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MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY
MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY
ASSESSOR OF PASAY, respondents.
D E C I S I O N
CARPIO, J p:
This is a petition for review on certiorari 1 of the Decision 2 dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy
Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO
903), 3 otherwise known as the Revised Charter of the Manila International Airport
Authority. EO 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Under
Sections 3 4 and 22 5 of EO 903, approximately 600 hectares of land, including the runways, the
airport tower, and other airport buildings, were transferred to MIAA. The NAIA Complex is
located along the border between Pasay City and Parañaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the
City of Pasay for the taxable years 1992 to 2001. MIAA's real property tax delinquency for its
real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay
properties) is tabulated as follows: EIcSDC
TAX TAXABLE TAX DUE PENALTY TOTAL
DECLARATION YEAR
A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18
A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98
A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20
A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44
A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85
A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28
A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58
A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36
A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33
A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13
A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00
——————— ——————— ———————
GRAND TOTAL P642,747,726.20 P373,466,110.13 P1,016,213,836.33
============= ============ =============
On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and
warrants of levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy
on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to sell at public auction the
NAIA Pasay properties if the delinquent real property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and
injunction with prayer for preliminary injunction or temporary restraining order. The petition
sought to enjoin the City of Pasay from imposing real property taxes on, levying against, and
auctioning for public sale the NAIA Pasay properties.
On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the
City of Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a
motion for reconsideration, which the Court of Appeals denied. Hence, this petition.
The Court of Appeals' Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local
Government Code, which took effect on 1 January 1992, withdrew the exemption from payment
of real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under Republic
Act No. 6938, non-stock and non-profit hospitals and educational institutions. Since MIAA is a
government-owned corporation, it follows that its tax exemption under Section 21 of EO 903 has
been withdrawn upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from
real property tax.
The Court's Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited
Sections 193 and 234 of the Local Government Code which read:
SEC. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
SEC. 234. Exemptions from Real Property Tax. — The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment
protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAA's tax exemption
under Section 21 of EO 903 has already been withdrawn upon the effectivity of theLocal
Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals 6 (2006 MIAA case), this Court
already resolved the issue of whether the airport lands and buildings of MIAA are exempt from
tax under existing laws. The 2006 MIAA case originated from a petition for prohibition and
injunction which MIAA filed with the Court of Appeals, seeking to restrain the City of
Parañaque from imposing real property tax on, levying against, and auctioning for public sale the
airport lands and buildings located in Parañaque City. The only difference between the 2006
MIAA case and this case is that the 2006 MIAA case involved airport lands and buildings
located in Parañaque City while this case involved airport lands and buildings located in Pasay
City. The 2006 MIAA case and this case raised the same threshold issue: whether the local
government can impose real property tax on the airport lands, consisting mostly of the runways,
as well as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation
under Section 2 (13) of the Introductory Provisions of the Administrative Code
because it is not organized as a stock or non-stock corporation. Neither is MIAA
a government-owned or controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with
corporate powers and performing essential public services pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under theLocal Government Code. Such exception
applies only if the beneficial use of real property owned by the Republic is
given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil Code
provides: TSEHcA
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth.
The term "ports . . . constructed by the State" includes airports and seaports.
The Airport Lands and Buildings of MIAA are intended for public use, and at
the very least intended for public service. Whether intended for public use or
public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code. 7 (Emphasis in the original)
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes . . . government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a
"government-owned or controlled corporation". Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation".
Section 2 (10) provides:
SEC. 2. General Terms Defined. — . . .
(10) Instrumentality refers to any agency of the national Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions
and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate definition under Section
2 (13) 8 of the Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. — . . .
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: Provided, That government-owned or
controlled corporations may further be categorized by the department of Budget,
the Civil Service Commission, and the Commission on Audit for the purpose of
the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.
The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation", there may be
a government "instrumentality" that will not qualify as a "government-owned or controlled
corporation".
A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2
(13) will show that MIAA would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a "government-owned or controlled
corporation". As explained in the 2006 MIAA case:
A government-owned or controlled corporation must be "organized as a stock or
non-stock corporation". MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. . . .
Section 3 of the Corporation Code defines a stock corporation as one
whose "capital stock is divided into shares and . . . authorized to distribute to
the holders of such shares dividends . . . ." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence,
MIAA is not a stock corporation.
xxx xxx xxx
MIAA is also not a non-stock corporation because it has no members. Section
87 of the Corporation Code defines a non-stock corporation as "one where no
part of its income is distributable as dividends to its members, trustees or
officers". A non-stock corporation must have members. Even if we assume that
the Government is considered as the sole member of MIAA, this will not make
MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock
corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers". MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the legal
status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested
with corporate powers. . . .
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains
a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of
eminent domain, police authority and the levying of fees and charges. At
the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order." 9
Thus, MIAA is not a government-owned or controlled corporation but a government
instrumentality which is exempt from any kind of tax from the local governments. Indeed,
the exercise of the taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code. 10 Under Section 133 (o) 11 of
theLocal Government Code, local government units have no power to tax instrumentalities
of the national government like the MIAA. Hence, MIAA is not liable to pay real property
tax for the NAIA Pasay properties. aCITEH
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended
for public use, and as such are exempt from real property tax under Section 234 (a) of the Local
Government Code. However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real property tax. 12 In this case,
only those portions of the NAIA Pasay properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002
and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
We DECLARE the NAIA Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay. We declareVOID all
the real property tax assessments, including the final notices of real property tax delinquencies,
issued by the City of Pasay on the NAIA Pasay properties of the Manila International Airport
Authority, except for the portions that the Manila International Airport Authority has leased to
private parties.
No costs.
SO ORDERED.
MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS, in his
capacity as the Presiding Judge of the Regional Trial Court, Branch 20,
Cebu City, THE CITY OF CEBU, represented by its Mayor, HON.
TOMAS R. OSMEÑA, and EUSTAQUIO B. CESA,respondents.
The Solicitor General for petitioner.
The Office of the City Attorney for City of Cebu.
SYLLABUS
1. POLITICAL LAW; GOVERNMENT; POWER OF TAXATION; CONSTRUED. — As a
general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only
in the responsibility of the legislature which imposes the tax on the constituency who are to pay
it. Nevertheless, effective limitations thereon may be imposed by the people through
their Constitution. Our Constitution, for instance, provides that the rule of taxation shall be
uniform and equitable and Congress shall evolve a progressive system of taxation. So potent
indeed is the power that it was once opined that "the power to tax involves the power to destroy."
