CASE COMPILATION

LAW 124
Taxation
1
st
semester S/Y 2014-2015


1.) Reyes vs. Almanzor

2.) Progressive Development Corporation vs Quezon City

3.) PAL vs Edu

4.) Planters Products, Inc. vs. Fertiphil Corporation

5.) Pascual vs Secretary of Public Works

6.) Manila International Airport Authority vs City of Paranaque

7.) Tiu vs Court of Appeals

8.) Tolentino vs Secretary of Finance

9.) Bureau of Customs Employees' Association vs Teves

REYES VS. ALMANZOR
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as
appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities
as appointed and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila;
and NICOLAS CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J .:p
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals
1
in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals
2
in BTAA Cases Nos. 614, 614-A-J, 615, 615-
A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v.
City Assessor of Manila" upholding the classification and assessments made by the City Assessor of
Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of
lands on which another's dwelling is located, where such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The
said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its
effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal period
of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making
absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely suspending
the aforementioned provision of the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals and from
ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the
value of the subject properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax
Assessment Appeals. They averred that the reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties. They argued that the income
approach should have been used in determining the land values instead of the comparable sales
approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment
Appeals, however, considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete
evidence which could overcome the presumptive regularity of the classification and
assessments appear to be in accordance with the base schedule of market values
and of the base schedule of building unit values, as approved by the Secretary of
Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject
properties of petitioners are located. To better appreciate the locational and physical features of
the land, the Board of Hearing Commissioners conducted an ocular inspection with the presence
of two representatives of the City Assessor prior to the healing of the case. Neither the owners nor
their authorized representatives were present during the said ocular inspection despite proper
notices served them. It was found that certain parcels of land were below street level and were
affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of
the lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844
and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and
(1) PD-266, the appealed Decision is modified by allowing a 20% reduction in their
respective market values and applying therein the assessment level of 30% to
arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p.
27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties
as revised and increased on the ground that they were arbitrarily excessive, unwarranted,
inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and
study of land values as in the case of properties affected by the Rent Control Law for they do not
project the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead
for the "Comparable Sales Approach" on the ground that the value estimate of the properties
predicated upon prices paid in actual, market transactions would be a uniform and a more credible
standards to use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public
respondents would have this Court completely ignore the effects of the restrictions of P.D. No. 20
on the market value of properties within its coverage. In any event, it is unquestionable that both
the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods
of appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. De
Leon, 1988 Edition). However, it is conceded that the propriety of one as against the other would
of course depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club,
Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the
assessors, in finding the value of the property, have to consider all the circumstances and elements
of value and must exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not
only be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of
the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses
of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure.
If it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the
power to tax involves the power to destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not
the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130
SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to amount
to confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes
of taxation but the government's act must not be prompted by a spirit of hostility, or at the very
least discrimination that finds no support in reason. It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all persons must be treated in the
same manner, the conditions not being different both in the privileges conferred and the liabilities
imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation
purposes is that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing
can justify or support their view as it is of judicial notice that for properties covered by P.D. 20
especially during the time in question, there were hardly any willing buyers. As a general rule, there
were no takers so that there can be no reasonable basis for the conclusion that these properties
were comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxations, which is the promotion of the common good, may be achieved (Commissioner of Internal
Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359
and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result in
the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount
to only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p.
71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
Footnotes
1 Penned by former Chairman and Acting Minister Pedro Almanzor and concurred
in by the then Minister of Justice Vicente Abad Santos and Minister of Local
Government and Community Development Jose Rono.
2 Rendered by then Acting Register of Deeds of Manila Teresita H. Noblejas and
concurred in by former City Engineer of Manila Romulo M. del Rosario and OIC of
the Office of the City of Auditor Raul C. Flores.








PROGRESSIVE DEVELOPMENT CORP. vs. QUEZON CITY
G.R. No. L-36081 April 24, 1989
PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,
vs.
QUEZON CITY, respondent.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.
FELICIANO, J .:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997,
Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public markets shall
submit monthly to the Treasurer's Office, a certified list of stallholders showing the
amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10%
of the gross receipts from stall rentals to the City, ... , as supervision fee. Failure to
submit said list and to pay the corresponding amount within the period herein
prescribed shall subject the operator to the penalties provided in this Code ...
includingrevocation of permit to operate. ... .1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March
1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts
on rentals or lease of space in privately-owned public markets in Quezon City.
xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance, owners of privately
owned public markets shall submit ... a monthly certified list of stallholders of
lessees of space in their markets showing ... :
a. name of stallholder or lessee;
b. amount of rental;
c. period of lease, indicating therein whether the same is on a daily, monthly or
yearly basis.
xxx xxx xxx
SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3)
consecutive months, the City shall revoke the permit of the privately-owned
market to operate and/or take any other appropriate action or remedy allowed by
law for the collection of the overdue percentage tax and surcharge.
xxx xxx xxx 2
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public
market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with
Preliminary Injunction against respondent before the then Court of First Instance of Rizal on the
ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in
reality a tax on income which respondent may not impose, the same being expressly prohibited by
Republic Act No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on
income. The Solicitor General also filed an Answer arguing that petitioner, not having paid the ten
percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question,
and was estopped from questioning, its validity; that the tax on gross receipts was not a tax on
income but one imposed for the enjoyment of the privilege to engage in a particular trade or
business which was within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest
the five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972.
Two (2) days later, on 25 September 1972, petitioner moved for judgment on the pleadings,
alleging that the material facts had been admitted by the parties.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax
on income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the present
Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of
stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively,
of a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as the
Revised Charter of Quezon City, authorizes the City Council:
xxx xxx xxx
(b) To provide for the levy and collection of taxes and other city revenues and apply
the same to the payment of city expenses in accordance with appropriations.
(c) To tax, fix the license fee, and regulate the business of the following:
... preparation and sale of meat, poultry, fish, game, butter, cheese, lard
vegetables, bread and other provisions. 4
The scope of legislative authority conferred upon the Quezon City Council in respect of businesses
like that of the petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix
the license fee," but also " to tax" 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or municipal
districts by requiring them to secure licenses at rates fixed by the municipal board
or city council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for service
rendered by the city, municipality or municipal district; to regulate and impose
reasonable fees for services rendered in connection with any business, profession
or occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes just and uniform taxes licenses or fees: ... 6
It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority
extending to almost "everything, excepting those which are mentioned therein," provided that the
tax levied is "for public purposes, just and uniform," does not transgress any constitutional provision
and is not repugnant to a controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly show
that respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned
public market.
Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from
capital invested in the construction of the Farmers Market, practically operates as a tax on income,
one of those expressly excepted from respondent's taxing authority, and thus beyond the latter's
competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on to
state: 8
... Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;
The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It
is often loosely used to include levies for revenue as well as levies for regulatory purposes such
that license fees are frequently called taxes although license fee is a legal concept distinguishable
from tax: the former is imposed in the exercise of police power primarily for purposes of regulation,
while the latter is imposed under the taxing power primarily for purposes of raising revenues. 9 Thus,
if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. 10
To be considered a license fee, the imposition questioned must relate to an occupation or activity
that so engages the public interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not only the costs
of direct regulation but also its incidental consequences as well.11 When an activity, occupation or profession
is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of
public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of
regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one
shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has
been paid. 12Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of the police power. 13
In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No.
7350 passed on 30 January 1967 by respondents's local legislative body authorizing petitioner to
establish and operate a market with a permit to sell fresh meat, fish, poultry and other
foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by and
comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon
City." 15
The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open
to and inviting the patronage of the general public, even though privately owned, petitioner's
operation thereof required a license issued by the respondent City, the issuance of which, applying
the standards set forth above, was done principally in the exercise of the respondent's police
power. 16 The operation of a privately owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same as
the operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close
supervision and control by the respondent City, 17 for the protection of the health of the public by insuring, e.g., the maintenance of
sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and related
standards, for the prevention of fraud and imposition upon the buying public, and so forth.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes,
not a tax on income, not a city income tax (as distinguished from the national income tax imposed
by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy
Act, but rather a license tax or fee for the regulation of the business in which the petitioner is
engaged. While it is true that the amount imposed by the questioned ordinances may be
considered in determining whether the exaction is really one for revenue or prohibition, instead of
one of regulation under the police power, 18 it nevertheless will be presumed to be reasonable. Local' governments are
allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence
of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the
issue of arbitrariness or unreasonableness of the questioned rates. 19 Thus:
[A]n ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow in writing off an ordinance
as unreasonable unless the amount is so excessive as to be prohibitory, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is
that factors relevant to such an inquiry are the municipal conditions as a whole and
the nature of the business made subject to imposition. 20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and
excessive and so grossly disproportionate to the costs of the regulatory service being performed
by the respondent as to compel the Court to characterize the imposition as a revenue measure
exclusively. The lower court correctly held that the gross receipts from stall rentals have been used
only as a basis for computing the fees or taxes due respondent to cover the latter's administrative
expenses, i.e., for regulation and supervision of the sale of foodstuffs to the public. The use of the
gross amount of stall rentals as basis for determining the collectible amount of license tax, does
not by itself, upon the one hand, convert or render the license tax into a prohibited city tax on
income. Upon the other hand, it has not been suggested that such basis has no reasonable
relationship to the probable costs of regulation and supervision of the petitioner's kind of business.
For, ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs
and related items sold in petitioner's privately owned market; and the higher the volume of goods
sold in such private market, the greater the extent and frequency of inspection and supervision
that may be reasonably required in the interest of the buying public. Moreover, what we started
with should be recalled here: the authority conferred upon the respondent's City Council
is not merely "to regulate" but also embraces the power "to tax" the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax for
revenue purposes absent an express grant from the national government. As a general rule, there
must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that
unit not having the inherent power of taxation. 21The rule, however, finds no application in the instant case where what
is involved is an exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly
accompanied by the taxing power.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18,
is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.






Footnotes
1 Rollo, p. 102; Italics supplied.
2 Records on Appeal, pp. 14-15; Underscoring supplied.
3 Ibid, pp. 58-68.
4 46 Official Gazette 4732 (1950); Italics supplied. Certain portions of the Charter
had been amended by R.A. 5541, 65 Official Gazette, p. 7126 (1968). The
amendatory law, however, did not introduce any change to the portion quoted
above.
5 See, in this connection, Pacific Commercial Co. v. Romualdez, et al., 49 Phil. 917
(1927).
6 Section 2 of R.A. 2264 has been amended by R.A. 4497, 62 Official Gazette, p.
8616 (1966); Underscoring supplied. R.A. 2264 was further amended by P.D. No.
145, 69 Official Gazette, p 2418 (1973), which however did not affect the
abovequoted portion.
7 Nin Bay Mining Co. v. Municipality of Roxas, 14 SCRA 660 (1965); See also C.N.
Hodges v. Municipal Board of the City of Iloilo, et. al., 19 SCRA 28 (1967); and
Villanueva v. City of Iloilo, 26 SCRA 578 (1968).
8 supra, note 6; underscoring supplied.
9 Compania General de Tabacos de Filipinas v. City of Manila, 118 Phil. 383; 8
SCRA 370 (1963); Pacific Commercial Co. v. Romualdez, 49 Phil, 917 (1927).
10 Manila Electric Company v. El Auditor General y La Comision
de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine
Rabbit Bus Lines, 32 SCRA 215 (1970).
11 City of Iloilo v. Villanueva, 105 Phil. 337 (1959).
12 Manila Electric Company vs. El Auditor General y la Comision de Servicios
Publicos, supra, at 134-135.
13 Serafin Saldana v. City of Iloilo, 104 Phil, 28. (1958).
14 Record on Appeal, p. 10.
15 Ibid.
16 In City of Jacksonville, et al. v. Ledwith 7 So. at 892 [1890]; 26 Fla. 163, it was
held that a permit to establish a market was:
"from the nature of a market, a license. It is a permit to do
something which could not be done before without such permit, and
hence is the grant of a license. x x x [T]he power to establish
markets is within the police power, and [thus is] x x x the power to
charge, as a police regulation, a fee for the permit or license for
selling meats or vegetables therein, x x x. The fee, however, is not
a tax for revenue, but a charge under the police power, and its
amount is to be controlled by the principles governing in such
cases."
17 Brief for the Respondent, pp. 6-7; Rollo, p. 172.
18 E.g., Calalang v. Lorenzo and Villar, 97 Phil. 212 (1955).
19 Procter & Gamble PMC v. Municipality of Jagna 94 SCRA 894 (1979); Northern
Phil. Tobacco Co. v. Municipality of Agoo, 31 SCRA 304 (1970); and San Miguel
Brewery, Inc. v. City of Cebu, 43 SCRA 275 (1972).
20 Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25
SCRA 192 at 205 (1968), citing 9 McQuillin Municipal Corporations, 3rd ed., at 65.
In Atkins v. Philips, 8 So. at 431 (1890); 26 Fla. 281, the Supreme
Court of Florida held:
21 City of Ozamis v. Lumapas, 65 SCRA 33 (1975).






