distinctive or generally characteristic of the
xxx xxx xxx
insurance arrangement. There is, therefore, a substantial difference between contracting in this way for
the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians
when or after it is rendered.
who will render services to subscribers on a prepaid basis. Hence, if there are no physicians
participating in the medical service corporation’s plan, not only will the subscribers be deprived of
That an incidental element of risk distribution or assumption may be present should not outweigh all other
the protection which they might reasonably have expected would be provided, but the corporation
factors. If attention is focused only on that feature, the line between insurance or indemnity and other
will, in effect, be doing business solely as a health and accident indemnity insurer without having
types of legal arrangement and economic function becomes faint, if not extinct. This is especially true when
qualified as such and rendering itself subject to the more stringent financial requirements of the General
the contract is for the sale of goods or services on contingency. But obviously it was not the purpose of the
Insurance Laws….
insurance statutes to regulate all arrangements for assumption or distribution of risk. That view would
cause them to engulf practically all contracts, particularly conditional sales and contingent service
A participating provider of health care services is one who agrees in writing to render health care services
agreements. The fallacy is in looking only at the risk element, to the exclusion of all others present
to or for persons covered by a contract issued by health service corporation in return for which the health
or their subordination to it. The question turns, not on whether risk is involved or assumed, but on
service corporation agrees to make payment directly to the participating provider.28 (Emphasis
whether that or something else to which it is related in the particular plan is its principal object
supplied)
purpose.24 (Emphasis supplied)

Consequently, the mere presence of risk would be insufficient to override the primary purpose of the
In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan of
business to provide medical services as needed, with payment made directly to the provider of these
operation as a whole of the corporation, it was service rather than indemnity which stood as its principal
services.29 In short, even if petitioner assumes the risk of paying the cost of these services even if
purpose.
significantly more than what the member has prepaid, it nevertheless cannot be considered as being
engaged in the insurance business.
There is another and more compelling reason for holding that the service is not engaged in the insurance
business. Absence or presence of assumption of risk or peril is not the sole test to be applied in
By the same token, any indemnification resulting from the payment for services rendered in case of
determining its status. The question, more broadly, is whether, looking at the plan of operation as a
emergency by non-participating health providers would still be incidental to petitioner’s purpose of
whole, ‘service’ rather than ‘indemnity’ is its principal object and purpose. Certainly the objects and
providing and arranging for health care services and does not transform it into an insurer. To fulfill its
purposes of the corporation organized and maintained by the California physicians have a wide scope in
obligations to its members under the agreements, petitioner is required to set up a system and the facilities
the field of social service. Probably there is no more impelling need than that of adequate medical care
for the delivery of such medical services. This indubitably shows that indemnification is not its sole object.
on a voluntary, low-cost basis for persons of small income. The medical profession unitedly is
endeavoring to meet that need. Unquestionably this is ‘service’ of a high order and not
‘indemnity.’26 (Emphasis supplied) In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services
intended to keep members from developing medical conditions or diseases.30 As an HMO, it is its
obligation to maintain the good health of its members. Accordingly, its health care programs are
designed to prevent or to minimize thepossibility of any assumption of risk on its part. Thus, its

undertaking under its agreements is not to indemnify its members against any loss or damage arising from
a medical condition but, on the contrary, to provide the health and medical services needed to prevent
such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them medical
care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care services rather than insurance services, it
cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S.
cases, we are not saying that petitioner’s operations are identical in every respect to those of the HMOs or
health providers which were parties to those cases. What we are stating is that, for the purpose of
determining what "doing an insurance business" means, we have to scrutinize the operations of the
business as a whole and not its mere components. This is of course only prudent and appropriate, taking
into account the burdensome and strict laws, rules and regulations applicable to insurers and other
entities engaged in the insurance business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually engaged in insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident
from the fact that it is not supervised by the Insurance Commission but by the Department of Health.33 In
fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not
engaged in the insurance business. This determination of the commissioner must be accorded great
weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a
statute is accorded great respect and ordinarily controls the interpretation of laws by the courts. The
reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies for addressing and satisfying
those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,35 the Court stressed that executive officials are presumed to have familiarized
themselves with all the considerations pertinent to the meaning and purpose of the law, and to have
formed an independent, conscientious and competent expert opinion thereon. The courts give much weight
to the government agency officials charged with the implementation of the law, their competence,
expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law
they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The
NIRC of 1997
7
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of
indemnity for loss, damage, or liability…." In our decision dated June 12, 2008, we ruled that petitioner’s
health care agreements are contracts of indemnity and are therefore insurance contracts:
It is … incorrect to say that the health care agreement is not based on loss or damage because, under the
said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and
related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to
cover the monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the
member in case of sickness, injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical consultations, vaccine administration
and family planning counseling) is the contingent event which gives rise to liability on the part of the
member. In case of exposure of the member to liability, he would be entitled to indemnification by
petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising
from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred
by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the
risk of paying for the costs of the services even if they are significantly and substantially more than what
the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them out
among a large group of persons bearing a similar risk, that is, among all the other members of the health
care program. This is insurance.37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or
bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business of accident, fidelity, employer’s
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed
against the taxing authority.38 This is because 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.39 Hence, tax laws may not be extended by implication beyond the clear import of their
language, nor their operation enlarged so as to embrace matters not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in
the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not
involve the interpretation of a tax provision. Instead, they dealt with the liability of a health service provider
to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are

liberally interpreted in favor of the member and strictly against the HMO. For this reason, we reconsider
our ruling that Blue Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is
not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above
would be an insurance contract. The primary purpose of the parties in making the contract may
negate the existence of an insurance contract. For example, a law firm which enters into contracts with
clients whereby in consideration of periodical payments, it promises to represent such clients in all suits
for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of
rendering personal services. On the other hand, a contract by which a corporation, in consideration of a
stipulated amount, agrees at its own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed as engaged in the business of
insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from the defense of actions for
malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To
begin with, there is no loss, damage or liability on the part of the member that should be indemnified by
petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined consideration in
exchange for the hospital, medical and professional services rendered by the petitioner’s physician or
affiliated physician to him. In case of availment by a member of the benefits under the agreement,
8
petitioner does not reimburse or indemnify the member as the latter does not pay any third party. Instead,
it is the petitioner who pays the participating physicians and other health care providers for the services
rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part
of the member to any third party-provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim
has already been incurred. There is no indemnity precisely because the member merely avails of medical
services to be paid or already paid in advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations, vaccine
administration as well as family planning counseling, even in the absence of any peril, loss or damage on
his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-
participating physician or hospital. However, this is only a very minor part of the list of services available.
The assumption of the expense by petitioner is not confined to the happening of a contingency but includes
incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care
contracts called for the defendant to partially reimburse a subscriber for treatment received from a non-
designated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined that "the
primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of
prepayment for such services."44 Since indemnity of the insured was not the focal point of the agreement
but the extension of medical services to the member at an affordable cost, it did not partake of the nature
of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone
is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain
degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts (like those of
petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the
risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type
peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost
of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the
basis of assumptions made relative to the insured.45
However, assuming that petitioner’s commitment to provide medical services to its members can be
construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not

qualify as an insurance contract because petitioner’s objective is to provide medical services at reduced
cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not an
insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care
agreements under Section 185 of the NIRC of 1997 is the provision’s legislative history. The text of Section
185 came into U.S. law as early as 1904 when HMOs and health care agreements were not even in
existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise
known as the "Internal Revenue Law of 1904")46enacted on July 2, 1904 and became effective on August
1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the
pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures,
or certificates of stock and indebtedness, and other documents, instruments, matters, and things
mentioned and described in this section, or for or in respect to the vellum, parchment, or paper upon
which such instrument, matters, or things or any of them shall be written or printed by any person or
persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and five,
the several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association, company, or corporation
transacting the business of accident, fidelity, employer’s liability, plate glass, steam boiler, burglar,
elevator, automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire
insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and
consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section 116, Article
XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed
and exclusive enumeration of items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l),
Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent
9
DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of
1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which
codified all the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October
1, 1946, the DST rate was increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC
of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984
respectively, the DST rate was again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was
renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again
renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate
of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the
subject legal provision was retained as the present Section 185. In 2004, amendments to the DST
provisions were introduced by RA 924348 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom
Health Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated
Health Care Services, Inc. (or Intercare). However, there are those who claim that Health Maintenance, Inc.
is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and having been formally
incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs
with a total enrollment of more than 2 million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when
the law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the
various amendments to the DST law were enacted, they were already in existence in the Philippines and
the term had in fact already been defined by RA 7875. If it had been the intent of the legislature to impose
DST on health care agreements, it could have done so in clear and categorical terms. It had many
opportunities to do so. But it did not. The fact that the NIRC contained no specific provision on the DST
liability of health care agreements of HMOs at a time they were already known as such, belies any
legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability
only on January 27, 2000, after more than a decade in the business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say
that health care agreements were never, at any time, recognized as insurance contracts or deemed engaged
in the business of insurance within the context of the provision.

The Power To Tax Is Not The Power To Destroy
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 is to pay it.51 So potent
indeed is the power that it was once opined that "the power to tax involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its net
worth of ₱259 million.54 Respondent never disputed these assertions. Given the realities on the ground,
imposing the DST on petitioner would be highly oppressive. It is not the purpose of the government to
throttle private business. On the contrary, the government ought to encourage private
enterprise.55 Petitioner, just like any concern organized for a lawful economic activity, has a right to
maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses
because of a tax imposition may be an acceptable consequence but killing the business of an entity is
another matter and should not be allowed. It is counter-productive and ultimately subversive of the
nation’s thrust towards a better economy which will ultimately benefit the majority of our people.59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997
became moot and academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It
paid ₱5,127,149.08 representing 5% of its net worth as of the year ended December 31, 2005 and complied
with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from
payment of taxes as well as additions thereto, and the appurtenant civil, criminal or administrative
penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all internal revenue
taxes for taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from
payment of the tax involved, including the civil, criminal, or administrative penalties provided under the
1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case
as discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of
petitioner. This admission, however, is not meant to preclude a revocation of the amnesty granted in case
10
it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said
amnesty law.62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program
under RA 9480.63 There is no other conclusion to draw than that petitioner’s liability for DST for the
taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by
the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare
Health Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing
the appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the Court should apply the CA ruling
there that a health care agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of
the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being
questioned. As a result, our ruling in that case has already become final.67 When a minute resolution
denies or dismisses a petition for failure to comply with formal and substantive requirements, the
challenged decision, together with its findings of fact and legal conclusions, are deemed sustained.68 But
what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the same parties
and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,70 the
Court noted that a previous case, CIR v. Baier-Nickel71 involving the same parties and the same issues,
was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the
ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter
case because the two cases involved different subject matters as they were concerned with the taxable
income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision.
The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that
the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only
to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by
authority of the justices, unlike a decision. It does not require the certification of the Chief Justice.
Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the
proviso of Section 4(3) of Article VIII speaks of a decision.73Indeed, as a rule, this Court lays down
 11

doctrines or principles of law which constitute binding precedent in a decision duly signed by the members
of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on
its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully G.R. No. L- 41383 August 15, 1988

invoke the minute resolution in that case (which is not even binding precedent) in its favor. Nonetheless, in
view of the reasons already discussed, this does not detract in any way from the fact that petitioner’s PHILIPPINE AIRLINES, INC., plaintiff-appellant,
health care agreements are not subject to DST. vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in

A Final Note his capacity as National Treasurer, defendants-appellants.

