Tax Cases 2nd Batch Fulltext

TAX CASES: Dili Puede I-Change Puhon
GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827
FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned to
the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635
otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the
population and that even among postal patrons the statute discriminatorily grants exemptions.
The law in question requires an additional 5 centavo stamp for every mail being posted, and no
mail shall be delivered unless bearing the said stamp.
ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?
HELD: No. It is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification. The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden. The classification of mail users is based on
the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax
exemptions have never been thought of as raising revenues under the equal protection clause.
P a g e 1 | 122
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA,
in his capacity as Secretary of Public Works and Communications, and DOMINGO
GOPEZ, in his capacity as Acting Postmaster of San Fernando, Pampanga, respondent-
appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic
Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall
order for the period from August nineteen to September thirty every year the printing and
issue of semi-postal stamps of different denominations with face value showing the
regular postage charge plus the additional amount of five centavos for the said purpose,
and during the said period, no mail matter shall be accepted in the mails unless it bears
such semi-postal stamps: Provided, That no such additional charge of five centavos
shall be imposed on newspapers. The additional proceeds realized from the sale of the
semi-postal stamps shall constitute a special fund and be deposited with the National
Treasury to be expended by the Philippine Tuberculosis Society in carrying out its noble
work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and
10 (July 15, 1960). All these administrative orders were issued with the approval of the
respondent Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19
to September 30, 1957, for lack of time. However, two denominations of such stamps,
one at "5 + 5" centavos and another at "10 + 5" centavos, will soon be released for use
by the public on their mails to be posted during the same period starting with the year
1958.
xxx xxx xxx
During the period from August 19 to September 30 each year starting in 1958, no mail
matter of whatever class, and whether domestic or foreign, posted at any Philippine Post
Office and addressed for delivery in this country or abroad, shall be accepted for mailing
unless it bears at least one such semi-postal stamp showing the additional value of five
centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or
impressions of postage meters, each piece of such mail shall bear at least one such
semi-postal stamp if posted during the period above stated starting with the year 1958,
in addition to being charged the usual postage prescribed by existing regulations. In the
P a g e 2 | 122
case of business reply envelopes and cards mailed during said period, such stamp
should be collected from the addressees at the time of delivery. Mails entitled to franking
privilege like those from the office of the President, members of Congress, and other
offices to which such privilege has been granted, shall each also bear one such semi-
postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-
office mail boxes without the required semi-postal stamp, shall be returned to the
sender, if known, with a notation calling for the affixing of such stamp. If the sender is
unknown, the mail matter shall be treated as nonmailable and forwarded to the Dead
Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking
privilege which are not exempted from the payment of the five centavos intended for the
Philippine Tuberculosis Society, such extra charge may be collected in cash, for which
official receipt (General Form No. 13, A) shall be issued, instead of affixing the semi-
postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra
charge of five centavos for the Philippine Tuberculosis Society shall be collected on
each separately-addressed piece of second-class mail matter, and the total sum thus
collected shall be entered in the same official receipt to be issued for the postage at the
second-class rate. In making such entry, the total number of pieces of second-class mail
posted shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The
extra charge shall be entered separate from the postage in both of the official receipt
and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in
addition to the five-centavo extra charge intended for said society. The total extra charge
thus received shall be entered in the same official receipt to be issued for the postage
collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under
metered mail permit issued by this Bureau, the extra charge of five centavos for said
society shall be collected in cash and an official receipt issued for the total sum thus
received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said
society shall be collected in cash on each reply card or envelope delivered, in addition to
the required postage which may also be paid in cash. An official receipt shall be issued
for the total postage and total extra charge received, in the manner shown in
subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other

persons entitled to the franking privilege under existing laws may pay in cash such extra
charge intended for said society, instead of affixing the semi-postal stamps to their mails,
P a g e 3 | 122
provided that such mails are presented at the post-office window, where the five-centavo
extra charge for said society shall be collected on each piece of such mail matter. In
such case, an official receipt shall be issued for the total sum thus collected, in the
manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office
window shall be affixed with the necessary semi-postal stamps. If found in mail boxes
without such stamps, they shall be treated in the same way as herein provided for other
mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies
and Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm.
Order 3, as amended, exempts "copies of periodical publications received for mailing under any
class of mail matter, including newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the
post office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp
required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First
Instance of Pampanga, to test the constitutionality of the statute, as well as the implementing
administrative orders issued, contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of taxation. The lower court declared
the statute and the orders unconstitutional; hence this appeal by the respondent postal
authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that
declaratory relief is unavailing because this suit was filed after the petitioner had committed a
breach of the statute. While conceding that the mailing by the petitioner of a letter without the
additional anti-TB stamp was a violation of Republic Act 1635, as amended, the trial court
nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of the
Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ...
should take place, the action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before
breach or violation" of the statute has been committed. Rule 64, section 1 so provides. Section
6 of the same rule, which allows the court to treat an action for declaratory relief as an ordinary
action, applies only if the breach or violation occurs after the filing of the action but before the
termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the
firing of this action, then indeed the remedy of declaratory relief cannot be availed of, much less
can the suit be converted into an ordinary action.
P a g e 4 | 122
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not
constitute a breach of the statute because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without the payment of the anti-TB
stamp. It is obvious that they can be guilty of violating the statute only if there are people who
use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere offer
constitutes a breach of the law, so in the matter of the anti-TB stamp the mere attempt to use
the mails without the stamp constitutes a violation of the statute. It is not required that the mail
be accepted by postal authorities. That requirement is relevant only for the purpose of fixing the
liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this
suit was filed not only with respect to the letter which he mailed on September 15, 1963, but
also with regard to any other mail that he might send in the future. Thus, in his complaint, the
petitioner prayed that due course be given to "other mails without the semi-postal stamps which
he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to other mailers which bear the
required postage, without collection of additional charge of five centavos prescribed by the
same Republic Act." As one whose mail was returned, the petitioner is certainly interested in a
ruling on the validity of the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing
orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More
specifically the claim is made that it constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants exemption to newspapers while Administrative Order 9 of the respondent
Postmaster General grants a similar exemption to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise
tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions.4 This power has aptly been described as "of wide range and
flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification.6 The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner
asserts is that statutory classification of mail users must bear some reasonable relationship to
the end sought to be attained, and that absent such relationship the selection of mail users is
constitutionally impermissible. This is altogether a different proposition. As explained
in Commonwealth v. Life Assurance Co.:8
P a g e 5 | 122
While the principle that there must be a reasonable relationship between classification
made by the legislation and its purpose is undoubtedly true in some contexts, it has no
application to a measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other
legitimate distinction, equal protection of the law has been afforded. See Allied Stores of
Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v.
Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature. Now, the classification of
mail users is not without any reason. It is based on ability to pay, let alone the enjoyment of a
privilege, and on administrative convinience. In the allocation of the tax burden, Congress must
have concluded that the contribution to the anti-TB fund can be assured by those whose who
can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is

now a settled principle of law that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for imposing a tax on a well
recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single most
important and influential consideration that led the legislature to select mail users as subjects of
the tax is the relative ease and convenienceof collecting the tax through the post offices. The
small amount of five centavos does not justify the great expense and inconvenience of
collecting through the regular means of collection. On the other hand, by placing the duty of
collection on postal authorities the tax was made almost self-enforcing, with as little cost and as
little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class.
Mail users were already a class by themselves even before the enactment of the statue and all
that the legislature did was merely to select their class. Legislation is essentially empiric and
Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As Mr.
Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard
[them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must
likewise be conceded as a necessary corollary. Tax exemptions are too common in the law;
they have never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from
the levy the law and administrative officials have sanctioned an invidious discrimination
offensive to the Constitution. The application of the lower courts theory would require all mail
users to be taxed, a conclusion that is hardly tenable in the light of differences in status of mail
users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax
in order to foster what it conceives to be a beneficent enterprise.11 This is the case of
newspapers which, under the amendment introduced by Republic Act 2631, are exempt from
the payment of the additional stamp.
P a g e 6 | 122
As for the Government and its instrumentalities, their exemption rests on the State's sovereign
immunity from taxation. The State cannot be taxed without its consent and such consent, being
in derogation of its sovereignty, is to be strictly construed. 12 Administrative Order 9 of the
respondent Postmaster General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-
known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the
exclusion of other diseases which, it is said, are equally a menace to public health. But it is
never a requirement of equal protection that all evils of the same genus be eradicated or none
at all.13 As this Court has had occasion to say, "if the law presumably hits the evil where it is
most felt, it is not to be overthrown because there are other instances to which it might have
been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for
a public purpose as no special benefits accrue to mail users as taxpayers, and second, because
it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that
the only benefit to which the taxpayer is constitutionally entitled is that derived from his
enjoyment of the privileges of living in an organized society, established and safeguarded by the
devotion of taxes to public purposes. Any other view would preclude the levying of taxes except
as they are used to compensate for the burden on those who pay them and would involve the
abandonment of the most fundamental principle of government that it exists primarily to
provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent
of the service rendered. We have said that considerations of administrative convenience and
cost afford an adequate ground for classification. The same considerations may induce the
legislature to impose a flat tax which in effect is a charge for the transaction, operating equally
on all persons within the class regardless of the amount involved.16As Mr. Justice Holmes said
in sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100
face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172.
The inequality of the tax, so far as actual values are concerned, is manifest. But, here
again equality in this sense has to yield to practical considerations and usage. There
must be a fixed and indisputable mode of ascertaining a stamp tax. In another sense,
moreover, there is equality. When the taxes on two sales are equal, the same number of
shares is sold in each case; that is to say, the same privilege is used to the same extent.
Valuation is not the only thing to be considered. As was pointed out by the court of
appeals, the familiar stamp tax of 2 cents on checks, irrespective of income or earning
capacity, and many others, illustrate the necessity and practice of sometimes
substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for
the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation
by law. But as the Solicitor General points out, the Society is not really the beneficiary but only
P a g e 7 | 122
the agency through which the State acts in carrying out what is essentially a public function. The
money is treated as a special fund and as such need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is one of
the grounds on which the lower court invalidated Republic Act 1631, as amended, namely, that
it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain
classes of mail matters (such as mail permits, metered mails, business reply cards, etc.), the
five-centavo charge may be paid in cash instead of the purchase of the anti-TB stamp. It further
states that mails deposited during the period August 19 to September 30 of each year in mail
boxes without the stamp should be returned to the sender, if known, otherwise they should be
treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through
the sale of anti-TB stamps, but such authority may be implied in so far as it may be necessary to
prevent a failure of the undertaking. The authority given to the Postmaster General to raise
funds through the mails must be liberally construed, consistent with the principle that where the
end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would be
to make them pay much more because the cards likewise bear the amount of the regular
postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear
the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the mails
unless it bears such semi-postal stamp" is a declaration that such mail matter is nonmailable
within the meaning of section 1952 of the Administrative Code. Administrative Order 7 of the
Postmaster General is but a restatement of the law for the guidance of postal officials and
employees. As for Administrative Order 9, we have already said that in listing the offices and
entities of the Government exempt from the payment of the stamp, the respondent Postmaster
General merely observed an established principle, namely, that the Government is exempt from
taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.
P a g e 8 | 122
Facts: In 1953, Republic Act No. 920 was passed. This law appropriated P85,000.00 for the
construction, reconstruction, repair, extension and improvement Pasig feeder road terminals.
Wenceslao Pascual, then governor of Rizal, assailed the validity of the law. He claimed that the
appropriation was actually going to be used for private use for the terminals sought to be
improved were part of the Antonio Subdivision. The said Subdivision is owned by Senator Jose
Zulueta who was a member of the same Senate that passed and approved the same RA.
Pascual claimed that Zulueta misrepresented in Congress the fact that he owns those terminals
and that his property would be unlawfully enriched at the expense of the taxpayers if the said
RA would be upheld. Pascual then prayed that the Secretary of Public Works and
Communications be restrained from releasing funds for such purpose. Zulueta, on the other
hand, perhaps as an afterthought, donated the said property to the City of Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD: No, the appropriation is void for being an appropriation for a private purpose. The
subsequent donation of the property to the government to make the property public does not
cure the constitutional defect. The fact that the law was passed when the said property was still
a private property cannot be ignored. In accordance with the rule that the taxing power must be
exercised for public purposes only, money raised by taxation can be expanded only for public
purposes and not for the advantage of private individuals. Inasmuch as the land on which the
projected feeder roads were to be constructed belonged then to Zulueta, the result is that said
appropriation sought a private purpose, and, hence, was null and void.
P a g e 9 | 122
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.
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
P a g e 10 | 122
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 void ab 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:
P a g e 11 | 122
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, 1and 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. 2However,
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
P a g e 12 | 122
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,
discussed supra 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.
xxx xxx xxx
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
P a g e 13 | 122
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, 5upon 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. 6Although there are some decisions to the
contrary, 7the 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 of each 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).lawphi1.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
P a g e 14 | 122
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, 8and, 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.
P a g e 15 | 122
REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and
occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300.
Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its
effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three
hundred pesos (P300.00), so that the Reyeses were precluded fromn raising the rents 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, which entailed an
increase in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement averring 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.
ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. 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. 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.
P a g e 16 | 122
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.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central
Board of Assessment Appeals1 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 Appeals2 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
P a g e 17 | 122
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.1wphi1 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).
P a g e 18 | 122
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).
P a g e 19 | 122
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.
P a g e 20 | 122
G.R. No. 115455 235 SCRA 630 (1994)