PAL vs. EDU
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
GUTIERREZ, JR., J .:
What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking for
a re-examination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in
a case where the then Court of First Instance of Rizal dismissed the portion-about complaint for
refund of registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two
per cent of the gross revenue or gross earning derived by the grantee from its
operations under this franchise. Such tax shall be due and payable quarterly and
shall be in lieu of all taxes of any kind, nature or description, levied, established or
collected by any municipal, provincial or national automobiles, Provided, that if,
after the audit of the accounts of the grantee by the Commissioner of Internal
Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable
within the ten days from the receipt of the assessment. The grantee shall pay the
tax on its real property in conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not
come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint
against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case
No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his
capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause
of action. In support of the motion to dismiss, defendants repatriation the ruling in Republic v.
Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but
regulatory fees imposed as an incident of the exercise of the police power of the state. They
contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on
its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as
motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court
until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved
by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus
Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the
case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case
at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section
8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading
speaks of "registration fees." The term is repeated four times in the body thereof.
Equally so, mention is made of the "fee for registration." (Ibid., Subsection G) A
subsection starts with a categorical statement "No fees shall be charged."
(lbid., Subsection H) The conclusion is difficult to resist therefore that the Motor
Vehicle Act requires the payment not of a tax but of a registration fee under the
police power. Hence the incipient, of the section relied upon by defendant-appellee
under the Back Pay Law, It is not held liable for a tax but for a registration fee. It
therefore cannot make use of a backpay certificate to meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May
30, 1969.) A special science fund was thereby created and its title expressly sets
forth that a tax on privately-owned passenger automobiles, motorcycles and
scooters was imposed. The rates thereof were provided for in its Section 3 which
clearly specifies the" Philippine tax."(Cooley to be paid as distinguished from the
registration fee under the Motor Vehicle Act. There cannot be any clearer
expression therefore of the legislative will, even on the assumption that the earlier
legislation could by subdivision the point be susceptible of the interpretation that a
tax rather than a fee was levied. What is thus most apparent is that where the
legislative body relies on its authority to tax it expressly so states, and where it is
enacting a regulatory measure, it is equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:
The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the
name but the object of the charge determines whether it is a tax or a fee. Geveia
speaking, taxes are for revenue, whereas fees are exceptional. for purposes of
regulation and inspection and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection. Hence, a
charge fixed by statute for the service to be person,-When by an officer, where the
charge has no relation to the value of the services performed and where the
amount collected eventually finds its way into the treasury of the branch of the
government whose officer or officers collected the chauffeur, is not a fee but a
tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portionabout 5 per centumof the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides
that all such money shall accrue to the funds for the construction and maintenance
of public roads, streets and bridges. It is thus obvious that the fees are not collected
for regulatory purposes, that is to say, as an incident to the enforcement of
regulations governing the operation of motor vehicles on public highways, for their
express object is to provide revenue with which the Government is to discharge
one of its principal functionsthe construction and maintenance of public highways
for everybody's use. They are veritable taxes, not merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees
as taxes, for it provides that "no other taxes or fees than those prescribed in this
Act shall be imposed," thus implying that the charges therein imposedthough
called feesare of the category of taxes. The provision is contained in section 70,
of subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession
of chauffeur, by any municipal corporation, the provisions of any
city charter to the contrary notwithstanding: Provided, however,
That any provincial board, city or municipal council or board, or
other competent authority may exact and collect such reasonable
and equitable toll fees for the use of such bridges and ferries, within
their respective jurisdiction, as may be authorized and approved by
the Secretary of Public Works and Communications, and also for
the use of such public roads, as may be authorized by the President
of the Philippines upon the recommendation of the Secretary of
Public Works and Communications, but in none of these cases,
shall any toll fee." be charged or collected until and unless the
approved schedule of tolls shall have been posted levied, in a
conspicuous place at such toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.Twenty per centum of the money
collected under the provisions of this Act shall accrue to the road and bridge funds
of the different provinces and chartered cities in proportion to the centum shall
during the next previous year and the remaining eighty per centum shall be
deposited in the Philippine Treasury to create a special fund for the construction
and maintenance of national and provincial roads and bridges. as well as the
streets and bridges in the chartered cities to be alloted by the Secretary of Public
Works and Communications for projects recommended by the Director of Public
Works in the different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions
of this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land
Transportation Commission but not to exceed twenty per cent of the total collection
during one year, shall be set aside for the purpose. (As amended by RA 64-67,
approved August 6, 1971).
It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, thePhilippine Rabbit case mentions a presumption
arising from the use of the term "fees," which appears to have been favored by the legislature to
distinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which
reads:
Sec. 13. Payment of taxes upon registration.No original registration of motor
vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.
referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on various
aspects of taxpayers
It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the purpose is primarily revenue,
or if revenue is at least one of the real and substantial purposes, then the exaction
is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-
593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the
law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax
or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a
tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the
intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak
of an "additional" tax," where the law could have referred to an original tax and not one in addition to
the tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep.
Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the
imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other
"fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional
fees for change of registration (Sec. 11). These are not to be understood as taxes because such
fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of
the Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees are
to go into the expenditures of the Land Transportation Commission as provided for in the last
proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only
for rigidly purposes in the exercise of the State's police powers. Over the years, however, as
vehicular traffic exploded in number and motor vehicles became absolute necessities without
which modem life as we know it would stand still, Congress found the registration of vehicles a
very convenient way of raising much needed revenues. Without changing the earlier deputy. of
registration payments as "fees," their nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant
to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.
May the respondent administrative agency be required to refund the amounts stated in the
complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448
dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)."
July 11, 1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-
1/2%) of all gross receipts was provided as "in lieu of any and all taxes of any kind,
nature, or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent
court's decision which ruled that the exemption under Republic Act No. 41-42). was
repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:
"(d) The provisions of existing special or general laws to the
contrary notwithstanding, all corporate taxpayers not specifically
exempt under Sections 24 (c) (1) of this Code shall pay the rates
provided in this section. All corporations, agencies, or
instrumentalities owned or controlled by the government, including
the Government Service Insurance System and the Social Security
System but excluding educational institutions, shall pay such rate
of tax upon their taxable net income as are imposed by this section
upon associations or corporations engaged in a similar business or
industry. "
An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier exemption
it granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section
5 of the Constitution as amended in 1973 expressly provide that no franchise shall
be granted to any individual, firm, or corporation except under the condition that it
shall be subject to amendment, alteration, or repeal by the legislature when the
public interest so requires. There is no question as to the public interest involved.
The country needs increased revenues. The repealing clause is clear and
unambiguous. There is a listing of entities entitled to tax exemption. The petitioner
is not covered by the provision. Considering the foregoing, the Court Resolved to
DENY the petition for lack of merit. The decision of the respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay
to the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's annual
net taxable income computed in accordance with the provisions of
the Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect
to international airtransport service, only the gross passengers,
mail, and freight revenues. from its outgoing flights shall be subject
to this law.
The tax paid by the grantee under either of the above alternatives shall be in lieu
of all other taxes, duties, royalties, registration, license and other fees and charges
of any kind, nature or description imposed, levied, established, assessed, or
collected by any municipal, city, provincial, or national authority or government,
agency, now or in the future, including but not limited to the following:
xxx xxx xxx
(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB)
is enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing
of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Grio Aquino and Medialdea, JJ., concur.






















PLANTERS PRODUCTS, INC. VS. FERTIPHIL CORPORATION
G.R. No. 166006
PLANTERS PRODUCTS, INC.,
Petitioner,
VS.
FERTIPHIL CORPORATION,
Respondent.

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated: March 14, 2008


D E C I S I O N


REYES, R.T., J .:
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision
[1]
of the Court
of Appeals (CA) affirming with modification that of the RTC in Makati City,
[2]
finding petitioner
Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the
levies it paid under Letter of Instruction (LOI) No. 1465.

The Facts
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws.
[3]
They are both engaged in the importation and distribution of fertilizers, pesticides
and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.
[4]
The LOI
provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer
pricing formula a capital contribution component of not less than P10 per
bag. This capital contribution shall be collected until adequate capital is raised
to make PPI viable. Such capital contribution shall be applied by FPA to all
domestic sales of fertilizers in the Philippines.
[5]
(Underscoring supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to
the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to
FPA from July 8, 1985 to January 24, 1986.
[6]


After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10
levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to accede to the demand.
[7]


Fertiphil filed a complaint for collection and damages
[8]
against FPA and PPI with the RTC
in Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process of
law.
[9]
Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used
the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer,
[10]
FPA, through the Solicitor General, countered that the issuance of LOI
No. 1465 was a valid exercise of the police power of the State in ensuring the stability of the
fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage from the
LOI because the burden imposed by the levy fell on the ultimate consumer, not the seller.

RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as
follows:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant Planters Product, Inc.,
ordering the latter to pay the former:

1) the sum of P6,698,144.00 with interest at 12% from the time
of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.

SO ORDERED.
[11]

Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of
taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be levied
for public purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country
by LOI 1465 is purportedly in the exercise of the power of taxation. It is a settled
principle that the power of taxation by the state is plenary.
Pascual vs Secretary of Public Works
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-
appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-
appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.
CONCEPCION, J .:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled
"An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section
1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair,
extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen.
Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that,
at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing
but projected and planned subdivision roads, not yet constructed, . . . within the Antonio
Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and
Highway 54), which projected feeder roads "do not connect any government property or any
important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as
the lands on which said feeder roads were to be construed) were private properties of respondent
Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the
Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the
Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality
of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to change the names of
two of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed;
that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to
the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the
construction of the projected feeder roads in question; that the municipal council of Pasig endorsed
said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not
made any endorsement thereon" that inasmuch as the projected feeder roads in question were
private property at the time of the passage and approval of Republic Act No. 920, the appropriation
of P85,000.00 therein made, for the construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said
appropriation of P85,000.00 was made by Congress because its members were made to believe
that the projected feeder roads in question were "public roads and not private streets of a private
subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the
aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while he
was a member of the Senate of the Philippines, an alleged deed of donation copy of which is
annexed to the petition of the four (4) parcels of land constituting said projected feeder roads,
in favor of the Government of the Republic of the Philippines; that said alleged deed of donation
was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous
condition, said donation partook of the nature of a contract; that, such, said donation violated the
provision of our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the Government, and, hence, is unconstitutional, as well
as null and voidab initio, for the construction of the projected feeder roads in question with public
funds would greatly enhance or increase the value of the aforementioned subdivision of
respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision
streets or roads at his own expense"; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works
and Communications, the Director of the Bureau of Public Works and Highways and Jose C.
Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads project,
and from making and securing any new and further releases on the aforementioned item of
Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways
from making any further payments out of said funds provided for in Republic Act No. 920; and that
pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the
aforementioned parties respondent from making and securing any new and further releases on the
aforesaid item of Republic Act No. 920 and from making any further payments out of said illegally
appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said
respondent is " not aware of any law which makes illegal the appropriation of public funds for the
improvements of . . . private property"; and that, the constitutional provision invoked by petitioner
is inapplicable to the donation in question, the same being a pure act of liberality, not a contract.
The other respondents, in turn, maintained that petitioner could not assail the appropriation in
question because "there is no actual bona fide case . . . in which the validity of Republic Act No.
920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial
interest" in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor
of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that
"the legislature is without power appropriate public revenues for anything but a public purpose",
that the instructions and improvement of the feeder roads in question, if such roads where private
property, would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the
Republic of the Philippines will use the parcels of land hereby donated for street purposes
only and for no other purposes whatsoever; it being expressly understood that should the
Government of the Republic of the Philippines violate the condition hereby imposed upon
it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause,
objector purpose is contrary to law, morals . . . or public policy"; that the legality of said donation
may not be contested, however, by petitioner herein, because his "interest are not directly affected"
thereby; and that, accordingly, the appropriation in question "should be upheld" and the case
dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of
fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said respondent when Republic Act
No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving
respondent Zulueta of the burden of constructing his subdivision streets or roads at his own
expenses,
1
and would "greatly enhance or increase the value of the subdivision" of said
respondent. The lower court held that under these circumstances, the appropriation in question
was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident.
2
However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any
law which makes illegal the appropriation of public funds for the improvement of what we,
in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of
the Government established under the Constitution of the Republic of the Philippines and the
system of checks and balances underlying our political structure. Moreover, it is refuted by the
decisions of this Court invalidating legislative enactments deemed violative of the Constitution or
organic laws.
3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interest to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental to
the public or to the state, which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify their aid by the use public
money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes
only, discussedsupra sec. 14, money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646;
emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof
to another purpose, no appropriation of state funds can be made for other than for a public
purpose.
x x x x x x x x x
The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve
the public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such,
exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional
law.lawphil. net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because
the same does not affect him directly. This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration
of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil
Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result
is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation
to the Government, over five (5) months after the approval and effectivity of said Act, made,
according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial
nullification of said donation need not precede the declaration of unconstitutionality of said
appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions
set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only those
which are inherent in his person, including therefore, his right to the annulment of said contract,
even though such creditors are not affected by the same, except indirectly, in the manner indicated
in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain
a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds,
5
upon the theory that
"the expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer.
6
Although there are some decisions to the contrary,
7
the prevailing view in
the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute, the general rule is that not only persons individually
affected, but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of
moneys raised by taxation and may therefore question the constitutionality of statutes
requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal
corporation to its government. Indeed, under the composite system of government existing in the
U.S., the states of the Union are integral part of the Federation from an international viewpoint,
but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations
imposed by the Federal Constitution. In fact, the same was made by representatives ofeach
state of the Union, not of the people of the U.S., except insofar as the former represented the
people of the respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes
have become binding upon the people of the U.S. in consequence of an act of, and, in this
sense, through the respective states of the Union of which they are citizens. The peculiar nature
of the relation between said people and the Federal Government of the U.S. is reflected in the
election of its President, who is chosen directly, not by the people of the U.S., but by electors
chosen by each State, in such manner as the legislature thereof may direct (Article II, section 2, of
the Federal Constitution).lawphi 1. net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal Government in the interest of
the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality
of a legislation appropriating local or state public funds which has been upheld by the Federal
Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines
than that adopted with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land
by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose
of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action
of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases
the importance of the issues therein raised is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most populated
political subdivision,
8
and, the taxpayers therein bear a substantial portion of the burden of taxation,
in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should
not have been dismissed by the lower court; and that the writ of preliminary injunction should have
been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this instance
against respondent Jose C. Zulueta. It is so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes, and Dizon, JJ., concur.
Footnotes
1 For, pursuant to section 19(h) of the existing rules and regulation of the Urban Planning
Commission, the owner of a subdivision is under obligation "to improve, repair and maintain all
streets, highways and other ways in his subdivision until their dedication to public use is accepted
by the government."
2 Ex parte Bagwell, 79 P. 2d. 395; Road District No. 4 Shelby County vs. Allred. 68 S.W 2d 164;
State ex rel. Thomson vs. Giessel, 53-N.W. 2d. 726, Attorney General vs. City of Eau Claire, 37 Wis.
400; State ex rel. Smith vs. Annuity Pension Board, 241 Wis. 625, 6 N.W. 2d. 676; State vs. Smith,
293 N.W. 161; State vs.Dammann 280 N.W. 698; Sjostrum vs. State Highway Commission 228 P.
2d. 238; Hutton vs. Webb, 126 N.C. 897, 36 S.E. 341; Michigan Sugar Co. vs. Auditor General, 124
Mich. 674, 83 N.W. 625; Oxnard Beet Sugar Co. vs. State, 105 N.W. 716.
3 Casanovas vs. Hord. 8 Phil., McGirr vs. Hamilton, 30 Phil., 563; Compania General de
Tabacos vs. Board of Public Utility, 34 Phil., 136; Central Capiz vs. Ramirez, 40 Phil., 883;
Concepcion vs. Paredes, 42 Phil., 599; U.S. vs. Ang Tang Ho, 43 Phil., 6; McDaniel vs. Apacible,
44 Phil., 248; People vs. Pomar, 46 Phil., 440; Agcaoili vs. Suguitan, 48 Phil., 676; Government of
P.I. vs. Springer, 50 Phil., 259; Manila Electric Co. vs.Pasay Transp. Co., 57 Phil., 600;
People vs. Linsangan, 62 Phil., 464; People and Hongkong & Shanghai Banking Corp. vs. Jose O.
Vera, 65 Phil., 56; People vs. Carlos, 78 Phil., 535; 44 Off. Gaz. 428; In re Cunanan, 94 Phil., 534;
50 Off. Gaz., 1602; City of Baguio vs. Nawasa, 106 Phil., 144; City of Cebu vs.Nawasa, 107 Phil.,
1112; Rutter vs. Esteban, 93 Phil., 68; Off. Gaz., [5]1807.
4 In the language of the Supreme Court of Nebraska, "An unconstitutional statute is a legal still birth,
which neither moves, nor breathes, nor holds out any sign of life. It is a form without one vital spark.
It is whollydead from the time of conception, and, no right, either legal or equitable, arises from such
inanimate thing." (Oxnard Beet Sugar Co. vs. State, 102 N.W. 80.).
5 See, among others, Livermore, vs. Waite, 102 Cal. 113, 25 L.R.A. 312,36 P. 424;
Crawford vs. Gilchrist, 64 Fla. 41, 59 So. 963; Lucas vs. American Hawaiian Engineering and Constr.
Co., 16 Haw. 80; Castle vs.Capena, 5 Haw. 27; Littler vs. Jayne, 124 Ill. 123, 16 N.E. 374;
Burke vs. Snively, 208 I11. 328, 70 N.E. 372; Ellingham vs. Dye, 178 Ind. 336, 99 N.E. 1;
Christmas vs. Warfield, 105 Md. 536; Sears vs. Steel, 55 Or. 544, 107 Pac. 3; State ex rel.
Taylor vs. Pennover, 26 Or. 205, 37 Pac. 906; Carman vs. Woodruf, 10 Or. 123;
MacKinley vs. Watson, 145 Pac. 266; Sears vs. James, 47 Or. 50, 82 Pac. 14; Mott vs. Pennsylvania
R. Co., 30 Pa. 9, 72 Am. Dec. 664; Bradly vs. Power County, 37 Am. Dec. 563; Frost vs. Thomas,
26 Colo. 227, 77 Am. St. Rep. 259, 56 Pac. 899; Martin vs. Ingham, 38 Kan. 641, 17 Pac. 162;
Martin vs. Lacy, 39 Kan. 703, 18 Pac. 951; Smith vs. Maguerich, 44 Ga. 163; Giddings vs. Blacker,
93 Mich. 1, 16 L.R.A. 402, 52 N.W. 944; Rippe vs. Becker, 56 Minn. 100, 57 N.W. 331;
Auditor vs. Treasurer, 4 S.C. 311; McCullough vs.Brown, 31 S.C. 220, 19 S.E. 458; State ex rel.
Lamb vs. Cummingham, 83 Wis. 90, 53 N.W. 35; State ex rel. Rosenhian vs. Frear, 138 Wis. 173,
119 N.W. 894.
6 Rubs vs. Thompson, 56 N.E. 2d. 761; Reid vs. Smith, 375 Ill. 147, 30N. E. 2d. 908;
Fergus vs. Russel, 270 Ill. 304, 110 N.E. 130; Burke vs. Snively, 208 Ill. 328; Jones vs. Connell, 266
Ill. 443, 107 N.E. 731; Dudick vs.Baumann, 349 [PEPSI] Ill. 46, 181 N.E. 690.
7 Thompson vs. Canal Fund Comps., 2 Abb. Pr. 248; Shieffelin vs. Komfort, 212 N.Y. 520, 106 N.E.
675; Hutchison vs. Skinmer, 21 Misc. 729, 49N. Y. Supp. 360; Long vs. Johnson, 70 Misc. 308; 127
N.Y. Supp. 756; Whiteback vs. Hooker, 73 Misc. 573, 133 N.Y. Supp. 534; State ex rel.
Cranmer vs. Thorson, 9 S.D. 149, 68 N.W. 202; Davenport vs. Elrod, 20 S.D. 567, 107 N.W. 833;
Indiana Jones vs. Reed, 3 Wash. 57, 27 Pac. 1067; Birmingham vs. Cheetham, 19 Wash. 657, 54
Pac. 37; Tacoma vs. Bridges, 25 Wash. 221, 65 Pac. 186; Hilger vs. State, 63 Wash. 457, 116 Pac.
19.
8 It has 1,463,530 inhabitants.