Taking into account that health care agreements are clearly not within the ambit of Section 185 of the Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the same
should not be arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for adequate medical services at a cost GUTIERREZ, JR., J.:
which the average wage earner can afford. HMOs arrange, organize and manage health care treatment in
the furtherance of the goal of providing a more efficient and inexpensive health care system made possible What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
by quantity purchasing of services and economies of scale. They offer advantages over the pay-for-service
system (wherein individuals are charged a fee each time they receive medical services), including the ability
This question has been brought before this Court in the past. The parties are, in effect, asking for a re-
to control costs. They protect their members from exposure to the high cost of hospitalization and other
examination of the latest decision on this issue.
medical expenses brought about by a fluctuating economy. Accordingly, they play an important role in
society as partners of the State in achieving its constitutional mandate of providing its citizens with
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case
affordable health services.
where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of
registration fees paid under protest.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its imposition will
elevate the cost of health care services. This will in turn necessitate an increase in the membership fees,
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to
resulting in either placing health services beyond the reach of the ordinary wage earner or driving the
Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.
industry to the ground. At the end of the day, neither side wins, considering the indispensability of the
services offered by HMOs.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and
engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended by
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of
Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The
Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
pertinent provision of the franchise provides as follows:
assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist
from collecting the said tax.
Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two
No costs.
per cent of the gross revenue or gross earning derived by the grantee from its
operations under this franchise. Such tax shall be due and payable quarterly and
SO ORDERED.
shall be in lieu of all taxes of any kind, nature or description, levied, established or
collected by any municipal, provincial or national automobiles, Provided, that if,
after the audit of the accounts of the grantee by the Commissioner of Internal

Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable
within the ten days from the receipt of the assessment. The grantee shall pay the tax
on its real property in conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956,
not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the
amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount
of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951])
where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is
exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine
Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are
regulatory exceptional. and not revenue measures and, therefore, do not come within the exemption
granted to PAL? under its franchise. Hence, PAL filed the complaint against Land Transportation
Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of
Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as
National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In
support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus
Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as an
incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL
from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt the
plaintiff from paying regulatory fees, such as motor vehicle registration fees. The resolution of the motion to
dismiss was deferred by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the
later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines,
Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and
Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.
12
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section 8
of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks
of "registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid.,Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the
incipient, of the section relied upon by defendant-appellee under the Back Pay Law,
It is not held liable for a tax but for a registration fee. It therefore cannot make use
of a backpay certificate to meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth
that a tax on privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration fee
under the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee
was levied. What is thus most apparent is that where the legislative body relies on
its authority to tax it expressly so states, and where it is enacting a regulatory
measure, it is equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:
The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional. for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover
the cost of the services rendered in that connection. Hence, a charge fixed by statute
for the service to be person,-When by an officer, where the charge has no relation to
the value of the services performed and where the amount collected eventually finds
its way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)
 13

From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portion—about 5 per centum—of the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides
that all such money shall accrue to the funds for the construction and maintenance
of public roads, streets and bridges. It is thus obvious that the fees are not collected
for regulatory purposes, that is to say, as an incident to the enforcement of
regulations governing the operation of motor vehicles on public highways, for their
express object is to provide revenue with which the Government is to discharge one
of its principal functions—the construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposed—though called
fees—are of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code,
(as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and
398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by
Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.—Twenty per centum of the money collected
under the provisions of this Act shall accrue to the road and bridge funds of the
different provinces and chartered cities in proportion to the centum shall during the
next previous year and the remaining eighty per centum shall be deposited in the
Philippine Treasury to create a special fund for the construction and maintenance of
national and provincial roads and bridges. as well as the streets and bridges in the
chartered cities to be alloted by the Secretary of Public Works and Communications
for projects recommended by the Director of Public Works in the different provinces
and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 70(b) No other taxes or fees than those prescribed in this

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of
Act shall be imposed for the registration or operation or on
this Act shall be deposited in a special trust account in the National Treasury to
the ownership of any motor vehicle, or for the exercise of the
constitute the Highway Special Fund, which shall be apportioned and expended in
profession of chauffeur, by any municipal corporation, the
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
provisions of any city charter to the contrary
however, That the amount necessary to maintain and equip the Land Transportation
notwithstanding: Provided, however, That any provincial
Commission but not to exceed twenty per cent of the total collection during one year,
board, city or municipal council or board, or other competent
shall be set aside for the purpose. (As amended by RA 64-67, approved August 6,
authority may exact and collect such reasonable and
1971).
equitable toll fees for the use of such bridges and ferries,
within their respective jurisdiction, as may be authorized and
It appears clear from the above provisions that the legislative intent and purpose behind the law requiring
approved by the Secretary of Public Works and
owners of vehicles to pay for their registration is mainly to raise funds for the construction and
Communications, and also for the use of such public roads,
maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering
as may be authorized by the President of the Philippines upon
agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from the use of the
the recommendation of the Secretary of Public Works and
term "fees," which appears to have been favored by the legislature to distinguish fees from other taxes such
Communications, but in none of these cases, shall any toll
as those mentioned in Section 13 of Rep. Act 4136 which reads:
fee." be charged or collected until and unless the approved
schedule of tolls shall have been posted levied, in a
conspicuous place at such toll station. (at pp. 213-214) Sec. 13. Payment of taxes upon registration.—No original registration of motor
vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to the
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992
Commission.
[19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle
(Sec. 59, b, Rep. Act 4136, as amended).
 14

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has become
stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers that of "taxes."

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation (Sonzinky
v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees. Isabela
such case, the fees may properly be regarded as taxes even though they also serve
as an instrument of regulation. If the purpose is primarily revenue, or if revenue is
at least one of the real and substantial purposes, then the exaction is properly called
a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation (2nd Ed.)
592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These
exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801,
4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on
tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-
13, citing Cooley on Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the
Land Transportation and Traffic Code are actually taxes intended for additional revenues. of government
even if one fifth or less of the amount collected is set aside for the operating expenses of the agency
administering the program.
May the respondent administrative agency be required to refund the amounts stated in the complaint of
PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June
27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative franchises similar
to that invoked by PAL in this case.

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11,
the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The
1985), this Court ruled:
conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The
same provision appears as Section 591-593). in the Land Transportation code. It is patent therefrom that
Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
the legislators had in mind a regulatory tax as the law refers to the imposition on the registration,
Communications of the Philippines, Inc., was subject to both the franchise tax and
operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
specifically state that the imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-
registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of
1/2%) of all gross receipts was provided as "in lieu of any and all taxes of any kind,
chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the
nature, or description levied, established, or collected by any authority whatsoever,
respondents, speak of an "additional" tax," where the law could have referred to an original tax and not
municipal, provincial, or national from which taxes the grantee is hereby expressly
one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle
exempted." The issue raised to this Court now is the validity of the respondent
under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the
court's decision which ruled that the exemption under Republic Act No. 41-42). was
imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such
repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:
as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be
revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle "(d) The provisions of existing special or general laws to the

registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land contrary notwithstanding, all corporate taxpayers not

Transportation Commission as provided for in the last proviso of see. 61, aforequoted. specifically exempt under Sections 24 (c) (1) of this Code shall
pay the rates provided in this section. All corporations,
agencies, or instrumentalities owned or controlled by the
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly
government, including the Government Service Insurance
purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded
System and the Social Security System but excluding
in number and motor vehicles became absolute necessities without which modem life as we know it would
educational institutions, shall pay such rate of tax upon their
stand still, Congress found the registration of vehicles a very convenient way of raising much needed
taxable net income as are imposed by this section upon
 15

associations or corporations engaged in a similar business or (5) All taxes, fees and other charges on the registration, license, acquisition, and
industry. " transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

An examination of Section 24 of the Tax Code as amended shows clearly that the law
intended all corporate taxpayers to pay income tax as provided by the statute. There
can be no doubt as to the power of Congress to repeal the earlier exemption it
granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of
the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it
shall be subject to amendment, alteration, or repeal by the legislature when the
public interest so requires. There is no question as to the public interest involved.
The country needs increased revenues. The repealing clause is clear and
unambiguous. There is a listing of entities entitled to tax exemption. The petitioner
is not covered by the provision. Considering the foregoing, the Court Resolved to
DENY the petition for lack of merit. The decision of the respondent court is affirmed.
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is
now exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor
vehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a)
and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in
1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined
functions-the collecting any tax, fee, or other charge on the registration and licensing of the petitioner's
motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because
the tax exemption in the franchise of PAL was repealed during the period. However, an amended franchise
was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to
G.R. No. L-75697
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
(a) The basic corporate income tax based on the grantee's
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
annual net taxable income computed in accordance with the
MAYOR and CITY TREASURER OF MANILA, respondents.
provisions of the Internal Revenue Code; or

Nelson Y. Ng for petitioner.

(b) A franchise tax of two per cent (2%) of the gross revenues.
The City Legal Officer for respondents City Mayor and City Treasurer.
derived by the grantees from all specific. without distinction
as to transport or nontransport corporations; provided that
with respect to international airtransport service, only the
gross passengers, mail, and freight revenues. from its
outgoing flights shall be subject to this law.
MELENCIO-HERRERA, J.:

The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of
any kind, nature or description imposed, levied, established, assessed, or collected other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No.

by any municipal, city, provincial, or national authority or government, agency, now 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and

or in the future, including but not limited to the following: supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its
publication in the Official Gazette.
xxx xxx xxx

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree
No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready
for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association,
hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in the case,
over petitioner's opposition, upon the allegations that intervention was necessary for the complete
protection of their rights and that their "survival and very existence is threatened by the unregulated
proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among
others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline
in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection
of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial
losses estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been subjected to
tax, thereby depriving the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due to
the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000
families and 500,000 workers depend for their livelihood, but also provide an additional source
of revenue for the Government, and at the same time rationalize the heretofore uncontrolled
distribution of videograms;
16
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes
a clear and present danger to the moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of the youth for civic efficiency
and the development of moral character and promote their physical, intellectual, and social
well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these
blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people
and betraying the national economic recovery program, bold emergency measures must be
adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed
in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the
general purpose which a statute seeks to achieve. It is not necessary that the title express each and every
end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are
related, and are germane to the subject matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title. 2An act having a single general subject,
indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as
they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of
such subject by providing for the method and means of carrying out the general object." 3 The rule also is

that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple
or impede the power of legislation. 4 It should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of
law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price
or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing
a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the
proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall
acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila,
the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of,
the general object of the DECREE, which is the regulation of the video industry through the Videogram
Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that
general subject and title. As a tool for regulation 6 it is simply one of the regulatory and control
mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation
of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the
lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the
latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes
is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises
it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the
30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the
17
government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden
on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that "inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the
implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the
judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever
the interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on
any matter for any reason that in his judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of instructions, which shall form part of the law of
the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the people
and betraying the national economic recovery program necessitated bold emergency measures to be
adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the
issue of the validity of the exercise of legislative power under the said Amendment still pends resolution in
several other cases, we reserve resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of
other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of
the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement,
and implementation. "The true distinction is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its
execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no
valid objection can be made." 14 Besides, in the very language of the decree, the authority of the BOARD to

solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being
"subject to the direction and control of the BOARD." That the grant of such authority might be the source
of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of the offense." It is petitioner's position that
Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days
after the effectivity of this Decree within which to register with and secure a permit from the
BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed of.
Thereafter any videogram found in the possession of any person engaged in the videogram
business without the required proof of registration by the BOARD, shall be prima facie evidence
of violation of the Decree, whether the possession of such videogram be for private showing
and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be sufficient
to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59,
citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the
"legislature may enact that when certain facts have been proved that they shall be prima facie
evidence of the existence of the guilt of the accused and shift the burden of proof provided there
be a rational connection between the facts proved and the ultimate facts presumed so that the
inference of the one from proof of the others is not unreasonable and arbitrary because of lack
of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between the
fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE,
besides the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-
five-day period counted from its effectivity and is, therefore, neither retrospective in character.
18
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment, considering "the unfair competition posed by
rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of
unclassified and unreviewed video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the
fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit
and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry.
On the contrary, video establishments are seen to have proliferated in many places notwithstanding the
30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis
for declaring a statute invalid. This is as it ought to be. The principle of separation of powers
has in the main wisely allocated the respective authority of each department and confined its
jurisdiction to such a sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy precisely
to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the
validity of the challenged provision likewise insofar as there may be objections, even if valid and
cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We
find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No.
1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
 19