FACTS: RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that
seeks to widen the tax base of the existing VAT system and enhance its administration by
amending the National Internal Revenue Code. There are various suits questioning and
challenging the constitutionality of RA 7716 on various grounds.
Tolentino contends that RA 7716 did not originate exclusively from the House of
Representatives but is a mere consolidation of HB. No. 11197 and SB. No. 1630 and it did not
pass three readings on separate days on the Senate thus violating Article VI, Sections 24 and
26(2) of the Constitution, respectively.
Art. VI, Section 24: 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.
Art. VI, Section 26(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 yeas and nays entered in the Journal.
ISSUE: Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section 26(2) of the
Constitution.
HELD: No. The phrase originate exclusively refers to the revenue bill and not to the revenue
law. It is sufficient that the House of Representatives initiated the passage of the bill which may
undergo extensive changes in the Senate.
SB. No. 1630, having been certified as urgent by the President need not meet the requirement
not only of printing but also of reading the bill on separate days.
P a g e 21 | 122
G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or
gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code.
These are various suits for certiorari and prohibition, challenging the constitutionality of Republic
Act No. 7716 on various grounds summarized in the resolution of July 6, 1994 of this Court, as
follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate Art. VI, 24 of the Constitution?
B. Does it violate Art. VI, 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral Conference Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of Rights (Art. III)?
1. 1
2. 4
3. 5
4. 10
B. Does the law violate the following other provisions of the Constitution?
1. Art. VI, 28(1)
2. Art. VI, 28(3)
These questions will be dealt in the order they are stated above. As will presently be explained
not all of these questions are judicially cognizable, because not all provisions of the Constitution
are self executing and, therefore, judicially enforceable. The other departments of the
government are equally charged with the enforcement of the Constitution, especially the
provisions relating to them.
I. PROCEDURAL ISSUES
P a g e 22 | 122
The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Value-
Added Tax Law, Congress violated the Constitution because, although H. No. 11197 had
originated in the House of Representatives, it was not passed by the Senate but was simply
consolidated with the Senate version (S. No. 1630) in the Conference Committee to produce the
bill which the President signed into law. The following provisions of the Constitution are cited in
support of the proposition that because Republic Act No. 7716 was passed in this manner, it did
not originate in the House of Representatives and it has not thereby become a law:
Art. VI, 24: 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.
Id., 26(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 yeas and nays entered in the Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993, several
bills 1 were introduced in the House of Representatives seeking to amend certain provisions of
the National Internal Revenue Code relative to the value-added tax or VAT. These bills were
referred to the House Ways and Means Committee which recommended for approval a
substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX
BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND
116 OF TITLE V, AND 236, 237 AND 238 OF TITLE IX, AND REPEALING SECTIONS 113
AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading starting November 6, 1993 and, on
November 17, 1993, it was approved by the House of Representatives after third and final
reading.
It was sent to the Senate on November 23, 1993 and later referred by that body to its
Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its report recommending approval of S.
No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX
BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF TITLE IV, 112 OF TITLE V,
AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113, 114 and 116 OF
TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of Senate Bill No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197."
P a g e 23 | 122
On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished
debates on the bill and approved it on second reading on March 24, 1994. On the same day, it
approved the bill on third reading by the affirmative votes of 13 of its members, with one
abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference
committee which, after meeting four times (April 13, 19, 21 and 25, 1994), recommended that
"House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in accordance
with the attached copy of the bill as reconciled and approved by the conferees."
The Conference Committee bill, entitled "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," was thereafter approved by the House of Representatives on April 27, 1994 and
by the Senate on May 2, 1994. The enrolled bill was then presented to the President of the
Philippines who, on May 5, 1994, signed it. It became Republic Act No. 7716. On May 12, 1994,
Republic Act No. 7716 was published in two newspapers of general circulation and, on May 28,
1994, it took effect, although its implementation was suspended until June 30, 1994 to allow
time for the registration of business entities. It would have been enforced on July 1, 1994 but its
enforcement was stopped because the Court, by the vote of 11 to 4 of its members, granted a
temporary restraining order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate exclusively" in the
House of Representatives as required by Art. VI, 24 of the Constitution, because it is in fact the
result of the consolidation of two distinct bills, H. No. 11197 and S. No. 1630. In this connection,
petitioners point out that although Art. VI, SS 24 was adopted from the American Federal
Constitution, 2 it is notable in two respects: the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as on other bills" in the American version
is omitted. This means, according to them, that to be considered as having originated in the
House, Republic Act No. 7716 must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the law but the revenue bill
which is required by the Constitution to "originate exclusively" in the House of Representatives.
It is important to emphasize this, because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a rewriting of the whole. The possibility
of a third version by the conference committee will be discussed later. At this point, what is
important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute and not only the bill which initiated the legislative process
culminating in the enactment of the law must substantially be the same as the House bill
would be to deny the Senate's power not only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of legislative power of the two houses of
Congress and in fact make the House superior to the Senate.
The contention that the constitutional design is to limit the Senate's power in respect of revenue
bills in order to compensate for the grant to the Senate of the treaty-ratifying power 3 and
thereby equalize its powers and those of the House overlooks the fact that the powers being
compared are different. We are dealing here with the legislative power which under the
Constitution is vested not in any particular chamber but in the Congress of the Philippines,
P a g e 24 | 122
consisting of "a Senate and a House of Representatives." 4 The exercise of the treaty-ratifying
power is not the exercise of legislative power. It is the exercise of a check on the executive
power. There is, therefore, no justification for comparing the legislative powers of the House and
of the Senate on the basis of the possession of such nonlegislative power by the Senate. The
possession of a similar power by the U.S. Senate 5 has never been thought of as giving it more
legislative powers than the House of Representatives.
In the United States, the validity of a provision ( 37) imposing an ad valorem tax based on the
weight of vessels, which the U.S. Senate had inserted in the Tariff Act of 1909, was upheld
against the claim that the provision was a revenue bill which originated in the Senate in
contravention of Art. I, 7 of the U.S. Constitution. 6 Nor is the power to amend limited to adding
a provision or two in a revenue bill emanating from the House. The U.S. Senate has gone so far
as changing the whole of bills following the enacting clause and substituting its own versions. In
1883, for example, it struck out everything after the enacting clause of a tariff bill and wrote in its
place its own measure, and the House subsequently accepted the amendment. The U.S.
Senate likewise added 847 amendments to what later became the Payne-Aldrich Tariff Act of
1909; it dictated the schedules of the Tariff Act of 1921; it rewrote an extensive tax revision bill
in the same year and recast most of the tariff bill of 1922. 7 Given, then, the power of the Senate
to propose amendments, the Senate can propose its own version even with respect to bills
which are required by the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of
another Senate bill (S. No. 1129) earlier filed and that what the Senate did was merely to "take
[H. No. 11197] into consideration" in enacting S. No. 1630. There is really no difference
between the Senate preserving H. No. 11197 up to the enacting clause and then writing its own
version following the enacting clause (which, it would seem, petitioners admit is an amendment
by substitution), and, on the other hand, separately presenting a bill of its own on the same
subject matter. In either case the result are two bills on the same subject.
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax
bills, bills authorizing an increase of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is withheld pending
receipt of the House bill. The Court cannot, therefore, understand the alarm expressed over the
fact that on March 1, 1993, eight months before the House passed H. No. 11197, S. No. 1129
had been filed in the Senate. After all it does not appear that the Senate ever considered it. It
was only after the Senate had received H. No. 11197 on November 23, 1993 that the process of
legislation in respect of it began with the referral to the Senate Committee on Ways and Means
of H. No. 11197 and the submission by the Committee on February 7, 1994 of S. No. 1630. For
that matter, if the question were simply the priority in the time of filing of bills, the fact is that it
was in the House that a bill (H. No. 253) to amend the VAT law was first filed on July 22, 1992.
Several other bills had been filed in the House before S. No. 1129 was filed in the Senate, and
H. No. 11197 was only a substitute of those earlier bills.
P a g e 25 | 122
Second. Enough has been said to show that it was within the power of the Senate to propose S.
No. 1630. We now pass to the next argument of petitioners that S. No. 1630 did not pass three
readings on separate days as required by the Constitution 8 because the second and third
readings were done on the same day, March 24, 1994. But this was because on February 24,
1994 9 and again on March 22, 1994, 10 the President had certified S. No. 1630 as urgent. The
presidential certification dispensed with the requirement not only of printing but also that of
reading the bill on separate days. The phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, 26(2) qualifies the two stated conditions
before a bill can become a law: (i) the bill has passed three readings on separate days and (ii) it
has been printed in its final form and distributed three days before it is finally approved.
In other words, the "unless" clause must be read in relation to the "except" clause, because the
two are really coordinate clauses of the same sentence. To construe the "except" clause as
simply dispensing with the second requirement in the "unless" clause (i.e., printing and
distribution three days before final approval) would not only violate the rules of grammar. It
would also negate the very premise of the "except" clause: the necessity of securing the
immediate enactment of a bill which is certified in order to meet a public calamity or emergency.
For if it is only the printing that is dispensed with by presidential certification, the time saved
would be so negligible as to be of any use in insuring immediate enactment. It may well be
doubted whether doing away with the necessity of printing and distributing copies of the bill
three days before the third reading would insure speedy enactment of a law in the face of an
emergency requiring the calling of a special election for President and Vice-President. Under
the Constitution such a law is required to be made within seven days of the convening of
Congress in emergency session. 11
That upon the certification of a bill by the President the requirement of three readings on
separate days and of printing and distribution can be dispensed with is supported by the weight
of legislative practice. For example, the bill defining the certiorari jurisdiction of this Court which,
in consolidation with the Senate version, became Republic Act No. 5440, was passed on
second and third readings in the House of Representatives on the same day (May 14, 1968)
after the bill had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential certification dispenses only with
the requirement for the printing of the bill and its distribution three days before its passage but
not with the requirement of three readings on separate days, also.
It is nonetheless urged that the certification of the bill in this case was invalid because there was
no emergency, the condition stated in the certification of a "growing budget deficit" not being an
unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the reality of the factual basis
of the certification. To the contrary, by passing S. No. 1630 on second and third readings on
March 24, 1994, the Senate accepted the President's certification. Should such certification be
now reviewed by this Court, especially when no evidence has been shown that, because S. No.
1630 was taken up on second and third readings on the same day, the members of the Senate
were deprived of the time needed for the study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas corpus or declaration
of martial law under Art. VII, 18, or the existence of a national emergency justifying the
P a g e 26 | 122
delegation of extraordinary powers to the President under Art. VI, 23(2), is subject to judicial
review because basic rights of individuals may be at hazard. But the factual basis of presidential
certification of bills, which involves doing away with procedural requirements designed to insure
that bills are duly considered by members of Congress, certainly should elicit a different
standard of review.
Petitioners also invite attention to the fact that the President certified S. No. 1630 and not H. No.
11197. That is because S. No. 1630 was what the Senate was considering. When the matter
was before the House, the President likewise certified H. No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became Republic Act No. 7716 is the bill which
the Conference Committee prepared by consolidating H. No. 11197 and S. No. 1630. It is
claimed that the Conference Committee report included provisions not found in either the House
bill or the Senate bill and that these provisions were "surreptitiously" inserted by the Conference
Committee. Much is made of the fact that in the last two days of its session on April 21 and 25,
1994 the Committee met behind closed doors. We are not told, however, whether the provisions
were not the result of the give and take that often mark the proceedings of conference
committees.
Nor is there anything unusual or extraordinary about the fact that the Conference Committee
met in executive sessions. Often the only way to reach agreement on conflicting provisions is to
meet behind closed doors, with only the conferees present. Otherwise, no compromise is likely
to be made. The Court is not about to take the suggestion of a cabal or sinister motive attributed
to the conferees on the basis solely of their "secret meetings" on April 21 and 25, 1994, nor read
anything into the incomplete remarks of the members, marked in the transcript of stenographic
notes by ellipses. The incomplete sentences are probably due to the stenographer's own
limitations or to the incoherence that sometimes characterize conversations. William Safire
noted some such lapses in recorded talks even by recent past Presidents of the United States.
In any event, in the United States conference committees had been customarily held in
executive sessions with only the conferees and their staffs in attendance. 13 Only in November
1975 was a new rule adopted requiring open sessions. Even then a majority of either chamber's
conferees may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:
Under congressional rules of procedure, conference committees are not expected to make any
material change in the measure at issue, either by deleting provisions to which both houses
have already agreed or by inserting new provisions. But this is a difficult provision to enforce.
Note the problem when one house amends a proposal originating in either house by striking out
everything following the enacting clause and substituting provisions which make it an entirely
new bill. The versions are now altogether different, permitting a conference committee to draft
essentially a new bill. . . . 15
The result is a third version, which is considered an "amendment in the nature of a substitute,"
the only requirement for which being that the third version be germane to the subject of the
House and Senate bills. 16
P a g e 27 | 122
Indeed, this Court recently held that it is within the power of a conference committee to include
in its report an entirely new provision that is not found either in the House bill or in the Senate
bill. 17 If the committee can propose an amendment consisting of one or two provisions, there is
no reason why it cannot propose several provisions, collectively considered as an "amendment
in the nature of a substitute," so long as such amendment is germane to the subject of the bills
before the committee. After all, its report was not final but needed the approval of both houses
of Congress to become valid as an act of the legislative department. The charge that in this
case the Conference Committee acted as a third legislative chamber is thus without any
basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and the House of
Representatives a conference committee can only act on the differing provisions of a Senate bill
and a House bill, and that contrary to these Rules the Conference Committee inserted
provisions not found in the bills submitted to it. The following provisions are cited in support of
this contention:
Rules of the Senate
Rule XII:
26. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten days after their composition.
The President shall designate the members of the conference committee in accordance with
subparagraph (c), Section 3 of Rule III.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement
of the changes in or amendments to the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been filed with the
Secretary of the Senate and copies thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
85. Conference Committee Reports. In the event that the House does not agree with the
Senate on the amendments to any bill or joint resolution, the differences may be settled by
conference committees of both Chambers.
The consideration of conference committee reports shall always be in order, except when the
journal is being read, while the roll is being called or the House is dividing on any question.
Each of the pages of such reports shall be signed by the conferees. Each report shall contain a
detailed, sufficiently explicit statement of the changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless copies thereof are distributed to the
Members: Provided, That in the last fifteen days of each session period it shall be deemed
sufficient that three copies of the report, signed as above provided, are deposited in the office of
the Secretary General.
P a g e 28 | 122
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee to a consideration of conflicting
provisions. But Rule XLIV, 112 of the Rules of the Senate is cited to the effect that "If there is
no Rule applicable to a specific case the precedents of the Legislative Department of the
Philippines shall be resorted to, and as a supplement of these, the Rules contained in
Jefferson's Manual." The following is then quoted from the Jefferson's Manual:
The managers of a conference must confine themselves to the differences committed to them. .
. and may not include subjects not within disagreements, even though germane to a question in
issue.
Note that, according to Rule XLIX, 112, in case there is no specific rule applicable, resort must
be to the legislative practice. The Jefferson's Manual is resorted to only as supplement. It is
common place in Congress that conference committee reports include new matters which,
though germane, have not been committed to the committee. This practice was admitted by
Senator Raul S. Roco, petitioner in G.R. No. 115543, during the oral argument in these cases.
Whatever, then, may be provided in the Jefferson's Manual must be considered to have been
modified by the legislative practice. If a change is desired in the practice it must be sought in
Congress since this question is not covered by any constitutional provision but is only an
internal rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that "Each House
may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules of the two chambers were
likewise disregarded in the preparation of the Conference Committee Report because the
Report did not contain a "detailed and sufficiently explicit statement of changes in, or
amendments to, the subject measure." The Report used brackets and capital letters to indicate
the changes. This is a standard practice in bill-drafting. We cannot say that in using these marks
and symbols the Committee violated the Rules of the Senate and the House. Moreover, this
Court is not the proper forum for the enforcement of these internal Rules. To the contrary, as we
have already ruled, "parliamentary rules are merely procedural and with their observance the
courts have no concern." 19 Our concern is with the procedural requirements of the Constitution
for the enactment of laws. As far as these requirements are concerned, we are satisfied that
they have been faithfully observed in these cases.
Nor is there any reason for requiring that the Committee's Report in these cases must have
undergone three readings in each of the two houses. If that be the case, there would be no end
to negotiation since each house may seek modifications of the compromise bill. The nature of
the bill, therefore, requires that it be acted upon by each house on a "take it or leave it" basis,
with the only alternative that if it is not approved by both houses, another conference committee
must be appointed. But then again the result would still be a compromise measure that may not
be wholly satisfying to both houses.
Art. VI, 26(2) must, therefore, be construed as referring only to bills introduced for the first time
in either house of Congress, not to the conference committee report. For if the purpose of
requiring three readings is to give members of Congress time to study bills, it cannot be
gainsaid that H. No. 11197 was passed in the House after three readings; that in the Senate it
was considered on first reading and then referred to a committee of that body; that although the
Senate committee did not report out the House bill, it submitted a version (S. No. 1630) which it
P a g e 29 | 122
had prepared by "taking into consideration" the House bill; that for its part the Conference
Committee consolidated the two bills and prepared a compromise version; that the Conference
Committee Report was thereafter approved by the House and the Senate, presumably after
appropriate study by their members. We cannot say that, as a matter of fact, the members of
Congress were not fully informed of the provisions of the bill. The allegation that the Conference
Committee usurped the legislative power of Congress is, in our view, without warrant in fact and
in law.
Fourth. Whatever doubts there may be as to the formal validity of Republic Act No. 7716 must
be resolved in its favor. Our cases 20 manifest firm adherence to the rule that an enrolled copy of
a bill is conclusive not only of its provisions but also of its due enactment. Not even claims that a
proposed constitutional amendment was invalid because the requisite votes for its approval had
not been obtained 21 or that certain provisions of a statute had been "smuggled" in the printing
of the bill 22have moved or persuaded us to look behind the proceedings of a coequal branch of
the government. There is no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In fact in one case 23 we "went
behind" an enrolled bill and consulted the Journal to determine whether certain provisions of a
statute had been approved by the Senate in view of the fact that the President of the Senate
himself, who had signed the enrolled bill, admitted a mistake and withdrew his signature, so that
in effect there was no longer an enrolled bill to consider.
But where allegations that the constitutional procedures for the passage of bills have not been
observed have no more basis than another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had prepared, we should decline the
invitation to go behind the enrolled copy of the bill. To disregard the "enrolled bill" rule in such
cases would be to disregard the respect due the other two departments of our government.
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made by the
Philippine Airlines, Inc., petitioner in G.R. No. 11582, namely, that it violates Art. VI, 26(1)
which provides that "Every bill passed by Congress shall embrace only one subject which shall
be expressed in the title thereof." It is contended that neither H. No. 11197 nor S. No. 1630
provided for removal of exemption of PAL transactions from the payment of the VAT and that
this was made only in the Conference Committee bill which became Republic Act No. 7716
without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
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.
Among the provisions of the NIRC amended is 103, which originally read:
103. Exempt transactions. The following shall be exempt from the value-added tax:
....
(q) Transactions which are exempt under special laws or international agreements to which the
Philippines is a signatory. Among the transactions exempted from the VAT were those of PAL
P a g e 30 | 122
because it was exempted under its franchise (P.D. No. 1590) from the payment of all "other
taxes . . . now or in the near future," in consideration of the payment by it either of the corporate
income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, 103 of the NIRC now provides:
103. Exempt transactions. The following shall be exempt from the value-added tax:
....
(q) Transactions which are exempt under special laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, 1590. . . .
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is
concerned.
The question is whether this amendment of 103 of the NIRC is fairly embraced in the title of
Republic Act No. 7716, although no mention is made therein of P.D. No. 1590 as among those
which the statute amends. We think it is, since the title states that the purpose of the statute is
to expand the VAT system, and one way of doing this is to widen its base by withdrawing some
of the exemptions granted before. To insist that P.D. No. 1590 be mentioned in the title of the
law, in addition to 103 of the NIRC, in which it is specifically referred to, would be to insist that
the title of a bill should be a complete index of its content.
The constitutional requirement that every bill passed by Congress shall embrace only one
subject which shall be expressed in its title is intended to prevent surprise upon the members of
Congress and to inform the people of pending legislation so that, if they wish to, they can be
heard regarding it. If, in the case at bar, petitioner did not know before that its exemption had
been withdrawn, it is not because of any defect in the title but perhaps for the same reason
other statutes, although published, pass unnoticed until some event somehow calls attention to
their existence. Indeed, the title of Republic Act No. 7716 is not any more general than the title
of PAL's own franchise under P.D. No. 1590, and yet no mention is made of its tax exemption.
The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO ESTABLISH,
OPERATE, AND MAINTAIN AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND
BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional requirement in such a manner that courts
do not unduly interfere with the enactment of necessary legislation and to consider it sufficient if
the title expresses the general subject of the statute and all its provisions are germane to the
general subject thus expressed. 24
It is further contended that amendment of petitioner's franchise may only be made by special
law, in view of 24 of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision hereof may only be modified, amended,
or repealed expressly by a special law or decree that shall specifically modify, amend, or repeal
this franchise or any section or provision thereof.
This provision is evidently intended to prevent the amendment of the franchise by mere
implication resulting from the enactment of a later inconsistent statute, in consideration of the
P a g e 31 | 122
fact that a franchise is a contract which can be altered only by consent of the parties. Thus
in Manila Railroad Co. v.
25
Rafferty, it was held that an Act of the U.S. Congress, which provided for the payment of tax
on certain goods and articles imported into the Philippines, did not amend the franchise of
plaintiff, which exempted it from all taxes except those mentioned in its franchise. It was held
that a special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's franchise (P.D.
No. 1590) by specifically excepting from the grant of exemptions from the VAT PAL's exemption
under P.D. No. 1590. This is within the power of Congress to do under Art. XII, 11 of the
Constitution, which provides that the grant of a franchise for the operation of a public utility is
subject to amendment, alteration or repeal by Congress when the common good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of Thought and Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement of journalism in the Philippines. On the
other hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit
organization engaged in the printing and distribution of bibles and other religious articles. Both
petitioners claim violations of their rights under 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption previously granted to the
press under 103 (f) of the NIRC. Although the exemption was subsequently restored by
administrative regulation with respect to the circulation income of newspapers, the PPI presses
its claim because of the possibility that the exemption may still be removed by mere revocation
of the regulation of the Secretary of Finance. On the other hand, the PBS goes so far as to
question the Secretary's power to grant exemption for two reasons: (1) The Secretary of
Finance has no power to grant tax exemption because this is vested in Congress and requires
for its exercise the vote of a majority of all its members 26 and (2) the Secretary's duty is to
execute the law.
103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions
previously granted exemption were:
(f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which
is devoted principally to the publication of advertisements.
Republic Act No. 7716 amended 103 by deleting (f) with the result that print media became
subject to the VAT with respect to all aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue
Regulations No. 11-94, dated June 27, 1994, exempting the "circulation income of print media
pursuant to 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of "circulation income" has left income
from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the exemption granted is beyond the
authority of the Secretary of Finance to give, in view of PPI's contention that even with the
P a g e 32 | 122
exemption of the circulation revenue of print media there is still an unconstitutional abridgment
of press freedom because of the imposition of the VAT on the gross receipts of newspapers
from advertisements and on their acquisition of paper, ink and services for publication. Even on
the assumption that no exemption has effectively been granted to print media transactions, we
find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on its face operates in the area of press
freedom. The PPI's claim is simply that, as applied to newspapers, the law abridges press
freedom. Even with due recognition of its high estate and its importance in a democratic society,
however, the press is not immune from general regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the application of general laws. He has no
special privilege to invade the rights and liberties of others. He must answer for libel. He may be
punished for contempt of court. . . . Like others, he must pay equitable and nondiscriminatory
taxes on his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption previously granted to print media
transactions involving printing, publication, importation or sale of newspapers, Republic Act No.
7716 has singled out the press for discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving broadcast media favored treatment.
We have carefully examined this argument, but we are unable to find a differential treatment of
the press by the law, much less any censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not because it is being singled out,
much less targeted, for special treatment but only because of the removal of the exemption
previously granted to it by law. The withdrawal of exemption is all that is involved in these
cases. Other transactions, likewise previously granted exemption, have been delisted as part of
the scheme to expand the base and the scope of the VAT system. The law would perhaps be
open to the charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its
claim that Republic Act No. 7716 subjects the press to discriminatory taxation. In the cases
cited, the discriminatory purpose was clear either from the background of the law or from its
operation. For example, in Grosjean v. American Press Co., 28 the law imposed a license tax
equivalent to 2% of the gross receipts derived from advertisements only on newspapers which
had a circulation of more than 20,000 copies per week. Because the tax was not based on the
volume of advertisement alone but was measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana, leaving untaxed four papers with
circulation of only slightly less than 20,000 copies a week and 120 weekly newspapers which
were in serious competition with the thirteen newspapers in question. It was well known that the
thirteen newspapers had been critical of Senator Huey Long, and the Long-dominated
legislature of Louisiana respondent by taxing what Long described as the "lying newspapers" by
imposing on them "a tax on lying." The effect of the tax was to curtail both their revenue and
their circulation. As the U.S. Supreme Court noted, the tax was "a deliberate and calculated
device in the guise of a tax to limit the circulation of information to which the public is entitled in
virtue of the constitutional guaranties." 29 The case is a classic illustration of the warning that the
power to tax is the power to destroy.
P a g e 33 | 122
In the other case 30 invoked by the PPI, the press was also found to have been singled out
because everything was exempt from the "use tax" on ink and paper, except the press.
Minnesota imposed a tax on the sales of goods in that state. To protect the sales tax, it enacted
a complementary tax on the privilege of "using, storing or consuming in that state tangible
personal property" by eliminating the residents' incentive to get goods from outside states where
the sales tax might be lower. The Minnesota Star Tribune was exempted from both taxes from
1967 to 1971. In 1971, however, the state legislature amended the tax scheme by imposing the
"use tax" on the cost of paper and ink used for publication. The law was held to have singled out
the press because (1) there was no reason for imposing the "use tax" since the press was
exempt from the sales tax and (2) the "use tax" was laid on an "intermediate transaction rather
than the ultimate retail sale." Minnesota had a heavy burden of justifying the differential
treatment and it failed to do so. In addition, the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again amending the law so as to exempt the first
$100,000 of paper and ink used, further narrowed the coverage of the tax so that "only a
handful of publishers pay any tax at all and even fewer pay any significant amount of
tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law which taxed
general interest magazines but not newspapers and religious, professional, trade and sports
journals was discriminatory because while the tax did not single out the press as a whole, it
targeted a small group within the press. What is more, by differentiating on the basis of contents
(i.e., between general interest and special interests such as religion or sports) the law became
"entirely incompatible with the First Amendment's guarantee of freedom of the press."
These cases come down to this: that unless justified, the differential treatment of the press
creates risks of suppression of expression. In contrast, in the cases at bar, the statute applies to
a wide range of goods and services. The argument that, by imposing the VAT only on print
media whose gross sales exceeds P480,000 but not more than P750,000, the law
discriminates 33 is without merit since it has not been shown that as a result the class subject to
tax has been unreasonably narrowed. The fact is that this limitation does not apply to the press
along but to all sales. Nor is impermissible motive shown by the fact that print media and
broadcast media are treated differently. The press is taxed on its transactions involving printing
and publication, which are different from the transactions of broadcast media. There is thus a
reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers
are immune from any forms of ordinary taxation." The license tax in the Grosjean case was
declared invalid because it was "one single in kind, with a long history of hostile misuse against
the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First Amendment does
not prohibit all regulation of the press [and that] the States and the Federal Government can
subject newspapers to generally applicable economic regulations without creating constitutional
problems." 35
What has been said above also disposes of the allegations of the PBS that the removal of the
exemption of printing, publication or importation of books and religious articles, as well as their
printing and publication, likewise violates freedom of thought and of conscience. For as the U.S.
Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of Equalization, 36 the
P a g e 34 | 122
Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and
use tax on the sale of religious materials by a religious organization.
This brings us to the question whether the registration provision of the law, 37 although of
general applicability, nonetheless is invalid when applied to the press because it lays a prior
restraint on its essential freedom. The case of American Bible Society v. City of Manila 38 is
cited by both the PBS and the PPI in support of their contention that the law imposes
censorship. There, this Court held that an ordinance of the City of Manila, which imposed a
license fee on those engaged in the business of general merchandise, could not be applied to
the appellant's sale of bibles and other religious literature. This Court relied on Murdock v.
Pennsylvania, 39 in which it was held that, as a license fee is fixed in amount and unrelated to
the receipts of the taxpayer, the license fee, when applied to a religious sect, was actually being
imposed as a condition for the exercise of the sect's right under the Constitution. For that
reason, it was held, the license fee "restrains in advance those constitutional liberties of press
and religion and inevitably tends to suppress their exercise." 40
But, in this case, the fee in 107, although a fixed amount (P1,000), is not imposed for the
exercise of a privilege but only for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system. It is designed to provide a
record of tax credits because any person who is subject to the payment of the VAT pays an
input tax, even as he collects an output tax on sales made or services rendered. The
registration fee is thus a mere administrative fee, one not imposed on the exercise of a privilege,
much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it
offends the free speech, press and freedom of religion guarantees of the Constitution to be
without merit. For the same reasons, we find the claim of the Philippine Educational Publishers
Association (PEPA) in G.R. No. 115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the constitutional mandate to the
government to give priority to education, science and technology (Art. II, 17) to be untenable.
B. Claims of Regressivity, Denial of Due Process, Equal Protection, and Impairment

