LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Taxation; Delegation of Powers; Power of taxation may be

delegated to local governments on matters of local concern.
The power of taxation x x x may be delegated to local governments
in respect of matters of local concern. This is sanctioned by
immoral practice. By necessary implication, the legislative power to
create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental
agencies the power to tax. x x x The plenary nature of the taxing
power thus delegated, contrary to plaintiff-appellants pretense,
would not suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not limited to
the exact meassure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and
the like, it is meant taxes there may be delegated such measure of
power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects
which for reasons of public policy the State has not deemed wise to
tax for more general purposes.

Same; Due process; Taking of property without due process of

law may not be passed over under the guise of taxing power,
except when the latter is exercised lawfully.This is not to say
though that the constitutional injunction against deprivation of
property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is
in the lawful exercise of the taxing power, as when (1) the tax is for
a public purpose; (2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within the jurisdiction of
the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for
hearing are provided.

Same; Same; Delegation of powers; Delegation of taxing power

to local governments may not be assailed on the ground of
double taxation.There is no validity to the assertion that the
delegated authority can be declared unconstitutional on the theory
of double taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which local
taxation may not be exercised. x x x Moreover, double taxation, in
general, is not forbidden by our fundamental law, since We have not
adopted as part thereof the injunction against double taxation found
in the Constitution of the United States and some states of the
Union. Double taxation becomes obnoxious only where the taxpayer
is taxed twice for the benefit of the same governmental entity or by
the same jurisdiction for the same purpose, but not in a case where
one tax is imposed by the State and the other by the city of
municipality.

Taxation; A municipal ordinance which imposes a tax of P0.01

for every gallon of soft drinks produced in the municipality
does not partake of a percentage tax.The imposition of a tax
of one centavo (P0.01) on each gallon (128 flued ounces, U.S.) of

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volume capacity on all soft drinks produced or manufactured

under Ordinance No. 27 does not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon.
The tax is levied on the produce (whether sold or not) and not on
the sales. The volume capacity of the taxpayers production of soft
drinks is considered solely for purposes of determining the tax rate
on the products, but there is no set ratio between the volume of
sales and the amount of the tax.

Same; A municipal tax on soft drinks is not a specific tax.Nor

can the tax levied be treated as a specific tax. Specific taxes are
those imposed on specified articles, such as distilled spirits, wines,
x x x cigars and cigarettes, matches, x x x bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and
other habit-forming drugs. Soft drinks is not one of those specified.

Same; A municipal tax of P0.01 on each gallon of soft drinks

produced is not unfair or oppressive.The tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on
all soft drinks, produced or manufactured, or an equivalent of 1
centavos per case, cannot be considered unjust and unfair. An
increase in the tax alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal corporations are
allowed much discretion in determining the rates of imposable
taxes. This is in line with the constitutional policy of according the
widest possible autonomy to local governments in matters of local
taxation, an aspect that is given expression in the Local Tax Code
(PD No. 231, July 1, 1973). Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as
unreasonable.

Same; Licenses; Municipalities are empowered to impose not

only municipal license but just and uniform taxes for public
purposes.The municipal license tax of P1,000.00 per corking
machine with five but not more than ten crowners x x x imposed on
manufacturers, producers, importers and dealers of soft drinks
and/or mineral waters x x x appears not to affect the resolution of
the validity of Ordinance No. 27. Municipalities are empowered to
impose, not only municipal license taxes upon persons engaged in
any business or occupation but also to levy for public purposes, just
and uniform taxes. The ordinance in question (Ordinance No. 27)
comes within the second power of a municipality. [Pepsi-Cola

Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan,

Leyte, 69 SCRA 460(1976)]
Taxation; As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay it.As a
general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

that security against its abuse is to be found only in the

responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions.
Our Constitution, for instance, provides that the rule of taxation
shall be uniform and equitable and Congress shall evolve a
progressive system of taxation. So potent indeed is the power that
it was once opined that the power to tax involves the power to
destroy.

Same; Statutory Construction; Since taxation is a destructive

power which interferes with the personal and property rights
of the people and takes from them a portion of their property
for the support of the government, tax statutes must be
construed strictly against the government and liberally in
favor of the taxpayer; But since taxes are what we pay for
civilized society, or are the lifeblood of the nation, the law
frowns against exemptions from taxation and statutes granting
tax exemptions are thus construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority.
Verily, taxation is a destructive power which interferes with the
personal and property rights of the people and takes from them a
portion of their property for the support of the government.
Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. But since taxes
are what we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed stricissimi
juris against the taxpayer and liberally in favor of the taxing
authority. A claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.
Elsewise stated, taxation is the rule, exemption therefrom is the
exception. However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction does
not apply because the practical effect of the exemption is merely to
reduce the amount of money that has to be handled by the
government in the course of its operations.

Same; Local Government Units; The power to tax is primarily

vested in the Congress but in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by
virtue of a valid delegation but pursuant to direct authority
conferred by the Constitution. The power to tax is primarily
vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a
valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. Under the
latter, the exercise of the power may be subject to such guidelines
and limitations as the Congress may provide which, however, must
be consistent with the basic policy of local autonomy.

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Same; Same; Non-Impairment Clause; Since taxation is the rule

and exemption therefrom the exception, the exemption may be
withdrawn at the pleasure of the taxing authority, the only
exception being where the exemption was granted to private
parties based on material consideration of a mutual nature,
which then becomes contractual and thus covered by the nonimpairment clause of the Constitution.There can be no
question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to
private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the
nonimpairment clause of the Constitution.

Same; Same; Local Government Code; Words and Phrases;

Fees and Charges, Explained.Section 133 of the LGC
prescribes the common limitations on the taxing powers of local
government units. Needless to say, the last item (item 0 of Sec. 133
of the LGC) is pertinent to this case. The taxes, fees or charges
referred to are of any kind; hence, they include all of these, unless
otherwise provided by the LGC. The term taxes is well understood
so as to need no further elaboration, especially in light of the above
enumeration. The term fees means charges fixed by law or
ordinance for the regulation or inspection of business or activity,
while charges are pecuniary liabilities such as rents or fees
against persons or property.

Same; Same; Same; Since the last paragraph of Section 234 of

the LGC unequivocally withdrew, upon the effectivity of the
LGC, exemptions from payment of real property taxes granted
to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said
section, and Mactan Cebu International Airport Authority is a
government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter,
R.A 6958, has been withdrawn.Since the last paragraph of
Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural
or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in
Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any
claim to the contrary can only be justified if the petitioner can seek
refuge under any of the exceptions provided in Section 234, but not
under Section 133, as it now asserts, since, as shown above, the
said section is qualified by Sections 232 and 234.

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Same; Words and Phrases; The terms Republic of the

Philippines and National Government are not
interchangeablethe former is broader and synonymous with
Government of the Republic of the Philippines while the latter
refers to the entire machinery of the central government, as
distinguished from the different forms of local governments."The
terms Republic of the Philippines and National Government are
not interchangeable. The former is broader and synonymous with
Government of the Republic of the Philippines which the
Administrative Code of 1987 defines as the corporate
governmental entity through which the functions of government are
exercised throughout the Philippines, including, save as the
contrary appears from the context, the various arms through which
political authority is made effective in the Philippines, whether
pertaining to the autonomous regions, the provincial, city, municipal
or barangay subdivisions or other forms of local government.
These autonomous regions, provincial, city, municipal or barangay
subdivisions are the political subdivisions. On the other hand,
National Government refers to the entire machinery of the
central government, as distinguished from the different forms of
local governments. The National Government then is composed of
the three great departments: the executive, the legislative and the
judicial.

Same; Same; Agency and Instrumentality, Explained.An

agency of the Government refers to any of the various units of
the Government, including a department, bureau, office,
instrumentality, or government-owned or controlled corporation,
or a local government or a distinct unit therein; while an
instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned
and controlled corporations.

Same; Local Government Units; Local Autonomy; The power to

tax is the most effective instrument to raise needed revenues
to finance and support myriad activities of local government
units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people.The justification
for this restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of the
general provision on withdrawal of tax exemption privileges in
Section 193 and the special provision on withdrawal of exemption
from payment of real property taxes in the last paragraph of
Section 234. These policy considerations are consistent with the
State policy to ensure autonomy to local governments and the
objective of the LGC that they enjoy genuine and meaningful local

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autonomy to enable them to attain their fullest development as

selfreliant communities and make them effective partners in the
attainment of national goals. The power to tax is the most effective
instrument to raise needed revenues to finance and support myriad
activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It
may also be relevant to recall that the original reasons for the
withdrawal of tax exemption privileges granted to governmentowned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated
enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the
taxes and other charges due from them.

Same; Mactan Cebu International Airport Authority cannot

claim that it was never a taxable person under its Charter
it was only exempted from the payment of real property taxes.
Moreover, the petitioner cannot claim that it was never a taxable
person under its Charter. It was only exempted from the payment
of real property taxes. The grant of the privilege only in respect of
this tax is conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property tax.

Same; Local Government Units; Local Government Code;

Reliance on Basco vs. Philippine Amusement and Gaming
Corporation, 197 SCRA 52 (1991), is unavailing since it was
decided before the effectivity of the LGC.Accordingly, the
position taken by the petitioner is untenable. Reliance on Basco vs.
Philippine Amusement and Gaming Corporation is unavailing since it
was decided before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or
agencies of the Government performing governmental functions
may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its
wisdom. [Mactan Cebu International Airport Authority vs.

Marcos, 261 SCRA 667(1996)]

Taxation; Municipal Corporations; Local Governments; Local
governments do not have the inherent power to tax except to
the extent that such power might be delegated to them either
by the basic law or by statute.Prefatorily, it might be well to
recall that local governments do not have the inherent power to tax
except to the extent that such power might be delegated to them
either by the basic law or by statute. Presently, under Article X of
the 1987 Constitution, a general delegation of that power has been
given in favor of local government units.

Same; Same; Same; Under the regime of the 1935 Constitution

local government units derived their tax powers under a
limited statutory authority.Under the regime of the 1935

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Constitution no similar delegation of tax powers was provided, and

local government units instead derived their tax powers under a
limited statutory authority. Whereas, then, the delegation of tax
powers granted at that time by statute to local governments was
confined and defined (outside of which the power was deemed
withheld), the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers
subject only to specific exceptions that the law might prescribe.

Same; Same; Same; Limitations on the Exercise of Taxing

Power by Local Government Units; Under the now prevailing
Constitution, where there is neither a grant nor a prohibition
by statute, the tax power must be deemed to exist although
Congress may provide statutory limitations and guidelines.
Under the now prevailing Constitution, where there is neither a
grant nor a prohibition by statute, the tax power must be deemed to
exist although Congress may provide statutory limitations and
guidelines. The basic rationale for the current rule is to safeguard
the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless,
the fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure
that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that (a)
the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have
its fair share of available resources; (c) the resources of the
national government will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just.

Same; Same; Same; Indicative of the legislative intent to carry

out the Constitutional mandate of vesting broad tax powers to
local government units, the Local Government Code has
effectively withdrawn tax exemptions or incentives
theretofore enjoyed by certain entities.Indicative of the
legislative intent to carry out the Constitutional mandate of vesting
broad tax powers to local government units, the Local Government
Code has effectively withdrawn, under Section 193 thereof, tax
exemptions or incentives theretofore enjoyed by certain entities.
This law states: Section 193. Withdrawal of Tax Exemption

Privileges.Unless otherwise provided in this Code, tax exemptions

or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (Italics supplied for emphasis)

Same; Same; Same; The Supreme Court has viewed its

previous rulings as laying stress more on the legislative intent
of the amendatory lawwhether the tax exemption privilege is
to be withdrawn or notrather than on whether the law can

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withdraw, without violating the Constitution, the tax exemption

or not.In the recent case of the City Government of San Pablo,
etc., et al. vs. Hon. Bienvenido V. Reyes, et al., the Court has held
that the phrase in lieu of all taxes have to give way to the
peremptory language of the Local Government Code specifically
providing for the withdrawal of such exemptions, privileges, and
that upon the effectivity of the Local Government Code all
exemptions except only as provided therein can no longer be
invoked by MERALCO to disclaim liability for the local tax. In fine,
the Court has viewed its previous rulings as laying stress more on
the legislative intent of the amendatory lawwhether the tax
exemption privilege is to be withdrawn or notrather than on
whether the law can withdraw, without violating the Constitution,
the tax exemption or not.

Same; Same; Same; Non-Impairment Clause; Contractual tax

exemptions, in the real sense of the term and where the nonimpairment clause of the Constitution can rightly be invoked,
are those agreed to by the taxing authority in contracts, such
as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity, which
contractual tax exemptions, however, are not to be confused
with tax exemptions granted under franchises.While the Court
has not too infrequently, referred to tax exemptions contained in
special franchises as being in the nature of contracts and a part of
the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term and where
the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts,
such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax exemptions,
however, are not to be confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the
Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution,
like its precursor provisions in the 1935 and the 1973 Constitutions,
is explicit that no franchise for the operation of a public utility shall
be granted except under the condition that such privilege shall be
subject to amendment, alteration or repeal by Congress as and
when the common good so requires. [Manila Electric Company vs.

Province of Laguna, 306 SCRA 750(1999)]

Constitutional Law; Local Governments; Local Government
Code; Taxation; Words and Phrases; Franchise, defined.

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

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Section 131 (m) of the LGC defines a franchise as a right or

privilege, affected with public interest which is conferred upon
private persons or corporations, under such terms and conditions
as the government and its political subdivisions may impose in the
interest of the public welfare, security and safety.

on the National Government, its agencies and instrumentalities, and

local government units. (emphasis supplied)

Same; Same; Same; Same; Same; Business, defined.On the

general or primary franchise, or to a special or secondary

franchise. The former relates to the right to exist as a corporation,
by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation. The right under
a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself. On the
other hand, the latter refers to the right or privileges conferred
upon an existing corporation such as the right to use the streets of
a municipality to lay pipes of tracks, erect poles or string wires. The
rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property,
except such special or secondary franchises as are charged with a
public use.

other hand, section 131 (d) of the LGC defines business as trade
or commercial activity regularly engaged in as means of livelihood
or with a view to profit. Petitioner claims that it is not engaged in
an activity for profit, in as much as its charter specifically provides
that it is a non-profit organization.

Same; Same; Same; Same; The theory behind the exercise of

the power to tax emanates from necessity.Taxes are the
lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.

Same; Same; Same; Same; The power to tax is no longer vested

exclusively on Congress.In recent years, the increasing social
challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax
is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges
pursuant to Article X, section 5 of the 1987 Constitution.

Same; Same; Same; Same; One of the most significant

provisions of the Local Government Code is the removal of the
blanket exclusion of instrumentalities and agencies of the
national government from the coverage of local taxation.One
of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a
general rule, LGUs cannot impose taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities, this
rule now admits an exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz.: Section 133. Common Limitations on
the Taxing Powers of the Local Government Units.Unless
otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to
the levy of the following: x x x (o) Taxes, fees, or charges of any kind

Same; Same; Same; Same; Franchises; A franchise may refer

to a general or primary franchise, or to a special or secondary
franchise.In its specific sense, a franchise may refer to a

Same; Same; Same; Same; Words and Phrases; Franchise Tax;

Definition; Requisites.As commonly used, a franchise tax is a
tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state. It is not
levied on the corporation simply for existing as a corporation, upon
its property or its income, but on its exercise of the rights or
privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business
and exercise its franchise. It is within this context that the phrase
tax on businesses enjoying a franchise in section 137 of the LGC
should be interpreted and understood. Verily, to determine whether
the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a
franchise in the sense of a secondary or special franchise; and
(2) that it is exercising its rights or privileges under this franchise
within the territory of the respondent city government.

Same; Same; Same; Same; The power to tax is the most

effective instrument to raise needed revenues to finance and
support myriad activities of the local government units.
Doubtless, the power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities of
the local government units for the delivery of basic services
essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. As
this Court observed in the Mactan case, the original reasons for
the withdrawal of tax exemption privileges granted to governmentowned or controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises.
With the added burden of devolution, it is even more imperative for

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

government entities to share in the requirements of development,

fiscal or otherwise, by paying taxes or other charges due from
them. [National Power Corporation vs. City of Cabanatuan, 401

SCRA 259(2003)]
Taxation; Realty Tax; Franchises; Local Governments; While
Section 14 of Republic Act 3259 may be validly viewed as an
implied delegation of power to tax, the delegation under that
provision, as couched, is limited to impositions over properties
of the franchisee which are not actually, directly and
exclusively used in the pursuit of its franchise.The legislative
intent expressed in the phrase exclusive of this franchise cannot
be construed other than distinguishing between two (2) sets of
properties, be they real or personal, owned by the franchisee,
namely, (a) those actually, directly and exclusively used in its radio
or telecommunications business, and (b) those properties which
are not so used. It is worthy to note that the properties subject of
the present controversy are only those which are admittedly falling
under the first category. To the mind of the Court, Section 14 of Rep.
Act No. 3259 effectively works to grant or delegate to local
governments of Congress inherent power to tax the franchisees
properties belonging to the second group of properties indicated
above, that is, all properties which, exclusive of this franchise, are
not actually and directly used in the pursuit of its franchise. As may
be recalled, the taxing power of local governments under both the
1935 and the 1973 Constitutions solely depended upon an enabling
law. Absent such enabling law, local government units were without
authority to impose and collect taxes on real properties within their
respective territorial jurisdictions. While Section 14 of Rep. Act No.
3259 may be validly viewed as an implied delegation of power to
tax, the delegation under that provision, as couched, is limited to
impositions over properties of the franchisee which are not
actually, directly and exclusively used in the pursuit of its franchise.
Necessarily, other properties of Bayantel directly used in the
pursuit of its business are beyond the pale of the delegated taxing
power of local governments. In a very real sense, therefore, real
properties of Bayantel, save those exclusive of its franchise, are
subject to realty taxes. Ultimately, therefore, the inevitable result
was that all realties which are actually, directly and exclusively
used in the operation of its franchise are exempted from any
property tax. Bayantels franchise being national in character, the
exemption thus granted under Section 14 of Rep. Act No. 3259
applies to all its real or personal properties found anywhere within
the Philippine archipelago.

Same; Same; Same; Same; The realty tax exemption heretofore

enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by force of Section 234 of the Local
Government Code, has been restored by Section 14 of Republic
Act No. 7633.With the LGCs taking effect on January 1, 1992,
Bayantels exemption from real estate taxes for properties of

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whatever kind located within the Metro Manila area was, by force of
Section 234 of the Code, expressly withdrawn. But, not long
thereafter, however, or on July 20, 1992, Congress passed Rep. Act
No. 7633 amending Bayantels original franchise. Worthy of note is
that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the
tax provision, i.e., Section 14, of Bayantels original franchise under
Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259
which was deemed impliedly repealed by Section 234 of the LGC
was expressly revived under Section 14 of Rep. Act No. 7633. In
concrete terms, the realty tax exemption heretofore enjoyed by
Bayantel under its original franchise, but subsequently withdrawn
by force of Section 234 of the LGC, has been restored by Section 14
of Rep. Act No. 7633.

Same; Same; Same; Same; The power to tax is primarily vested

in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the
Constitution.Bayantels posture is well-taken. While the system
of local government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still
limited. As we explained in Mactan Cebu International Airport
Authority: The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X of
the Constitution. Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of
local autonomy. (at p. 680; Emphasis supplied.)

Same; Same; Same; Same; The Supreme Court has upheld the
power of Congress to grant exemptions over the power of
local government units to impose taxes.In Philippine Long
Distance Telephone Company, Inc. (PLDT) vs. City of Davao, 363
SCRA 522 (2001), this Court has upheld the power of Congress to
grant exemptions over the power of local government units to
impose taxes. There, the Court wrote: Indeed, the grant of taxing
powers to local government units under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The legal
effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal
corporations. [City Government of Quezon City vs. Bayan

Telecommunications, Inc., 484 SCRA 169(2006)]

Taxation; Local Government Code; Section 133 prescribes the
limitations on the capacity of local government units to
exercise their taxing powers otherwise granted to them under
the Local Government Code (LGC); Two kinds of taxes which

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

cannot be imposed by local government units.Section 133

prescribes the limitations on the capacity of local government units
to exercise their taxing powers otherwise granted to them under
the LGC. Apparently, paragraph (h) of the Section mentions two
kinds of taxes which cannot be imposed by local government units,
namely: excise taxes on articles enumerated under the National
Internal Revenue Code [(NIRC)], as amended; and taxes, fees or
charges on petroleum products.

Same; Same; Excise Tax; The current definition of an excise tax

is that of a tax levied on a specific article rather than one upon
the performance, carrying on, or the exercise of an activity.
It is evident that Am Jur aside, the current definition of an excise
tax is that of a tax levied on a specific article, rather than one upon
the perfor-mance, carrying on, or the exercise of an activity. This
current definition was already in place when the LGC was enacted in
1991, and we can only presume that it was what the Congress had
intended as it specified that local government units could not
impose excise taxes on articles enumerated under the [NIRC].
This prohibition must pertain to the same kind of excise taxes as
imposed by the NIRC, and not those previously defined excise
taxes which were not integrated or denominated as such in our
present tax law.

Same; Same; Same; Starting in 1986, excise taxes in this

jurisdiction refer exclusively to specific or ad valorem taxes,
imposed under the National Internal Revenue Code (NIRC).It
is quite apparent, therefore, that our current body of taxation law
does not explicitly accommodate the traditional definition of excise
tax offered by Petron. In fact, absent any statutory adoption of the
traditional definition, it may be said that starting in 1986 excise
taxes in this jurisdiction refer exclusively to specific or ad valorem
taxes imposed under the NIRC. At the very least, it is this concept of
excise tax which we can reasonably assume that Congress had in
mind and actually adopted when it crafted the LGC. The palpable
absurdity that ensues should the alternative interpretation prevail
all but strengthens this position.

Same; Same; Same; Congress has the constitutional authority

to impose limitations on the power to tax of local government
units and Section 133 of the Local Government Code (LGC) is
one such limitation.Congress has the constitutional authority to
impose limitations on the power to tax of local government units,
and Section 133 of the LGC is one such limitation. Indeed, the
provision is the explicit statutory impediment to the enjoyment of
absolute taxing power by local government units, not to mention the
reality that such power is a delegated power. To cite one example,
under Section 133(g), local government units are disallowed from
levying business taxes on business enterprises certified to by the
Board of Investments as pioneer or non-pioneer for a period of six
(6) and (4) four years, respectively from the date of registration.

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Same; Same; Same; The prohibition with respect to petroleum

products extends not only to excise taxes thereon, but all
taxes, fees and charges.The language of Section 133(h) makes
plain that the prohibition with respect to petroleum products
extends not only to excise taxes thereon, but all taxes, fees and
charges. The earlier reference in paragraph (h) to excise taxes
comprehends a wider range of subjects of taxation: all articles
already covered by excise taxation under the NIRC, such as alcohol
products, tobacco products, mineral products, automobiles, and
such non-essential goods as jewelry, goods made of precious
metals, perfumes, and yachts and other vessels intended for
pleasure or sports. In contrast, the later reference to taxes, fees
and charges pertains only to one class of articles of the many
subjects of excise taxes, specifically, petroleum products. While
local government units are authorized to burden all such other
class of goods with taxes, fees and charges, excepting excise
taxes, a specific prohibition is imposed barring the levying of any
other type of taxes with respect to petroleum products.

Same; Same; Same; Even absent Article 232, local government

units cannot impose business taxes on petroleum products.
Assuming that the LGC does not, in fact, prohibit the imposition of
business taxes on petroleum products, we would agree that the IRR
could not impose such a prohibition. With our ruling that Section
133(h) does indeed prohibit the imposition of local business taxes on
petroleum products, however, the RTC declaration that Article 232
was invalid is, in turn, itself invalid. Even absent Article 232, local
government units cannot impose business taxes on petroleum
products. If anything, Article 232 merely reiterates what the LGC
itself already provides, with the additional explanation that such
prohibition was in line with existing national policy. [Petron

Corporation vs. Tiangco, 551 SCRA 484(2008)]

Local Governments; Municipal Corporations; Tax Ordinances;
An appeal of a tax ordinance or revenue measure should be
made to the Secretary of Justice within thirty (30) days from
effectivity of the ordinance and even during its pendency, the
effectivity of the assailed ordinance shall not be suspended.
The aforecited law requires that an appeal of a tax ordinance or
revenue measure should be made to the Secretary of Justice within
thirty (30) days from effectivity of the ordinance and even during
its pendency, the effectivity of the assailed ordinance shall not be
suspended. In the case at bar, Municipal Ordinance No. 28 took
effect in October 1996. Petitioner filed its appeal only in December
1997, more than a year after the effectivity of the ordinance in 1996.
Clearly, the Secretary of Justice correctly dismissed it for being
time-barred.

Same; Same; Same; Same; The timeframe fixed by law for

parties to avail of their legal remedies before competent
courts is not a mere technicality that can be easily brushed
asidethe periods stated in Section 187 of the Local

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

11/01/2014

Government Code are mandatory.At this point, it is apropos to

who used to sell their goods along the sidewalk. [Hagonoy Market

state that the timeframe fixed by law for parties to avail of their
legal remedies before competent courts is not a mere
technicality that can be easily brushed aside. The periods stated in
Section 187 of the Local Government Code are mandatory.
Ordinance No. 28 is a revenue measure adopted by the municipality
of Hagonoy to fix and collect public market stall rentals. Being its
lifeblood, collection of revenues by the government is of paramount
importance. The funds for the operation of its agencies and
provision of basic services to its inhabitants are largely derived
from its revenues and collections. Thus, it is essential that the
validity of revenue measures is not left uncertain for a considerable
length of time. Hence, the law provided a time limit for an aggrieved
party to assail the legality of revenue measures and tax ordinances.

Vendor Association vs. Municipality of Hagonoy, Bulacan, 376

SCRA 376(2002)]

Local Governments; Ordinances; Public Hearings; Public

hearings are conducted by legislative bodies to allow
interested parties to ventilate their views on a proposed law
or ordinance, but these views are not binding on the legislative
bodiesparties who participate in public hearings to give their
opinions on a proposed ordinance should not expect that their views
would be patronized by their lawmakers.Petitioner cannot gripe
that there was practically no public hearing conducted as its
objections to the proposed measure were not considered by the
Sangguniang Bayan. To be sure, public hearings are conducted by
legislative bodies to allow interested parties to ventilate their views
on a proposed law or ordinance. These views, however, are not
binding on the legislative body and it is not compelled by law to
adopt the same. Sanggunian members are elected by the people to
make laws that will promote the general interest of their
constituents. They are mandated to use their discretion and best
judgment in serving the people. Parties who participate in public
hearings to give their opinions on a proposed ordinance should not
expect that their views would be patronized by their lawmakers.

Same; Same; Section 6c.04 of the 1993 Municipal Revenue

Code and Section 191 of the Local Government Code limiting the
percentage of increase that can be imposed apply to tax rates,
not rentals.Finally, even on the substantive points raised, the
petition must fail. Section 6c.04 of the 1993 Municipal Revenue Code
and Section 191 of the Local Government Code limiting the
percentage of increase that can be imposed apply to tax rates, not
rentals. Neither can it be said that the rates were not uniformly
imposed or that the public markets included in the Ordinance were
unreasonably determined or classified. To be sure, the Ordinance
covered the three (3) concrete public markets: the two-storey
Bagong Palengke, the burnt but reconstructed Lumang Palengke and
the more recent Lumang Palengke with wet market. However, the
Palengkeng Bagong Munisipyo or Gabaldon was excluded from the
increase in rentals as it is only a makeshift, dilapidated place, with
no doors or protection for security, intended for transient peddlers

Municipal law; Taxation; Licenses; Authority to impose licenses;

Kinds.Under the provisions of Section 1 of Commonwealth Act 472
and pertinent jurisprudence, a municipality is authorized to impose
three kinds of licenses: (1) license for regulation of useful
occupations or enterprises; (2) license for restriction or regulation
of non-usef ul occupations or enterprises; and (3) license for
revenue (Cf. Cu Unjieng v. Patstone, 42 Phil. 818). The first two
easily fall within the broad police power granted under the general
welfare clause (Sec, 2238, Rev. Adm. Code). The third class,
however, is for revenue purposes. It is not a license fee, properly
speaking, and yet it is generally so termed. It rests on the taxing
power. That taxing power must be expressly conferred by statute
upon the municipality (Sec. 2287, Rev. Adm. Code; Cu Unjieng v.
Patstone, supra; People v. Felisarta, L-15346, June 29, 1962, etc.).

Same; Concept of municipal license tax; Designation given does

not decide whether the imposition is a license tax or a license
fee; Determining factors.The use of the term "municipal license
tax" does not necessarily connote the idea that the tax is imposed
as a revenue measure in the guise of a license tax. For really, this
runs counter to the declared purpose to make money. Besides, the
term "license tax" has not acquired a fixed meaning. It is often
"used indiscriminately to designate impositions exacted for the
exercise of various privileges. In many instances, it refers to
"revenue-raising exactions on privileges or activities". On the other
hand, license fees are commonly called taxes. But legally speaking,
the latter are "'for the purpose of raising revenues", in contrast to
the f ormer which are imposed "in the exercise of the police power
for purposes of regulation". (Compaia General de Tabacos de
Filipinas v. City of Manila, L-16619, June 29, 1963.)