Verily, taxation is a destructive power which interferes with the personal and property rights of
the people and takes from them a portion of their property for the support of the government.
Accordingly, tax statutes must be construed strictly against the government and liberally in favor
of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and statutes granting the exemptions are
thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
A claim of exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the
exception. However, if the grantee of the exemption is a political subdivision or instrumentality,
the rigid rule of construction does not apply because the practical effect of the exemption is
merely to reduce the amount of money that has to be handled by the government in the course of
its operation.
2. ID., ID.; ID.; MAYBE EXERCISED BY THE LOCAL LEGISLATIVE BODIES. — The
power to tax is primarily vested in the Congress; however, in our jurisdictions, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X of theConstitution. Under the
latter, the exercise of the power may be subject to such guidelines and limitations as the
Congress may provide which, however, must be consistent with the basic policy of local
autonomy. The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for
the exercise by local government units of their power to tax, the scope thereof or its limitations,
and the exemptions from taxation. Section 133 of the LGC prescribes the common limitations on
the taxing powers of local government units.
3. ID.; ID .; ID.; EXEMPTION FROM PAYMENT OF TAX MAYBE WITHDRAWN AT THE
PLEASURE OF THE TAXING AUTHORITY; EXCEPTION. — There can be no question that
under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes
imposed by the National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception,
the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception
to this rule is where the exemption was granted to private parties based on material consideration
of a mutual nature, which then becomes contractual and is thus covered by the non-impairment
claim of the Constitution.
4. ID.; LOCAL GOVERNMENT CODE; SEC. 234 PROVIDES FOR THE EXEMPTION
FROM THE PAYMENT OF REAL PROPERTY TAX; BASIS THEREOF. — Section 234 of
theLGC provides for the exemptions from payment of real property taxes and withdraws
previous exemptions therefrom granted to natural and juridical persons, including government-
owned and controlled corporations, except as provided therein. These exemptions are based on
the ownership, character, and use of the property. Thus: (a) Ownership Exemptions. Exemptions
from real property taxes on the basis of ownership are real properties owned by: (i) the Republic,
(ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, (vi) registered cooperatives. (b)
character exemptions. Exempted from real property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries. (c) Usage exemptions.
Exempted from real property taxes on the basis of the actual, direct and exclusive use to which
they are devoted are: (i) all lands, buildings and improvements which are actually, directly and
exclusively used for religious, charitable or educational purposes; (ii) all machineries and
equipment actually, directly and exclusively used by local water districts or by government-
owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; and (iii) all machinery and equipment used for
pollution control and environmental protection. To help provide a healthy environment in the
midst of the modernization of the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments. 2. Other Exemptions
Withdrawn. All other exemptions previously granted to natural or juridical persons including
government-owned or controlled corporations are withdrawn upon effectivity of the Code.
5. ID.; REPUBLIC OF THE PHILIPPINES AS DISTINGUISHED FROM NATIONAL
GOVERNMENT. — The terms "Republic of the Philippines" and "National Government" are
not interchangeable. The former is broader and synonymous with "Government of the Republic
of the Philippines" which the Administrative Code of 1987 defines as the "corporate
governmental entity through which the functions of government are exercised throughout the
Philippines, including, save as the contrary appears from the context, the various arms through
which political authority is made effective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of
local government." (Section 2[1], Introductory Provisions, Administrative Code of 1987.) These
"autonomous regions, provincial, city, municipal or barangay subdivisions" are the political
subdivisions. (Section l, Article X, 1987 Constitution.) On the other hand, "National
Government" refers "to the entire machinery of the central government, as distinguished from the
different forms of local government." (Section 2[2], Introductory Provisions, Administrative
Code of 1987. The National Government then is composed of the three great departments: the
executive, the legislative and the judicial.
6. ID.; GOVERNMENT; AGENCY AS DISTINGUISHED FROM INSTRUMENTALITY. —
An "agency" of the Government refers to "any of the various units of the Government, including
a department, bureau, office, instrumentality, or government-owned or controlled corporation, or
a local government or a distinct unit therein," while an "instrumentality" refers to "any agency of
the National Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually, through a charter. This term includes
regulatory agencies, chartered institutions and government-owned and controlled corporations."
D E C I S I O N
DAVIDE, JR., J p:
For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22
March 1995 1 of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the
petition for declaratory relief in Civil Case No. CEB-16900, entitled "Mactan Cebu International
Airport Authority vs. City of Cebu," and its order of 4 May 1995 2 denying the motion to
reconsider the decision.
We resolved to give due course to this petition for it raises issues dwelling on the scope of the
taxing power of local government units and the limits of tax exemption privileges of
government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue
of Republic Act No. 6958, mandated to "principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City, . . . and such other airports as may be
established in the Province of Cebu . . ." (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop international and domestic air traffic in the
Central Visayas and Mindanao regions as a means of making the regions
centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the
country; and,
b) upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and
service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter:
Sec. 14. Tax Exemptions. — The Authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities . . ..
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the
Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land
belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M,
918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor
the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing governmental functions,
citing Section 133 of the Local Government Codeof 1991 which puts limitations on the taxing
powers of local government units:
Section 133. Common Limitations on the Taxing Powers of Local Government
Units. — Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units. (italics supplied)
Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect on
January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
(italics supplied)
xxx xxx xxx
Section 234. Exemptions from Real Property Taxes. — . . .
(a) . . .
xxx xxx xxx
(e) . . .
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against the properties
of petitioner, the latter was compelled to pay its tax account "under protest" and
thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of
Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the
taxing powers of local government units do not extend to the levy of taxes or
fees of any kind on an instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned corporation, it nonetheless
stands on the same footing as an agency or instrumentality of the national
government by the very nature of its powers and functions.
Respondent City, however, asserted that MCIAA is not an instrumentality of the
government but merely a government-owned corporation performing
proprietary functions. As such, all exemptions previously granted to it were
deemed withdrawn by operation of law, as provided under Sections 193 and 234
of the Local Government Code when it took effect on January 1, 1992. 3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its findings, to
wit:
A close reading of the New Local Government Code of 1991 or RA
7160 provides the express cancellation and withdrawal of exemption of taxes by
government-owned and controlled corporation per Sections after the effectivity
of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and
234]
Petitioners claimed that its real properties assessed by respondent City
Government of Cebu are exempted from paying realty taxes in view of the
exemption granted under RA 6958 to pay the same (citing Section 14 of RA
6958).