Manila International Airport Authority vs City of Paranaque
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE,
and CITY TREASURER OF PARAAQUE, respondents.
D E C I S I O N
CARPIO, J .:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International
Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as
the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order
No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently,
Executive Order Nos. 909
1
and 298
2
amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of
land,
3
including the runways and buildings ("Airport Lands and Buildings") then under the Bureau
of Air Transportation.
4
The MIAA Charter further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.
5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.
061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from
real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with
respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some
of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down
as follows:
TAX
DECLARATION
TAXABLE
YEAR
TAX DUE PENALTY TOTAL
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.00
6

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened
to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The
OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from
real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter
is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and
injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought
to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning
for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No.
66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the
60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's
motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5
December 2002 the present petition for review.
7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay
Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of
Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque
published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a
newspaper of general circulation in the Philippines. The notices announced the public auction sale
of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the
Legislative Session Hall Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court
an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order.
The motion sought to restrain respondents the City of Paraaque, City Mayor of
Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City
Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately.
The Court ordered respondents to cease and desist from selling at public auction the Airport Lands
and Buildings. Respondents received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public
auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive
issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General
subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the
name of MIAA. However, MIAA points out that it cannot claim ownership over these properties
since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The
MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and Buildings are devoted to public use and public service,
the ownership of these properties remains with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section
234 of the Local Government Code because the Airport Lands and Buildings are owned by the
Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax
itself. MIAA points out that the reason for tax exemption of public property is that its taxation would
not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the
tax exemption privileges of "government-owned and-controlled corporations" upon the
effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos
8
where
we held that the Local Government Code has withdrawn the exemption from real estate tax granted
to international airports. Respondents further argue that since MIAA has already paid some of the
real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings
are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments
issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are
void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt
from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or
controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt
from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of
the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or
controlled corporation as follows:
SEC. 2. General Terms Defined. x x x x
(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: x x x. (Emphasis supplied)
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 10 of the MIAA Charter
9
provides:
SECTION 10. Capital. The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos
to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the Commission
on Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986
to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National Government in the Authority.
Thereafter, the Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code
10
defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." 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.
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.
11
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. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(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. x x x (Emphasis supplied)
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,
12
police authority
13
and the levying of fees and charges.
14
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."
15

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
"separate and autonomous body"
16
will make its operation more "financially viable."
17

Many government instrumentalities are vested with corporate powers but they do not become stock
or non-stock corporations, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are
not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:
SEC. 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:
x x x x
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
18

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and
there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, J r.:
The reason for the rule does not apply in the case of exemptions running to the benefit of
the government itself or its agencies. In such case the practical effect of an exemption is
merely to reduce the amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax-liability of such agencies.
19

There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held
in Basco v. Philippine Amusements and Gaming Corporation:
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. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
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.
20

2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned
by the State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 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. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned
by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State
or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects
terminal fees and other charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of
public dominion or not. Article 420 of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the
road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for public use. Such fees are often
termed user's tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A user's
tax is more equitable a principle of taxation mandated in the 1987 Constitution.
21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the
Philippines for both international and domestic air traffic,"
22
are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are
outside the commerce of man. The Court has ruled repeatedly that properties of public dominion
are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of
Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public
waters, the promenades, and public works of general service supported by said towns or
provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite
could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it
for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or
public place to the defendant for private use the plaintiff municipality exceeded its authority
in the exercise of its powers by executing a contract over a thing of which it could not
dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce
of man may be the object of a contract, and plazas and streets are outside of this
commerce, as was decided by the supreme court of Spain in its decision of February 12,
1895, which says: "Communal things that cannot be sold because they are by their
very nature outside of commerce are those for public use, such as the plazas,
streets, common lands, rivers, fountains, etc." (Emphasis supplied)
23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to
be made available to the public in general. They are outside the commerce of man and
cannot be disposed of or even leased by the municipality to private parties. While in case
of war or during an emergency, town plazas may be occupied temporarily by private
individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town
officials should see to it that the town plazas should ever be kept open to the public and
free from encumbrances or illegal private constructions.
24
(Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.
25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public services
will stop if properties of public dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber
26
the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral
lands,"
27
provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic of the Philippines or of any of its
branches, or of the inhabitants thereof, in accordance with regulations prescribed for this
purposes, or for quasi-public uses or purposes when the public interest requires it,
including reservations for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales, public parks, public
quarries, public fishponds, working men's village and other improvements for the public
benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation, entry,
sale, lease, or other disposition until again declared alienable under the provisions
of this Act or by proclamation of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable. Since
the Airport Lands and Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the
Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw
such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code
of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.
(1) The President shall have the power to reserve for settlement or public use,
and for specific public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall thereafter remain
subject to the specific public purpose indicated until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law
or presidential proclamation from public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48,
Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title
to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by
the President, unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name
of any political subdivision or of any corporate agency or instrumentality, by the
executive head of the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.
28

d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings
from the Bureau of Air Transportation of the Department of Transportation and Communications.
The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the surrounding land area
of approximately six hundred hectares, are hereby transferred, conveyed and
assigned to the ownership and administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year from the promulgation
of this Executive Order and the corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the Philippines.
(Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other property, movable or
immovable, belonging to the Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air Transportation relating to airport works or air
operations, including all equipment which are necessary for the operation of crash fire and
rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. The Manila International Airport including the
Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands
and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for
both international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro
Manila;
WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a
financially viable operation, will best be achieved by a separate and autonomous
body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No.
1772, the President of the Philippines is given continuing authority to reorganize the
National Government, which authority includes the creation of new entities,
agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was
not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's
assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed
through sale or through any other mode unless specifically approved by the President of
the Philippines." This only means that the Republic retained the beneficial ownership of the
Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the
right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings,
MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings
without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the
President is the only one who can authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." Section 234(a) 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 has been granted, for
consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National Government,
its agencies andinstrumentalities x x x." The real properties owned by the Republic are titled
either in the name of the Republic itself or in the name of agencies or instrumentalities of the
National Government. The Administrative Code allows real property owned by the Republic to be
titled in the name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if the "beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties subject to real estate
tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial
use of such land area for a consideration to ataxable person and therefore such land area is
subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the
other hand, the portions of the land occupied by the hospital and portions of the hospital
used for its patients, whether paying or non-paying, are exempt from real property taxes.
29

3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 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. No. 6938, non-stock
and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity
of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since
the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not
exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To
repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax
exemption applies to all persons. The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under
our laws, natural and juridical persons. Obviously, MIAA is not a natural person.
Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA
is a juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its
status whether MIAA is a juridical person or not. The minority also insists that "Sections 193
and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this
Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 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:
x x x x
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind
of tax on national government instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and instrumentalities. The taxing powers of
local governments do not extend to the national government, its agencies and instrumentalities,
"[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving
clause refers to Section 234(a) on the exception to the exemption from real estate tax of real
property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons
are subject to tax by local governments. The minority insists that the juridical persons exempt from
local taxation are limited to the three classes of entities specifically enumerated as exempt in
Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit
hospitals and educational institutions. It would be belaboring the obvious why the MIAA
does not fall within any of the exempt entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national government,
which itself is a juridical person, subject to tax by local governments since the national government
is not included in the enumeration of exempt entities in Section 193. Under this theory, local
governments can impose any kind of local tax, and not only real estate tax, on the national
government.
Under the minority's theory, many national government instrumentalities with juridical personalities
will also be subject to any kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng
Pilipinas,
30
Philippine Rice Research Institute,
31
Laguna Lake
Development Authority,
32
Fisheries Development Authority,
33
Bases Conversion Development
Authority,
34
Philippine Ports Authority,
35
Cagayan de Oro Port Authority,
36
San Fernando Port
Authority,
37
Cebu Port Authority,
38
and Philippine National Railways.
39

The minority's theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities. Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities,
with or without juridical personalities. The determinative test whether MIAA is exempt from local
taxation is not whether MIAA is a juridical person, but whether it is a national government
instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise
provided in this Code." This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments
may tax the national government, its agencies and instrumentalities only if the Local Government
Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the
Code, which makes the national government subject to real estate tax when it gives the beneficial
use of its real properties to a taxable entity. Section 234(a) of the Local Government Code 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 has been granted, for consideration or otherwise,
to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The
exception to this exemption is when the government gives the beneficial use of the real property
to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local governments.
The exception to the exemption applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real property, although owned by the
Republic, is not devoted to public use or public service but devoted to the private gain of a taxable
person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand,
and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less
has any one presenteda persuasive argument that there is such a conflict. The minority's
assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two
reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193 states
"[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of
other provisions of the Local Government Code that limit the exercise of the taxing power in Section
193. When a provision of law grants a power but withholds such power on certain matters, there
is no conflict between the grant of power and the withholding of power. The grantee of the power
simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government
Units." Section 133 limits the grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of tax on the national government, its
agencies and instrumentalities. There is no clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments,
Section 133 logically prevails over Section 193 which grants local governments such taxing
powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail
over the grant or exercise of the taxing power. If the taxing power of local governments in Section
193 prevails over the limitations on such taxing power in Section 133, then local governments can
impose any kind of tax on the national government, its agencies and instrumentalities a gross
absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the
saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception
which is an exception to the exemption of the Republic from real estate tax imposed by local
governments refers to Section 234(a) of the Code. The exception to the exemption in Section
234(a) subjects real property owned by the Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property
is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-
owned or controlled corporation" is not controlling. The minority points out that Section 2 of the
Introductory Provisions of the Administrative Code admits that its definitions are not controlling
when it provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as
a whole, or a particular statute, shall require a different meaning:
x x x x
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes
that a statute may require a different meaning than that defined in the Administrative Code.
However, this does not automatically mean that the definition in the Administrative Code does not
apply to the Local Government Code. Section 2 of the Administrative Code clearly states that
"unless the specific words x x x of a particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code, however, expressly
defines the phrase "government-owned or controlled corporation." The inescapable conclusion is
that the Administrative Code definition of the phrase "government-owned or controlled corporation"
applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance."
Thus, the Administrative Code is the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and instrumentalities. Unless a statute
expressly provides for a different status and relationship for a specific government unit or entity,
the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should
apply only to corporations organized under the Corporation Code, the general incorporation law,
and not to corporations created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the
Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities and Exchange
Commission. In short, these are GOCCs without original charters.
x x x x
It might as well be worth pointing out that there is no point in requiring a capital structure
for GOCCs whose full ownership is limited by its charter to the State or Republic. Such
GOCCs are not empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and
existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled
corporation" does not distinguish between one incorporated under the Corporation Code or under
a special charter. Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations
organized as stock corporations. Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter
40
of the Land Bank of the Philippines
provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion
pesos, divided into seven hundred and eighty million common shares with a par value of
ten pesos each, which shall be fully subscribed by the Government, and one hundred and
twenty million preferred shares with a par value of ten pesos each, which shall be issued
in accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter
41
of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall
be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100
per share. These shares are available for subscription by the National Government. Upon
the effectivity of this Charter, the National Government shall subscribe to Twenty-Five
Million common shares of stock worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset values of the Bank remaining after
the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special
charters are the Philippine Crop Insurance Corporation,
42
Philippine International Trading
Corporation,
43
and the Philippine National Bank
44
before it was reorganized as a stock corporation
under the Corporation Code. All these government-owned corporations organized under special
charters as stock corporations are subject to real estate tax on real properties owned by them. To
rule that they are not government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove them from the reach of
Section 234 of the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those
that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or controlled corporation must
meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis and underscoring
supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled
corporations" through special charters only if these entities are required to meet the twin conditions
of common good and economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless they are made to
comply with the two conditions of common good and economic viability. The test of economic
viability applies only to government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good meaning for economic development purposes
these government-owned or controlled corporations with special charters are usually organized as
stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not
the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities known as "government-owned or
controlled corporations" must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their income to
meet operating expenses solely from commercial transactions in competition with the private
sector. The intent of the Constitution is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place and thus merely drain the public
coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes
exempt from the test of economic performance. We know what happened in the past. If a
government corporation loses, then it makes its claim upon the taxpayers' money through
new equity infusions from the government and what is always invoked is the common good.
That is the reason why this year, out of a budget of P115 billion for the entire government,
about P28 billion of this will go into equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have been relocated to agrarian
reform, to social services like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's consideration and I am glad that
I am joined in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.
45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test
of economic viability." The addition includes the ideas that they must show capacity to
function efficiently in business and that they should not go into activities which the private
sector can do better. Moreover, economic viability is more than financial viability but also
includes capability to make profit and generate benefits not quantifiable in financial
terms.
46
(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability
of rendering such essential public service does not excuse the State from withholding such
essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability. These
are the government-owned or controlled corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the Philippines and the Development Bank
of the Philippines. These are the government-owned or controlled corporations, along with
government-owned or controlled corporations organized under the Corporation Code, that fall
under the definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA
to compete in the market place. MIAA does not compete in the market place because there is no
competing international airport operated by the private sector. MIAA performs an essential public
service as the primary domestic and international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold
departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
3. The quarantine office of the Department of Health, to enforce health measures against
the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and
animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry
of terrorists and the escape of criminals, as well as to secure the airport premises from
terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to
authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off
from, the airport; and
7. The MIAA, to provide the proper premises such as runway and buildings for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA
derives its revenues principally from the mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees
47
and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(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. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-
owned or controlled corporation. Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative
Code. More importantly, as long as MIAA renders essential public services, it need not comply with
the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned
or controlled corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or
controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-owned or controlled corporations."
The Administrative Code defines what constitutes a "government-owned or controlled corporation."
To belittle this phrase as "clarificatory or illustrative" is grave error.
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
the Local 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:
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. (Emphasis supplied)
The term "ports x x x 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.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only portions
of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real
estate tax by the City of Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes
public airports and seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real
estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for the portions
that the Manila International Airport Authority has leased to private parties. We also
declareVOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the
Manila International Airport Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez,
Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr.,
J.J., concur.





