EN BANC 1.� 6th year� -�� 20%

G.R. No. 210551, June 30, 2015 2.� 7th year� -�� 20%

JOSE J. FERRER, JR., Petitioner, v. CITY MAYOR HERBERT BAUTISTA, CITY COUNCIL OF QUEZON 3.� 8th year� -�� 20%

CITY, CITY TREASURER OF QUEZON CITY, AND CITY ASSESSOR OF QUEZON CITY, Respondents.
4.� 9th year� -�� 20%

DECISION
5.� 10th year� -�� 20%
chanroblesvirtuallawlibrary
PERALTA, J.:
Furthermore, only the registered owners may avail of the tax credit and may not be continued by the
subsequent property owners even if they are buyers in good faith, heirs or possessor of a right in whatever
Before this Court is a petition for certiorari under Rule 65 of the Rules of Court with prayer for the issuance
legal capacity over the subject property.4
of a temporary restraining order (TRO) seeking to declare unconstitutional and illegal Ordinance Nos. SP-
chanroblesvirtuallawlibrary
2095, S-2011 and SP-2235, S-2013 on the Socialized Housing Tax and Garbage Fee, respectively, which On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013 and took effect
are being imposed by the respondents.
ten days after when it was approved by respondent City Mayor.6 The proceeds collected from the garbage
fees on residential properties shall be deposited solely and exclusively in an earmarked special account
The Case
under the general fund to be utilized for garbage collections.7 Section 1 of the Ordinance set forth the
schedule and manner for the collection of garbage fees:
On October 17, 2011,1 respondent Quezon City Council enacted Ordinance No. SP-2095, S-2011,2 or chanRoblesvirtualLawlibrary
the Socialized Housing Tax of Quezon City, Section 3 of which provides: SECTION 1. The City Government of Quezon City in conformity with and in relation to Republic Act No.
chanRoblesvirtualLawlibrary 7160, otherwise known as the Local Government Code of 1991 HEREBY IMPOSES THE FOLLOWING
SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on the assessed value SCHEDULE AND MANNER FOR THE ANNUAL COLLECTION OF GARBAGE FEES, AS FOLLOWS:
of land in excess of One Hundred Thousand Pesos (Php100,000.00) shall be collected by the City Treasurer
which shall accrue to the Socialized Housing Programs of the Quezon City Government. The special On all domestic households in Quezon City;
assessment shall accrue to the General Fund under a special account to be established for the purpose.
LAND AREA IMPOSABLE FEE
chanroblesvirtuallawlibrary
Less than 200 sq. m. PHP 100.00
Effective for five (5) years, the Socialized Housing Tax (SHT) shall be utilized by the Quezon City
201 sq. m. � 500 sq. m. PHP 200.00
Government for the following projects: (a) land purchase/land banking; (b) improvement of
current/existing socialized housing facilities; (c) land development; (d) construction of core houses, 501 sq. m. � 1,000 sq. m. PHP 300.00

sanitary cores, medium-rise buildings and other similar structures; and (e) financing of public-private 1,001 sq. m. � 1,500 sq. m. PHP 400.00
partnership agreement of the Quezon City Government and National Housing Authority (NHA) with the 1,501 sq. m. � 2,000 sq. m. or more PHP 500.00
private sector.3 Under certain conditions, a tax credit shall be enjoyed by taxpayers regularly paying the
On all condominium unit and socialized housing projects/units in Quezon City;
special assessment:
FLOOR AREA IMPOSABLE FEE
chanRoblesvirtualLawlibrary
Less than 40 sq. m. PHP25.00
SECTION 7. TAX CREDIT. Taxpayers dutifully paying the special assessment tax as imposed by this
ordinance shall enjoy a tax credit. The tax credit may be availed of only after five (5) years of continue[d] 41 sq. m. � 60 sq. m. PHP50.00

payment. Further, the taxpayer availing this tax credit must be a taxpayer in good standing as certified by 61 sq. m. � 100 sq. m. PHP75.00
the City Treasurer and City Assessor. 101 sq. m. � 150 sq. m. PHP100.00

151 sq. m. � 200 sq. [m.] or more PHP200.00

The tax credit to be granted shall be equivalent to the total amount of the special assessment paid by the
On high-rise Condominium Units
property owner, which shall be given as follows:
chanRoblesvirtualLawlibrary
a) High-rise Condominium � The Homeowners Association of high- rise condominiums shall pay the
 20

annual garbage fee on the total size of the entire condominium and socialized Housing Unit and an public administrative officers or bodies � required to investigate facts or ascertain the existence of facts,
additional garbage fee shall be collected based on area occupied for every unit already sold or being hold hearings, and draw conclusions from them as a basis for their official action and to exercise discretion
amortized. of a judicial nature.�
b) High-rise apartment units � Owners of high-rise apartment units shall pay the annual garbage fee on
the total lot size of the entire apartment and an additional garbage fee based on the schedule Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is necessary that there be
prescribed herein for every unit occupied. a law that gives rise to some specific rights of persons or property under which adverse claims to such
The collection of the garbage fee shall accrue on the first day of January and shall be paid simultaneously rights are made, and the controversy ensuing therefrom is brought before a tribunal, board, or officer
with the payment of the real property tax, but not later than the first quarter installment.8 In case a clothed with power and authority to determine the law and adjudicate the respective rights of the
household owner refuses to pay, a penalty of 25% of the garbage fee due, plus an interest of 2% per month contending parties.14
or a fraction thereof, shall be charged.9ChanRoblesVirtualawlibrary chanroblesvirtuallawlibrary
For a writ of certiorari to issue, the following requisites must concur: (1) it must be directed against a
Petitioner alleges that he is a registered co-owner of a 371-square-meter residential property in Quezon tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer
City which is covered by Transfer Certificate of Title (TCT) No. 216288, and that, on January 7, 2014, he must have acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or
paid his realty tax which already included the garbage fee in the sum of excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary
Php100.00.10ChanRoblesVirtualawlibrary course of law. The enactment by the Quezon City Council of the assailed ordinances was done in the
exercise of its legislative, not judicial or quasi-judicial, function. Under Republic Act (R.A.) No. 7160, or
The instant petition was filed on January 17, 2014. We issued a TRO on February 5, 2014, which enjoined the Local Government Code of 1991 (LGC), local legislative power shall be exercised by the Sangguniang
the enforcement of Ordinance Nos. SP-2095 and SP-2235 and required respondents to comment on the Panlungsod for the city.15 Said law likewise is specific in providing that the power to impose a tax, fee, or
petition without necessarily giving due course thereto.11ChanRoblesVirtualawlibrary charge, or to generate revenue shall be exercised by the sanggunian of the local government unit concerned
through an appropriate ordinance.16ChanRoblesVirtualawlibrary
Respondents filed their Comment12 with urgent motion to dissolve the TRO on February 17, 2014.
Thereafter, petitioner filed a Reply and a Memorandum on March 3, 2014 and September 8, 2014, Also, although the instant petition is styled as a petition for certiorari, it essentially seeks to declare the
respectively. unconstitutionality and illegality of the questioned ordinances. It, thus, partakes of the nature of a petition
for declaratory relief over which this Court has only appellate, not original,
Procedural Matters jurisdiction.17ChanRoblesVirtualawlibrary

A.� Propriety of a Petition for Certiorari Despite these, a petition for declaratory relief may be treated as one for prohibition or mandamus, over
which We exercise original jurisdiction, in cases with far-reaching implications or one which raises
Respondents are of the view that this petition for certiorari is improper since they are not tribunals, boards transcendental issues or questions that need to be resolved for the public good.18 The judicial policy is
or officers exercising judicial or quasi-judicial functions. Petitioner, however, counters that in enacting that this Court will entertain direct resort to it when the redress sought cannot be obtained in the proper
Ordinance Nos. SP-2095 and SP-2235, the Quezon City Council exercised quasi-judicial function because courts or when exceptional and compelling circumstances warrant availment of a remedy within and
the ordinances ruled against the property owners who must pay the SHT and the garbage fee, exacting calling for the exercise of Our primary jurisdiction.19ChanRoblesVirtualawlibrary
from them funds for basic essential public services that they should not be held liable. Even if a Rule 65
petition is improper, petitioner still asserts that this Court, in a number of cases like in Rosario v. Court of Section 2, Rule 65 of the Rules of Court lay down under what circumstances a petition for prohibition may
Appeals,13 has taken cognizance of an improper remedy in the interest of justice. be filed:
chanRoblesvirtualLawlibrary
We agree that respondents neither acted in any judicial or quasi-judicial capacity nor arrogated unto SEC. 2. Petition for prohibition. - When the proceedings of any tribunal, corporation, board, officer or
themselves any judicial or quasi-judicial prerogatives. person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or
A respondent is said to be exercising judicial function where he has the power to determine what the law is his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is
and what the legal rights of the parties are, and then undertakes to determine these questions and no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person
adjudicate upon the rights of the parties. aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and
praying that judgment be rendered commanding the respondent to desist from further proceeding in the
Quasi-judicial function, on the other hand, is �a term which applies to the actions, discretion, etc., of action or matter specified therein, or otherwise granting such incidental reliefs as law and justice may
 21

require. Petitioner has adduced special and important reasons as to why direct recourse to Us should be allowed.
chanroblesvirtuallawlibrary Aside from presenting a novel question of law, this case calls for immediate resolution since the challenged
In a petition for prohibition against any tribunal, corporation, board, or person � whether exercising ordinances adversely affect the property interests of all paying constituents of Quezon City. As well, this

judicial, quasi-judicial, or ministerial functions � who has acted without or in excess of jurisdiction or with petition serves as a test case for the guidance of other local government units (LGUs). Indeed, the petition

grave abuse of discretion, the petitioner prays that judgment be rendered, commanding the respondents to at bar is of transcendental importance warranting a relaxation of the doctrine of hierarchy of courts.
desist from further proceeding in the action or matter specified in the petition. In this case, petitioner's In Social Justice Society (SJS) Officers, et al. v. Lim,24 the Court cited the case of Senator Jaworski v. Phil.
primary intention is to prevent respondents from implementing Ordinance Nos. SP-2095 and SP-2235. Amusement & Gaming Corp.,25 where We ratiocinated:
Obviously, the writ being sought is in the nature of a prohibition, commanding desistance. chanRoblesvirtualLawlibrary
Granting arguendo that the present action cannot be properly treated as a petition for prohibition, the

We consider that respondents City Mayor, City Treasurer, and City Assessor are transcendental importance of the issues involved in this case warrants that we set aside the

performing ministerialfunctions. A ministerial function is one that an officer or tribunal performs in the technical defects and take primary jurisdiction over the petition at bar. x x x This is in accordance

context of a given set of facts, in a prescribed manner and without regard for the exercise of his or its own with the well-entrenched principle that rules of procedure are not inflexible tools designed to hinder

judgment, upon the propriety or impropriety of the act done.20 Respondent Mayor, as chief executive of the or delay, but to facilitate and promote the administration of justice. Their strict and rigid

city government, exercises such powers and performs such duties and functions as provided for by the application, which would result in technicalities that tend to frustrate, rather than promote

LGC and other laws.21 Particularly, he has the duty to ensure that all taxes and other revenues of the city substantial justice, must always be eschewed.26

are collected, and that city funds are applied to the payment of expenses and settlement of obligations of chanroblesvirtuallawlibrary
the city, in accordance with law or ordinance.22 On the other hand, under the LGC, all local taxes, fees, B.� Locus Standi of Petitioner
and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly-
authorized deputies, while the assessor shall take charge, among others, of ensuring that all laws and Respondents challenge petitioner�s legal standing to file this case on the ground that, in relation to
policies governing the appraisal and assessment of real properties for taxation purposes are properly Section 3 of Ordinance No. SP-2095, petitioner failed to allege his ownership of a property that has an
executed.23Anent the SHT, the Department of Finance (DOF) Local Finance Circular No. 1-97, dated April assessed value of more than Php100,000.00 and, with respect to Ordinance No. SP-2335, by what standing
16, 1997, is more specific: or personality he filed the case to nullify the same. According to respondents, the petition is not a class
chanRoblesvirtualLawlibrary suit, and that, for not having specifically alleged that petitioner filed the case as a taxpayer, it could only be
6.3 The Assessor�s office of the Id.ntified LGU shall: surmised whether he is a party-in-interest who stands to be directly benefited or injured by the judgment
in this case.