However, RA 7160 expressly provides that "All general and special laws, acts,
city charters, decrees [sic], executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly." (/f/,
Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the tax
exemption provided for in RA 6958 creating petitioner had been expressly
repealed by the provisions of the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of its properties
effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. "It is hereby
declared the policy of the State that the territorial and political subdivisions of
the State shall enjoy genuine and meaningful local autonomy to enable them to
attain their fullest development as self-reliant communities and make them more
effective partners in the attainment of national goals. Toward this end, the State
shall provide for a more responsive and accountable local government structure
instituted through a system of decentralization whereby local government units
shall be given more powers, authority, responsibilities, and resources. The
process of decentralization shall proceed from the national government to the
local government units. . . ." 5
Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the
petitioner filed the instant petition based on the following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE
PETITIONER IS VESTED WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS
AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS
LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF
CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-owned or
controlled corporation, it is mandated to perform functions in the same category as an
instrumentality of Government. An instrumentality of Government is one created to perform
governmental functions primarily to promote certain aspects of the economic life of the
people. 6 Considering its task "not merely to efficiently operate and manage the Mactan-Cebu
International Airport, but more importantly, to carry out the Government policies of promoting
and developing the Central Visayas and Mindanao regions as centers of international trade and
tourism, and accelerating the development of the means of transportation and communication in
the country," 7 and that it is an attached agency of the Department of Transportation and
Communication (DOTC), 8 the petitioner "may stand in [sic] the same footing as an agency or
instrumentality of the national government." Hence, its tax exemption privilege under Section 14
of its Charter "cannot be considered withdrawn with the passage of the Local Government
Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the 'taxing
powers of local government units shall not extend to the levy of taxes or fees or charges of any
kind on the national government, its agencies and instrumentalities.'"
As to the second assigned error, the petitioner contends that being an instrumentality of the
National Government, respondent City of Cebu has no power nor authority to impose realty
taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco
vs. Philippine Amusement and Gaming Corporation: 9
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with
an original charter, PD 1869. All of its shares of stock are owned by the
National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter
role is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the Government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control by a mere Local
government. cdtai
The states have no power by taxation or otherwise, to retard, impede, burden or
in any manner control the operation of constitutional laws enacted by Congress
to carry into execution the powers vested in the federal government (McCulloch
v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over
local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at
least, the instrumentalities of the United States (Johnson v. Maryland, 254 USA
51) and it can be agreed that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it from consummating its
federal responsibilities, or even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities
or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez,
340 US 42). The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent
power to wield it. (italics supplied)
It then concludes that the respondent Judge "cannot therefore correctly say that the questioned
provisions of the Code do not contain any distinction between a government corporation
performing governmental functions as against one performing merely proprietary ones such that
the exemption privilege withdrawn under the said Code would apply to all government
corporations." For it is clear from Section 133, in relation to Section 234, of the LGC that the
legislature meant to excludeinstrumentalities of the national government from the taxing powers
of the local government units. cdasia
In its comment, respondent City of Cebu alleges that as a local government unit and a political
subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction.
Such power is guaranteed by the Constitution 10 and enhanced further by the LGC. While it may
be true that under its Charter the petitioner was exempt from the payment of realty taxes, 11 this
exemption was withdrawn by Section 234 of the LGC. In response to the petitioner's claim that
such exemption was not repealed because being an instrumentality of the National Government,
Section 133 of the LGC prohibits local government units from imposing taxes, fees, or charges
of any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-
owned corporation, and Section 234 thereof does not distinguish between government-owned or
controlled corporations performing governmental and purely proprietary functions. Respondent
City of Cebu urges this Court to apply by analogy its ruling that the Manila International Airport
Authority is a government-owned corporation, 12 and to reject the application of Basco because
it was "promulgated . . . before the enactment and the signing into law of R.A. No. 7160," and
was not, therefore, decided "in the light of the spirit and intention of the framers of" the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only
in the responsibility of the legislature which imposes the tax on the constituency who are to pay
it. Nevertheless, effective limitations thereon may be imposed by the people through their
Constitutions. 13 Our Constitution, for instance, provides that the rule of taxation shall be
uniform and equitable and Congress shall evolve a progressive system of taxation. 14 So potent
indeed is the power that it was once opined that "the power to tax involves the power to
destroy." 15 Verily, taxation is a destructive power which interferes with the personal and
property rights of the people and takes from them a portion of their property for the support of
the government. Accordingly, tax statutes must be construed strictly against the government and
liberally in favor of the taxpayer. 16 But since taxes are what we pay for civilized society, 17 or
are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construedstrictissimi juris against the taxpayer and liberally in
favor of the taxing authority. 18 A claim of exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken. 19 Elsewise stated, taxation is the
rule, exemption therefrom is the exception. 20 However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of construction does not apply because the
practical effect of the exemption is merely to reduce the amount of money that has to be handled
by the government in the course of its operations. 21
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X of the Constitution. 22 Under
the latter, the exercise of the power may be subject to such guidelines and limitations as the
Congress may provide which, however, must be consistent with the basic policy of local
autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from
the payment of realty taxes imposed by the National Government or any of its political
subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is where the exemption was granted to private
parties based on material consideration of a mutual nature, which then becomes contractual and
is thus covered by the non-impairment clause of the Constitution. 23
The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise
by local government units of their power to tax, the scope thereof or its limitations, and the
exemptions from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units as follows:
SEC. 133. Common Limitations on the Taxing Power of Local Government
Units. — Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves,
tonnage dues, and all other kinds of customs fees, charges and
dues except wharfage on wharves constructed and maintained by
the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried
into or out of, or passing through, the territorial jurisdictions of
local government units in the guise of charges for wharfage, tolls
for bridges or otherwise, or other taxes, fees or charges in any
form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold
by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6) and
four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on
petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges
or similar transactions on goods or services except as otherwise
provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this
Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for
the issuance of all kinds of licenses or permits for the driving
thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually
exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives duly registered under R.A. No.
6810 and Republic Act Numbered Sixty-nine hundred thirty-
eight (R.A. No. 6938) otherwise known as the "Cooperatives
Code of the 'Philippines' respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES,
AND LOCAL GOVERNMENT UNITS. (italics supplied)
Needless to say, the last item (item o) is pertinent to this case. The "taxes, fees or charges"
referred to are "of any kind"; hence, they include all of these, unless otherwise provided by
the LGC. The term "taxes" is well understood so as to need no further elaboration, especially in
light of the above enumeration. The term "fees" means charges fixed by law or ordinance for the
regulation or inspection of business or activity, 24 while "charges" are pecuniary liabilities such
as rents or fees against persons or property. 25
Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section
232. It reads as follows:
SEC. 232. Power to Levy Real Property Tax. — A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvements not hereafter specifically exempted.
Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural and juridical persons, including
government-owned and controlled corporations, except as provided therein. It provides:
SEC. 234. Exemptions from Real Property Tax. — The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had
been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands,
buildings and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned
or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided
for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
These exemptions are based on the ownership, character, and use of the property. Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis
of ownership are real properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi)
registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of
their character are: (i) charitable institutions, (ii) houses and temples of
prayer like churches, parsonages or convents appurtenant thereto,
mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the
actual, direct and exclusive use to which they are devoted are: (i) all
lands, buildings and improvements which are actually directly and
exclusively used for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively used by
local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment
used for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization of the
country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions previously granted to
natural or juridical persons including government-owned or controlled
corporations are withdrawn upon the effectivity of the Code. 26
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It
provides:
SEC. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
On the other hand, the LGC authorizes local government units to grant tax exemption privileges.
Thus, Section 192 thereof provides:
SEC. 192. Authority to Grant Tax Exemption Privileges. — Local government
units may, through ordinances duly approved, grant tax exemptions, incentives
or reliefs under such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions and
the exceptions thereto. The use of exceptions or provisos in these sections, as shown by the
following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned
clause in Section 133 seems to be inaccurately worded. Instead of the clause "unless
otherwise provided herein," with the "herein" to mean, of course, the section, it should have
used the clause "unless otherwise provided in this Code." The former results in absurdity
since the section itself enumerates what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions are explicitly indicated in the next.
For instance, in item (a) which excepts income taxes "when levied on banks and other
financial institutions"; item (d) which excepts "wharfage on wharves constructed and
maintained by the local government unit concerned"; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses or permits for the driving of
"tricycles." It may also be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c)
and (i), or the clause "except as provided in this Code" in item (j). These clauses would be
obviously unnecessary or mere surplusages if the opening clause of the section were "Unless
otherwise provided in this Code" instead of "Unless otherwise provided herein." In any
event, even if the latter is used, since under Section 232 local government units have the
power to levy real property tax, except those exempted therefrom under Section 234, then
Section 232 must be deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general
rule, as laid down in Section 133, the taxing powers of local government units cannot extend to
the levy of, inter alia, "taxes, fees and charges of any kind on the National Government, its
agencies and instrumentalities, and local government units"; however, pursuant to Section 232,
provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person," as provided in item (a) of the first paragraph of
Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons,
including government-owned and controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to
local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, and unless otherwise provided in the LGC. The latter
proviso could refer to Section 234 which enumerates the properties exempt from real property
tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar
as real property taxes are concerned by limiting the retention only to those enumerated therein;
all others not included in the enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as to real property owned by the Republic of the Philippines or any of its
political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is
withdrawn if the beneficial use of such property has been granted to a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under
any of the exceptions provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Sections 232 and 234. LLphil
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing
powers of the local government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government, its agencies
or instrumentalities, and local government units.
It must show that the parcels of land in question, which are real property, are any one of those
enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most
likely, it could only be the first, but not under any explicit provision of the said section, for none
exists. In light of the petitioner's theory that it is an "instrumentality of the Government," it could
only be within the first item of the first paragraph of the section by expanding the scope of the
term "Republic of the Philippines" to embrace its "instrumentalities" and "agencies." For
expediency, we quote:
(a) real property owned by the Republic of the Philippines, or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly mentions the
word "instrumentalities"; and, in the second place, it fails to consider the fact that the legislature
used the phrase "National Government, its agencies and instrumentalities" in Section 133(o), but
only the phrase "Republic of the Philippines or any of its political subdivisions" in Section
234(a).
The terms "Republic of the Philippines" and "National Government" are not interchangeable.
The former is broader and synonymous with "Government of the Republic of the Philippines"
which the Administrative Code of 1987 defines as the "corporate governmental entity through
which the functions of government are exercised throughout the Philippines, including, save as
the contrary appears from the context, the various arms through which political authority is made
affective in the Philippines, whether pertaining to the autonomous regions, the provincial, city,
municipal or barangay subdivisions or other forms of local government." 27 These "autonomous
regions, provincial, city, municipal or barangay subdivisions" are the political subdivisions. 28
On the other hand, "National Government" refers "to the entire machinery of the central
government, as distinguished from the different forms of local governments."29 The National
Government then is composed of the three great departments: the executive, the legislative and
the judicial. 30
An "agency" of the Government refers to "any of the various units of the Government, including
a department, bureau, office, instrumentality, or government-owned or controlled corporation, or
a local government or a distinct unit therein;" 31 while an "instrumentality" refers to "any agency
of the National Government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. This
term includes regulatory agencies, chartered institutions and government-owned and controlled
corporations." 32
If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption
from payment of real property taxes under the last sentence of the said section to the agencies
and instrumentalities of the National Government mentioned in Section 133(o), then it should
have restated the wording of the latter. Yet, it did not. Moreover, that Congress did not wish to
expand the scope of the exemption in Section 234(a) to include real property owned by other
instrumentalities or agencies of the government including government-owned and controlled
corporations is further borne out by the fact that the source of this exemption is Section 40(a)
of P.D. No. 464, otherwise known as The Real Property Tax Code, which reads:
SEC. 40. Exemptions from Real Property Tax. — The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so
exempt by its charter: Provided, however, That this exemption shall not
apply to real property of the above-mentioned entities the beneficial use
of which has been granted, for consideration or otherwise, to a taxable
person.
Note that as reproduced in Section 234(a), the phrase "and any government-owned or
controlled corporation so exempt by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments 33 and the objective of the LGCthat they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals. 34 The power to tax is the
most effective instrument to raise needed revenues to finance and support myriad activities of
local government units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of the people. It may
also be relevant to recall that the original reasons for the withdrawal of tax exemption
privileges granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises, and there was a need for these entities to share
in the requirements of development, fiscal or otherwise, by paying the taxes and other
charges due from them. 35
The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to
the Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b)
whether the petitioner is a "taxable person."