TIU VS. CA
G.R. No. 127410. January 20, 1999
CONRADO L. TIU, JUAN T. MONTELIBANO JR. and ISAGANI M. JUNGCO, petitioners,
vs. COURT OF APPEALS, HON. TEOFISTO T. GUINGONA JR., BASES CONVERSION
AND DEVELOPMENT AUTHORITY, SUBIC BAY METROPOLITAN AUTHORITY,
BUREAU OF INTERNAL REVENUE, CITY TREASURER OF OLONGAPO and
MUNICIPAL TREASURER OF SUBIC, ZAMBALES, respondents.
D E C I S I O N
PANGANIBAN, J .:
The constitutional right to equal protection of the law is not violated by an executive order,
issued pursuant to law, granting tax and duty incentives only to businesses and residents within
the secured area of the Subic Special Economic Zone and denying them to those who live within
the Zone but outside such fenced-in territory. The Constitution does not require absolute equality
among residents. It is enough that all persons under like circumstances or conditions are given
the same privileges and required to follow the same obligations. In short, a classification based
on valid and reasonable standards does not violate the equal protection clause.
The Case
Before us is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of
the Court of Appeals Decision
[1]
promulgated on August 29, 1996, and Resolution
[2]
dated
November 13, 1996, in CA-GR SP No. 37788.
[3]
The challenged Decision upheld the
constitutionality and validity of Executive Order No. 97-A (EO 97-A), according to which the grant
and enjoyment of the tax and duty incentives authorized under Republic Act No. 7227 (RA 7227)
were limited to the business enterprises and residents within the fenced-in area of the Subic
Special Economic Zone (SSEZ).
The assailed Resolution denied the petitioners motion for reconsideration.
The Facts
On March 13, 1992, Congress, with the approval of the President, passed into law RA 7227
entitled An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses,
Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds
Therefor and for Other Purposes. Section 12 thereof created the Subic Special Economic Zone
and granted thereto special privileges, as follows:
SEC. 12. Subic Special Economic Zone. -- Subject to the concurrence by resolution of
the sangguniang panlungsod of the City of Olongapo and the sangguniang bayan of the
Municipalities of Subic, Morong and Hermosa, there is hereby created a Special Economic and
Free-port Zone consisting of the City of Olongapo and the Municipality of Subic, Province of
Zambales, the lands occupied by the Subic Naval Base and its contiguous extensions as
embraced, covered, and defined by the 1947 Military Bases Agreement between the Philippines
and the United States of America as amended, and within the territorial jurisdiction of the
Municipalities of Morong and Hermosa, Province of Bataan, hereinafter referred to as the Subic
Special Economic Zone whose metes and bounds shall be delineated in a proclamation to be
issued by the President of the Philippines. Within thirty (30) days after the approval of this Act,
each local government unit shall submit its resolution of concurrence to join the Subic Special
Economic Zone to the Office of the President. Thereafter, the President of the Philippines shall
issue a proclamation defining the metes and bounds of the zone as provided herein.
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be
developed into a self-sustaining, industrial, commercial, financial and investment center to
generate employment opportunities in and around the zone and to attract and promote productive
foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out of the
Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations
of raw materials, capital and equipment. However, exportation or removal of goods from the
territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be
subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax
laws of the Philippines;
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes,
local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying
taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the
Subic Special Economic Zone shall be remitted to the National Government, one percent (1%)
each to the local government units affected by the declaration of the zone in proportion to their
population area, and other factors. In addition, there is hereby established a development fund of
one percent (1%) of the gross income earned by all businesses and enterprises within the Subic
Special Economic Zone to be utilized for the development of municipalities outside the City of
Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas.
In case of conflict between national and local laws with respect to tax exemption privileges in the
Subic Special Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold,
securities and future shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations
of banks and other financial institutions within the Subic Special Economic Zone;
(f) Banking and finance shall be liberalized with the establishment of foreign currency depository
units of local commercial banks and offshore banking units of foreign banks with minimum Central
Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not
be less than two hundred fifty thousand dollars ($250,000), his/her spouse and dependent children
under twenty-one (21) years of age, shall be granted permanent resident status within the Subic
Special Economic Zone. They shall have the freedom of ingress and egress to and from the Subic
Special Economic Zone without any need of special authorization from the Bureau of Immigration
and Deportation. The Subic Bay Metropolitan Authority referred to in Section 13 of this Act may
also issue working visas renewable every two (2) years to foreign executives and other aliens
possessing highly technical skills which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and Employment. The names of aliens granted
permanent residence status and working visas by the Subic Bay Metropolitan Authority shall be
reported to the Bureau of Immigration and Deportation within thirty (30) days after issuance thereof;
(h) The defense of the zone and the security of its perimeters shall be the responsibility of the
National Government in coordination with the Subic Bay Metropolitan Authority. The Subic Bay
Metropolitan Authority shall provide and establish its own security and fire-fighting forces; and
(i) Except as herein provided, the local government units comprising the Subic Special Economic
Zone shall retain their basic autonomy and identity. The cities shall be governed by their respective
charters and the municipalities shall operate and function in accordance with Republic Act No.
7160, otherwise known as the Local Government Code of 1991.
On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97),
clarifying the application of the tax and duty incentives thus:
Section 1. On Import Taxes and Duties -- Tax and duty-free importations shall apply only to raw
materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except
for these items, importations of other goods into the SSEZ, whether by business enterprises or
resident individuals, are subject to taxes and duties under relevant Philippine laws.
The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts
of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws.
Section 2. On All Other Taxes. -- In lieu of all local and national taxes (except import taxes and
duties), all business enterprises in the SSEZ shall be required to pay the tax specified in Section
12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President issued Executive Order No. 97-A (EO 97-A),
specifying the area within which the tax-and-duty-free privilege was operative, viz.:
Section 1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base
shall be the only completely tax and duty-free area in the SSEFPZ [Subic Special Economic and
Free Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing within
the Secured Area are free to import raw materials, capital goods, equipment, and consumer items
tax and duty-free. Consumption items, however, must be consumed within the Secured
Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured
Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and duties,
except as may be provided herein
On October 26, 1994, the petitioners challenged before this Court the constitutionality of EO
97-A for allegedly being violative of their right to equal protection of the laws. In a Resolution dated
June 27, 1995, this Court referred the matter to the Court of Appeals, pursuant to Revised
Administrative Circular No. 1-95.
Incidentally, on February 1, 1995, Proclamation No. 532 was issued by President Ramos. It
delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone,
pursuant to Section 12 of RA 7227.
Ruling of the Court of Appeals

Respondent Court held that there is no substantial difference between the provisions of EO
97-A and Section 12 of RA 7227. In both, the Secured Area is precise and well-defined as xxx the
lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered and
defined by the 1947 Military Bases Agreement between the Philippines and the United States of
America, as amended, xxx. The appellate court concluded that such being the case, petitioners
could not claim that EO 97-A is unconstitutional, while at the same time maintaining the validity of
RA 7227.
The court a quo also explained that the intention of Congress was to confine the coverage of
the SSEZ to the secured area and not to include the entire Olongapo City and other areas
mentioned in Section 12 of the law. It relied on the following deliberations in the Senate:
Senator Paterno. Thank you, Mr. President. My first question is the extent of the economic
zone. Since this will be a free port, in effect, I believe that it is important to delineate or make sure
that the delineation will be quite precise[. M]y question is: Is it the intention that the entire of
Olongapo City, the Municipality of Subic and the Municipality of Dinalupihan will be covered by the
special economic zone or only portions thereof?
Senator Shahani. Only portions, Mr. President. In other words, where the actual operations
of the free port will take place.
Senator Paterno. I see. So, we should say, COVERING THE DESIGNATED PORTIONS
OR CERTAIN PORTIONS OF OLONGAPO CITY, SUBIC AND DINALUPIHAN to make it clear
that it is not supposed to cover the entire area of all of these territories.
Senator Shahani. So, the Gentleman is proposing that the words CERTAIN AREAS ...
The President. The Chair would want to invite the attention of the Sponsor and Senator
Paterno to letter C, which says: THE PRESIDENT OF THE PHILIPPINES IS HEREBY
AUTHORIZED TO PROCLAIM, DELINEATE AND SPECIFY THE METES AND BOUNDS OF
OTHER SPECIAL ECONOMIC ZONES WHICH MAY BE CREATED IN THE CLARK MILITARY
RESERVATIONS AND ITS EXTENSIONS.
Probably, this provision can be expanded since, apparently, the intention is that what is
referred to in Olongapo as Metro Olongapo is not by itself ipso jure already a special economic
zone.
Senator Paterno. That is correct.
The President. Someone, some authority must declare which portions of the same shall be
the economic zone. Is it the intention of the author that it is the President of the Philippines who
will make such delineation?
Senator Shahani. Yes, Mr. President.
The Court of Appeals further justified the limited application of the tax incentives as being
within the prerogative of the legislature, pursuant to its avowed purpose [of serving] some public
benefit or interest. It ruled that EO 97-A merely implements the legislative purpose of [RA 7227].
Disagreeing, petitioners now seek before us a review of the aforecited Court of Appeals
Decision and Resolution.
The Issue
Petitioners submit the following issue for the resolution of the Court:
[W]hether or not Executive Order No. 97-A violates the equal protection clause of the
Constitution. Specifically the issue is whether the provisions of Executive Order No. 97-A confining
the application of R.A. 7227 within the secured area and excluding the residents of the zone outside
of the secured area is discriminatory or not.
[4]

The Courts Ruling
The petition
[5]
is bereft of merit.
Main Issue: The Constitutionality of EO 97-A
Citing Section 12 of RA 7227, petitioners contend that the SSEZ encompasses (1) the City of
Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly occupied by the
Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which
the special privileges granted to the entire zone would apply to the present fenced-in former Subic
Naval Base only. It has thereby excluded the residents of the first two components of the zone
from enjoying the benefits granted by the law. It has effectively discriminated against them, without
reasonable or valid standards, in contravention of the equal protection guarantee.
On the other hand, the solicitor general defends, on behalf of respondents, the validity of EO
97-A, arguing that Section 12 of RA 7227 clearly vests in the President the authority to delineate
the metes and bounds of the SSEZ. He adds that the issuance fully complies with the requirements
of a valid classification.
We rule in favor of the constitutionality and validity of the assailed EO. Said Order is not
violative of the equal protection clause; neither is it discriminatory. Rather, we find real and
substantive distinctions between the circumstances obtaining inside and those outside the Subic
Naval Base, thereby justifying a valid and reasonable classification.
The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized by substantial distinctions that make
real differences, one class may be treated and regulated differently from another.
[6]
The
classification must also be germane to the purpose of the law and must apply to all those belonging
to the same class.
[7]
Explaining the nature of the equal protection guarantee, the Court in
Ichong v. Hernandez
[8]
said:
The equal protection of the law clause is against undue favor and individual or class privilege, as
well as hostile discrimination or the oppression of inequality. It is not intended to prohibit legislation
which is limited either [by] the object to which it is directed or by [the] territory within which it is to
operate. It does not demand absolute equality among residents; it merely requires that all persons
shall be treated alike, under like circumstances and conditions both as to privileges conferred and
liabilities enforced. The equal protection clause is not infringed by legislation which applies only
to those persons falling within a specified class, if it applies alike to all persons within such class,
and reasonable grounds exist for making a distinction between those who fall within such class
and those who do not.
Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class.
[9]

We first determine the purpose of the law. From the very title itself, it is clear that RA 7227
aims primarily to accelerate the conversion of military reservations into productive
uses. Obviously, the lands covered under the 1947 Military Bases Agreement are its
object. Thus, the law avows this policy:
SEC. 2. Declaration of Policies. -- It is hereby declared the policy of the Government to accelerate
the sound and balanced conversion into alternative productive uses of the Clark and Subic military
reservations and their extensions (John Hay Station, Wallace Air Station, ODonnell Transmitter
Station, San Miguel Naval Communications Station and Capas Relay Station), to raise funds by
the sale of portions of Metro Manila military camps, and to apply said funds as provided herein for
the development and conversion to productive civilian use of the lands covered under the 1947
Military Bases Agreement between the Philippines and the United States of America, as amended.
To undertake the above objectives, the same law created the Bases Conversion and
Development Authority, some of whose relevant defined purposes are:
(b) To adopt, prepare and implement a comprehensive and detailed development plan embodying
a list of projects including but not limited to those provided in the Legislative-Executive Bases
Council (LEBC) framework plan for the sound and balanced conversion of the Clark and Subic
military reservations and their extensions consistent with ecological and environmental standards,
into other productive uses to promote the economic and social development of Central Luzon in
particular and the country in general;
(c) To encourage the active participation of the private sector in transforming the Clark and Subic
military reservations and their extensions into other productive uses;
Further, in creating the SSEZ, the law declared it a policy to develop the zone into a self-
sustaining, industrial, commercial, financial and investment center.
[10]

From the above provisions of the law, it can easily be deduced that the real concern of RA
7227 is to convert the lands formerly occupied by the US military bases into economic or industrial
areas. In furtherance of such objective, Congress deemed it necessary to extend economic
incentives to attract and encourage investors, both local and foreign. Among such enticements
are:
[11]
(1) a separate customs territory within the zone, (2) tax-and-duty-free importations, (3)
restructured income tax rates on business enterprises within the zone, (4) no foreign exchange
control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to
certain investors and of working visas to certain foreign executives and workers.
We believe it was reasonable for the President to have delimited the application of some
incentives to the confines of the former Subic military base. It is this specific area which the
government intends to transform and develop from its status quo ante as an abandoned naval
facility into a self-sustaining industrial and commercial zone, particularly for big foreign and local
investors to use as operational bases for their businesses and industries. Why the seeming bias
for big investors? Undeniably, they are the ones who can pour huge investments to spur economic
growth in the country and to generate employment opportunities for the Filipinos, the ultimate goals
of the government for such conversion. The classification is, therefore, germane to the purposes
of the law. And as the legal maxim goes, The intent of a statute is the law.
[12]

Certainly, there are substantial differences between the big investors who are being lured to
establish and operate their industries in the so-called secured area and the present business
operators outside the area. On the one hand, we are talking of billion-peso investments and
thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local. Even more important, at this time the
business activities outside the secured area are not likely to have any impact in achieving the
purpose of the law, which is to turn the former military base to productive use for the benefit of the
Philippine economy. There is, then, hardly any reasonable basis to extend to them the benefits
and incentives accorded in RA 7227. Additionally, as the Court of Appeals pointed out, it will be
easier to manage and monitor the activities within the secured area, which is already fenced off,
to prevent fraudulent importation of merchandise or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of
laws.
[13]
As long as there are actual and material differences between territories, there is no
violation of the constitutional clause. And of course, anyone, including the petitioners, possessing
the requisite investment capital can always avail of the same benefits by channeling his or her
resources or business operations into the fenced-off free port zone.
We believe that the classification set forth by the executive issuance does not apply merely to
existing conditions. As laid down in RA 7227, the objective is to establish a self-sustaining,
industrial, commercial, financial and investment center in the area. There will, therefore, be a
long-term difference between such investment center and the areas outside it.
Lastly, the classification applies equally to all the resident individuals and businesses within
the secured area. The residents, being in like circumstances or contributing directly to the
achievement of the end purpose of the law, are not categorized further. Instead, they are all
similarly treated, both in privileges granted and in obligations required.
All told, the Court holds that no undue favor or privilege was extended. The classification
occasioned by EO 97-A was not unreasonable, capricious or unfounded. To repeat, it was based,
rather, on fair and substantive considerations that were germane to the legislative purpose.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and Resolution
are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Martinez,
Quisumbing, Purisima, Pardo, Buena, and Gonzaga-Reyes, JJ., concur.