a. immediately undertake an inventory of lands within its jurisdiction which shall be subject to It is a general rule that every action must be prosecuted or defended in the name of the real party-in-

the levy of the Social Housing Tax (SHT) by the local sanggunian concerned; interest, who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit.

b. inform the affected registered owners of the effectivity of the SHT; a list of the lands and
registered owners shall also be posted in 3 conspicuous places in the city/municipality;
c. furnish the Treasurer�s office and the local sanggunian concerned of the list of lands affected;
6.4 The Treasurer�s office shall:
a. collect the Social Housing Tax on top of the Real Property Tax, SEF Tax and other special
assessments;
b. report to the DOF, thru the Bureau of Local Government Finance, and the Mayor�s office the
monthly collections on Social Housing Tax (SHT). An annual report should likewise be
submitted to the HUDCC on the total revenues raised during the year pursuant to Sec. 43, R.A.
7279 and the manner in which the same was disbursed.
Jurisprudence defines interest as "material interest, an interest in issue and to be affected by the decree,
as distinguished from mere interest in the question involved, or a mere incidental interest. By real interest
is meant a present substantial interest, as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest." "To qualify a person to be a real party-in-interest in whose name
an action must be prosecuted, he must appear to be the present real owner of the right sought to be
enforced."27
chanroblesvirtuallawlibrary
�Legal standing� or locus standi calls for more than just a generalized grievance.28 The concept has been
defined as a personal and substantial interest in the case such that the party has sustained or will sustain
direct injury as a result of the governmental act that is being challenged.29 The gist of the question of
standing is whether a party alleges such personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.30ChanRoblesVirtualawlibrary
 22

A party challenging the constitutionality of a law, act, or statute must show �not only that the law is The requisites in order that an action may be dismissed on the ground of litis pendentiaare: (a) the identity
invalid, but also that he has sustained or is in immediate, or imminent danger of sustaining some direct of parties, or at least such as representing the same interest in both actions; (b) the identity of rights
injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way.� It asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two
must be shown that he has been, or is about to be, denied some right or privilege to which he is lawfully cases such that judgment in one, regardless of which party is successful, would amount to res judicata in

entitled, or that he is about to be subjected to some burdens or penalties by reason of the statute the other.
complained of.31ChanRoblesVirtualawlibrary
x x x x
Tested by the foregoing, petitioner in this case clearly has legal standing to file the petition. He is a real
party-in-interest to assail the constitutionality and legality of Ordinance Nos. SP-2095 and SP-2235 The underlying principle of litis pendentia is the theory that a party is not allowed to vex another more than

because respondents did not dispute that he is a registered co-owner of a residential property in Quezon once regarding the same subject matter and for the same cause of action. This theory is founded on the

City and that he paid property tax which already included the SHT and the garbage fee. He has substantial public policy that the same subject matter should not be the subject of controversy in courts more than
right to seek a refund of the payments he made and to stop future imposition. While he is a lone petitioner, once, in order that possible conflicting judgments may be avoided for the sake of the stability of the rights
his cause of action to declare the validity of the subject ordinances is substantial and of paramount and status of persons, and also to avoid the costs and expenses incident to numerous suits.
interest to similarly situated property owners in Quezon City.
Among the several tests resorted to in ascertaining whether two suits relate to a single or common cause of
C.� Litis Pendentia action are: (1) whether the same evidence would support and sustain both the first and second causes of
action; and (2) whether the defenses in one case may be used to substantiate the complaint in the other.

Respondents move for the dismissal of this petition on the ground of litis pendentia. They claim that, as
early as February 22, 2012, a case entitled Alliance of Quezon City Homeowners, Inc., et al., v. Hon. Herbert The determination of whether there is an identity of causes of action for purposes of litis pendentia is

Bautista, et al., docketed as Civil Case No. Q-12-7-820, has been pending in the Quezon City Regional Trial inextricably linked with that of res judicata, each constituting an element of the other. In either case, both

Court, Branch 104, which assails the legality of Ordinance No. SP-2095. Relying on City of Makati, et al. v. relate to the sound practice of including, in a single litigation, the disposition of all issues relating to a
Municipality (now City) of Taguig, et al.,32 respondents assert that there is substantial identity of parties cause of action that is before a court.37

between the two cases because petitioner herein and plaintiffs in the civil case filed their respective cases chanroblesvirtuallawlibrary

as taxpayers of Quezon City. There is substantial identity of the parties when there is a community of interest between a party in the
first case and a party in the second case albeit the latter was not impleaded in the first case.38 Moreover,

For petitioner, however, respondents� contention is untenable since he is not a party in Alliance and does the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first case are the defendants

not even have the remotest identity or association with the plaintiffs in said civil case. Moreover, in the second case or vice-versa, does not negate the identity of parties for purposes of determining

respondents� arguments would deprive this Court of its jurisdiction to determine the constitutionality of whether the case is dismissible on the ground of litis pendentia.39ChanRoblesVirtualawlibrary

laws under Section 5, Article VIII of the 1987 Constitution.33ChanRoblesVirtualawlibrary

In this case, it is notable that respondents failed to attach any pleading connected with the alleged civil

Litis pendentia is a Latin term which literally means �a pending suit� and is variously referred to in some case pending before the Quezon City trial court. Granting that there is substantial identity of parties
between said case and this petition, dismissal on the ground of litis pendentia still cannot be had in view of
decisions as lis pendens and auter action pendant.34 While it is normally connected with the control which
the absence of the second and third requisites. There is no way for Us to determine whether both cases are
the court has on a property involved in a suit during the continuance proceedings, it is more interposed as
based on the same set of facts that require the presentation of the same evidence. Even if founded on the
a ground for the dismissal of a civil action pending in court.35 In Film Development Council of the
Philippines v. SM Prime Holdings, Inc.,36 We same set of facts, the rights asserted and reliefs prayed for could be different. Moreover, there is no basis to
elucidated:
rule that the two cases are intimately related and/or intertwined with one another such that the judgment
chanRoblesvirtualLawlibrary
Litis pendentia, as a ground for the dismissal of a civil action, refers to a situation where two actions are that may be rendered in one, regardless of which party would be successful, would amount to res
judicata in the other.
pending between the same parties for the same cause of action, so that one of them becomes unnecessary
and vexatious. It is based on the policy against multiplicity of suit and authorizes a court to dismiss a
D. Failure to Exhaust Administrative Remedies
case motu proprio.

Respondents contend that petitioner failed to exhaust administrative remedies for his non-compliance with
x x x x
 23

Section 187 of the LGC, which mandates: are basic and essential duties and functions of the Quezon City Government. By imposing the SHT and the
chanRoblesvirtualLawlibrary garbage fee, the latter has shown a penchant and pattern to collect taxes to pay for public services that
Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory could be covered by its revenues from taxes imposed on property, idle land, business, transfer,
Public Hearings. � The procedure for approval of local tax ordinances and revenue measures shall be in amusement, etc., as well as the Internal Revenue Allotment (IRA) from the National Government. For
accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the petitioner, it is noteworthy that respondents did not raise the issue that the Quezon City Government is in
purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or dire financial state and desperately needs money to fund housing for informal settlers and to pay for
legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the garbage collection. In fact, it has not denied that its revenue collection in 2012 is in the sum of P13.69
effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the billion.
date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending
the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Moreover, the imposition of the SHT and the garbage fee cannot be justified by the Quezon City
Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day Government as an exercise of its power to create sources of income under Section 5, Article X of the 1987
period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate Constitution.47 According to petitioner, the constitutional provision is not a carte blanche for the LGU to
proceedings with a court of competent jurisdiction. tax everything under its territorial and political jurisdiction as the provision itself admits of guidelines and
chanroblesvirtuallawlibrary limitations.
The provision, the constitutionality of which was sustained in Drilon v. Lim,40 has been construed as
mandatory41 considering that � Petitioner further claims that the annual property tax is an ad valorem tax, a percentage of the assessed

A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most value of the property, which is subject to revision every three (3) years in order to reflect an increase in the

effective instrument to raise needed revenues to finance and support the myriad activities of local market value of the property. The SHT and the garbage fee are actually increases in the property tax which
government units for the delivery of basic services essential to the promotion of the general welfare and are not based on the assessed value of the property or its reassessment every three years; hence, in
enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing violation of Sections 232 and 233 of the LGC.48ChanRoblesVirtualawlibrary
tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances
are required to be done within certain time frames. x x x.42 For their part, respondents relied on the presumption in favor of the constitutionality of Ordinance Nos.

chanroblesvirtuallawlibrary SP-2095 and SP-2235, invoking Victorias Milling Co., Inc. v. Municipality of Victorias, etc.,49People v. Siton,
The obligatory nature of Section 187 was underscored in Hagonoy Market Vendor Asso. v. Municipality of et al.,50 and Hon. Ermita v. Hon. Aldecoa-Delorino.51 They argue that the burden of establishing the
Hagonoy:43cralawlawlibrary invalidity of an ordinance rests heavily upon the party challenging its constitutionality. They insist that the
x x x [T]he timeframe fixed by law for parties to avail of their legal remedies before competent courts is not questioned ordinances are proper exercises of police power similar to Telecom. & Broadcast Attys. of the

a �mere technicality� that can be easily brushed aside. The periods stated in Section 187 of the Local Phils., Inc. v. COMELEC52 and Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.53 and that their

Government Code are mandatory. x x x Being its lifeblood, collection of revenues by the government is of enactment finds basis in the social justice principle enshrined in Section 9,54 Article II of the 1987

paramount importance. The funds for the operation of its agencies and provision of basic services to its Constitution.

inhabitants are largely derived from its revenues and collections. Thus, it is essential that the validity of
revenue measures is not left uncertain for a considerable length of time. Hence, the law provided a time limit As to the issue of publication, respondents argue that where the law provides for its own effectivity,

for an aggrieved party to assail the legality of revenue measures and tax ordinances.�44 publication in the Official Gazette is not necessary so long as it is not punitive in character, citing Balbuna,

chanroblesvirtuallawlibrary et al. v. Hon. Secretary of Education, et al.55 and Askay v. Cosalan.56 Thus, Ordinance No. SP-2095 took

Despite these cases, the Court, in Ongsuco, et al. v. Hon. Malones,45 held that there was no need for effect after its publication, while Ordinance No. SP-2235 became effective after its approval on December

petitioners therein to exhaust administrative remedies before resorting to the courts, considering that there 26, 2013.

was only a pure question of law, the parties did not dispute any factual matter on which they had to
present evidence. Likewise, in Cagayan Electric Power and Light Co., Inc. v. City of Cagayan de Oro,46We Additionally, the parties articulate the following positions:

relaxed the application of the rules in view of the more substantive matters. For the same reasons, this
petition is an exception to the general rule. On the Socialized Housing Tax

Substantive Issues Respondents emphasize that the SHT is pursuant to the social justice principle found in Sections 1 and 2,
Article XIII57 of the 1987 Constitution and Sections 2 (a)58 and 4359 of R.A. No. 7279, or the �Urban

Petitioner asserts that the protection of real properties from informal settlers and the collection of garbage Development and Housing Act of 1992 (UDHA).
 24

Relying on Manila Race Horse Trainers Assn., Inc. v. De La Fuente,60 and Victorias Milling Co., Inc. v. Respondents claim that Ordinance No. S-2235, which is an exercise of police power, collects on the average
Municipality of Victorias, etc.,61 respondents assert that Ordinance No. SP-2095 applies equally to all real from every household a garbage fee in the meager amount of thirty-three (33) centavos per day compared
property owners without discrimination. There is no way that the ordinance could violate the equal with the sum of P1,659.83 that the Quezon City Government annually spends for every household for
protection clause because real property owners and informal settlers do not belong to the same class. garbage collection and waste management.62ChanRoblesVirtualawlibrary