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing
public airport facilities, runways, lands, buildings and other properties, movable
or immovable, belonging to or presently administered by the airports, and all
assets, powers, rights, interests and privileges relating on airport works or air
operations, including all equipment which are necessary for the operations of air
navigation, aerodrome control towers, crash, fire, and rescue facilities are
hereby transferred to the Authority: Provided, however, that the operations
control of all equipment necessary for the operation of radio aids to air
navigation, airways communication, the approach control office, and the area
control center shall be retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation Office from Mactan
without the concurrence of the Authority. The Authority may assist in the
maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International
Airport in the Province of Cebu," 36 which belonged to the Republic of the Philippines, then
under the Air Transportation Office (ATO). 37
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then
administered by the Lahug Air Port and included the parcels of land the respondent City of Cebu
seeks to levy on for real property taxes. This section involves a "transfer" of the "lands," among
other things, to the petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof because the
petitioner's authorized capital stock consists of, inter alia, "the value of such real estate owned
and/or administered by the airports." 38 Hence, the petitioner is now the owner of the land in
question and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It
was only exempted from the payment of real property taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject
to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real property
tax, in light of the foregoing disquisitions, it had already become, even if it be conceded to be an
"agency" or "instrumentality" of the Government, a taxable person for such purpose in view of
the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real
property taxes, which, as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine
Amusement and Gaming Corporation 39 is unavailing since it was decided before the effectivity
of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or
agencies of the Government performing governmental functions may be subject to tax. Where it
is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its
wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order of the
Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
INC., petitioner, vs. CITY OF BACOLOD, FLORENTINO T. GUANCO, in
his capacity as the City Treasurer of Bacolod City, and ANTONIO G.
LACZI, in his capacity as the City Legal Officer of Bacolod
City, respondents.
Estelito P. Mendoza for petitioner.
Bacolod City Legal Office for respondents.
SYLLABUS
1. POLITICAL LAW; LOCAL GOVERNMENT; TAXATION; FRANCHISE
TAX; REPUBLIC ACT NO. 7925, SECTION 23 THEREOF; "MOST-FAVORED-
TREATMENT" CLAUSE, CONSTRUED. — As we see it, the only question which commends
itself for our resolution is, whether or not Section 23 of Rep. Act No. 7925, also called the
"most-favored-treatment" clause, operates to exempt petitioner PLDT from the payment of
franchise tax imposed by the respondent City of Bacolod. Contrary to petitioner's claim, the issue
thus posed is not one of "first impression" insofar as this Court is concerned. In PLDT vs. City of
Davao, this Court interpreted Section 23 of Rep. Act No. 7925 as not operating to exempt PLDT
from the payment of franchise tax imposed upon it by the City of Davao: In sum, it does not
appear that, in approving §23 ofR.A. No. 7925, Congress intended it to operate as a blanket tax
exemption to all telecommunications entities. Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts should be resolved in favor of municipal
corporations in interpreting statutory provisions on municipal taxing powers, we hold that §23
of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it
to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner
is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the
first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the
period covering the first to the third quarter of 1998.
2. ID.; ID.; ID.; ID.; ID.; GRANT OF TAX EXEMPTION TO SMART AND GLOBE DOES
NOT IPSO FACTO APPLY TO PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
INC. — As in City of Davao, supra, petitioner presently argues that because Smart
Communications, Inc. (SMART) and Globe Telecom (GLOBE) under whose respective
franchises granted after the effectivity of the Local Government Code, are exempt from franchise
tax, it follows that petitioner is likewise exempt from the franchise tax sought to be collected by
the City of Bacolod, on the reasoning that the grant of tax exemption to SMART and GLOBE
ipso facto applies to PLDT, consistent with the "most-favored-treatment" clause found in Section
23 of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925). Again,
there is nothing novel in petitioner's contention. In rejecting PLDT's contention, this Court ruled
in City of Davao as follows: The acceptance of petitioner's theory would result in absurd
consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one
and one-half percentum (1/2% [sic] ) of all gross receipts from its transactions while Smart is
required to pay a tax of three percent (3%) on all gross receipts from business transacted.
Petitioner's theory would require that, to level the playing field, any "advantage, favor, privilege,
exemption, or immunity" granted to Globe must be extended to all telecommunications
companies, including Smart. If, later, Congress again grants a franchise to another
telecommunications company imposing, say, one percent (1%) franchise tax, then all other
telecommunications franchises will have to be adjusted to "level the playing field" so to speak.
This could not have been the intent of Congress in enacting Section 23 of Rep. Act 7925.
Petitioner's theory will leave the Government with the burden of having to keep track of all
granted telecommunications franchises, lest some companies be treated unequally. It is different
if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption or
immunity to all telecommunications entities.
3. ID.; ID.; ID.; ID.; ID.; DOES NOT REFER TO TAX EXEMPTION BUT ONLY TO
EXEMPTION FROM CERTAIN REGULATIONS AND REQUIREMENTS IMPOSED BY
THE NATIONAL TELECOMMUNICATIONS COMMISSION. — On PLDT's motion for
reconsideration in City of Davao, the Court added in its en banc Resolution of March 25, 2003,
that even as it is a state policy to promote a level playing field in the communications industry,
Section 23 of Rep. Act No. 7925 does not refer to tax exemption but only to exemption from
certain regulations and requirements imposed by the National Telecommunications Commission:
. . . . The records of Congress are bereft of any discussion or even mention of tax exemption. To
the contrary, what the Chairman of the Committee on Transportation, Rep. Jerome V. Paras,
mentioned in his sponsorship of H.B. No. 14028, which became R.A. No. 7925, were 'equal
access clauses' in interconnection agreements, not tax exemptions. He said: There is also a need
to promote a level playing field in the telecommunications industry. New entities must be
granted protection against dominant carriers through the encouragement of equitable access
charges and equal access clauses in interconnection agreements and the strict policing of
predatory pricing by dominant carriers. Equal access should be granted to all operators
connecting into the interexchange network. There should be no discrimination against any carrier
in terms of priorities and/or quality of services. Nor does the term 'exemption' in §23 of R.A.
No. 7925 mean tax exemption. The term refers to exemption from certain regulations and
requirements imposed by the National Telecommunications Commission (NTC). For
instance, R.A. No. 7925, §17 provides: 'The Commission shall exempt any specific
telecommunications service from its rate or tariff regulations if the service has sufficient
competition to ensure fair and reasonable rates or tariffs.' Another exemption granted by the law
in line with its policy of deregulation is the exemption from the requirement of securing permits
from the NTC every time a telecommunications company imports equipment.