[1]
Rollo, pp. 20-37.
[2]
Ibid., pp. 39-55.
[3]
Decided by the Special Thirteenth Division, composed of Associate Justices Artemon D. Luna
(chairman and ponente), Ramon A. Barcelona and Salvador J. Valdez Jr.
[4]
Petition, p. 3; rollo, p. 6.
[5]
This case was deemed submitted for resolution upon receipt of Respondent BCDAs
Memorandum on September 7, 1998.
[6]
Dumlao v. Comelec, 95 SCRA 392, 404, January 22, 1980; Himagan v. People, 237 SCRA 538,
October 7, 1994. See also JMM Promotion and Management, Inc. v. Court of Appeals, 260 SCRA
319, 331-332, August 5, 1996; Conference of Maritime Manning Agencies, Inc. v. POEA, 243
SCRA 666, 677, April 21, 1995; Ceniza v. Comelec, 95 SCRA 763, 772, January 28, 1980;
Vera v. Cuevas, 90 SCRA 379, May 31, 1979; Tolentino v. Secretary of Finance, 235 SCRA 630,
August 25, 1994.
[7]
Dumlao v. Comelec, ibid., p. 405; citing Peralta v. Comelec, 82 SCRA 30 (1978);
Rafael v. Embroidery and Apparel Control and Inspection Board, 21 SCRA 336 (1967); and
Ichong v. Hernandez, 101 Phil 1155 (1957). See also JMM Promotion and Management,
Inc. v. Court of Appeals, ibid.; Philippine Judges Association v. Prado, 227 SCRA 703, November
11, 1993; Villegas v. Hiu Chiong Tsai Pao Ho, 86 SCRA 270, 275 (1978).
[8]
Ibid., p. 1164, per Labrador, J.; citing 2 Cooley, Constitutional Limitations, 824-
825. See further discussion on pp. 1175-1180.
[9]
Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 1996 ed., p.
124; quoting People v. Cayat, 68 Phil 12, 18 (1939).
[10]
12 (a), RA 7227.
[11]
12 (b, c, d, e & f).
[12]
Philippine National Bank v. Office of the President, 252 SCRA 5, January 18, 1996; Eugenio
v. Drilon, 252 SCRA 106, January 22, 1996.
[13]
Bernas, supra, p. 132.




Tolentino vs Secretary of Finance
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as
Secretary of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue;
and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and
OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO
B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue,
HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON.
ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,
as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his
capacity as the Commissioner of Customs, respondents.
R E S O L U T I O N
MENDOZA, J .:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply.
In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders
Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution.
Although they admit that H. No. 11197 was filed in the House of Representatives where it passed
three readings and that afterward it was sent to the Senate where after first reading it was referred
to the Senate Ways and Means Committee, they complain that the Senate did not pass it on
second and third readings. Instead what the Senate did was to pass its own version (S. No. 1630)
which it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee
should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it
with the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate
version just becomes the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an
amendment to a House revenue bill by enacting its own version of a revenue bill. On at least two
occasions during the Eighth Congress, the Senate passed its own version of revenue bills, which,
in consolidation with House bills earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the
President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was
approved by the House on January 29, 1992, and S. No. 1920, which was approved by the Senate
on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD
TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by
the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved
by the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the
Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on
which the laws were approved by the President and dates the separate bills of the two chambers
of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR
THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO
REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND
TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO
PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
(February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF
GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES
RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS
TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November
9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION
OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR
OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF
SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK
EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE
PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS
THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of
its power to propose amendments to bills required to originate in the House, passed its own version
of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would
make if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted
as a substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be
considered.
No amendment by substitution shall be entertained unless the text thereof is
submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to
the subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but
the Senate may propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate"
and "the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not
to be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will
be recalled that the 1935 Constitution originally provided for a unicameral National Assembly.
When it was decided in 1939 to change to a bicameral legislature, it became necessary to provide
for the procedure for lawmaking by the Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by the National Assembly, acting as a
constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking
powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed the
following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application,
and private bills shall originate exclusively in the Assembly, but the Senate may
propose or concur with amendments. In case of disapproval by the Senate of any
such bills, the Assembly may repass the same by a two-thirds vote of all its
members, and thereupon, the bill so repassed shall be deemed enacted and may
be submitted to the President for corresponding action. In the event that the Senate
should fail to finally act on any such bills, the Assembly may, after thirty days from
the opening of the next regular session of the same legislative term, reapprove the
same with a vote of two-thirds of all the members of the Assembly. And upon such
reapproval, the bill shall be deemed enacted and may be submitted to the President
for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the
proposal. It deleted everything after the first sentence. As rewritten, the proposal was approved by
the National Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was
submitted to the people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text
from which the framers of the Philippine Constitution borrowed and why the phrase "as on other
Bills" was not copied. Considering the defeat of the proposal, the power of the Senate to propose
amendments must be understood to be full, plenary and complete "as on other Bills." Thus,
because revenue bills are required to originate exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed
and sent over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur
is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently
without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of
the United States Congress contained provisions for the imposition of an
inheritance tax . This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States Supreme
Court to be sufficiently broad to enable it to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247
(1961))
The above-mentioned bills are supposed to be initiated by the House of
Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be
more familiar with the needs of the country in regard to the enactment of the
legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to
propose or concur with amendments to the bills initiated by the House of
Representatives. Thus, in one case, a bill introduced in the U.S. House of
Representatives was changed by the Senate to make a proposed inheritance tax
a corporation tax. It is also accepted practice for the Senate to introduce what is
known as an amendment by substitution, which may entirely replace the bill
initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill
is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new
bill as a substitute, in which case it will be known as a committee bill; or (4) to make
no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must
be preserved although the text of the Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing
this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No.
11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume
that S. No. 1630 is an independent and distinct bill. Hence their repeated references to its
certification that it was passed by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is something
substantially different between the reference to S. No. 1129 and the reference to H. No. 11197.
From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate
and that it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630
was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates
that the provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill
was a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass
the Senate on second and three readings. It was enough that after it was passed on first reading
it was referred to the Senate Committee on Ways and Means. Neither was it required that S. No.
1630 be passed by the House of Representatives before the two bills could be referred to the
Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630.
When the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure
of bank deposits), were referred to a conference committee, the question was raised whether the
two bills could be the subject of such conference, considering that the bill from one house had not
been passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House
bill is passed by the House but not passed by the Senate, and a Senate bill of a
similar nature is passed in the Senate but never passed in the House, can the two
bills be the subject of a conference, and can a law be enacted from these two bills?
I understand that the Senate bill in this particular instance does not refer to
investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of
deposits in banks but also investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely
in cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report
of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are
distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's)
contention that because the President separately certified to the need for the immediate enactment
of these measures, his certification was ineffectual and void. The certification had to be made of
the version of the same revenue bill which at the momentwas being considered. Otherwise, to
follow petitioners' theory, it would be necessary for the President to certify as many bills as are
presented in a house of Congress even though the bills are merely versions of the bill he has
already certified. It is enough that he certifies the bill which, at the time he makes the certification,
is under consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was
that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified
H. No. 9210 for immediate enactment because it was the one which at that time was being
considered by the House. This bill was later substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main
decision that the phrase "except when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of a bill]
in its final form [must be] distributed to the members three days before its passage" but also the
requirement that before a bill can become a law it must have passed "three readings on separate
days." There is not only textual support for such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
prior to its passage, except when the President shall have certified to the necessity
of its immediate enactment. Upon the last reading of a bill, no amendment thereof
shall be allowed and the question upon its passage shall be taken immediately
thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to the
Members three days before its passage, except when the Prime Minister certifies
to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on
separate days are required and a bill has to be printed in final form before it can be passed, the
need for a law may be rendered academic by the occurrence of the very emergency or public
calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case,
an enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the
situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the
call of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where
it was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate
on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES
AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation
of the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and
Art. III, 7) the Conference Committee met for two days in executive session with only the
conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case
who on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes
of their meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of
a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised
a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of
the conference committee regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which provides specifically that
the conference report must be accompanied by a detailed statement of the effects
of the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order
to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the
bill have been amended. In this case before us an entire bill is presented; therefore,
it can be easily seen from the reading of the bill what the provisions are.
Besides, this procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason
for the provisions of the Rules, and the reason for the requirement in the provision
cited by the gentleman from Pangasinan is when there are only certain words or
phrases inserted in or deleted from the provisions of the bill included in the
conference report, and we cannot understand what those words and phrases mean
and their relation to the bill. In that case, it is necessary to make a detailed
statement on how those words and phrases will affect the bill as a whole; but when
the entire bill itself is copied verbatim in the conference report, that is not
necessary. So when the reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the Senate
and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that
an amendment was made upon the last reading of the bill that eventually became
R.A. No. 7354 and that copiesthereof in its final form were not distributed among
the members of each House. Both the enrolled bill and the legislative journals
certify that the measure was duly enacted i.e., in accordance with Article VI, Sec.
26 (2) of the Constitution. We are bound by such official assurances from a
coordinate department of the government, to which we owe, at the very least, a
becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a
1979 study:
Conference committees may be of two types: free or instructed. These committees
may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and this
is why they are often critically referred to as "the little legislatures." Once bills have
been sent to them, the conferees have almost unlimited authority to change the
clauses of the bills and in fact sometimes introduce new measures that were not in
the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put
it this way: "I killed a bill on export incentives for my interest group [copra] in the
conference committee but I could not have done so anywhere else." The
conference committee submits a report to both houses, and usually it is accepted.
If the report is not accepted, then the committee is discharged and new members
are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under
Art. VI, 16(3) each house has the power "to determine the rules of its proceedings," including
those of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI,
26 (1) of the Constitution which provides that "Every bill passed by Congress shall embrace only
one subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of any kind,
nature, or description, imposed, levied, established, assessed or collected by any municipal, city,
provincial or national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National
Internal Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,
AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands
in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually,
it is the bill which becomes a law that is required to express in its title the subject of legislation. The
titles of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among
the provisions sought to be amended. We are satisfied that sufficient notice had been given of the
pendency of these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL
was rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL
CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES,
PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was
contended that the withdrawal of franking privileges was not expressed in the title of the law. In
holding that there was sufficient description of the subject of the law in its title, including the repeal
of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional
Limitations, 8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its
title, but matter germane to the subject as expressed in the title,
and adopted to the accomplishment of the object in view, may
properly be included in the act. Thus, it is proper to create in the
same act the machinery by which the act is to be enforced, to
prescribe the penalties for its infraction, and to remove obstacles in
the way of its execution. If such matters are properly connected
with the subject as expressed in the title, it is unnecessary that they
should also have special mention in the title. (Southern Pac. Co. v.
Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee
of free press prohibits are laws which single out the press or target a group belonging to the press
for special treatment or which in any way discriminate against the press on the basis of the content
of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden
to which other businesses have long ago been subject. It is thus different from the tax involved in
the cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233,
80 L. Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising
receipts only of newspapers whose weekly circulation was over 20,000, with the result that the tax
applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator
Huey Long who controlled the state legislature which enacted the license tax. The censorial
motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could
have been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using,
storing or consuming tangible goods, the press was not. Instead, the press was exempted from
both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink which
made these items "the only items subject to the use tax that were component of goods to be sold
at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that
the goal of regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn
"absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those
previously granted to PAL, petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally withdrawn, in addition to
exemptions which are partially withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or
services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects
of citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-
60)
The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does
not acquire constitutional validity because it classifies the privileges protected by
the First Amendment along with the wares and merchandise of hucksters and
peddlers and treats them all alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of religion are in
preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another
thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more
than to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to
those who cannot afford to pay so that to tax the sales would be to increase the price, while
reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult to differentiate it from any other economic
imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow
the petitioner's argument, to increase the tax on the sale of vestments would be to lay an
impermissible burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by
7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner
of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts
of the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount,
it is pointed out, is something that the buyer did not anticipate at the time he entered into the
contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning
of the Constitution. Even though such taxation may affect particular contracts, as it may increase
the debt of one person and lessen the security of another, or may impose additional burdens upon
one class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed
not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read
into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor
General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in
reference to the possible exercise of the rightful authority of the government and no obligation of
contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed.
885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise
be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment
of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime
that they cannot yet buy their own homes. The two social classes are thus differently situated in
life. "It is inherent in the power to tax that the State be free to select the subjects of taxation, and it
has been repeatedly held that 'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA
654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI,
28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City
of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted.
R.A. No. 7716 merely expands the base of the tax. The validity of the original VAT Law was
questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383
(1988) on grounds similar to those made in these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382)
Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold
to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt
from its application. Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union
of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a
flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to
pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are .
. . to be preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO,
THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was
taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted
from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or
services to enhance agriculture (milling of palay, corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects
of citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-
60)
On the other hand, the transactions which are subject to the VAT are those which involve goods
and services which are used or availed of mainly by higher income groups. These include real
properties held primarily for sale to customers or for lease in the ordinary course of trade or
business, the right or privilege to use patent, copyright, and other similar property or right, the right
or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and
discs, radio, television, satellite transmission and cable television time, hotels, restaurants and
similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and
other common carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed
record which can impart to adjudication the impact of actuality. There is no factual foundation to
show in the concrete the application of the law to actual contracts and exemplify its effect on
property rights. For the fact is that petitioner's members have not even been assessed the VAT.
Petitioner's case is not made concrete by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A
mere allegation, as here, does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such
a provision as void on its face, he has not made out a case. This is merely to adhere
to the authoritative doctrine that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to
such a conclusion. Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not
really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all
that Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in
the case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the
power conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all
others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt
a definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in
1986, P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until
December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in
1987 the framers of the Constitution "repudiated the previous actions of the government adverse
to the interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant
of tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods
and services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in general, in view of the economic crisis which
then beset the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of
cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and private entities. In the second place, the
Constitution does not really require that cooperatives be granted tax exemptions in order to
promote their growth and viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of vacillation, as far as the grant of tax
privileges was concerned, and that it was to put an end to this indecision that the constitutional
provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax
exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption
and there is no discrimination to cooperatives, no violation of any constitutional policy can be
charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and
non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives
the equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to as many people as possible, especially
those living in the rural areas, than there is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution
of these cases. We have now come to the conclusion that the law suffers from none of the
infirmities attributed to it by petitioners and that its enactment by the other branches of the
government does not constitute a grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as the body which is electorally
responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians
of the liberties and welfare of the people in quite as great a degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of
legislators, that those who took part in passing the law in question by voting for it in Congress
should later thrust to the courts the burden of reviewing measures in the flush of enactment. This
Court does not sit as a third branch of the legislature, much less exercise a veto power over
legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary
restraining order previously issued is hereby lifted.
SO ORDERED.
Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco and Hermosisima, Jr., JJ., concur.
Padilla and Vitug, JJ., maintained their separate opinion.
Regalado, Davide, Jr., Romero, Bellosillo and Puno, JJ, maintained their dissenting opinion.
Panganiban, J., took no part.

