Ordinance No. SP-2095 is also not oppressive since the tax rate being imposed is consistent with the In addition, there is no double taxation because the ordinance involves a fee. Even assuming that the
UDHA. While the law authorizes LGUs to collect SHT on properties with an assessed value of more than garbage fee is a tax, the same cannot be a direct duplicate tax as it is imposed on a different subject matter
P50,000.00, the questioned ordinance only covers properties with an assessed value exceeding and is of a different kind or character. Based on Villanueva, et al. v. City of Iloilo63 and Victorias Milling Co.,
P100,000.00. As well, the ordinance provides for a tax credit equivalent to the total amount of the special Inc. v. Municipality of Victorias, etc.,64 there is no �taxing twice� because the real property tax is imposed
assessment paid by the property owner beginning in the sixth (6th) year of the effectivity of the ordinance. on ownership based on its assessed value, while the garbage fee is required on the domestic household.
The only reference to the property is the determination of the applicable rate and the facility of collection.
On the contrary, petitioner claims that the collection of the SHT is tantamount to a penalty imposed on real
property owners due to the failure of respondent Quezon City Mayor and Council to perform their duty to Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as an exercise of police power.
secure and protect real property owners from informal settlers, thereby burdening them with the expenses The cases of Calalang v. Williams,65Patalinghug v. Court of Appeals,66 and Social Justice Society (SJS), et
to provide funds for housing. For petitioner, the SHT cannot be viewed as a �charity� from real property al. v. Hon. Atienza, Jr.,67 which were cited by respondents, are inapplicable since the assailed ordinance is
owners since it is forced, not voluntary. a revenue measure and does not regulate the disposal or other aspect of garbage.

Also, petitioner argues that the collection of the SHT is a kind of class legislation that violates the right of The subject ordinance, for petitioner, is discriminatory as it collects garbage fee only from domestic
property owners to equal protection of the laws since it favors informal settlers who occupy property not households and not from restaurants, food courts, fast food chains, and other commercial dining places
their own and pay no taxes over law-abiding real property owners who pay income and realty taxes. that spew garbage much more than residential property owners.

Petitioner further contends that respondents� characterization of the SHT as �nothing more than an
advance payment on the real property tax� has no statutory basis. Allegedly, property tax cannot be
collected before it is due because, under the LGC, chartered cities are authorized to impose property tax
based on the assessed value and the general revision of assessment that is made every three (3) years.
As to the rationale of SHT stated in Ordinance No. SP-2095, which, in turn, was based on Section 43 of the
UDHA, petitioner asserts that there is no specific provision in the 1987 Constitution stating that the
ownership and enjoyment of property bear a social function. And even if there is, it is seriously doubtful
and far-fetched that the principle means that property owners should provide funds for the housing of
Petitioner likewise contends that the imposition of garbage fee is tantamount to double taxation because
garbage collection is a basic and essential public service that should be paid out from property tax,
business tax, transfer tax, amusement tax, community tax certificate, other taxes, and the IRA of the
Quezon City Government. To bolster the claim, he states that the revenue collection of the Quezon City
Government reached Php13.69 billion in 2012. A small portion of said amount could be spent for garbage
collection and other essential services.
It is further noted that the Quezon City Government already collects garbage fee under Section 4768 of
R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000, which authorizes LGUs to impose

informal settlers and for home site development. Social justice and police power, petitioner believes, does fees in amounts sufficient to pay the costs of preparing, adopting, and implementing a solid waste

not mean imposing a tax on one, or that one has to give up something, for the benefit of another. At best, management plan, and that LGUs have access to the Solid Waste Management (SWM) Fund created under

the principle that property ownership and enjoyment bear a social function is but a reiteration of the Civil Section 4669 of the same law. Also, according to petitioner, it is evident that Ordinance No. S-2235 is
Law principle that property should not be enjoyed and abused to the injury of other properties and the inconsistent with R.A. No. 9003 for while the law encourages segregation, composting, and recycling of
community, and that the use of the property may be restricted by police power, the exercise of which is not waste, the ordinance only emphasizes the collection and payment of garbage fee; while the law calls for an
involved in this case. active involvement of the barangay in the collection, segregation, and recycling of garbage, the ordinance
skips such mandate.
Finally, petitioner alleges that 6 Bistekvilles will be constructed out of the SHT collected. Bistek is the
monicker of respondent City Mayor. The Bistekvilles makes it clear, therefore, that politicians will take the Lastly, in challenging the ordinance, petitioner avers that the garbage fee was collected even if the required
credit for the tax imposed on real property owners. publication of its approval had not yet elapsed. He notes that on January 7, 2014, he paid his realty tax
which already included the garbage fee.
On the Garbage Fee
 25

The Court�s Ruling may destroy, it may abridge and control. Unless there is some constitutional limitation on the right, the
legislature might, by a single act, and if we can suppose it capable of so great a folly and so great a wrong,
Respondents correctly argued that an ordinance, as in every law, is presumed valid. sweep from existence all of the municipal corporations in the State, and the corporation could not prevent
An ordinance carries with it the presumption of validity. The question of reasonableness though is open to it. We know of no limitation on the right so far as to the corporation themselves are concerned. They are, so
judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in to phrase it, the mere tenants at will of the legislature.
writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitive, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to This basic relationship between the national legislature and the local government units has not been
such an inquiry are the municipal conditions as a whole and the nature of the business made subject to enfeebled by the new provisions in the Constitution strengthening the policy of local autonomy. Without
imposition.70 meaning to detract from that policy, we here confirm that Congress retains control of the local government
chanroblesvirtuallawlibrary units although in significantly reduced degree now than under our previous Constitutions. The power to
For an ordinance to be valid though, it must not only be within the corporate powers of the LGU to enact create still includes the power to destroy. The power to grant still includes the power to withhold or recall.
and must be passed according to the procedure prescribed by law, it should also conform to the following True, there are certain notable innovations in the Constitution, like the direct conferment on the local
requirements: (1) not contrary to the Constitution or any statute; (2) not unfair or oppressive; (3) not partial government units of the power to tax, which cannot now be withdrawn by mere statute. By and large,
or discriminatory; (4) not prohibit but may regulate trade; (5) general and consistent with public policy; and however, the national legislature is still the principal of the local government units, which cannot defy its will
(6) not unreasonable.71 As jurisprudence indicates, the tests are divided into the formal (i.e., whether the or modify or violate it.77

ordinance was enacted within the corporate powers of the LGU and whether it was passed in accordance chanroblesvirtuallawlibrary
with the procedure prescribed by law), and the substantive (i.e., involving inherent merit, like the LGUs must be reminded that they merely form part of the whole; that the policy of ensuring the autonomy
conformity of the ordinance with the limitations under the Constitution and the statutes, as well as with of local governments was never intended by the drafters of the 1987 Constitution to create an imperium in
the requirements of fairness and reason, and its consistency with public imperio and install an intra-sovereign political subdivision independent of a single sovereign
policy).72ChanRoblesVirtualawlibrary state.78 �[M]unicipal corporations are bodies politic and corporate, created not only as local units of local
self-government, but as governmental agencies of the state. The legislature, by establishing a municipal
An ordinance must pass muster under the test of constitutionality and the test of consistency with the corporation, does not divest the State of any of its sovereignty; absolve itself from its right and duty to
prevailing laws.73 If not, it is void.74 Ordinance should uphold the principle of the supremacy of the administer the public affairs of the entire state; or divest itself of any power over the inhabitants of the
Constitution.75 As to conformity with existing statutes, Batangas CATV, Inc. v. Court of Appeals76 has this district which it possesses before the charter was granted.�79ChanRoblesVirtualawlibrary
to say:
chanRoblesvirtualLawlibrary LGUs are able to legislate only by virtue of a valid delegation of legislative power from the national
It is a fundamental principle that municipal ordinances are inferior in status and subordinate to the laws legislature; they are mere agents vested with what is called the power of subordinate
of the state. An ordinance in conflict with a state law of general character and statewide application is legislation.80�Congress enacted the LGC as the implementing law for the delegation to the various LGUs
universally held to be invalid. The principle is frequently expressed in the declaration that municipal of the State�s great powers, namely: the police power, the power of eminent domain, and the power of
authorities, under a general grant of power, cannot adopt ordinances which infringe the spirit of a state law taxation. The LGC was fashioned to delineate the specific parameters and limitations to be complied with
or repugnant to the general policy of the state. In every power to pass ordinances given to a municipality, by each LGU in the exercise of these delegated powers with the view of making each LGU a fully
there is an implied restriction that the ordinances shall be consistent with the general law. In the language functioning subdivision of the State subject to the constitutional and statutory
of Justice Isagani Cruz (ret.), this Court, in Magtajas vs. Pryce Properties Corp., Inc., ruled that: limitations.�81ChanRoblesVirtualawlibrary
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The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal Specifically, with regard to the power of taxation, it is indubitably the most effective instrument to raise
governments are only agents of the national government. Local councils exercise only delegated legislative needed revenues in financing and supporting myriad activities of the LGUs for the delivery of basic services
powers conferred on them by Congress as the national lawmaking body. The delegate cannot be superior to essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of
the principal or exercise powers higher than those of the latter. It is a heresy to suggest that the local the people.82 As this Court opined in National Power Corp. v. City of Cabanatuan:83cralawlawlibrary
government units can undo the acts of Congress, from which they have derived their power in the first In recent years, the increasing social challenges of the times expanded the scope of state activity, and
place, and negate by mere ordinance the mandate of the statute. taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
chanroblesvirtuallawlibrary progress and the protection of local industries as well as public welfare and similar objectives. Taxation
Municipal corporations owe their origin to, and derive their powers and rights wholly from the legislature. It assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to
breathes into them the breath of life, without which they cannot exist. As it creates, so it may destroy. As it tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to
 26

levy taxes, fees and other charges pursuant to Article X, Section 5 of the 1987 Constitution, viz:
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�Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.�
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This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country�s highly centralized government structure has bred a culture of dependence among local
provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional;
the constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not
be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit
will have its fair share of available resources; (c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform, and just.�88ChanRoblesVirtualawlibrary
Subject to the provisions of the LGC and consistent with the basic policy of local autonomy, every LGU is

government leaders upon the national leadership. It has also �dampened the spirit of initiative, innovation now empowered and authorized to create its own sources of revenue and to levy taxes, fees, and charges

and imaginative resilience in matters of local development on the part of local government leaders.� The which shall accrue exclusively to the local government unit as well as to apply its resources and assets for

only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic productive, developmental, or welfare purposes, in the exercise or furtherance of their governmental or

services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this proprietary powers and functions.89 The relevant provisions of the LGC which establish the parameters of

goal, Section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code the taxing power of the LGUs are as follows:

that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant chanRoblesvirtualLawlibrary

of taxing powers x x x84 SECTION 130. Fundamental Principles. � The following fundamental principles shall govern the exercise of

chanroblesvirtuallawlibrary the taxing and other revenue-raising powers of local government units:

Fairly recently, We also stated in Pelizloy Realty Corporation v. Province of Benguet85 that:
chanRoblesvirtualLawlibrary (a) Taxation shall be uniform in each local government unit;

The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized
in Icard v. City Council of Baguio: (b) Taxes, fees, charges and other impositions shall:

chanRoblesvirtualLawlibrary chanRoblesvirtualLawlibrary

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of (1) be equitable and based as far as practicable on the taxpayer�s ability to pay;

taxation. The charter or statute must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or (2) be levied and collected only for public purposes;

ambiguity arising out of the term used in granting that power must be resolved against the municipality.
Inferences, implications, deductions � all these � have no place in the interpretation of the taxing power (3) not be unjust, excessive, oppressive, or confiscatory;

of a municipal corporation. [Underscoring supplied]

(4) not be contrary to law, public policy, national economic policy, or in restraint of trade;

x x x x
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private

Per Section 5, Article X of the 1987 Constitution, �the power to tax is no longer vested exclusively on person;

Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges.�
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be
Nevertheless, such authority is �subject to such guidelines and limitations as the Congress may provide.�
subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition
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unless otherwise specifically provided herein; and,
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
fiscal matters.86
chanroblesvirtuallawlibrary
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Indeed, LGUs have no inherent power to tax except to the extent that such power might be delegated to 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
them either by the basic law or by the statute.87 �Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may
 27

not extend to the levy of the following:

chanRoblesvirtualLawlibrary (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and
(a) Income tax, except when levied on banks and other financial institutions; local government units.
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(b) Documentary stamp tax; SECTION 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,
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise fees and charges levied and collected by highly urbanized and independent component cities shall accrue
provided herein; to them and distributed in accordance with the provisions of this Code.