4. ID.; ID.; ID.; ID.; ID.; RULE THAT TAX EXEMPTION SHOULD BE APPLIED IN
STRICTISSIMI JURIS AGAINST THE TAXPAYER AND LIBERALLY IN FAVOR OF THE
GOVERNMENT APPLIES EQUALLY TO TAX EXCLUSIONS; TAX EXEMPTION
DISTINGUISHED FROM TAX EXCLUSION. — In the same en banc Resolution, the Court
even rejected PLDT's contention that the "in-lieu-of-all-taxes" clause does not refer to "tax
exemption" but to "tax exclusion" and hence, the strictissimi juris rule does not apply, explaining
that these two terms actually mean the same thing, such that the rule that tax exemption should
be applied in strictissimi juris against the taxpayer and liberally in favor of the government
applies equally to tax exclusions. Thus: Indeed, both in their nature and in their effect there is no
difference between tax exemption and tax exclusion. Exemption is an immunity or privilege; it is
freedom from a charge or burden to which others are subjected. Exclusion, on the other hand, is
the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross
income and allowable deductions. Exclusion is thus also an immunity or privilege which frees a
taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions. To construe otherwise the 'in lieu of all taxes'
provision invoked is to be inconsistent with the theory that R.A. No. 7925, §23 grants tax
exemption because of a similar grant to Globe and Smart.
5. ID.; ID.; ID.; ID.; ID.; THE BUREAU OF LOCAL GOVERNMENT FINANCE IS NOT AN
ADMINISTRATIVE AGENCY WHOSE FINDINGS OF FACT ARE GIVEN WEIGHT AND
DEFERENCE IN COURTS. — PLDT likewise argued in said case that the RTC at Davao City
erred in not giving weight to the ruling of the BLGF which, according to petitioner, is an
administrative agency with technical expertise and mastery over the specialized matters assigned
to it. But then again, we held in Davao: To be sure, the BLGF is not an administrative agency
whose findings on questions of fact are given weight and deference in the courts. The authorities
cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which
performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF
was created merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property assessment, and other related
matters, among others. The question raised by petitioner is a legal question, to wit, the
interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for
the BLGF that administrative agencies are said to possess in their respective fields.
D E C I S I O N
GARCIA, J p:
In this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Philippine Long Distance Telephone Company (PLDT), seeks the reversal and setting
aside of the July 23, 2001 decision 1 of the Regional Trial Court at Bacolod City, Branch 42,
dismissing its petition in Civil Case No. 99-10786, an action to declare petitioner as exempt
from the payment of franchise and business taxes sought to be imposed and collected by the
respondent City of Bacolod.
The material facts are not at all disputed:
PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local and
international telecommunications services. On August 24, 1991, the terms and conditions of its
franchise were consolidated under Republic Act No. 7082, 2 Section 12 of which embodies the
so-called "in-lieu-of-all-taxes" clause, whereunder PLDT shall pay a franchise tax equivalent to
three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes".
More specifically, the provision pertinently reads:
SEC. 12.. . . In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the
telephone or other telecommunications businesses transacted under this
franchise by the grantee, its successors or assigns, and the said percentage shall
be in lieu of all taxes on this franchise or earnings thereof. . . . (Italics ours).
Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local
Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof, grants
cities and other local government units the power to impose local franchise tax on businesses
enjoying a franchise, thus:
SEC. 137.Franchise Tax. — Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses enjoying
a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of
the gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
xxx xxx xxx
SEC. 151.Scope of Taxing Powers. — Except as otherwise provided in this
Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees, and charges
levied and collected by highly urbanized and independent component cities
shall accrue to them and distributed in accordance with the provisions of this
Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes.
By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons,
whether natural or juridical, save those expressly mentioned therein, were withdrawn, necessarily
including those taxes from which PLDT is exempted under the "in-lieu-of-all-taxes" clause in its
charter. We quote Section 193:
SEC. 193.Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
Aiming to level the playing field among telecommunication companies, Congress
enacted Republic Act No. 7925, otherwise known as the Public Telecommunications Policy Act
of the Philippines, which took effect on March 16, 1995. To achieve the legislative intent,
Section 23 thereof, also known as the "most-favored-treatment" clause, provides for an equality
of treatment in the telecommunications industry, thus:
SEC. 23.Equality of Treatment in the Telecommunications Industry. — Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted shall ipso facto become part of
previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise,
the life span of the franchise, or the type of the service authorized by the
franchise.
In August 1995, the City of Bacolod, invoking its authority under Section 137, in relation to
Section 151 and Section 193, supra, of the Local Government Code, made an assessment on
PLDT for the payment of franchise tax due the City.
Complying therewith, PLDT began paying the City franchise tax from the year 1994 until the
third quarter of 1998, at which time the total franchise tax it had paid the City already amounted
to P2,770, 696.37. aTcSID
On June 2, 1998, the Department of Finance through its Bureau of Local Government Finance
(BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date of the Public
Telecommunications Policy Act of the Philippines (Rep. Act. No. 7925), PLDT, among other
telecommunication companies, became exempt from local franchise tax. Pertinently, the BLGF
ruling reads:
It appears that RA 7082 further amending ACT No. 3436 which granted to
PLDT a franchise to install, operate and maintain a telephone system throughout
the Philippine Islands was approved on August 3, 1991. Section 12 of said
franchise, likewise, contains the 'in lieu of all taxes' proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was
approved on March 1, 1995 provides for the equality of treatment in the
telecommunications industry:
xxx xxx xxx
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a
telecommunications franchise holder becomes automatically covered by the tax
exemption provisions of RA 7925, which took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business
taxes imposable by LGUs under Sections 137 and 143, respectively, of
the LGC [Local Government Code], upon the effectivity of RA 7925 on March
16, 1995. However, PLDT shall be liable to pay the franchise and business taxes
on its gross receipts realized from January 1, 1992 up to March 15, 1995, during
which period PLDT was not enjoying the 'most favored clause' proviso of RA
7025 [sic]. 3
Invoking the aforequoted ruling, PLDT then stopped paying local franchise and business taxes to
Bacolod City starting the fourth quarter of 1998.
The controversy came to a head-on when, sometime in 1999, PLDT applied for the issuance of a
Mayor's Permit but the City of Bacolod withheld issuance thereof pending PLDT's payment of
its franchise tax liability in the following amounts: (1) P358,258.30 for the fourth quarter of
1998; and (b) P1,424,578.10 for the year 1999, all in the aggregate amount of P1,782,836.40,
excluding surcharges and interest, about which PLDT was duly informed by the City
Treasurer via a 5th Indorsement dated March 16, 1999 for PLDT's "appropriate action". 4
In time, PLDT filed a protest 5 with the Office of the City Legal Officer, questioning the
assessment and at the same time asking for a refund of the local franchise taxes it paid in 1997
until the third quarter of 1998.