Same; Percentage taxation; Doctrine of preemption; When not

applicable.What can be said at most is that the national
government has preempted the f ield of percentage taxation.
Section 1 of C. A. 472, while granting municipalities power to levy
taxes, expressly removes from them the power to exact
"percentage taxes".
It is correct to say that preemption in the matter of taxation simply
refers to an instance where the national government elects to tax a
particular area, impliedly withholding from the local government the
delegated power to tax the same field. This doctrine primarily rests
upon the intention of Congress. Conversely, should Congress allow
municipal corporations to cover fields of taxation it already
occupies, then the doctrine of preemption will not apply.
In the case at bar, Section 4 (1) of C. A. 472 clearly and specifically
allows municipal councils to tax persons engaged in "the same

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

businesses or occupation" on which "fixed internal revenue

privilege taxes" are "regularly imposed by the Government".

Same; Ordinance No. 1, Series of 1956, held valid; Case at bar.

In the case at bar, Ordinance No. 1 was approved by the municipality
of Victorias on September 22, 1956 by way of an amendment to two
municipal ordinances separately imposing license taxes on
operators of sugar centrals and sugar ref ineries. The changes
were: with respect to sugar centrals, by increasing the rates of
license taxes; and so to sugar refineries, by increasing the rates of
license taxes as well as the range of graduated schedule of annual
output capacity.
In the absence of sufficient proof that license taxes are
unreasonable, the presumption of validity subsists. A cash sur-plus
alone cannot stop a municipality from enacting a revenue ordinance
increasing license taxes in anticipation of municipal needs.
Discretion to determine the amount of revenue required for the
needs of the municipality is lodged with the municipal authorities.
Judicial intervention steps in only when there is a flagrant,
oppressive and excessive abuse of power by said municipal
authorities.
Said Ordinance No. 1, series of 1956, is not discriminatory. The
ordinance does not single out Victorias as the only object of the
ordinance. Said ordinance is made to apply to any sugar central or
sugar refinery which may happen to operate in the municipality. So
it is, that the fact that plaintiff is actually the sole operator of a
sugar central and a sugar refinery does not make the ordinance
discriminatory (Cf. also Shell Co. of P.I. v. Vao, 94 Phil. 389 and
Ormoc Sugar Co., Inc. v. Mun. Board of Ormoc City, L-24322, July 21,
1967)
We, accordingly, rule that Ordinance No. 1, series of 1956, of the
Municipality of Victorias, was promulgated not in the exercise of the
municipality's regulatory power but as a revenue measuretax on
occupation or business. The authority to impose such tax is backed
by the express grant of power in Section 1 of C.A. No. 472.

Same; Double taxation; Description; Existence; Definition;

Where no double taxation exists; Case at bar.Double taxation
has been otherwise described as "direct duplicate taxation". For
double taxation to exist, the same property must be taxed twice,
when it should be taxed but once. Double taxation has been also def
ined as taxing the same person twice by the same jurisdiction for
the same thing (Cf. Manila Motor Co., Inc. v. Ciudad de Manila, 72
Phil. 336). In the case at bar, plaintiff's argument on double taxation
does not inspire assent. First. The two taxes cover two different
objects. Section 1 of the ordinance taxes a person operating sugar
centrals or engaged in the manufacture of centrifugal sugar. While
under Section 2, those taxed are the operators of sugar refinery
mills. One occupation or business is different from the other.
Second. The disputed taxes are imposed on occupation or business.

11/01/2014

Both taxes are not on sugar. The amount thereof depends on the
annual output capacity of the mills concerned, regardless of the
actual sugar milled. Plaintiff's argument perhaps could make out a
point if the object of taxation here were the sugar it produces, not
the business of producing it. [Victorias Milling Co., Inc. vs. Mun. of

Victorias, Negros Occidental, 25 SCRA 192(1968)]

A close scrutiny of the ordinances complained of reveals that the
fees therein imposed are not by reason of the services performed
by the Mayor or the Veterinary Officer, but as an imposition on
every head of the specified animals to be' transported. The fact that
the ordinances in question make no reference to the purpose for
which they were enacted, and that such purpose was to preserve
the public health or welfare of the residents and people of the City
of Tacloban, is a clear indication that leads this Court to believe that

the fees exacted were not as a regulatory measure in the

exercise of its police power, but for the purpose of raising
revenue under the guise of license or inspection fees. An act
or ordinance imposing a license or license tax under the police
power as a means of regulation is valid only when it is within
the limits of such power and is intended for regulation;
otherwise, it is invalid as where the license or tax is
unnecessarily imposed on an occupation or business not
inherently subject to police regulation (Southwest Utility Ice Co.
vs. Liebmann, 52 F. 2d 349), for an act or ordinance imposing a
license or license tax for revenue purposes, under the guise of a
police or regulatory measure, is invalid (Southern Fruit Co. vs.
Porter, 199 S.E. 537). [AGUSTIN PANALIGAN, CASIMIRO SEBOLINO,

EPIFANIA UDTUJAN, VALENTIN CAMPOSANO, ANGELES

GUANTERO, EsTEBAN JUNTILLA, ClRIACA DE GALAGAR, MARCOS
SAMSON, RAMON HERNANDEZ OR ARANDES, EPIFANIO PABILONA
and PEDRO RODRIGUEZ, petitioners and appellees, vs. THE CITY
OF TACLOBAN and THE CITY TREASURER OF THE CITY OF
TACLOBAN, respondents and appellants., 102 Phil. 1162(1957)]
Taxation; Section 133(e) of RA No. 7160 prohibit the imposition,
in the guise of wharfage, of feesas well as all other taxes or
charges in any form whatsoever.By express language of
Sections 153 and 155 of RA No. 7160, local government units,
through their Sanggunian, may prescribe the terms and conditions
for the imposition of toll fees or charges for the use of any public
road, pier or wharf funded and constructed by them. A service fee
imposed on vehicles using municipal roads leading to the wharf is
thus valid. However, Section 133(e) of RA No. 7160 prohibits the
imposition, in the guise of wharfage, of feesas well as all other
taxes or charges in any form whatsoeveron goods or
merchandise. It is therefore irrelevant if the fees imposed are
actually for police surveillance on the goods, because any other
form of imposition on goods passing through the territorial
jurisdiction of the municipality is clearly prohibited by Section
133(e).

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Same; A wharfage does not lose its basic character by being

labeled as a service fee for police surveillance on all
goods.Under Section 131 (y) of RA No. 7160, wharfage is defined
as a fee assessed against the cargo of a vessel engaged in foreign
or domestic trade based on quantity, weight, or measure received
and/or discharged by vessel. It is apparent that a wharfage does
not lose its basic character by being labeled as a service fee for
police surveillance on all goods.

Same; Unjust Enrichment; Two conditions for unjust

enrichment to be deemed present; There is no unjust
enrichment where the one receiving the benefit has a legal
right or entitlement thereto, or when there is no causal
relation between ones enrichment and the others
impoverishment.Unpersuasive is the contention of respondent
that petitioner would unjustly be enriched at the formers expense.
Though the rules thereon apply equally well to the government, for
unjust enrichment to be deemed present, two conditions must
generally concur: (a) a person is unjustly benefited, and (b) such
benefit is derived at anothers expense or damage. In the instant
case, the benefits from the use of the municipal roads and the
wharf were not unjustly derived by petitioner. Those benefits
resulted from the infrastructure that the municipality was
mandated by law to provide. There is no unjust enrichment where
the one receiving the benefit has a legal right or entitlement
thereto, or when there is no causal relation between ones
enrichment and the others impoverishment. [Palma Development

Corporation vs. Municipality of Malangas, Zamboanga del Sur,

413 SCRA 572(2003)]
Taxation, Municipal Corporations; The City of Cebu may not
impose an additional amusement tax on top of that already
imposed as would make the Citys amusement tax higher than
that of the Province of Cebu.Under Section 13 of the Local Tax
Code, the province is authorized to impose an amusement tax of
20% or 30% depending on the amount paid for admission. But
under secs. 57 and 65 (G) of its Tax Ordinance No. 1 now in question,
petitioner Cebu City is authorized to impose an additional P0.05
amusement tax (on top of the amusement tax the city is admittedly
authorized to impose under section 23 of the Local Tax Code). In
effect, Cebu City will have a higher rate of amusement tax than
Cebu province. This disparity in rates is precisely what is
proscribed by the second paragraph of section 23 earlier quoted.
The said section speaks of uniform for the city and the province or
municipality. Hence, what is required is uniformity of amusement
taxes between the province and the city; not uniformity of the rates
on the same subject.

Same: Same: Multiple permit fees for engaging in the same

business is unreasonable and oppressive.As correctly
observed by respondent Court, the law (Section 36) contemplates a
single fee for the issuance of a permit to engage in any business or

11/01/2014

occupation. But Sec. 74 (Q) of Tax Ordinance No. 1 imposes another

permit fee on foods and drugs establishments. As a result, the
taxpayer will have to pay another permit fee for conducting the
same business in the same city. Such multiple imposition of permit
fees is unreasonable and oppressive and is definitely not sanctioned
by the Local Tax Code.

Same; Same; The Court finds the sheriffs storage fees

imposed in Cebu Citys tax ordinance as excessive and
confiscatory.As illustrated by respondent court in its assailed
decision, quoting the observation of the trial court, a typewriter
with a fair market value of P3,000.00 will have to pay a sheriffs
storage fee of P5.00 a day. Thus, it would take only 600 days, or
less than two years, for the typewriter to completely eat up its
value on account of storage fees. Being excessive and confiscatory,
the suspension of the imposition of storage fees by the lower court
was correct.

Same; Same: Fish is an agricultural product and an inspection

fee is not allowed to be imposed thereon under the Local Tax
Code, whether in its original form or not.The aforequoted
provision prohibits a local government from imposing an inspection
fee on agricultural products and fish is an agricultural product.
Contrary to the claim of petitioners, under Section 102 of City
Ordinance No. 1 a fisherman selling his fish within the city has to pay
the inspection fee of P0.03 for every kilo of fish sold. Furthermore,
the imposition of the tax will definitely restrict the free flow of fresh
fish to Cebu City because the price of fish will have to increase.

Same; Same; A local government cannot impose a specific tax

on a product, like beer, which is already subject to a national
specific tax as per P.D. 426.This power to tax articles subject
to specific tax which was expressly granted to cities by the original
provisions of section 24, was deleted in the amendment. The said
section 24, as it now reads, merely grants the city the power to
levy any tax, fee or other imposition not specifically enumerated or
otherwise provided for in the Local Tax Code. The amendment
evinces the intent of the lawmaker to remove such taxing authority
(on articles already subject to the national specific tax) from the
cities like Cebu City. [City of Cebu vs. Urot, 144 SCRA 710(1986)]

Taxation; Municipal Corporations; Local Government Units; A

province has no authority to impose taxes on stones, sand,
gravel, earth and other quarry resources extracted from
private lands.In any case, the remaining issues raised by
petitioner are likewise devoid of merit, a province having no
authority to impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands.

Same; Same; Same; A province may not levy excise taxes on

articles already taxed by the National Internal Revenue Code.
The Court of Appeals erred in ruling that a province can impose only
the taxes specifically mentioned under the Local Government Code.

10

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

As correctly pointed out by petitioners, Section 186 allows a

province to levy taxes other than those specifically enumerated
under the Code, subject to the conditions specified therein. This
finding, nevertheless, affords cold comfort to petitioners as they
are still prohibited from imposing taxes on stones, sand, gravel,
earth and other quarry resources extracted from private lands. The
tax imposed by the Province of Bulacan is an excise tax, being a tax
upon the perfor-mance, carrying on, or exercise of an activity.

Same; Same; Same; A province may not ordinarily impose

taxes on stones, sand, gravel, earth and other quarry
resources, as the same are already taxed under the National
Internal Revenue Code.It is clearly apparent from the above
provision that the National Internal Revenue Code levies a tax on all
quarry resources, regardless of origin, whether extracted from
public or private land. Thus, a province may not ordinarily impose
taxes on stones, sand, gravel, earth and other quarry resources, as
the same are already taxed under the National Internal Revenue
Code. The province can, however, impose a tax on stones, sand,
gravel, earth and other quarry resources extracted from public
land because it is expressly empowered to do so under the Local
Government Code. As to stones, sand, gravel, earth and other
quarry resources extracted from private land, however, it may not
do so, because of the limitation provided by Section 133 of the Code
in relation to Section 151 of the National Internal Revenue Code.

Same; Same; Same; Natural Resources; Regalian Doctrine; A

province may not invoke the Regalian doctrine to extend the
coverage of its ordinance to quarry resources extracted from
private lands, for taxes, being burdens, are not to be
presumed beyond what the applicable statute expressly and
clearly declares, tax statutes being construed strictissimi
juris against the government.Section 21 of Provincial Ordinance
No. 3 is practically only a reproduction of Section 138 of the Local
Government Code. A cursory reading of both would show that both
refer to ordinary sand, stone, gravel, earth and other quarry
resources extracted from public lands. Even if we disregard the
limitation set by Section 133 of the Local Government Code,
petitioners may not impose taxes on stones, sand, gravel, earth and
other quarry resources extracted from private lands on the basis
of Section 21 of Provincial Ordinance No. 3 as the latter clearly
applies only to quarry resources extracted from public lands.
Petitioners may not invoke the Regalian doctrine to extend the
coverage of their ordinance to quarry resources extracted from
private lands, for taxes, being burdens, are not to be presumed
beyond what the applicable statute expressly and clearly declares,
tax statutes being construed strictissimi juris against the
government. [Province of Bulacan vs. Court of Appeals, 299

SCRA 442(1998)]
Taxation; Municipal Corporations; Declaratory Relief; In an
action for declaratory relief assailing the validity of a

11/01/2014

municipal tax ordinance, the court, in deciding that the

ordinance is void, is authorized to require a refund of taxes
paid thereunder without necessity of converting the
proceeding into an ordinary action there having been no
alleged violation of the ordinance yet.Under Sec. 6 of Rule 64,
the action for declaratory relief may be converted into an ordinary
action and the parties allowed to file such pleadings as may be
necessary or proper, if before the final termination of the case a
breach or violation of an . . . ordinance, should take place. In the
present case, no breach or violation of the ordinance occurred. The
petitioner decided to pay under protest the fees imposed by the
ordinance. Such payment did not affect the case; the declaratory
relief action was still proper because the applicability of the
ordinance to future transactions still remained to be resolved,
although the matter could also be threshed out in an ordinary suit
for the recovery of taxes paid (Shell Co. of the Philippines, Ltd. vs.
Municipality of Sipocot, L-12680, March 20, 1959). In its petition for
declaratory relief, petitioner-appellee alleged that by reason of the
enforcement of the municipal ordinance by respondents it was
forced to pay under protest the fees imposed pursuant to the said
ordinance, and accordingly, one of the reliefs prayed for by the
petitioner was that the respondents be ordered to refund all the
amounts it paid to respondent Municipal Treasurer during the
pendency of the case. The inclusion of said allegation and prayer in
the petitioner was not objected to by the respondents in their
answer. During the trial, evidence of the payments made by the
petitioner was introduced. Respondents were thus fully aware of
the petitioners claim for refund and of what would happen if the
ordinance were to be declared invalid by the court.

Same; Same; A fixed tax denominated as a police inspection

fee of P.30 per sack of cassava starch shipped out of the
municipality is void where it is not for a public purpose, just
and uniform because the police do nothing but count the
number of cassava sacks shipped out.However, the tax
imposed under the ordinance can be stricken down on another
ground. According to Section 2 of the abovementioned Act, the tax
levied must be for public purposes, just and uniform (Italics
supplied.) As correctly held by the trial court, the so-called police
inspection fee levied by the ordinance is unjust and
unreasonable.

Same; Same; Same.Said the court a quo: x x x It has been

proven that the only service rendered by the Municipality of
Malabang, by way of inspection, is for the policeman to verify from
the driver of the trucks of the petitioner passing by at the police
checkpoint the number of bags loaded per trip which are to be
shipped out of the municipality based on the trip tickets for the
purpose of computing the total amount of tax to be collect (sic) and
for no other purpose. The pretention of respondents that the police,
aside from counting the number of bags shipped out, is also

11

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

inspecting the cassava flour starch contained in the bags to find out
if the said cassava flour starch is fit for human consumption could
not be given credence by the Court because, aside from the fact
that said purpose is not so stated in the ordinance in question, the
policemen of said municipality are not competent to determine if
the cassava flour starch are fit for human consumption. The further
pretention of respondents that the trucks of the petitioner hauling
the bags of cassava flour starch from the mill to the bodega at the
beach of Malabang are escorted by a policeman from the police
checkpoint to the beach for the purpose of protecting the truck and
its cargoes from molestation by undesirable elements could not
also be given credence by the Court because it has been shown,
beyond doubt, that the petitioner has not asked for the said police
protection because there has been no occasion where its trucks
have been molested, even for once, by bad elements from the police
checkpoint to the bodega at the beach, it is solely for the purpose of
verifying the correct number of bags of cassava flour starch loaded
on the trucks of the petitioner as stated in the trip tickets, when
unloaded at its bodega at the beach. The imposition, therefore, of a
police inspection fee of P. 30 per bag, imposed by said ordinance is
unjust and unreasonable. [Matalin Coconut Co., Inc. vs. Municipal

Council of Malabang, Lanao del Sur, 143 SCRA 404(1986)]

Taxation; The power to tax is an attribute of sovereignty, and
as such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are not
the sovereign; rather, they are mere territorial and political
subdivisions of the Republic of the Philippines.The power to
tax is an attribute of sovereignty, and as such, inheres in the
State. Such, however, is not true for provinces, cities, municipalities
and barangays as they are not the sovereign; rather, they are mere
territorial and political subdivisions of the Republic of the
Philippines. The rule governing the taxing power of provinces,
cities, municipalities and barangays is summarized in Icard v. City
Council of Baguio: It is settled that a municipal corporation unlike a
sovereign state is clothed with no inherent power of taxation. The

charter or statute must plainly show an intent to confer that power

or the municipality, cannot assume it. And the power when granted
is to be construed in strictissimi juris. Any doubt or ambiguity
arising out of the term used in granting that power must be
resolved against the municipality. Inferences, implications,
deductionsall thesehave no place in the interpretation of the
taxing power of a municipal corporation.

Same; The power of a province to tax is limited to the extent

that such power is delegated to it either by the Constitution or
by statute.The power of a province to tax is limited to the extent
that such power is delegated to it either by the Constitution or by
statute. Section 5, Article X of the 1987 Constitution is clear on this
point: Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and

11/01/2014

charges subject to such guidelines and limitations as the Congress

may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governments.

Same; Constitutional Law; Per Section 5, Article X of the 1987

Constitution, the power to tax is no longer vested exclusively
on Congress; local legislative bodies are now given direct
authority to levy taxes, fees and other charges.Per Section
5, Article X of the 1987 Constitution, the power to tax is no longer
vested exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other charges.
Nevertheless, such authority is subject to such guidelines and
limitations as the Congress may provide. In conformity with
Section 3, Article X of the 1987 Constitution, Congress enacted
Republic Act No. 7160, otherwise known as the Local Government
Code of 1991. Book II of the LGC governs local taxation and fiscal
matters. Relevant provisions of Book II of the LGC establish the
parameters of the taxing powers of LGUS found below. First, Section
130 provides for the following fundamental principles governing the
taxing powers of LGUs: 1. Taxation shall be uniform in each LGU. 2.
Taxes, fees, charges and other impositions shall: a. be equitable and
based as far as practicable on the taxpayers ability to pay; b. be
levied and collected only for public purposes; c. not be unjust,
excessive, oppressive, or confiscatory; d. not be contrary to law,
public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions
shall in no case be let to any private person. 4. The revenue
collected pursuant to the provisions of the LGC shall inure solely to
the benefit of, and be subject to the disposition by, the LGU levying
the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC. 5. Each LGU shall, as far as
practicable, evolve a progressive system of taxation.

Same; Percentage Tax; National Internal Revenue Code (R.A.

No. 8424); Words and Phrases; In Commissioner of Internal
Revenue v. Citytrust Investment Phils. Inc., 503 SCRA 398
(2006), the Supreme Court defined percentage tax as a tax
measured by a certain percentage of the gross selling price or
gross value in money of goods sold, bartered or imported; or
of the gross receipts or earnings derived by any person
engaged in the sale of services.In Commissioner of Internal
Revenue v. Citytrust Investment Phils., Inc., 503 SCRA 398 (2006),
the Supreme Court defined percentage tax as a tax measured by a
certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts
or earnings derived by any person engaged in the sale of services.
Also, Republic Act No. 8424, otherwise known as the National
Internal Revenue Code (NIRC), in Section 125, Title V, lists
amusement taxes as among the (other) percentage taxes which are

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

11/01/2014

levied regardless of whether or not a taxpayer is already liable to

pay value-added tax (VAT).

otherwise known as the Local Tax Code of 1973, (which is analogous

to Section 140 of the LGC).

Same; Same; Amusement Tax; Local Government Units;

Provinces are not barred from levying amusement taxes even
if amusement taxes are a form of percentage taxes.

Same; Same; Same; Resorts, swimming pools, bath houses, hot

springs and tourist spots do not belong to the same category
or class as theaters, cinemas, concert halls, circuses, and
boxing stadia. It follows that they cannot be considered as
among the other places of amusement contemplated by
Section 140 of the Local Government Code and which may
properly be subject to amusement taxes.As defined in The New

Amusement taxes are fixed at a certain percentage of the gross

receipts incurred by certain specified establishments. Thus,
applying the definition in CIR v. Citytrust and drawing from the
treatment of amusement taxes by the NIRC, amusement taxes are
percentage taxes as correctly argued by Pelizloy. However,
provinces are not barred from levying amusement taxes even if
amusement taxes are a form of percentage taxes. Section 133 (i) of
the LGC prohibits the levy of percentage taxes except as otherwise
provided by the LGC.

Same; Same; Same; Same; Section 140, Local Government Code

(R.A. No. 7160) expressly allows for the imposition by
provinces of amusement taxes on the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement. However, resorts,
swimming pools, bath houses, hot springs, and tourist spots
are not among those places expressly mentioned by Section
140 of the Local Government Code as being subject to
amusement taxes.Evidently, Section 140 of the LGC carves a
clear exception to the general rule in Section 133 (i). Section 140
expressly allows for the imposition by provinces of amusement
taxes on the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of
amusement. However, resorts, swimming pools, bath houses, hot
springs, and tourist spots are not among those places expressly
mentioned by Section 140 of the LGC as being subject to amusement
taxes. Thus, the determination of whether amusement taxes may be
levied on admissions to resorts, swimming pools, bath houses, hot
springs, and tourist spots hinges on whether the phrase other
places of amusement encompasses resorts, swimming pools, bath
houses, hot springs, and tourist spots.

Same; Same; Same; In Philippine Basketball Association v.

Court of Appeals, 337 SCRA 358 (2000), the Supreme Court
had an opportunity to interpret a starkly similar provision or
the counterpart provision of Section 140 of the Local
Government Code in the Local Tax Code then in effect.In
Philippine Basketball Association v. Court of Appeals, 337 SCRA 358
(2000), the Supreme Court had an opportunity to interpret a
starkly similar provision or the counterpart provision of Section 140
of the LGC in the Local Tax Code then in effect. Petitioner Philippine
Basketball Association (PBA) contended that it was subject to the
imposition by LGUs of amusement taxes (as opposed to amusement
taxes imposed by the national government). In support of its
contentions, it cited Section 13 of Presidential Decree No. 231,

Oxford American Dictionary, show means a spectacle or display of

something, typically an impressive one; while performance means
an act of staging or presenting a play, a concert, or other form of
entertainment. As such, the ordinary definitions of the words
show and performance denote not only visual engagement (i.e.,
the seeing or viewing of things) but also active doing (e.g.,
displaying, staging or presenting) such that actions are manifested
to, and (correspondingly) perceived by an audience. Considering
these, it is clear that resorts, swimming pools, bath houses, hot
springs and tourist spots cannot be considered venues primarily
where one seeks admission to entertain oneself by seeing or
viewing the show or performances. While it is true that they may
be venues where people are visually engaged, they are not primarily
venues for their proprietors or operators to actively display, stage
or present shows and/or performances. Thus, resorts, swimming
pools, bath houses, hot springs and tourist spots do not belong to
the same category or class as theaters, cinemas, concert halls,
circuses, and boxing stadia. It follows that they cannot be
considered as among the other places of amusement
contemplated by Section 140 of the LGC and which may properly be
subject to amusement taxes. [Pelizloy Realty Corporation vs.

Province of Benguet, 695 SCRA 491(2013)]

Contracts; Common Carriers; A common carrier is one who
holds himself out to the public as engaged in the business of
transporting persons or property from place to place, for
compensation, offering his services to the public generally.
There is merit in the petition. A common carrier may be defined,
broadly, as one who holds himself out to the public as engaged in
the business of transporting persons or property from place to
place, for compensation, offering his services to the public
generally. Article 1732 of the Civil Code defines a common carrier
as any person, corporation, firm or association engaged in the
business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to
the public.

Same; Same; Test for determining whether a party is a

common carrier of goods.The test for determining whether a
party is a common carrier of goods is: 1. He must be engaged in the
business of carrying goods for others as a public employment, and
must hold himself out as ready to engage in the transportation of

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

goods for person generally as a business and not as a casual

occupation; 2. He must undertake to carry goods of the kind to
which his business is confined; 3. He must undertake to carry by the
method by which his business is conducted and over his established
roads; and 4. The transportation must be for hire.

Same; Same; The fact that petitioner has a limited clientele

does not exclude it from the definition of a common carrier.
Based on the above definitions and requirements, there is no doubt
that petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum products, for hire as
a public employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation.
The fact that petitioner has a limited clientele does not exclude it
from the definition of a common carrier.

Same; Same; Words and Phrases; The definition of common

carriers in the Civil Code makes no distinction as to the
means of transporting, as long as it is by land, water or air.
As correctly pointed out by petitioner, the definition of common
carriers in the Civil Code makes no distinction as to the means of
transporting, as long as it is by land, water or air. It does not
provide that the transportation of the passengers or goods should
be by motor vehicle. In fact, in the United States, oil pipe line
operators are considered common carriers.

Same; Same; Taxation; Legislative intent in excluding from the

taxing power of the local government unit the imposition of
business tax against common carriers is to prevent a
duplication of the so-called common carriers tax.It is clear
that the legislative intent in excluding from the taxing power of the
local government unit the imposition of business tax against
common carriers is to prevent a duplication of the so-called
common carriers tax. Petitioner is already paying three (3%)
percent common carriers tax on its gross sales/earnings under
the National Internal Revenue Code. To tax petitioner again on its
gross receipts in its transportation of petroleum business would
defeat the purpose of the Local Government Code. [First Philippine

Industrial Corporation vs. Court of Appeals, 300 SCRA

661(1998)]
Local Government; Land Transportation and Traffic Code;
Registration and licensing functions are vested in the Land
Transportation Office while franchising and regulatory
responsibilities had been vested in the Land Transportation
Franchising and Regulatory Board.The Department of
Transportation and Communications (DOTC), through the LTO and
the LTFRB, has since been tasked with implementing laws pertaining
to land transportation. The LTO is a line agency under the DOTC
whose powers and functions, pursuant to Article III, Section 4 (d)
[1], of R.A. No. 4136, otherwise known as Land Transportation and

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Traffic Code, as amended, deal primarily with the registration of all

motor vehicles and the licensing of drivers thereof. The LTFRB, upon
the other hand, is the governing body tasked by E.O. No. 202, dated
19 June 1987, to regulate the operation of public utility or for hire
vehicles and to grant franchises or certificates of public
convenience (CPC). Finely put, registration and licensing functions
are vested in the LTO while franchising and regulatory
responsibilities had been vested in the LTFRB.

Same; Same; LGUs indubitably now have the power to regulate

the operation of tricycles-for-hire and to grant franchises for
the operation thereof.LGUs indubitably now have the power to
regulate the operation of tricycles-for-hire and to grant franchises
for the operation thereof. To regulate means to fix, establish, or
control; to adjust by rule, method, or established mode; to direct by
rule or restriction; or to subject to governing principles or laws. A
franchise is defined to be a special privilege to do certain things
conferred by government on an individual or corporation, and which
does not belong to citizens generally of common right. On the other
hand, to register means to record formally and exactly, to enroll,
or to enter precisely in a list or the like, and a drivers license is
the certificate or license issued by the government which
authorizes a person to operate a motor vehicle.

Same; Same; The power of LGUs to regulate the operation of

tricycles and to grant franchises for the operation thereof is
still subject to the guidelines prescribed by the Department of
Transportation and Communications.It may not be amiss to
state, nevertheless, that under Article 458 (a)[3-VI] of the Local
Government Code, the power of LGUs to regulate the operation of
tricycles and to grant franchises for the operation thereof is still
subject to the guidelines prescribed by the DOTC. In compliance
therewith, the Department of Transportation and Communications
(DOTC) issued Guidelines to Implement the Devolution of LTFRBs
Franchising Authority over Tricycles-For-Hire to Local Government
units pursuant to the Local Government Code.