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.
government unit concerned;
SECTION 186. Power To Levy Other Taxes, Fees or Charges. � Local government units may exercise the
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or
the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws:
or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise; Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or
contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or charges shall not be enacted without any prior public hearing conducted for the purpose.
fishermen; chanroblesvirtuallawlibrary
On the Socialized Housing Tax
(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; Contrary to petitioner�s submission, the 1987 Constitution explicitly espouses the view that the use of
property bears a social function and that all economic agents shall contribute to the common good.90 The
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, Court already recognized this in Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.:91cralawlawlibrary
fees or charges on petroleum products; Property has not only an individual function, insofar as it has to provide for the needs of the owner, but
also a social function insofar as it has to provide for the needs of the other members of society. The
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or principle is this:
services except as otherwise provided herein; chanRoblesvirtualLawlibrary
Police power proceeds from the principle that every holder of property, however absolute and unqualified
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of may be his title, holds it under the implied liability that his use of it shall not be injurious to the equal
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; enjoyment of others having an equal right to the enjoyment of their property, nor injurious to the right of
the community. Rights of property, like all other social and conventional rights, are subject to reasonable
(k) Taxes on premiums paid by way of reinsurance or retrocession; limitations in their enjoyment as shall prevent them from being injurious, and to such reasonable
restraints and regulations established by law as the legislature, under the governing and controlling power
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses vested in them by the constitution, may think necessary and expedient.92
or permits for the driving thereof, except tricycles; chanroblesvirtuallawlibrary
Police power, which flows from the recognition that salus populi est suprema lex (the welfare of the people is
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided the supreme law), is the plenary power vested in the legislature to make statutes and ordinances to
herein; promote the health, morals, peace, education, good order or safety and general welfare of the
people.93 Property rights of individuals may be subjected to restraints and burdens in order to fulfill the
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly objectives of the government in the exercise of police power. 94 In this jurisdiction, it is well-entrenched
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) that taxation may be made the implement of the state�s police power.95ChanRoblesVirtualawlibrary
otherwise known as the �Cooperative Code of the Philippines� respectively; and
 28

Ordinance No. SP-2095 imposes a Socialized Housing Tax equivalent to 0.5% on the assessed value of land themselves.105ChanRoblesVirtualawlibrary
in excess of Php100,000.00. This special assessment is the same tax referred to in R.A. No. 7279 or the
UDHA.96 The SHT is one of the sources of funds for urban development and housing program.97Section Moreover, within two years from the effectivity of the UDHA, the LGUs, in coordination with the NHA, are
43 of the law provides: directed to implement the relocation and resettlement of persons living in danger areas such as esteros,
chanRoblesvirtualLawlibrary railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and other public places like sidewalks,
Sec. 43. Socialized Housing Tax. � Consistent with the constitutional principle that the ownership and roads, parks, and playgrounds.106 In coordination with the NHA, the LGUs shall provide relocation or
enjoyment of property bear a social function and to raise funds for the Program, all local government units resettlement sites with basic services and facilities and access to employment and livelihood opportunities
are hereby authorized to impose an additional one-half percent (0.5%) tax on the assessed value of all sufficient to meet the basic needs of the affected families.107ChanRoblesVirtualawlibrary
lands in urban areas in excess of Fifty thousand pesos (P50,000.00).
chanroblesvirtuallawlibrary Clearly, the SHT charged by the Quezon City Government is a tax which is within its power to impose.
The rationale of the SHT is found in the preambular clauses of the subject ordinance, to wit: Aside from the specific authority vested by Section 43 of the UDHA, cities are allowed to exercise such
chanRoblesvirtualLawlibrary other powers and discharge such other functions and responsibilities as are necessary, appropriate, or
WHEREAS, the imposition of additional tax is intended to provide the City Government with sufficient incidental to efficient and effective provision of the basic services and facilities which include, among
funds to initiate, implement and undertake Socialized Housing Projects and other related preliminary others, programs and projects for low-cost housing and other mass dwellings.108 The collections made
activities; accrue to its socialized housing programs and projects. The tax is not a pure exercise of taxing power or
merely to raise revenue; it is levied with a regulatory purpose. The levy is primarily in the exercise of the
WHEREAS, the imposition of 0.5% tax will benefit the Socialized Housing Programs and Projects of the City police power for the general welfare of the entire city. It is greatly imbued with public interest. Removing
Government, specifically the marginalized sector through the acquisition of properties for human slum areas in Quezon City is not only beneficial to the underprivileged and homeless constituents but
settlements; advantageous to the real property owners as well. The situation will improve the value of the their property
investments, fully enjoying the same in view of an orderly, secure, and safe community, and will enhance
WHEREAS, the removal of the urban blight will definitely increase fair market value of properties in the the quality of life of the poor, making them law-abiding constituents and better consumers of business
city[.] products.
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The above-quoted are consistent with the UDHA, which the LGUs are charged to implement in their Though broad and far-reaching, police power is subordinate to constitutional limitations and is subject to
respective localities in coordination with the Housing and Urban Development Coordinating Council, the the requirement that its exercise must be reasonable and for the public good.109 In the words of City of
national housing agencies, the Presidential Commission for the Urban Poor, the private sector, and other Manila v. Hon. Laguio, Jr.:110cralawlawlibrary
non-government organizations.98 It is the declared policy of the State to undertake a comprehensive and The police power granted to local government units must always be exercised with utmost observance of
continuing urban development and housing program that shall, among others, uplift the conditions of the the rights of the people to due process and equal protection of the law. Such power cannot be exercised
underprivileged and homeless citizens in urban areas and in resettlement areas, and provide for the whimsically, arbitrarily or despotically as its exercise is subject to a qualification, limitation or restriction
rational use and development of urban land in order to bring about, among others, reduction in urban demanded by the respect and regard due to the prescription of the fundamental law, particularly those
dysfunctions, particularly those that adversely affect public health, safety and ecology, and access to land forming part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected only to the
and housing by the underprivileged and homeless citizens.99 Urban renewal and resettlement shall extent that may fairly be required by the legitimate demands of public interest or public welfare. Due
include the rehabilitation and development of blighted and slum areas100 and the resettlement of program process requires the intrinsic validity of the law in interfering with the rights of the person to his life, liberty
beneficiaries in accordance with the provisions of the UDHA.101ChanRoblesVirtualawlibrary and property.

Under the UDHA, socialized housing102 shall be the primary strategy in providing shelter for the x x x x
underprivileged and homeless.103 The LGU or the NHA, in cooperation with the private developers and
concerned agencies, shall provide socialized housing or resettlement areas with basic services and facilities To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance, and
such as potable water, power and electricity, and an adequate power distribution system, sewerage to free it from the imputation of constitutional infirmity, not only must it appear that the interests of the
facilities, and an efficient and adequate solid waste disposal system; and access to primary roads and public generally, as distinguished from those of a particular class, require an interference with private
transportation facilities.104 The provisions for health, education, communications, security, recreation, rights, but the means adopted must be reasonably necessary for the accomplishment of the purpose and
relief and welfare shall also be planned and be given priority for implementation by the LGU and concerned not unduly oppressive upon individuals. It must be evident that no other alternative for the
agencies in cooperation with the private sector and the beneficiaries accomplishment of the purpose less intrusive of private rights can work. A reasonable relation must exist
 29

between the purposes of the police measure and the means employed for its accomplishment, for even oppressive since the tax being imposed therein is below what the UDHA actually allows. As pointed out by
under the guise of protecting the public interest, personal rights and those pertaining to private property respondents, while the law authorizes LGUs to collect SHT on lands with an assessed value of more than
will not be permitted to be arbitrarily invaded. P50,000.00, the questioned ordinance only covers lands with an assessed value exceeding P100,000.00.
Even better, on certain conditions, the ordinance grants a tax credit equivalent to the total amount of the
Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary special assessment paid beginning in the sixth (6th) year of its effectivity. Far from being obnoxious, the
intrusion into private rights � a violation of the due process clause.111 provisions of the subject ordinance are fair and just.
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As with the State, LGUs may be considered as having properly exercised their police power only if there is a On the Garbage Fee
lawful subject and a lawful method or, to be precise, if the following requisites are met: (1) the interests of
the public generally, as distinguished from those of a particular class, require its exercise and (2) the In the United States of America, it has been held that the authority of a municipality to regulate garbage
means employed are reasonably necessary for the accomplishment of the purpose and not unduly falls within its police power to protect public health, safety, and welfare.121 As opined, the purposes and
oppressive upon individuals.112ChanRoblesVirtualawlibrary policy underpinnings of the police power to regulate the collection and disposal of solid waste are: (1) to
preserve and protect the public health and welfare as well as the environment by minimizing or eliminating
In this case, petitioner argues that the SHT is a penalty imposed on real property owners because it a source of disease and preventing and abating nuisances; and (2) to defray costs and ensure financial
burdens them with expenses to provide funds for the housing of informal settlers, and that it is a class stability of the system for the benefit of the entire community, with the sum of all charges marshalled and
legislation since it favors the latter who occupy properties which is not their own and pay no taxes. designed to pay for the expense of a systemic refuse disposal scheme.122ChanRoblesVirtualawlibrary

We disagree. Ordinances regulating waste removal carry a strong presumption of validity.123 Not surprisingly, the
overwhelming majority of U.S. cases addressing a city's authority to impose mandatory garbage service and
Equal protection requires that all persons or things similarly situated should be treated alike, both as to fees have upheld the ordinances against constitutional and statutory
rights conferred and responsibilities imposed.113 The guarantee means that no person or class of persons challenges.124ChanRoblesVirtualawlibrary
shall be denied the same protection of laws which is enjoyed by other persons or other classes in like
circumstances.114 Similar subjects should not be treated differently so as to give undue favor to some and A municipality has an affirmative duty to supervise and control the collection of garbage within its
unjustly discriminate against others.115 The law may, therefore, treat and regulate one class differently corporate limits.125 The LGC specifically assigns the responsibility of regulation and oversight of solid
from another class provided there are real and substantial differences to distinguish one class from waste to local governing bodies because the Legislature determined that such bodies were in the best
another.116ChanRoblesVirtualawlibrary position to develop efficient waste management programs.126 To impose on local governments the
responsibility to regulate solid waste but not grant them the authority necessary to fulfill the same would
An ordinance based on reasonable classification does not violate the constitutional guaranty of the equal lead to an absurd result.�127 As held in one U.S. case:
protection of the law. The requirements for a valid and reasonable classification are: (1) it must rest on chanRoblesvirtualLawlibrary
substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited to x x x When a municipality has general authority to regulate a particular subject matter, the manner and
existing conditions only; and (4) it must apply equally to all members of the same means of exercising those powers, where not specifically prescribed by the legislature, are left to the
class.117ChanRoblesVirtualawlibrary discretion of the municipal authorities. x x x Leaving the manner of exercising municipal powers to the
discretion of municipal authorities "implies a range of reasonableness within which a municipality's
For the purpose of undertaking a comprehensive and continuing urban development and housing program, exercise of discretion will not be interfered with or upset by the judiciary."128
the disparities between a real property owner and an informal settler as two distinct classes are too obvious chanroblesvirtuallawlibrary
and need not be discussed at length. The differentiation conforms to the practical dictates of justice and In this jurisdiction, pursuant to Section 16 of the LGC and in the proper exercise of its corporate powers
equity and is not discriminatory within the meaning of the Constitution. Notably, the public purpose of a under Section 22 of the same, the Sangguniang Panlungsod of Quezon City, like other local legislative
tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one bodies, is empowered to enact ordinances, approve resolutions, and appropriate funds for the general
over another.118 It is inherent in the power to tax that a State is free to select the subjects of welfare of the city and its inhabitants.129 Section 16 of the LGC provides:
taxation.119 Inequities which result from a singling out of one particular class for taxation or exemption chanRoblesvirtualLawlibrary
infringe no constitutional limitation.120ChanRoblesVirtualawlibrary SECTION 16. General Welfare. � Every local government unit shall exercise the powers expressly granted,
those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient
Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not confiscatory or and effective governance, and those which are essential to the promotion of the general welfare. Within
 30