In a reply-letter dated March 26, 1999, 6 City Legal Officer Antonio G. Laczi denied the protest
and ordered PLDT to pay the questioned assessment.
Hence, on May 14, 1999, in the Regional Trial Court at Bacolod City, PLDT filed its
petition 7 in Civil Case No. 99-10786, therein praying for a judgment declaring it as exempt from
the payment of local franchise and business taxes; ordering the respondent City to henceforth
cease and desist from assessing and collecting said taxes; directing the City to issue the Mayor's
Permit for the year 1999; and requiring it to refund the amount of P2,770,606.37, allegedly
representing overpaid franchise taxes for the years 1997 and 1998 with interest until fully paid.
In time, the respondent City filed its Answer/Comment to the petition, 8 basically maintaining
that Section 137 of the Local Government Code remains as the operative law despite the
enactment of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925),
and accordingly prayed for the dismissal of the petition.
In the ensuing pre-trial conference, the parties manifested that they would not present any
testimonial evidence, and merely requested for time to file their respective memoranda, to which
the trial court acceded.
Eventually, in the herein assailed decision dated July 23, 2001, 9 the trial court dismissed
PLDT's petition, thus:
WHEREFORE, premises considered, the petition should be, as it is hereby
DISMISSED. No costs.
SO ORDERED.
Therefrom, PLDT came to this Court via the present recourse, imputing the following errors on
the part of the trial court:
5.01.a.THE LOWER COURT ERRED IN SUSTAINING RESPONDENTS'
POSITION THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE,
WHICH, IN RELATION TO SECTION 151 THEREOF, ALLOWS
RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, IS
APPLICABLE IN THIS CASE.
5.01.b.THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONER'S FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED
AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO.
7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT), TAKING INTO
ACCOUNT THE FRANCHISES OF GLOBE TELECOM, INC., (GLOBE)
(REPUBLIC ACT NO. 7229) AND SMART COMMUNICATIONS, INC.
(SMART) (REPUBLIC ACT NO. 7294), WHICH WERE ENACTED
SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE
TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
5.01.c.THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE
RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU
OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT
FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES
IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL
GOVERNMENT CODE.
5.01.d.THE LOWER COURT ERRED IN DISMISSING THE PETITION
BELOW.
As we see it, the only question which commends itself for our resolution is, whether or not
Section 23 of Rep. Act No. 7925, also called the "most-favored-treatment" clause, operates to
exempt petitioner PLDT from the payment of franchise tax imposed by the respondent City of
Bacolod.
Contrary to petitioner's claim, the issue thus posed is not one of "first impression" insofar as this
Court is concerned. For sure, this is not the first time for petitioner PLDT to invoke the
jurisdiction of this Court on the same question, albeit involving another city.
In PLDT vs. City of Davao, 10 this Court has had the occasion to interpret Section 23 of Rep. Act
No. 7925. There, we ruled that Section 23 does not operate to exempt PLDT from the payment of
franchise tax imposed upon it by the City of Davao:
In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress
intended it to operate as a blanket tax exemption to all telecommunications
entities. Applying the rule of strict construction of laws granting tax exemptions
and the rule that doubts should be resolved in favor of municipal corporations in
interpreting statutory provisions on municipal taxing powers, we hold that §23
of R.A. No. 7925 cannot be considered as having amended petitioner's franchise
so as to entitle it to exemption from the imposition of local franchise taxes.
Consequently, we hold that petitioner is liable to pay local franchise taxes in the
amount of P3,681,985.72 for the period covering the first to the fourth quarter
of 1999 and that it is not entitled to a refund of taxes paid by it for the period
covering the first to the third quarter of 1998. 11
Explains this Court in the same case:
To begin with, tax exemptions are highly disfavored. The reason for this was
explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may
almost be said to be odious to the law. He who claims an exemption must be
able to point to some positive provision of law creating the right . . . As was said
by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn.,
546, 550), 'The right of taxation is inherent in the State. It is a prerogative
essential to the perpetuity of the government; and he who claims an exemption
from the common burden must justify his claim by the clearest grant of organic
or statute law.' Other utterances equally or more emphatic come readily to hand
from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16
Howard, 416), it was said by Chief Justice Taney, that the right of taxation will
not be held to have been surrendered, 'unless the intention to surrender is
manifested by words too plain to be mistaken.' In the case of the Delaware
Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States
said that the surrender, when claimed, must be shown by clear, unambiguous
language, which will admit of no reasonable construction consistent with the
reservation of the power. If a doubt arises as to the intent of the legislature, that
doubt must be solved in favor of the State. In Erie Railway Company vs.
Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt,
speaking of exemptions, observed that a State cannot strip itself of the most
essential power of taxation by doubtful words. 'It cannot, by ambiguous
language, be deprived of this highest attribute of sovereignty.' In Tennessee vs.
Whitworth (117 U.S., 129, 136), it was said: 'In all cases of this kind the
question is as to the intent of the legislature, the presumption always being
against any surrender of the taxing power.' InFarrington vs. Tennessee and
County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: '. . . When
exemption is claimed, it must be shown indubitably to exist. At the outset, every
presumption is against it. A well-founded doubt is fatal to the claim. It is only
when the terms of the concession are too explicit to admit fairly of any other
construction that the proposition can be supported.'
The tax exemption must be expressed in the statute in clear language that leaves
no doubt of the intention of the legislature to grant such exemption. And, even if
it is granted, the exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
xxx xxx xxx
The fact is that the term 'exemption' in §23 is too general. A cardinal rule in
statutory construction is that legislative intent must be ascertained from a
consideration of the statute as a whole and not merely of a particular provision.
For, taken in the abstract, a word or phrase might easily convey a meaning
which is different from the one actually intended. A general provision may
actually have a limited application if read together with other provisions. Hence,
a consideration of the law itself in its entirety and the proceedings of both
Houses of Congress is in order.
xxx xxx xxx
R.A. No. 7925 is thus a legislative enactment designed to set the national policy
on telecommunications and provide the structures to implement it to keep up
with the technological advances in the industry and the needs of the public. The
thrust of the law is to promote gradually the deregulation of the entry, pricing,
and operations of all public telecommunications entities and thus promote a
level playing field in the telecommunications industry. There is nothing in the
language of §23 nor in the proceedings of both the House of Representatives
and the Senate in enacting R.A. No. 7925 which shows that it contemplates the
grant of tax exemptions to all telecommunications entities, including those
whose exemptions had been withdrawn by the LGC. CTEDSI
What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis
mutandis to this case: 'When exemption is claimed, it must be shown
indubitably to exist. At the outset, every presumption is against it. A well-
founded doubt is fatal to the claim. It is only when the terms of the concession
are too explicit to admit fairly of any other construction that the proposition can
be supported.' In this case, the word 'exemption' in §23 of R.A. No. 7925 could
contemplate exemption from certain regulatory or reporting requirements,
bearing in mind the policy of the law. It is noteworthy that, in holding Smart
and Globe exempt from local taxes, the BLGF did not base its opinion on §23
but on the fact that the franchises granted to them after the effectivity of
the LGC exempted them from the payment of local franchise and business
taxes.