Same; Same; The newly delegated powers pertain to the

franchising and regulatory powers theretofore exercised by
the Land Transportation Franchising and Regulatory Board and
not to the functions of the Land Transportation Office relative
to the registration of motor vehicles and issuance of licenses
for the driving thereof.Such as can be gleaned from the explicit
language of the statute, as well as the corresponding guidelines
issued by DOTC, the newly delegated powers pertain to the
franchising and regulatory powers theretofore exercised by the
LTFRB and not to the functions of the LTO relative to the registration
of motor vehicles and issuance of licenses for the driving thereof.
Clearly unaffected by the Local Government Code are the powers of
LTO under R.A. No. 4136 requiring the registration of all kinds of
motor vehicles used or operated on or upon any public highway in

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

the country. [Land Transportation Office vs. City of Butuan, 322

SCRA 805(2000)]
Taxation; Court rules that the Authority is not a GOCC but an
instrumentality of the national government which is generally
exempt from payment of real property tax; The IFPC, being a
property of public dominion cannot be sold at public auction to
satisfy the tax delinquency.The Court rules that the Authority is
not a GOCC but an instrumentality of the national government which
is generally exempt from payment of real property tax. However,
said exemption does not apply to the portions of the IFPC which the
Authority leased to private entities. With respect to these
properties, the Authority is liable to pay real property tax.
Nonetheless, the IFPC, being a property of public dominion cannot
be sold at public auction to satisfy the tax delinquency.

Same; The Authority should be classified as an instrumentality

of the national government; It is generally exempt from
payment of real property tax, except those portions which
have been leased to private entities.On the basis of the
parameters set in the MIAA case, the Authority should be classified
as an instrumentality of the national government. As such, it is
generally exempt from payment of real property tax, except those
portions which have been leased to private entities.

Same; Applying Section 234(a) of the Local Government Code,

the Court ruled that when an instrumentality of the national
government grants to a taxable person the beneficial use of a
real property owned by the Republic, said instrumentality
becomes liable to pay real property tax.The MIAA case held
that unlike GOCCs, instrumentalities of the national government, like
MIAA, are exempt from local taxes pursuant to Section 133(o) of the
Local Government Code. This exemption, however, admits of an
exception with respect to real property taxes. Applying Section
234(a) of the Local Government Code, the Court ruled that when an
instrumentality of the national government grants to a taxable
person the beneficial use of a real property owned by the Republic,
said instrumentality becomes liable to pay real property tax. Thus,
while MIAA was held to be an instrumentality of the national
government which is generally exempt from local taxes, it was at
the same time declared liable to pay real property taxes on the
airport lands and buildings which it leased to private persons. It
was held that the real property tax assessments and notices of
delinquencies issued by the City of Pasay to MIAA are void except
those pertaining to portions of the airport which are leased to
private parties.

Same; The real property tax assessments issued by the City of

Iloilo should be upheld only with respect to the portions leased
to private persons.The real property tax assessments issued by
the City of Iloilo should be upheld only with respect to the portions
leased to private persons. In case the Authority fails to pay the real

11/01/2014

property taxes due thereon, said portions cannot be sold at public

auction to satisfy the tax delinquency. In Chavez v. Public Estates
Authority, 384 SCRA 152 it was held that reclaimed lands are lands
of the public domain and cannot, without Congressional fiat, be
subject of a sale, public or private. [Philippine Fisheries

Development Authority vs. Court of Appeals, 528 SCRA

706(2007)]
Manila International Airport Authority; Taxation; MIAAs Airport
Lands and Buildings are exempt from real estate tax imposed
by local governments.We rule that MIAAs Airport Lands and
Buildings are exempt from real estate tax imposed by local
governments. First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National Government and
thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from
real estate tax.

Same; Same; While there is no dispute that a governmentowned or controlled corporation is not exempt from real
estate tax, MIAA is not a government-owned or controlled
corporation; A government-owned or controlled corporation
must be organized as a stock or non-stock corporation, of
which MIAA is neither; MIAA is not a stock corporation because
it has no capital stock divided into shares.There is no dispute
that a government-owned or controlled corporation is not exempt
from real estate tax. However, MIAA is not a government-owned or
controlled corporation. Section 2(13) of the Introductory Provisions
of the Administrative Code of 1987 defines a government-owned or
controlled corporation as follows: SEC. 2. General Terms Defined.x
x x x (13) Government-owned or controlled corporation refers to
any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x. (Emphasis supplied) A
government-owned or controlled corporation must be organized
as a stock or non-stock corporation. MIAA is not organized as a
stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares.

Same; Same; Manila International Airport Authority (MIAA) is

not a non-stock corporation because it has no members;
Section 11 of the MIAA Charter which mandates MIAA to remit
20% of its annual gross operating income to the National
Treasury prevents it from qualifying as a non-stock
corporation.MIAA is also not a non-stock corporation because it
has no members. Section 87 of the Corporation Code defines a nonstock corporation as one where no part of its income is
distributable as dividends to its members, trustees or officers. A
non-stock corporation must have members. Even if we assume that

15

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

the Government is considered as the sole member of MIAA, this will

not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock corporation.

Administrative Law; Manila International Airport Authority

(MIAA) is a government instrumentality vested with corporate
powers to perform efficiently its governmental functions.
Since MIAA is neither a stock nor a non-stock corporation, MIAA
does not qualify as a government-owned or controlled corporation.
What then is the legal status of MIAA within the National
Government? MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers. Section
2(10) of the Introductory Provisions of the Administrative Code
defines a government instrumentality as follows: SEC. 2. General
Terms Defined.x x x x (10) Instrumentality refers to any agency of
the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)

Same; When the law vests in a government instrumentality

corporate powers, the instrumentality does not become a
corporationunless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental
but also corporate powers.When the law vests in a government
instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain, police authority and the levying of fees
and charges. At the same time, MIAA exercises all the powers of a
corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order.

Same; When the law makes a government instrumentality

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

11/01/2014

Same; Manila International Airport Authority; Taxation; Local

Government Code; A government instrumentality like MIAA falls
under Section 133(o) of the Local Government Code, which
provision recognizes the basic principle that local
governments cannot tax the national government.A
government instrumentality like MIAA falls under Section 133(o) of
the Local Government Code, which states: SEC. 133. Common
Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following: x x x x (o) Taxes, fees or charges of any
kind on the National Government, its agencies and instrumentalities
and local government units. (Emphasis and italics supplied) Section
133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to
local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local
governments may only exercise such power subject to such
guidelines and limitations as the Congress may provide.

Taxation; Local Government Code; Statutory Construction;

When local governments invoke the power to tax on national
government instrumentalities, such power is construed
strictly against local governments, and when Congress grants
an exemption to a national government instrumentality from
local taxation, such exemption is construed liberally in favor of
the national government instrumentality.Section 133(o)
recognizes the basic principle that local governments cannot tax
the national government, which historically merely delegated to
local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local
governments may only exercise such power subject to such
guidelines and limitations as the Congress may provide. When local
governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against
the taxpayer claiming the exemption. However, when Congress
grants an exemption to a national government instrumentality from
local taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared in
Maceda v. Macaraig, Jr.: The reason for the rule does not apply in
the case of exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these
reasons, provisions granting exemptions to government agencies

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

may be construed liberally, in favor of non tax-liability of such

agencies. There is, moreover, no point in national and local
governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government
pocket to another.

Same; Same; Taxation; Local Government Code; There is also

no reason for local governments to tax national government
instrumentalities for rendering essential public services to
inhabitants of local governments, the only exception being
when the legislature clearly intended to tax government
instrumentalities for the delivery of essential services for
sound and compelling policy considerations.There is also no
reason for local governments to tax national government
instrumentalities for rendering essential public services to
inhabitants of local governments. The only exception is when the
legislature clearly intended to tax government instrumentalities for
the delivery of essential public services for sound and compelling
policy considerations. There must be express language in the law
empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved
against local governments.

Manila International Airport Authority; The Airport Lands and

Buildings of the MIAA are property of public dominion and
therefore owned by the State or the Republic of the
Philippines.The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the State or the Republic
of the Philippines. The Civil Code provides: ARTICLE 419. Property is
either of public dominion or of private ownership. ARTICLE 420. The
following things are property of public dominion: (1) Those intended
for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and
others of similar character; (2) Those which belong to the State,
without being for public use, and are intended for some public
service or for the development of the national wealth. (Emphasis
supplied) ARTICLE 421. All other property of the State, which is not
of the character stated in the preceding article, is patrimonial
property. ARTICLE 422. Property of public dominion, when no longer
intended for public use or for public service, shall form part of the
patrimonial property of the State.

Same; Words and Phrases; The term ports in Article 420 (1)
of the Civil Code includes seaports and airportsthe MIAA
Airport Lands and Buildings constitute a port constructed by
the State.No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like roads, canals,
rivers, torrents, ports and bridges constructed by the State, are
owned by the State. The term ports includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a port
constructed by the State. Under Article 420 of the Civil Code, the

11/01/2014

MIAA Airport Lands and Buildings are properties of public dominion

and thus owned by the State or the Republic of the Philippines.

Same; Same; The Airport Lands and Buildings are devoted to

public use because they are used by the public for
international and domestic travel and transportation; The
charging of fees to the public does not determine the
character of the property whether it is of public dominion or
not.The Airport Lands and Buildings are devoted to public use
because they are used by the public for international and domestic
travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the
character of the Airport Lands and Buildings as properties for
public use. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone
must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees
they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the
maintenance of public roads. The charging of fees to the public does
not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of
public dominion as one intended for public use. Even if the
government collects toll fees, the road is still intended for public
use if anyone can use the road under the same terms and
conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not
affect the public character of the road.

Same; Taxation; Users Tax; Words and Phrases; The terminal

fees MIAA charges passengers, as well as the landing fees
MIAA charges airlines, are often termed users tax; A users
tax is more equitablea principle of taxation mandated by the
1987 Constitution.The terminal fees MIAA charges to
passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of
MIAA. The collection of such fees does not change the character of
MIAA as an airport for public use. Such fees are often termed users
tax. This means taxing those among the public who actually use a
public facility instead of taxing all the public including those who
never use the particular public facility. A users tax is more
equitablea principle of taxation mandated in the 1987 Constitution.

Same; The Airport Lands and Buildings of MIAA, as properties

of public dominion, are outside the commerce of man.The
Airport Lands and Buildings of MIAA are devoted to public use and
thus are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties
of public dominion are outside the commerce of man. As early as

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

1915, this Court already ruled in Municipality of Cavite v. Rojas that

properties devoted to public use are outside the commerce of man,
thus: According to article 344 of the Civil Code: Property for public
use in provinces and in towns comprises the provincial and town
roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said
towns or provinces.

Same; Public Auctions; Property of public dominion, being

outside the commerce of man, cannot be the subject of an
auction sale; Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being
contrary to public policy.Again in Espiritu v. Municipal Council,
the Court declared that properties of public dominion are outside
the commerce of man: x x x Town plazas are properties of public
dominion, to be devoted to public use and to be made available to
the public in general. They are outside the commerce of man and
cannot be disposed of or even leased by the municipality to private
parties. While in case of war or during an emergency, town plazas
may be occupied temporarily by private individuals, as was done
and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must
also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from
encumbrances or illegal private constructions. (Emphasis supplied)
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale. Properties of public dominion, being for public use, are not
subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public
policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Paraaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.

Same; Unless the President issues a proclamation withdrawing

the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are
inalienable.Before MIAA can encumber the Airport Lands and
Buildings, the President must first withdraw from public use the
Airport Lands and Buildings. Sections 83 and 88 of the Public Land
Law or Commonwealth Act No. 141, which remains to this day the
existing general law governing the classification and disposition of
lands of the public domain other than timber and mineral lands,
provide: x x x Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable.
Since the Airport Lands and Buildings are inalienable in their
present status as properties of public dominion, they are not

11/01/2014

subject to levy on execution or foreclosure sale. As long as the

Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.

Same; Trusts; MIAA is merely holding title to the Airport Lands

and Buildings in trust for the Republic.MIAA is merely holding
title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by
the Republic.

Same; The transfer of the Airport Lands and Buildings from the
Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the
Republic to MIAAthe Republic remains the beneficial owner of
the Airport Lands and Buildings.The transfer of the Airport
Lands and Buildings from the Bureau of Air Transportation to MIAA
was not meant to transfer beneficial ownership of these assets
from the Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the
Airport Lands and Buildings. MIAA itself is owned solely by the
Republic. No party claims any ownership rights over MIAAs assets
adverse to the Republic. The MIAA Charter expressly provides that
the Airport Lands and Buildings shall not be disposed through sale
or through any other mode unless specifically approved by the
President of the Philippines. This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings
because under Article 428 of the Civil Code, only the owner has the
right to x x x dispose of a thing. Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport Lands
and Buildings. At any time, the President can transfer back to the
Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3 of the
MIAA Charter, the President is the only one who can authorize the
sale or disposition of the Airport Lands and Buildings. This only
confirms that the Airport Lands and Buildings belong to the
Republic.

Taxation; Local Government Code; Section 234(a) of the Local

Government Code exempts from real estate tax any real
property owned by the Republic of the Philippines.Section
234(a) of the Local Government Code exempts from real estate tax
any [r]eal property owned by the Republic of the Philippines.
Section 234(a) provides: SEC. 234. Exemptions from Real Property
Tax.The following are exempted from payment of the real property
tax: (a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a
taxable person; x x x. (Emphasis supplied) This exemption should be
read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing [t]axes, fees or

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

11/01/2014

charges of any kind on the National Government, its agencies and

instrumentalities x x x. The real properties owned by the Republic
are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to
be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic
and continue to be exempt from real estate tax.

instrumentalities like the MIAA. Local governments are devoid of

power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not
extend to the national government, its agencies and
instrumentalities, [u]nless otherwise provided in this Code as
stated in the saving clause of Section 133. The saving clause refers
to Section 234(a) on the exception to the exemption from real
estate tax of real property owned by the Republic.

Manila International Airport Authority; Local Government Code;

The Republic may grant the beneficial use of its real property
to an agency or instrumentality of the national government, an
arrangement which does not result in the loss of the tax
exemption; MIAA, as a government instrumentality, is not a
taxable person under Section 133(o) of the Local Government
Code.The Republic may grant the beneficial use of its real

Same; Same; The determinative test whether MIAA is exempt

from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code.The minoritys

property to an agency or instrumentality of the national

government. This happens when title of the real property is
transferred to an agency or instrumentality even as the Republic
remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic
loses its tax exemption only if the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person. MIAA,
as a government instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code. Thus, even if we
assume that the Republic has granted to MIAA the beneficial use of
the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.

Same; Same; Taxation; Portions of the Airport Lands and

Buildings that MIAA leases to private entities are not exempt
from real estate tax.Portions of the Airport Lands and Buildings
that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In such
a case, MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area is
subject to real estate tax. In Lung Center of the Philippines v.
Quezon City, 433 SCRA 119, 138 (2004), the Court ruled: Accordingly,
we hold that the portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are
not exempt from such taxes. On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for
its patients, whether paying or non-paying, are exempt from real
property taxes.

Same; Taxation; By express mandate of the Local Government

Code, local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA.By
express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government

theory violates Section 133(o) of the Local Government Code which

expressly prohibits local governments from imposing any kind of
tax on national government instrumentalities. Section 133(o) does
not distinguish between national government instrumentalities with
or without juridical personalities. Where the law does not
distinguish, courts should not distinguish. Thus, Section 133(o)
applies to all national government instrumentalities, with or without
juridical personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its agencies
and instrumentalities.

Taxation; The saving clause in Section 133 of the Local

Government Code refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national
government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable entity; The
exception to the exemption in Section 234(a) is the only
instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local
governments.The saving clause in Section 133 refers to the
exception to the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax when it
gives the beneficial use of its real properties to a taxable entity.
Section 234(a) of the Local Government Code provides: SEC. 234.
Exemptions from Real Property Tax.The following are exempted
from payment of the real property tax: (a) Real property owned by
the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. x x x. (Emphasis
supplied) Under Section 234(a), real property owned by the
Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the
real property to a taxable entity. The exception to the exemption in
Section 234(a) is the only instance when the national government,

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

its agencies and instrumentalities are subject to any kind of tax by

local governments. The exception to the exemption applies only to
real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public service
but devoted to the private gain of a taxable person.

Same; Statutory Construction; When a provision of law grants

a power but withholds such power on certain matters, there is
no conflict between the grant of power and the withholding of
power.There is no conflict whatsoever between Sections 133 and
193 because Section 193 expressly admits its subordination to other
provisions of the Code when Section 193 states [u]nless otherwise
provided in this Code. By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that
limit the exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power on
certain matters, there is no conflict between the grant of power
and the withholding of power. The grantee of the power simply
cannot exercise the power on matters withheld from its power.

Same; Words and Phrases; By their very meaning and purpose,

the common limitations on the taxing power prevail over the
grant or exercise of the taxing power.Since Section 133
prescribes the common limitations on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which
grants local governments such taxing powers. By their very
meaning and purpose, the common limitations on the taxing power
prevail over the grant or exercise of the taxing power. If the taxing
power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national
government, its agencies and instrumentalitiesa gross absurdity.

Administrative Law; The Administrative Law is the governing

law defining the status and relationship of government
departments,
bureaus,
offices,
agencies
and
instrumentalities.The third whereas clause of the Administrative
Code states that the Code incorporates in a unified document the
major structural, functional and procedural principles and rules of
governance. Thus, the Administrative Code is the governing law
defining the status and relationship of government departments,
bureaus, offices, agencies and instrumentalities. Unless a statute
expressly provides for a different status and relationship for a
specific government unit or entity, the provisions of the
Administrative Code prevail.

Same; The government-owned or controlled corporations

created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the
Constitution, regarding their creation in the interest of
common good and their being subject to the test of economic

11/01/2014

viability.The government-owned or controlled corporations

created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled
corporation must be established for the common good. The second
condition is that the government-owned or controlled corporation
must meet the test of economic viability. Section 16, Article XII of
the 1987 Constitution provides: SEC. 16. The Congress shall not,
except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or
controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test
of economic viability.

Same; The test of economic viability applies only to

government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the
market placegovernment instrumentalities vested with
corporate powers and performing governmental or public functions
need not meet the test of economic viability.The Constitution
expressly authorizes the legislature to create government-owned
or controlled corporations through special charters only if these
entities are required to meet the twin conditions of common good
and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special
charters unless they are made to comply with the two conditions of
common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that
perform economic or commercial activities and need to compete in
the market place. Being essentially economic vehicles of the State
for the common goodmeaning for economic development
purposesthese government-owned or controlled corporations
with special charters are usually organized as stock corporations
just like ordinary private corporations. In contrast, government
instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public
services for the common good, services that every modern State
must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their
entire operations. These instrumentalities are not the governmentowned or controlled corporations referred to in Section 16, Article
XII of the 1987 Constitution.

Manila International Airport Authority; Administrative Law; The

MIAA need not meet the test of economic viability because the
legislature did not create MIAA to compete in the market
place.The MIAA need not meet the test of economic viability
because the legislature did not create MIAA to compete in the
market place. MIAA does not compete in the market place because
there is no competing international airport operated by the private

20

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

sector. MIAA performs an essential public service as the primary

domestic and international airport of the Philippines.

Same; Words and Phrases; The terminal fees that MIAA

charges every passenger are regulatory or administrative
fees and not income from commercial transactions.MIAA
performs an essential public service that every modern State must
provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and
airlines. The terminal fees that MIAA charges every passenger are
regulatory or administrative fees and not income from commercial
transactions. [Manila International Airport Authority vs. Court

of Appeals, 495 SCRA 591(2006)]

Administrative Agencies; Manila International Airport
Authority; Manila International Airport Authority (MIAA) is a
government instrumentality that does not qualify as a
government-owned or controlled corporation.A close
scrutiny of the definition of government-owned or controlled
corporation in Section 2(13) will show that MIAA would not fall
under such definition. MIAA is a government instrumentality that
does not qualify as a government-owned or controlled
corporation. As explained in the 2006 MIAA case: A governmentowned or controlled corporation must be organized as a stock or
non-stock corporation. MIAA is not organized as a stock or nonstock corporation. MIAA is not a stock corporation because it has
no capital stock divided into shares. MIAA has no stockholders or
voting shares. x x x

Same; Same; Taxation; Tax Exemptions; Local Government

Code; Manila International Airport Authority (MIAA) is not a
government-owned or controlled corporation but a
government instrumentality which is exempt from any kind of
tax from the local governments.MIAA is not a governmentowned or controlled corporation but a government instrumentality
which is exempt from any kind of tax from the local governments.
Indeed, the exercise of the taxing power of local government units
is subject to the limitations enumerated in Section 133 of the Local
Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities
of the national government like the MIAA. Hence, MIAA is not liable to
pay real property tax for the NAIA Pasay properties.

Same; Same; Same; Property; The airport lands and buildings

of Manila International Airport Authority (MIAA) are properties
of public dominion intended for public use; and as such are
exempt from real property tax under Section 234(a) of the
Local Government Code (LGC); Only those portions of the Ninoy
Aquino International Airport (NAIA) Pasay properties which
are leased to taxable persons like private parties are subject
to real property tax by the City of Pasay.The airport lands and
buildings of MIAA are properties of public dominion intended for

11/01/2014

public use, and as such are exempt from real property tax under
Section 234(a) of the Local Government Code. However, under the
same provision, if MIAA leases its real property to a taxable person,
the specific property leased becomes subject to real property tax.
In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to
real property tax by the City of Pasay. [Manila International

Airport Authority vs. City of Pasay, 583 SCRA 234(2009)]

Taxation; Exemptions; Local Government Units (LGUs); Local
Government Code; The Court, in ruling Mactan-Cebu
International Airport Authority (MCIAA) non-exempt from
realty taxes, considered that Section 133 of the Local
Government Code qualified the exemption of the National
Government, its agencies and instrumentalities from local
taxation with the phrase unless otherwise provided herein.
The Court, in ruling MCIAA non-exempt from realty taxes,
considered that Section 133 qualified the exemption of the National
Government, its agencies and instrumentalities from local taxation
with the phrase unless otherwise provided herein. The Court then
considered the other relevant provisions of the Local Government
Code.

Same; Same; Same; Same; Section 133 was not intended to be

so absolute a prohibition on the power of LGUs to tax the
National Government, its agencies and instrumentalities.
Section 133 was not intended to be so absolute a prohibition on the
power of LGUs to tax the National Government, its agencies and
instrumentalities, as evidenced by these cited provisions which
otherwise provided. But what was the extent of the limitation
under Section 133? This is how the Court, in a discussion of farreaching consequence, defined the parameters in Mactan: The
foregoing sections of the LGC speak of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions
thereto. The use of exceptions or provisos in these sections, as
shown by the following clauses: (1) unless otherwise provided
herein in the opening paragraph of Section 133; (2) Unless
otherwise provided in this Code in Section 193; (3) not hereafter
specifically exempted in Section 232; and (4) Except as provided
herein in the last paragraph of Section 234.

Same; Same; Same; Same; The exemptions from real property

taxes are enumerated in Section 234, which specifically states
that only real properties owned by the Republic of the
Philippines or any of its political subdivisions is exempted
from payment of the tax. Clearly, instrumentalities or GOCCs
do not fall within the exceptions under Section 234.This Court,
in Mactan, acknowledged that under Section 133, instrumentalities
were generally exempt from all forms of local government taxation,
unless otherwise provided in the Code. On the other hand, Section
232 otherwise provides insofar as it allowed local government

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

units to levy an ad valorem real property tax, irrespective of who

owned the property. At the same time, the imposition of real
property taxes under Section 232 is in turn qualified by the phrase
not hereinafter specifically exempted. The exemptions from real
property taxes are enumerated in Section 234, which specifically
states that only real properties owned by the Republic of the
Philippines or any of its political subdivisions are exempted from
the payment of the tax. Clearly, instrumentalities or GOCCs do not
fall within the exceptions under Section 234.

Same; Same; Constitutional Law; Statutes; Only the constitution

may operate to preclude or place restrictions on the
amendment or repeal of lawsconstitutional dicta are of higher
order than legislative statutes, and the latter should always yield to
the former in cases of irreconcilable conflict.The second
paragraph of Section 33 of P.D. No. 1146, as amended, effectively
imposes restrictions on the competency of the Congress to enact
future legislation on the taxability of the GSIS. This places an undue
restraint on the plenary power of the legislature to amend or repeal
laws, especially considering that it is a lawmakers act that imposes
such burden. Only the Constitution may operate to preclude or
place restrictions on the amendment or repeal of laws.
Constitutional dicta is of higher order than legislative statutes, and
the latter should always yield to the former in cases of
irreconcilable conflict.

Same; Same; Same; Same; It is a basic precept that among the

implied substantive limitations on the legislative powers is the
prohibition against the passage of irrepealable laws.It is a
basic precept that among the implied substantive limitations on the
legislative powers is the prohibition against the passage of
irrepealable laws. Irrepealable laws deprive succeeding legislatures
of the fundamental best senses carte blanche in crafting laws
appropriate to the operative milieu. Their allowance promotes an
unhealthy stasis in the legislative front and dissuades dynamic
democratic impetus that may be responsive to the times. As Senior
Associate Justice Reynato S. Puno once observed, [t]o be sure,
there are no irrepealable laws just as there are no irrepealable
Constitutions. Change is the predicate of progress and we should
not fear change.

Same; Same; The express withdrawal of all tax exemptions

accorded to all persons natural or juridical, as stated in
Section 193 of the Local Government Code applies, without
impediment to the present case.The two conditionalities of
Section 33 cannot bear relevance on whether the Local Government
Code removed the tax-exempt status of the GSIS. The express
withdrawal of all tax exemptions accorded to all persons, natural or
juridical, as stated in Section 193 of the Local Government Code,
applies without impediment to the present case. Such position is
bolstered by the other cited provisions of the Local Government
Code, and by the Mactan ruling.

11/01/2014

Same; Same; The State is mandated to ensure local autonomy

of local governments, and local governments are empowered
to levy taxes, fees, and charges that accrue exclusively to
them, subject to congressional guidelines and limitations.Also
worthy of note is that the Constitution itself promotes the principles
of local autonomy as embodied in the Local Government Code. The
State is mandated to ensure the autonomy of local governments,
and local governments are empowered to levy taxes, fees and
charges that accrue exclusively to them, subject to congressional
guidelines and limitations. The principle of local autonomy is no
mere passing dalliance but a constitutionally enshrined precept that
deserves respect and appropriate enforcement by this Court. [City

of Davao vs. RTC, Branch XII, Davao City, 467 SCRA

280(2005)]
Constitutional Law; Local Governments; Local Government
Code; Taxation; Words and Phrases; Franchise, defined.
Section 131 (m) of the LGC defines a franchise as a right or
privilege, affected with public interest which is conferred upon
private persons or corporations, under such terms and conditions
as the government and its political subdivisions may impose in the
interest of the public welfare, security and safety.

Same; Same; Same; Same; Same; Business, defined.On the

other hand, section 131 (d) of the LGC defines business as trade
or commercial activity regularly engaged in as means of livelihood
or with a view to profit. Petitioner claims that it is not engaged in
an activity for profit, in as much as its charter specifically provides
that it is a non-profit organization.

Same; Same; Same; Same; The theory behind the exercise of

the power to tax emanates from necessity.Taxes are the
lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.

Same; Same; Same; Same; The power to tax is no longer vested

exclusively on Congress.In recent years, the increasing social
challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax
is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges
pursuant to Article X, section 5 of the 1987 Constitution.

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Same; Same; Same; Same; One of the most significant

provisions of the Local Government Code is the removal of the
blanket exclusion of instrumentalities and agencies of the
national government from the coverage of local taxation.One
of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a
general rule, LGUs cannot impose taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities, this
rule now admits an exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz.: Section 133. Common Limitations on
the Taxing Powers of the Local Government Units.Unless
otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to
the levy of the following: x x x (o) Taxes, fees, or charges of any kind
on the National Government, its agencies and instrumentalities, and
local government units. (emphasis supplied)

Same; Same; Same; Same; Franchises; A franchise may refer

to a general or primary franchise, or to a special or secondary
franchise.In its specific sense, a franchise may refer to a
general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation,
by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation. The right under
a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself. On the
other hand, the latter refers to the right or privileges conferred
upon an existing corporation such as the right to use the streets of
a municipality to lay pipes of tracks, erect poles or string wires. The
rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property,
except such special or secondary franchises as are charged with a
public use.

Same; Same; Same; Same; Words and Phrases; Franchise Tax;

Definition; Requisites.As commonly used, a franchise tax is a
tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state. It is not
levied on the corporation simply for existing as a corporation, upon
its property or its income, but on its exercise of the rights or
privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business
and exercise its franchise. It is within this context that the phrase
tax on businesses enjoying a franchise in section 137 of the LGC
should be interpreted and understood. Verily, to determine whether
the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a
franchise in the sense of a secondary or special franchise; and

11/01/2014

(2) that it is exercising its rights or privileges under this franchise

within the territory of the respondent city government.