their respective territorial jurisdictions, local government units shall ensure and support, among other Government through the Sangguniang Panlungsod deems it necessary to impose a schedule of reasonable
things, the preservation and enrichment of culture, promote health and safety, enhance the right of the fees or charges for the garbage collection services for residential (domestic household) that it renders to the
people to a balanced ecology, encourage and support the development of appropriate and self-reliant public.
scientific and technological capabilities, improve public morals, enhance economic prosperity and social chanroblesvirtuallawlibrary
justice, promote full employment among their residents, maintain peace and order, and preserve the Certainly, as opposed to petitioner�s opinion, the garbage fee is not a tax. In Smart Communications, Inc. v.
comfort and convenience of their inhabitants. Municipality of Malvar, Batangas,139 the Court had the occasion to distinguish these two concepts:
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The general welfare clause is the delegation in statutory form of the police power of the State to In Progressive Development Corporation v. Quezon City, the Court declared that �if the generating of
LGUs.130 The provisions related thereto are liberally interpreted to give more powers to LGUs in revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if
accelerating economic development and upgrading the quality of life for the people in the regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the
community.131Wide discretion is vested on the legislative authority to determine not only what the imposition a tax.�
interests of the public require but also what measures are necessary for the protection of such interests
since the Sanggunian is in the best position to determine the needs of its In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that the purpose and effect of
constituents.132ChanRoblesVirtualawlibrary the imposition determine whether it is a tax or a fee, and that the lack of any standards for such
imposition gives the presumption that the same is a tax.
One of the operative principles of decentralization is that, subject to the provisions of the LGC and national We accordingly say that the designation given by the municipal authorities does not decide whether the
policies, the LGUs shall share with the national government the responsibility in the management and imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of
maintenance of ecological balance within their territorial jurisdiction.133 In this regard, cities are allowed the imposition as may be apparent from the provisions of the ordinance. Thus, �[w]hen no police
to exercise such other powers and discharge such other functions and responsibilities as are necessary, inspection, supervision, or regulation is provided, nor any standard set for the applicant to establish, or
appropriate, or incidental to efficient and effective provision of the basic services and facilities which that he agrees to attain or maintain, but any and all persons engaged in the business designated, without
include, among others, solid waste disposal system or environmental management system and services or qualification or hindrance, may come, and a license on payment of the stipulated sum will issue, to do
facilities related to general hygiene and sanitation.134 R.A. No. 9003, or the Ecological Solid Waste business, subject to no prescribed rule of conduct and under no guardian eye, but according to the
Management Act of 2000,135 affirms this authority as it expresses that the LGUs shall be primarily unrestrained judgment or fancy of the applicant and licensee, the presumption is strong that the power of
responsible for the implementation and enforcement of its provisions within their respective jurisdictions taxation, and not the police power, is being exercised.�
while establishing a cooperative effort among the national government, other local government units, non- chanroblesvirtuallawlibrary
government organizations, and the private sector.136ChanRoblesVirtualawlibrary In Georgia, U.S.A., assessments for garbage collection services have been consistently treated as a fee and
not a tax.140 In another U.S. case,141 the garbage fee was considered as a "service charge" rather than a
Necessarily, LGUs are statutorily sanctioned to impose and collect such reasonable fees and charges for tax as it was actually a fee for a service given by the city which had previously been provided at no cost to
services rendered.137 �Charges� refer to pecuniary liability, as rents or fees against persons or property, its citizens.
while �Fee� means a charge fixed by law or ordinance for the regulation or inspection of a business or
activity.138ChanRoblesVirtualawlibrary Hence, not being a tax, the contention that the garbage fee under Ordinance No. SP-2235 violates the rule
on double taxation142 must necessarily fail.
The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge fixed for the regulation of
an activity. The basis for this could be discerned from the foreword of said Ordinance, to wit: Nonetheless, although a special charge, tax, or assessment may be imposed by a municipal corporation, it
chanRoblesvirtualLawlibrary must be reasonably commensurate to the cost of providing the garbage service.143 To pass judicial
WHEREAS, Quezon City being the largest and premiere city in the Philippines in terms of population and scrutiny, a regulatory fee must not produce revenue in excess of the cost of the regulation because such fee
urban geographical areas, apart from being competent and efficient in the delivery of public service, will be construed as an illegal tax when the revenue generated by the regulation exceeds the cost of the
apparently requires a big budgetary allocation in order to address the problems relative and connected to regulation.144ChanRoblesVirtualawlibrary
the prompt and efficient delivery of basic services such as the effective system of waste management,
public information programs on proper garbage and proper waste disposal, including the imposition of Petitioner argues that the Quezon City Government already collects garbage fee under Section 47 of R.A.
waste regulatory measures; No. 9003, which authorizes LGUs to impose fees in amounts sufficient to pay the costs of preparing,
adopting, and implementing a solid waste management plan, and that it has access to the SWM Fund
WHEREAS, to help augment the funds to be spent for the city�s waste management system, the City under Section 46 of the same law. Moreover, Ordinance No. S-2235 is inconsistent with R.A. No. 9003,
 31

because the ordinance emphasizes the collection and payment of garbage fee with no concern for
segregation, composting and recycling of wastes. It also skips the mandate of the law calling for the active (3) other appropriate waste reduction technologies that may also be considered, provided that such
involvement of the barangay in the collection, segregation, and recycling of garbage. technologies conform with the standards set pursuant to this Act;

We now turn to the pertinent provisions of R.A. No. 9003. (4) the types of wastes to be reduced pursuant to Section 15 of this Act;

Under R.A. No. 9003, it is the declared policy of the State to adopt a systematic, comprehensive and (5) the methods that the LGU will use to determine the categories of solid wastes to be diverted from
ecological solid waste management program which shall, among others, ensure the proper segregation, disposal at a disposal facility through re-use, recycling and composting; and
collection, transport, storage, treatment and disposal of solid waste through the formulation and adoption
of the best environmental practices in ecological waste management.145 The law provides that segregation (6) new facilities and of expansion of existing facilities which will be needed to implement re-use, recycling
and collection of solid waste shall be conducted at the barangay level, specifically for biodegradable, and composting.
compostable and reusable wastes, while the collection of non-recyclable materials and special wastes shall chanroblesvirtuallawlibrary
be the responsibility of the municipality or city.146 Mandatory segregation of solid wastes shall primarily The LGU source reduction component shall include the evaluation and identification of rate structures and
be conducted at the source, to include household, institutional, industrial, commercial and agricultural fees for the purpose of reducing the amount of waste generated, and other source reduction strategies,
sources.147Segregation at source refers to a solid waste management practice of separating, at the point of including but not limited to, programs and economic incentives provided under Sec. 45 of this Act to
origin, different materials found in solid waste in order to promote recycling and re-use of resources and to reduce the use of non-recyclable materials, replace disposable materials and products with reusable
reduce the volume of waste for collection and disposal.148 Based on Rule XVII of the Department of materials and products, reduce packaging, and increase the efficiency of the use of paper, cardboard,
Environment and Natural Resources (DENR) Administrative Order No. 2001-34, Series of 2001,149 which glass, metal, and other materials. The waste reduction activities of the community shall also take into
is the Implementing Rules and Regulations (IRR) of R.A. No. 9003, barangays shall be responsible for the account, among others, local capability, economic viability, technical requirements, social concerns,
collection, segregation, and recycling of biodegradable, recyclable, compostable and reusable disposition of residual waste and environmental impact: Provided, That, projection of future facilities
wastes.150 For the purpose, a Materials Recovery Facility (MRF), which shall receive biodegradable wastes needed and estimated cost shall be incorporated in the plan. x x x154
for composting and mixed non-biodegradable wastes for final segregation, re-use and recycling, is to be chanroblesvirtuallawlibrary
established in every barangay or cluster of barangays.151ChanRoblesVirtualawlibrary The solid waste management plan shall also include an implementation schedule for solid waste diversion:
chanRoblesvirtualLawlibrary
According to R.A. 9003, an LGU, through its local solid waste management board, is mandated by law to SEC. 20. Establishing Mandatory Solid Waste Diversion. � Each LGU plan shall include an implementation
prepare a 10-year solid waste management plan consistent with the National Solid Waste Management schedule which shows that within five (5) years after the effectivity of this Act, the LGU shall divert at least
Framework.152 The plan shall be for the re-use, recycling and composting of wastes generated in its 25% of all solid waste from waste disposal facilities through re-use, recycling, and composting activities
jurisdiction; ensure the efficient management of solid waste generated within its jurisdiction; and place and other resource recovery activities: Provided, That the waste diversion goals shall be increased every
primary emphasis on implementation of all feasible re-use, recycling, and composting programs while three (3) years thereafter: Provided, further, That nothing in this Section prohibits a local government unit
identifying the amount of landfill and transformation capacity that will be needed for solid waste which from implementing re-use, recycling, and composting activities designed to exceed the goal.
cannot be re-used, recycled, or composted.153 One of the components of the solid waste management plan chanroblesvirtuallawlibrary
is source reduction: The baseline for the twenty-five percent (25%) shall be derived from the waste characterization
chanRoblesvirtualLawlibrary result155that each LGU is mandated to undertake.156ChanRoblesVirtualawlibrary
(e) Source reduction � The source reduction component shall include a program and implementation
schedule which shows the methods by which the LGU will, in combination with the recycling and In accordance with Section 46 of R.A. No. 9003, the LGUs are entitled to avail of the SWM Fund on the
composting components, reduce a sufficient amount of solid waste disposed of in accordance with the basis of their approved solid waste management plan. Aside from this, they may also impose SWM Fees
diversion requirements of Section 20. under Section 47 of the law, which states:
chanRoblesvirtualLawlibrary
The source reduction component shall describe the following: SEC. 47. Authority to Collect Solid Waste Management Fees � The local government unit shall impose fees
chanRoblesvirtualLawlibrary in amounts sufficient to pay the costs of preparing, adopting, and implementing a solid waste management
(1) strategies in reducing the volume of solid waste generated at source; plan prepared pursuant to this Act. The fees shall be based on the following minimum factors:
chanRoblesvirtualLawlibrary
(2) measures for implementing such strategies and the resources necessary to carry out such activities;
 32