of Contracts
There is basis for passing upon claims that on its face the statute violates the guarantees of
freedom of speech, press and religion. The possible "chilling effect" which it may have on the
essential freedom of the mind and conscience and the need to assure that the channels of
communication are open and operating importunately demand the exercise of this Court's
power of review.
There is, however, no justification for passing upon the claims that the law also violates the rule
that taxation must be progressive and that it denies petitioners' right to due process and that
equal protection of the laws. The reason for this different treatment has been cogently stated by
an eminent authority on constitutional law thus: "[W]hen freedom of the mind is imperiled by law,
it is freedom that commands a momentum of respect; when property is imperiled it is the
lawmakers' judgment that commands respect. This dual standard may not precisely reverse the
presumption of constitutionality in civil liberties cases, but obviously it does set up a hierarchy of
values within the due process clause." 41
P a g e 35 | 122
Indeed, the absence of threat of immediate harm makes the need for judicial intervention less
evident and underscores the essential nature of petitioners' attack on the law on the grounds of
regressivity, denial of due process and equal protection and impairment of contracts as a mere
academic discussion of the merits of the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no determinations at the administrative levels
of their claims so as to illuminate the actual operation of the law and enable us to reach sound
judgment regarding so fundamental questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is regressive and that it violates the
requirement that "The rule of taxation shall be uniform and equitable [and] Congress shall
evolve a progressive system of taxation." 42 Petitioners in G.R. No. 115781 quote from a paper,
entitled "VAT Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait of the
International Monetary Fund, that "VAT payment by low-income households will be a higher
proportion of their incomes (and expenditures) than payments by higher-income households.
That is, the VAT will be regressive." Petitioners contend that as a result of the uniform 10%
VAT, the tax on consumption goods of those who are in the higher-income bracket, which
before were taxed at a rate higher than 10%, has been reduced, while basic commodities, which
before were taxed at rates ranging from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax burden to as many goods and services as possible
particularly to those which are within the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable. The goods and properties subject to the
VAT are those used or consumed by higher-income groups. These include real properties held
primarily for sale to customers or held for lease in the ordinary course of business, the right or
privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar
places, tourist buses, and the like. On the other hand, small business establishments, with
annual gross sales of less than P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000 business establishments. On the other
hand, an occasional paper 43 of the Center for Research and Communication cities a NEDA
study that the VAT has minimal impact on inflation and income distribution and that while
additional expenditure for the lowest income class is only P301 or 1.49% a year, that for a family
earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any
discussion whether the VAT is regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich," as the Cooperative Union of the Philippines
(CUP) claims in G.R. No. 115873, is largely an academic exercise. On the other hand, the
CUP's contention that Congress' withdrawal of exemption of producers cooperatives, marketing
cooperatives, and service cooperatives, while maintaining that granted to electric cooperatives,
not only goes against the constitutional policy to promote cooperatives as instruments of social
justice (Art. XII, 15) but also denies such cooperatives the equal protection of the law is
actually a policy argument. The legislature is not required to adhere to a policy of "all or none" in
choosing the subject of taxation. 44
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA),
petitioner in G.R. 115754, that the VAT will reduce the mark up of its members by as much as
85% to 90% any more concrete. It is a mere allegation. On the other hand, the claim of the
Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will drive some of its
P a g e 36 | 122
members out of circulation because their profits from advertisements will not be enough to pay
for their tax liability, while purporting to be based on the financial statements of the newspapers
in question, still falls short of the establishment of facts by evidence so necessary for
adjudicating the question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required
by the Constitution to do is to "evolve a progressive system of taxation." This is a directive to
Congress, just like the directive to it to give priority to the enactment of laws for the
enhancement of human dignity and the reduction of social, economic and political inequalities
(Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV, 1). These
provisions are put in the Constitution as moral incentives to legislation, not as judicially
enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions now raised
against the VAT. There similar arguments made against the original VAT Law (Executive Order
No. 273) were held to be hypothetical, with no more basis than newspaper articles which this
Court found to be "hearsay and [without] evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as provided in the original VAT Law,
further debate on the desirability and wisdom of the law should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the
imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into
prior to the effectivity of the law would violate the constitutional provision that "No law impairing
the obligation of contracts shall be passed." It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of
the State. For not only are existing laws read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read into contracts
as a basic postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to secure the
peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the exercise of the
State's power of taxation save only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No. 115852, and we do not understand it
to make this claim. Rather, its position, as discussed above, is that the removal of its tax
exemption cannot be made by a general, but only by a specific, law.
The substantive issues raised in some of the cases are presented in abstract, hypothetical form
because of the lack of a concrete record. We accept that this Court does not only adjudicate
private cases; that public actions by "non-Hohfeldian" 48or ideological plaintiffs are now
cognizable provided they meet the standing requirement of the Constitution; that under Art. VIII,
1, 2 the Court has a "special function" of vindicating constitutional rights. Nonetheless the
feeling cannot be escaped that we do not have before us in these cases a fully developed
factual record that alone can impart to our adjudication the impact of actuality 49 to insure that
decision-making is informed and well grounded. Needless to say, we do not have power to
render advisory opinions or even jurisdiction over petitions for declaratory judgment. In effect we
are being asked to do what the Conference Committee is precisely accused of having done in
these cases to sit as a third legislative chamber to review legislation.
P a g e 37 | 122
We are told, however, that the power of judicial review is not so much power as it is duty
imposed on this Court by the Constitution and that we would be remiss in the performance of
that duty if we decline to look behind the barriers set by the principle of separation of powers.
Art. VIII, 1, 2 is cited in support of this view:
Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not 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.
To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in
1803, to justify the assertion of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial department to say what the law is. Those
who apply the rule to particular cases must of necessity expound and interpret that rule. If two
laws conflict with each other, the courts must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:
And when the judiciary mediates to allocate constitutional boundaries, it does not assert any
superiority over the other departments; it does not in reality nullify or invalidate an act of the
legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution
to determine conflicting claims of authority under the Constitution and to establish for the parties
in an actual controversy the rights which that instrument secures and guarantees to them. 51
This conception of the judicial power has been affirmed in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in
what is essentially a case that at best is not ripe for adjudication. That duty must still be
performed in the context of a concrete case or controversy, as Art. VIII, 5(2) clearly defines
our jurisdiction in terms of "cases," and nothing but "cases." That the other departments of the
government may have committed a grave abuse of discretion is not an independent ground for
exercising our power. Disregard of the essential limits imposed by the case and controversy
requirement can in the long run only result in undermining our authority as a court of law. For,
as judges, what we are called upon to render is judgment according to law, not according to
what may appear to be the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic
Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases
before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied with by Congress
in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes beyond
those prescribed by the Constitution have been observed is precluded by the principle of
separation of powers;
P a g e 38 | 122
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with
the free exercise of religion, nor deny to any of the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law is
regressive, oppressive and confiscatory and that it violates vested rights protected under the
Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ
of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
P a g e 39 | 122
Mactan Intl Airport vs. Lapu-lapu City, G.R. No. 181756, Case Digest
Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by Congress under
Republic Act No. 6958. Upon its creation, petitioner enjoyed exemption from realty taxes
imposed by the National Government or any of its political subdivision. However, upon the
effectivity of the LGC the Supreme Court rendered a decision that the petitioner is no longer
exempt from realty estate taxes.
Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport which included the airfield, runway, taxi way and the
lots on which these are built. Petitioner contends that these lots, and the lots to which they are
built, are utilized solely and exclusively for public purposes and are exempt from real property
tax. Petitioner based its claim for exemption on DOJ Opinion No. 50.
Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a
petition for Prohibition, TRO, and a writ of preliminary injunction with RTC Lapulapu which
sought to enjoin respondent City from issuing the warrant of levy against petitioners properties
from selling them at public auction for delinquency in realty tax obligations.
Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax,
an additional tax for the SEF, and penalty interest from petitioner.
RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.
(fait accompli)
RULING OF THE CA: Court of Appeals held that petitioners airport terminal building, airfield,
runway, taxiway, and the lots on which they are situated are not exempt from real estate tax
reasoning as follows: Under the Local Government Code (LGC for brevity), enacted pursuant to
the constitutional mandate of local autonomy, all natural and juridical persons, including
government-owned or controlled corporations (GOCCs), instrumentalities and agencies, are no
longer exempt from local taxes even if previously granted an exemption. The only exemptions
from local taxes are those specifically provided under the Code itself, or those enacted through
subsequent legislation.
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on
which they are situatedNOT EXEMPT from the real estate tax imposed by the
respondent City of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the additional levy for
the Special Education Fund and the penalty interest as VALID and LEGAL. However,
pursuant to Section 255 of the Local Government Code, respondent city can only collect
an interest of 2% per month on the unpaid tax which total interest shall, in no case,
exceed thirty-six (36) months;
P a g e 40 | 122
We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture
and purchase of the subject property by the respondent City of Lapu-Lapu asNULL and VOID.
However, petitioner MCIAAs property is encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of the Local Government Code.
RULING OF THE SUPREME COURT:
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.
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.
1. Petitioners properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which
they are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the additional tax for the special
education fund and the penalty interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioners properties, except the
assessment covering the portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioners properties and the
eventual forfeiture and purchase of the said properties by respondent City of
Lapu-Lapu. We likewise declare VOID the corresponding Certificates of Sale of
Delinquent Property issued to respondent City of Lapu-Lapu.
Thirty-First Infantry Post Exchange vs. Posadas [G.R. No. 33403, September 4, 1930]
Facts: Thirty-first Infantry Post Exchange is an agency within the United States Army, under
the control of the officers of the Army. The defendant, Juan Posadas, jr., is the duly qualified
and acting Collector of Internal Revenue of the Philippine islands, with office and residence
in the City of Manila, P. I. The said plaintiff Exchange is designed for the accommodation,
P a g e 41 | 122
convenience, and assistance of the personnel of the Army. All of the goods sold to and
purchased by the said plaintiff Exchange are intended for resale to and are in fact resold, as
they have been in the past, to the officers, soldiers and the civilian employees of the Army,
and their families. The goods sold to and purchased by the said plaintiff Exchange have
consisted and do consist largely of sundry articles for personal use, such as soaps, shaving
materials, and other toilet articles, and other goods generally found in a well-stocked general
store. Such purchases and resales, though fully authorized by law and the Army
Regulations, are not specifically required by statutory enactment. The net proceeds derived
from all such resales do not accrue to the general funds of the United States, that is, they
are not deposited in the Treasury of the United States, but are used for the betterment of the
condition of the enlisted personnel of the Army, to the end that thereby the morale and
efficiency of the armed forces of the United States may be improved and increased.
In the course of its duly authorized business transactions, the said plaintiff Exchange, under
the direction of the said plaintiff David L. Hardee, as Exchange Officer, and his
predecessors in that office, has, during the period of several years last past, made many
purchases of various and divers commodities, goods, wares, and merchandise
from various and divers merchants in the Philippine Islands.
Following many and divers of the aforesaid purchases by the said plaintiff Exchange, the
defendant, Juan Posadas, Jr., Collector of Internal Revenue of the Philippine Islands, and
his predecessors in that office, persists in demanding and collecting such taxes and at the
said rates on the sales of commodities, goods, wares, and merchandise which are being
effected by merchants in the Philippine Islands to the plaintiff Exchange.
Issue: Whether or not 31st Infantry Post Exchange is exempt from taxation for merchants
who make sales to the Post Exchange
Held: NO. What is known as the sales tax is in force in the Philippines. A percentage tax of
1 1/2 per centum is collected on merchants' sales. Philippine law as thus enacted and
expressly confirmed by the Congress, makes particular mention of the persons exempt from
this tax, without, however, including in the enumeration commercial transactions with Army
Post Exchanges. On the other hand, our general law provides express exemptions from the
other taxes for the United States and its agencies. Taxes have been collected from
P a g e 42 | 122
merchants who make sales to Army Post Exchanges since 1904. (Act No. 1189, sec. 139.)
Similar taxes are paid by those who sell merchandise to the Philippine Government through
the Bureau of Supply, and we likewise assume, by those who do business with the United
States Army and Navy in the Philippines. Only in the case at bar has formal legal protest
been made.
While "post exchanges" and "ship's stores" are institutions within the Army and Navy
of the United States, and are recognized by Acts of Congress, and are under the control of
the Army and Navy, and are organized for the convenience and assistance of the soldiers
and sailors, we are not inclined to believe that goods sold to the soldiers and sailors of the
Army and Navy, even though they be sold through said exchanges by the intervention of
officers of the Army and Navy, are goods sold directly to the United States Army or Navy for
actual use or issue by the Army or Navy. They are goods sold for the use and benefit of the
post exchanges, etc., and not for the actual use or issue by the Army or Navy.
The laws to be applied are, in effect, Acts of the Congress of the United States, and so form
a part of Philippine Organic Law. (Mitsui Bussan Kaisha vs. Manila E. R. R. & L. Co. [1919],
39 Phil., 624.) We do not wish to be guilty of overstating the proper principle, but it would
seem that since no law of the Congress forbids the taxation of merchants who deal with
Army Post Exchanges, and since the Congress has legalized the applicable law, and in
doing so has granted no immunity from taxation to merchants who deal with Army Post
Exchanges, the Congress has permitted such transactions with Army Post Exchanges, on
the assumption that Post Exchanges areagencies of the United States, to be taxed by the
Philippine Government. It must be understood, however, that the waiver must be clear, and
that every well grounded doubt should be resolved in favor of the exemption.
Only those agencies through which the Federal Government immediately and
directly exercises its sovereign powers are immune from the taxing power of the states. The
reason upon which the rule rests must be the guiding principle to control its operation. The
limitations upon the taxing power of the state must receive a practical construction which
does not seriously impair the taxing power of the Government imposing the tax. The effect
of the tax upon the functions of the Government and the nature of the governmental agency
determine finally the extent of the exemption
P a g e 43 | 122
Placing some emphasis on the point of long acquiescence in the imposition of the sales tax
on vendors of merchandise to Army Post Exchanges; on the point that the Congress of the
United States has virtually sanctioned such a sales tax by confirming Philippine revenue
laws without reservation; and on the point that a kind of cooperative store in the Army is akin
to a private business enterprisewhich is not withdrawn from taxation, we desire with more
emphasis to indicate the lack of standing of the plaintiffs to contest the tax. On still broader
grounds, we would consider the effects of the sales tax upon the United States Army, and
the nature of an Army Post Exchange. The tax laid upon Philippine merchants who sell to
Army Post Exchanges does not interfere with the supremacy of the United States
Government, or with the operations of its instrumentality, the United States Army, to such an
extent or in such a manner as to render the tax illegal. The tax does not deprive the Army of
the power to serve the Government as it was intended to serve it, or hinder the efficient
exercise of its power.
P a g e 44 | 122
G.R. No. 33403 September 4, 1930
THIRTY-FIRST INFANTRY POST EXCHANGE and FIRST LIEUTENANT DAVID L.

HARDEE, THIRTY-FIRST INFANTRY, UNITED STATES ARMY, plaintiffs,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, Philippine Islands, defendant.
MALCOLM, J.:
The question involved in these original proceedings of prohibition is whether a tax may be
levied by the Government of the Philippine Islands on sales made by merchants to Post
Exchanges of the United States Army in the Philippines. The point of jurisdiction of this court
has not been raised by the Attorney-General in representation of the defendant, and we do
not propose to be supercritical in this respect.
The parties have submitted the case on the following agreed statement of facts:
1. The plaintiff, Thirty-first Infantry Post Exchange, is now and for all the times
material to this suit has been constituted as a post exchange in accordance with the
Army Regulations (of which the court may take judicial notice) and the laws of the
United States, with its place of business in the Cuartel de Espaa in the City of
Manila, P. I. It is an agency within the United States Army, under the control of the
officers of the Army. It is recognized and authorized in general terms by the
Congress of the United States in various enactments. First Lieutenant David L.
Hardee, Thirty-first Infantry, whose residence is in the City of Manila, P. I., is the duly
appointed and acting Exchange Officer of said exchange, and is charged with the
immediate conduct and management of the business of said plaintiff Exchange. The
defendant, Juan Posadas, jr., is the duly qualified and acting Collector of Internal
Revenue of the Philippine islands, with office and residence in the City of Manila, P.
I.
2. The said plaintiff Exchange is designed for the accommodation, convenience, and
assistance of the personnel of the Army. All of the goods sold to and purchased by
the said plaintiff Exchange are intended for resale to and are in fact resold, as they
have been in the past, to the officers, soldiers and the civilian employees of the
Army, and their families. The goods sold to and purchased by the said plaintiff
Exchange have consisted and do consist largely of sundry articles for personal use,
such as soaps, shaving materials, and other toilet articles, and other goods generally
found in a well-stocked general store. Such purchases and resales, though fully
authorized by law and the Army Regulations, are not specifically required by
statutory enactment. The net proceeds derived from all such resales do not accrue to
the general funds of the United States, that is, they are not deposited in the Treasury
of the United States, but are used for the betterment of the condition of the enlisted
personnel of the Army, to the end that thereby the morale and efficiency of the armed
forces of the United States may be improved and increased.
3. In the course of its duly authorized business transactions, the said plaintiff
Exchange, under the direction of the said plaintiff David L. Hardee, as Exchange
Officer, and his predecessors in that office, has, during the period of several years
last past, made many purchases of various and divers commodities, goods, wares,
P a g e 45 | 122
and merchandise from various and divers merchants in the Philippine Islands, and is
continuing to do so, and like purchases by the said plaintiff Exchange from
merchants in the Philippine Islands are intended and contemplated as necessary in
the conduct of its duly authorized business.
4. Following many and divers of the aforesaid purchases by the said plaintiff
Exchange, the defendant, Juan Posadas, Jr., Collector of Internal Revenue of the
Philippine Islands, and his predecessors in that office, have collected from the
merchants who made the sales of the commodities, goods, wares, and merchandise
to the plaintiff Exchange, taxes at the rate of one and one-half per centum on the
gross value in money of the commodities, goods, wares, and merchandise, sold by
them to the plaintiff Exchange, and based on the actual prices at which the sales
were made, and the average amount of money per annum for several years last past
demanded and collected by the defendant and his predecessors in office as such
taxes on the aforesaid sales to the plaintiff Exchange has been several thousand
pesos, averaging more than two thousand pesos per annum since January 1, 1927.
5. The defendant persists in demanding and collecting such taxes and at the said
rates on the sales of commodities, goods, wares, and merchandise which are being
effected by merchants in the Philippine Islands to the plaintiff Exchange. He intends
and expects to continue to demand and collect such taxes and at said rates on sales
of commodities, goods, wares, and merchandise sold by merchants in the Philippine
Islands to plaintiff Exchange, and all other Army post exchanges in the Philippine
Islands, unless certain statutes of the Philippine Islands and of the United States in
respect thereof shall be modified or repealed, or he be restrained and prohibited
therefrom by judgment of the proper tribunal. The statutes upon which the defendant
relies as his authority for such demand and collection of taxes, particularly, are
section 1459 of Act. No. 2711, and Act No. 3243 of the public laws enacted by the
Philippine Legislature; also the Act of June 4, 1918 (40 Stat., 597) and the Act of
March 3, 1927 (44 Stat., 1390), enacted by the Congress of the United States,
ratifying the said two enactments of the Philippine Legislature.
6. The effect of the demand and collection of taxes by the defendant on the sales of
such commodities, goods, wares and merchandise thus sold to and bought by the
plaintiff Exchange has been, is, and in the future will be unless the defendant be
commanded to desist and refrain from such demand and collection, to increase the
cost thereof to the plaintiff Exchange, by at least the amounts of such taxes
demanded and collected as aforesaid in each instance.
What is known as the sales tax is in force in the Philippines. A percentage tax of 1 1/2 per
centum is collected on merchants' sales. (Administrative Code, sec. 1459; Act No. 3243.)
The taxes imposed by the Philippine Legislature in said section 1459 and in Act No. 3243
have by Acts of Congress been "legalized and ratified, and the collection of all such taxes . .
. legalized, ratified, and confirmed to all intents and purposes as if the same had by prior Act
of Congress been specifically authorized and directed." (Acts of Congress of June 4, 1918,
and March 3, 1927, 40 Stat. L., 597, and 44 Stat. L., 1390.) Philippine law as thus enacted
and expressly confirmed by the Congress, makes particular mention of the persons exempt
from this tax, without, however, including in the enumeration commercial transactions with
Army Post Exchanges. On the other hand, our general law provides express exemptions
P a g e 46 | 122
from the other taxes for the United States and its agencies. (Administrative Code, sec. 344,
1418, 1439, 1449 [s], 1450, 1474, and 1478.)
Taxes have been collected from merchants who make sales to Army Post Exchanges since
1904. (Act No. 1189, sec. 139.) Similar taxes are paid by those who sell merchandise to the
Philippine Government through the Bureau of Supply (Ruling, Bureau of Internal Revenue,
March 5, 1925, and prior precedents), and we likewise assume, by those who do business
with the United States Army and Navy in the Philippines. Only in the case at bar has formal
legal protest been made.
In 1916, the case of Walter E. Olsen & Co. vs. Rafferty ([1919], 39 Phil., 464), pertaining to
the payment of specific taxes by Army Post Exchanges, arose. The revenue laws at that
time, as they do now, provided that "no specific tax shall be collected on any articles sold
and delivered directly to the United States Army or Navy for actual use or issue by the Army
or Navy, and any taxes which have been paid on articles so sold and delivered for such use
or issue shall be refunded upon such sale and delivery, . . . ." Although in this case passing
reference was made in the court below and in appellant's brief to some of the larger
constitutional aspects, the Supreme Court confined its decision to determining whether or
not merchandise, which is generally subject to the payment of internal revenue tax, is
relieved from said tax when it is sold to the Army or Navy of the United States for resale to
individuals by means or through the post exchanges or ship's stores. The court, in resolving
against the contention of the plaintiff merchant, said:
While "post exchanges" and "ship's stores" are institutions within the Army and Navy
of the United States, and are recognized by Acts of Congress, and are under the
control of the Army and Navy, and are organized for the convenience and assistance
of the soldiers and sailors, we are not inclined to believe that goods sold to the
soldiers and sailors of the Army and Navy, even though they be sold through said
exchanges by the intervention of officers of the Army and Navy, are goods sold
directly to the United States Army or Navy for actual use or issue by the Army or
Navy. They are goods sold for the use and benefit of the post exchanges, etc., and
not for the actual use or issue by the Army or Navy. We do not believe that the
exemption provided for in the above-quoted section applies to goods sold to the
United States Army and Navy to be resold to the individuals of said organization. The
money used for the purchase of merchandise sold through the post exchanges, etc.,
is not supplied by, nor for, the United States Army and Navy. Neither does
the money received in the resale of such merchandise through the post exchanges,
etc., become a part of the general funds of the Army and Navy. In our opinion, the
sale of merchandise through the post exchanges to the individuals of the United
States Army and Navy are not goods sold and delivered directly to the United States
Army or Navy for the actual use or issue by the Army or Navy and are therefore, not
exempt from the payment of the internal revenue tax imposed by the law. (Emphasis
those of court.)
The laws to be applied are, in effect, Acts of the Congress of the United States, and so form
a part of Philippine Organic Law. (Mitsui Bussan Kaisha vs. Manila E. R. R. & L. Co. [1919],
39 Phil., 624.) We do not wish to be guilty of overstating the proper principle, but it would
seem that since no law of the Congress forbids the taxation of merchants who deal with
Army Post Exchanges, and since the Congress has legalized the applicable law, and in
doing so has granted no immunity from taxation to merchants who deal with Army Post
P a g e 47 | 122
Exchanges, the Congress has permitted such transactions with Army Post Exchanges, on
the assumption that Post Exchanges are agencies of the United States, to be taxed by the
Philippine Government. It must be understood, however, that the waiver must be clear, and
that every well grounded doubt should be resolved in favor of the exemption.
(Austin vs. Aldermen of Boston [1869], 7 Wall., 694.)
As to the facts, the nature of Army Post Exchanges is explained in the stipulation of facts
and in the case of Walter E. Olsen & Co. vs. Rafferty, supra. In addition, it might be
advisable to state that the construction, equipment, and maintenance of post exchange
buildings are provided for by appropriation Acts of the Congress. The Court of Claims in
holding an officer in charge of a post exchange not a retail dealer in liquors, said that post
exchanges "though conducted without financial liability to the Government, are, in their
creation and management, governmental agencies . . . ." (Dugan vs. U. S. [1899], 34 Court
of Claims, 458.) The Judge Advocate General has said that "a post exchange is a voluntary
unincorporated cooperative association of Army organizations, a kind of cooperative store,
in which all share in the benefits and all assume a position analogous to that of partners."
(Opinion, J. A. G., June 4, 1918.) Again, although we do not desire to overstate the matter,
the rule is that whenever a state engages in a business which is of a private nature, that
business is not withdrawn from the taxing power of the Nation, or, conversely stated,
whenever the National Government permits an organization under its control to engage in a
business which is of a private nature, that business is not withdrawn from the taxing power
of the state. (South Carolina vs. U. S. [1905], 199 U. S., 437.)
The plaintiffs in this case are the Thirty-first Infantry Post Exchange and the Exchange
Officer of that Exchange. But the stipulation of facts concedes that it is the merchants who
effect the sales to the Post Exchange who pay the tax. And it is the officers, soldiers, and
civilian employees and their families who are benefited by the post exchange to whom the
tax is ultimately shifted. Justice Holmes of the Supreme Court of the United States had quite
similar facts in mind when in his dissenting opinion in the case of Panhandle Oil
Co. vs. Knox ([1928], 277 U. S., 218), he said: "If the plaintiff in error had paid the tax and
had added it to the price, the Government would have had nothing to say." Here, it must
again be stated that it is not the vendors of merchandise who are protesting, but it is the
Army Post Exchange which is the complainant.
The foregoing might be sufficient to dispose of the case. However, we would not like to be
charged with dodging the more vital issues, and so will take under view the larger
constitutional aspects of the question.
Chief Justice Marshall was originally responsible for the rule that without Congressional
consent, no Federal agency or instrumentality can be taxed by state authority.
(McCulloch vs. State of Maryland [1819], 4 Wheat., 316; Jaybird Mining Co. vs. Weir [1926],
271 U. S., 609.) Naturally, in the course of time, attempts have been made to extend the
exemption from state taxation, established by the case of McCulloch vs. State of
Maryland, supra, beyond its terms. Only those agencies through which the Federal
Government immediately and directly exercises its sovereign powers are immune from the
taxing power of the states. The reason upon which the rule rests must be the guiding
principle to control its operation. The limitations upon the taxing power of the state must
receive a practical construction which does not seriously impair the taxing power of the
Government imposing the tax. The effect of the tax upon the functions of the Government
and the nature of the governmental agency determine finally the extent of the exemption.
P a g e 48 | 122
(Metcalf vs. Mitchell [1926], 269 U. S., 514; Thomson vs.Union Pacific Railroad Co. [1869], 9
Wall., 579.)
It would be impracticable to point out all of the limitations to the general rule, but a few may
be noted. Thus in the well considered decision in Union Pacific Railroad Co. vs. Peniston
([1873], 18 Wall., 5), it was said: "It cannot be that a state tax which remotely affects the
efficient exercise of a federal power is for that reason alone inhibited by the Constitution."
Again, with more direct application, although contained in a dissenting opinion, Justice
Thompson, in Weston vs. City Council of Charleston ([1829], 2 Pet., 449), said: "The
unqualified proposition that a State cannot directly or indirectly tax any instrument or means
employed by the general government in the execution of its power, cannot be literally
sustained. Congress has power to raise armies, such armies are made up of officers and
soldiers, and are instruments employed by the government in executing its powers; and
although the army, as such, cannot be taxed, yet it will not be claimed that all such officers
and soldiers are exempt from State taxation." The United States Supreme Court has held
that the use of machinery and boats in the harbor of San Juan, Porto Rico, in the
performance of a dredging contract with the United States, does not exempt them from
location taxation. (Gromer vs. Standard Dredging Co. [1911], 224 U. S., 362.)
It has been contended during the course of our deliberations that, all other questions to one
side, the case is governed by the comparatively recent decision of the Supreme Court of the
United States in the case of Panhandle Oil Co. vs. Knox, supra. There it was held by a
closely divided court that (1) A state tax imposed on dealers in gasoline for the privilege of
selling, and measured at so many cents per gallon of gasoline sold, is void under the
Federal Constitution as applied to sales to instrumentalities of the United States, such as the
Coast Guard Fleet and a Veterans' Hospital; (2) that the substance and legal effect is to tax
the sale, and thus burden and tax the United States, exacting tribute on its transactions for
the support of the State; and (3) that such an exaction infringes the right of the dealer to
have the constitutional independence of the United States in respect of such purchases
remain untrammeled. With all due deference to the pronouncements of the higher court
which we are bound to abide by, we are yet convinced that the cited case is not controlling.
We will point out some of the differences between the two cases. There the plaintiff in error
was a private oil company which had been sued by the state to recover taxes; here the
plaintiffs are not the private individuals who paid the taxes but are an Army Post Exchange
and its Exchange Officer. There the law in question was an Act of the State Legislature;
here the laws in question are Acts of the Philippine Legislature which have been ratified by
the Congress of the United States and raised to the level of organic laws. There the right of
the United States to make purchases was derived from the United States' Constitution; here
the right of the Army Post Exchange to make purchases is derived from Army regulations
and Army practice. There the sale was made to instrumentalities authorized by the
constitution, which consumed the merchandise; here the sales were made to Army Post
Exchanges not so constitutionally authorized, which merely acted as intermediaries. There it
must be taken for granted that the Coast Guard Fleet and the Veterans' Hospital were
constructed and operated by Government funds; here, except that buildings are provided by
the United States Government for the Army Post Exchanges, the latter are not so
constructed and operated.
The majority decision in the Panhandle Oil case carries the Marshallian theory of national
supremacy just about to its extreme limits. We do not think that the present case falls within
those limits. When a merchant sells a case of hair pins to an Army post exchange, and the
P a g e 49 | 122
wife of an Army officer purchases a package of those hair pins, and when a merchant sells a
quantity of tobacco to an Army post exchange, and a soldier provides himself with his
tobacco; and when the merchants who perfect the sales make good the required taxes, "the
exertion of national power" is not so burdened or interfered with, and "the exactions
demanded" do not so infringe the constitutional independence of the United States as to
exempt the sales from taxation, which every one else, including the merchant who sells to
the Philippine Government, must pay. That is our understanding of the authorities and of the
law.
There can exist no measure of doubt that the basic rule, together with its qualifications,
applies not only to the States of the American Union, but also to unincorporated territories
with the status of the Government of the Philippine Islands.
Placing some emphasis on the point of long acquiescence in the imposition of the sales tax
on vendors of merchandise to Army Post Exchanges; on the point that the Congress of the
United States has virtually sanctioned such a sales tax by confirming Philippine revenue
laws without reservation; and on the point that a kind of cooperative store in the Army is akin
to a private business enterprise which is not withdrawn from taxation, we desire with more
emphasis to indicate the lack of standing of the plaintiffs to contest the tax. On still broader
grounds, we would consider the effects of the sales tax upon the United States Army, and
the nature of an Army Post Exchange. The tax laid upon Philippine merchants who sell to
Army Post Exchanges does not interfere with the supremacy of the United States
Government, or with the operations of its instrumentality, the United States Army, to such an
extent or in such a manner as to render the tax illegal. The tax does not deprive the Army of
the power to serve the Government as it was intended to serve it, or hinder the efficient
exercise of its power.
We rule that an Army Post Exchange, although an agency within the United States Army,
cannot secure exemption from taxation for merchants who make sales to the Post
Exchange. The question must, therefore, be answered in the affirmative. The plaintiffs have
not made out a case.
Wherefore, the complaint will be dismissed, with costs.
P a g e 50 | 122
William Reagan is a US citizen assigned at Clark Air Base to help provide technical assistance
to the US Air Force (USAF). In April 1960 Reagan imported a 1960 Cadillac car valued at
$6,443.83. Two months later, he got permission to sell the same car provided that he would sell
the car to a US citizen or a member of the USAF. He sold it to Willie Johnson, Jr. for $6,600.00
as shown by a Bill of Sale. The sale took place within Clark Air Base. As a result of this
transaction, the Commissioner of Internal Revenue calculated the net taxable income of Reagan
to be at P17,912.34 and that his income tax would be P2,797.00. Reagan paid the assessed tax
but at the same time he sought for a refund because he claims that he is exempt. Reagan
claims that the sale took place in foreign soil since Clark Air Base, in legal contemplation is a
base outside the Philippines. Reagan also cited that under the Military Bases Agreement, he, by
nature of his employment, is exempt from Philippine taxation.
ISSUE: Is the sale considered done in a foreign soil not subject to Philippine income tax?
HELD: No. The Philippines is independent and sovereign, its authority may be exercised
over its entire domain. There is no portion thereof that is beyond its power. Within its limits,
its decrees are supreme, its commands paramount. Its laws govern therein, and everyone to
whom it applies must submit to its terms. That is the extent of its jurisdiction, both territorial
and personal. On the other hand, there is nothing in the Military Bases Agreement that lends
support to Reagans assertion. The Base has not become foreign soil or territory. This
countrys jurisdictional rights therein, certainly not excluding the power to tax, have been
preserved, the Philippines merely consents that the US exercise jurisdiction in certain cases
this is just a matter of comity, courtesy and expediency. It is likewise noted that he indeed
is employed by the USAF and his income is derived from US source but the income derived
from the sale is not of US source hence taxable.
P a g e 51 | 122
G.R. No. L-26379 December 27, 1969