Same; Same; Same; Same; The power to tax is the most

effective instrument to raise needed revenues to finance and
support myriad activities of the local government units.
Doubtless, the power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities of
the local government units for the delivery of basic services
essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. As
this Court observed in the Mactan case, the original reasons for
the withdrawal of tax exemption privileges granted to governmentowned or controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises.
With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development,
fiscal or otherwise, by paying taxes or other charges due from
them. [National Power Corporation vs. City of Cabanatuan, 401

SCRA 259(2003)]
Tax Exemptions; Statutory Construction; The basis for the rule
on strict construction to statutory provisions granting tax
exemptions or deductions is to minimize differential treatment
and foster impartiality, fairness and equality of treatment
among taxpayers.The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to
minimize differential treatment and foster impartiality, fairness and
equality of treatment among taxpayers. He who claims an exemption
from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For
exemptions from taxation are not favored in law, nor are they
presumed. They must be expressed in the clearest and most
unambiguous language and not left to mere implications. It has been
held that exemptions are never presumed, the burden is on the
claimant to establish clearly his right to exemption and cannot be
made out of inference or implications but must be laid beyond
reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought
to be expressed in clear and unambiguous terms.

Same; Franchise Tax; The right to exemption from local

franchise tax must be clearly established and cannot be made
out of inference or implications but must be laid beyond
reasonable doubt.Section 8 of R.A. No. 7966 imposes on ABSCBN a franchise tax equivalent to three (3) percent of all gross
receipts of the radio/television business transacted under the
franchise and the franchise tax shall be in lieu of all taxes on the
franchise or earnings thereof. The in lieu of all taxes provision in
the franchise of ABS-CBN does not expressly provide what kind of
taxes ABS-CBN is exempted from. It is not clear whether the

23

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

exemption would include both local, whether municipal, city or

provincial, and national tax. What is clear is that ABS-CBN shall be
liable to pay three (3) percent franchise tax and income taxes
under Title II of the NIRC. But whether the in lieu of all taxes
provision would include exemption from local tax is not
unequivocal. As adverted to earlier, the right to exemption from
local franchise tax must be clearly established and cannot be made
out of inference or implications but must be laid beyond reasonable
doubt. Verily, the uncertainty in the in lieu of all taxes provision
should be construed against ABS-CBN. ABS-CBN has the burden to
prove that it is in fact covered by the exemption so claimed. ABSCBN miserably failed in this regard.

Same; Franchise Tax; Value Added Tax (VAT); In keeping with

the laws that have been passed since the grant of ABS-CBNs
franchise, the corporation should now be subject to Value
Added Tax (VAT), instead of the 3% franchise tax.In its
decision dated January 20, 1999, the RTC held that pursuant to the
in lieu of all taxes provision contained in Section 8 of R.A. No.
7966, ABS-CBN is exempt from the payment of the local franchise
tax. The RTC further pronounced that ABS-CBN shall instead be
liable to pay a franchise tax of 3% of all gross receipts in lieu of all
other taxes. On this score, the RTC ruling is flawed. In keeping with
the laws that have been passed since the grant of ABS-CBNs
franchise, the corporation should now be subject to VAT, instead of
the 3% franchise tax.

Same; Same; Same; Value Added Tax (VAT) is a percentage tax

imposed on any person whether or not a franchise grantee,
who in the course of trade or business, sells, barters,
exchanges, leases, goods or properties, renders services,
while the franchise tax is a percentage tax imposed only on
franchise holders.VAT is a percentage tax imposed on any
person whether or not a franchise grantee, who in the course of
trade or business, sells, barters, exchanges, leases, goods or
properties, renders services. It is also levied on every importation
of goods whether or not in the course of trade or business. The tax
base of the VAT is limited only to the value added to such goods,
properties, or services by the seller, transferor or lessor. Further,
the VAT is an indirect tax and can be passed on to the buyer. The
franchise tax, on the other hand, is a percentage tax imposed only
on franchise holders. It is imposed under Section 119 of the Tax Code
and is a direct liability of the franchise grantee. The clause in lieu
of all taxes does not pertain to VAT or any other tax. It cannot
apply when what is paid is a tax other than a franchise tax. Since
the franchise tax on the broadcasting companies with yearly gross
receipts exceeding ten million pesos has been abolished, the in lieu
of all taxes clause has now become functus officio, rendered
inoperative. [Quezon City vs. ABS-CBN Broadcasting

Corporation, 567 SCRA 496(2008)]

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Taxation; Cooperatives; Electric Cooperatives; The tax

privileges granted to electric cooperatives registered with
National Electrification Administration (NEA) under P.D. 269
were validly withdrawn and only those registered with the
Cooperative Development Authority (CDA) under R.A. 6938
may continue to enjoy the tax privileges under the Cooperative
Code.In Philippine Rural Electric Cooperatives Association, Inc.
(PHILRECA) v. The Secretary, Department of Interior and Local
Government, 403 SCRA 558 (2003), the Court held that the tax
privileges granted to electric cooperatives registered with NEA
under PD 269 were validly withdrawn and only those registered
with the CDA under RA 6938 may continue to enjoy the tax
privileges under the Cooperative Code. Therefore, CASURECO III can
no longer invoke PD 269 to evade payment of local taxes. Moreover,
its provisional registration with the CDA which granted it exemption
for the payment of local taxes was extended only until May 4, 1992.
Thereafter, it can no longer claim any exemption from the payment
of local taxes, including the subject franchise tax.

Same; Local Taxation; The power of the local government units

to impose and collect taxes is derived from the Constitution
itself which grants them the power to create its own sources
of revenues and to levy taxes, fees and charges subject to
such guidelines and limitation as the Congress may provide.
The power of the local government units to impose and collect taxes
is derived from the Constitution itself which grants them the
power to create its own sources of revenues and to levy taxes, fees
and charges subject to such guidelines and limitation as the
Congress may provide. This explicit constitutional grant of power
to tax is consistent with the basic policy of local autonomy and
decentralization of governance. With this power, local government
units have the fiscal mechanisms to raise the funds needed to
deliver basic services to their constituents and break the culture of
dependence on the national government. Thus, consistent with these
objectives, the LGC was enacted granting the local government
units, like petitioner, the power to impose and collect franchise tax.

Same; Franchise Tax; Words and Phrases; A franchise tax is a

tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state.In
National Power Corporation v. City of Cabanatuan, 401 SCRA 259
(2003), the Court declared that a franchise tax is a tax on the
privilege of transacting business in the state and exercising
corporate franchises granted by the state. It is not levied on the
corporation simply for existing as a corporation, upon its property
or its income, but on its exercise of the rights or privileges granted
to it by the government. It is within this context that the phrase tax
on businesses enjoying a franchise in Section 137 of the LGC should
be interpreted and understood.

Same; Same; Requisites That Must Concur in Order to be Liable

for Local Franchise Tax.To be liable for local franchise tax, the

24

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

following requisites should concur: (1) that one has a franchise in

the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the
territory of the pertinent local government unit.

Same; Same; Franchise tax shall be based on gross receipts

precisely because it is a tax on business, rather than on
persons or property.It should be stressed that what the
petitioner seeks to collect from CASURECO III is a franchise tax,
which as defined, is a tax on the exercise of a privilege. As Section
137 of the LGC provides, franchise tax shall be based on gross
receipts precisely because it is a tax on business, rather than on
persons or property. Since it partakes of the nature of an excise
tax, the situs of taxation is the place where the privilege is
exercised, in this case in the City of Iriga, where CASURECO III has
its principal office and from where it operates, regardless of the
place where its services or products are delivered. Hence,
franchise tax covers all gross receipts from Iriga City and the
Rinconada area. [City of Iriga vs. Camarines Sur III Electric

Cooperative, Inc. (CASURECO III), 680 SCRA 236(2012)]

Taxation; Public Utilities; Franchises; Republic Act No. 7294;
Statutory Construction; The grant of tax exemption by R.A. No.
7294 is not to be interpreted from a consideration of a single
portion or of isolated words or clauses, but from a general
view of the act as a whole.The in lieu of all taxes clause in
Smarts franchise is put in issue before the Court. In order to
ascertain its meaning, consistent with fundamentals of statutory
construction, all the words in the statute must be considered. The
grant of tax exemption by R.A. No. 7294 is not to be interpreted
from a consideration of a single portion or of isolated words or
clauses, but from a general view of the act as a whole. Every part of
the statute must be construed with reference to the context.

Same; Same; Same; Same; Same; Words and Phrases; The

uncertainty in the in lieu of all taxes clause in R.A. No. 7294
on whether Smart is exempted from both local and national
franchise tax must be construed strictly against Smart which
claims the exemptionin the instant case, the in lieu of all
taxes clause applies only to national internal revenue taxes
and not to local taxes.The uncertainty in the in lieu of all taxes
clause in R.A. No. 7294 on whether Smart is exempted from both
local and national franchise tax is construed strictly against Smart
who is claiming the exemption. Smart has the burden of proving
that, aside from the imposed 3% franchise tax, Congress intended
it to be exempted from all kinds of franchise taxeswhether local
or national. However, Smart failed in this regard. Tax exemptions
are never presumed and are strictly construed against the
taxpayer and liberally in favor of the taxing authority. They can only
be given force when the grant is clear and categorical. The
surrender of the power to tax, when claimed, must be clearly shown
by a language that will admit of no reasonable construction

11/01/2014

consistent with the reservation of the power. If the intention of the

legislature is open to doubt, then the intention of the legislature
must be resolved in favor of the State. In this case, the doubt must
be resolved in favor of the City of Davao. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to
local taxes.

Same; Same; Same; Same; Same; Value-Added Tax; It should be

noted that the in lieu of all taxes clause in R.A. No. 7294 has
become functus officio with the abolition of the franchise tax
on telecommunications companiesthe in lieu of all taxes
clause in R.A. No. 7294 was rendered ineffective by the advent of
the Value-Added Tax (VAT) Law.It should be noted that the in lieu
of all taxes clause in R.A. No. 7294 has become functus officio with
the abolition of the franchise tax on telecommunications companies.
As admitted by Smart in its pleadings, it is no longer paying the 3%
franchise tax mandated in its franchise. Currently, Smart along with
other telecommunications companies pays the uniform 10% valueadded tax. The VAT on sale of services of telephone franchise
grantees is equivalent to 10% of gross receipts derived from the
sale or exchange of services. R.A. No. 7716, as amended by the
Expanded Value Added Tax Law (R.A. No. 8241), the pertinent portion
of which is hereunder quoted, amended Section 9 of R.A. No. 7294:
x x x R.A. No. 7716, specifically Section 20 thereof, expressly
repealed the provisions of all special laws relative to the rate of
franchise taxes. It also repealed, amended, or modified all other
laws, orders, issuances, rules and regulations, or parts thereof
which are inconsistent with it. In effect, the in lieu of all taxes
clause in R.A. No. 7294 was rendered ineffective by the advent of
the VAT Law.

Same; Same; Same; Same; Same; The findings of the Bureau of

Local Government Finance (BLGF) are not conclusive on the
courts.In support of its argument that the in lieu of all taxes
clause is to be construed as an exemption from local franchise
taxes, Smart submits the opinion of the Department of Finance,
through the BLGF, dated August 13, 1998 and February 24, 1998,
regarding the franchises of Smart and Globe, respectively. Smart
presents the same arguments as the Philippine Long Distance
Telephone Company in the previous cases already decided by this
Court. As previously held by the Court, the findings of the BLGF are
not conclusive on the courts.

Same; Same; Same; Words and Phrases; Tax Exclusion and Tax
Exemption; Both in their nature and effect, there is no
essential difference between a tax exemption and a tax
exclusionan exclusion is also an immunity or privilege which
frees a taxpayer from a charge to which others are
subjected.Smart gives another perspective of the in lieu of all
taxes clause in Section 9 of R.A. No. 7294 in order to avoid the
payment of local franchise tax. It says that, viewed from another
angle, the in lieu of all taxes clause partakes of the nature of a tax

25

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

11/01/2014

exclusion and not a tax exemption. A tax exemption means that the
taxpayer does not pay any tax at all. Smart pays VAT, income tax,
and real property tax. Thus, what it enjoys is more accurately a tax
exclusion. However, as previously held by the Court, both in their
nature and effect, there is no essential difference between a tax
exemption and a tax exclusion. An exemption is an immunity or a
privilege; it is the freedom from a charge or burden to which others
are subjected. An exclusion, on the other hand, is the removal of
otherwise taxable items from the reach of taxation, e.g., exclusions
from gross income and allowable deductions. An exclusion is, thus,
also an immunity or privilege which frees a taxpayer from a charge
to which others are subjected. Consequently, the rule that a tax
exemption should be applied in strictissimi juris against the
taxpayer and liberally in favor of the government applies equally to
tax exclusions.

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. In truth, the Contract
Clause has never been thought as a limitation on the exercise of the
States power of taxation save only where a tax exemption has been
granted for a valid consideration. x x x. [Smart Communications,

Same; Same; Same; Public Telecommunications Policy Act (R.A.

No. 7925); Most Favored Treatment Clause or Equality Clause;
Statutory Construction; The term exemption in Section 23 of
R.A. No. 7925 does not mean tax exemptionit refers to
exemption from certain regulations and requirements imposed
by the National Telecommunications Commission.We find no

there is no question that the authority to impose the license fees in

dispute, properly belongs to the province concerned and not to the
Municipality of Luna which is specifically prohibited under Section
22 of the same Code "from levying taxes, fees and charges that the
province or city is authorized to levy in this Code." On the other
hand, the Municipality of San Fernando cannot extract sand and
gravel from the Municipality of Luna without paying the
corresponding taxes or fees that may be imposed by the province
of La Union. [Mun. of San Fernando, La Union vs. Sta. Romana,

reason to disturb the previous pronouncements of this Court

regarding the interpretation of Section 23 of R.A. No. 7925. As aptly
explained in the en banc decision of this Court in Philippine Long
Distance Telephone Company, Inc. v. City of Davao, 363 SCRA 522
(2001), and recently in Digital Telecommunications Philippines, Inc.
(Digitel) v. Province of Pangasinan, 516 SCRA 541 (2007), Congress,
in approving Section 23 of R.A. No. 7925, did not intend it to operate
as a blanket tax exemption to all telecommunications entities. The
language of Section 23 of R.A. No. 7925 and the proceedings of both
Houses of Congress are bereft of anything that would signify the
grant of tax exemptions to all telecommunications entities, including
those whose exemptions had been withdrawn by R.A. No. 7160. The
term exemption in Section 23 of R.A. No. 7925 does not mean tax
exemption. The term refers to exemption from certain regulations
and requirements imposed by the National Telecommunications
Commission.

Same; Same; Same; Contract Clause; 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 orderthe Contract Clause has never been
thought as a limitation on the exercise of the States power of
taxation save only where a tax exemption has been granted for a
valid consideration.Smarts franchise was granted with the
express condition that it is subject to amendment, alteration, or
repeal. As held in Tolentino v. Secretary of Finance, 235 SCRA 630
(1994): It is enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the exercise

Inc. vs. The City of Davao, 565 SCRA 237(2008)]

Mines and Mining; Taxation; Local Governments; Authority to
impose taxes and fees for extraction of sand and gravel
belongs to the Province, not to the municipality where they are
found.Under the above-quoted provisions of the Local Tax Code,

149 SCRA 27(1987)]

Taxation; Local Tax Code; Local Government Units; Amusement
Tax; Professional Sports; The province can only impose tax on
admission from the proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses and other
places of amusement, and has no authority to tax professional
basketball games.The laws on the matter are succinct and
clear and need no elaborate disquisition. Section 13 of the
Local Tax Code provides: Sec. 13. Amusement tax on
admission.The province shall impose a tax on admission to be
collected from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of
amusement x x x. The foregoing provision of law in point indicates
that the province can only impose a tax on admission from the
proprietors, lessees, or operators of theaters, cinematographs,
concert halls, circuses and other places of amusement. The
authority to tax professional basketball games is not therein
included, as the same is expressly embraced in PD 1959, which
amended PD 1456.

Same; Same; Same; Same; Same; Statutory Construction;

Ejusdem Generis; While Section 13 of the Local Tax Code
mentions other places of amusement, professional
basketball games are definitely not within its scopeunder the
principle of ejusdem generis, where general words follow an
enumeration of persons or things, by words of a particular and

26

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

specific meaning, such general words are not to be construed in

their widest extent, but are to be held as applying only to persons
or things of the same kind or class as those specifically
mentioned.While Section 13 of the Local Tax Code mentions other
places of amusement, professional basketball games are definitely
not within its scope. Under the principle of ejusdem generis, where
general words follow an enumeration of persons or things, by
words of a particular and specific meaning, such general words are
not to be construed in their widest extent, but are to be held as
applying only to persons or things of the same kind or class as
those specifically mentioned. Thus, in determining the meaning of
the phrase other places of amusement, one must refer to the
prior enumeration of theaters, cinema-tographs, concert halls and
circuses with artistic expression as their common characteristic.
Professional basketball games do not fall under the same category
as theaters, cinematographs, concert halls and circuses as the
latter basically belong to artistic forms of entertainment while the
former caters to sports and gaming.

Same; Same; Same; Same; Same; Same; A historical analysis of

pertinent laws does reveal the legislative intent to place
professional basketball games within the ambit of a national
tax.A historical analysis of pertinent laws does reveal the
legislative intent to place professional basketball games within the
ambit of a national tax. The Local Tax Code, which became effective
on June 28, 1973, allowed the province to collect a tax on admission
from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of
amusement. On January 6, 1976, the operation of petitioner was
placed under the supervision and regulation of the Games and
Amusement Board by virtue of PD 871, with the proviso (Section 8)
that x x x all professional basketball games conducted by the
Philippine Basketball Association shall only be subject to amusement
tax of five per cent of the gross receipts from the sale of admission
tickets. Then, on June 11, 1978, PD 1456 came into effect, increasing
the amusement tax to ten per cent, with a categorical referral to PD
871, to wit, [t]en per centum in the case of professional basketball
games as envisioned in Presidential Decree No. 871 x x x. Later in
1984, PD 1959 increased the rate of amusement tax to fifteen
percent by making reference also to PD 871. With the reference to
PD 871 by PD 1456 and PD 1959, there is a recognition under the
laws of this country that the amusement tax on professional
basketball games is a national, and not a local, tax. Even up to the
present, the category of amusement taxes on professional
basketball games as a national tax remains the same. This is so
provided under Section 125 of the 1997 National Internal Revenue
Code. Section 140 of the Local Government Code of 1992 (Republic
Act 7160), meanwhile, retained the areas (theaters,
cinematographs, concert halls, circuses and other places of
amusement) where the province may levy an amusement tax
without including therein professional basketball games.

11/01/2014

Taxation; Public Officers; Estoppel; The government can never

be in estoppel, particularly in matters involving taxes
erroneous application and enforcement of the law by public
officers do not preclude subsequent correct application of the
statute, and the Government is never estopped by mistake or
error on the part of its agents.It bears stressing that the
government can never be in estoppel, particularly in matters
involving taxes. It is a well-known rule that erroneous application
and enforcement of the law by public officers do not preclude
subsequent correct application of the statute, and that the
Government is never estopped by mistake or error on the part of
its agents.

Same; Amusement Tax; Gross Receipts; Income from the

cession of streamer and advertising spaces is subject to
amusement tax.Untenable is the contention that income from the
cession of streamer and advertising spaces to VEI is not subject to
amusement tax. The questioned proviso may be found in Section 1 of
PD 1456 which states: SECTION 1. Section 268 of the National
Internal Revenue Code of 1977, as amended, is hereby further
amended to read as follows: Sec. 268. Amusement taxes.There
shall be collected from the proprietor, lessee or operator of
cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai, race tracks and bowling
alleys, a tax equivalent to: x x x x x x x x x of their gross receipts,
irrespective of whether or not any amount is charged or paid for
admission. For the purpose of the amusement tax, the term gross
receipts embraces all the receipts of the proprietor, lessee or
operator of the amusement place. Said gross receipts also include
income from television, radio and motion picture rights, if any. (A
person, or entity or association conducting any activity subject to
the tax herein imposed shall be similarly liable for said tax with
respect to such portion of the receipts derived by him or it.)
(italics ours) The foregoing definition of gross receipts is broad
enough to embrace the cession of advertising and streamer spaces
as the same embraces all the receipts of the proprietor, lessee or
operator of the amusement place. The law being clear, there is no
need for an extended interpretation. [Philippine Basketball

Association vs. Court of Appeals, 337 SCRA 358(2000)]

Taxation; Business Taxes; Words and Phrases; Gross
Receipts Defined; Gross receipts include money or its
equivalent actually or constructively received in consideration
of services rendered or articles sold, exchanged or leased,
whether actual or constructive.The above provision specifically
refers to gross receipts which is defined under Section 131 of the
Local Government Code, as follows: x x x x (n) Gross Sales or
Receipts include the total amount of money or its equivalent
representing the contract price, compensation or service fee,
including the amount charged or materials supplied with the
services and the deposits or advance payments actually or

27

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

constructively received during the taxable quarter for the services

performed or to be performed for another person excluding
discounts if determinable at the time of sales, sales return, excise
tax, and value-added tax (VAT); x x x x The law is clear. Gross
receipts include money or its equivalent actually or constructively
received in consideration of services rendered or articles sold,
exchanged or leased, whether actual or constructive.

Same; Same; Same; Gross receipts includes those which are

actually or constructively received.In Commissioner of
Internal Revenue v. Bank of Commerce, 459 SCRA 638 (2005), the
Court interpreted gross receipts as including those which were
actually or constructively received, viz.: Actual receipt of interest
income is not limited to physical receipt. Actual receipt may either
be physical receipt or constructive receipt. When the depository
bank withholds the final tax to pay the tax liability of the lending
bank, there is prior to the withholding a constructive receipt by the
lending bank of the amount withheld. From the amount
constructively received by the lending bank, the depository bank
deducts the final withholding tax and remits it to the government
for the account of the lending bank. Thus, the interest income
actually received by the lending bank, both physically and
constructively, is the net interest plus the amount withheld as final
tax. The concept of a withholding tax on income obviously and
necessarily implies that the amount of the tax withheld comes from
the income earned by the taxpayer. Since the amount of the tax
withheld constitutes income earned by the taxpayer, then that
amount manifestly forms part of the taxpayers gross receipts.
Because the amount withheld belongs to the taxpayer, he can
transfer its ownership to the government in payment of his tax
liability. The amount withheld indubitably comes from income of the
taxpayer, and thus forms part of his gross receipts. (Emphasis
supplied)

Same; Same; Same; Constructive receipt occurs when the

money consideration or its equivalent is placed at the control
of the person who rendered the service without restrictions
by the payor; There is constructive receipt, when the
consideration for the articles sold, exchanged or leased, or the
services rendered has already been placed under the control
of the person who sold the goods or rendered the services
without any restriction by the payor.Revenue Regulations No.
16-2005 dated September 1, 2005 defined and gave examples of
constructive receipt, to wit: SEC. 4. 108-4. Definition of Gross
Receipts.x x x Constructive receipt occurs when the money
consideration or its equivalent is placed at the control of the person
who rendered the service without restrictions by the payor. The
following are examples of constructive receipts: (1) deposit in banks
which are made available to the seller of services without
restrictions; (2) issuance by the debtor of a notice to offset any
debt or obligation and acceptance thereof by the seller as payment

11/01/2014

for services rendered; and (3) transfer of the amounts retained by

the payor to the account of the contractor. There is, therefore,
constructive receipt, when the consideration for the articles sold,
exchanged or leased, or the services rendered has already been
placed under the control of the person who sold the goods or
rendered the services without any restriction by the payor.

Same; Same; Same; Gross Revenue Defined; Gross revenue

covers money or its equivalent actually or constructively
received, including the value of services rendered or articles
sold, exchanged or leased, the payment of which is yet to be
received.Gross revenue covers money or its equivalent actually
or constructively received, including the value of services rendered
or articles sold, exchanged or leased, the payment of which is yet to
be received. This is in consonance with the International Financial
Reporting Standards, which defines revenue as the gross inflow of
economic benefits (cash, receivables, and other assets) arising
from the ordinary operating activities of an enterprise (such as
sales of goods, sales of services, interest, royalties, and dividends),
which is measured at the fair value of the consideration received or
receivable.

Same; Same; Double Taxation; Municipal Corporations; The

imposition of local business tax based on gross revenue
inevitably results in double taxationtaxing of the same person
twice by the same jurisdiction over the same thing.In petitioners
case, its audited financial statements reflect income or revenue
which accrued to it during the taxable period although not yet
actually or constructively received or paid. This is because
petitioner uses the accrual method of accounting, where income is
reportable when all the events have occurred that fix the taxpayers
right to receive the income, and the amount can be determined with
reasonable accuracy; the right to receive income, and not the
actual receipt, determines when to include the amount in gross
income. The imposition of local business tax based on petitioners
gross revenue will inevitably result in the constitutionally
proscribed double taxationtaxing of the same person twice by the
same jurisdiction for the same thinginasmuch as petitioners
revenue or income for a taxable year will definitely include its gross
receipts already reported during the previous year and for which
local business tax has already been paid. Thus, respondent
committed a palpable error when it assessed petitioners local
business tax based on its gross revenue as reported in its audited
financial statements, as Section 143 of the Local Government Code
and Section 22(e) of the Pasig Revenue Code clearly provide that
the tax should be computed based on gross receipts. [Ericsson

Telecommunications, Inc. vs. City of Pasig, 538 SCRA

99(2007)]
Taxation; Appeals; Local Governments; The Local Government
Code, or any other statute for that matter, does not expressly
confer appellate jurisdiction on the part of regional trial

28

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

courts from the denial of a tax protest by a local treasurer.

Yet significantly, the Local Government Code, or any other statute
for that matter, does not expressly confer appellate jurisdiction on
the part of regional trial courts from the denial of a tax protest by a
local treasurer. On the other hand, Section 22 of B.P. 129 expressly
delineates the appellate jurisdiction of the Regional Trial Courts,
confining as it does said appellate jurisdiction to cases decided by
Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in
the case of the Court of Appeals, B.P. 129 does not confer appellate
jurisdiction on Regional Trial Courts over rulings made by nonjudicial entities.

Same; Same; Same; Statutes; Courts; Court of Tax Appeals;

Republic Act No. 9282 definitively proves in its Section 7(a)(3)
that the Court of Tax Appeals exercises exclusive appellate
jurisdiction to review on appeal decisions, orders or
resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their
original or appellate jurisdiction.Republic Act No. 9282
definitively proves in its Section 7(a)(3) that the CTA exercises
exclusive appellate jurisdiction to review on appeal decisions,
orders or resolutions of the Regional Trial Courts in local tax cases
original decided or resolved by them in the exercise of their
originally or appellate jurisdiction. Moreover, the provision also
states that the review is triggered by filing a petition for review
under a procedure analogous to that provided for under Rule 42 of
the 1997 Rules of Civil Procedure.

Same; Same; Courts; Court of Tax Appeals; There is wider

latitude on the part of the Court of Tax Appeals to refuse
cognizance over a petition for review under Rule 42 than it
would have over an ordinary appeal under Rule 41.We
recognize that the Corporations error in elevating the RTC decision
for review via Rule 42 actually worked to the benefit of the City
Treasurer. There is wider latitude on the part of the Court of
Appeals to refuse cognizance over a petition for review under Rule
42 than it would have over an ordinary appeal under Rule 41. Under
Section 13, Rule 41, the stated grounds for the dismissal of an
ordinary appeal prior to the transmission of the case records are
when the appeal was taken out of time or when the docket fees
were not paid. On the other hand, Section 6, Rule 42 provides that in
order that the Court of Appeals may allow due course to the petition
for review, it must first make a prima facie finding that the lower
court has committed an error that would warrant the reversal or
modification of the decision under review. There is no similar
requirement of a prima facie determination of error in the case of
ordinary appeal, which is perfected upon the filing of the notice of
appeal in due time.

Same; Constitutional Law; Local Governments; The power of

local government units to impose taxes within its territorial
jurisdiction derives from the Constitution itself, which

11/01/2014

recognizes the power of these units to create its own sources

of revenue and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy.The power
of local government units to impose taxes within its territorial
jurisdiction derives from the Constitution itself, which recognizes
the power of these units to create its own sources of revenue and
to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic
policy of local autonomy. These guidelines and limitations as
provided by Congress are in main contained in the Local
Government Code of 1991 (the Code), which provides for
comprehensive instances when and how local government units
may impose taxes. The significant limitations are enumerated
primarily in Section 133 of the Code, which include among others, a
prohibition on the imposition of income taxes except when levied on
banks and other financial institutions. None of the other general
limitations under Section 133 find application to the case at bar.