Bureau of Customs Employees' Association vs Teves
G.R. No. 181704 December 6, 2011
BUREAU OF CUSTOMS EMPLOYEES ASSOCIATION (BOCEA), represented by its National
President (BOCEA National Executive Council) Mr. Romulo A. Pagulayan, Petitioner,
vs.
HON. MARGARITO B. TEVES, in his capacity as Secretary of the Department of Finance,
HON. NAPOLEON L. MORALES, in his capacity as Commissioner of the Bureau of Customs,
HON. LILIAN B. HEFTI, in her capacity as Commissioner of the Bureau of Internal
Revenue, Respondents.
D E C I S I O N
VILLARAMA, JR., J .:
Before this Court is a petition
1
for certiorari and prohibition with prayer for injunctive relief/s under
Rule 65 of the1997 Rules of Civil Procedure, as amended, to declare Republic Act (R.A.) No.
9335,
2
otherwise known as theAttrition Act of 2005, and its Implementing Rules and
Regulations
3
(IRR) unconstitutional, and the implementation thereof be enjoined permanently.
The Facts
On January 25, 2005, former President Gloria Macapagal-Arroyo signed into law R.A. No. 9335
which took effect on February 11, 2005.
In Abakada Guro Party List v. Purisima
4
(Abakada), we said of R.A. No. 9335:
RA [No.] 9335 was enacted to optimize the revenue-generation capability and collection of the
Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends to
encourage BIR and BOC officials and employees to exceed their revenue targets by providing a
system of rewards and sanctions through the creation of a Rewards and Incentives Fund (Fund)
and a Revenue Performance Evaluation Board (Board). It covers all officials and employees of the
BIR and the BOC with at least six months of service, regardless of employment status.
The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets
for the year, as determined by the Development Budget and Coordinating Committee (DBCC). Any
incentive or reward is taken from the fund and allocated to the BIR and the BOC in proportion to
their contribution in the excess collection of the targeted amount of tax revenue.
The Boards in the BIR and the BOC are composed of the Secretary of the Department of Finance
(DOF) or his/her Undersecretary, the Secretary of the Department of Budget and Management
(DBM) or his/her Undersecretary, the Director General of the National Economic Development
Authority (NEDA) or his/her Deputy Director General, the Commissioners of the BIR and the BOC
or their Deputy Commissioners, two representatives from the rank-and-file employees and a
representative from the officials nominated by their recognized organization.
Each Board has the duty to (1) prescribe the rules and guidelines for the allocation, distribution
and release of the Fund; (2) set criteria and procedures for removing from the service officials and
employees whose revenue collection falls short of the target; (3) terminate personnel in
accordance with the criteria adopted by the Board; (4) prescribe a system for performance
evaluation; (5) perform other functions, including the issuance of rules and regulations and (6)
submit an annual report to Congress.
The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to
promulgate and issue the implementing rules and regulations of RA [No.] 9335, to be approved by
a Joint Congressional Oversight Committee created for such purpose.
5

The Joint Congressional Oversight Committee approved the assailed IRR on May 22, 2006.
Subsequently, the IRR was published on May 30, 2006 in two newspapers of general circulation,
the Philippine Star and the Manila Standard, and became effective fifteen (15) days later.
6

Contending that the enactment and implementation of R.A. No. 9335 are tainted with constitutional
infirmities in violation of the fundamental rights of its members, petitioner Bureau of Customs
Employees Association (BOCEA), an association of rank-and-file employees of the Bureau of
Customs (BOC), duly registered with the Department of Labor and Employment (DOLE) and the
Civil Service Commission (CSC), and represented by its National President, Mr. Romulo A.
Pagulayan (Pagulayan), directly filed the present petition before this Court against respondents
Margarito B. Teves, in his capacity as Secretary of the Department of Finance (DOF),
Commissioner Napoleon L. Morales (Commissioner Morales), in his capacity as BOC
Commissioner, and Lilian B. Hefti, in her capacity as Commissioner of the Bureau of Internal
Revenue (BIR). In its petition, BOCEA made the following averments:
Sometime in 2008, high-ranking officials of the BOC pursuant to the mandate of R.A. No. 9335
and its IRR, and in order to comply with the stringent deadlines thereof, started to disseminate
Collection District Performance Contracts
7
(Performance Contracts) for the lower ranking officials
and rank-and-file employees to sign. The Performance Contract pertinently provided:
x x x x
WHEREAS, pursuant to the provisions of Sec. 25 (b) of the Implementing Rules and Regulations
(IRR) of the Attrition Act of 2005, that provides for the setting of criteria and procedures for
removing from the service Officials and Employees whose revenue collection fall short of the target
in accordance with Section 7 of Republic Act 9335.
x x x x
NOW, THEREFORE, for and in consideration of the foregoing premises, parties unto this
Agreement hereby agree and so agreed to perform the following:
x x x x
2. The "Section 2, PA/PE" hereby accepts the allocated Revenue Collection Target and further
accepts/commits to meet the said target under the following conditions:
a.) That he/she will meet the allocated Revenue Collection Target and thereby undertakes
and binds himself/herself that in the event the revenue collection falls short of the target
with due consideration of all relevant factors affecting the level of collection as provided in
the rules and regulations promulgated under the Act and its IRR, he/she will voluntarily
submit to the provisions of Sec. 25 (b) of the IRR and Sec. 7 of the Act; and
b.) That he/she will cascade and/or allocate to respective Appraisers/Examiners or
Employees under his/her section the said Revenue Collection Target and require them to
execute a Performance Contract, and direct them to accept their individual target. The
Performance Contract executed by the respective Examiners/Appraisers/Employees shall
be submitted to the Office of the Commissioner through the LAIC on or before March 31,
2008.
x x x x
8

BOCEA opined that the revenue target was impossible to meet due to the Governments own
policies on reduced tariff rates and tax breaks to big businesses, the occurrence of natural
calamities and because of other economic factors. BOCEA claimed that some BOC employees
were coerced and forced to sign the Performance Contract. The majority of them, however, did not
sign. In particular, officers of BOCEA were summoned and required to sign the Performance
Contracts but they also refused. To ease the brewing tension, BOCEA claimed that its officers sent
letters, and sought several dialogues with BOC officials but the latter refused to heed them.
In addition, BOCEA alleged that Commissioner Morales exerted heavy pressure on the District
Collectors, Chiefs of Formal Entry Divisions, Principal Customs Appraisers and Principal Customs
Examiners of the BOC during command conferences to make them sign their Performance
Contracts. Likewise, BOC Deputy Commissioner Reynaldo Umali (Deputy Commissioner Umali)
individually spoke to said personnel to convince them to sign said contracts. Said personnel were
threatened that if they do not sign their respective Performance Contracts, they would face possible
reassignment, reshuffling, or worse, be placed on floating status. Thus, all the District Collectors,
except a certain Atty. Carlos So of the Collection District III of the Ninoy Aquino International Airport
(NAIA), signed the Performance Contracts.
BOCEA further claimed that Pagulayan was constantly harassed and threatened with lawsuits.
Pagulayan approached Deputy Commissioner Umali to ask the BOC officials to stop all forms of
harassment, but the latter merely said that he would look into the matter. On February 5, 2008,
BOCEA through counsel wrote the Revenue Performance Evaluation Board (Board) to desist from
implementing R.A. No. 9335 and its IRR and from requiring rank-and-file employees of the BOC
and BIR to sign Performance Contracts.
9
In his letter-reply
10
dated February 12, 2008, Deputy
Commissioner Umali denied having coerced any BOC employee to sign a Performance Contract.
He also defended the BOC, invoking its mandate of merely implementing the law. Finally,
Pagulayan and BOCEAs counsel, on separate occasions, requested for a certified true copy of
the Performance Contract from Deputy Commissioner Umali but the latter failed to furnish them a
copy.
11

This petition was filed directly with this Court on March 3, 2008. BOCEA asserted that in view of
the unconstitutionality of R.A. No. 9335 and its IRR, and their adverse effects on the constitutional
rights of BOC officials and employees, direct resort to this Court is justified. BOCEA argued, among
others, that its members and other BOC employees are in great danger of losing their jobs should
they fail to meet the required quota provided under the law, in clear violation of their constitutional
right to security of tenure, and at their and their respective families prejudice.
In their Comment,
12
respondents, through the Office of the Solicitor General (OSG), countered that
R.A. No. 9335 and its IRR do not violate the right to due process and right to security of tenure of
BIR and BOC employees. The OSG stressed that the guarantee of security of tenure under
the 1987 Constitution is not a guarantee of perpetual employment. R.A. No. 9335 and its IRR
provided a reasonable and valid ground for the dismissal of an employee which is germane to the
purpose of the law. Likewise, R.A. No. 9335 and its IRR provided that an employee may only be
separated from the service upon compliance with substantive and procedural due process. The
OSG added that R.A. No. 9335 and its IRR must enjoy the presumption of constitutionality.
In its Reply,
13
BOCEA claimed that R.A. No. 9335 employs means that are unreasonable to achieve
its stated objectives; that the law is unduly oppressive of BIR and BOC employees as it shifts the
extreme burden upon their shoulders when the Government itself has adopted measures that
make collection difficult such as reduced tariff rates to almost zero percent and tax exemption of
big businesses; and that the law is discriminatory of BIR and BOC employees. BOCEA manifested
that only the high-ranking officials of the BOC benefited largely from the reward system under R.A.
No. 9335 despite the fact that they were not the ones directly toiling to collect revenue. Moreover,
despite the BOCEAs numerous requests,
14
BOC continually refused to provide BOCEA the
Expenditure Plan on how such reward was distributed.
Since BOCEA was seeking similar reliefs as that of the petitioners in Abakada Guro Party List v.
Purisima, BOCEA filed a Motion to Consolidate
15
the present case with Abakada on April 16, 2008.
However, pending action on said motion, the Court rendered its decision in Abakada on August
14, 2008. Thus, the consolidation of this case with Abakada was rendered no longer possible.
16

In Abakada, this Court, through then Associate Justice, now Chief Justice Renato C. Corona,
declared Section 12
17
of R.A. No. 9335 creating a Joint Congressional Oversight Committee to
approve the IRR as unconstitutional and violative of the principle of separation of powers. However,
the constitutionality of the remaining provisions of R.A. No. 9335 was upheld pursuant to Section
13
18
of R.A. No. 9335. The Court also held that until the contrary is shown, the IRR of R.A. No.
9335 is presumed valid and effective even without the approval of the Joint Congressional
Oversight Committee.
19

Notwithstanding our ruling in Abakada, both parties complied with our Resolution
20
dated February
10, 2009, requiring them to submit their respective Memoranda.
The Issues
BOCEA raises the following issues:
I.
WHETHER OR NOT THE ATTRITION LAW, REPUBLIC ACT [NO.] 9335, AND ITS
IMPLEMENTING RULES AND REGULATIONS ARE UNCONSTITUTIONAL AS THESE
VIOLATE THE RIGHT TO DUE PROCESS OF THE COVERED BIR AND BOC OFFICIALS AND
EMPLOYEES[;]
II.
WHETHER OR NOT THE ATTRITION LAW, REPUBLIC ACT [NO.] 9335, AND ITS
IMPLEMENTING RULES AND REGULATIONS ARE UNCONSTITUTIONAL AS THESE
VIOLATE THE RIGHT OF BIR AND BOC OFFICIALS AND EMPLOYEES TO THE EQUAL
PROTECTION OF THE LAWS[;]
III.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 AND ITS IMPLEMENTING RULES AND
REGULATIONS VIOLATE THE RIGHT TO SECURITY OF TENURE OF BIR AND BOC
OFFICIALS AND EMPLOYEES AS ENSHRINED UNDER SECTION 2 (3), ARTICLE IX (B) OF
THE CONSTITUTION[;]
IV.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 AND ITS IMPLEMENTING RULES AND
REGULATIONS ARE UNCONSTITUTIONAL AS THEY CONSTITUTE UNDUE DELEGATION OF
LEGISLATIVE POWERS TO THE REVENUE PERFORMANCE EVALUATION BOARD IN
VIOLATION OF THE PRINCIPLE OF SEPARATION OF POWERS ENSHRINED IN THE
CONSTITUTION[; AND]
V.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 IS A BILL OF ATTAINDER AND HENCE[,]
UNCONSTITUTIONAL BECAUSE IT INFLICTS PUNISHMENT THROUGH LEGISLATIVE FIAT
UPON A PARTICULAR GROUP OR CLASS OF OFFICIALS AND EMPLOYEES WITHOUT
TRIAL.
21

BOCEA manifested that while waiting for the Court to give due course to its petition, events
unfolded showing the patent unconstitutionality of R.A. No. 9335. It narrated that during the first
year of the implementation of R.A. No. 9335, BOC employees exerted commendable efforts to
attain their revenue target of P196 billion which they surpassed by as much as P2 billion for that
year alone. However, this was attained only because oil companies made advance tax payments
to BOC. Moreover, BOC employees were given their "reward" for surpassing said target only in
2008, the distribution of which they described as unjust, unfair, dubious and fraudulent because
only top officials of BOC got the huge sum of reward while the employees, who did the hard task
of collecting, received a mere pittance of around P8,500.00. In the same manner, the Bonds
Division of BOC-NAIA collected 400+% of its designated target but the higher management gave
out to the employees a measly sum of P8,500.00 while the top level officials partook of millions of
the excess collections. BOCEA relies on a piece of information revealed by a newspaper showing
the list of BOC officials who apparently earned huge amounts of money by way of reward.
22
It
claims that the recipients thereof included lawyers, support personnel and other employees,
including a dentist, who performed no collection functions at all. These alleged anomalous
selection, distribution and allocation of rewards was due to the failure of R.A. No. 9335 to set out
clear guidelines.
23

In addition, BOCEA avers that the Board initiated the first few cases of attrition for the Fiscal Year
2007 by subjecting five BOC officials from the Port of Manila to attrition despite the fact that the
Port of Manila substantially complied with the provisions of R.A. No. 9335. It is thus submitted that
the selection of these officials for attrition without proper investigation was nothing less than
arbitrary. Further, the legislative and executive departments promulgation of issuances and the
Governments accession to regional trade agreements have caused a significant diminution of the
tariff rates, thus, decreasing over-all collection. These unrealistic settings of revenue targets
seriously affect BIR and BOC employees tasked with the burden of collection, and worse,
subjected them to attrition.
24