As in City of Davao, supra, petitioner presently argues that because Smart Communications, Inc.
(SMART) and Globe Telecom (GLOBE) under whose respective franchises granted after the
effectivity of the Local Government Code, are exempt from franchise tax, it follows that
petitioner is likewise exempt from the franchise tax sought to be collected by the City of
Bacolod, on the reasoning that the grant of tax exemption to SMART and GLOBE ipso
facto applies to PLDT, consistent with the "most-favored-treatment" clause found in Section 23
of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).
Again, there is nothing novel in petitioner's contention. In fact, this Court in City of Davao, even
adverted to PLDT's argument therein, thus:
Finally, it [PLDT] argues that because Smart and Globe are exempt from the
franchise tax, it follows that it must likewise be exempt from the tax being
collected by the City of Davao because the grant of tax exemption to Smart and
Globe ipso facto extended the same exemption to it.
In rejecting PLDT's contention, this Court ruled in City of Davao as follows:
The acceptance of petitioner's theory would result in absurd consequences. To
illustrate: In its franchise, Globe is required to pay a franchise tax of only one
and one-half percentum (1/2% [sic]) of all gross receipts from its transactions
while Smart is required to pay a tax of three percent (3%) on all gross receipts
from business transacted. Petitioner's theory would require that, to level the
playing field, any "advantage, favor, privilege, exemption, or immunity"
granted to Globe must be extended to all telecommunications companies,
including Smart. If, later, Congress again grants a franchise to another
telecommunications company imposing, say, one percent (1%) franchise tax,
then all other telecommunications franchises will have to be adjusted to "level
the playing field" so to speak. This could not have been the intent of Congress
in enacting Section 23 of Rep. Act 7925. Petitioner's theory will leave the
Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It is
different if Congress enacts a law specifically granting uniform advantages,
favor, privilege, exemption or immunity to all telecommunications entities.
On PLDT's motion for reconsideration in Davao, the Court added in its en banc Resolution of
March 25, 2003, 12 that even as it is a state policy to promote a level playing field in the
communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption but
only to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission:
. . . . The records of Congress are bereft of any discussion or even mention of
tax exemption. To the contrary, what the Chairman of the Committee on
Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No.
14028, which became R.A. No. 7925, were 'equal access clauses' in
interconnection agreements, not tax exemptions. He said:
There is also a need to promote a level playing field in the telecommunications
industry. New entities must be granted protection against dominant carriers
through the encouragement of equitable access charges and equal access
clauses in interconnection agreements and the strict policing of predatory
pricing by dominant carriers. Equal access should be granted to all operators
connecting into the interexchange network. There should be no discrimination
against any carrier in terms of priorities and/or quality of services.
Nor does the term 'exemption' in §23 of R.A. No. 7925 mean tax exemption.
The term refers to exemption from certain regulations and requirements
imposed by the National Telecommunications Commission (NTC). For
instance, R.A. No. 7925, §17 provides: 'The Commission shall exempt any
specific telecommunications service from its rate or tariff regulations if the
service has sufficient competition to ensure fair and reasonable rates or tariffs.'
Another exemption granted by the law in line with its policy of deregulation is
the exemption from the requirement of securing permits from the NTC every
time a telecommunications company imports equipment.13
In the same en banc Resolution, the Court even rejected PLDT's contention that the "in-lieu-of-
all-taxes" clause does not refer to "tax exemption" but to "tax exclusion" and hence,
the strictissimi juris rule does not apply, explaining that these two terms actually mean the same
thing, such that the rule that tax exemption should be applied in strictissimi juris against the
taxpayer and liberally in favor of the government applies equally to tax exclusions. Thus:
Indeed, both in their nature and in their effect there is no difference between tax
exemption and tax exclusion. Exemption is an immunity or privilege; it is
freedom from a charge or burden to which others are subjected. Exclusion, on
the other hand, is the removal of otherwise taxable items from the reach of
taxation, e.g., exclusions from gross income and allowable deductions.
Exclusion is thus also an immunity or privilege which frees a taxpayer from a
charge to which others are subjected. Consequently, the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor
of the government applies equally to tax exclusions. To construe otherwise the
'in lieu of all taxes' provision invoked is to be inconsistent with the theory
that R.A. No. 7925, §23 grants tax exemption because of a similar grant to
Globe and Smart. 14
PLDT likewise argued in said case that the RTC at Davao City erred in not giving weight to the
ruling of the BLGF which, according to petitioner, is an administrative agency with technical
expertise and mastery over the specialized matters assigned to it. But then again, we held
in Davao:
To be sure, the BLGF is not an administrative agency whose findings on
questions of fact are given weight and deference in the courts. The authorities
cited by petitioner pertain to the Court of Tax Appeals, a highly specialized
court which performs judicial functions as it was created for the review of tax
cases. In contrast, the BLGF was created merely to provide consultative services
and technical assistance to local governments and the general public on local
taxation, real property assessment, and other related matters, among others. The
question raised by petitioner is a legal question, to wit, the interpretation of §23
of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the
BLGF that administrative agencies are said to possess in their respective
fields. 15
We note, quite interestingly, that apart from the particular local government unit involved in the
earlier case of PLDT vs. Davao, the arguments presently advanced by petitioner on the issue
herein posed are but a mere reiteration if not repetition of the very same arguments it has already
raised in Davao. For sure, the errors presently assigned are substantially the same as those
in Davao, all of which have been adequately addressed and passed upon by this Court in its
decision therein as well as in its en banc resolution in that case.
WHEREFORE, the instant petition is DENIED and the assailed decision dated July 23, 2001 of
the lower court AFFIRMED.
Costs against petitioner.
SO ORDERED.
||| (PLDT Co. Inc. v. City of Bacolod, G.R. No. 149179, [July 15, 2005], 502 PHIL 100-115)