Same; Local Governments; Statutes; The most well-known

mode of local government taxation is perhaps the real
property tax, which is governed by Title II, Book II of the Code,
and which bears no application in this case.The most wellknown mode of local government taxation is perhaps the real
property tax, which is governed by Title II, Book II of the Code, and
which bears no application in this case. A different set of provisions,
found under Title I of Book II, governs other taxes imposable by
local government units, including business taxes. Under Section 151
of the Code, cities such as Makati are authorized to levy the same
taxes fees and charges as provinces and municipalities. It is in
Article II, Title II, Book II of the Code, governing municipal taxes,
where the provisions on business taxation relevant to this petition
may be found. [Yamane vs. BA Lepanto Condominium

Corporation, 474 SCRA 258(2005)]

Double Taxation; Words and Phrases; Double taxation means
taxing the same property twice when it should be taxed only
once, that is, taxing the same person twice by the same
jurisdiction for the same thing; Otherwise described as
direct duplicate taxation, the two taxes must be imposed on
the same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the same
taxing period, and the taxes must be of the same kind or
character.Petitioners obstinately ignore the exempting proviso
in Section 21 of Tax Ordinance No. 7794, to their own detriment. Said
exempting proviso was precisely included in said section so as to
avoid double taxation. Double taxation means taxing the same
property twice when it should be taxed only once; that is, taxing the
same person twice by the same jurisdiction for the same thing. It
is obnoxious when the taxpayer is taxed twice, when it should be but
once. Otherwise described as direct duplicate taxation, the two

29

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction,
during the same taxing period; and the taxes must be of the same
kind or character. Using the aforementioned test, the Court finds
that there is indeed double taxation if respondent is subjected to
the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same subject matterthe
privilege of doing business in the City of Manila; (2) for the same
purposeto make persons conducting business within the City of
Manila contribute to city revenues; (3) by the same taxing
authoritypetitioner City of Manila; (4) within the same taxing
jurisdictionwithin the territorial jurisdiction of the City of Manila;
(5) for the same taxing periodsper calendar year; and (6) of the
same kind or charactera local business tax imposed on gross
sales or receipts of the business.

Same; Same; Municipal Corporations; Local Government Units;

It is apparent from a perusal of Section 143 of the Local
Government Codethe very source of the power of
municipalities and cities to impose a local business taxthat
when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other
article of commerce, pursuant to Section 143(a) of the Local
Government Code (LGC), said municipality or city may no longer
subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code.The distinction petitioners
attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of
the LGC, the very source of the power of municipalities and cities to
impose a local business tax, and to which any local business tax
imposed by petitioner City of Manila must conform. It is apparent
from a perusal thereof that when a municipality or city has already
imposed a business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to
Section 143(a) of the LGC, said municipality or city may no longer
subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code. Section 143(h) may be imposed
only on businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are not otherwise
specified in preceding paragraphs. In the same way, businesses
such as respondents, already subject to a local business tax under
Section 14 of Tax Ordinance No. 7794 [which is based on Section
143(a) of the LGC], can no longer be made liable for local business
tax under Section 21 of the same Tax Ordinance [which is based on
Section 143(h) of the LGC]. [City of Manila vs. Coca-Cola Bottlers

Philippines, Inc., 595 SCRA 299(2009)]

Taxation; Tax Ordinance; The law requires that the dissatisfied
taxpayer who questions the validity or legality of a tax
ordinance must file his appeal to the Secretary of Justice,
within 30 days from effectivity thereof. In case the Secretary

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decides the appeal, a period also of 30 days is allowed for an

aggrieved party to go to court. But if the Secretary does not
act thereon, after the lapse of 60 days, a party could already
proceed to seek relief in court.CEPALCO ignored our ruling in
Reyes v. Court of Appeals on the mandatory nature of the statutory
periods: Clearly, the law requires that the dissatisfied taxpayer who
questions the validity or legality of a tax ordinance must file his
appeal to the Secretary of Justice, within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of
30 days is allowed for an aggrieved party to go to court. But if the
Secretary does not act thereon, after the lapse of 60 days, a party
could already proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite before
seeking redress in a competent court. Such statutory periods are
set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe
these provisions of statutes as mandatory. A municipal tax
ordinance empowers a local government unit to impose taxes. The
power to tax is the most effective instrument to raise needed
revenues to finance and support the myriad activities of local
government units for the delivery of basic services essential to the
promotion of the general welfare and enhancement of peace,
progress, and prosperity of the people. Consequently, any delay in
implementing tax measures would be to the detriment of the public.
It is for this reason that protests over tax ordinances are required
to be done within certain time frames. In the instant case, it is our
view that the failure of petitioners to appeal to the Secretary of
Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal
to their cause.

Same; Constitutional Law; Local Government Units; Each local

government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy.
Section 5, Article X of the 1987 Constitution provides that [e]ach
local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges subject to
such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local government. The
Local Government Code supplements the Constitution with Sections
151 and 186: SEC. 151. Scope of Taxing Powers.Except as otherwise
provided in this Code, the city may levy the taxes, fees and charges
which the province or municipality may impose: Provided, however,
That the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them
and distributed in accordance with the provisions of this Code. The
rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty
percent (50%) except the rates of professional and amusement

30

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

taxes. SEC. 186. Power to Levy Other Taxes, Fees or Charges.Local

government units may exercise the power to levy taxes, fees or
charges on any base or subject not otherwise specifically
enumerated herein or taxed under the provisions of the National
Internal Revenue Code, as amended, or other applicable laws:
Provided, That the taxes, fees, or charges shall not be unjust,
excessive, oppressive, confiscatory or contrary to declared
national policy: Provided, further, That the ordinance levying such
taxes, fees, or charges shall not be enacted without any prior public
hearing conducted for the purpose.

Same; Business; Words and Phrases; CEPALCOs act of leasing

for a consideration the use of its posts, poles or towers to
other pole users falls under the Local Government Codes
definition of business. Business is defined by Section 131(d) of
the Local Government Code as trade or commercial activity
regularly engaged in as a means of livelihood or with a view to
profit.Unfortunately for CEPALCO, we agree with the ruling of the
trial and appellate courts that Ordinance No. 9503-2005 is a tax on
business. CEPALCOs act of leasing for a consideration the use of its
posts, poles or towers to other pole users falls under the Local
Government Codes definition of business. Business is defined by
Section 131(d) of the Local Government Code as trade or
commercial activity regularly engaged in as a means of livelihood or
with a view to profit. In relation to Section 131(d), Section 143(h) of
the Local Government Code provides that the city may impose
taxes, fees, and charges on any business which is not specified in
Section 143(a) to (g) and which the sanggunian concerned may
deem proper to tax.

Same; Tax Exemptions; Franchise Tax; The Local Government

Code withdrew tax exemption privileges previously given to
natural or juridical persons, and granted local government
units the power to impose franchise tax.The Local Government
Code withdrew tax exemption privileges previously given to natural
or juridical persons, and granted local government units the power
to impose franchise tax, thus: SEC. 137. Franchise Tax.
Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction. x x x x SEC. 193. Withdrawal of Tax Exemption
Privileges.Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and nonprofit
hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. SEC. 534. Repealing Clause.x x x. (f) All
general and special laws, acts, city charters, decrees, executive

11/01/2014

orders, proclamations and administrative regulations, or part or

parts thereof which are inconsistent with any of the provisions of
this Code are hereby repealed or modified accordingly.

Same; Same; It is hornbook doctrine that tax exemptions are

strictly construed against the claimant.It is hornbook doctrine
that tax exemptions are strictly construed against the claimant. For
this reason, tax exemptions must be based on clear legal
provisions. The separate opinion in PLDT v. City of Davao is
applicable to the present case, thus: Tax exemptions must be clear
and unequivocal. A taxpayer claiming a tax exemption must point to
a specific provision of law conferring on the taxpayer, in clear and
plain terms, exemption from a common burden. Any doubt whether
a tax exemption exists is resolved against the taxpayer. Tax
exemptions cannot arise by mere implication, much less by an
implied re-enactment of a repealed tax exemption clause.

Same; Franchise Tax; Section 151 of the Local Government Code

states that, subject to certain exceptions, a city may exceed by
not more than 50% the tax rates allowed to provinces and
municipalities. A province may impose a franchise tax at a rate
not exceeding 50% of 1% of the gross annual receipts. A
municipality may impose a business tax at a rate not exceeding
two percent of gross sales or receipts.CEPALCO is mistaken
when it states that a city can impose a tax up to only one-half of
what the province or city may impose. A more circumspect reading
of the Local Government Code could have prevented this error.
Section 151 of the Local Government Code states that, subject to
certain exceptions, a city may exceed by not more than 50% the
tax rates allowed to provinces and municipalities. A province may
impose a franchise tax at a rate not exceeding 50% of 1% of the
gross annual receipts. Following Section 151, a city may impose a
franchise tax of up to 0.0075 (or 0.75%) of a business gross
annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction. A
municipality may impose a business tax at a rate not exceeding
two percent of gross sales or receipts. Following Section 151, a
city may impose a business tax of up to 0.03 (or 3%) of a business
gross sales or receipts of the preceding calendar year.

Same; Value-Added Tax; Any person, who in the course of trade

or business leases goods or properties shall be subject to the
value-added tax, the imposable tax rate should not exceed two
percent of gross receipts of the lease of poles of the
preceding calendar year.More importantly, because any
person, who in the course of trade or business x x x leases goods
or properties x x x shall be subject to the value-added tax, the
imposable tax rate should not exceed two percent of gross receipts
of the lease of poles of the preceding calendar year. Section 143(h)
states that on any business subject to x x x value-added x x x tax
under the National Internal Revenue Code, as amended, the rate of
tax shall not exceed two percent (2%) of gross sales or receipts of

31

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

the preceding calendar year from the lease of goods or properties.

Hence, the 10% tax rate imposed by Ordinance No. 9503-2005
clearly violates Section 143(h) of the Local Government Code.

[Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan
de Oro, 685 SCRA 609(2012)]
Taxation; While business taxes imposed in the exercise of
police power for regulatory purposes are paid for the
privilege of carrying on a business in the year the tax was
paid, income tax is a tax on all yearly profits arising from
property, professions, trades or offices, or as a tax on a
persons income, emoluments, profits and the likeit is a tax on
income, whether net or gross realized in one taxable year.
Prefatorily, it is necessary to distinguish between a business tax
vis--vis an income tax. Business taxes imposed in the exercise of
police power for regulatory purposes are paid for the privilege of
carrying on a business in the year the tax was paid. It is paid at the
beginning of the year as a fee to allow the business to operate for
the rest of the year. It is deemed a prerequisite to the conduct of
business. Income tax, on the other hand, is a tax on all yearly profits
arising from property, professions, trades or offices, or as a tax on
a persons income, emoluments, profits and the like. It is tax on
income, whether net or gross realized in one taxable year. It is due
on or before the 15th day of the 4th month following the close of the
taxpayers taxable year and is generally regarded as an excise tax,
levied upon the right of a person or entity to receive income or
profits.

Same; The respondent city treasurer erroneously treated the

assessment and collection of business tax as if it were income
tax.For the year 1998, petitioner paid a total of P2,262,122.48 to
the City Treasurer of Makati as business taxes for the year 1998.
The amount of tax as computed based on petitioners gross sales
for 1998 is only P1,331,638.84. Since the amount paid is more than
the amount computed based on petitioners actual gross sales for
1998, petitioner upon its retirement is not liable for additional taxes
to the City of Makati. Thus, we find that the respondent erroneously
treated the assessment and collection of business tax as if it were
income tax, by rendering an additional assessment of P1,331,638.84
for the revenue generated for the year 1998. [Mobil Philippines,

Inc. vs. The City Treasurer of Makati, 463 SCRA 379(2005)]

The decision is assailed in so far as it sustains the imposition and
collection of the additional tax upon sales of manufactured oils and
other petroleum products stored in the Sipocot depot, for delivery
outside the said municipality. The evidence presented shows that
the customers place their orders either at the Sipocot depot, or at
the main office of the appellant company in Manila, depending on the
volume of gas intended to be purchased. The invoice is prepared in
the meantime, wherein, among other things, the place of delivery is
stated. Said invoice is given to the truck driver, who upon arrival at
the destination, is instructed to present the same to the customer,

11/01/2014

requiring the latter to acknowledge receipt of the products

delivered, in the condition upon which they were received. Payment

is made after delivery and acceptance of the goods by the

buyer. It is evident that delivery to the carrier is not
considered by the parties as amounting to a delivery to the
consumer within the meaning of Article 1423 of the Civil Code
of the Philippines; here the carrier is merely an agent of the
appellant company. Accordingly, these sales should not be
subjected to additional tax, being transactions effected outside
the municipality's territorial limits. Appellee questions the
propriety of this action for declaratory relief, contending that the
issue had become moot on account of the payments made by the
company to the municipality pursuant to the tax ordinance. [Shell

Company of the Philippines, Ltd. vs. Municipality of Sipocot,

Camarines Sur, et al., 105 Phil. 1263(1959)]
Taxation; Local Taxation; Tax on Manufacture of Softdrinks; For
tax purposes, a manufacturer does not necessarily become
engage in the separate business of selling simply because it
sells the products it manufactures.This Court has always
recognized that the right to manufacture implies the right to
sell/distribute the manufactured products [See Central Azucarera
de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627 (1955);
Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L22764, July 28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a
manufacturer does not necessarily become engaged in the
separate business of selling simply because it sells the products it
manufactures. In certain cases, however, a manufacturer may also
be considered as engaged in the separate business of selling its
products.

Same; Same; Same; In determining whether a manufacturer is

engaged in the separate business of selling, the companys
marketing system must be considered.To determine whether
an entity engaged in the principal business of manufacturing, is
likewise engaged in the separate business of selling, its marketing
system or sales operations must be looked into. In several cases
[See Central Azucarera de Don Pedro v. City of Manila and
Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and
the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v.
City of Manila and Cudiamat, supra], this Court had occasion to
distinguish two marketing systems: Under the first system, the
manufacturer enters into sales transactions and invoices the sales
at its main office where purchase orders are received and
approved before delivery orders are sent to the companys
warehouses, where in turn actual deliveries are made. No
warehouse sales are made; nor are separate stores maintained
where products may be sold independently from the main office.
The warehouses only serve as storage sites and delivery points of
the products earlier sold at the main office. Under the second
system, sales transactions are entered into and perfected at stores

32

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

or warehouses maintained by the company. Any one who desires to

purchase the product may go to the store or warehouse and there
purchase the merchandise. The stores and warehouses serve as
selling centers. Entities operating under the first system are NOT
considered engaged in the separate business of selling or dealing in
their products, independent of their manufacturing business.
Entities operating under the second system are considered engaged
in the separate business of selling.

Same; Same; Same; Same; Iloilo Bottlers, as shown by its

marketing system and sales operations, is engaged in the
separate business of selling softdrinks.In the case at bar, the
company distributed its softdrinks by means of a fleet of delivery
trucks which went directly to customers in the different places in
Iloilo province. Sales transactions with customers were entered
into and sales were perfected and consummated by route salesmen.
Truck sales were made independently of transactions in the main
office. The delivery trucks were not used solely for the purpose of
delivering softdrinks previously sold at Pavia. They served as selling
units. They were what were called, until recently, rolling stores.
The delivery trucks were therefore much the same as the stores
and warehouses under the second marketing system. Iloilo Bottlers,
Inc. thus falls under the second category above. That is, the
corporation was engaged in the separate business of selling or
distributing softdrinks, independently of its business of bottling
them.

Same; Same; Excise Tax; Excise Tax can be levied by the taxing
authority only when the acts, privileges or business are
performed within the jurisdiction of said authority.The tax
imposed under Ordinance No. 5 is an excise tax. It is a tax on the
privilege of distributing, manufacturing or bottling softdrinks. Being
an excise tax, it can be levied by the taxing authority only when the
acts, privileges or businesses are done or performed within the
jurisdiction of said authority [Commissioner of Internal Revenue v.
British Overseas Airways Corp. and Court of Tax Appeals, G.R. Nos.
65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs
of the act of distributing, bottling or manufacturing softdrinks must
be within city limits, before an entity engaged in any of the activities
may be taxed in Iloilo City. [Iloilo Bottlers, Inc. vs. City of Iloilo,

164 SCRA 607(1988)]

Local Governments; Municipal Corporation; Republic Act No.
7160; R.A. 7160, 186 provides that an ordinance levying taxes,
fees, or charges shall not be enacted without any prior public
hearing conducted for the purpose.Petitioner is right in
contending that public hearings are required to be conducted prior
to the enactment of an ordinance imposing real property taxes. R.A.
No. 7160, 186 provides that an ordinance levying taxes, fees, or
charges shall not be enacted without any prior public hearing
conducted for the purpose.

11/01/2014

Same; Same; Same; The lack of a public hearing is a negative

allegation to which the party asserting has the burden of
proof.The lack of a public hearing is a negative allegation
essential to petitioners cause of action in the present case. Hence,
as petitioner is the party asserting it, she has the burden of proof.
Since petitioner failed to rebut the presumption of validity in favor
of the subject ordinances and to discharge the burden of proving
that no public hearings were conducted prior to the enactment
thereof, we are constrained to uphold their constitutionality or
legality.

Same; Same; Same; An ordinance imposing real property taxes

must be posted or published as required by R.A. No. 7160,
188.An ordinance imposing real property taxes (such as
Ordinance Nos. 119 and 135) must be posted or published as
required by R.A. No. 7160, 188 which provides: Section 188.
Publication of Tax Ordinances and Revenue Measures.Within
ten (10) days after their approval, certified true copies of all
provincial, city, and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a
newspaper of local circulation: Provided, however, That in
provinces, cities and municipalities where there are no newspapers
of local circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places.

Same; Same; Same; Ordinances which fix the assessment

levels, being in the nature of a tax ordinance, 188 likewise
applies.With respect to ordinances which fix the assessment
levels (such as Ordinance No. 125), being in the nature of a tax
ordinance, 188 likewise applies. Moreover, as Ordinance No. 125, 7
provides for a penal sanction for violations thereof by means of a
fine of not less than P1,000.00 nor more than P5,000.00, or
imprisonment of not less than one (1) month nor more than six (6)
months, or both, in the discretion of the court, not only 188 but
511(a) also must be observed: Ordinances with penal sanctions
shall be posted at prominent places in the provincial capitol, city,
municipal or barangay hall, as the case may be, for a minimum
period of three (3) consecutive weeks. Such ordinances shall also
be published in a newspaper of general circulation, where available,
within the territorial jurisdiction of the local government unit
concerned, except in the case of barangay ordinances. Unless
otherwise provided therein, said ordinances shall take effect on the
day following its publication, or at the end of the period of posting,
whichever occurs later.

Same; Same; Same; Ordinance which fixes the assessment

levels applicable to the different classes of real property in a
local government unit and imposing penal sanctions for
violations thereof should be published in full.In view of 188
and 511(a) of R.A. No. 7160, an ordinance fixing the assessment
levels applicable to the different classes of real property in a local
government unit and imposing penal sanctions for violations thereof

33

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

(such as Ordinance No. 125) should be published in full for three (3)
consecutive days in a newspaper of local circulation, where
available, within ten (10) days of its approval, and posted in at least
two (2) prominent places in the provincial capitol, city, municipal, or
barangay hall for a minimum of three (3) consecutive weeks.

Same; Same; Same; In the absence of proof that the

ordinances were not enacted in accordance with such
regulations, said ordinances must be presumed to have been
enacted in accordance with such regulations.Also without
merit is the contention of petitioner that Ordinance No. 119 and
Ordinance No. 135 are void for not having been enacted in
accordance with Local Assessment Regulation No. 1-92, dated
October 6, 1992, of the Department of Finance, which provides
guidelines for the preparation of proposed schedules of fair market
values of the different classes of real property in a local
government unit, such as time tables for obtaining information from
owners of affected lands and buildings regarding the value thereof.
As in the case of the procedural requirements for the enactment of
tax ordinances and revenue measures, however, petitioner has not
shown that the ordinances in this case were not enacted in
accordance with the applicable regulations of the Department of
Finance. The Municipality of Mandaluyong claims that, although the
regulations are merely directory, it has complied with them. Hence,
in the absence of proof that the ordinances were not enacted in
accordance with such regulations, said ordinances must be
presumed to have been enacted in accordance with such
regulations. [Figuerres vs. Court of Appeals, 305 SCRA

206(1999)]
Taxation; Tax Code; The Tax Code provision withdrawing the tax
exemption was not construed as prohibiting future grants of
exemptions from all taxes.The trial court held that, under these
provisions, all exemptions granted to all persons, whether natural
and juridical, including those which in the future might be granted,
are withdrawn unless the law granting the exemption expressly
states that the exemption also applies to local taxes. We disagree.
Sec. 137 does not state that it covers future exemptions. In
Philippine Airlines, Inc. v. Edu, where a provision of the Tax Code
enacted on June 27, 1968 (R.A. 5431) withdrew the exemption
enjoyed by PAL, it was held that a subsequent amendment of PALs
franchise, exempting it from all other taxes except that imposed by
its franchise, again entitled PAL to exemption from the date of the
enactment of such amendment. The Tax Code provision withdrawing
the tax exemption was not construed as prohibiting future grants of
exemptions from all taxes.

Same; Same; The grant of taxing powers to local government

units under the Constitution and the LGC does not affect the
power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy.Indeed, the grant of
taxing powers to local government units under the Constitution and

11/01/2014

the LGC does not affect the power of Congress to grant exemptions
to certain persons, pursuant to a declared national policy. The legal
effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal
corporations.

Same; Same; Tax exemption must be expressed in the statute

in clear language; The exemption must be interpreted in
strictissimi juris against the taxpayer and liberally in favor of
the taxing authority.The tax exemption must be expressed in the
statute in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. [Philippine

Long Distance Telephone Company, Inc. vs. City of Davao, 363

SCRA 522(2001)]

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Constitutional Law; Local Governments; Local Government

Code; Taxation; Words and Phrases; Franchise, defined.
Section 131 (m) of the LGC defines a franchise as a right or
privilege, affected with public interest which is conferred upon
private persons or corporations, under such terms and conditions
as the government and its political subdivisions may impose in the
interest of the public welfare, security and safety.

Same; Same; Same; Same; Same; Business, defined.On the

other hand, section 131 (d) of the LGC defines business as trade
or commercial activity regularly engaged in as means of livelihood
or with a view to profit. Petitioner claims that it is not engaged in
an activity for profit, in as much as its charter specifically provides
that it is a non-profit organization.

Same; Same; Same; Same; The theory behind the exercise of

the power to tax emanates from necessity.Taxes are the
lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.

Same; Same; Same; Same; The power to tax is no longer vested

exclusively on Congress.In recent years, the increasing social
challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax
is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges
pursuant to Article X, section 5 of the 1987 Constitution.

Same; Same; Same; Same; One of the most significant

provisions of the Local Government Code is the removal of the
blanket exclusion of instrumentalities and agencies of the
national government from the coverage of local taxation.One
of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a
general rule, LGUs cannot impose taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities, this
rule now admits an exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz.: Section 133. Common Limitations on
the Taxing Powers of the Local Government Units.Unless
otherwise provided herein, the exercise of the taxing powers of

11/01/2014

provinces, cities, municipalities, and barangays shall not extend to

the levy of the following: x x x (o) Taxes, fees, or charges of any kind
on the National Government, its agencies and instrumentalities, and
local government units. (emphasis supplied)

Same; Same; Same; Same; Franchises; A franchise may refer

to a general or primary franchise, or to a special or secondary
franchise.In its specific sense, a franchise may refer to a
general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation,
by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation. The right under
a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself. On the
other hand, the latter refers to the right or privileges conferred
upon an existing corporation such as the right to use the streets of
a municipality to lay pipes of tracks, erect poles or string wires. The
rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property,
except such special or secondary franchises as are charged with a
public use.

Same; Same; Same; Same; Words and Phrases; Franchise Tax;

Definition; Requisites.As commonly used, a franchise tax is a
tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state. It is not
levied on the corporation simply for existing as a corporation, upon
its property or its income, but on its exercise of the rights or
privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business
and exercise its franchise. It is within this context that the phrase
tax on businesses enjoying a franchise in section 137 of the LGC
should be interpreted and understood. Verily, to determine whether
the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a
franchise in the sense of a secondary or special franchise; and
(2) that it is exercising its rights or privileges under this franchise
within the territory of the respondent city government.

Same; Same; Same; Same; The power to tax is the most

effective instrument to raise needed revenues to finance and
support myriad activities of the local government units.
Doubtless, the power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities of
the local government units for the delivery of basic services
essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. As
this Court observed in the Mactan case, the original reasons for
the withdrawal of tax exemption privileges granted to governmentowned or controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and

35

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

distortions in the tax treatment of similarly situated enterprises.

With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development,
fiscal or otherwise, by paying taxes or other charges due from
them. [National Power Corporation vs. City of Cabanatuan, 401

SCRA 259(2003)]
Constitutional Law; Judicial Review; Courts; Lower courts have
jurisdiction to consider the constitutionality of laws, this
authority being embraced in the general definition of the
judicial power to determine what are valid and binding laws by
the criterion of their conformity to the fundamental law.We
stress at the outset that the lower court had jurisdiction to
consider the constitutionality of Section 187, this authority being
embraced in the general definition of the judicial power to
determine what are the valid and binding laws by the criterion of
their conformity to the fundamental law. Specifically, BP 129 vests
in the regional trial courts jurisdiction over all civil cases in which
the subject of the litigation is incapable of pecuniary estimation,
even as the accused in a criminal action has the right to question in
his defense the constitutionality of a law he is charged with violating
and of the proceedings taken against him, particularly as they
contravene the Bill of Rights. Moreover, Article X, Section 5 (2), of
the Constitution vests in the Supreme Court appellate jurisdiction
over final judgments and orders of lower courts in all cases in
which the constitutionality or validity of any treaty, international or
executive agreement, law, presidential decree, proclamation, order,
instruction, ordinance, or regulation is in question.

Same; Same; Same; In the exercise of the jurisdiction to

consider constitutionality of laws, it will be prudent for lower
courts to defer to the higher judgment of the Supreme Court in
the consideration of their validity, which is better determined
after a thorough deliberation by a collegiate body and with the
concurrence of the majority of those who participated in its
discussion; Every court is charged with the duty of purposeful
hesitation before declaring a law unconstitutional.In the
exercise of this jurisdiction, lower courts are advised to act with
the utmost circumspection, bearing in mind the consequences of a
declaration of unconstitutionality upon the stability of laws, no less
than on the doctrine of separation of powers. As the questioned act
is usually the handiwork of the legislative or the executive
departments, or both, it will be prudent for such courts, if only out
of a becoming modesty, to defer to the higher judgment of this
Court in the consideration of its validity, which is better determined
after a thorough deliberation by a collegiate body and with the
concurrence of the majority of those who participated in its
discussion. It is also emphasized that every court, including this
Court, is charged with the duty of a purposeful hesitation before
declaring a law unconstitutional, on the theory that the measure
was first carefully studied by the executive and the legislative

11/01/2014

departments and determined by them to be in accordance with the

fundamental law before it was finally approved. To doubt is to
sustain. The presumption of constitutionality can be overcome only
by the clearest showing that there was indeed an infraction of the
Constitution, and only when such a conclusion is reached by the
required majority may the Court pronounce, in the discharge of the
duty it cannot escape, that the challenged act must be struck down.

Same; Local Governments; Control and Supervision; Taxation;

Where the Secretary of Justice reviews, pursuant to law, a tax
measure enacted by a local government unit to determine if
the officials performed their functions in accordance with law,
that is, with the prescribed procedure for the enactment of tax
ordinances and the grant of powers under the Local
Government Code, the same is an act of mere supervision, not
control.Section 187 authorizes the Secretary of Justice to review
only the constitutionality or legality of the tax ordinance and, if
warranted, to revoke it on either or both of these grounds. When he
alters or modifies or sets aside a tax ordinance, he is not also
permitted to substitute his own judgment for the judgment of the
local government that enacted the measure. Secretary Drilon did
set aside the Manila Revenue Code, but he did not replace it with his
own version of what the Code should be. He did not pronounce the
ordinance unwise or unreasonable as a basis for its annulment. He
did not say that in his judgment it was a bad law. What he found only
was that it was illegal. All he did in reviewing the said measure was
determine if the petitioners were performing their functions in
accordance with law, that is, with the prescribed procedure for the
enactment of tax ordinances and the grant of powers to the city
government under the Local Government Code. As we see it, that
was an act not of control but of mere supervision.

Same; Same; Same; Control and Supervision, distinguished.

An officer in control lays down the rules in the doing of an act. If
they are not followed, he may, in his discretion, order the act
undone or re-done by his subordinate or he may even decide to do
it himself. Supervision does not cover such authority. The
supervisor or superintendent merely sees to it that the rules are
followed, but he himself does not lay down such rules, nor does he
have the discretion to modify or replace them. If the rules are not
observed, he may order the work done or re-done but only to
conform to the prescribed rules. He may not prescribe his own
manner for the doing of the act. He has no judgment on this matter
except to see to it that the rules are followed. In the opinion of the
Court, Secretary Drilon did precisely this, and no more nor less
than this, and so performed an act not of control but of mere
supervision.