BOCEA assails the constitutionality of R.A. No. 9335 and its IRR on the following grounds:
1. R.A. No. 9335 and its IRR violate the BIR and BOC employees right to due process
because the termination of employees who had not attained their revenue targets for the
year is peremptory and done without any form of hearing to allow said employees to
ventilate their side. Moreover, R.A. No. 9335 and its IRR do not comply with the
requirements under CSC rules and regulations as the dismissal in this case is immediately
executory. Such immediately executory nature of the Boards decision negates the
remedies available to an employee as provided under the CSC rules.
2. R.A. No. 9335 and its IRR violate the BIR and BOC employees right to equal protection
of the law because R.A. No. 9335 and its IRR unduly discriminates against BIR and BOC
employees as compared to employees of other revenue generating government agencies
like the Philippine Amusement and Gaming Corporation, Department of Transportation and
Communication, the Air Transportation Office, the Land Transportation Office, and the
Philippine Charity Sweepstakes Office, among others, which are not subject to attrition.
3. R.A. No. 9335 and its IRR violate the BIR and BOC employees right to security of tenure
because R.A. No. 9335 and its IRR effectively removed remedies provided in the ordinary
course of administrative procedure afforded to government employees. The law likewise
created another ground for dismissal, i.e., non-attainment of revenue collection target,
which is not provided under CSC rules and which is, by its nature, unpredictable and
therefore arbitrary and unreasonable.
4. R.A. No. 9335 and its IRR violate the 1987 Constitution because Congress granted to
the Revenue Performance Evaluation Board (Board) the unbridled discretion of formulating
the criteria for termination, the manner of allocating targets, the distribution of rewards and
the determination of relevant factors affecting the targets of collection, which is tantamount
to undue delegation of legislative power.
5. R.A. No. 9335 is a bill of attainder because it inflicts punishment upon a particular group
or class of officials and employees without trial. This is evident from the fact that the law
confers upon the Board the power to impose the penalty of removal upon employees who
do not meet their revenue targets; that the same is without the benefit of hearing; and that
the removal from service is immediately executory. Lastly, it disregards the presumption of
regularity in the performance of the official functions of a public officer.
25

On the other hand, respondents through the OSG stress that except for Section 12 of R.A. No.
9335, R.A. No. 9335 and its IRR are constitutional, as per our ruling in Abakada. Nevertheless, the
OSG argues that the classification of BIR and BOC employees as public officers under R.A. No.
9335 is based on a valid and substantial distinction since the revenue generated by the BIR and
BOC is essentially in the form of taxes, which is the lifeblood of the State, while the revenue
produced by other agencies is merely incidental or secondary to their governmental functions; that
in view of their mandate, and for purposes of tax collection, the BIR and BOC are sui generis; that
R.A. No. 9335 complies with the "completeness" and "sufficient standard" tests for the permissive
delegation of legislative power to the Board; that the Board exercises its delegated power
consistent with the policy laid down in the law, that is, to optimize the revenue generation capability
and collection of the BIR and the BOC; that parameters were set in order that the Board may
identify the officials and employees subject to attrition, and the proper procedure for their removal
in case they fail to meet the targets set in the Performance Contract were provided; and that the
rights of BIR and BOC employees to due process of law and security of tenure are duly accorded
by R.A. No. 9335. The OSG likewise maintains that there was no encroachment of judicial power
in the enactment of R.A. No. 9335 amounting to a bill of attainder since R.A. No. 9335 and its IRR
merely defined the offense and provided for the penalty that may be imposed. Finally, the OSG
reiterates that the separation from the service of any BIR or BOC employee under R.A. No. 9335
and its IRR shall be done only upon due consideration of all relevant factors affecting the level of
collection, subject to Civil Service laws, rules and regulations, and in compliance with substantive
and procedural due process. The OSG opines that the Performance Contract, far from violating
the BIR and BOC employees right to due process, actually serves as a notice of the revenue target
they have to meet and the possible consequences of failing to meet the same. More, there is
nothing in the law which prevents the aggrieved party from appealing the unfavorable decision of
dismissal.
26

In essence, the issues for our resolution are:
1. Whether there is undue delegation of legislative power to the Board;
2. Whether R.A. No. 9335 and its IRR violate the rights of BOCEAs members to: (a) equal
protection of laws, (b) security of tenure and (c) due process; and
3. Whether R.A. No. 9335 is a bill of attainder.
Our Ruling
Prefatorily, we note that it is clear, and in fact uncontroverted, that BOCEA has locus standi.
BOCEA impugns the constitutionality of R.A. No. 9335 and its IRR because its members, who are
rank-and-file employees of the BOC, are actually covered by the law and its IRR. BOCEAs
members have a personal and substantial interest in the case, such that they have sustained or
will sustain, direct injury as a result of the enforcement of R.A. No. 9335 and its IRR.
27

However, we find no merit in the petition and perforce dismiss the same.
It must be noted that this is not the first time the constitutionality of R.A. No. 9335 and its IRR are
being challenged. The Court already settled the majority of the same issues raised by BOCEA in
our decision in Abakada, which attained finality on September 17, 2008. As such, our ruling therein
is worthy of reiteration in this case.
We resolve the first issue in the negative.
The principle of separation of powers ordains that each of the three great branches of government
has exclusive cognizance of and is supreme in matters falling within its own constitutionally
allocated sphere.
28
Necessarily imbedded in this doctrine is the principle of non-delegation of
powers, as expressed in the Latin maxim potestas delegata non delegari potest, which means
"what has been delegated, cannot be delegated." This doctrine is based on the ethical principle
that such delegated power constitutes not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not through the intervening mind of
another.
29
However, this principle of non-delegation of powers admits of numerous
exceptions,
30
one of which is the delegation of legislative power to various specialized
administrative agencies like the Board in this case.
The rationale for the aforementioned exception was clearly explained in our ruling in Gerochi v.
Department of Energy,
31
to wit:
In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle. Given the volume
and variety of interactions in todays society, it is doubtful if the legislature can promulgate laws
that will deal adequately with and respond promptly to the minutiae of everyday life. Hence, the
need to delegate to administrative bodies the principal agencies tasked to execute laws in their
specialized fields the authority to promulgate rules and regulations to implement a given statute
and effectuate its policies. All that is required for the valid exercise of this power of subordinate
legislation is that the regulation be germane to the objects and purposes of the law and that the
regulation be not in contradiction to, but in conformity with, the standards prescribed by the law.
These requirements are denominated as the completeness test and the sufficient standard test.
32

Thus, in Abakada, we held,
Two tests determine the validity of delegation of legislative power: (1) the completeness test and
(2) the sufficient standard test. A law is complete when it sets forth therein the policy to be
executed, carried out or implemented by the delegate. It lays down a sufficient standard when it
provides adequate guidelines or limitations in the law to map out the boundaries of the delegates
authority and prevent the delegation from running riot. To be sufficient, the standard must specify
the limits of the delegates authority, announce the legislative policy and identify the conditions
under which it is to be implemented.
RA [No.] 9335 adequately states the policy and standards to guide the President in fixing revenue
targets and the implementing agencies in carrying out the provisions of the law. Section 2 spells
out the policy of the law:
"SEC. 2. Declaration of Policy. It is the policy of the State to optimize the revenue-generation
capability and collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC)
by providing for a system of rewards and sanctions through the creation of a Rewards and
Incentives Fund and a Revenue Performance Evaluation Board in the above agencies for the
purpose of encouraging their officials and employees to exceed their revenue targets."
Section 4 "canalized within banks that keep it from overflowing" the delegated power to the
President to fix revenue targets:
"SEC. 4. Rewards and Incentives Fund. A Rewards and Incentives Fund, hereinafter referred
to as the Fund, is hereby created, to be sourced from the collection of the BIR and the BOC in
excess of their respective revenue targets of the year, as determined by the Development
Budget and Coordinating Committee (DBCC), in the following percentages:
Excess of Collection [Over] the
Revenue Targets
Percent (%) of the Excess
Collection to Accrue to the Fund
30% or below 15%
More than 30% 15% of the first 30% plus 20% of
the remaining excess
The Fund shall be deemed automatically appropriated the year immediately following the year
when the revenue collection target was exceeded and shall be released on the same fiscal year.
Revenue targets shall refer to the original estimated revenue collection expected of the BIR and
the BOC for a given fiscal year as stated in the Budget of Expenditures and Sources of Financing
(BESF) submitted by the President to Congress. The BIR and the BOC shall submit to the DBCC
the distribution of the agencies revenue targets as allocated among its revenue districts in the
case of the BIR, and the collection districts in the case of the BOC.
x x x x x x x x x"
Revenue targets are based on the original estimated revenue collection expected respectively of
the BIR and the BOC for a given fiscal year as approved by the DBCC and stated in the BESF
submitted by the President to Congress. Thus, the determination of revenue targets does not rest
solely on the President as it also undergoes the scrutiny of the DBCC.
On the other hand, Section 7 specifies the limits of the Boards authority and identifies the
conditions under which officials and employees whose revenue collection falls short of the target
by at least 7.5% may be removed from the service:
"SEC. 7. Powers and Functions of the Board. The Board in the agency shall have the following
powers and functions:
x x x x x x x x x
(b) To set the criteria and procedures for removing from service officials and employees whose
revenue collection falls short of the target by at least seven and a half percent (7.5%), with due
consideration of all relevant factors affecting the level of collection as provided in the rules and
regulations promulgated under this Act, subject to civil service laws, rules and regulations and
compliance with substantive and procedural due process: Provided, That the following exemptions
shall apply:
1. Where the district or area of responsibility is newly-created, not exceeding two years in
operation, and has no historical record of collection performance that can be used as basis
for evaluation; and
2. Where the revenue or customs official or employee is a recent transferee in the middle
of the period under consideration unless the transfer was due to nonperformance of
revenue targets or potential nonperformance of revenue targets: Provided, however, That
when the district or area of responsibility covered by revenue or customs officials or
employees has suffered from economic difficulties brought about by natural calamities or
force majeure or economic causes as may be determined by the Board, termination shall
be considered only after careful and proper review by the Board.
(c) To terminate personnel in accordance with the criteria adopted in the preceding paragraph:
Provided, That such decision shall be immediately executory: Provided, further, That the
application of the criteria for the separation of an official or employee from service under this Act
shall be without prejudice to the application of other relevant laws on accountability of public
officers and employees, such as the Code of Conduct and Ethical Standards of Public Officers and
Employees and the Anti-Graft and Corrupt Practices Act;
x x x x x x x x x"
At any rate, this Court has recognized the following as sufficient standards: "public interest",
"justice and equity", "public convenience and welfare" and "simplicity, economy and welfare". In
this case, the declared policy of optimization of the revenue-generation capability and collection of
the BIR and the BOC is infused with public interest.
33

We could not but deduce that the completeness test and the sufficient standard test were fully
satisfied by R.A. No. 9335, as evident from the aforementioned Sections 2, 4 and 7 thereof.
Moreover, Section 5
34
of R.A. No. 9335 also provides for the incentives due to District Collection
Offices. While it is apparent that the last paragraph of Section 5 provides that "[t]he allocation,
distribution and release of the district reward shall likewise be prescribed by the rules and
regulations of the Revenue Performance and Evaluation Board," Section 7 (a)
35
of R.A. No. 9335
clearly mandates and sets the parameters for the Board by providing that such rules and guidelines
for the allocation, distribution and release of the fund shall be in accordance with Sections 4 and 5
of R.A. No. 9335. In sum, the Court finds that R.A. No. 9335, read and appreciated in its entirety,
is complete in all its essential terms and conditions, and that it contains sufficient standards as to
negate BOCEAs supposition of undue delegation of legislative power to the Board.
Similarly, we resolve the second issue in the negative.
Equal protection simply provides that all persons or things similarly situated should be treated in a
similar manner, both as to rights conferred and responsibilities imposed. The purpose of the equal
protection clause is to secure every person within a states jurisdiction against intentional and
arbitrary discrimination, whether occasioned by the express terms of a statute or by its improper
execution through the states duly constituted authorities. In other words, the concept of equal
justice under the law requires the state to govern impartially, and it may not draw distinctions
between individuals solely on differences that are irrelevant to a legitimate governmental
objective.
36
1awphil
Thus, on the issue on equal protection of the laws, we held in Abakada:
The equal protection clause recognizes a valid classification, that is, a classification that has a
reasonable foundation or rational basis and not arbitrary. With respect to RA [No.] 9335, its
expressed public policy is the optimization of the revenue-generation capability and collection of
the BIR and the BOC. Since the subject of the law is the revenue-generation capability and
collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should
logically pertain to the said agencies. Moreover, the law concerns only the BIR and the BOC
because they have the common distinct primary function of generating revenues for the national
government through the collection of taxes, customs duties, fees and charges.
The BIR performs the following functions:
"Sec. 18. The Bureau of Internal Revenue. The Bureau of Internal Revenue, which shall be
headed by and subject to the supervision and control of the Commissioner of Internal Revenue,
who shall be appointed by the President upon the recommendation of the Secretary [of the DOF],
shall have the following functions:
(1) Assess and collect all taxes, fees and charges and account for all revenues collected;
(2) Exercise duly delegated police powers for the proper performance of its functions and
duties;
(3) Prevent and prosecute tax evasions and all other illegal economic activities;
(4) Exercise supervision and control over its constituent and subordinate units; and
(5) Perform such other functions as may be provided by law.
x x x x x x x x x"
On the other hand, the BOC has the following functions:
"Sec. 23. The Bureau of Customs. The Bureau of Customs which shall be headed and subject
to the management and control of the Commissioner of Customs, who shall be appointed by the
President upon the recommendation of the Secretary [of the DOF] and hereinafter referred to as
Commissioner, shall have the following functions:
(1) Collect custom duties, taxes and the corresponding fees, charges and penalties;
(2) Account for all customs revenues collected;
(3) Exercise police authority for the enforcement of tariff and customs laws;
(4) Prevent and suppress smuggling, pilferage and all other economic frauds within all
ports of entry;
(5) Supervise and control exports, imports, foreign mails and the clearance of vessels and
aircrafts in all ports of entry;
(6) Administer all legal requirements that are appropriate;
(7) Prevent and prosecute smuggling and other illegal activities in all ports under its
jurisdiction;
(8) Exercise supervision and control over its constituent units;
(9) Perform such other functions as may be provided by law.
x x x x x x x x x"
Both the BIR and the BOC are bureaus under the DOF. They principally perform the special
function of being the instrumentalities through which the State exercises one of its great inherent
functions taxation. Indubitably, such substantial distinction is germane and intimately related to
the purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC
under RA [No.] 9335 fully satisfy the demands of equal protection.
37

As it was imperatively correlated to the issue on equal protection, the issues on the security of
tenure of affected BIR and BOC officials and employees and their entitlement to due process were
also settled in Abakada:
Clearly, RA [No.] 9335 in no way violates the security of tenure of officials and employees of the
BIR and the BOC.The guarantee of security of tenure only means that an employee cannot be
dismissed from the service for causes other than those provided by law and only after due process
is accorded the employee. In the case of RA [No.] 9335, it lays down a reasonable yardstick for
removal (when the revenue collection falls short of the target by at least 7.5%) with due
consideration of all relevant factors affecting the level of collection. This standard is analogous to
inefficiency and incompetence in the performance of official duties, a ground for disciplinary action
under civil service laws. The action for removal is also subject to civil service laws, rules and
regulations and compliance with substantive and procedural due process.
38