(a) types of solid waste; g) type of technology

chanroblesvirtuallawlibrary
(b) amount/volume of waste; and Section 3. Collection of Fees. � Fees may be collected corresponding to the following levels:
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(c) distance of the transfer station to the waste management facility. a) Barangay � The Barangay may impose fees for collection and segregation of biodegradable, compostable
chanroblesvirtuallawlibrary and reusable wastes from households, commerce, other sources of domestic wastes, and for the use of
The fees shall be used to pay the actual costs incurred by the LGU in collecting the local fees. In Barangay MRFs. The computation of the fees shall be established by the respective SWM boards. The
determining the amounts of the fees, an LGU shall include only those costs directly related to the adoption manner of collection of the fees shall be dependent on the style of administration of respective Barangay
and implementation of the plan and the setting and collection of the local fees. Councils. However, all transactions shall follow the Commission on Audit rules on collection of fees.
chanroblesvirtuallawlibrary
Rule XVII of the IRR of R.A. No. 9003 sets forth the details: b) Municipality � The municipal and city councils may impose fees on the barangay MRFs for the
chanRoblesvirtualLawlibrary collection and transport of non-recyclable and special wastes and for the disposal of these into the sanitary
Section 1. Power to Collect Solid Waste Management Fees. � The Local SWM Board/Local SWM Cluster landfill. The level and procedure for exacting fees shall be defined by the Local SWM Board/Local SWM
Board shall impose fees on the SWM services provided for by the LGU and/or any authorized organization Cluster Board and supported by LGU ordinances, however, payments shall be consistent with the
or unit. In determining the amounts of the fees, a Local SWM Board/Local SWM Cluster Board shall accounting system of government.
include only those costs directly related to the adoption and implementation of the SWM Plan and the
setting and collection of the local fees. This power to impose fees may be ceded to the private sector and c) Private Sector/Civil Society Group � On the basis of the stipulations of contract or Memorandum of
civil society groups which have been duly accredited by the Local SWM Board/Local SWM Cluster Board; Agreement, the private sector or civil society group shall impose fees for collection, transport and tipping in
provided, the SWM fees shall be covered by a Contract or Memorandum of Agreement between the their SLFs. Receipts and invoices shall be issued to the paying public or to the government.
respective board and the private sector or civil society group. chanroblesvirtuallawlibrary
From the afore-quoted provisions, it is clear that the authority of a municipality or city to impose fees is
The fees shall pay for the costs of preparing, adopting and implementing a SWM Plan prepared pursuant to limited to the collection and transport of non-recyclable and special wastes and for the disposal of these
the Act. Further, the fees shall also be used to pay the actual costs incurred in collecting the local fees and into the sanitary landfill. Barangays, on the other hand, have the authority to impose fees for the collection
for project sustainability. and segregation of biodegradable, compostable and reusable wastes from households, commerce, other
sources of domestic wastes, and for the use of barangay MRFs. This is but consistent with Section 10 of
Section 2. Basis of SWM Service Fees R.A. No. 9003 directing that segregation and collection of biodegradable, compostable and reusable wastes
shall be conducted at the barangay level, while the collection of non-recyclable materials and special
Reasonable SWM service fees shall be computed based on but not limited to the following minimum wastes shall be the responsibility of the municipality or city.
factors:
chanRoblesvirtualLawlibrary In this case, the alleged bases of Ordinance No. S-2235 in imposing the garbage fee is the volume of waste
a) Types of solid waste to include special waste currently generated by each person in Quezon City, which purportedly stands at 0.66 kilogram per day,
and the increasing trend of waste generation for the past three years.157 Respondents did not elaborate
b) amount/volume of waste any further. The figure presented does not reflect the specific types of wastes generated � whether
residential, market, commercial, industrial, construction/demolition, street waste, agricultural, agro-
c) distance of the transfer station to the waste management facility industrial, institutional, etc. It is reasonable, therefore, for the Court to presume that such amount
pertains to the totality of wastes, without any distinction, generated by Quezon City constituents. To
d) capacity or type of LGU constituency reiterate, however, the authority of a municipality or city to impose fees extends only to those related to the
collection and transport of non-recyclable and special wastes.
e) cost of construction

Granting, for the sake of argument, that the 0.66 kilogram of solid waste per day refers only to non-
f) cost of management recyclable and special wastes, still, We cannot sustain the validity of Ordinance No. S-2235. It violates the
equal protection clause of the Constitution and the provisions of the LGC that an ordinance must be
equitable and based as far as practicable on the taxpayer�s ability to pay, and not unjust, excessive,
 33

oppressive, confiscatory.158ChanRoblesVirtualawlibrary Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared purpose of
�promoting shared responsibility with the residents to attack their common mindless attitude in over-
In the subject ordinance, the rates of the imposable fee depend on land or floor area and whether the payee consuming the present resources and in generating waste.�160 Instead of simplistically categorizing the
is an occupant of a lot, condominium, social housing project or apartment. For easy reference, the relevant payee into land or floor occupant of a lot or unit of a condominium, socialized housing project or
provision is again quoted below: apartment, respondent City Council should have considered factors that could truly measure the amount
chanRoblesvirtualLawlibrary of wastes generated and the appropriate fee for its collection. Factors include, among others, household age
On all domestic households in Quezon City; and size, accessibility to waste collection, population density of the barangay or district, capacity to pay,
LAND AREA IMPOSABLE FEE and actual occupancy of the property. R.A. No. 9003 may also be looked into for guidance. Under said law,

Less than 200 sq. m.
201 sq. m. � 500 sq. m.
501 sq. m. � 1,000 sq. m.
1,001 sq. m. � 1,500 sq. m.
1,501 sq. m. � 2,000 sq. m. or more
On all condominium unit and socialized housing projects/units in Quezon City;
PHP 100.00 SWM service fees may be computed based on minimum factors such as types of solid waste to include
special waste, amount/volume of waste, distance of the transfer station to the waste management facility,
PHP 200.00
capacity or type of LGU constituency, cost of construction, cost of management, and type of technology.
PHP 300.00
With respect to utility rates set by municipalities, a municipality has the right to classify consumers under
PHP 400.00
reasonable classifications based upon factors such as the cost of service, the purpose for which the service
PHP 500.00 or the product is received, the quantity or the amount received, the different character of the service
furnished, the time of its use or any other matter which presents a substantial difference as a ground of

FLOOR AREA IMPOSABLE FEE distinction.161cralawlawlibrary

Less than 40 sq. m. PHP25.00 [A] lack of uniformity in the rate charged is not necessarily unlawful discrimination. The establishment of
classifications and the charging of different rates for the several classes is not unreasonable and does not
41 sq. m. � 60 sq. m. PHP50.00
violate the requirements of equality and uniformity. Discrimination to be unlawful must draw an unfair line
61 sq. m. � 100 sq. m. PHP75.00
or strike an unfair balance between those in like circumstances having equal rights and privileges.
101 sq. m. � 150 sq. m. PHP100.00 Discrimination with respect to rates charged does not vitiate unless it is arbitrary and without a reasonable
151 sq. m. � 200 sq. [m.] or more PHP200.00 fact basis or justification.162
On high-rise Condominium Units chanroblesvirtuallawlibrary
On top of an unreasonable classification, the penalty clause of Ordinance No. SP-2235, which states:

a) High-rise Condominium � The Homeowners Association of high rise condominiums shall pay the chanRoblesvirtualLawlibrary

annual garbage fee on the total size of the entire condominium and socialized Housing Unit and an SECTION 3. Penalty Clause � A penalty of 25% of the garbage fee due plus an interest of 2% per month or

additional garbage fee shall be collected based on area occupied for every unit already sold or being a fraction thereof (interest) shall be charged against a household owner who refuses to pay the garbage fee

amortized. herein imposed.

b) High-rise apartment units � Owners of high-rise apartment units shall pay the annual garbage fee on chanroblesvirtuallawlibrary

the total lot size of the entire apartment and an additional garbage fee based on the schedule lacks the limitation required by Section 168 of the LGC, which provides:

prescribed herein for every unit occupied. chanRoblesvirtualLawlibrary

For the purpose of garbage collection, there is, in fact, no substantial distinction between an occupant of a SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. � The sanggunian may impose

lot, on one hand, and an occupant of a unit in a condominium, socialized housing project or apartment, on a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges not paid on time and
the other hand. Most likely, garbage output produced by these types of occupants is uniform and does not an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges
vary to a large degree; thus, a similar schedule of fee is both just and including surcharges, until such amount is fully paid but in no case shall the total interest on the
equitable.159ChanRoblesVirtualawlibrary unpaid amount or portion thereof exceed thirty-six (36) months. (Emphasis supplied)
chanroblesvirtuallawlibrary
The rates being charged by the ordinance are unjust and inequitable: a resident of a 200 sq. m. unit in a Finally, on the issue of publication of the two challenged ordinances.
condominium or socialized housing project has to pay twice the amount than a resident of a lot similar in
size; unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and less have to pay a fixed Petitioner argues that the garbage fee was collected even if the required publication of its approval had not

rate of Php100.00; and the same amount of garbage fee is imposed regardless of whether the resident is yet elapsed. He notes that he paid his realty tax on January 7, 2014 which already included the garbage

from a condominium or from a socialized housing project. fee. Respondents counter that if the law provides for its own effectivity, publication in the Official Gazette is
not necessary so long as it is not penal in nature. Allegedly, Ordinance No. SP-2095 took effect after its
 34

publication while Ordinance No. SP-2235 became effective after its approval on December 26, 2013. not comply with the posting and publication requirements of the law. Thus, We are constrained not to give
credit to his unsupported claim.
The pertinent provisions of the LGC state:
chanRoblesvirtualLawlibrary WHEREFORE, the petition is PARTIALLY GRANTED. The constitutionality and legality of Ordinance No.
SECTION 59. Effectivity of Ordinances or Resolutions. � (a) Unless otherwise stated in the ordinance or SP-2095, S-2011, or the �Socialized Housing Tax of Quezon City,� is SUSTAINED for being consistent
the resolution approving the local development plan and public investment program, the same shall take with Section 43 of Republic Act No. 7279. On the other hand, Ordinance No. SP-2235, S-2013, which
effect after ten (10) days from the date a copy thereof is posted in a bulletin board at the entrance of collects an annual garbage fee on all domestic households in Quezon City, is hereby declared
the provincial capitol or city, municipal, or barangay hall, as the case may be, and in at least two (2) other as UNCONSTITUTIONAL AND ILLEGAL. Respondents are DIRECTED to REFUND with reasonable
conspicuous places in the local government unit concerned. dispatch the sums of money collected relative to its enforcement.

(b) The secretary to the sanggunian concerned shall cause the posting of an ordinance or resolution in the The temporary restraining order issued by the Court on February 5, 2014 is LIFTED with respect to
bulletin board at the entrance of the provincial capitol and the city, municipal, or barangay hall in at least Ordinance No. SP-2095. In contrast, respondents are PERMANENTLY ENJOINED from taking any further
two (2) conspicuous places in the local government unit concerned not later than five (5) days after action to enforce Ordinance No. SP. 2235.
approval thereof.
SO ORDERED.cralawlawlibrary
The text of the ordinance or resolution shall be disseminated and posted in Filipino or English and in the
language or dialect understood by the majority of the people in the local government unit concerned, and
the secretary to the sanggunian shall record such fact in a book kept for the purpose, stating the dates of
approval and posting.

(c) The gist of all ordinances with penal sanctions shall be published in a newspaper of general circulation
within the province where the local legislative body concerned belongs. In the absence of any newspaper of
general circulation within the province, posting of such ordinances shall be made in all municipalities and
cities of the province where the sanggunian of origin is situated.

(d) In the case of highly urbanized and independent component cities, the main features of the ordinance or
resolution duly enacted or adopted shall, in addition to being posted, be published once in a local
newspaper of general circulation within the city: Provided, That in the absence thereof the
ordinance or resolution shall be published in any newspaper of general circulation.

SECTION 188. Publication of Tax Ordinances and Revenue Measures. � Within ten (10) days after their
approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper of local circulation : Provided,
however, That in provinces, cities and municipalities where there are no newspapers of local circulation,
the same may be posted in at least two (2) conspicuous and publicly accessible places. (Emphasis supplied)
chanroblesvirtuallawlibrary
On October 17, 2011, respondent Quezon City Council enacted Ordinance No. SP-2095, which provides
that it would take effect after its publication in a newspaper of general circulation.163 On the other hand,
Ordinance No. SP-2235, which was passed by the City Council on December 16, 2013, provides that it
would be effective upon its approval.164 Ten (10) days after its enactment, or on December 26, 2013,
respondent City Mayor approved the same.165ChanRoblesVirtualawlibrary

The case records are bereft of any evidence to prove petitioner�s negative allegation that respondents did