Same; Same; City Ordinances; The procedural requirements in

the enactment of Ordinance 7794 (Manila Revenue Code) have
been observed.To get to the bottom of this question, the Court
acceded to the motion of the respondents and called for the

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

elevation to it of the said exhibits. We have carefully examined every

one of these exhibits and agree with the trial court that the
procedural requirements have indeed been observed. Notices of the
public hearings were sent to interested parties as evidenced by
Exhibits G-1 to 17. The minutes of the hearings are found in Exhibits
M, M-1, M-2, and M-3. Exhibits B and C show that the proposed
ordinances were published in the Balita and the Manila Standard on
April 21 and 25, 1993, respectively, and the approved ordinance was
published in the July 3, 4, 5, 1993 issues of the Manila Standard and
in the July 6, 1993 issue of Balita, as shown by Exhibits Q, Q-1, Q-2,
and Q-3. The only exceptions are the posting of the ordinance as
approved but this omission does not affect its validity, considering
that its publication in three successive issues of a newspaper of
general circulation will satisfy due process. It has also not been
shown that the text of the ordinance has been translated and
disseminated, but this requirement applies to the approval of local
development plans and public investment programs of the local
government unit and not to tax ordinances. [Drilon vs. Lim, 235

SCRA 135(1994)]
Taxation; Local Taxation; Failure to follow the procedure in
enactment of tax measures renders the same null and void;
Respon-dents failure to follow the procedure in enactment of
tax measures as mandated by Section 188 of the Local
Government Code of 1991, in that they failed to publish Tax
Ordinance No. 7988 for three consecutive days in a
newspaper of local circulation renders the same null and
void.The RTC of Manila, Branch 21, in its Decision dated 28
November 2001, reiterated the findings of the DOJ Secretary that
respondents failed to follow the procedure in the enactment of tax
measures as mandated by Section 188 of the Local Government
Code of 1991, in that they failed to publish Tax Ordinance No. 7988
for three consecutive days in a newspaper of local circulation. From
the foregoing, it is evident that Tax Ordinance No. 7988 is null and
void as said ordinance was published only for one day in the 22 May
2000 issue of the Philippine Post in contravention of the
unmistakable directive of the Local Government Code of 1991.

Same; Same; If an order or law sought to be amended is

invalid, then it does not legally exist, there should be no
occasion or need to amend it.This Court must reverse the
Order of the RTC of Ma-nila, Branch 21, dismissing petitioners case
as there is no basis in law for such dismissal. The amending law,
having been declared as null and void, in legal contemplation,
therefore, does not exist. Furthermore, even if Tax Ordinance No.
8011 was not declared null and void, the trial court should not have
dismissed the case on the reason that said tax ordinance had
already amended Tax Ordinance No. 7988. As held by this Court in
the case of People v. Lim, if an order or law sought to be amended
is invalid, then it does not legally exist, there should be no occasion

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or need to amend it. [Coca-Cola Bottlers Philippines, Inc. vs. City

of Manila, 493 SCRA 279(2006)]

Taxation; Local Government Code; Under Section 195 of the
Local Government Code, a taxpayer who disagrees with a tax
assessment made by a local treasurer may file a written
protest thereof, and from a denial of the same, either appeal
the assessment before the court of competent jurisdiction or
pay the tax and then seek a refund.Under Section 195 of the
Local Government Code which is quoted immediately below, a
taxpayer who disagrees with a tax assessment made by a local
treasurer may file a written protest thereof: SECTION 195. Protest
of Assessment.When the local treasurer or his duly authorized
representative finds that the correct taxes, fees, or charges have
not been paid, he shall issue a notice of assessment stating the
nature of the tax, fee, or charge, the amount of deficiency, the
surcharges, interests and penalties. Within sixty (60) days from the
receipt of the notice of assessment, the taxpayer may file a written
protest with the local treasurer contesting the assessment;
otherwise, the assessment shall become final and executory. The
local treasurer shall decide the protest within sixty (60) days from
the time of its filing. If the local treasurer finds the protest to be
wholly or partly meritorious, he shall issue a notice cancelling
wholly or partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall deny
the protest wholly or partly with notice to the taxpayer. The
taxpayer shall have thirty (30) days from the receipt of the denial
of the protest or from the lapse of the sixty-day (60) period
prescribed herein within which to appeal with the court of
competent jurisdiction, otherwise the assessment becomes
conclusive and unappealable. (Emphasis and italics supplied) That
petitioner protested in writing against the assessment of tax due
and the basis thereof is on record as in fact it was on that account
that respondent sent him the above-quoted July 15, 2005 letter
which operated as a denial of petitioners written protest. Petitioner
should thus have, following the earlier above-quoted Section 195 of
the Local Government Code, either appealed the assessment before
the court of competent jurisdiction or paid the tax and then sought
a refund.

Same; Mandamus; Mandamus does not lie to compel the City

Treasurer to accept as full compliance of tax payment which in
his reasoning and assessment is deficient and incorrect.
Petitioner did not observe any of these remedies available to him,
however. He instead opted to file a petition for mandamus to compel
respondent to accept payment of transfer tax as computed by him.
Mandamus lies only to compel an officer to perform a ministerial
duty (one which is so clear and specific as to leave no room for the
exercise of discretion in its performance) but not a discretionary
function (one which by its nature requires the exercise of
judgment). Respondents argument that [m]andamus cannot lie to

37

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

compel the City Treasurer to accept as full compliance a tax

payment which in his reasoning and assessment is deficient and
incorrect is thus persuasive. [San Juan vs. Castro, 541 SCRA

526(2007)]
Taxation; Injunction; Taxes being the lifeblood of the
government should be collected promptly; No court shall have
the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge imposed by
the National Internal Revenue Code.A principle deeply
embedded in our jurisprudence is that taxes being the lifeblood of
the government should be collected promptly, without unnecessary
hindrance or delay. In line with this principle, the National Internal
Revenue Code of 1997 (NIRC) expressly provides that no court shall
have the authority to grant an injunction to restrain the collection
of any national internal revenue tax, fee or charge imposed by the
code. An exception to this rule obtains only when in the opinion of
the Court of Tax Appeals (CTA) the collection thereof may jeopardize
the interest of the government and/or the taxpayer.

Same; Same; In the case of the collection of local taxes, there

is no express provision in the Local Government Code (LGC)
prohibiting courts from issuing an injunction to restrain local
governments from collecting taxes.The situation, however, is
different in the case of the collection of local taxes as there is no
express provision in the LGC prohibiting courts from issuing an
injunction to restrain local governments from collecting taxes. Thus,
in the case of Valley Trading Co., Inc. v. Court of First Instance of
Isabela, Branch II, 171 SCRA 501 (1989), cited by the petitioner, we
ruled that: Unlike the National Internal Revenue Code, the Local Tax
Code does not contain any specific provision prohibiting courts
from enjoining the collection of local taxes. Such statutory lapse or
intent, however it may be viewed, may have allowed preliminary
injunction where local taxes are involved but cannot negate the
procedural rules and requirements under Rule 58.

Remedial Law; Injunction; Requisites to warrant the issuance of

a writ of the preliminary injunction.Two requisites must exist
to warrant the issuance of a writ of preliminary injunction, namely:
(1) the existence of a clear and unmistakable right that must be
protected; and (2) an urgent and paramount necessity for the writ
to prevent serious damage.

Same; Same; As a rule, the issuance of preliminary injunction

rests entirely within the discretion of the court taking
cognizance of the case and will not be interfered with, except
where there is grave abuse of discretion committed by the
court.As a rule, the issuance of a preliminary injunction rests
entirely within the discretion of the court taking cognizance of the
case and will not be interfered with, except where there is grave
abuse of discretion committed by the court. For grave abuse of
discretion to prosper as a ground for certiorari, it must be

11/01/2014

demonstrated that the lower court or tribunal has exercised its

power in an arbitrary and despotic manner, by reason of passion or
personal hostility, and it must be patent and gross as would amount
to an evasion or to a unilateral refusal to perform the duty enjoined
or to act in contemplation of law. In other words, mere abuse of
discretion is not enough. [Angeles City vs. Angeles Electric

Corporation, 622 SCRA 43(2010)]

"A 'real estate tax' is a tax in rem against realty without
personal liability therefor on part of owner thereof, and a
judgment recovered in proceedings for enforcement of real
estate tax is one in rem against the realty without personal
liability against the owner." (36 Words and Phrases, 286, citing
Land O'Lakes Dairy Co. vs. Wadena County, 39 N. W. 2d. 164, 171, 229
Minn. 263)

A real estate tax is a direct tax on the ownership of lands and

buildings or other improvements thereon, not specially
exempted, and is payable regardless of whether the property
is used or not, although the value may vary in accordance with
such factor. The tax is usually single or indivisible, although
the land and building or improvements erected thereon are
assessed separately, except when the land and building or
improvements belong to separate owners. It is a fixed
proportion11 of the assessed value of the property taxed, and
requires, therefore, the intervention of assessors. It is
collected or payable at appointed times, and it constitutes a
superior lien on and is enforceable against the property
subject to such taxation, and not by imprisonment of the
owner.
The tax imposed by the ordinance in question does not possess the
aforestated attributes. It is not a tax on the land on which the
tenement houses are erected, although both land and tenement
houses may belong to the same owner. The tax is not a fixed
proportion of the assessed value of the tenement houses, and does
not require the intervention of assessors or appraisers. It is not
payable at a designated time or date, and is not enf orceable
against the tenement houses either by sale or distraint. Clearly,
therefore, the tax in question is not a real estate tax. [Villanueva

vs. City of Iloilo, 26 SCRA 578(1968)]

Taxation; Real Estate Tax; An installment purchaser of land and
building within a housing project of the GSIS is liable to pay
real estate taxes from the time possession of such property
was transferred to him, although pending full payment of the
purchase price, the seller GSIS retains ownership and title
over the property; Reasons.What is determinative was its
rulings on the merits (not on the nomenclature or classification of
the contract), wherein it correctly held that purchaser-appellant
agreed to the contractual stipulation to pay and shoulder all taxes
and assessments on the lot and building or improvements thereon

38

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

and insurance during the term of the contract. In view of his

acceptance of this condition, he is now estopped to deny his liability
to pay the taxes. And, on the other hand, when the GSIS sold the
property and imposed said condition, the agency altho exempt from
the payment of taxes clearly indicated that the property became
taxable upon its delivery to the purchaser and that the sole
determinative factor for exemption from realty taxes is the use to
which the property is devoted. And where use is the test, the
ownership is immaterial. (Martin on the Rev. Adm. Code, 1961, Vol. II,
p. 487, citing Apostolic Prefect of Mt. Province vs. Treasurer of
Baguio City, 71 Phil. 547). In the instant case, altho the property was
still in the name of the GSIS pending the payment of the full price its
use and possession was already transferred to the defendant.
Such contractual stipulation that the purchaser on installments pay
the real estate taxes pending completion of payments, although the
seller who retained title is exempt from such taxes, is valid and
binding, absent any law to the contrary and none has been cited by
appellant. Thus, the delivery of possession by the seller GSIS to the
purchaser was clearly with the intention of passing to the latter the
possession, use of and control over said property, and all the other
attributes of ownership, short of the naked ownership, such that it
included in said transfer the incidental obligation to pay the taxes
thereon, for nothing more was left to the GSIS except its right to
receive full payment of the purchase price.

Same; Same; Same; Interpretation; Interpretative regulation by

the GSIS of Commonwealth Act 186 exempting the GSIS from
payment of taxes carries great weight.The fact that in the
contract to sell, the GSIS, although aware of its own exemption from
taxation stipulated and exacted from the purchaser the payment of
taxes amounts to an interpretation on its part that such an
immunity was not to be transmitted to a private person who
becomes the beneficial owner and user of the property. Verily, this
interpretative regulation by the administrative agency officially
charged with the duty of administering and enforcing
Commonwealth Act 186 which contains tax-exempting provision at
issue carries great weight in determining the operation of said
provision.

Same; Same; Same; Same; Exemption of the GSIS from

payment of taxes does not cover its property the beneficial
use of which is granted to a taxable person; PD 464, although
inexistent at the time taxes were assessed against purchaser,
aids in determining legislative intent in the enactment of
Commonwealth Act 186; Case at bar.Thus under this provision,
while the GSIS may be exempt from real estate tax the exemption
does not cover property belonging to it where the beneficial use
thereof has been granted for consideration or otherwise to a
taxable person. There can be no doubt that under the provisions of
the contract in question, the purchaser to whose possession the
property had been transferred was granted beneficial use thereof.

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It follows on the strength of the provision Sec. 40(a) of PD 464 that

the said property is not exempt from the real property tax. While
this decree just cited was still inexistent at the time the taxes at
issue were assessed on the herein appellant, indeed its above
quoted provision sheds light upon the legislative intent behind the
provision of Commonwealth Act 186, pertaining to exemption of the
GSIS from taxes.

Same; Same; Same; Tax Exemptions; Tax exemptions are

strictly constituted against the taxpayer and liberally in favor
of the taxing authority.The end result is but in consonance with
the established rule in taxation that exemption are held strictly
against the taxpayer and liberally in favor of the taxing authority.

[City of Baguio vs. Busuego, 100 SCRA 116(1980)]

The unpaid realty tax attaches to the property but is directly
chargeable against the taxable person who has actual and
beneficial use and possession of the property regardless of
whether or not that person is the owner.The liability for taxes
generally rests on the owner of the real property at the time the tax
accrues. This is a necessary consequence that proceeds from the
fact of ownership. However, personal liability for realty taxes may
also expressly rest on the entity with the beneficial use of the real
property, such as the tax on property owned by the government but
leased to private persons or entities, or when the tax assessment is
made on the basis of the actual use of the property. In either case,

the unpaid realty tax attaches to the property but is directly

chargeable against the taxable person who has actual and beneficial
use and possession of the property regardless of whether or not
that person is the owner.
Legal interest should be an interest that is actual and material,
direct and immediate, not simply contingent or expectant.In
Cario v. Ofilado (217 SCRA 206 [1993]), we declared that legal
interest should be an interest that is actual and material, direct and
immediate, not simply contingent or expectant. The concept of the
directness and immediacy involved is no different from that
required in motions for intervention under Rule 19 of the Rules of
Court that allow one who is not a party to the case to participate
because of his or her direct and immediate interest, characterized
by either gain or loss from the judgment that the court may render.
In the present case, the NPCs ownership of the plant will happen
only after the lapse of the 25-year period; until such time arrives,
the NPCs claim of ownership is merely contingent, i.e., dependent
on whether the planttime. Prior to this event, the NPCs real
interest is only in the continued operation of the plant for the
generation of electricity.

Same; Tax Liability; The tax liability referred to is the liability

arising from law that the local government unit can rightfully
and successfully enforce, not the contractual liability that is
enforceable between the parties to a contract.On liability for

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

11/01/2014

taxes, the NPC indeed assumed responsibility for the taxes due on
the power plant and its machineries, specifically, all real estate
taxes and assessments, rates and other charges in respect of the
site, the buildings and improvements thereon and the [power
plant]. At first blush, this contractual provision would appear to
make the NPC liable and give it standing to protest the assessment.

not the ownership of the machineries devoted to generation and

transmission of electric power. The nature of the NPCs ownership
of these machineries only finds materiality in resolving the NPCs
claim of legal interest in protesting the tax assessment on Mirant.
As we discussed above, this claim is inexistent for tax protest
purposes. [National Power Corporation vs. Province of Quezon,

The tax liability we refer to above, however, is the liability arising

from law that the local government unit can rightfully and
successfully enforce, not the contractual liability that is
enforceable between the parties to a contract as discussed below.

593 SCRA 47(2009)]

By law, the tax liability rests on Mirant based on its ownership, use,
and possession of the plant and its machineries.

Same; National Power Corporation (NPC) is neither the owner,

nor the possessor or user of the property taxed; No interest
on its part thus justifies any tax liability on its part other than
its voluntary contractual undertaking.The NPC is neither the
owner, nor the possessor or user of the property taxed. No interest
on its part thus justifies any tax liability on its part other than its
voluntary contractual undertaking. Under this legal situation, only
Mirant as the contractual obligor, not the local government unit, can
enforce the tax liability that the NPC contractually assumed; the
NPC does not have the legal interest that the law and
jurisprudence require to give it personality to protest the tax
imposed by law on Mirant.

Same; Tax Exemptions; Two Elements to Successfully Claim

Exemption under Section 234(c) of the Local Government Code
(LGC).The NPCs claim of tax exemptions is completely without
merit. To successfully claim exemption under Section 234(c) of the
LGC, the claimant must prove two elements: a. the machineries and
equipment are actually, directly, and exclusively used by local water
districts and government-owned or controlled corporations; and b.
the local water districts and government-owned and controlled
corporations claiming exemption must be engaged in the supply and
distribution of water and/or the generation and transmission of
electric power.

Same; Same; Based on the clear wording of the law, it is the

machineries that are exempted from the payment of real
property tax, not the water or electricity that these
machineries generate and distribute.Nor will NPC find solace in
its claim that it utilizes all the power plants generated electricity in
supplying the power needs of its customers. Based on the clear
wording of the law, it is the machineries that are exempted from the
payment of real property tax, not the water or electricity that these
machineries generate and distribute.

Same; Same; The test of exemption is the use, not the

ownership of the machineries devoted to generation and
transmission of electric power.Even the NPCs claim of
beneficial ownership is unavailing. The test of exemption is the use,

Local Taxation; Tax Liability; The tax liability must be a liability

that arises from law, which the local government unit can
rightfully and successfully enforce, not the contractual liability
that is enforceable only between the parties to the contract.
We further stated that the tax liability must be a liability that arises
from law, which the local government unit can rightfully and
successfully enforce, not the contractual liability that is
enforceable only between the parties to the contract. In the present
case, the Province of Quezon is a third party to the BOT Agreement
and could thus not exact payment from Napocor without violating
the principle of relativity of contracts. Corollarily, for reasons of
fairness, the local government units cannot be compelled to
recognize the protest of a tax assessment from Napocor, an entity
against whom it cannot enforce the tax liability.

Definition of Legal Interest; National Power Corporation

(Napocor) is clearly not vested with the requisite interest to
protest the tax assessment as it is not an entity having the
legal title over the machineries.Legal interest is defined as
interest in property or a claim cognizable at law, equivalent to that
of a legal owner who has legal title to the property. Given this
definition, Napocor is clearly not vested with the requisite interest
to protest the tax assessment, as it is not an entity having the legal
title over the machineries. It has absolutely no solid claim of
ownership or even of use and possession of the machineries, as our
July 15, 2009 Decision explained.

Same; The phrase person having legal interest in the

property in Section 226 of the Local Government Code (LGC)
can include an entity that assumes another persons tax
liability by contract.While a real property owners failure to
comply with Sections 202 and 206 does not necessarily negate its
tax obligation nor invalidate its legitimate claim for tax exemption,
Napocors omission to do so in this case can be construed as
contradictory to its claim of ownership of the subject machineries.
That it assumed liability for the taxes that may be imposed on the
subject machineries similarly does not clothe it with legal title over
the same. We do not believe that the phrase person having legal

interest in the property in Section 226 of the LGC can include an

entity that assumes another persons tax liability by contract.
Taxation; Assessment; Tax Exemptions; A claim for tax
exemption whether full or partial does not question the
authority of local assessor to assess real property tax.Like

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Olivarez, Napocor, by claiming exemption from realty taxation, is

simply raising a question of the correctness of the assessment. A

claim for tax exemption, whether full or partial, does not question
the authority of local assessor to assess real property tax. This
may be inferred from Section 206. [National Power Corporation
vs. Province of Quezon and Municipality of Pagbilao, 611 SCRA
71(2010)]
Government Service Insurance System; Legal Research; In
1936, Commonwealth Act No. (CA) 186 was enacted abolishing
the then pension systems under Act No. 1638, as amended, and
establishing the Government Service Insurance System (GSIS)
to manage the pension system, life and retirement insurance,
and other benefits of all government employees.In 1936,
Commonwealth Act No. (CA) 186 was enacted abolishing the then
pension systems under Act No. 1638, as amended, and establishing
the GSIS to manage the pension system, life and retirement
insurance, and other benefits of all government employees. Under
what may be considered as its first charter, the GSIS was set up as
a non-stock corporation managed by a board of trustees. Notably,
Section 26 of CA 186 provided exemption from any legal process
and liens but only for insurance policies and their proceeds, thus:
Section 26. Exemption from legal process and liens.No policy of
life insurance issued under this Act, or the proceeds thereof, when
paid to any member thereunder, nor any other benefit granted
under this Act, shall be liable to attachment, garnishment, or other
process, or to be seized, taken, appropriated, or applied by any
legal or equitable process or operation of law to pay any debt or
liability of such member, or his beneficiary, or any other person
who may have a right thereunder, either before or after payment;
nor shall the proceeds thereof, when not made payable to a named
beneficiary, constitute a part of the estate of the member for
payment of his debt. x x x

Same; Taxation; It is to be noted that prominently added in

Government Service Insurance Systems (GSISs) present
charter is a paragraph precluding any implied repeal of the
tax-exempt clause so as to protect the solvency of GSIS funds;
Restrictions in the Government Service Insurance System
(GSIS) Charter which for a future express repeal do not make
the proviso an irrepealable law, for such restrictions do not
impinge or limit the carte blanche legislative authority of the
legislature to so amend it.The foregoing exempting proviso,
couched as it were in an encompassing manner, brooks no other
construction but that GSIS is exempt from all forms of taxes. While
not determinative of this case, it is to be noted that prominently
added in GSIS present charter is a paragraph precluding any
implied repeal of the tax-exempt clause so as to protect the
solvency of GSIS funds. Moreover, an express repeal by a
subsequent law would not suffice to affect the full exemption
benefits granted the GSIS, unless the following conditionalities are

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met: (1) The repealing clause must expressly, specifically, and

categorically revoke or repeal Sec. 39; and (2) a provision is
enacted to substitute or replace the exemption referred to herein
as an essential factor to maintain or protect the solvency of the
fund. These restrictions for a future express repeal,
notwithstanding, do not make the proviso an irrepealable law, for
such restrictions do not impinge or limit the carte blanche
legislative authority of the legislature to so amend it. The
restrictions merely enhance other provisos in the law ensuring the
solvency of the GSIS fund.

Same; Same; While recognizing the exempt status of

Government Service Insurance System (GSIS) owing to the
reenactment of the full tax exemption clause under Sec. 39 of
Republic Act No. 8291 in 1997, the ponencia in City of Davao v.
RTC, Branch XII, Davao City, 467 SCRA 280 (2005), appeared
to have failed to take stock of and fully appreciate the allembracing condoning proviso in the very same Sec. 39 which,
for all intents and purposes, considered as paid any
assessment against the GSIS as of the approval of this Act.
While recognizing the exempt status of GSIS owing to the
reenactment of the full tax exemption clause under Sec. 39 of RA
8291 in 1997, the ponencia in City of Davao appeared to have failed
to take stock of and fully appreciate the all-embracing condoning
proviso in the very same Sec. 39 which, for all intents and
purposes, considered as paid any assessment against the GSIS as
of the approval of this Act. If only to stress the point, we hereby
reproduce the pertinent portion of said Sec. 39: SEC. 39. Exemption
from Tax, Legal Process and Lien.x x x Taxes imposed on the GSIS
tend to impair the actuarial solvency of its funds and increase the
contribution rate necessary to sustain the benefits of this Act.
Accordingly, notwithstanding, any laws to the contrary, the GSIS, its
assets, revenues including all accruals thereto, and benefits paid,
shall be exempt from all taxes, assessments, fees, charges or
duties of all kinds. These exemptions shall continue unless expressly
and specifically revoked and any assessment against the GSIS as of
the approval of this Act are hereby considered paid. Consequently,
all laws, ordinances, regulations, issuances, opinions or
jurisprudence contrary to or in derogation of this provision are
hereby deemed repealed, superseded and rendered ineffective and
without legal force and effect.

Same; Same; The Courts fairly recent ruling in Manila

International Airport Authority v. Court of Appeals, 495 SCRA
591 (2006), a case likewise involving real estate tax
assessments by a Metro Manila city on the real properties
administered by Manila International Airport Authority (MIAA),
argues for the non-tax liability of Government Service
Insurance System (GSIS) for real estate taxes.Apart from the
foregoing consideration, the Courts fairly recent ruling in Manila
International Airport Authority v. Court of Appeals, 495 SCRA 591

41

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

(2006), a case likewise involving real estate tax assessments by a

Metro Manila city on the real properties administered by MIAA,
argues for the non-tax liability of GSIS for real estate taxes. There,
the Court held that MIAA does not qualify as a GOCC, not having
been organized either as a stock corporation, its capital not being
divided into shares, or as a non-stock corporation because it has no
members. MIAA is rather an instrumentality of the National
Government and, hence, outside the purview of local taxation by
force of Sec. 133 of the LGC providing in context that unless
otherwise provided, local governments cannot tax national
government instrumentalities. And as the Court pronounced in
Manila International Airport Authority, the airport lands and
buildings MIAA administers belong to the Republic of the Philippines,
which makes MIAA a mere trustee of such assets. No less than the
Administrative Code of 1987 recognizes a scenario where a piece of
land owned by the Republic is titled in the name of a department,
agency, or instrumentality.

Same; Same; Government Service Insurance System (GSIS), as

a government instrumentality, is not a taxable juridical person
under Sec. 133(o) of the Local Government Code.Thus read
together, the provisions allow the Republic to grant the beneficial
use of its property to an agency or instrumentality of the national
government. Such grant does not necessarily result in the loss of
the tax exemption. The tax exemption the property of the Republic
or its instrumentality carries ceases only if, as stated in Sec.
234(a) of the LGC of 1991, beneficial use thereof has been granted,
for a consideration or otherwise, to a taxable person. GSIS, as a
government instrumentality, is not a taxable juridical person under
Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status
with respect to the Katigbak property when it contracted its
beneficial use to MHC, doubtless a taxable person. Thus, the real
estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002
over the subject Katigbak property is valid insofar as said tax
delinquency is concerned as assessed over said property.

Same; Same; The unpaid tax attaches to the property and is

chargeable against the taxable person who had actual or
beneficial use and possession of it regardless of whether or
not he is the owner.The next query as to which between GSIS, as
the owner of the Katigbak property, or MHC, as the lessee thereof,
is liable to pay the accrued real estate tax, need not detain us long.
MHC ought to pay. As we declared in Testate Estate of Concordia T.
Lim, the unpaid tax attaches to the property and is chargeable
against the taxable person who had actual or beneficial use and
possession of it regardless of whether or not he is the owner. Of
the same tenor is the Courts holding in the subsequent Manila
Electric Company v. Barlis, 357 SCRA 832 (2001) and later in
Republic v. City of Kidapawan, 477 SCRA 324 (2005). Actual use
refers to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. Being in

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possession and having actual use of the Katigbak property since

November 1991, MHC is liable for the realty taxes assessed over the
Katigbak property from 1992 to 2002.

Same; Same; A valid tax levy presupposes a corresponding tax

liability; Even granting arguendo that Government Service
Insurance Systems (GSISs) liability for realty taxes attached
from 1992, when Republic Act No. 7160 effectively lifted its tax
exemption under Presidential Decree Nos. 1146 to 1996, when
Republic Act No. 8291 restored the tax incentive, the levy on
the subject properties to answer for the assessed realty tax
delinquencies cannot still be sustained for the simple reason
that the governing law, Republic Act No. 8291, in force at the
time of the levy prohibits it.In light of the foregoing disquisition,
the issue of the propriety of the threatened levy of subject
properties by the City of Manila to answer for the demanded realty
tax deficiency is now moot and academic. A valid tax levy
presupposes a corresponding tax liability. Nonetheless, it will not be
remiss to note that it is without doubt that the subject GSIS
properties are exempt from any attachment, garnishment,
execution, levy, or other legal processes. This is the clear import of
the third paragraph of Sec. 39, RA 8291, which we quote anew for
clarity: x x x The Court would not be indulging in pure speculative
exercise to say that the underlying legislative intent behind the
above exempting proviso cannot be other than to isolate GSIS funds
and properties from legal processes that will either impair the
solvency of its fund or hamper its operation that would ultimately
require an increase in the contribution rate necessary to sustain
the benefits of the system. Throughout GSIS life under three
different charters, the need to ensure the solvency of GSIS fund has
always been a legislative concern, a concern expressed in the taxexempting provisions. Thus, even granting arguendo that GSIS
liability for realty taxes attached from 1992, when RA 7160
effectively lifted its tax exemption under PD 1146, to 1996, when RA
8291 restored the tax incentive, the levy on the subject properties
to answer for the assessed realty tax delinquencies cannot still be
sustained. The simple reason: The governing law, RA 8291, in force
at the time of the levy prohibits it. And in the final analysis, the
proscription against the levy extends to the leased Katigbak
property, the beneficial use doctrine, notwithstanding.

[Government Service Insurance System vs. City Treasurer of

the City of Manila, 609 SCRA 330(2009)]
Property; Immovable Property by Destination; Two requisites
before movables may be deemed to have immobilized; Tools
and equipments merely incidental to business not subject to
real estate tax.Movable equipments, to be immobilized in
contemplation of Article 415 of the Civil Code, must be the essential
and principal elements of an industry or works which are carried on
in a building or on a piece of land. Thus, where the business is one
of transportation, which is carried on without a repair or service

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

shop, and its rolling equipment is repaired or serviced in a shop

belonging to another, the tools and equipments in its repair shop
which appear movable are merely incidentals and may not be
considered immovables, and, hence, not subject to assessment as
real estate for purposes of the real estate tax. [Mindanao Bus Co.

vs. City Assessor and Treasurer, 6 SCRA 197(1962)]

Taxation; Property; Courts; Jurisdiction; The Central Board of
Assessment Appeals, and not the Court of Tax Appeals has
appellate jurisdiction over decisions of the provincial or city
boards of assessment appeals.The Solicitor Generals
contention that the Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic Act No. 1125
created the Tax Court in 1954, there was as yet no Central Board of
Assessment Appeals Section 7(3) of that law in providing that the
Tax Court had jurisdiction to review by appeal decisions of
provincial or city boards of assessment appeals had in mind the
local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has
appellate jurisdiction over decisions of the said local boards of
assessment appeals and is. therefore, in the same category as the
Tax Court.