In addition, the essence of due process is simply an opportunity to be heard, or as applied to
administrative proceedings, a fair and reasonable opportunity to explain ones side.
39
BOCEAs
apprehension of deprivation of due process finds its answer in Section 7 (b) and (c) of R.A. No.
9335.
40
The concerned BIR or BOC official or employee is not simply given a target revenue
collection and capriciously left without any quarter. R.A. No. 9335 and its IRR clearly give due
consideration to all relevant factors
41
that may affect the level of collection. In the same manner,
exemptions
42
were set, contravening BOCEAs claim that its members may be removed for
unattained target collection even due to causes which are beyond their control. Moreover, an
employees right to be heard is not at all prevented and his right to appeal is not deprived of him.
43
In
fine, a BIR or BOC official or employee in this case cannot be arbitrarily removed from the service
without according him his constitutional right to due process. No less than R.A. No. 9335 in
accordance with the 1987 Constitution guarantees this.
We have spoken, and these issues were finally laid to rest. Now, the Court proceeds to resolve
the last, but new issue raised by BOCEA, that is, whether R.A. No. 9335 is a bill of attainder
proscribed under Section 22,
44
Article III of the 1987 Constitution.
On this score, we hold that R.A. No. 9335 is not a bill of attainder. A bill of attainder is a legislative
act which inflicts punishment on individuals or members of a particular group without a judicial trial.
Essential to a bill of attainder are a specification of certain individuals or a group of individuals, the
imposition of a punishment, penal or otherwise, and the lack of judicial trial.
45
1avvphi1
In his Concurring Opinion in Tuason v. Register of Deeds, Caloocan City,
46
Justice Florentino P.
Feliciano traces the roots of a Bill of Attainder, to wit:
Bills of attainder are an ancient instrument of tyranny. In England a few centuries back, Parliament
would at times enact bills or statutes which declared certain persons attainted and their blood
corrupted so that it lost all heritable quality (Ex Parte Garland, 4 Wall. 333, 18 L.Ed. 366 [1867]).
In more modern terms, a bill of attainder is essentially a usurpation of judicial power by a legislative
body. It envisages and effects the imposition of a penalty the deprivation of life or liberty or
property not by the ordinary processes of judicial trial, but by legislative fiat. While cast in the
form of special legislation, a bill of attainder (or bill of pains and penalties, if it prescribed a penalty
other than death) is in intent and effect a penal judgment visited upon an identified person or group
of persons (and not upon the general community) without a prior charge or demand, without notice
and hearing, without an opportunity to defend, without any of the civilized forms and safeguards of
the judicial process as we know it (People v. Ferrer, 48 SCRA 382 [1972]; Cummings and Missouri,
4 Wall. 277, 18 L. Ed. 356 [1867]; U.S. v. Lovett, 328, U.S. 303, 90 L.Ed. 1252 [1945]; U.S. v.
Brown, 381 U.S. 437, 14 L.Ed. 2d. 484 [1965]. Such is the archetypal bill of attainder wielded as a
means of legislative oppression. x x x
47

R.A. No. 9335 does not possess the elements of a bill of attainder. It does not seek to inflict
punishment without a judicial trial. R.A. No. 9335 merely lays down the grounds for the termination
of a BIR or BOC official or employee and provides for the consequences thereof. The democratic
processes are still followed and the constitutional rights of the concerned employee are amply
protected.
A final note.
We find that BOCEAs petition is replete with allegations of defects and anomalies in allocation,
distribution and receipt of rewards. While BOCEA intimates that it intends to curb graft and
corruption in the BOC in particular and in the government in general which is nothing but noble,
these intentions do not actually pertain to the constitutionality of R.A. No. 9335 and its IRR, but
rather in the faithful implementation thereof. R.A. No. 9335 itself does not tolerate these pernicious
acts of graft and corruption.
48
As the Court is not a trier of facts, the investigation on the veracity
of, and the proper action on these anomalies are in the hands of the Executive branch.
Correlatively, the wisdom for the enactment of this law remains within the domain of the Legislative
branch. We merely interpret the law as it is. The Court has no discretion to give statutes a meaning
detached from the manifest intendment and language thereof.
49
Just like any other law, R.A. No.
9335 has in its favor the presumption of constitutionality, and to justify its nullification, there must
be a clear and unequivocal breach of the Constitution and not one that is doubtful, speculative, or
argumentative.
50
We have so declared in Abakada, and we now reiterate that R.A. No. 9335 and
its IRR are constitutional.
WHEREFORE, the present petition for certiorari and prohibition with prayer for injunctive relief/s is
DISMISSED.
No costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
ANTONIO T. CARPIO
Associate Justice
(On official leave)
PRESBITERO J. VELASCO, JR.
*

Associate Justice
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice
ARTURO D. BRION
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
MARIANO C. DEL CASTILLO
Associate Justice
ROBERTO A. ABAD
Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice
JOSE CATRAL MENDOZA
Associate Justice
MARIA LOURDES P. A. SERENO
Associate Justice
BIENVENIDO L. REYES
Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court.
RENATO C. CORONA
Chief Justice
Footnotes
*
On official leave.
1
Rollo, pp. 3-58.
2
Entitled "An Act to Improve the Revenue
Collection Performance of the Bureau of
Internal Revenue (BIR) and the Bureau of
Customs (BOC) Through the Creation of a
Rewards and Incentives Fund and of a
Revenue Performance Evaluation Board
and for Other Purposes."
3
Entitled "Rules and Regulations to
Implement Republic Act No. 9335,
otherwise known as the Attrition Act of
2005."
4
G.R. No. 166715, August 14, 2008, 562
SCRA 251.
5
Id. at 267-268, citing Sections 2, 3, 4, 6,
7, 11, and 12 of R.A. No. 9335.
6
Id. at 281, 299.
7
Rollo, pp. 90-93.
8
Id. at 91-92. Emphasis supplied.
9
Id. at 97-102.
10
Id. at 103-104.
11
Id. at 105 and 106.
12
Id. at 139-160.
13
Id. at 163-180.
14
Id. at 182-185.
15
Id. at 135-138.
16
Id. at 197-198.
17
Section 12 of R.A. No. 9335 provides:
SEC. 12. Joint Congressional
Oversight Committee. There is
hereby created a Joint
Congressional Oversight
Committee composed of seven
Members from the Senate and
seven Members from the House
of Representatives. The Members
from the Senate shall be
appointed by the Senate
President, with at least two
senators representing the
minority. The Members from the
House of Representatives shall
be appointed by the Speaker with
at least two members
representing the minority. After
the Oversight Committee will
have approved the implementing
rules and regulations (IRR) it shall
thereafter become functus officio
and therefore cease to exist.
18
Section 13 of R.A. No. 9335 provides:
SEC. 13. Separability Clause.
If any provision of this Act is
declared invalid by a competent
court, the remainder of this Act or
any provision not affected by
such declaration of invalidity shall
remain in force and effect.
19
Supra note 4 at 294-299.
20
Rollo, pp. 360-361.
21
Id. at 499-500.
22
Rollo, pp. 432-436, 435. The CHIP-IN
Bulletin in its July 2008 issue named the
recipients of rewards, the top five of which
were:
1. Napoleon L. Morales
Commissioner/OCOM P 5,293,00
0.00;
2. Suansing, Jr., Horacio P.
District Collector P 1,011,000.00;
3. Dir. Reynaldo V. Umali Acting
Director P 908,000.00;
4. Bernardo V. Sales Officer-in-
Charge, IAG P 908,000.00;
5. Atty. Reynaldo S. Nicolas
Deputy
Commissioner/AOCG P 908,000.
00.
23
Id. at 491-495.
24
Id. 495-499.
25
Id. at 505-543.
26
Id. at 448-471.
27
See Funa v. Ermita, G.R. No. 184740,
February 11, 2010, 612 SCRA 308, 317.
28
See Angara v. Electoral Commission, 63
Phil. 139, 156 (1936).
29
Abakada Guro Party List v. Ermita, G.R.
Nos. 168056, 168207, 168461, 168463 &
168730, September 1, 2005, 469 SCRA 1,
115-116.
30
The recognized exceptions to this
principle are as follows:
(1) Delegation of tariff powers to
the President under Section 28
(2) of Article VI of the
Constitution;
(2) Delegation of emergency
powers to the President under
Section 23(2) of Article VI of the
Constitution;
(3) Delegation to the people at
large;
(4) Delegation to local
governments; and
(5) Delegation to administrative
bodies. Abakada Guro Party List
v. Ermita, id. at 117; Santiago v.
Comelec, 336 Phil. 848, 897-898
(1997), citing People v. Vera, 65
Phil. 56 (1937) and Isagani A.
Cruz, Philippine Political Law 87
(1996).
31
G.R. No. 159796, July 17, 2007, 527
SCRA 696.
32
Id. at 719-720.
33
Supra note 4 at 277-281. Citations
omitted and underscoring supplied;
emphasis in the original.
34
Section 5 of R.A. No. 9335 provides:
SEC. 5. Incentives to District
Collection Offices. In the event
that the BIR or the BOC fails to
meet its revenue target by less
than ten percent (10%), the
revenue districts, in the case of
the BIR, or the collection districts,
in the case of the BOC, which
exceed their respective
allocations of the revenue target
(allocated target), shall be entitled
to rewards and incentives (district
incentive) amounting to ten
percent (10%) of the excess over
its allocated target: Provided,
however, That any BIR revenue
district or BOC collection office
which deliberately foregoes any
revenue collection in a given year
as part of a scheme to avoid a
higher allocated target for the
subsequent year shall not be
entitled to a district incentive in
such subsequent year
notwithstanding its having
exceeded its allocated
target:Provided further, That the
allocated target of any such
district shall have been reported
to and validated by the DBCC as
required in the immediately
preceding section.
The district reward shall be
deemed automatically
appropriated the year
immediately following the year
when the revenue collection
target was exceeded and shall be
released in the same fiscal year.
The allocation, distribution and
release of the district reward shall
likewise be prescribed by the
rules and regulations of the
Revenue Performance Evaluation
Board.
35
Sec. 7 (a) of R.A. No. 9335 provides:
SEC. 7. Powers and Functions of
the Board. The Board in the
agency shall have the following
powers and functions:
(a) To prescribe the rules and
guidelines for the allocation,
distribution and release of the
Fund due to the agency as
provided for in Sections 4 and 5
of this Act: Provided, That the
rewards under this Act may also
take the form of non-monetary
benefits;
x x x x (Emphasis supplied.)
36
Biraogo v. Philippine Truth Commission
of 2010, G.R. Nos. 192935 & 193036,
December 7, 2010, 637 SCRA 78, 167.
37
Supra note 4 at 275-277. Citations
omitted and underscoring supplied;
emphasis in the original.
38
Id. at 280-281. Citations omitted and
underscoring supplied.
39
Association of International Shipping
Lines, Inc. v. Philippine Ports Authority,
G.R. No. 158000, March 31, 2005, 454
SCRA 701, 717, citing National
Semiconductor (HK) Distribution, Ltd. v.
National Labor Relations Commission (4th
Division), G.R. No. 123520, June 26, 1998,
291 SCRA 348, 354 and NFD International
Manning Agents v. NLRC, G.R. No.
116629, January 16, 1998, 284 SCRA
239, 246.
40
Supra note 33.
41
Section 19 of the IRR provides:
SEC. 19. Relevant Factors
Affecting Collection. For
purposes of Section 7(a) of the
Act and Section 18 of this Rule,
the Board shall consider the
following, among others, as
relevant factors affecting the level
of collection: Provided, That these
factors were not taken into
account in setting BESF targets:
(a) Enactment of a law that
repeals revenue measures,
reduces tax and tariff rates,
grants tax exemptions, or
otherwise results in the diminution
of the tax base or of taxable
transactions and activities,
including the entry into force of a
treaty or an international
agreement that the Philippines
entered into resulting in
preferential treatment for certain
taxpayers or transactions:
Provided, That the Board shall
have the final authority to
determine the affected District or
Districts as well as the amount of
revenues deemed foregone due
to such enactment or entry into
force;
(b) Reduction by the President of
tariff rates under Section 401 of
the Tariff and Customs Code of
the Philippines; and
(c) Exercise by the President of
the power to open or close any
port of entry under Section 702 of
the Tariff and Customs Code of
the Philippines.
42
Section 7(b) of R.A. No. 9335 provides:
SEC. 7. Powers and Functions of
the Board. The Board in the
agency shall have the following
powers and functions:
x x x x
(b) To set the criteria and
procedures for removing from
service officials and employees
whose revenue collection falls
short of the target by at least
seven and a half percent (7.5%),
with due consideration of all
relevant factors affecting the level
of collection as provided in the
rules and regulations
promulgated under this Act,
subject to civil service laws, rules
and regulations and compliance
with substantive and procedural
due process: Provided, That the
following exemptions shall apply:
(1) Where the district or area of
responsibility is newly-created,
not exceeding two years in
operation, and has no historical
record of collection performance
that can be used as basis for
evaluation; and
(2) Where the revenue or
customs official or employee is a
recent transferee in the middle of
the period under consideration
unless the transfer was due to
nonperformance of revenue
targets or potential
nonperformance of revenue
targets: Provided, however, That
when the district or area of
responsibility covered by revenue
or customs officials or employees
has suffered from economic
difficulties brought about by
natural calamities or force
majeure or economic causes as
may be determined by the Board,
termination shall be considered
only after careful and proper
review by the Board. (Emphasis
supplied.)
43
Section 9 of R.A. No. 9335 provides:
SEC. 9. Right to Appeal. An
official or employee whose
employment is terminated by
virtue of the decision of the Board
may appeal to the Civil Service
Commission (CSC) or the Office
of the President (OP), whichever
is applicable, in accordance with
pertinent laws, rules and
regulations.
Moreover, Section 20 of the IRR
pertinently provides:
SEC. 20. Right to Appeal. An
official or employee whose
employment is terminated by
virtue of the decision of the Board
may appeal to the Civil Service
Commission (CSC) or the Office
of the President (OP), as the case
may be, within fifteen (15) days
from receipt of a copy of the
decision of the Board.
For officials who are Presidential
appointees, appeal may be filed
with the Office of the President.
All other officials and employees
may appeal with the Civil Service
Commission. Pending appeal,
however, the decision of the
Board shall be immediately
executory.
Provided, however, that officials
and employees affected by the
decision may initially file a motion
for reconsideration with the Board
within [fifteen] (15) days from
receipt of such decision.
Decisions of the Board shall be
final and executory after the lapse
of the reglementary period for
filing a motion for reconsideration
or an appeal and no motion or
appeal has been filed.
44
Sec. 22. No ex post facto law or bill of
attainder shall be enacted.
45
Misolas v. Panga, G.R. No. 83341,
January 30, 1990, 181 SCRA 648, 659.
46
No. L-70484, January 29, 1988, 157
SCRA 613.
47
Id. at 625. Emphasis supplied.
48
Section 8 of R.A. No. 9335 provides:
SEC. 8. Liability of Officials,
Examiners and Employees of the
BIR and the BOC. The
officials, examiners, and
employees of the Bureau of
Internal Revenue and the Bureau
of Customs who violate this Act or
who are guilty of negligence,
abuses or acts of malfeasance or
misfeasance or fail to exercise
extraordinary diligence in the
performance of their duties shall
be held liable for any loss or
injury suffered by any business
establishment or taxpayer as a
result of such violation,
negligence, abuse, malfeasance,
misfeasance or failure to exercise
extraordinary diligence.
49
Ortega v. People, G.R. No. 151085,
August 20, 2008, 562 SCRA 450, 481.
50
Arceta v. Mangrobang, G.R. Nos.
152895 & 153151, June 15, 2004, 432
SCRA 136, 142, citing Lacson v. The
Executive Secretary, 361 Phil. 251, 263
(1999).