WILLIAM C. REAGAN, ETC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Quasha, Asperilla, Blanco, Zafra and Tayag for petitioner.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete, Solicitor Lolita O. Gal-lang and Special Attorney Gamaliel H. Mantolino for
respondent.
FERNANDO, J.:
A question novel in character, the answer to which has far-reaching implications, is raised
by petitioner William C. Reagan, at one time a civilian employee of an American corporation
providing technical assistance to the United States Air Force in the Philippines. He would
dispute the payment of the income tax assessed on him by respondent Commissioner of
Internal Revenue on an amount realized by him on a sale of his automobile to a member of
the United States Marine Corps, the transaction having taken place at the Clark Field Air
Base at Pampanga. It is his contention, seriously and earnestly expressed, that in legal
contemplation the sale was made outside Philippine territory and therefore beyond our
jurisdictional power to tax.
Such a plea, far-fetched and implausible, on its face betraying no kinship with reality, he
would justify by invoking, mistakenly as will hereafter be more fully shown an observation to
that effect in a 1951 opinion, 1petitioner ignoring that such utterance was made purely as a
flourish of rhetoric and by way of emphasizing the decision reached, that the trading firm as
purchaser of army goods must respond for the sales taxes due from an importer, as the
American armed forces being exempt could not be taxed as such under the National Internal
Revenue Code.2 Such an assumption, inspired by the commendable aim to render
unavailing any attempt at tax evasion on the part of such vendee, found expression anew in
a 1962 decision,3 coupled with the reminder however, to render the truth unmistakable, that
"the areas covered by the United States Military Bases are not foreign territories both in the
political and geographical sense."
As thus clarified, it is manifest that such a view amounts at most to a legal fiction and is
moreover obiter. It certainly cannot control the resolution of the specific question that
confronts us. We declare our stand in an unequivocal manner. The sale having taken place
on what indisputably is Philippine territory, petitioner's liability for the income tax due as a
result thereof was unavoidable. As the Court of Tax Appeals reached a similar conclusion,
we sustain its decision now before us on appeal.
In the decision appealed from, the Court of Tax Appeals, after stating the nature of the case,
started the recital of facts thus: "It appears that petitioner, a citizen of the United States and
an employee of Bendix Radio, Division of Bendix Aviation Corporation, which provides
technical assistance to the United States Air Force, was assigned at Clark Air Base,
Philippines, on or about July 7, 1959 ... . Nine (9) months thereafter and before his tour of
duty expired, petitioner imported on April 22, 1960 a tax-free 1960 Cadillac car with
accessories valued at $6,443.83, including freight, insurance and other charges."4 Then
came the following: "On July 11, 1960, more than two (2) months after the 1960 Cadillac car
P a g e 52 | 122
was imported into the Philippines, petitioner requested the Base Commander, Clark Air
Base, for a permit to sell the car, which was granted provided that the sale was made to a
member of the United States Armed Forces or a citizen of the United States employed in the
U.S. military bases in the Philippines. On the same date, July 11, 1960, petitioner sold his
car for $6,600.00 to a certain Willie Johnson, Jr. (Private first class), United States Marine
Corps, Sangley Point, Cavite, Philippines, as shown by a Bill of Sale . . . executed at Clark
Air Base. On the same date, Pfc. Willie (William) Johnson, Jr. sold the car to Fred Meneses
for P32,000.00 as evidenced by a deed of sale executed in Manila."5
As a result of the transaction thus made, respondent Commissioner of Internal Revenue,
after deducting the landed cost of the car as well as the personal exemption to which
petitioner was entitled, fixed as his net taxable income arising from such transaction the
amount of P17,912.34, rendering him liable for income tax in the sum of P2,979.00. After
paying the sum, he sought a refund from respondent claiming that he was exempt, but
pending action on his request for refund, he filed the case with the Court of Tax Appeals
seeking recovery of the sum of P2,979.00 plus the legal rate of interest.
As noted in the appealed decision: "The only issue submitted for our resolution is whether or
not the said income tax of P2,979.00 was legally collected by respondent for
petitioner."6 After discussing the legal issues raised, primarily the contention that the Clark
Air Base "in legal contemplation, is a base outside the Philippines" the sale therefore having
taken place on "foreign soil", the Court of Tax Appeals found nothing objectionable in the
assessment and thereafter the payment of P2,979.00 as income tax and denied the refund
on the same. Hence, this appeal predicated on a legal theory we cannot accept. Petitioner
cannot make out a case for reversal.
1. Resort to fundamentals is unavoidable to place things in their proper perspective,
petitioner apparently feeling justified in his refusal to defer to basic postulates of
constitutional and international law, induced no doubt by the weight he would accord to the
observation made by this Court in the two opinions earlier referred to. To repeat, scant
comfort, if at all is to be derived from such an obiter dictum, one which is likewise far from
reflecting the fact as it is.
Nothing is better settled than that the Philippines being independent and sovereign, its
authority may be exercised over its entire domain. There is no portion thereof that is beyond
its power. Within its limits, its decrees are supreme, its commands paramount. Its laws
govern therein, and everyone to whom it applies must submit to its terms. That is the extent
of its jurisdiction, both territorial and personal. Necessarily, likewise, it has to be exclusive. If
it were not thus, there is a diminution of its sovereignty.
It is to be admitted that any state may, by its consent, express or implied, submit to a
restriction of its sovereign rights. There may thus be a curtailment of what otherwise is a
power plenary in character. That is the concept of sovereignty as auto-limitation, which, in
the succinct language of Jellinek, "is the property of a state-force due to which it has the
exclusive capacity of legal self-determination and self-restriction."7 A state then, if it chooses
to, may refrain from the exercise of what otherwise is illimitable competence.
Its laws may as to some persons found within its territory no longer control. Nor does the
matter end there. It is not precluded from allowing another power to participate in the
P a g e 53 | 122
exercise of jurisdictional right over certain portions of its territory. If it does so, it by no
means follows that such areas become impressed with an alien character. They retain their
status as native soil. They are still subject to its authority. Its jurisdiction may be diminished,
but it does not disappear. So it is with the bases under lease to the American armed forces
by virtue of the military bases agreement of 1947. They are not and cannot be foreign
territory.
Decisions coming from petitioner's native land, penned by jurists of repute, speak to that
effect with impressive unanimity. We start with the citation from Chief Justice Marshall,
announced in the leading case of Schooner Exchange v. M'Faddon,8 an 1812 decision: "The
jurisdiction of the nation within its own territory is necessarily exclusive and absolute. It is
susceptible of no limitation not imposed by itself. Any restriction upon it, deriving validity
from an external source, would imply a diminution of its sovereignty to the extent of the
restriction, and an investment of that sovereignty to the same extent in that power which
could impose such restriction." After which came this paragraph: "All exceptions, therefore,
to the full and complete power of a nation within its own territories, must be traced up to the
consent of the nation itself. They can flow from no other legitimate source."
Chief Justice Taney, in an 1857 decision,9 affirmed the fundamental principle of everyone
within the territorial domain of a state being subject to its commands: "For undoubtedly
every person who is found within the limits of a government, whether the temporary
purposes or as a resident, is bound by its laws." It is no exaggeration then for Justice
Brewer to stress that the United States government "is one having jurisdiction over every
foot of soil within its territory, and acting directly upon each [individual found therein]; . . ." 10
Not too long ago, there was a reiteration of such a view, this time from the pen of Justice
Van Devanter. Thus: "It now is settled in the United States and recognized elsewhere that
the territory subject to its jurisdiction includes the land areas under its dominion and control
the ports, harbors, bays, and other in closed arms of the sea along its coast, and a marginal
belt of the sea extending from the coast line outward a marine league, or 3 geographic
miles."11 He could cite moreover, in addition to many American decisions, such eminent
treatise-writers as Kent, Moore, Hyde, Wilson, Westlake, Wheaton and Oppenheim.
As a matter of fact, the eminent commentator Hyde in his three-volume work on International
Law, as interpreted and applied by the United States, made clear that not even the embassy
premises of a foreign power are to be considered outside the territorial domain of the host
state. Thus: "The ground occupied by an embassy is not in fact the territory of the foreign
State to which the premises belong through possession or ownership. The lawfulness or
unlawfulness of acts there committed is determined by the territorial sovereign. If an attache
commits an offense within the precincts of an embassy, his immunity from prosecution is not
because he has not violated the local law, but rather for the reason that the individual is
exempt from prosecution. If a person not so exempt, or whose immunity is waived, similarly
commits a crime therein, the territorial sovereign, if it secures custody of the offender, may
subject him to prosecution, even though its criminal code normally does not contemplate the
punishment of one who commits an offense outside of the national domain. It is not
believed, therefore, that an ambassador himself possesses the right to exercise jurisdiction,
contrary to the will of the State of his sojourn, even within his embassy with respect to acts
there committed. Nor is there apparent at the present time any tendency on the part of
States to acquiesce in his exercise of it."12
P a g e 54 | 122
2. In the light of the above, the first and crucial error imputed to the Court of Tax Appeals to
the effect that it should have held that the Clark Air Force is foreign soil or territory for
purposes of income tax legislation is clearly without support in law. As thus correctly viewed,
petitioner's hope for the reversal of the decision completely fades away. There is nothing in
the Military Bases Agreement that lends support to such an assertion. It has not become
foreign soil or territory. This country's jurisdictional rights therein, certainly not excluding the
power to tax, have been preserved. As to certain tax matters, an appropriate exemption was
provided for.
Petitioner could not have been unaware that to maintain the contrary would be to defy reality
and would be an affront to the law. While his first assigned error is thus worded, he would
seek to impart plausibility to his claim by the ostensible invocation of the exemption clause
in the Agreement by virtue of which a "national of the United States serving in or employed
in the Philippines in connection with the construction, maintenance, operation or defense of
the bases and residing in the Philippines only by reason of such employment" is not to be
taxed on his income unless "derived from Philippine source or sources other than the United
States sources."13 The reliance, to repeat, is more apparent than real for as noted at the
outset of this opinion, petitioner places more faith not on the language of the provision on
exemption but on a sentiment given expression in a 1951 opinion of this Court, which would
be made to yield such an unwarranted interpretation at war with the controlling constitutional
and international law principles. At any rate, even if such a contention were more adequately
pressed and insisted upon, it is on its face devoid of merit as the source clearly was
Philippine.
In Saura Import and Export Co. v. Meer,14 the case above referred to, this Court affirmed a
decision rendered about seven months previously,15 holding liable as an importer, within the
contemplation of the National Internal Revenue Code provision, the trading firm that
purchased army goods from a United States government agency in the Philippines. It is
easily understandable why. If it were not thus, tax evasion would have been facilitated. The
United States forces that brought in such equipment later disposed of as surplus, when no
longer needed for military purposes, was beyond the reach of our tax statutes.
Justice Tuason, who spoke for the Court, adhered to such a rationale, quoting extensively
from the earlier opinion. He could have stopped there. He chose not to do so. The
transaction having occurred in 1946, not so long after the liberation of the Philippines, he
proceeded to discuss the role of the American military contingent in the Philippines as a
belligerent occupant. In the course of such a dissertion, drawing on his well-known gift for
rhetoric and cognizant that he was making an as if statement, he did say: "While in army
bases or installations within the Philippines those goods were in contemplation of law on
foreign soil."
It is thus evident that the first, and thereafter the controlling, decision as to the liability for
sales taxes as an importer by the purchaser, could have been reached without any need for
such expression as that given utterance by Justice Tuason. Its value then as an
authoritative doctrine cannot be as much as petitioner would mistakenly attach to it. It was
clearly obiter not being necessary for the resolution of the issue before this Court. 16 It was
an opinion "uttered by the way."17 It could not then be controlling on the question before us
now, the liability of the petitioner for income tax which, as announced at the opening of this
opinion, is squarely raised for the first time.18
P a g e 55 | 122
On this point, Chief Justice Marshall could again be listened to with profit. Thus: "It is a
maxim, not to be disregarded, that general expressions, in every opinion, are to be taken in
connection with the case in which those expressions are used. If they go beyond the case,
they may be respected, but ought not to control the judgment in a subsequent suit when the
very point is presented for decision."19
Nor did the fact that such utterance of Justice Tuason was cited in Co Po v. Collector of
Internal Revenue,20 a 1962 decision relied upon by petitioner, put a different complexion on
the matter. Again, it was by way of pure embellishment, there being no need to repeat it, to
reach the conclusion that it was the purchaser of army goods, this time from military bases,
that must respond for the advance sales taxes as importer. Again, the purpose that
animated the reiteration of such a view was clearly to emphasize that through the
employment of such a fiction, tax evasion is precluded. What is more, how far divorced from
the truth was such statement was emphasized by Justice Barrera, who penned the Co Po
opinion, thus: "It is true that the areas covered by the United States Military Bases are not
foreign territories both in the political and geographical sense."21
Justice Tuason moreover made explicit that rather than corresponding with reality, what was
said by him was in the way of a legal fiction. Note his stress on "in contemplation of law." To
lend further support to a conclusion already announced, being at that a confirmation of what
had been arrived at in the earlier case, distinguished by its sound appreciation of the issue
then before this Court and to preclude any tax evasion, an observation certainly not to be
taken literally was thus given utterance.
This is not to say that it should have been ignored altogether afterwards. It could be utilized
again, as it undoubtedly was, especially so for the purpose intended, namely to stigmatize
as without support in law any attempt on the part of a taxpayer to escape an obligation
incumbent upon him. So it was quoted with that end in view in the Co Po case. It certainly
does not justify any effort to render futile the collection of a tax legally due, as here. That
was farthest from the thought of Justice Tuason.
What is more, the statement on its face is, to repeat, a legal fiction. This is not to discount
the uses of a fictio juris in the science of the law. It was Cardozo who pointed out its value
as a device "to advance the ends of justice" although at times it could be "clumsy" and even
"offensive".22 Certainly, then, while far from objectionable as thus enunciated, this
observation of Justice Tuason could be misused or misconstrued in a clumsy manner to
reach an offensive result. To repeat, properly used, a legal fiction could be relied upon by
the law, as Frankfurter noted, in the pursuit of legitimate ends.23 Petitioner then would be
well-advised to take to heart such counsel of care and circumspection before invoking not a
legal fiction that would avoid a mockery of the law by avoiding tax evasion but what clearly is
a misinterpretation thereof, leading to results that would have shocked its originator.
The conclusion is thus irresistible that the crucial error assigned, the only one that calls for
discussion to the effect that for income tax purposes the Clark Air Force Base is outside
Philippine territory, is utterly without merit. So we have said earlier.
3. To impute then to the statement of Justice Tuason the meaning that petitioner would
fasten on it is, to paraphrase Frankfurter, to be guilty of succumbing to the vice of
literalness. To so conclude is, whether by design or inadvertence, to misread it. It certainly is
P a g e 56 | 122
not susceptible of the mischievous consequences now sought to be fastened on it by

petitioner.
That it would be fraught with such peril to the enforcement of our tax statutes on the military
bases under lease to the American armed forces could not have been within the
contemplation of Justice Tuason. To so attribute such a bizarre consequence is to be guilty
of a grave disservice to the memory of a great jurist. For his real and genuine sentiment on
the matter in consonance with the imperative mandate of controlling constitutional and
international law concepts was categorically set forth by him, not as an obiter but as the
rationale of the decision, in People v. Acierto24 thus: "By the [Military Bases] Agreement, it
should be noted, the Philippine Government merely consents that the United States
exercise jurisdiction in certain cases. The consent was given purely as a matter of comity,
courtesy, or expediency over the bases as part of the Philippine territory or divested itself
completely of jurisdiction over offenses committed therein."
Nor did he stop there. He did stress further the full extent of our territorial jurisdiction in
words that do not admit of doubt. Thus: "This provision is not and can not on principle or
authority be construed as a limitation upon the rights of the Philippine Government. If
anything, it is an emphatic recognition and reaffirmation of Philippine sovereignty over the
bases and of the truth that all jurisdictional rights granted to the United States and not
exercised by the latter are reserved by the Philippines for itself."25
It is in the same spirit that we approach the specific question confronting us in this litigation.
We hold, as announced at the outset, that petitioner was liable for the income tax arising
from a sale of his automobile in the Clark Field Air Base, which clearly is and cannot
otherwise be other than, within our territorial jurisdiction to tax.
4. With the mist thus lifted from the situation as it truly presents itself, there is nothing that
stands in the way of an affirmance of the Court of Tax Appeals decision. No useful purpose
would be served by discussing the other assigned errors, petitioner himself being fully aware
that if the Clark Air Force Base is to be considered, as it ought to be and as it is, Philippine
soil or territory, his claim for exemption from the income tax due was distinguished only by
its futility.
There is further satisfaction in finding ourselves unable to indulge petitioner in his plea for
reversal. We thus manifest fealty to a pronouncement made time and time again that the law
does not look with favor on tax exemptions and that he who would seek to be thus privileged
must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.26 Petitioner had not done so. Petitioner cannot do so.
WHEREFORE, the decision of the Court of Tax Appeals of May 12, 1966 denying the refund
of P2,979.00 as the income tax paid by petitioner is affirmed. With costs against petitioner.
P a g e 57 | 122
JOHN HAY V. LIM (TAX)

Issue: Whether the tax exemptions and other financial incentives granted to the Subic SEZ
under Section 12 of RA 7227 are applicable to the John Hay SEZ.
NO. It is the legislative branch which has the inherent power not only to select the
subjects of taxation but also grant exemptions. Paragraph 4, Section 28 of Article VI of the
Constitution is crystal clear: "No law granting tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress."
Hence, it is only the legislature, as limited by the provisions of the Constitution, which has
full power to exempt any person or corporation or class of property from taxation.
The Constitution may itself provide for specific tax exemptions or local governments may
pass ordinances providing for exemption from local taxes, but otherwise, it is only the
legislative branch which has the power to grant tax exemptions, its power to exempt being
as broad as its power to tax.
There is absolutely nothing in RA 7227 which can be considered a grant of tax exemption in
favor of public respondent BCDA. Rather, the beneficiaries of the tax exemptions and other
incentives in Section 12 (the only provision in RA 7227 which expressly grants tax
exemptions) are clearly the business enterprises located within the Subic SEZ.
Consequently, respondents' arguments for a liberal construction of RA 7227 in favor of tax
exemptions and incentives to business enterprises in the John Hay SEZ must necessarily
fail. As the Court, speaking through Justice Mendoza in the recent case of PLDT v. city of
Davao, has occasion to stress:
"Along with the police power and eminent domain, TAXATION is one of the three necessary
attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those
containing exemption from taxation, should be strictly construed in favor of the state. A state
cannot be stripped of this most essential power by doubtful words and of this highest
attribute of sovereignty by ambiguous language."
Necessarily, respondents' arguments, dependent as they are on a liberal construction of tax
exemptions, also fail. Public respondents' argument that tax exemptions are "inherent" in the
term "special economic zone" stands the concept on its head and cannot be accepted. The
tax exempt character of an SEZ proceeds from the statutory provisions expressly conferring
such exemptions, not vice versa. The tail does not wag the dog.
P a g e 58 | 122
[G. R. No. 119775. October 24, 2003]

JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIO FOUNDATION INC.,
CENTER FOR ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A.
BENAFIN REPRESENTED AND JOINED BY HER MOTHER MRS. ELISA BENAFIN, IZABEL
M. LUYK REPRESENTED AND JOINED BY HER MOTHER MRS. REBECCA MOLINA LUYK,
KATHERINE PE REPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G. PE,
SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS KEVAB, BETTY I. STRASSER, RUBY
C. GIRON, URSULA C. PEREZ ALIAS BA-YAY, EDILBERTO T. CLARAVALL, CARMEN
CAROMINA, LILIA G. YARANON, DIANE MONDOC, petitioners, vs. VICTOR LIM,
PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY PORO
POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD.,
ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES, respondents.
DECISION
CARPIO MORALES, J.:
By the present petition for prohibition, mandamus and declaratory relief with prayer for a
temporary restraining order (TRO) and/or writ of preliminary injunction, petitioners assail, in the
main, the constitutionality of Presidential Proclamation No. 420, Series of 1994, CREATING
AND DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN
[HAY] AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO.
7227.
Republic Act No. 7227, 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, otherwise known as the Bases
Conversion and Development Act of 1992, which was enacted on March 13, 1992, set out the
policy of the government to accelerate the sound and balanced conversion into alternative
productive uses of the former military bases under the 1947 Philippines-United States of
America Military Bases Agreement, namely, the Clark and Subic military reservations as well as
their extensions including the John Hay Station (Camp John Hay or the camp) in the City of
Baguio.[1]
As noted in its title, R.A. No. 7227 created public respondent Bases Conversion and
Development Authority[2] (BCDA), vesting it with powers pertaining to the multifarious aspects of
carrying out the ultimate objective of utilizing the base areas in accordance with the declared
government policy.
R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic SEZ)
the metes and bounds of which were to be delineated in a proclamation to be issued by the
President of the Philippines.[3]
R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and duty-free importations,
exemption of businesses therein from local and national taxes, to other hallmarks of a
liberalized financial and business climate.[4]
P a g e 59 | 122
And R.A. No. 7227 expressly gave authority to the President to create through executive
proclamation, subject to the concurrence of the local government units directly affected, other
Special Economic Zones (SEZ) in the areas covered respectively by the Clark military
reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay.[5]
On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement
with private respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group,
Inc. (ASIAWORLD), private corporations registered under the laws of the British Virgin Islands,
preparatory to the formation of a joint venture for the development of Poro Point in La Union and
Camp John Hay as premier tourist destinations and recreation centers. Four months later or on
December 16, 1993, BCDA, TUNTEX and ASIAWORD executed a Joint Venture
Agreement[6] whereby they bound themselves to put up a joint venture company known as the
Baguio International Development and Management Corporation which would lease areas
within Camp John Hay and Poro Point for the purpose of turning such places into principal
tourist and recreation spots, as originally envisioned by the parties under their Memorandum of
Agreement.
The Baguio City government meanwhile passed a number of resolutions in response to the
actions taken by BCDA as owner and administrator of Camp John Hay.
By Resolution[7] of September 29, 1993, the Sangguniang Panlungsod of Baguio City
(the sanggunian) officially asked BCDA to exclude all the barangays partly or totally located
within Camp John Hay from the reach or coverage of any plan or program for its development.
By a subsequent Resolution[8] dated January 19, 1994, the sanggunian sought from BCDA an
abdication, waiver or quitclaim of its ownership over the home lots being occupied by residents
of nine (9) barangays surrounding the military reservation.
Still by another resolution passed on February 21, 1994, the sanggunian adopted and submitted
to BCDA a 15-point concept for the development of Camp John Hay.[9] The sanggunians vision
expressed, among other things, a kind of development that affords protection to the
environment, the making of a family-oriented type of tourist destination, priority in employment
opportunities for Baguio residents and free access to the base area, guaranteed participation of
the city government in the management and operation of the camp, exclusion of the previously
named nine barangays from the area for development, and liability for local taxes of businesses
to be established within the camp.[10]
BCDA, TUNTEX and ASIAWORLD agreed to some, but rejected or modified the other
proposals of the sanggunian.[11] They stressed the need to declare Camp John Hay a SEZ as a
condition precedent to its full development in accordance with the mandate of R.A. No. 7227.[12]
On May 11, 1994, the sanggunian passed a resolution requesting the Mayor to order the
determination of realty taxes which may otherwise be collected from real properties of Camp
John Hay.[13] The resolution was intended to intelligently guide the sanggunian in determining its
position on whether Camp John Hay be declared a SEZ, it (the sanggunian) being of the view
that such declaration would exempt the camps property and the economic activity therein from
local or national taxation.
More than a month later, however, the sanggunian passed Resolution No. 255, (Series of
1994),[14] seeking and supporting, subject to its concurrence, the issuance by then President
P a g e 60 | 122
Ramos of a presidential proclamation declaring an area of 288.1 hectares of the camp as a SEZ
in accordance with the provisions of R.A. No. 7227. Together with this resolution was submitted
a draft of the proposed proclamation for consideration by the President.[15]
On July 5, 1994 then President Ramos issued Proclamation No. 420,[16] the title of which was
earlier indicated, which established a SEZ on a portion of Camp John Hay and which reads as
follows:
xxx
Pursuant to the powers vested in me by the law and the resolution of concurrence by the City
Council of Baguio, I, FIDEL V. RAMOS, President of the Philippines, do hereby create and
designate a portion of the area covered by the former John Hay reservation as embraced,
covered, and defined by the 1947 Military Bases Agreement between the Philippines and the
United States of America, as amended, as the John Hay Special Economic Zone, and
accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. The John Hay Special Economic
Zone shall cover the area consisting of Two Hundred Eighty Eight and one/tenth (288.1)
hectares, more or less, of the total of Six Hundred Seventy-Seven (677) hectares of the John
Hay Reservation, more or less, which have been surveyed and verified by the Department of
Environment and Natural Resources (DENR) as defined by the following technical description:
A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and
particularly described in survey plans Psd-131102-002639 and Ccs-131102-000030 as
approved on 16 August 1993 and 26 August 1993, respectively, by the Department of
Environment and Natural Resources, in detail containing :
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-
000030
-and-
Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and
Lot 18 of Psd-131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH HECTARES
(288.1 hectares); Provided that the area consisting of approximately Six and two/tenth (6.2)
hectares, more or less, presently occupied by the VOA and the residence of the Ambassador of
the United States, shall be considered as part of the SEZ only upon turnover of the properties to
the government of the Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special Economic Zone. Pursuant to Section 15 of
Republic Act No. 7227, the Bases Conversion and Development Authority is hereby established
as the governing body of the John Hay Special Economic Zone and, as such, authorized to
determine the utilization and disposition of the lands comprising it, subject to private rights, if
any, and in consultation and coordination with the City Government of Baguio after consultation
with its inhabitants, and to promulgate the necessary policies, rules, and regulations to govern
and regulate the zone thru the John Hay Poro Point Development Corporation, which is its
implementing arm for its economic development and optimum utilization.
P a g e 61 | 122
Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m) and
Section 15 of Republic Act No. 7227, the John Hay Poro Point Development Corporation shall
implement all necessary policies, rules, and regulations governing the zone, including
investment incentives, in consultation with pertinent government departments. Among others,
the zone shall have all the applicable incentives of the Special Economic Zone under Section 12
of Republic Act No. 7227 and those applicable incentives granted in the Export Processing
Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new
investment laws that may hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. All Heads of
departments, bureaus, offices, agencies, and instrumentalities of the government are hereby
directed to give full support to Bases Conversion and Development Authority and/or its
implementing subsidiary or joint venture to facilitate the necessary approvals to expedite the
implementation of various projects of the conversion program.
Sec. 5. Local Authority. Except as herein provided, the affected local government units shall
retain their basic autonomy and identity.
Sec. 6. Repealing Clause. All orders, rules, and regulations, or parts thereof, which are
inconsistent with the provisions of this Proclamation, are hereby repealed, amended, or
modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect immediately.
Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred and
ninety-four.
The issuance of Proclamation No. 420 spawned the present petition[17] for
prohibition, mandamus and declaratory relief which was filed on April 25, 1995 challenging, in
the main, its constitutionality or validity as well as the legality of the Memorandum of Agreement
and Joint Venture Agreement between public respondent BCDA and private
respondents TUNTEX and ASIAWORLD.
Petitioners allege as grounds for the allowance of the petition the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990 (sic) IN SO FAR AS IT
GRANTS TAX EXEMPTIONS IS INVALID AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL
EXERCISE BY THE PRESIDENT OF A POWER GRANTED ONLY TO THE LEGISLATURE.
II. PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THE POWERS AND
INTERFERES WITH THE AUTONOMY OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND
UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994 IS UNCONSTITUTIONAL IN
THAT IT VIOLATES THE RULE THAT ALL TAXES SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE
AND PUBLIC RESPONDENTS BASES CONVERSION DEVELOPMENT AUTHORITY HAVING
BEEN ENTERED INTO ONLY BY DIRECT NEGOTIATION IS ILLEGAL.
P a g e 62 | 122
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF AGREEMENT ENTERED

INTO BY AND BETWEEN PRIVATE AND PUBLIC RESPONDENT BASES CONVERSION
DEVELOPMENT AUTHORITY IS (sic) ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS NOT HAVING
UNDERGONE ENVIRONMENTAL IMPACT ASSESSMENT IS BEING ILLEGALLY
CONSIDERED WITHOUT A VALID ENVIRONMENTAL IMPACT ASSESSMENT.
A temporary restraining order and/or writ of preliminary injunction was prayed for to enjoin
BCDA, John Hay Poro Point Development Corporation and the city government from
implementing Proclamation No. 420, and TUNTEXand ASIAWORLD from proceeding with their
plan respecting Camp John Hays development pursuant to their Joint Venture Agreement with
BCDA.[18]
Public respondents, by their separate Comments, allege as moot and academic the issues
raised by the petition, the questioned Memorandum of Agreement and Joint Venture Agreement
having already been deemed abandoned by the inaction of the parties thereto prior to the filing
of the petition as in fact, by letter of November 21, 1995, BCDA formally notified TUNTEX and
ASIAWORLD of the revocation of their said agreements.[19]
In maintaining the validity of Proclamation No. 420, respondents contend that by extending to
the John Hay SEZ economic incentives similar to those enjoyed by the Subic SEZ which was
established under R.A. No. 7227, the proclamation is merely implementing the legislative intent
of said law to turn the US military bases into hubs of business activity or investment. They
underscore the point that the governments policy of bases conversion can not be achieved
without extending the same tax exemptions granted by R.A. No. 7227 to Subic SEZ to other
SEZs.
Denying that Proclamation No. 420 is in derogation of the local autonomy of Baguio City or that
it is violative of the constitutional guarantee of equal protection, respondents assail petitioners
lack of standing to bring the present suit even as taxpayers and in the absence of any actual
case or controversy to warrant this Courts exercise of its power of judicial review over the
proclamation.
Finally, respondents seek the outright dismissal of the petition for having been filed in disregard
of the hierarchy of courts and of the doctrine of exhaustion of administrative remedies.
Replying,[20] petitioners aver that the doctrine of exhaustion of administrative remedies finds no
application herein since they are invoking the exclusive authority of this Court under Section 21
of R.A. No. 7227 to enjoin or restrain implementation of projects for conversion of the base
areas; that the established exceptions to the aforesaid doctrine obtain in the present petition;
and that they possess the standing to bring the petition which is a taxpayers suit.
Public respondents have filed their Rejoinder[21] and the parties have filed their respective
memoranda.
Before dwelling on the core issues, this Court shall first address the preliminary procedural
questions confronting the petition.
The judicial policy is and has always been that this Court will not entertain direct resort to it
except when the redress sought cannot be obtained in the proper courts, or when exceptional
P a g e 63 | 122
and compelling circumstances warrant availment of a remedy within and calling for the exercise
of this Courts primary jurisdiction.[22] Neither will it entertain an action for declaratory relief, which
is partly the nature of this petition, over which it has no original jurisdiction.
Nonetheless, as it is only this Court which has the power under Section 21[23] of R.A. No. 7227
to enjoin implementation of projects for the development of the former US military reservations,
the issuance of which injunction petitioners pray for, petitioners direct filing of the present
petition with it is allowed. Over and above this procedural objection to the present suit, this
Court retains full discretionary power to take cognizance of a petition filed directly to it if
compelling reasons, or the nature and importance of the issues raised, warrant. [24] Besides,
remanding the case to the lower courts now would just unduly prolong adjudication of the
issues.
The transformation of a portion of the area covered by Camp John Hay into a SEZ is not simply
a re-classification of an area, a mere ascription of a status to a place. It involves turning the
former US military reservation into a focal point for investments by both local and foreign
entities. It is to be made a site of vigorous business activity, ultimately serving as a spur to the
countrys long awaited economic growth. For, as R.A. No. 7227 unequivocally declares, it is the
governments policy to enhance the benefits to be derived from the base areas in order to
promote the economic and social development of Central Luzon in particular and the country in
general.[25] Like the Subic SEZ, the John Hay SEZ should also be turned into a self-sustaining,
industrial, commercial, financial and investment center.[26]
More than the economic interests at stake, the development of Camp John Hay as well as of the
other base areas unquestionably has critical links to a host of environmental and social
concerns. Whatever use to which these lands will be devoted will set a chain of events that can
affect one way or another the social and economic way of life of the communities where the
bases are located, and ultimately the nation in general.
Underscoring the fragility of Baguio Citys ecology with its problem on the scarcity of its water
supply, petitioners point out that the local and national government are faced with the challenge
of how to provide for an ecologically sustainable, environmentally sound, equitable transition for
the city in the wake of Camp John Hays reversion to the mass of government property. [27] But
that is why R.A. No. 7227 emphasizes the sound and balanced conversion of the Clark and
Subic military reservations and their extensions consistent with ecological and environmental
standards.[28] It cannot thus be gainsaid that the matter of conversion of the US bases into
SEZs, in this case Camp John Hay, assumes importance of a national magnitude.
Convinced then that the present petition embodies crucial issues, this Court assumes
jurisdiction over the petition.
As far as the questioned agreements between BCDA and TUNTEX and ASIAWORLD are
concerned, the legal questions being raised thereon by petitioners have indeed been rendered
moot and academic by the revocation of such agreements. There are, however, other issues
posed by the petition, those which center on the constitutionality of Proclamation No. 420, which
have not been mooted by the said supervening event upon application of the rules for the
judicial scrutiny of constitutional cases. The issues boil down to:
(1) Whether the present petition complies with the requirements for this Courts exercise of
jurisdiction over constitutional issues;
P a g e 64 | 122
(2) Whether Proclamation No. 420 is constitutional by providing for national and local tax
exemption within and granting other economic incentives to the John Hay Special Economic
Zone; and
(3) Whether Proclamation No. 420 is constitutional for limiting or interfering with the local
autonomy of Baguio City;
It is settled that when questions of constitutional significance are raised, the court can exercise
its power of judicial review only if the following requisites are present: (1) the existence of an
actual and appropriate case; (2) a personal and substantial interest of the party raising the
constitutional question; (3) the exercise of judicial review is pleaded at the earliest opportunity;
and (4) the constitutional question is the lis mota of the case.[29]
An actual case or controversy refers to an existing case or controversy that is appropriate or
ripe for determination, not conjectural or anticipatory.[30] The controversy needs to be definite
and concrete, bearing upon the legal relations of parties who are pitted against each other due
to their adverse legal interests.[31] There is in the present case a real clash of interests and rights
between petitioners and respondents arising from the issuance of a presidential proclamation
that converts a portion of the area covered by Camp John Hay into a SEZ, the former insisting
that such proclamation contains unconstitutional provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the affected local government units to the
creation of SEZs out of all the base areas in the country.[32] The grant by the law on local
government units of the right of concurrence on the bases conversion is equivalent to vesting a
legal standing on them, for it is in effect a recognition of the real interests that communities
nearby or surrounding a particular base area have in its utilization. Thus, the interest of
petitioners, being inhabitants of Baguio, in assailing the legality of Proclamation No. 420, is
personal and substantial such that they have sustained or will sustain direct injury as a result of
the government act being challenged.[33] Theirs is a material interest, an interest in issue
affected by the proclamation and not merely an interest in the question involved or an incidental
interest,[34] for what is at stake in the enforcement of Proclamation No. 420 is the very economic
and social existence of the people of Baguio City.
Petitioners locus standi parallels that of the petitioner and other residents of Bataan, specially of
the town of Limay, in Garcia v. Board of Investments[35] where this Court characterized their
interest in the establishment of a petrochemical plant in their place as actual, real, vital and
legal, for it would affect not only their economic life but even the air they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G. Yaranon were duly elected councilors of
Baguio at the time, engaged in the local governance of Baguio City and whose duties included
deciding for and on behalf of their constituents the question of whether to concur with the
declaration of a portion of the area covered by Camp John Hay as a SEZ. Certainly then,
petitioners Claravall and Yaranon, as city officials who voted
against[36] the sanggunian Resolution No. 255 (Series of 1994) supporting the issuance of the
now challenged Proclamation No. 420, have legal standing to bring the present petition.
That there is herein a dispute on legal rights and interests is thus beyond doubt. The mootness
of the issues concerning the questioned agreements between public and private respondents is
of no moment.
P a g e 65 | 122
By the mere enactment of the questioned law or the approval of the challenged act, the dispute
is deemed to have ripened into a judicial controversy even without any other overt act. Indeed,
even a singular violation of the Constitution and/or the law is enough to awaken judicial duty.[37]
As to the third and fourth requisites of a judicial inquiry, there is likewise no question that they
have been complied with in the case at bar. This is an action filed purposely to bring forth
constitutional issues, ruling on which this Court must take up. Besides, respondents never
raised issues with respect to these requisites, hence, they are deemed waived.
Having cleared the way for judicial review, the constitutionality of Proclamation No. 420, as
framed in the second and third issues above, must now be addressed squarely.
The second issue refers to petitioners objection against the creation by Proclamation No. 420 of
a regime of tax exemption within the John Hay SEZ. Petitioners argue that nowhere in R. A. No.
7227 is there a grant of tax exemption to SEZs yet to be established in base areas, unlike the
grant under Section 12 thereof of tax exemption and investment incentives to the therein
established Subic SEZ. The grant of tax exemption to the John Hay SEZ, petitioners conclude,
thus contravenes Article VI, Section 28 (4) of the Constitution which provides that No law
granting any tax exemption shall be passed without the concurrence of a majority of all the
members of Congress.
Section 3 of Proclamation No. 420, the challenged provision, reads:
Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m) and
Section 15 of Republic Act No. 7227, the John Hay Poro Point Development Corporation shall
implement all necessary policies, rules, and regulations governing the zone, including
investment incentives, in consultation with pertinent government departments. Among
others, the zone shall have all the applicable incentives of the Special Economic Zone
under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the
Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment
Act of 1991, and new investment laws that may hereinafter be enacted. (Emphasis and
underscoring supplied)
Upon the other hand, Section 12 of R.A. No. 7227 provides:
xxx
(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;
P a g e 66 | 122
(c) The provisions 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 Municipality of Subic,
and other municipalities contiguous to be 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 futures 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 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;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by
Congress with tax exemption, investment incentives and the like. There is no express extension
of the aforesaid benefits to other SEZs still to be created at the time via presidential
proclamation.
The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment
privileges accorded it under the law, as the following exchanges between our lawmakers show
during the second reading of the precursor bill of R.A. No. 7227 with respect to the investment
policies that would govern Subic SEZ which are now embodied in the aforesaid Section 12
thereof:
xxx
P a g e 67 | 122
Senator Maceda: This is what I was talking about. We get into problems here because all of
these following policies are centered around the concept of free port. And in the main paragraph
above, we have declared both Clark and Subic as special economic zones, subject to these
policies which are, in effect, a free-port arrangement.
Senator Angara: The Gentleman is absolutely correct, Mr. President. So we must confine these
policies only to Subic.
May I withdraw then my amendment, and instead provide that THE SPECIAL ECONOMIC
ZONE OF SUBIC SHALL BE ESTABLISHED IN ACCORDANCE WITH THE FOLLOWING
POLICIES. Subject to style, Mr. President.
Thus, it is very clear that these principles and policies are applicable only to Subic as a free
port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment suggested by Senator Angara would then
prevent the establishment of other special economic zones observing these policies.
Senator Angara: No, Mr. President, because during our short caucus, Senator Laurel raised
the point that if we give this delegation to the President to establish other economic zones, that
may be an unwarranted delegation.
So we agreed that we will simply limit the definition of powers and description of the zone to
Subic, but that does not exclude the possibility of creating other economic zones within the
baselands.
Senator Paterno: But if that amendment is followed, no other special economic zone may be
created under authority of this particular bill. Is that correct, Mr. President?
Senator Angara: Under this specific provision, yes, Mr. President. This provision now will be
confined only to Subic.[38]
x x x (Underscoring supplied).
As gathered from the earlier-quoted Section 12 of R.A. No. 7227, the privileges given to Subic
SEZ consist principally of exemption from tariff or customs duties, national and local taxes of
business entities therein (paragraphs (b) and (c)), free market and trade of specified goods or
properties (paragraph d), liberalized banking and finance (paragraph f), and relaxed immigration
rules for foreign investors (paragraph g). Yet, apart from these, Proclamation No. 420 also
makes available to the John Hay SEZ benefits existing in other laws such as the privilege of
export processing zone-based businesses of importing capital equipment and raw materials free
from taxes, duties and other restrictions;[39] tax and duty exemptions, tax holiday, tax credit, and
other incentives under the Omnibus Investments Code of 1987;[40] and the applicability to the
subject zone of rules governing foreign investments in the Philippines.[41]
While the grant of economic incentives may be essential to the creation and success of SEZs,
free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The
incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of
P a g e 68 | 122
the same to the John Hay SEZ finds no support therein. Neither does the same grant of
privileges to the John Hay SEZ find support in the other laws specified under Section 3 of
Proclamation No. 420, which laws were already extant before the issuance of the proclamation
or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of the state constitution, that has full power to exempt
any person or corporation or class of property from taxation, its power to exempt being as broad
as its power to tax.[42] Other than Congress, the Constitution may itself provide for specific tax
exemptions,[43] or local governments may pass ordinances on exemption only from local
taxes.[44]
The challenged grant of tax exemption would circumvent the Constitutions imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of
Congress.[45] In the same vein, the other kinds of privileges extended to the John Hay SEZ are
by tradition and usage for Congress to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay
SEZ from taxation should be manifest and unmistakable from the language of the law on which
it is based; it must be expressly granted in a statute stated in a language too clear to be
mistaken.[46] Tax exemption cannot be implied as it must be categorically and unmistakably
expressed.[47]
If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political departments of the government on
either of two groundsinfringement of the Constitution or grave abuse of discretion.[48]
This Court then declares that the grant by Proclamation No. 420 of tax exemption and other
privileges to the John Hay SEZ is void for being violative of the Constitution. This renders it
unnecessary to still dwell on petitioners claim that the same grant violates the equal protection
guarantee.
With respect to the final issue raised by petitioners that Proclamation No. 420 is unconstitutional
for being in derogation of Baguio Citys local autonomy, objection is specifically mounted against
Section 2 thereof in which BCDA is set up as the governing body of the John Hay SEZ.[49]
Petitioners argue that there is no authority of the President to subject the John Hay SEZ to the
governance of BCDA which has just oversight functions over SEZ; and that to do so is to
diminish the city governments power over an area within its jurisdiction, hence, Proclamation
No. 420 unlawfully gives the President power of control over the local government instead of
just mere supervision.
Petitioners arguments are bereft of merit. Under R.A. No. 7227, the BCDA is entrusted with,
among other things, the following purpose:[50]
xxx
(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air
Station, ODonnell Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita
P a g e 69 | 122
Station (Hermosa, Bataan) and those portions of Metro Manila Camps which may be transferred
to it by the President;
x x x (Underscoring supplied)
With such broad rights of ownership and administration vested in BCDA over Camp John Hay,
BCDA virtually has control over it, subject to certain limitations provided for by law. By
designating BCDA as the governing agency of the John Hay SEZ, the law merely emphasizes
or reiterates the statutory role or functions it has been granted.
The unconstitutionality of the grant of tax immunity and financial incentives as contained in the
second sentence of Section 3 of Proclamation No. 420 notwithstanding, the entire assailed
proclamation cannot be declared unconstitutional, the other parts thereof not being repugnant to
law or the Constitution. The delineation and declaration of a portion of the area covered by
Camp John Hay as a SEZ was well within the powers of the President to do so by means of a
proclamation.[51] The requisite prior concurrence by the Baguio City government to such
proclamation appears to have been given in the form of a duly enacted resolution by
the sanggunian. The other provisions of the proclamation had been proven to be consistent with
R.A. No. 7227.
Where part of a statute is void as contrary to the Constitution, while another part is valid, the
valid portion, if separable from the invalid, may stand and be enforced. [52] This Court finds that
the other provisions in Proclamation No. 420 converting a delineated portion of Camp John Hay
into the John Hay SEZ are separable from the invalid second sentence of Section 3 thereof,
hence they stand.
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared
NULL AND VOID and is accordingly declared of no legal force and effect. Public respondents
are hereby enjoined from implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and effective.
SO ORDERED.
P a g e 70 | 122
[G.R. No. 132527. July 29, 2005]

COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L.
ARRANZA, PHILIPPINE ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI),
represented by its Secretary, ROMEO G. HIDALGO, FEDERATION OF FREE FARMERS
(FFF), represented by its President, JEREMIAS U. MONTEMAYOR, and BUKLURAN NG
MANGGAGAWANG PILIPINO (BMP), represented by its Chairperson, FELIMON C.
LAGMAN, petitioners, vs. HON. RUBEN TORRES, in his capacity as Executive Secretary;
BASES CONVERSION AND DEVELOPMENT AUTHORITY, CLARK DEVELOPMENT
CORPORATION, SUBIC BAY METROPOLITAN AUTHORITY, 88 MART DUTY FREE,
FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE SHOPS,
INC., DFS SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI
RESOURCES, CORP.), PARK & SHOP, DUTY FREE COMMODITIES, L. FURNISHING,
SHAMBURGH, SUBIC DFS, ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC.,
PX CLUB, CLARK TRADING, DEMAGUS TRADING CORP., D.F.S. SPORTS UNLIMITED,
INC., DUTY FREE FIRST SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC.
(formerly 88 Mart [Clark] Duty Free Corp.), LILLY HILL CORP., MARSHALL, PUREGOLD
DUTY FREE, INC., ROYAL DFS and ZAXXON PHILIPPINES, INC., respondents.
DECISION
AZCUNA, J.:
This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive
Branch, through the public respondents Ruben Torres in his capacity as Executive Secretary,
the Bases Conversion Development Authority (BCDA), the Clark Development Corporation
(CDC) and the Subic Bay Metropolitan Authority (SBMA), from allowing, and the private
respondents from continuing with, the operation of tax and duty-free shops located at the Subic
Special Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare
the following issuances as unconstitutional, illegal, and void:
1. Section 5 of Executive Order No. 80,[1] dated April 3, 1993, regarding the CSEZ.
2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ.
3. Section 4 of BCDA Board Resolution No. 93-05-034,[2] dated May 18, 1993, pertaining to the
CSEZ.
Petitioners contend that the aforecited issuances are unconstitutional and void as they
constitute executive lawmaking, and that they are contrary to Republic Act No. 7227[3] and in
violation of the Constitution, particularly Section 1, Article III (equal protection clause), Section
19, Article XII (prohibition of unfair competition and combinations in restraint of trade), and
Section 12, Article XII (preferential use of Filipino labor, domestic materials and locally produced
goods).
The facts are as follows:
On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the
sound and balanced conversion of the Clark and Subic military reservations and their
extensions into alternative productive uses in the form of special economic zones in order to
P a g e 71 | 122
promote the economic and social development of Central Luzon in particular and the country in
general. Among the salient provisions are as follows:
SECTION 12. Subic Special Economic Zone.
...
The abovementioned zone shall be subject to the following policies:
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
productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs
Subic Special Economic Zone, as well as provide incentives such as tax and duty-free
other relevant tax laws of the Philippines;[4]
(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 Ecoomic 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 Olangapo and the Municipality of Subic, and other
municipalities contiguous to the base areas.
...
SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by
resolution of the local government units directly affected, the President is hereby authorized to
create by executive proclamation a Special Economic Zone covering the lands occupied by the
Clark military reservations 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, located within the territorial jurisdiction of Angeles City, Municipalities of Mabalacat
and Porac, Province of Pampanga and the Municipality of Capas, Province of Tarlac, in
accordance with the policies as herein provided insofar as applicable to the Clark military
reservations.
The governing body of the Clark Special Economic Zone shall likewise be established by
executive proclamation with such powers and functions exercised by the Export Processing
Zone Authority pursuant to Presidential Decree No. 66 as amended.
P a g e 72 | 122
The policies to govern and regulate the Clark Special Economic Zone shall be determined upon
consultation with the inhabitants of the local government units directly affected which shall be
conducted within six (6) months upon approval of this Act.
Similarly, subject to the concurrence by resolution of the local government units directly
affected, the President shall create other Special Economic Zones, in the base areas of Wallace
Air Station in San Fernando, La Union (excluding areas designated for communications,
advance warning and radar requirements of the Philippine Air Force to be determined by the
Conversion Authority) and Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the President is likewise authorized to
create Special Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan,
Castillejos and San Marcelino.
On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared,
among others, that Clark shall have all the applicable incentives granted to the Subic Special
Economic and Free Port Zone under Republic Act No. 7227. The pertinent provision assailed
therein is as follows:
SECTION 5. Investments Climate in the CSEZ. Pursuant to Section 5(m) and Section 15 of RA
7227, the BCDA shall promulgate all necessary policies, rules and regulations governing the
CSEZ, including investment incentives, in consultation with the local government units and
pertinent government departments for implementation by the CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic
and Free Port Zone under RA 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of
1991 and new investments laws which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited
investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have
limited incentives. The full incentives in the Clark SEZ Main Zone and the limited incentives in
the Clark SEZ Sub-Zone shall be determined by the BCDA.
Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution
No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods
imported via Clark for consumption outside the CSEZ. The assailed provisions of said resolution
read, as follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered
enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O.
No. 226 and R.A. No. 7042 which shall include, but not limited to, the following:
I. As in Subic Economic and Free Port Zone:
A. Customs:
...
4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the
CSEZ Main Zone.
P a g e 73 | 122
5. For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into
the Philippine Customs territory but not to exceed US$200.00 per month per CDC-registered
person, similar to the limits imposed in the Subic SEZ. This privilege shall be enjoyed only once
a month. Any excess shall be levied taxes and duties by the Bureau of Customs.
On June 10, 1993, the President issued Executive Order No. 97, Clarifying the Tax and Duty
Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227. Said
issuance in part states, 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.
Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, Further Clarifying the
Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone. The
relevant provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the
Secured Area of the Subic Special Economic and Free Port Zone:
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. 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.
1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and
consume any quantity of consumption items in hotels and restaurants within the Secured Area.
However, these residents can purchase and bring out of the Secured Area to other parts of the
Philippine territory consumer items worth not exceeding US$100 per month per person. Only
residents age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any
quantity of consumption items in hotels and restaurants within the Secured Area. However, they
can purchase and bring out [of] the Secured Area to other parts of the Philippine territory
consumer items worth not exceeding US$200 per year per person. Only Filipinos age 15 and
over are entitled to this privilege.
Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the
aforecited provisions respectively to SSEZ residents living outside the Secured Area of the
SSEZ and to Filipinos aged 15 and over residing outside the SSEZ.
P a g e 74 | 122
On February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity
of the assailed issuances on the following grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION
4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING AN
EXERCISE OF EXECUTIVE LAWMAKING.
II.
4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR BEING
VIOLATIVE OF THE EQUAL PROTECTION CLAUSE AND THE PROHIBITION AGAINST
UNFAIR COMPETITION AND PRACTICES IN RESTRAINT OF TRADE.
III.
4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING
VIOLATIVE OF REPUBLIC ACT NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE CHALLENGED ISSUANCES IF NOT
RESTRAINED WILL CONTINUE TO CAUSE PETITIONERS TO SUFFER GRAVE AND
IRREPARABLE INJURY.[5]
In their Comments, respondents point out procedural issues, alleging lack of petitioners legal
standing, the unreasonable delay in the filing of the petition, laches, and the propriety of the
remedy of prohibition.
Anent the claim on lack of legal standing, respondents argue that petitioners, being mere
suppliers of the local retailers operating outside the special economic zones, do not stand to
suffer direct injury in the enforcement of the issuances being assailed herein. Assuming this is
true, this Court has nevertheless held that in cases of paramount importance where serious
constitutional questions are involved, the standing requirements may be relaxed and a suit may
be allowed to prosper even where there is no direct injury to the party claiming the right of
judicial review.[6]
In the same vein, with respect to the other alleged procedural flaws, even assuming the
existence of such defects, this Court, in the exercise of its discretion, brushes aside these
technicalities and takes cognizance of the petition considering the importance to the public of
the present case and in keeping with the duty to determine whether the other branches of the
government have kept themselves within the limits of the Constitution.[7]
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the validity of an act of a co-equal and
coordinate branch of the Government, it bears emphasis that deeply ingrained in our
jurisprudence is the time-honored principle that a statute is presumed to be valid.[8] This
presumption is rooted in the doctrine of separation of powers which enjoins upon the three
P a g e 75 | 122
coordinate departments of the Government a becoming courtesy for each others acts. [9] Hence,
to doubt is to sustain. The theory is that before the act was done or the law was enacted,
earnest studies were made by Congress, or the President, or both, to insure that the
Constitution would not be breached.[10] This Court, however, may declare a law, or portions
thereof, unconstitutional where a petitioner has shown a clear and unequivocal breach of the
Constitution, not merely a doubtful or argumentative one.[11] In other words, before a statute or a
portion thereof may be declared unconstitutional, it must be shown that the statute or issuance
violates the Constitution clearly, palpably and plainly, and in such a manner as to leave no
doubt or hesitation in the mind of the Court.[12]
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive
Order No. 80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute executive
legislation, in violation of the rule on separation of powers. Petitioners argue that the Executive
Department, by allowing through the questioned issuances the setting up of tax and duty-free
shops and the removal of consumer goods and items from the zones without payment of
corresponding duties and taxes, arbitrarily provided additional exemptions to the limitations
imposed by Republic Act No. 7227, which limitations petitioners identify as follows:
(1) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital
and equipment.
(2) It provides that any exportation or removal of goods from the territory of the Subic Special
Economic Zone to 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.
Anent the first alleged limitation, petitioners contend that the wording of Republic Act No. 7227
clearly limits the grant of tax incentives to the importation of raw materials, capital and
equipment only. Hence, they claim that the assailed issuances constitute executive legislation
for invalidly granting tax incentives in the importation of consumer goods such as those being
sold in the duty-free shops, in violation of the letter and intent of Republic Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227, which pertains to the SSEZ, would
show that it does not restrict the duty-free importation only to raw materials, capital and
equipment. Section 12 of the cited law is partly reproduced, as follows:
SECTION 12. Subic Special Economic Zone.
...
...
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs
Subic Special Economic Zone, as well as provide incentives such as tax and duty-free
other relevant tax laws of the Philippines.[13]
P a g e 76 | 122
While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital
and equipment, this does not necessarily mean that the tax and duty-free buying privilege is
limited to these types of articles to the exclusion of consumer goods. It must be remembered
that in construing statutes, the proper course is to start out and follow the true intent of the
Legislature and to adopt that sense which harmonizes best with the context and promotes in the
fullest manner the policy and objects of the Legislature.[14]
In the present case, there appears to be no logic in following the narrow interpretation
petitioners urge. To limit the tax-free importation privilege of enterprises located inside the
special economic zone only to raw materials, capital and equipment clearly runs counter to the
intention of the Legislature to create a free port where the free flow of goods or capital within,
into, and out of the zones is insured.
The phrase tax and duty-free importations of raw materials, capital and equipment was merely
cited as an example of incentives that may be given to entities operating within the zone. Public
respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on
which petitioners impliedly rely to support their restrictive interpretation, does not apply when
words are mentioned by way of example.[15] It is obvious from the wording of Republic Act No.
7227, particularly the use of the phrase such as, that the enumeration only meant to illustrate
incentives that the SSEZ is authorized to grant, in line with its being a free port zone.
Furthermore, said legal maxim should be applied only as a means of discovering legislative
intent which is not otherwise manifest, and should not be permitted to defeat the plainly
indicated purpose of the Legislature.[16]
The records of the Senate containing the discussion of the concept of special economic zone in
Section 12 (a) of Republic Act No. 7227 show the legislative intent that consumer goods
entering the SSEZ which satisfy the needs of the zone and are consumed there are not
subject to duties and taxes in accordance with Philippine laws, thus:
Senator Guingona. . . . The concept of Special Economic Zone is one that really includes the
concept of a free port, but it is broader. While a free port is necessarily included in the Special
Economic Zone, the reverse is not true that a free port would include a special economic zone.
Special Economic Zone, Mr. President, would include not only the incoming and outgoing of
vessels, duty-free and tax-free, but it would involve also tourism, servicing, financing and all the
appurtenances of an investment center. So, that is the concept, Mr. President. It is broader. It
includes the free port concept and would cater to the greater needs of Olangapo City, Subic Bay
and the surrounding municipalities.
Senator Enrile. May I know then if a factory located within the jurisdiction of Morong, Bataan
that was originally a part of the Subic Naval reservation, be entitled to a free port treatment or
just a special economic zone treatment?
Senator Guingona. As far as the goods required for manufacture is concerned, Mr. President,
it would have privileges of duty-free and tax-free. But in addition, the Special Economic Zone
could embrace the needs of tourism, could embrace the needs of servicing, could embrace the
needs of financing and other investment aspects.
P a g e 77 | 122
Senator Enrile. When a hotel is constructed, Mr. President, in this geographical unit which we
call a special economic zone, will the goods entering to be consumed by the customers or
guests of the hotel be subject to duties?
Senator Guingona. That is the concept that we are crafting, Mr. President.
Senator Enrile. No. I am asking whether those goods will be duty-free, because it is
constructed within a free port.
Senator Guingona. For as long as it services the needs of the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the zone, whether we call it an
economic zone or a free port, for as long as we say in this law that all goods entering this
particular territory will be duty-free and tax-free, for as long as they remain there, consumed
there or reexported or destroyed in that place, then they are not subject to the duties and taxes
in accordance with the laws of the Philippines?
Senator Guingona. Yes.[17]
Petitioners rely on Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee
on Bases Conversion on June 26, 1995. Petitioners put emphasis on the reports finding that the
setting up of duty-free stores never figured in the minds of the authors of Republic Act No. 7227
in attracting foreign investors to the former military baselands. They maintain that said law
aimed to attract manufacturing and service enterprises that will employ the dislocated former
military base workers, but not investors who would buy consumer goods from duty-free stores.
The Court is not persuaded. Indeed, it is well-established that opinions expressed in the
debates and proceedings of the Legislature, steps taken in the enactment of a law, or the
history of the passage of the law through the Legislature, may be resorted to as aids in the
interpretation of a statute with a doubtful meaning.[18] Petitioners posture, however, overlooks
the fact that the 1995 Committee Report they are referring to came into being well after the
enactment of Republic Act No. 7227 in 1993. Hence, as pointed out by respondent Executive
Secretary Torres, the aforementioned report cannot be said to form part of Republic Act No.
7227s legislative history.
Section 12 of Republic Act No. 7227, provides in part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
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
productive foreign investments. [19]
The aforecited policy was mentioned as a basis for the issuance of Executive Order No. 97-A,
thus:
WHEREAS, Republic Act No. 7227 provides that within the framework and subject to the
mandate and limitations of the Constitution and the pertinent provisions of the Local
P a g e 78 | 122
Government Code, the Subic Special Economic and Free Port Zone (SSEFPZ) shall be
developed into a self-sustaining industrial, commercial, financial and investment center to
productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a Secured Area in the SSEFPZ subject,
to existing laws has been determined necessary to attract local and foreign visitors to the zone.
Executive Order No. 97-A provides guidelines to govern the tax and duty-free privileges within
the Secured Area of the Subic Special Economic and Free Port Zone. Paragraph 1.6 thereof
states that (t)he sale of tax and duty-free consumer items in the Secured Area shall only be
allowed in duly authorized duty-free shops.
The Court finds that the setting up of such commercial establishments which are the only ones
duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated
in Section 12 of Republic Act No. 7227 that . . .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. (Emphasis supplied.)
However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of
Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals,
even in a limited amount, from the Secured Area of the SSEZ, are null and void for being
contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides that
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.
On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of
executive legislation is tenable.
In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al.,[20] this Court resolved an
issue, very much like the one herein, concerning the legality of the tax exemption benefits given
to the John Hay Economic Zone under Presidential Proclamation No. 420, Series of 1994,
CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER
CAMP JOHN AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC
ACT NO. 7227.
In that case, among the arguments raised was that the granting of tax exemptions to John Hay
was an invalid and illegal exercise by the President of the powers granted only to the
Legislature. Petitioners therein argued that Republic Act No. 7227 expressly granted tax
exemption only to Subic and not to the other economic zones yet to be established. Thus, the
grant of tax exemption to John Hay by Presidential Proclamation contravenes the constitutional
mandate that [n]o law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress.[21]
This Court sustained the argument and ruled that the incentives under Republic Act No. 7227
are exclusive only to the SSEZ. The President, therefore, had no authority to extend their
application to John Hay. To quote from the Decision:
P a g e 79 | 122
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of a state constitution, that has full power to exempt
any person or corporation or class of property from taxation, its power to exempt being as broad
as its power to tax. Other than Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitutions imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of
Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay
SEZ from taxation should be manifest and unmistakable from the language of the law on which
it is based; it must be expressly granted in a statute stated in a language too clear to be
mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably
expressed.
If it were the intent of the legislature to grant to John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227.[22]
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant
of incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones,
including the CSEZ. Tax and duty-free incentives being in the nature of tax exemptions, the
basis thereof should be categorically and unmistakably expressed from the language of the
statute. Consequently, in the absence of any express grant of tax and duty-free privileges to the
CSEZ in Republic Act No. 7227, there would be no legal basis to uphold the questioned portions
of two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution
No. 93-05-034, which both pertain to the CSEZ.
Petitioners also contend that the questioned issuances constitute executive legislation for
allowing the removal of consumer goods and items from the zones without payment of
corresponding duties and taxes in violation of Republic Act No. 7227 as Section 12 thereof
provides for the taxation of goods that are exported or removed from the SSEZ to other parts of
the Philippine territory.
On September 26, 1997, Executive Order No. 444 was issued, curtailing the duty-free shopping
privileges in the SSEZ and the CSEZ to prevent abuse of duty-free privilege and to protect local
industries from unfair competition. The pertinent provisions of said issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial
Anniversary Celebration in 1998. Upon effectivity of this Order and up to the Centennial Year
1998, in addition to the permanent residents, locators and employees of the fenced-in areas of
the Subic Special Economic and Freeport Zone and the Clark Special Economic Zone who are
allowed unlimited duty free purchases, provided these are consumed within said fenced-in
areas of the Zones, the residents of the municipalities adjacent to Subic and Clark as
respectively provided in R.A. 7227 (1992) and E.O. 97-A s. 1993 shall continue to be allowed
One Hundred US Dollars (US$100) monthly shopping privilege until 31 December
1998. Domestic tourists visiting Subic and Clark shall be allowed a shopping privilege of US$25
for consumable goods which shall be consumed only in the fenced-in area during their
visit therein.
P a g e 80 | 122
SECTION 4. Grant of Duty Free Shopping Privileges Limited Only To Individuals Allowed by
Law. Starting 1 January 1999, only the following persons shall continue to be eligible to shop in
duty free shops/outlets with their corresponding purchase limits:
a. Tourists and Filipinos traveling to or returning from foreign destinations under E.O. 97-A s.
1993 One Thousand US Dollars (US$1,000) but not to exceed Ten Thousand US Dollars
(US$10,000) in any given year;
b. Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3
November 1989 Two Thousand US Dollars (US$2,000);
c. Residents, eighteen (18) years old and above, of the fenced-in areas of the freeports under
R.A. 7227 (1992) and E.O. 97-A s. 1993 Unlimited purchase as long as these are for
consumption within these freeports.
The term "Residents" mentioned in item c above shall refer to individuals who, by virtue of
domicile or employment, reside on permanent basis within the freeport area. The term excludes
(1) non-residents who have entered into short- or long-term property lease inside the freeport,
(2) outsiders engaged in doing business within the freeport, and (3) members of private clubs
(e.g., yacht and golf clubs) based or located within the freeport. In this regard, duty free
privileges granted to any of the above individuals (e.g., unlimited shopping privilege, tax-free
importation of cars, etc.) are hereby revoked.[23]
A perusal of the above provisions indicates that effective January 1, 1999, the grant of duty-free
shopping privileges to domestic tourists and to residents living adjacent to SSEZ and the CSEZ
had been revoked. Residents of the fenced-in area of the free port are still allowed unlimited
purchase of consumer goods, as long as these are for consumption within these freeports.
Hence, the only individuals allowed by law to shop in the duty-free outlets and remove
consumer goods out of the free ports tax-free are tourists and Filipinos traveling to or returning
from foreign destinations, and Overseas Filipino Workers and Balikbayans as defined under
Republic Act No. 6768.[24]
Subsequently, on October 20, 2000, Executive Order No. 303 was issued, amending Executive
Order No. 444. Pursuant to the limited duration of the privileges granted under the preceding
issuance, Section 2 of Executive Order No. 303 declared that [a]ll special shopping privileges as
granted under Section 3 of Executive Order 444, s. 1997, are hereby deemed terminated. The
grant of duty free shopping privileges shall be restricted to qualified individuals as provided by
law.
It bears noting at this point that the shopping privileges currently being enjoyed by Overseas
Filipino Workers, Balikbayans, and tourists traveling to and from foreign destinations, draw
authority not from the issuances being assailed herein, but from Executive Order No. 46 [25] and
Republic Act No. 6768, both enacted prior to the promulgation of Republic Act No. 7227.
From the foregoing, it appears that petitioners objection to the allowance of tax-free removal of
goods from the special economic zones as previously authorized by the questioned issuances
has become moot and academic.
In any event, Republic Act No. 7227, specifically Section 12 (b) thereof, clearly provides that
exportation or removal of goods from the territory of the Subic Special Economic Zone to the
P a g e 81 | 122
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.
Thus, the removal of goods from the SSEZ to other parts of the Philippine territory without
payment of said customs duties and taxes is not authorized by the Act. Consequently, the
following italicized provisions found in the second sentences of paragraphs 1.2 and 1.3, Section
1 of Executive Order No. 97-A are null and void:
1.2 Residents of the SSEFPZ living outside the Secured Area can enter and consume any
quantity of consumption items in hotels and restaurants within the Secured Area. However,
these residents can purchase and bring out of the Secured Area to other parts of the Philippine
territory consumer items worth not exceeding US $100 per month per person. Only residents
age 15 and over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any
quantity of consumption items in hotels and restaurants within the Secured Area. However, they
can purchase and bring out of the Secured Area to other parts of the Philippine territory
consumer items worth not exceeding US $200 per year per person. Only Filipinos age 15 and
over are entitled to this privilege.[26]
A similar provision found in paragraph 5, Section 4(A) of BCDA Board Resolution No. 93-05-034
is also null and void. Said Resolution applied the incentives given to the SSEZ under Republic
Act No. 7227 to the CSEZ, which, as aforestated, is without legal basis.
Having concluded earlier that the CSEZ is excluded from the tax and duty-free incentives
provided under Republic Act No. 7227, this Court will resolve the remaining arguments only with
regard to the operations of the SSEZ. Thus, the assailed issuance that will be discussed is
solely Executive Order No. 97-A, since it is the only one among the three questioned issuances
which pertains to the SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance (Executive Order No. 97-A) is violative of their right
to equal protection of the laws, as enshrined in Section 1, Article III of the Constitution. To
support this argument, they assert that private respondents operating inside the SSEZ are not
different from the retail establishments located outside, the products sold being essentially the
same. The only distinction, they claim, lies in the products variety and source, and the fact that
private respondents import their items tax-free, to the prejudice of the retailers and
manufacturers located outside the zone.
Petitioners contention cannot be sustained. It is an established principle of constitutional law
that the guaranty of the equal protection of the laws is not violated by a legislation based on a
reasonable classification.[27]Classification, to be valid, must (1) rest on substantial distinction, (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.[28]
Applying the foregoing test to the present case, this Court finds no violation of the right to equal
protection of the laws. First, contrary to petitioners claim, substantial distinctions lie between the
establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v.
Court of Appeals,[29] the constitutionality of Executive Order No. 97-A was challenged for being
violative of the equal protection clause. In that case, petitioners claimed that Executive Order
P a g e 82 | 122
No. 97-A was discriminatory in confining the application of Republic Act No. 7227 within a
secured area of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the
economic zone.
Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial
differences between the retailers inside and outside the secured area, thereby justifying a valid
and reasonable classification:
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 R.A. 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. 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.[30]
The Court in Tiu found real and substantial distinctions between residents within the secured
area and those living within the economic zone but outside the fenced-off area. Similarly, real
and substantial differences exist between the establishments herein involved. A significant
distinction between the two groups is that enterprises outside the zones maintain their
businesses within Philippine customs territory, while private respondents and the other duly-
registered zone enterprises operate within the so-called separate customs territory. To grant the
same tax incentives given to enterprises within the zones to businesses operating outside the
zones, as petitioners insist, would clearly defeat the statutes intent to carve a territory out of the
military reservations in Subic Bay where free flow of goods and capital is maintained.
The classification is germane to the purpose of Republic Act No. 7227. As held in Tiu, the real
concern of Republic Act No. 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 the establishments within the zone to attract and
encourage foreign and local investors. This is the very rationale behind Republic Act No. 7227
and other similar special economic zone laws which grant a complete package of tax incentives
and other benefits.
The classification, moreover, is not limited to the existing conditions when the law was
promulgated, but to future conditions as well, inasmuch as the law envisioned the former military
reservation to ultimately develop into a self-sustaining investment center.
And, lastly, the classification applies equally to all retailers found within the secured area. As
ruled in Tiu, the individuals and businesses within the secured area, being in like circumstances
P a g e 83 | 122
or contributing directly to the achievement of the end purpose of the law, are not categorized
further. They are all similarly treated, both in privileges granted and in obligations required.
With all the four requisites for a reasonable classification present, there is no ground to
invalidate Executive Order No. 97-A for being violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax exemptions and privileges gave the private
respondents undue advantage over local enterprises which do not operate inside the SSEZ,
thereby creating unfair competition in violation of the constitutional prohibition against unfair
competition and practices in restraint of trade.
The argument is without merit. Just how the assailed issuance is violative of the prohibition
against unfair competition and practices in restraint of trade is not clearly explained in the
petition. Republic Act No. 7227, and consequently Executive Order No. 97-A, cannot be said to
be distinctively arbitrary against the welfare of businesses outside the zones. The mere fact that
incentives and privileges are granted to certain enterprises to the exclusion of others does not
render the issuance unconstitutional for espousing unfair competition. Said constitutional
prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue its
policies.
Suffice it to say that Congress had justifiable reasons in granting incentives to the private
respondents, in accordance with Republic Act No. 7227s policy of developing the SSEZ into a
self-sustaining entity that will generate employment and attract foreign and local investment. If
petitioners had wanted to avoid any alleged unfavorable consequences on their profits, they
should upgrade their standards of quality so as to effectively compete in the market. In the
alternative, if petitioners really wanted the preferential treatment accorded to the private
respondents, they could have opted to register with SSEZ in order to operate within the special
economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly
violated the State policy of promoting the preferential use of Filipino labor, domestic materials
and locally produced goods and adopting measures to help make them competitive.
Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their
sweeping conclusion that the issuance has violated the State policy of giving preference to
Filipino goods and labor. The mere fact that said issuance authorizes the importation and trade
of foreign goods does not suffice to declare it unconstitutional on this ground.
Petitioners cite Manila Prince Hotel v. GSIS[31] which, however, does not apply. That case dealt
with the policy enunciated under the second paragraph of Section 10, Article XII of the
Constitution,[32] applicable to the grant of rights, privileges, and concessions covering the
national economy and patrimony, which is different from the policy invoked in this petition,
specifically that of giving preference to Filipino materials and labor found under Section 12 of
the same Article of the Constitution. (Emphasis supplied).
P a g e 84 | 122
In Taada v. Angara,[33] this Court elaborated on the meaning of Section 12, Article XII of the
Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and
enterprises, at the same time, it recognizes the need for business exchange with the rest of the
world on the bases of equality and reciprocity and limits protection of Filipino enterprises only
against foreign competition and trade practices that are unfair. In other words, the Constitution
did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and
services in the development of the Philippine economy. While the Constitution does not
encourage the unlimited entry of foreign goods, services and investments into the country, it
does not prohibit them either. In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair.[34]
This Court notes that the Executive Department, with its subsequent issuance of Executive
Order Nos. 444 and 303, has provided certain measures to prevent unfair competition. In
particular, Executive Order Nos. 444 and 303 have restricted the special shopping privileges to
certain individuals.[35] Executive Order No. 303 has limited the range of items that may be sold in
the duty-free outlets,[36] and imposed sanctions to curb abuses of duty-free privileges.[37] With
these measures, this Court finds no reason to strike down Executive Order No. 97-A for
allegedly being prejudicial to Filipino labor, domestic materials and locally produced goods.
WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and
Section 4 of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and
are accordingly declared of no legal force and effect. Respondents are hereby enjoined from
implementing the aforesaid void provisions. All portions of Executive Order No. 97-A are valid
and effective, except the second sentences in paragraphs 1.2 and 1.3 of said Executive Order,
which are hereby declared INVALID.
No costs.
SO ORDERED.
P a g e 85 | 122
Abakada Guro v. ErmitaG.R. No. 168056, July 5, 2005J. Puno En Banc