Same; Same; Same; Same; Supreme Court; Certiorari; The Heal

Property Tax Code does not provide for Supreme Court review
of decisions of the Central Board of Assessment Appeals. The
only remedy for Supreme Court review of the Central Boards
decision is by Special Civil Action of Certiorari.Section 36 of
the Real Property Tax Code provides that the decision of the Central
Board of Assessment Appeals shall become final and executory
after the lapse of fifteen days from the receipt of its decision by the
appellant. Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide for the
review of the Boards decision by this Court. Consequently, the only
remedy available for seeking a review by this Court of the decision
of the Central Board of Assessment Appeals is the special civil
action of certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.

Same; Same; Gasoline station equipments and machineries are

subject to the real property tax.We hold that the said
equipment and machinery, as appurtenances to the gas station
building or shed owned by Caltex (as to which it is subject to realty
tax) and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and
which have been attached or affixed permanently to the gas station
site or embedded therein, are taxable improvements and machinery
within the meaning of the Assessment Law and the Real Property
Tax Code.

Same; Same; Gasoline station equipments and machineries are

permanent fixtures for purposes of realty taxation.Here, the

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question is whether the gas station equipment and machinery

permanently affixed by Caltex to its gas station and pavement
(which are indubitably taxable realty) should be subject to the realty
tax. This question is different from the issue raised in the Davao
Saw Mill case. Improvements on land are commonly taxed as realty
even though for some purposes they might be considered
personalty (84 C.J.S. 181-2, Notes 40 and 41). It is a familiar
phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal
property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630,
633). [Caltex (Phil.) Inc. vs. Central Board of Assessment

Appeals, 114 SCRA 296(1982)]

Real property, for taxation purposes, defined.For purposes of
taxation, the term real property may include things which should
generally be regarded as personal property (84 C.J.S. 171, Note 8). It
is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be
considered personal property (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633). [Manila Electric Co. vs. Central

Board of Assessment Appeals, 114 SCRA 273(1982)]

Taxation; Real property tax; Steel towers of Meralco exempt
under its franchise.The tax exemption privilege of the Meralco
on its poles, as granted by its franchise (Act No. 484), is held to
include its steel towers.

Same; Same; Term "pole" includes steel towers.The term

"pole" refers to an upright standard to the top of which something
is affixed or by which something is supported, and includes a steel
tower of an electric power company, like the Meralco.

Same; Same; Steel towers of electric company not real

property.The steel towers of an electric company do not
constitute real property for the purpose of the real property tax.

Same; Same; Refund; City Treasurer held responsible.The City

Treasurer of Quezon City is held responsible for the refund of real
property taxes, despite his contention that Quezon City, which was
not made a party to the suit, is the real party in interest, not only
because this question was not raised in the lower court but also
because, factually, actually, it was he who had insisted that the
taxpayer pay the taxes now to be refunded. [Board of Assessment

Appeals vs. Manila Electric Company, 10 SCRA 68(1964)]

Taxation; Zoning; Tax declaration is not conclusive of the
nature of the property for zoning purposes.The reversal by
the Court of Appeals of the trial courts decision was based on
Tepoots building being declared for taxation purposes as
residential. It is our considered view, however, that a tax
declaration is not conclusive of the nature of the property for
zoning purposes. A property may have been declared by its owner
as residential for real estate taxation purposes but it may well be

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

within a commercial zone. A discrepancy may thus exist in the

determination of the nature of property for real estate taxation
purposes vis-a-vis the determination of a property for zoning
purposes.

Same; Same; Real Estate Tax Code; Under Section 22 of Real

Estate Tax Code, appraisal and assessment are based on the
actual use irrespective of any previous assessment or
taxpayers valuation.Needless to say, even if we are to examine
the evidentiary value of a tax declaration under the Real Property
Tax Code, a tax declaration only enables the assessor to identify the
same for assessment levels. In fact, a tax declaration does not bind
a provincial/city assessor, for under Sec. 22 of the Real Estate Tax
Code, appraisal and assessment are based on the actual use
irrespective of any previous assessment or taxpayers valuation
thereon, which is based on a taxpayers declaration. In fact, a piece
of land declared by a taxpayer as residential may be assessed by
the provincial or city assessor as commercial because its actual
use is commercial.

Same; Same; Even if a building declared for taxation purposes

as residential, once a local government has reclassified an
area as commercial, that determination for zoning purposes
must prevail.The trial courts determination that Mr. Tepoots
building is commercial and, therefore, Sec. 8 is inapplicable, is
strengthened by the fact that the Sangguniang Panlungsod has
declared the questioned area as commercial or C-2. Consequently,
even if Tepoots building was declared for taxation purposes as
residential, once a local government has reclassified an area as
commercial, that determination for zoning purposes must prevail.
While the commercial character of the questioned vicinity has been
declared thru the ordinance, private respondents have failed to
present convincing arguments to substantiate their claim that
Cabaguio Avenue, where the funeral parlor was constructed, was
still a residential zone. Unquestionably, the operation of a funeral
parlor constitutes a commercial purpose, as gleaned from
Ordinance No. 363.

Same; Same; Constitutional Law; Police Power; Declaration of

an area as a commercial zone thru a municipal ordinance is an
exercise of police power.The declaration of the said area as a
commercial zone thru a municipal ordinance is an exercise of police
power to promote the good order and general welfare of the people
in the locality. Corollary thereto, the state, in order to promote the
general welfare, may interfere with personal liberty, with property,
and with business and occupations. Thus, persons may be subjected
to certain kinds of restraints and burdens in order to secure the
general welfare of the state and to this fundamental aim of
government, the rights of the individual may be subordinated. The
ordinance which regulates the location of funeral homes has been
adopted as part of comprehensive zoning plans for the orderly

11/01/2014

development of the area covered thereunder. [Patalinghug vs.

Court of Appeals, 229 SCRA 554(1994)]

Taxation; Tax Assessment; Section 5 of PD 464 provides that
all real property, shall be appraised at the current and fair
market value prevailing in the locality where the property is
situated.We cannot sustain petitioners contention. The cited
provision merely defines market value. It does not in any way
direct that the market value as defined therein should be used as
basis in determining the value of a property for purposes of real
property taxation. On the other hand, Section 5 of PD 464 provides
unequivocally that (a)ll real property, whether taxable or exempt,
shall be appraised at the current and fair market value prevailing in
the locality where the property is situated.

Same; Same; A general revision of real property assessment is

required by law every five (5) years to ensure that real
properties are assessed at their current and fair market
values.Other circumstances militate against the acceptance of
petitioners argument. Unscrupulous sellers of real estate often
understate the selling price in the deed of sale to minimize their tax
liability. Moreover, the value of real property does not remain
stagnant; it is unrealistic to expect that the current market value of
a property is the same as its cost of acquisition ten years ago. In
this light, a general revision of real property assessment is
required by law every five (5) years to ensure that real properties
are assessed at their current and fair market values.

Same; Same; It is a matter of plain common sense that a

building with more floors, has a higher market value than one
with fewer floors, provided that both are of the same
materials.It is a matter of plain common sense that a building
with more floors has a higher market value than one with fewer
floors, provided that both are of the same materials. Hence, the tax
declaration of the building in question should have accurately
reflected its actual area and number of floors, these being
necessary for the accurate valuation thereof. [Sesbreo vs.

Central Board of Assessment Appeals, 270 SCRA 360(1997)]

Taxation; Real Property Tax; Assessments; Local Government
Units; Steps to be Followed for the Mandatory Conduct of
General Revision of Real Property Assessments.Based on the
evidence presented by the parties, the steps to be followed for the
mandatory conduct of General Revision of Real Property
assessments, pursuant to the provision of Sec. 219 of R.A. No. 7160
are as follows: 1. The preparation of Schedule of Fair Market
Values. 2. The enactment of Ordinances: a) levying an annual ad
valorem tax on real property and an additional tax accruing to the
SEF; b) fixing the assessment levels to be applied to the market
values of real properties; c) providing necessary appropriation to
defray expenses incident to general revision of real property

44

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

assessments; and d) adopting the Schedule of Fair Market Values

prepared by the assessors.

Same; Same; Same; Procedure in Computing the Real Property

Tax.Coming down to specifics, we find it desirable to lay down the
procedure in computing the real property tax. With the introduction
of assessment levels, tax rates could be maintained, although tax
payments can be made either higher or lower depending on their
percentage (assessment level) applied to the fair market value of
property to derive its assessed value which is subject to tax.
Moreover, classes and values of real properties can be given
proper consideration, like assigning lower assessment levels to
residential properties and higher levels to properties used in
business. The procedural steps in computing the real property tax
are as follows: 1) Ascertain the assessment level of the property;
2) Multiply the market value by the applicable assessment level of
the property; 3) Find the tax rate which corresponds to the class
(use) of the property and multiply the assessed value by the
applicable tax rates.

Same; Same; Same; Due Process; Manila Ordinance No. 7905 is

favorable to the taxpayers when it specifically states that the
reduced assessment levels shall be applied retroactively; In
enacting Ordinance No. 7905, the due process of law was
considered by the City of Manila so that the increase in realty
tax will not amount to the confiscation of property.Although,
we are in full accord with the ruling of the trial court, it is likewise
necessary to stress that Manila Ordinance No. 7905 is favorable to
the taxpayers when it specifically states that the reduced
assessment levels shall be applied retroactively to January 1, 1996.
The reduced assessment levels multiplied by the schedule of fair
market values of real properties, provided by Manila Ordinance No.
7894, resulted to decrease in taxes. To that extent, the ordinance is
likewise, a social legislation intended to soften the impact of the
tremendous increase in the value of the real properties subject to
tax. The lower taxes will ease, in part, the economic predicament of
the low and middle-income groups of taxpayers. In enacting this
ordinance, the due process of law was considered by the City of
Manila so that the increase in realty tax will not amount to the
confiscation of the property. [Lopez vs. City of Manila, 303 SCRA

448(1999)]
Taxation; Hospitals; Physicians; The fact alone that the doctors
and medical specialists holding clinics in a separate Medical
Arts Center are those duly accredited by the Hospitalthey are
consultants of the hospital and the ones who can treat the
Hospitals patients confined in ittakes away the said Medical Arts
Center from being categorized as commercial since a tertiary
hospital is required by law to have a pool of physicians who
comprise the required medical departments in various medical
fields.We so hold that CHHMAC is an integral part of CHH. It is
undisputed that the doctors and medical specialists holding clinics

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in CHHMAC are those duly accredited by CHH, that is, they are
consultants of the hospital and the ones who can treat CHHs
patients confined in it. This fact alone takes away CHHMAC from
being categorized as commercial since a tertiary hospital like
CHH is required by law to have a pool of physicians who comprises
the required medical departments in various medical fields.

Same; Same; Same; The fact that the physicians are holding
office in a separate building does not take away the essence
and nature of their services vis--vis the over-all operation of
the hospital and the benefits to the hospitals patientsgiven
what the law requires, it is clear that the Medical Arts Center
is an integral part of the Hospital.Sec. 6.3, Administrative
Order No. (AO) 68-A, Series of 1989, Revised Rules and Regulations
Governing the Registration, Licensure and Operation of Hospitals in
the Philippines pertinently provides: Tertiary Hospitalis fully
departmentalized and equipped with the service capabilities needed
to support certified medical specialists and other licensed
physicians rendering services in the field of Medicine, Pediatrics,
Obstetrics and Gynecology, Surgery, their subspecialties and
ancillary services. (Emphasis supplied.) Moreover, AO 68-A likewise
provides what clinic service and medical ancillary service are, thus:
11.3.2Clinical ServiceThe medical services to patients shall be
performed by the medical staff appointed by the governing body of
the institution. x x x 11.3.3 Medical Ancillary ServiceThese are
support services which include Anesthesia Department, Pathology
Department, Radiology Department, Out-Patient Department (OPD),
Emergency Service, Dental, Pharmacy, Medical Records and Medical
Social Services. Based on these provisions, these physicians holding
offices or clinics in CHHMAC, duly appointed or accredited by CHH,
precisely fulfill and carry out their roles in the hospitals services
for its patients through the CHHMAC. The fact that they are holding
office in a separate building, like at CHHMAC, does not take away the
essence and nature of their services vis--vis the over-all
operation of the hospital and the benefits to the hospitals patients.
Given what the law requires, it is clear that CHHMAC is an integral
part of CHH.

Same; Same; Same; The exemption in favor of property used

exclusively for charitable or educational purposes is not
limited to property actually indispensable therefore but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as,
in the case of hospitals, a school for training nurses, a
nurses home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for
student nurses, interns and residents such as athletic
fields, including a farm used for the inmates of the
institution.The CHHMAC, being hundred meters away from the
CHH main building, does not denigrate from its being an integral

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

part of the latter. As aptly applied by the CBAA, the Herrera ruling
on what constitutes property exempt from taxation is indeed
applicable in the instant case, thus: Moreover, the exemption in
favor of property used exclusively for charitable or educational
purposes is not limited to property actually indispensable
therefore (Cooley on Taxation, Vol. 2, p. 1430), but extends to
facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as, in the case of hospitals,
a school for training nurses, a nurses home, property use to
provide housing facilities for interns, resident doctors,
superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns and residents
(84 C.J.S., 621), such as athletic fields, including a farm used for
the inmates of the institution (Cooley on Taxation, Vol. 2, p. 1430).
Verily, being an integral part of CHH, CHHMAC should be under the
same special assessment level of as that of the former.

Same; Same; Same; Indubitably, the operation of the hospital is

not only for confinement and surgical operations where
hospital beds and operating theaters are requiredthe usual
course is that patients have to be diagnosed, and then treatment
and follow-up consultations follow or are required, while other
cases may necessitate surgical operations or other medical
intervention and confinement.The operation of the hospital is not
only for confinement and surgical operations where hospital beds
and operating theaters are required. Generally, confinement is
required in emergency cases and where a patient necessitates
close monitoring. The usual course is that patients have to be
diagnosed, and then treatment and follow-up consultations follow or
are required. Other cases may necessitate surgical operations or
other medical intervention and confinement. Thus, the more the
patients, the more important task of diagnosis, treatment, and care
that may or may not require eventual confinement or medical
operation in the CHHMAC. Thus, the importance of CHHMAC in the
operation of CHH cannot be over-emphasized nor disputed. Clearly,
it plays a key role and provides critical support to hospital
operations.

Same; Same; Same; A hospitals charge of rentals for the

offices and clinics its accredited physicians occupy cannot be
equated to a commercial venture, which is mainly for profit.
Respondents charge of rentals for the offices and clinics its
accredited physicians occupy cannot be equated to a commercial
venture, which is mainly for profit. Respondents explanation on this
point is well taken. First, CHHMAC is only for its consultants or
accredited doctors and medical specialists. Second, the charging of
rentals is a practical necessity: (1) to recoup the investment cost of
the building, (2) to cover the rentals for the lot CHHMAC is built on,
and (3) to maintain the CHHMAC building and its facilities. Third, as
correctly pointed out by respondent, it pays the proper taxes for its
rental income. And, fourth, if there is indeed any net income from

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the lease income of CHHMAC, such does not inure to any private or
individual person as it will be used for respondents other
charitable projects. Given the foregoing arguments, we fail to see
any reason why the CHHMAC building should be classified as
commercial and be imposed the commercial level of 35% as it is
no t operated primarily for profit but as an integral part of CHH. The
CHHMAC, with operations being devoted for the benefit of the CHHs
patients, should be accorded the 10% special assessment. [City

Assessor of Cebu City vs. Association of Benevola de Cebu,

Inc., 524 SCRA 128(2007)]
Taxation; Real Estate Taxes; Unpaid real estate taxes attaches
to the property and is chargeable against the taxable person
who had actual or beneficial use and possession of it,
regardless of whether or not he is the owner.The records
show that the subject properties were leased to other persons
during the time when GSIS held their titles, as was the case during
the ownership of the late Concordia Lim. However, the real estate
taxes later assessed on the said properties for the years 1977, 1978
and the first quarter of 1979 were charged against the plaintiffappellant even if the latter was not the beneficial user of the
parcels of land. In real estate taxation, the unpaid tax attaches to
the property and is chargeable against the taxable person who had
actual or beneficial use and possession of it regardless of whether
or not he is the owner. (Sections 3(a) and 19 of P.D. No. 464;
Province of Nueva Ecija v. Imperial Mining Co., Inc., 118 SCRA 632
[1982]).

Same; Same; Courts; Jurisdiction; The Regional Trial Court has

jurisdiction over actions for refund or reimbursement of taxes
paid under protest.The Court rules that the plaintiff-appellant
correctly filed the action for refund/reimbursement with the lower
court as it is the courts which have jurisdiction to try cases
involving the right to recover sums of money. Section 30 of the Real
Property Tax Code is not applicable because what is questioned is
the imposition of the tax assessed and who should shoulder the
burden of the tax. There is no dispute over the amount assessed on
the properties for tax purposes. Section 30 pertains to the
administrative act of listing and valuation of the property for
purposes of real estate taxation. It provides: Sec-tion 30. Local
Board of Assessment AppealsAny owner who is not satisfied with
the action of the provincial or city assessor in the assessment of
his property may, within sixty days from the date of receipt by him
of the written notice of assessment as provided in this Code, appeal
to the Board of Assessment Appeals of the province or city, by filing
with it a petition under oath using the form prescribed for the
purpose, together with copies of the tax declarations and such
affidavit or documents submitted in support of the appeal. In
further support of the conclusion that the lower court has
jurisdiction to try the instant case, we note Section 64 of the Real
Property Tax Code which provides that a court shall entertain a

46

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

suit assailing the validity of a tax assessed after the taxpayer shall
have paid under protest.

Same; Same; The real estate taxes assessed and collected

from appellants for the periods prior to the date of
repurchase, not valid and a refund by the City Government is
in order; Appellant, however, is not entitled to reimbursement
from the GSIS.The facts of the case constrain us to rule that the
plaintiff-appellant is not liable to pay the real property tax due for
the years 1977, 1978 and first quarter of 1979. The clause in the
Deed of Sale cannot be interpreted to include taxes for the periods
prior to April 11, 1979, the date of repurchase. To impose the real
property tax on the estate which was neither the owner nor the
beneficial user of the property during the designated periods would
not only be contrary to law but also unjust. If plaintiff-appellant
intended to assume the liability for realty taxes for the prior
periods, the contract should have specifically stated real estate
taxes due for the years 1977, 1978 and first quarter of 1979. The
payments made by the plaintiff-appellant cannot be construed to be
an admission of a tax liability since they were paid under protest
and were done only in compliance with one of the requirements for
the consummation of the sale as directed by the City Treasurer of
Manila. Hence, the tax assessed and collected from the plaintiffappellants is not valid and arefund by the City government is in
order. The Court rules, however, that the plaintiff-appellant is not
entitled to a reimbursement from the respondent GSIS because: (1)
the GSIS is exempt from payment of the real property tax under
Sec. 33 of the Revised Charter of the GSIS; and (2) the tax should
be based on actual use of the property. Section 40 of the Real
Property Tax Code supports the view that not even the GSIS is liable
to pay real property tax on public land leased to other persons.

[Testate Estate of Concordia T. Lim vs. City of Manila, 182 SCRA

482(1990)]
Taxation; Given that petitioner is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations
are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled
corporation.Though the creation of the LRTA was impelled by
public serviceto provide mass transportation to alleviate the
traffic and transportation, situation in Metro Manilaits operation
undeniably partakes of ordinary business. Petitioner is clothed with
corporate status and corporate powers in the furtherance of its
proprietary objectives. Indeed, it operates much like any private
corporation engaged in the mass transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its
carriageways and terminal stations are patrimonial property
subject to tax, notwithstanding its claim of being a governmentowned or controlled corporation.

Same; Under the Real Property Tax Code, real property is

classified for assessment purposes on the basis of actual

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use.Under the Real Property Tax Code, real property is classified

for assessment purposes on the basis of actual use, which is
defined as the purpose for which the property is principally or
predominantly utilized by the person in possession of the property.

Same; Petitioner does not exist solely for public service, and
the LRT carriageways and terminal stations are not exclusively
for public use.Unlike public roads which are open for use by
everyone, the LRT is accessible only to those who pay the required
fare. It is thus apparent that petitioner does not exist solely for
public service, and that the LRT carriageways and terminal stations
are not exclusively for public use. Although petitioner is a public
utility, it is nonetheless profit-earning. It actually uses those
carriageways and terminal stations in its public utility business and
earns money therefrom.

Same; Any claim for tax exemption is strictly construed

against the claimant.Taxation is the rule and exemption is the
exception. Any claim for tax exemption is strictly construed against
the claimant. LRTA has not shown its eligibility for exemption; hence,
it is subject to the tax. [Light Rail Transit Authority vs. Central

Board of Assessment Appeals, 342 SCRA 692(2000)]

Local Government Units; Municipal Corporations; Taxation;
Local Assessment Regulations No. 1-92 suggests three
approaches in estimating the fair market value, namely (1) the
sales analysis or market data approach; (2) the income
capitalization approach; and (3) the replacement or
reproduction cost approach.Local Assessment Regulations No.
1-92 suggests three approaches in estimating the fair market value,
namely: (1) the sales analysis or market data approach; (2) the
income capitalization approach; and (3) the replacement or
reproduction cost approach. Under the sales analysis approach, the
price paid in actual market transactions is considered by taking into
account valid sales data accumulated from among the various
sources stated in Sections 202, 203, 208, 209, 210, 211 and 213 of
the Code. In the income capitalization approach, the value of an
income-producing property is no more than the return derived
from it. An analysis of the income produced is necessary in order to
estimate the sum which might be invested in the purchase of the
property. The reproduction cost approach, on the other hand, is a
factual approach used exclusively in appraising man-made
improvements such as buildings and other structures, based on
such data as materials and labor costs to reproduce a new replica
of the improvement.

Same; Same; Same; Statutes; An ordinance that contravenes

any statute is ultra vires and void.This Court holds that the
proviso directing that the real property tax be based on the actual
amount reflected in the deed of conveyance or the prevailing BIR
zonal value is invalid not only because it mandates an exclusive rule
in determining the fair market value but more so because it departs

47

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

from the established procedures stated in the Local Assessment

Regulations No. 1-92 and unduly interferes with the duties
statutorily placed upon the local assessor by completely dispensing
with his analysis and discretion which the Code and the regulations
require to be exercised. An ordinance that contravenes any statute
is ultra vires and void.

Taxation; Fair Market Value; Words and Phrases; Fair market

value is the price at which a property may be sold by a seller
who is not compelled to sell and bought by a buyer who is not
compelled to buy, taking into consideration all uses to which
the property is adapted and might in reason be applied.Fair
market value is the price at which a property may be sold by a
seller who is not compelled to sell and bought by a buyer who is not
compelled to buy, taking into consideration all uses to which the
property is adapted and might in reason be applied. The criterion
established by the statute contemplates a hypothetical sale. Hence,
the buyers need not be actual and existing purchasers. [Allied

Banking Corporation vs. Quezon City Government, 472 SCRA

303(2005)]
Taxation; Republic Act No. 7160; Tax Exemptions; The exemption
granted under Sec. 234(e) of Republic Act No. 7160 to
machinery and equipment used for pollution control and
environmental protection is based on usage. The term usage
means direct, immediate and actual application of the property
itself to the exempting purpose.As held in Mactan, the
exemption granted under Sec. 234(e) of R.A. No. 7160 to
[m]achinery and equipment used for pollution control and
environmental protection is based on usage. The term usage
means direct, immediate and actual application of the property
itself to the exempting purpose. Section 199 of R.A. No. 7160 defines
actual use as the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. It
contemplates concrete, as distinguished from mere potential, use.
Thus, a claim for exemption under Sec. 234(e) of R.A. No. 7160
should be supported by evidence that the property sought to be
exempt is actually, directly and exclusively used for pollution
control and environmental protection.

Same; Same; Same; The burden is upon the taxpayer to prove,

by clear and convincing evidence, that his claim for exemption
has legal and factual basis.The burden is upon the taxpayer to
prove, by clear and convincing evidence, that his claim for
exemption has legal and factual basis. [Provincial Assessor of

Marinduque, The vs. Court of Appeals, 587 SCRA 285(2009)]

Taxation; Lung Center of the Philippines; Charitable
Institutions; Test of Charitable Character; Words and Phrases;
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

11/01/2014

corporate purpose, 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; 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. The test whether an
enterprise is charitable or not is whether it exists to carry out
a purpose recognized in law as charitable or whether it is
maintained for gain, profit, or private advantage.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. 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. 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.
The word charitable is not restricted to relief of the poor or sick.
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.

Same; Same; Same; The Lung Center of the Philippines 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; Any person, the rich as
well as the poor, may fall sick or be injured or wounded and
become a subject of charity.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: x x x Hence, the medical services of the petitioner are
to be rendered to the public in general in any and all walks of life

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

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.

Same; Same; Same; 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.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. In
Congregational Sunday School, etc. v. Board of Review, 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 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.

Same; Same; Same; The Lung Center of the Philippines 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.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: 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

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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.

Same; Same; Same; Those portions of Lung Centers 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.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.

Same; Same; Same; Statutory Construction; Taxation is the

rule and exemption is the exceptionthe effect of an
exemption is equivalent to an appropriation.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 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. As held in Salvation Army v. Hoehn: 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 .

Same; Same; Same; Same; It is plain as day that under P.D.

1823, the Lung Center of the Philippines does not enjoy any
property tax exemption privileges for its real properties as
well as the building constructed thereon.It is plain as day that
under the decree (P.D. 1823), 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 the

49

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

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.

Same; Same; Same; Same; The exemption must not be so

enlarged by construction.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.

Same; Same; Same; Same; The tax exemption under Section 28

(3), Article VI of the 1987 Constitution covers property taxes
only.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. The tax exemption under this
constitutional provision covers property taxes only. 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.

Same; Same; Same; Same; 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
purposesit is required that such property be used actually
and directly for such purposes.We note that under the 1935
Constitution, . . . all lands, buildings, and improvements used
exclusively for . . . charitable . . . purposes shall be exempt from
taxation. 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. 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.

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Same; Same; Same; Same; Words and Phrases; If real property

is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to
taxationthe words dominant use or principal use cannot
be substituted for the words used exclusively without doing
violence to the Constitutions and the law.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. 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. The words dominant
use or principal use cannot be substituted for the words used
exclusively without doing violence to the Constitutions and the law.
Solely is synonymous with exclusively. 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 taxexempt purposes.

Same; Same; Same; Portions of the land leased to private

entities as well as those parts of Lung Center leased to private
individuals are not exempt from taxes but 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.We hold that the portions of the land leased
to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. On the other
hand, the portions of the land occupied by the hospital and portions
of the hospital used for its patients, whether paying or non-paying,
are exempt from real property taxes. [Lung Center of the

Philippines vs. Quezon City, 433 SCRA 119(2004)]

Taxation; Real Property Tax Code; Appeals; Assessments; The
remedy of appeal to the Local Board of Assessment Appeals
(LBAA) is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the
property.Instead of appealing to the Board of Assessment
Appeals (as stated in the notice), NPC opted to file a motion for
reconsideration of the Provincial Assessors decision, a remedy not
sanctioned by law. The remedy of appeal to the LBAA is available
from an adverse ruling or action of the provincial, city or municipal
assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with
regard to the taxability of the subject real properties falls within its

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

power to assess properties for taxation purposes subject to appeal

before the LBAA.

Same; Same; Same; Same; Under Section 226 of R.A. No. 7160,
the last action of the local assessor on a particular
assessment shall be the notice of assessment.We fully agree
with the rationalization of the CA in both CA-G.R. SP No. 67490 and
CA-G.R. SP No. 67491. The two divisions of the appellate court cited
the case of Callanta v. Office of the Ombudsman, 285 SCRA 648
(1998), where we ruled that under Section 226 of R.A. No 7160, the
last action of the local assessor on a particular assessment shall
be the notice of assessment; it is this last action which gives the
owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy
of filing a motion for reconsideration before the local assessor.

Same; Same; Same; Same; The taxpayers failure to question

the assessment in the Local Board of Assessment Appeals
(LBAA) renders the assessment of the local assessor final,
executory and demandable.If the taxpayer fails to appeal in due
course, the right of the local government to collect the taxes due
with respect to the taxpayers property becomes absolute upon the
expiration of the period to appeal. It also bears stressing that the
taxpayers failure to question the assessment in the LBAA renders
the assessment of the local assessor final, executory and
demandable, thus, precluding the taxpayer from questioning the
correctness of the assessment, or from invoking any defense that
would reopen the question of its liability on the merits.

Same; Same; Same; Same; Taxation is the rule and exemption

is the exception.Time and again, the Supreme Court has stated
that taxation is the rule and exemption is the exception. The law
does not look with favor on tax exemptions and the entity that would
seek to be thus privileged must justify it by words too plain to be
mistaken and too categorical to be misinterpreted. Thus, applying
the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.