Facts: Motions for Reconsideration filed by petitioners, ABAKADA Guro party List Officer and
et al.,insist that the bicameral conference committee should not even have acted on the no
pass-on provisions since there is no disagreement between House Bill Nos. 3705 and 3555 on
the onehand, and Senate Bill No. 1950 on the other, with regard to the no pass-on provision for
the saleof service for power generation because both the Senate and the House were in
agreement thatthe VAT burden for the sale of such service shall not be passed on to the end-
consumer. As tothe no pass-on provision for sale of petroleum products, petitioners argue that
the fact that the presence of such a no pass-on provision in the House version and the
absence thereof in theSenate Bill means there is no conflict because a House provision cannot
be in conflict withsomething that does not exist.Escudero, et. al., also contend that Republic Act
No. 9337 grossly violates the constitutionalimperative on exclusive origination of revenue bills
under Section 24 of Article VI of theConstitution when the Senate introduced amendments not
connected with VAT.Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand- by
authority to theExecutive to increase the VAT rate, especially on account of the
recommendatory power grantedto the Secretary of Finance, constitutes undue delegation of
legislative power. They submit thatthe recommendatory power given to the Secretary of Finance
in regard to the occurrence of either of two events using the Gross Domestic Product (GDP) as
a benchmark necessarily andinherently required extended analysis and evaluation, as well as
policy making.Petitioners also reiterate their argument that the input tax is a property or a
property right.Petitioners also contend that even if the right to credit the input VAT is merely a
statutory privilege, it has already evolved into a vested right that the State cannot remove.
Issue: Whether or not the R.A. No. 9337 or the Vat Reform Act is constitutional?
Held: The Court is not persuaded. Article VI, Section 24 of the Constitution provides
that Allappropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
localapplication, and private bills shall originate exclusively in the House of Representatives, but
theSenate may propose or concur with amendments.
The Court reiterates that in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego
of thePresident or even her subordinate. He is acting as the agent of the legislative department,
todetermine and declare the event upon which its expressed will is to take effect. The Secretary
of Finance becomes the means or tool by which legislative policy is determined and
implemented,considering that he possesses all the facilities to gather data and information and
has a much broader perspective to properly evaluate them. His function is to gather and collate
statisticaldata and other pertinent information and verify if any of the two conditions laid out by
Congressis present.In the same breath, the Court reiterates its finding that it is not a property
or a property right, anda VAT-registered persons entitlement to the creditable input tax is a
mere statutory privilege. Asthe Court stated in its Decision, the right to credit the input tax is a
mere creation of law. Moreimportantly, the assailed provisions of R.A. No. 9337 already involve
legislative policy andwisdom. So long as there is a public end for which R.A. No. 9337 was
passed, the means throughwhich such end shall be accomplished is for the legislature to
choose so long as it is withinconstitutional bounds.The Motions for Reconsideration are hereby
DENIED WITH FINALITY. The temporaryrestraining order issued by the Court is LIFTED.
P a g e 86 | 122
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision
(Section 1) unduly discriminated against him by the imposition of higher rates upon his income
as a professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity in
taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.
Held: There is a need for proof of such persuasive character as would lead to a conclusion that
there was a violation of the due process and equal protection clauses. Absent such showing,
the presumption of validity must prevail. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable and natural classifications for purposes of
taxation. Where the differentitation conforms to the practical dictates of justice and equity,
similar to the standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such as
recipients of compensation income as against professionals. Recipients of compensation
income are not entitled to make deductions for income tax purposes as there is no practically no
overhead expense, while professionals and businessmen have no uniform costs or expenses
necessaryh to produce their income. There is ample justification to adopt the gross system of
income taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income.
P a g e 87 | 122
G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO
VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing
of its constitutional infirmity. The assailed provision further amends Section 21 of the National
Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings,
(d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes
and from trust fund and similar arrangements, (e) dividends and share of individual partner in
the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer
alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those
which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the
above sction as arbitrary amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression of both the equal protection and
due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10
days from notice. Such an answer, after two extensions were granted the Office of the Solicitor
General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner,
the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer
then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited while correctly quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was
so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to
private enterprise and initiative and which the government was called upon to enter optionally,
and only 'because it was better equipped to administer for the public welfare than is any private
individual or group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times." 11 Hence the need for more revenues. The
P a g e 88 | 122
power to tax, an inherent prerogative, has to be availed of to assure the performance of vital
state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It
is the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all
its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets
forth such limits . Adversely affecting as it does properly rights, both the due process and equal
protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate
cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion
in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times
following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot
be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of
unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in
the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to
abide by its command, then this Court must so declare and adjudge it null. The injury thus is
centered on the question of whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional
taint. Considering that petitioner here would condemn such a provision as void or its face, he
has not made out a case. This is merely to adhere to the authoritative doctrine that were the due
process and equal protection clauses are invoked, considering that they arc not fixed rules but
rather broad standards, there is a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be
shown to amount to the confiscation of property. That would be a clear abuse of power. It then
becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an
authority not conferred. That properly calls for the application of the Holmes dictum. It has also
been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not
for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is
subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of
this constitutional mandate whether the assailed act is in the exercise of the lice power or the
power of eminent domain is to demonstrated that the governmental act assailed, far from being
inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the
very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
P a g e 89 | 122
treated in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the
principle is that equal protection and security shall be given to every person under circumtances
which if not Identical are analogous. If law be looked upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever restrictions cast on some
in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of
approximating the Ideal of the laws benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the Idea of
law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The
equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or opinion
to be treated in law as though they were the same." 21 Hence the constant reiteration of the view
that classification if rational in character is allowable. As a matter of fact, in a leading case of
Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it
is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution:
"The rule of taxation shag be uniform and equitable." 24 This requirement is met according to
Justice Laurel in Philippine Trust Company v. Yatco, 25decided in 1940, when the tax "operates
with the same force and effect in every place where the subject may be found. " 26He likewise
added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because
this is hardly attainable." 27 The problem of classification did not present itself in that case. It did
not arise until nine years later, when the Supreme Court held: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29There is quite a
similarity then to the standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration
the distinction between a tax rate and a tax base. There is no legal objection to a broader tax
base or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is
enough that the classification must rest upon substantial distinctions that make real differences.
In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible
basis of classification is the susceptibility of the income to the application of generalized rules
removing all deductible items for all taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled
to make deductions for income tax purposes because they are in the same situation more or
P a g e 90 | 122
less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their
income. It would not be just then to disregard the disparities by giving all of them zero deduction
and indiscriminately impose on all alike the same tax rates on the basis of gross income. There
is ample justification then for the Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the system of net income taxation as regards
professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1)
lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the
force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3)
the reasonableness of the distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
P a g e 91 | 122
Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and
all productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal
tax equivalent to 1% per export sale to the United States and other foreign countries. The
company paid the said tax under protest. It subsequently filed a case seeking to invalidate the
ordinance for being unconstitutional.
Issue: Whether the ordinance violates the equal protection clause.
Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Co. Inc. and none other. At the time of the taxing ordinances enacted, the company was the
only sugar central in Ormoc City. The classification, to be reasonable, should be in terms
applicable to future conditions as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar central, of the same class as the
present company, from the coverage of the tax. As it is now, even if later a similar company is
set up, it cannot be subject to the tax because the ordinance expressly points only to the
company as the entity to be levied upon.
P a g e 92 | 122
G.R. No. L-23794 February 17, 1968

ORMOC SUGAR COMPANY, INC., plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON.
ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for plaintiff-
appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4,
Series of 1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc
Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on
March 20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of
Leyte, with service of a copy upon the Solicitor General, a complaint 3 against the City of Ormoc
as well as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is
unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution)
and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an
export tax forbidden under Section 2287 of the Revised Administrative Code. It further alleged
that the tax is neither a production nor a license tax which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act 2264, otherwise known as the Local Autonomy Act,
is authorized to impose; and that the tax amounts to a customs duty, fee or charge in violation of
paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both the sale and export of
sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's
power to enact under the Local Autonomy Act and that the same did not violate the afore-cited
constitutional limitations. After pre-trial and submission of the case on memoranda, the Court of
First Instance, on August 6, 1964, rendered a decision that upheld the constitutionality of the
ordinance and declared the taxing power of defendant chartered city broadened by the Local
Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc.
Appellant alleges the same statutory and constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and
all productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc
City, a municipal tax equivalent to one per centum (1%) per export sale to the United States of
America and other foreign countries." Though referred to as a tax on the export of centrifugal
sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the
only time the tax applies is when the sugar produced is exported.
P a g e 93 | 122
Appellant questions the authority of the defendant Municipal Board to levy such an export
tax, in view of Section 2287 of the Revised Administrative Code which denies from municipal
councils the power to impose an export tax. Section 2287 in part states: "It shall not be in the
power of the municipal council to impose a tax in any form whatever, upon goods and
merchandise carried into the municipality, or out of the same, and any attempt to impose an
import or export tax upon such goods in the guise of an unreasonable charge for wharfage use
of bridges or otherwise, shall be void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave
chartered cities, municipalities and municipal districts authority to levy for public purposes just
and uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the
Revised Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining
Co. v. Municipality of Roxas 4 held the former to have been repealed by the latter. And
expressing Our awareness of the transcendental effects that municipal export or import taxes or
licenses will have on the national economy, due to Section 2 of Republic Act 2264, We stated
that there was no other alternative until Congress acts to provide remedial measures to forestall
any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power
of taxation, specifically the equal protection clause and rule of uniformity of taxation, were
infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the
equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the equal
protection clause applies only to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation, and a classification is reasonable where
(1) it is based on substantial distinctions which make real differences; (2) these are germane to
the purpose of the law; (3) the classification applies not only to present conditions but also to
future conditions which are substantially identical to those of the present; (4) the classification
applies only to those who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not meet
them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company,
Inc. and none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company,
Inc., it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be
reasonable, should be in terms applicable to future conditions as well. The taxing ordinance
should not be singular and exclusive as to exclude any subsequently established sugar central,
of the same class as plaintiff, for the coverage of the tax. As it is now, even if later a similar
company is set up, it cannot be subject to the tax because the ordinance expressly points only
to Ormoc City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not
arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time of collection, the
ordinance provided a sufficient basis to preclude arbitrariness, the same being then presumed
constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance
is declared unconstitutional and the defendants-appellees are hereby ordered to refund the
P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.
P a g e 94 | 122
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte [GR 27588, 31 December
1927]
Facts: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas,
Ilocos Norte. On the south side is a part of the Church yard, the convent and an adjacent lost
used for a vegetable garden in which there is a stable and a well for the use of the convent. In
the center is the remainder of the churchyard and the Church. On the north side is an
old cemetery with its two walls still standing, and a portion where formerly stood a tower. The
provincial board assessed land tax on lots comprising the north and southside, which the church
paid under protest. It filed suit to recover the amount.
Issue: Whether the lots are covered by the Churchs tax exemption.
Held: The exemption in favor of the convent in the payment of land tax refers to the home of the
priest who presides over the church and who has to take care of himself in order to discharge
his duties. The exemption includes not only the land actually occupied by the Church but also
the adjacent ground destined to the ordinaryincidental uses of man. A vegetable garden, thus,
which belongs to a convent, where its use is limited to the necessity of the priest, comes under
the exemption. Further, land used as a lodging house by the people who participate in religious
festivities, which constitutes an incidental use in religious functions, likewise comes within the
exemption. It cannot be taxed according to its former use, i.e. a cemetery.
P a g e 95 | 122
G.R. No. L-27588 December 31, 1927

THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman
Catholic Apostolic Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants.
AVANCEA, J.:
The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva
Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas,
Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the
churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off
1,624 square meters, in which there is a stable and a well for the use of the convent. In the
center is the remainder of the churchyard and the church. On the north is an old cemetery with
two of its walls still standing, and a portion where formerly stood a tower, the base of which still
be seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on
the lot adjoining the convent and the lot which formerly was the cemetery with the portion where
the tower stood.
The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land
tax, alleging that the collection of this tax is illegal. The lower court absolved the defendants
from the complaint in regard to the lot adjoining convent and declared that the tax collected on
the lot, which formerly was the cemetery and on the portion where the lower stood, was illegal.
Both parties appealed from this judgment.
The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative
Code) refers to the home of the parties who presides over the church and who has to take care
of himself in order to discharge his duties. In therefore must, in the sense, include not only the
land actually occupied by the church, but also the adjacent ground destined to the ordinary
incidental uses of man. Except in large cities where the density of the population and the
development of commerce require the use of larger tracts of land for buildings, a vegetable
garden belongs to a house and, in the case of a convent, it use is limited to the necessities of
the priest, which comes under the exemption.lawphi1.net
In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither
is it used for commercial purposes and, according to the evidence, is now being used as a
lodging house by the people who participate in religious festivities, which constitutes an
incidental use in religious functions, which also comes within the exemption.
The judgment appealed from is reversed in all it parts and it is held that both lots are exempt
from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such
tax, without any special pronouncement as to costs. So ordered.
P a g e 96 | 122
American Bible Society vs. City of Manila GR No. L-9637 | April 30, 1957
Facts: American Bible Society is a foreign, non-stock, non-profit, religious, missionary
corporation duly registered and doing business in the Philippines through its Philippine agency
established in Manila in November, 1898
City of Manila is a municipal corporation with powers that are to be exercised in
conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the
City of Manila
American Bible Society has been distributing and selling bibles and/or gospel portions
throughout the Philippines and translating the same into several Philippine dialect
City Treasurer of Manila informed American Bible Society that it was violating several
Ordinances for operating without the necessary permit and license, thereby requiring the
corporation to secure the permit and license fees covering the period from 4Q 1945-2Q 1953
To avoid closing of its business, American Bible Society paid the City of Manila its permit
and license fees under protest
American Bible filed a complaint, questioning the constitutionality and legality of the
Ordinances 2529 and 3000, and prayed for a refund of the payment made to the City of Manila.
They contended:
a. They had been in the Philippines since 1899 and were not required to pay any license
fee or sales tax
b. it never made any profit from the sale of its bibles
City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of
the Ordinances in question
Trial Court dismissed the complaint
American Bible Society appealed to the Court of Appeals
Issue: WON American Bible Society liable to pay sales tax for the distribution and sale of bibles
Ruling: NO
Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity
engaged in any of the business, trades or occupation enumerated under Sec. 3 must obtain a
Mayors permit and license from the City Treasurer. American Bible Societys business is not
among those enumerated
However, item 79 of Sec. 3 of the Ordinance provides that all other businesses, trade or
occupation not mentioned, except those upon which the City is not empowered to license or to
tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City to
license or tax said business, trade or occupation.
2 provisions of law that may have bearing on this case:
P a g e 97 | 122
a. Chapter 60 of the Revised Administrative Code, the Municipal Board of the City of
Manila is empowered to tax and fix the license fees on retail dealers engaged in the sale of
books
b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general merchandise,
including importers and indentors, except those dealers who may be expressly subject to the
payment of some other municipal tax. Further, Dealers in general merchandise shall be
classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail
dealers, general merchandise shall be classified into four main classes: namely (1) luxury
articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A
separate license shall be prescribed for each class but where commodities of different classes
are sold in the same establishment, it shall not be compulsory for the owner to secure more
than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale
dealers shall pay the license tax as such, as may be provided by ordinance
The only difference between the 2 provisions is the limitation as to the amount of tax or
license fee that a retail dealer has to pay per annum
As held in Murdock vs. Pennsylvania, The power to impose a license tax on the exercise
of these freedoms provided for in the Bill of Rights, is indeed as potent as the power of
censorship which this Court has repeatedly struck down. It is not a nominal fee imposed as a
regulatory measure to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities
whose enjoyment is guaranteed by the constitutional liberties of press and religion and
inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent
vice and evil of this flat license tax.
Further, the case also mentioned that the power to tax the exercise of a privilege is the
power to control or suppress its enjoyment. Those who can tax the exercise of this religious
practice can make its exercise so costly as to deprive it of the resources necessary for its
maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism
can close all its doors to all those who do not have a full purse
Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal Revenue
Code,Corporations or associations organized and operated exclusively for religious, charitable,
. . . or educational purposes, . . .: Provided, however, That the income of whatever kind and
character from any of its properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax imposed under this
Code shall not be taxed
The price asked for the bibles and other religious pamphlets was in some instances a
little bit higher than the actual cost of the same but this cannot mean that American Bible
Society was engaged in the business or occupation of selling said "merchandise" for profit
Therefore, the Ordinance cannot be applied for in doing so it would impair American Bible
Societys free exercise and enjoyment of its religious profession and worship as well as its rights
of dissemination of religious beliefs.
P a g e 98 | 122
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the
decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45
unduly collected from it
P a g e 99 | 122
G.R. No. L-9637 April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,
vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Naawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly
registered and doing business in the Philippines through its Philippine agency established in
Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant
appellee is a municipal corporation with powers that are to be exercised in conformity with the
provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles
and/or gospel portions thereof (except during the Japanese occupation) throughout the
Philippines and translating the same into several Philippine dialects. On May 29 1953, the
acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business
of general merchandise since November, 1945, without providing itself with the necessary
Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and
Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the
corresponding permit and license fees, together with compromise covering the period from the
4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff
deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding
the same (Annex B). To avoid the closing of its business as well as further fines and penalties in
the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit
and license fees in the aforementioned amount, giving at the same time notice to the City
Treasurer that suit would be taken in court to question the legality of the ordinances under
which, the said fees were being collected (Annex C), which was done on the same date by filing
the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be
rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos.
2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to
the plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and
the costs, plaintiff further praying for such other relief and remedy as the court may deem just
equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were enacted by
the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444,
subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section
18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila,
and praying that the complaint be dismissed, with costs against plaintiff. This answer was
replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances.
Before trial the parties submitted the following stipulation of facts:
P a g e 100 | 122
COME NOW the parties in the above-entitled case, thru their undersigned attorneys and
respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral,
Manila, Bibles, New Testaments, bible portions and bible concordance in English and other
foreign languages imported by it from the United States as well as Bibles, New Testaments and
bible portions in the local dialects imported and/or purchased locally; that from the fourth quarter
of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as follows:
Quarter Amount of
Sales
4th quarter 1945 P1,244.21
1st quarter 1946 2,206.85
2nd quarter 1946 1,950.38
3rd quarter 1946 2,235.99
4th quarter 1946 3,256.04
1st quarter 1947 13,241.07
2nd quarter 1947 15,774.55
3rd quarter 1947 14,654.13
4th quarter 1947 12,590.94
1st quarter 1948 11,143.90
2nd quarter 1948 14,715.26
3rd quarter 1948 38,333.83
4th quarter 1948 16,179.90
P a g e 101 | 122
1st quarter 1949 23,975.10
2nd quarter 1949 17,802.08
3rd quarter 1949 16,640.79
4th quarter 1949 15,961.38
1st quarter 1950 18,562.46
2nd quarter 1950 21,816.32
3rd quarter 1950 25,004.55
4th quarter 1950 45,287.92
1st quarter 1951 37,841.21
2nd quarter 1951 29,103.98
3rd quarter 1951 20,181.10
4th quarter 1951 22,968.91
1st quarter 1952 23,002.65
2nd quarter 1952 17,626.96
3rd quarter 1952 17,921.01
4th quarter 1952 24,180.72
1st quarter 1953 29,516.21
2. That the parties hereby reserve the right to present evidence of other facts not herein
stipulated.
P a g e 102 | 122
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may
present further evidence on their behalf. (Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved, among other things, that it has been in
existence in the Philippines since 1899, and that its parent society is in New York, United States
of America; that its, contiguous real properties located at Isaac Peral are exempt from real
estate taxes; and that it was never required to pay any municipal license fee or tax before the
war, nor does the American Bible Society in the United States pay any license fee or sales tax
for the sale of bible therein. Plaintiff further tried to establish that it never made any profit from
the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order
to maintain its operating cost it obtains substantial remittances from its New York office and
voluntary contributions and gifts from certain churches, both in the United States and in the
Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack
of profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone
witness who testified on cross-examination that bibles bearing the price of 70 cents each from
plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those
bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each
are sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each,
clearly show that plaintiff's contention that it never makes any profit from the sale of its bible, is
evidently untenable.
After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code and the
repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in
the way the legislative intent is expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be
levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance
No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance
No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds
that this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs
against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified
the case to Us for the reason that the errors assigned to the lower Court involved only questions
of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under
which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of
Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order
to be valid under the new Charter of the City of Manila, must first be approved by the President
of the Philippines; and
P a g e 103 | 122
4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial
proportions, it cannot escape from the operation of said municipal ordinances under the cloak of
religious privilege.
The issues. As may be seen from the proceeding statement of the case, the issues involved
in the present controversy may be reduced to the following: (1) whether or not the ordinances of
the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and
valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines,
provides that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise
thereof, and the free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religion test shall be required for the
exercise of civil or political rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos.
2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as its society
is concerned, because they provide for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious
literature to the people of the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall first consider
the provisions of the questioned ordinances in relation to their application to the sale of bibles,
etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City
Treasurer required plaintiff to secure a Mayor's permit in connection with the society's alleged
business of distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the
period covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's
failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended.
This Ordinance is of general application and not particularly directed against institutions like the
plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor
restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance
No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or
engage in any of the businesses, trades, or occupations enumerated in Section 3 of this
Ordinance or other businesses, trades, or occupations for which a permit is required for the
proper supervision and enforcement of existing laws and ordinances governing the sanitation,
security, and welfare of the public and the health of the employees engaged in the business
specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT
THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY
TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not particularly
mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required
therefor under existing laws and ordinances for the proper supervision and enforcement of their
provisions governing the sanitation, security and welfare of the public and the health of the
employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000
contains item No. 79, which reads as follows:
P a g e 104 | 122
79. All other businesses, trades or occupations not

mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City to license
or tax said business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay from
the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of
P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and
3028 prescribes the following:
SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City
of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the
businesses or occupations below enumerated, quarterly, license fees based on gross sales or
receipts realized during the preceding quarter in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first
time shall pay the initial license fee based on the probable gross sales or receipts for the first
quarter beginning from the date of the opening of the business as indicated herein for the
corresponding business or occupation.
xxx xxx xxx
GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet
subject to the payment of any municipal tax, such as (1) retail dealers in general merchandise;
(2) retail dealers exclusively engaged in the sale of . . . books, including stationery.
xxx xxx xxx
As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance
No. 2529, as amended, are not imposed directly upon any religious institution but upon those
engaged in any of the business or occupations therein enumerated, such as retail "dealers in
general merchandise" which, it is alleged, cover the business or occupation of selling bibles,
books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2)
of said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers
the Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both,
and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to
the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in
general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e)
books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the
combined total tax of any debtor or manufacturer, or both, enumerated under these subsections
(m-1) and (m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE
IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were
enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila.
P a g e 105 | 122
Appellant, however, contends that said ordinances are longer in force and effect as the law
under which they were promulgated has been expressly repealed by Section 102 of Republic
Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of
the trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of
the new seemingly differ in the way the legislative intent was expressed, yet their meaning is
practically the same for the purpose of taxing the merchandise mentioned in both legal
provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be
considered as still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the old
statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves mainly
the effect of the repeal upon rights and liabilities which accrued under the original statute. Are
those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of
simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities
accrued under the repealed act are destroyed, since the statutes from which they sprang are
actually terminated, even though for only a very short period of time. Others, and they seem to
be in the majority, refuse to accept this view of the situation, and consequently maintain that all
rights an liabilities which have accrued under the original statute are preserved and may be
enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force
without interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and
wider concept of taxation and is different from the provisions of Section 2444(m-2) that the
former cannot be considered as a substantial re-enactment of the provisions of the latter. We
have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and
We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No.
409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers and
indentors, except those dealers who may be expressly subject to the payment of some other
municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into
four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities,
and (4) miscellaneous articles. A separate license shall be prescribed for each class but where
commodities of different classes are sold in the same establishment, it shall not be compulsory
for the owner to secure more than one license if he pays the higher or highest rate of tax
prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be
provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and livestock,
agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may have any
bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax
P a g e 106 | 122
of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether
dealing in one or all of the articles mentioned therein, shall not be in excess of P500 per annum,
the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any
limitation as to the amount of tax or license fee that the retail dealer has to pay per annum.
Hence, and in accordance with the weight of the authorities above referred to that maintain that
"all rights and liabilities which have accrued under the original statute are preserved and may be
enforced, since the reenactment neutralizes the repeal, therefore continuing the law in force
without interruption", We hold that the questioned ordinances of the City of Manila are still in
force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by
the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which
reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted within the
City of Manila, not otherwise enumerated in the preceding subsections, including percentage
taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except
amusement taxes.
but this requirement of the President's approval was not contained in section 2444 of the former
Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as
stated by appellee's counsel, the business of "retail dealers in general merchandise" is
expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an
ordinance prescribing a municipal tax on said business does not have to be approved by the
President to be effective, as it is not among those referred to in said subsection (ii). Moreover,
the questioned ordinances are still in force, having been promulgated by the Municipal Board of
the City of Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable,
invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to
the people of the Philippines by a religious corporation like the American Bible Society, plaintiff
herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028,
appellant contends that it is unconstitutional and illegal because it restrains the free exercise
and enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as a profession of
faith to an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil.,
201).It has reference to one's views of his relations to His Creator and to the obligations they
impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason,
133 U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious information. Any
restraints of such right can only be justified like other restraints of freedom of expression on the
grounds that there is a clear and present danger of any substantive evil which the State has the
right to prevent". (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p.
297). In the case at bar the license fee herein involved is imposed upon appellant for its
distribution and sale of bibles and other religious literature:
P a g e 107 | 122
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license
be obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares
or merchandise cannot be made to apply to members of Jehovah's Witnesses who went about
from door to door distributing literature and soliciting people to "purchase" certain religious
books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of
the books was twenty-five cents each, the "price" of the pamphlets five cents each. It was
shown that in making the solicitations there was a request for additional "contribution" of twenty-
five cents each for the books and five cents each for the pamphlets. Lesser sum were accepted,
however, and books were even donated in case interested persons were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be described as
embraced in the occupation of selling books and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and the press are free from all financial burdens of
government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56
S. Ct. 444. We have here something quite different, for example, from a tax on the income of
one who engages in religious activities or a tax on property used or employed in connection with
activities. It is one thing to impose a tax on the income or property of a preacher. It is quite
another to exact a tax from him for the privilege of delivering a sermon. The tax imposed by the
City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these
constitutional privileges. The power to tax the exercise of a privilege is the power to control or
suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make
its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who
can tax the privilege of engaging in this form of missionary evangelism can close all its doors to
all those who do not have a full purse. Spreading religious beliefs in this ancient and honorable
manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this activity is
unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax
a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to
impose a license tax on the exercise of these freedom is indeed as potent as the power of
censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as
a regulatory measure to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities
whose enjoyment is guaranteed by the constitutional liberties of press and religion and
inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent
vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the approval of an official
or manager even if the town were owned by a corporation as held in the case of Marsh vs. State
of Alabama(326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas
(326 U.S. 517). In the former case the Supreme Court expressed the opinion that the right to
enjoy freedom of the press and religion occupies a preferred position as against the
constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the people to
enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the
latter occupy a preferred position. . . . In our view the circumstance that the property rights to the
P a g e 108 | 122
premises where the deprivation of property here involved, took place, were held by others than
the public, is not sufficient to justify the State's permitting a corporation to govern a community
of citizens so as to restrict their fundamental liberties and the enforcement of such restraint by
the application of a State statute." (Taada and Fernando on the Constitution of the Philippines,
Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations
shall not be taxed under this Title in respect to income received by them as such
(e) Corporations or associations organized and operated exclusively for religious, charitable, . . .
or educational purposes, . . .: Provided, however, That the income of whatever kind and
character from any of its properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax imposed under this
Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from
this tax and says that such exemption clearly indicates that the act of distributing and selling
bibles, etc. is purely religious and does not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets
was in some instances a little bit higher than the actual cost of the same but this cannot mean
that appellant was engaged in the business or occupation of selling said "merchandise" for
profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as
amended, cannot be applied to appellant, for in doing so it would impair its free exercise and
enjoyment of its religious profession and worship as well as its rights of dissemination of
religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's
permit before any person can engage in any of the businesses, trades or occupations
enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right
granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman
vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are
being delivered free, or whether same are being sold within the city limits of the City of Griffin,
without first obtaining written permission from the city manager of the City of Griffin, shall be
deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive
defendant of his constitutional right of the free exercise and enjoyment of religious profession
and worship, even though it prohibits him from introducing and carrying out a scheme or
purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even
if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is
not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the
business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right
to the free exercise and enjoyment of its religious profession and worship, as well as its rights of
P a g e 109 | 122
dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also
inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected
from it. Without pronouncement as to costs. It is so ordered.
P a g e 110 | 122
COMMISSIONER OF INTERNAL REVENUE v. YMCA

G.R. No. 124043 October 14, 1998
Panganiban, J.
Doctrine:
Rental income derived by a tax-exempt organization from the lease of its properties, real or
personal, is not exempt from income taxation, even if such income is exclusively used for the
accomplishment of its objectives.
A claim of statutory exemption from taxation should be manifest and unmistakable from the
language of the law on which it is based. Thus, it must expressly be granted in a statute stated
in a language too clear to be mistaken. Verba legis non est recedendum where the law
does not distinguish, neither should we.
The bare allegation alone that one is a non-stock, non-profit educational institution is
insufficient to justify its exemption from the payment of income tax. It must prove with
substantial evidence that (1) it falls under the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted from taxation is used actually, directly,
and exclusively for educational purposes.
The Court cannot change the law or bend it to suit its sympathies and appreciations.
Otherwise, it would be overspilling its role and invading the realm of legislation. The Court, given
its limited constitutional authority, cannot rule on the wisdom or propriety of legislation. That
prerogative belongs to the political departments of government.
Facts:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people, pursuant
to its religious, educational and charitable objectives.
YMCA earned income from leasing out a portion of its premises to small shop owners, like
restaurants and canteen operators, and from parking fees collected from non-members.
Petitioner issued an assessment to private respondent for deficiency taxes. Private respondent
formally protested the assessment. In reply, the CIR denied the claims of YMCA.
Issue:
Whether or not the income derived from rentals of real property owned by YMCA subject to
income tax
Held:
Yes. Income of whatever kind and character of non-stock non-profit organizations from any of
their properties, real or personal, or from any of their activities conducted for profit, regardless of
the disposition made of such income, shall be subject to the tax imposed under the NIRC.
Rental income derived by a tax-exempt organization from the lease of its properties, real or
personal, is not exempt from income taxation, even if such income is exclusively used for the
accomplishment of its objectives.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict
in interpretation in construing tax exemptions (Commissioner of Internal Revenue v. Court of
Appeals, 271 SCRA 605, 613, April 18, 1997). Furthermore, a claim of statutory exemption from
P a g e 111 | 122
taxation should be manifest and unmistakable from the language of the law on which it is based.
Thus, the claimed exemption must expressly be granted in a statute stated in a language too
clear to be mistaken (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue
and Court of Appeals, G.R. No. 117359, p. 15 July 23, 1998).
Verba legis non est recedendum. The law does not make a distinction. The rental income is
taxable regardless of whence such income is derived and how it is used or disposed of. Where
the law does not distinguish, neither should we.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that it
is a non-stock, non-profit educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from taxes on its properties and
income. This is without merit since the exemption provided lies on the payment of property tax,
and not on the income tax on the rentals of its property. The bare allegation alone that one is a
non-stock, non-profit educational institution is insufficient to justify its exemption from the
payment of income tax.
For the YMCA to be granted the exemption it claims under the above provision, it must prove
with substantial evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from taxation is used
actually, directly, and exclusively for educational purposes. Unfortunately for respondent, the
Court noted that not a scintilla of evidence was submitted to prove that it met the said requisites.
The Court appreciates the nobility of respondents cause. However, the Courts power and
function are limited merely to applying the law fairly and objectively. It cannot change the law or
bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and
invading the realm of legislation. The Court regrets that, given its limited constitutional authority,
it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political
departments of government.
P a g e 112 | 122
LUNG CENTER OF THE PHIL v. ORTIGAS

G.R. No. 144104 June 29, 2004 717 SCRA 601
FACTS: The petitioner Lung Center of the Philippines is the registered owner of a parcel of land
located at Quezon City and erected in the middle is a hospital known as the Lung Center of the
Philippines.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-
patients, both paying and non-paying, as well as private leases.
Both the land and the hospital building of the petitioner were assessed for real property taxes in
the amount of P4,554,860 by the City Assessor of Quezon City.
The petitioner filed a Claim for Exemption5 from real property taxes with the City Assessor,
stating that it is a charitable institution within the context of Section 28(3), Article VI of the 1987
Constitution.
ISSUES: (1) Whether the petitioner is a charitable institution within the context of Presidential
Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No.
7160; and (2) whether the real properties of the petitioner are exempt from real property taxes.
RULING: (1) Yes. The Court held that the petitioner is a charitable institution within the context
of the 1973 and 1987 Constitutions.
The test whether an enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.
Hence, the Lung Center was organized for the welfare and benefit of the Filipino people.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, so long as the
money received is devoted to charitable objects and no money inures to the private benefit of
the persons managing or operating the institution. As well as the reason of donation in the form
of subsidies granted by the government.
(2) No. Those portions of its real property that are leased to private entities are not exempt from
real property taxes as these are not actually, directly and exclusively used for charitable
purposes.
The petitioner failed to prove that the entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or non-
paying, other portions thereof are being leased to private individuals for their clinics and a
canteen.
Hence, 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.
P a g e 113 | 122
[G.R. No. 144104. June 29, 2004]

LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO
P. ROSAS, in his capacity as City Assessor of Quezon City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision[1] dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed
the decision of the Central Board of Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon are subject to assessment for purposes
of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established
on January 16, 1981 by virtue of Presidential Decree No. 1823.[2] It is the registered owner of a
parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at
Quezon Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of
121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the
Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known
as the Lung Center of the Philippines. A big space at the ground floor is being leased to private
parties, for canteen and small store spaces, and to medical or professional practitioners who
use the same as their private clinics for their patients whom they charge for their professional
services. Almost one-half of the entire area on the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-
patients, both paying and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.[3] Accordingly,
Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the
land and the hospital building, respectively.[4] On August 25, 1993, the petitioner filed a Claim for
Exemption[5] from real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioners request was denied, and a petition was, thereafter, filed
before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the
reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28,
paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred
that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the
major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is
a charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered
judgment dismissing the petition and holding the petitioner liable for real property taxes.[6]
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment
Appeals of Quezon City (CBAA, for brevity)[7] which ruled that the petitioner was not a charitable
P a g e 114 | 122
institution and that its real properties were not actually, directly and exclusively used for
charitable purposes; hence, it was not entitled to real property tax exemption under the
constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered
judgment affirming the decision of the CBAA.[8]
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO
REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND
EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER
ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON
PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI
of the 1987 Constitution. It asserts that its character as a charitable institution is not altered by
the fact that it admits paying patients and renders medical services to them, leases portions of
the land to private parties, and rents out portions of the hospital to private medical practitioners
from which it derives income to be used for operational expenses. The petitioner points out that
for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospitals
282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact
that it receives subsidies from the government attests to its character as a charitable
institution. It contends that the exclusivity required in the Constitution does not necessarily mean
solely. Hence, even if a portion of its real estate is leased out to private individuals from whom it
derives income, it does not lose its character as a charitable institution, and its exemption from
the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v.
QC-BAA[9] to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does
not exempt it from the payment of real estate taxes, it is not precluded from seeking tax
exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable
entity. The petitioners real property is not exempt from the payment of real estate taxes under
P.D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is actually, directly and exclusively used for
charitable purposes. The respondents noted that in a newspaper report, it appears that graft
charges were filed with the Sandiganbayan against the director of the petitioner, its
administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden
Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990
for only P20,000 a month, when the monthly rental should be P357,000 a month as determined
by the Commission on Audit; and that instead of complying with the directive of the COA for the
cancellation of the contract for being grossly prejudicial to the government, the petitioner
renewed the same on March 13, 1995 for a monthly rental of only P24,000. They assert that the
petitioner uses the subsidies granted by the government for charity patients and uses the rest of
its income from the property for the benefit of paying patients, among other purposes. They aver
that the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170
beds in the hospital are reserved for indigent patients. The respondents further assert, thus:
P a g e 115 | 122
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of
service. That before a patient is admitted for treatment in the Center, first impression is that it is
pay-patient and required to pay a certain amount as deposit. That even if a patient is living
below the poverty line, he is charged with high hospital bills. And, without these bills being first
settled, the poor patient cannot be allowed to leave the hospital or be discharged without first
paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential
agency or person known only to the Center; that even the remains of deceased poor patients
suffered the same fate. Moreover, before a patient is admitted for treatment as free or charity
patient, one must undergo a series of interviews and must submit all the requirements needed
by the Center, usually accompanied by endorsement by an influential agency or person known
only to the Center. These facts were heard and admitted by the Petitioner LCP during the
hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of
indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the
Quezon Institute. Can such practice by the Center be called charitable?[10]
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution
within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and
Section 234(b) of Republic Act No. 7160; and (b) whether the real properties of the petitioner
are exempt from real property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the
1973 and 1987 Constitutions. To determine whether an enterprise is a charitable
institution/entity or not, the elements which should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and by-laws, the methods of administration,
the nature of the actual work performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and occupation of the properties.[11]
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with
existing laws, for the benefit of an indefinite number of persons, either by bringing their minds
and hearts under the influence of education or religion, by assisting them to establish
themselves in life or otherwise lessening the burden of government.[12] It may be applied to
almost anything that tend to promote the well-doing and well-being of social man. It embraces
the improvement and promotion of the happiness of man.[13] The word charitable is not restricted
to relief of the poor or sick.[14] The test of a charity and a charitable organization are in law the
same. The test whether an enterprise is charitable or not is whether it exists to carry out a
purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private
advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to
the provisions of the decree, is to be administered by the Office of the President of
the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino people principally to help combat the high
incidence of lung and pulmonary diseases in the Philippines. The raison detre for the creation of
the petitioner is stated in the decree, viz:
P a g e 116 | 122
Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the total
annual deaths from all causes, thus, exacting a tremendous toll on human resources, which
ailments are likely to increase and degenerate into serious lung diseases on account of
unabated pollution, industrialization and unchecked cigarette smoking in the country;
Whereas, the more common lung diseases are, to a great extent, preventable, and curable with
early and adequate medical care, immunization and through prompt and intensive prevention
and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and
efforts at preventing, treating and rehabilitating people affected by lung diseases, and to
undertake research and training on the cure and prevention of lung diseases, through a Lung
Center which will house and nurture the above and related activities and provide tertiary-level
care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial
support towards the establishment and maintenance of a Lung Center for the welfare and
benefit of the Filipino people.[15]
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation,
thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical
institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and
allied diseases in line with the concern of the government to assist and provide material and
financial support in the establishment and maintenance of a lung center primarily to benefit the
people of the Philippines and in pursuance of the policy of the State to secure the well-being of
the people by providing them specialized health and medical services and by minimizing the
incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the prevention of lung or
pulmonary ailments and the care of lung patients, including the holding of a series of relevant
congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the biological,
demographic, social, economic, eugenic and physiological aspects of lung or pulmonary
diseases and their control; and to collect and publish the findings of such research for public
consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung
consciousness or awareness, and the development of fact-finding, information and reporting
facilities for and in aid of the general purposes or objects aforesaid, especially in human lung
requirements, general health and physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and medical
and technical personnel in the practical and scientific implementation of services to lung
patients;
P a g e 117 | 122
6. To assist universities and research institutions in their studies about lung diseases, to
encourage advanced training in matters of the lung and related fields and to support educational
programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial and/or city and
local levels; and to coordinate their various efforts and activities for the purpose of achieving a
more effective programmatic approach on the common problems relative to the objectives
enumerated herein;
8. To seek and obtain assistance in any form from both international and local foundations and
organizations; and to administer grants and funds that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the public and, in general,
to promote and protect the health of the masses of our people, which has long been recognized
as an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the
people in any and all walks of life, including those who are poor and needy, all without regard to
or discrimination, because of race, creed, color or political belief of the persons helped; and to
enable them to obtain treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and carried on to
promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational materials
and supplies by purchase, donation, or otherwise and to dispose of and distribute the same in
such manner, and, on such basis as the Center shall, from time to time, deem proper and best,
under the particular circumstances, to serve its general and non-profit purposes and objectives;
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for the accomplishment of any
of the powers herein set forth and to do every other act and thing incidental thereto or
connected therewith.[16]
Hence, the medical services of the petitioner are to be rendered to the public in general in any
and all walks of life including those who are poor and the needy without discrimination. After all,
any person, the rich as well as the poor, may fall sick or be injured or wounded and become a
subject of charity.[17]
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the
institution.[18] In Congregational Sunday School, etc. v. Board of Review,[19] the State Supreme
Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent exemption from taxation,
by reason of the fact that those recipients of its benefits who are able to pay are required to do
so, where no profit is made by the institution and the amounts so received are applied in
P a g e 118 | 122
furthering its charitable purposes, and those benefits are refused to none on account of inability
to pay therefor. The fundamental ground upon which all exemptions in favor of charitable
institutions are based is the benefit conferred upon the public by them, and a consequent relief,
to some extent, of the burden upon the state to care for and advance the interests of its
citizens.[20]
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of
South Dakota v. Baker:[21]
[T]he fact that paying patients are taken, the profits derived from attendance upon these
patients being exclusively devoted to the maintenance of the charity, seems rather to enhance
the usefulness of the institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering classes, that the deserving poor can
with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects
of charity; and that their honest pride is much less wounded by being placed in an institution in
which paying patients are also received. The fact of receiving money from some of the patients
does not, we think, at all impair the character of the charity, so long as the money thus received
is devoted altogether to the charitable object which the institution is intended to further. [22]
The money received by the petitioner becomes a part of the trust fund and must be devoted to
public trust purposes and cannot be diverted to private profit or benefit.[23]
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose
its character as a charitable institution simply because the gift or donation is in the form of
subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason
v. County Board of Equalization of Salt Lake County:[24]
Second, the government subsidy payments are provided to the project. Thus, those payments
are like a gift or donation of any other kind except they come from the government. In
both Intermountain Health Care and the present case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a
private benefactor, chose to make up the deficit resulting from the exchange between St. Marks
Tower and the tenants by making a contribution to the landlord, just as it would have been
irrelevant in Intermountain Health Care if the patients income supplements had come from
private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the denial of a
charitable exemption if the facts otherwise support such an exemption, as they do here.[25]
In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue,
that those portions of its real property that are leased to private entities are not exempt from real
property taxes as these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an exemption is
P a g e 119 | 122
equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.[26] As held in Salvation Army
v. Hoehn:[27]
An intention on the part of the legislature to grant an exemption from the taxing power of the
state will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or must
appear by necessary implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter or act of incorporation,
it is to be construed strictly against the property owner and in favor of the public. This principle
applies with peculiar force to a claim of exemption from taxation . [28]
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides
that the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation
organized primarily to help combat the high incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions, endowments and equipment and supplies to be
imported by authorized entities or persons and by the Board of Trustees of the Lung Center of
the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from
income and gift taxes, the same further deductible in full for the purpose of determining the
maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue
Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and
fees imposed by the Government or any political subdivision or instrumentality thereof with
respect to equipment purchases made by, or for the Lung Center.[29]
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions
were otherwise, the same should have been among the enumeration of tax exempt privileges
under Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One
variation of the rule is principle that what is expressed puts an end to that which is
implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly
limited to certain matters, it may not, by interpretation or construction, be extended to other
matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human
mind. They are predicated upon ones own voluntary act and not upon that of others. They
proceed from the premise that the legislature would not have made specified enumeration in a
statute had the intention been not to restrict its meaning and confine its terms to those expressly
mentioned.[30]
P a g e 120 | 122
The exemption must not be so enlarged by construction since the reasonable presumption is
that the State has granted in express terms all it intended to grant at all, and that unless the
privilege is limited to the very terms of the statute the favor would be intended beyond what was
meant.[31]
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.[32]
The tax exemption under this constitutional provision covers property taxes only.[33] As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained:
. . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes.[34]
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment
of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable or educational purposes.[35]
We note that under the 1935 Constitution, ... all lands, buildings, and improvements used
exclusively for charitable purposes shall be exempt from taxation.[36] However, under the 1973
and the present Constitutions, for lands, buildings, and improvements of the charitable
institution to be considered exempt, the same should not only be exclusively used for charitable
purposes; it is required that such property be used actually and directly for such purposes.[37]
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our
ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated
on September 30, 1961 before the 1973 and 1987 Constitutions took effect.[38] As this Court
held in Province of Abra v. Hernando:[39]
Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or
educational purposes shall be exempt from taxation. The present Constitution added charitable
institutions, mosques, and non-profit cemeteries and required that for the exemption of lands,
buildings, and improvements, they should not only be exclusively but also actually and directly
used for religious or charitable purposes. The Constitution is worded differently. The change
should not be ignored. It must be duly taken into consideration. Reliance on past decisions
would have sufficed were the words actually as well as directly not added. There must be proof
therefore of the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation.
P a g e 121 | 122
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. Exclusive is
defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a privilege
exclusively.[40] If real property is used for one or more commercial purposes, it is not exclusively
used for the exempted purposes but is subject to taxation.[41] The words dominant use or
principal use cannot be substituted for the words used exclusively without doing violence to the
Constitutions and the law.[42] Solely is synonymous with exclusively.[43]
What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.[44]
The petitioner failed to discharge its burden to prove that the entirety of its real property is
actually, directly and exclusively used for charitable purposes. While portions of the hospital are
used for the treatment of patients and the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being leased to private individuals for their
clinics and a canteen. Further, a portion of the land is being leased to a private individual for her
business enterprise under the business name Elliptical Orchids and Garden Center. Indeed, the
petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991
and P1,679,999.28 for 1992 from the said lessees.
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.[45] 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.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent
Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise
portions of the land and the area thereof which are leased to private persons, and to compute
the real property taxes due thereon as provided for by law.
SO ORDERED.
*****END OF PAGE 2*****
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TAX CASES: Dili Puede I-Change Puhon

G.R. No. L-23645 October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

The pertinent portions of Adm. Order 3 read as follows:

xxx xxx xxx

5. Mails entitled to franking privilege. Government agencies, officials, and other

The classification is likewise based on considerations of administrative convenience. For it is

G.R. No. L-10405 December 29, 1960

G.R. Nos. L-49839-46 April 26, 1991

G.R. No. 115455 235 SCRA 630 (1994)

G.R. No. 115455 August 25, 1994

B. Claims of Regressivity, Denial of Due Process, Equal Protection, and Impairment

G.R. No. 33403 September 4, 1930

THIRTY-FIRST INFANTRY POST EXCHANGE and FIRST LIEUTENANT DAVID L.

Wherefore, the complaint will be dismissed, with costs.

G.R. No. L-26379 December 27, 1969

not susceptible of the mischievous consequences now sought to be fastened on it by

JOHN HAY V. LIM (TAX)

[G. R. No. 119775. October 24, 2003]

V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF AGREEMENT ENTERED

[G.R. No. 132527. July 29, 2005]

Abakada Guro v. ErmitaG.R. No. 168056, July 5, 2005J. Puno En Banc

G.R. No. L-59431 July 25, 1984

G.R. No. L-23794 February 17, 1968

G.R. No. L-27588 December 31, 1927

G.R. No. L-9637 April 30, 1957

4th quarter 1945 P1,244.21

1st quarter 1946 2,206.85

2nd quarter 1946 1,950.38

3rd quarter 1946 2,235.99

4th quarter 1946 3,256.04

1st quarter 1947 13,241.07

2nd quarter 1947 15,774.55

3rd quarter 1947 14,654.13

4th quarter 1947 12,590.94

1st quarter 1948 11,143.90

2nd quarter 1948 14,715.26

3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

2nd quarter 1949 17,802.08

3rd quarter 1949 16,640.79

4th quarter 1949 15,961.38

1st quarter 1950 18,562.46

2nd quarter 1950 21,816.32

3rd quarter 1950 25,004.55

4th quarter 1950 45,287.92

1st quarter 1951 37,841.21

2nd quarter 1951 29,103.98

3rd quarter 1951 20,181.10

4th quarter 1951 22,968.91

1st quarter 1952 23,002.65

2nd quarter 1952 17,626.96

3rd quarter 1952 17,921.01

4th quarter 1952 24,180.72

1st quarter 1953 29,516.21

79. All other businesses, trades or occupations not

COMMISSIONER OF INTERNAL REVENUE v. YMCA

LUNG CENTER OF THE PHIL v. ORTIGAS

[G.R. No. 144104. June 29, 2004]

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