Same; Same; Same; Same; The right of local government units

to collect taxes due must always be upheld to avoid severe tax
erosion.It must be pointed out that the protracted and circuitous
litigation has seriously resulted in the local governments
deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging in its
very nature no perimeter so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the
tax on the constituency who are to pay for it. The right of local
government units to collect taxes due must always be upheld to
avoid severe tax erosion. This consideration is consistent with the
State policy to guarantee the autonomy of local governments and
the objective of the Local Government Code that they enjoy genuine

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and meaningful local autonomy to empower them to achieve their

fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. [FELS

Energy, Inc. vs. Province of Batangas, 516 SCRA 186(2007)]

Taxation; Tax Exemptions; Local Government Code; Manila
International Airport Authority (MIAA) is not a governmentowned or controlled corporation but a government
instrumentality which is exempt from any kind of tax from the
local governments.MIAA is not a government-owned or
controlled corporation but a government instrumentality which is
exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to
the limitations enumerated in Section 133 of the Local Government
Code. Under Section 133(o) of the Local Government Code, local
government units have no power to tax instrumentalities of the
national government like the MIAA. Hence, MIAA is not liable to pay
real property tax for the NAIA Pasay properties.

Same; Same; Same; Property; The airport lands and buildings

of Manila International Airport Authority (MIAA) are properties
of public dominion intended for public use; and as such are
exempt from real property tax under Section 234(a) of the
Local Government Code (LGC); Only those portions of the Ninoy
Aquino International Airport (NAIA) Pasay properties which
are leased to taxable persons like private parties are subject
to real property tax by the City of Pasay.The airport lands and
buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under
Section 234(a) of the Local Government Code. However, under the
same provision, if MIAA leases its real property to a taxable person,
the specific property leased becomes subject to real property tax.
In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to
real property tax by the City of Pasay. [Manila International

Airport Authority vs. City of Pasay, 583 SCRA 234(2009)]

Taxation; Republic Act No. 7160; Tax Exemptions; The exemption
granted under Sec. 234(e) of Republic Act No. 7160 to
machinery and equipment used for pollution control and
environmental protection is based on usage. The term usage
means direct, immediate and actual application of the property
itself to the exempting purpose.As held in Mactan, the
exemption granted under Sec. 234(e) of R.A. No. 7160 to
[m]achinery and equipment used for pollution control and
environmental protection is based on usage. The term usage
means direct, immediate and actual application of the property
itself to the exempting purpose. Section 199 of R.A. No. 7160 defines
actual use as the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. It
contemplates concrete, as distinguished from mere potential, use.
Thus, a claim for exemption under Sec. 234(e) of R.A. No. 7160

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

should be supported by evidence that the property sought to be

exempt is actually, directly and exclusively used for pollution
control and environmental protection.

Same; Same; Same; The burden is upon the taxpayer to prove,

by clear and convincing evidence, that his claim for exemption
has legal and factual basis.The burden is upon the taxpayer to
prove, by clear and convincing evidence, that his claim for
exemption has legal and factual basis. [Provincial Assessor of

Marinduque, The vs. Court of Appeals, 587 SCRA 285(2009)]

Taxation; Local Taxation; Real Estate Tax; Properties owned by
the Republic of the Philippines are exempt from real property
tax except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable personthe
portions of the properties not leased to taxable entities are exempt
from real estate tax while the portions of the properties leased to
taxable entities are subject to real estate tax.Even as the Republic
of the Philippines is now the owner of the properties in view of the
voluntary surrender of MPLDC by its former registered owner,
Campos, to the State, such transfer does not prevent a third party
with a better right from claiming such properties in the proper
forum. In the meantime, the Republic of the Philippines is the
presumptive owner of the properties for taxation purposes. Section
234(a) of Republic Act No. 7160 states that properties owned by the
Republic of the Philippines are exempt from real property tax
except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. Thus, the portions
of the properties not leased to taxable entities are exempt from
real estate tax while the portions of the properties leased to
taxable entities are subject to real estate tax. The law imposes the
liability to pay real estate tax on the Republic of the Philippines for
the portions of the properties leased to taxable entities. It is, of
course, assumed that the Republic of the Philippines passes on the
real estate tax as part of the rent to the lessees.

Same; Same; Same; Public Auctions; Properties of public

dominion are not only exempt from real estate tax, they are
exempt from sale at public auctionproperty of public
dominion, which generally includes property belonging to the
State, cannot be subject of the commerce of man.Article 420
of the Civil Code classifies as properties of public dominion those
that are intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads and those that are intended for some public
service or for the development of the national wealth. Properties
of public dominion are not only exempt from real estate tax, they
are exempt from sale at public auction. In Heirs of Mario Malabanan
v. Republic, 587 SCRA 172 (2009), the Court held that, It is clear
that property of public dominion, which generally includes property
belonging to the State, cannot be x x x subject of the commerce of
man.

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Same; Same; Same; Same; Where the parcels of land owned by

the Republic are not properties of public dominion, portions of
the properties leased to taxable entities are not only subject to
real estate tax, they can also be sold at public auction to
satisfy the tax delinquency.In the present case, the parcels of
land are not properties of public dominion because they are not
intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores,
roadsteads. Neither are they intended for some public service or
for the development of the national wealth. MPLDC leases portions
of the properties to different business establishments. Thus, the
portions of the properties leased to taxable entities are not only
subject to real estate tax, they can also be sold at public auction to
satisfy the tax delinquency. In sum, only those portions of the
properties leased to taxable entities are subject to real estate tax
for the period of such leases. Pasig City must, therefore, issue to
respondent new real property tax assessments covering the
portions of the properties leased to taxable entities. If the Republic
of the Philippines fails to pay the real property tax on the portions
of the properties leased to taxable entities, then such portions may
be sold at public auction to satisfy the tax delinquency. [City of

Pasig vs. Republic, 656 SCRA 271(2011)]

Philippine Reclamation Authority (PRA); Taxation; Real
Property Taxes; Tax Exemptions; Philippine Reclamation
Authority (PRA) is a government instrumentality vested with
corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Being an incorporated government
instrumentality, it is exempt from payment of real property
tax.This Court is convinced that PRA is not a GOCC either under
Section 2(3) of the Introductory Provisions of the Administrative
Code or under Section 16, Article XII of the 1987 Constitution. The
facts, the evidence on record and jurisprudence on the issue
support the position that PRA was not organized either as a stock
or a non-stock corporation. Neither was it created by Congress to
operate commercially and compete in the private market. Instead,
PRA is a government instrumentality vested with corporate powers
and performing an essential public service pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code.
Being an incorporated government instrumentality, it is exempt
from payment of real property tax.

Same; Same; Same; Same; Local Government Code; It is clear

from Section 234 of the Local Government Code that real
property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person.
It is clear from Section 234 that real property owned by the
Republic of the Philippines (the Republic) is exempt from real
property tax unless the beneficial use thereof has been granted to a

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

taxable person. In this case, there is no proof that PRA granted the
beneficial use of the subject reclaimed lands to a taxable entity.
There is no showing on record either that PRA leased the subject
reclaimed properties to a private taxable entity. This exemption
should be read in relation to Section 133(o) of the same Code, which
prohibits local governments from imposing [t]axes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x. The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies
or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt
from real estate tax.

Foreshore Lands; Public Domain; Foreshore and submerged

areas irrefutably belonged to the public domain and were
inalienable unless reclaimed, classified as alienable lands open
to disposition and further declared no longer needed for public
service. The fact that alienable lands of the public domain were
transferred to the Public Estates Authority (PEA) (now
Philippine Reclamation Authority [PRA]) and issued land
patents or certificates of title in PEAs name did not
automatically make such lands private.The subject lands are
reclaimed lands, specifically portions of the foreshore and offshore
areas of Manila Bay. As such, these lands remain public lands and
form part of the public domain. In the case of Chavez v. Public
Estates Authority and AMARI Coastal Development Corporation, 403
SCRA 1 (2002), the Court held that foreshore and submerged areas
irrefutably belonged to the public domain and were inalienable
unless reclaimed, classified as alienable lands open to disposition
and further declared no longer needed for public service. The fact
that alienable lands of the public domain were transferred to the
PEA (now PRA) and issued land patents or certificates of title in
PEAs name did not automatically make such lands private. This
Court also held therein that reclaimed lands retained their inherent
potential as areas for public use or public service. [Republic vs.

City of Paraaque, 677 SCRA 246(2012)]

Taxation; Tax Exemptions; R.A. No. 6055 granted tax
exemptions to educational institutions like petitioner which
converted to non-stock, non-profit educational foundations.
R.A. No. 6055 granted tax exemptions to educational institutions like
petitioner which converted to non-stock, non-profit educational
foundations. Section 8 of said law provides: SECTION 8. The
Foundation shall be exempt from the payment of all taxes, import
duties, assessments, and other charges imposed by the
Government on all income derived from or property, real or
personal, used exclusively for the educational activities of the
Foundation.

National Building Code (P.D. No. 1096); The National Building

Code requires every person, firm or corporation, including any
agency or instrumentality of the government to obtain a

11/01/2014

building permit for any construction, alteration or repair of

any building or structure.On February 19, 1977, Presidential
Decree (P.D.) No. 1096 was issued adopting the National Building
Code of the Philippines. The said Code requires every person, firm
or corporation, including any agency or instrumentality of the
government to obtain a building permit for any construction,
alteration or repair of any building or structure. Building permit
refers to a document issued by the Building Official x x x to an
owner/applicant to proceed with the construction, installation,
addition, alteration, renovation, conversion, repair, moving,
demolition or other work activity of a specific
project/building/structure or portions thereof after the
accompanying principal plans, specifications and other pertinent
documents with the duly notarized application are found
satisfactory and substantially conforming with the National Building
Code of the Philippines x x x and its Implementing Rules and
Regulations (IRR). Building permit fees refers to the basic permit
fee and other charges imposed under the National Building Code.

Same; Building Permits; Exempted from the payment of

building permit fees are: (1) public buildings and (2) traditional
indigenous family dwellings.Exempted from the payment of
building permit fees are: (1) public buildings and (2) traditional
indigenous family dwellings. Not being expressly included in the
enumeration of structures to which the building permit fees do not
apply, petitioners claim for exemption rests solely on its
interpretation of the term other charges imposed by the National
Government in the tax exemption clause of R.A. No. 6055.

Same; Same; That a building permit fee is a regulatory

imposition is highlighted by the fact that in processing an
application for a building permit, the Building Official shall see
to it that the applicant satisfies and conforms with approved
standard requirements on zoning and land use, lines and
grades, structural design, sanitary and sewerage,
environmental health, electrical and mechanical safety as well
as with other rules and regulations implementing the National
Building Code.That a building permit fee is a regulatory
imposition is highlighted by the fact that in processing an
application for a building permit, the Building Official shall see to it
that the applicant satisfies and conforms with approved standard
requirements on zoning and land use, lines and grades, structural
design, sanitary and sewerage, environmental health, electrical and
mechanical safety as well as with other rules and regulations
implementing the National Building Code. Thus, ancillary permits
such as electrical permit, sanitary permit and zoning clearance
must also be secured and the corresponding fees paid before a
building permit may be issued. And as can be gleaned from the
implementing rules and regulations of the National Building Code,
clearances from various government authorities exercising and
enforcing regulatory functions affecting buildings/structures, like

53

LOCAL AND REAL PROPERTY TAXATION DOCTRINES

local government units, may be further required before a building

permit may be issued.

Same; Same; A charge of a fixed sum which bears no relation

at all to the cost of inspection and regulation may be held to be
a tax rather than an exercise of the police power.A charge of
a fixed sum which bears no relation at all to the cost of inspection
and regulation may be held to be a tax rather than an exercise of
the police power. In this case, the Secretary of Public Works and
Highways who is mandated to prescribe and fix the amount of fees
and other charges that the Building Official shall collect in
connection with the performance of regulatory functions, has
promulgated and issued the Implementing Rules and Regulations
which provide for the bases of assessment of such fees, as follows:
1. Character of occupancy or use of building 2. Cost of construction
10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J) 3. Floor area 4.
Height

Tax Exemption; Real Property Taxes; Hospitals; In Lung Center

of the Philippines v. Quezon City, 433 SCRA 119 (2004), the
Supreme Court held that only portions of the hospital actually,
directly and exclusively used for charitable purposes are
exempt from real property taxes, while those portions leased
to private entities and individuals are not exempt from such
taxes.In Lung Center of the Philippines v. Quezon City, 433 SCRA
119 (2004), this Court held that only portions of the hospital actually,
directly and exclusively used for charitable purposes are exempt
from real property taxes, while those portions leased to private
entities and individuals are not exempt from such taxes. We
explained the condition for the tax exemption privilege of charitable
and educational institutions, as follows: 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. 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. The words dominant
use or principal use cannot be substituted for the words used
exclusively without doing violence to the Constitutions and the law.
Solely is synonymous with exclusively. 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 taxexempt purposes. [Angeles University Foundation vs. City of

Angeles, 675 SCRA 359(2012)]

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Statutory Construction; P.D. 1271; The intent of the law makes

the certificate of titles over the land valid from the time they
were issued and recognizes the effects of certain acts of
ownership done in good faith by persons with torrens titles
issued in their favor before the cut-off date, believing that they
had validly acquired the lands.The petitioner submits that:
upon compliance with certain requirements the titles so issued are
validated and deemed to have been conveyed in fee simple. The
validation of the title retroacts to the very day the title was
originally issued (pp. 45, Rollo). We agree with the petitioner. The
intent of the law necessarily makes such titles valid from the time
they were issued. x x x The foregoing necessarily implies that the
intent of the law is to recognize the effects of certain acts of
ownership done in good faith by persons with torrens titles issued
in their favor before the cut-off date stated, honestly believing that
they had validly acquired the lands. And such would be possible only
by validating all the said titles issued before 31 July 1973, effective
on their respective dates of issue. However, the validity of these
titles would not become operative unless and after the conditions
stated in PD 1271 are met. Hence, the phrase upon a showing, and
compliance with, the following conditions. (Sec. 1, PD 1271)

Same; Land Titles; Tax sale of property, prematurely

conducted; Oppositor is not yet liable for real property taxes
over the land which was still part of the public domain; Validity
of oppositors title would take effect retroactively only after
having complied with the conditions in P.D. 1271.Considering,
however, that during the years 19711977 the land in question was
still part of the public domain, the oppositor-appellee could not, in
those years, obviously be held liable for real property taxes over
the land in question. Since the validity of her title would take effect
retroactively only after having complied with the conditions set in
PD 1271, only then could she be held liable for taxes for the period
starting 1971 to 1977. It would be absurd then to hold the oppositorappellee liable for taxes over a piece of land which she did not own
(it being public land) or use. Consequently, the tax sale was
prematurely conducted. The oppositor-appellee should have first
been given the opportunity to settle the taxes assessed for the
years 19711977 after having complied with PD 1271.

Same; Same; Same; Due process; Auction sale; Holding of the

tax sale despite absence of requisite notice to the oppositor
was tantamount to a violation of her substantial right to due
process.As to the validity of the auction sale, We reiterate that it
was prematurely held, hence, null and void for the above reasons.
But even on the evidence presented by the parties, assuming that
the sale was properly and seasonably held, it has been clearly
shown by the trial court and the IAC that the oppositor-appellee was
not properly notified. The holding of the tax sale despite the absence
of the requisite notice was tantamount to a violation of her
substantial right to due process.

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

Same; Same; Findings of fact; The findings of fact of both the

trial court and the appellate court not being contrary to the
evidence, should be accorded respect.We do not see the above
findings of fact of the trial court, as adopted by the IAC, to be
contrary to the evidence presented nor tainted with partiality or
indiscretion. Hence, We accord them great respect (Premier
Insurance and Surety Corporation v. IAC, 141 SCRA 423; Vda. de
Roxas v. IAC, 143 SCRA 77; Republic v. IAC, 144 SCRA 705.)
Administrative proceedings established for the sale of private lands
for non-payment of taxes being in personam (Pantaleon v. Santos,
L-10289, July 31, 1957), it is essential that there be actual notice

to the delinquent, otherwise the sale is null and void although

preceded by proper advertisement or publication.'" (Vivencio v.
Quintos, CA-G.R. No. 44697, [Puzon vs. Abellera, 169 SCRA
789(1989)]
Taxation; Auction Sale; Although preceded by proper
advertisement and publication, an auction sale is void absent
an actual notice to a delinquent taxpayer.The auction sale of
real property for the collection of delinquent taxes is in personam,
not in rem. Although sufficient in proceedings in rem like land
registration, mere notice by publication will not satisfy the
requirements of proceedings in personam. [P]ublication of the
notice of delinquency [will] not suffice, considering that the
procedure in tax sales is in personam. It is still incumbent upon the
city treasurer to send the notice directly to the taxpayerthe
registered owner of the propertyin order to protect the latters
interests. Although preceded by proper advertisement and
publication, an auction sale is void absent an actual notice to a
delinquent taxpayer.

Civil Law; Property; Ownership; Torrens System; A certificate

of title under the Torrens system serves as evidence of an
indefeasible title to the property in favor of the person whose
name appears on it.A certificate of title under the Torrens
system serves as evidence of an indefeasible title to the property in
favor of the person whose name appears on it. While it is true that
Transfer Certificates of Title have already been issued in the names
of the subsequent purchasers, they should nonetheless be
invalidated. Considering the failure to abide by the mandatory
requirements of a proceeding in personam, no better title than that
of the original owner can be assumed by the transferees.

Taxation; Auction Sale; Notice of sale to the delinquent

landowners and to the public, in general, is an essential and
indispensable requirement of law, the non-fulfillment of which
vitiates the sale.With greater significance is the categorical and
unrefuted statement in it that the [s]ealed envelope containing a
copy of the petition addressed to Gorgonia Bantegui x x x was
returned to sender unclaimed x x x. That statement definitely
confirms the lack of notices, without which the subsequent

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proceeding to sell the property produces no legal effect. Notice of

sale to the delinquent landowners and to the public[,] in general[,]
is an essential and indispensable requirement of law, the nonfulfillment of which vitiates the sale.

Same; Same; Statutes; Section 80 of PD 464 provides that

any balance of the proceeds of the sale left after deducting
the amount of the taxes and penalties due and the costs of
sale, shall be returned to the owner or his representative.
Section 80 of PD 464 provides that any balance of the proceeds of
the sale left after deducting the amount of the taxes and penalties
due and the costs of sale, shall be returned to the owner or his
representative. Again contrary to the mandate of the law, the
balance of the proceeds from the tax sale was not even returned to
Respondent Bantegui or her representative after the issuance of
the final bill of sale. The failure to return the proceeds reinforced
the apparent irregularity not only in the conduct of the tax sale, but
also in its subsequent disposition.

Same; Same; A purchaser of real estate at the tax sale obtains

only such title as that held by the taxpayer; the principle of
caveat emptor applies. The defense of indefeasibility of a
Torrens title does not extend to a transferee who takes the
title despite a notice of the flaw in it.A purchaser of real
estate at the tax sale obtains only such title as that held by the
taxpayer[;] the principle of caveat emptor applies. Purchasers
cannot close their eyes to facts that should have put any
reasonable person upon guard, and then claim that they acted in
good faith under the belief that there was no defect in the title. If
petitioners do not investigate or take precaution despite knowing
certain facts, they cannot be considered in good faith. The defense
of indefeasibility of a Torrens title does not extend to a transferee
who takes the title despite a notice of the flaw in it. From a vendor
who does not have any title to begin with, no right is passed to a
transferee. [Tan vs. Bantegui, 473 SCRA 663(2005)]

Taxation; Real Estate Taxes; Refund of real estate taxes paid by

mistake; Protest not required for recovery; No waiver of
taxpayers right to refund of taxes in the absence of protest;
Case at bar.We agree with petitioner. Protest is not a
requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund Section 54
of Commonwealth Act No. 470 does not apply to petitioner which
could conceivably not have been expected to protest a payment it
honestly believed to be due. The same refers only to the case where
the taxpayer, despite his knowledge of the erroneous or illegal
assessment, still pays and fails to make the proper protest, for in
such case, he should manifest an unwillingness to pay, and failing
so, the taxpayer is deemed to have waived his right to claim a
refund. In the case at bar, petitioner, therefore, cannot be said to
have waived his right. He had no knowledge of the fact that it was
exempted from payment of the realty tax under Commonwealth Act

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

No. 470. Payment was made through error or mistake, in the honest
belief that petitioner was liable, and therefore could not have been
made under protest, but with complete voluntariness. In any case, a
taxpayer should not be held to suffer loss by his good intention to
comply with what he believes is his legal obligation, where such
obligation does not really exist.

Same; Same; Civil Law; Quasi-Contracts; Solutio Indebiti;

Application of the principle of solutio indebiti to mistaken
payment of realty taxes; Case at bar.The quasi-contract of
solutio indebiti, is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of
another. Hence, it would seem unedifying for the government, that
knowing it has no right at all to collect or to receive money for
alleged taxes paid by mistake, it would be reluctant to return the
same.

Same; Same; Same; Same; Same; Solutio indebiti meaning of.

Solutio indebiti is a quasi-contract, and the instant case being in the
nature of solutio indebiti, the claim for refund must be commenced
within six (6) years from date of payment pursuant to Article
1145(2) of the New Civil Code.

Same; Same; Same; Prescription; Prescriptive period for filing

of claim for refund of real estate taxes of the nature of a
solutio indebiti case; Taxpayers right to recovery not barred
by Sec. 359 of Revised Manual of Instructions to Treasurers;
Effect of Revised Manual.Respondents contention that
petitioners right to recover real estate taxes has prescribed in
accordance with Section 359 of the Revised Manual of Instructions
to Treasurers x x x is without merit. The said provision applies to
taxes paid under ordinance subsequently declared illegal or taxes
illegally assessed and collected under such ordinance, but not to
payments of real estate taxes mistakenly made, as in the present
case. Furthermore, the Revised Manual of Instructions to
Treasurers is a mere compilations of existing accounting
instructions affecting the finance and administration of local
government. Section 359, particularly, has no force and effect of a
law, and the same can not prevail over the provisions of the New
Civil Code.

Same; Same; Same; Sec. 17 of Commonwealth Act 470 not

applicable where taxpayer satisfied with assessment of his
property.Equally not applicable is Section 17 of Commonwealth
Act No. 470 cited by respondent in relation to the right of a
property owner to contest the validity of assessment. x x x
Petitioner is not unsatisfied in the assessment of its property.
Assessment having been made, it paid the real estate taxes without
knowing that it is exempt. [Ramie Textiles, Inc. vs. Mathay, Sr.,

89 SCRA 586(1979)]
For real estate tax payments already made, the taxpayer may
file a written claim for refund or credit for taxes and

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interests.In view of the foregoing ruling, the question may be

asked: what happens to real estate tax payments already made
prior to its promulgation and finality? Under the law, the taxpayer
may file a written claim for refund or credit for taxes and interests
x x x.

Same; Same; Same; Administrative Law; Exhaustion of

Administrative Remedies; Although as a rule, administrative
remedies must first be exhausted before resort to judicial
action can prosper, there is a well-settled exception in cases
where the controversy does not involve question of fact but
only of law.Respondents argue that this case is premature
because petitioners neither appealed the questioned assessments
on their properties to the Board of Assessment Appeal, pursuant to
Sec. 226, nor paid the taxes under protest, per Sec. 252. We do not
agree. Although as a rule, administrative remedies must first be
exhausted before resort to judicial action can prosper, there is a
wellsettled exception in cases where the controversy does not
involve questions of fact but only of law. In the present case, the
parties, even during the proceedings in the lower court on 11 April
1994, already agreed that the issues in the petition are legal, and
thus, no evidence was presented in said court.

Same; Same; Same; Same; Same; Board of Assessment

Appeals; The protest contemplated under Sec. 252 of R.A. 7160
is needed where there is a question as to the reasonableness
of the amount assessed, not where the question raised is on
the very authority and power of the assessor to impose the
assessment and of the treasurer to collect the tax.In laying
down the powers of the Local Board of Assessment Appeals, R.A.
7160 provides in Sec. 229 (b) that (t)he proceedings of the Board
shall be conducted solely for the purpose of ascertaining the facts x
x x. It follows that appeals to this Board may be fruitful only where
the questions of fact are involved. Again, the protest contemplated
under Sec. 252 of R.A. 7160 is needed where there is a question as
to the reasonableness of the amount assessed. Hence, if a taxpayer
disputes the reasonableness of an increase in a real estate tax
assessment, he is required to first pay the tax under protest.
Otherwise, the city or municipal treasurer will not act on his
protest. In the case at bench however, the petitioners are
questioning the very authority and power of the assessor, acting
solely and independently, to impose the assessment and of the
treasurer to collect the tax. These are not questions merely of
amounts of the increase in the tax but attacks on the very validity of
any increase. [Ty vs. Trampe, 250 SCRA 500(1995)]

Taxation; Protest; Taxpayer should first pay the tax before his
protest can be entertained.Thus, should the taxpayer/real
property owner question the excessiveness or reasonableness of
the assessment, Section 252 directs that the taxpayer should first
pay the tax due before his protest can be entertained. There shall
be annotated on the tax receipts the words paid under protest. It

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

is only after the taxpayer has paid the tax due that he may file a
protest in writing within thirty days from payment of the tax to the
Provincial, City or Municipal Treasurer, who shall decide the protest
within sixty days from receipt. In no case is the local treasurer
obliged to entertain the protest unless the tax due has been paid.

Same; Same; Appeals; An appeal shall not suspend the

collection of the tax assessed without prejudice to a later
adjustment pending the outcome of the appeal.Under the
doctrine of primacy of administrative remedies, an error in the
assessment must be administratively pursued to the exclusion of
ordinary courts whose decisions would be void for lack of
jurisdiction. But an appeal shall not suspend the collection of the tax
assessed without prejudice to a later adjustment pending the
outcome of the appeal. [Olivares vs. Marquez, 438 SCRA

679(2004)]
Taxation; Local Taxation; Local Government Code of 1991 (R.A.
No. 7160); Section 252 of the Local Government Code
emphatically directs that the taxpayer/real property owner
questioning the assessment should first pay the tax due before
his protest can be entertained.Section 252 of the Local
Government Code emphatically directs that the taxpayer/real
property owner questioning the assessment should first pay the tax
due before his protest can be entertained. As a matter of fact, the
words paid under protest shall be annotated on the tax receipts.
Consequently, only after such payment has been made by the
taxpayer may he file a protest in writing (within thirty [30] days
from said payment of tax) to the provincial, city, or municipal
treasurer, who shall decide the protest within sixty (60) days from
its receipt. In no case is the local treasurer obliged to entertain the
protest unless the tax due has been paid.

Same; Same; Payment Under Protest; The requirement of

payment under protest is a condition sine qua non before a
protest or an appeal questioning the correctness of an
assessment of real property tax may be entertained.It is
clear that the requirement of payment under protest is a
condition sine qua non before a protest or an appeal questioning the
correctness of an assessment of real property tax may be
entertained. Moreover, a claim for exemption from payment of real
property taxes does not actually question the assessors authority
to assess and collect such taxes, but pertains to the
reasonableness or correctness of the assessment by the local
assessor, a question of fact which should be resolved, at the very
first instance, by the LBAA.

Same; Same; The burden of proving exemption from local

taxation is upon whom the subject real property is declared;
thus, said person shall be considered by law as the taxpayer
thereof.Section 206 of RA No. 7160 or the LGC of 1991,
categorically provides that every person by or for whom real

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property is declared, who shall claim exemption from payment of

real property taxes imposed against said property, shall file with
the provincial, city or municipal assessor sufficient documentary
evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real
property is declared; thus, said person shall be considered by law
as the taxpayer thereof. Failure to do so, said property shall be
listed as taxable in the assessment roll.

Same; Same; The duty to declare the true value of real

property for taxation purposes is imposed upon the owner, or
administrator, or their duly authorized representatives.It is
an accepted principle in taxation that taxes are paid by the person
obliged to declare the same for taxation purposes. As discussed
above, the duty to declare the true value of real property for
taxation purposes is imposed upon the owner, or administrator, or
their duly authorized representatives. They are thus considered the
taxpayers. Hence, when these persons fail or refuse to make a
declaration of the true value of their real property within the
prescribed period, the provincial or city assessor shall declare the
property in the name of the defaulting owner and assess the
property for taxation. In this wise, the taxpayer assumes the
character of a defaulting owner, or defaulting administrator, or
defaulting authorized representative, liable to pay back taxes. For
that reason, since petitioner herein is the declared owner of the
subject buildings being assessed for real property tax, it is
therefore presumed to be the person with the obligation to shoulder
the burden of paying the subject tax in the present case; and
accordingly, in questioning the reasonableness or correctness of
the assessment of real property tax, petitioner is mandated by law
to comply with the requirement of payment under protest of the tax
assessed, particularly Section 252 of RA No. 7160 or the LGC of 1991.

Same; Same; Time and again, the Supreme Court has stated
that taxation is the rule and exemption is the exception.Time
and again, the Supreme Court has stated that taxation is the rule
and exemption is the exception. The law does not look with favor on
tax exemptions and the entity that would seek to be thus privileged
must justify it by words too plain to be mistaken and too categorical
to be misinterpreted. Thus applying the rule of strict construction
of laws granting tax exemptions, and the rule that doubts should be
resolved in favor of provincial corporations, this Court holds that
petitioner is considered a taxable entity in this case.

Same; Same; The right of local government units to collect

taxes due must always be upheld to avoid severe erosion.The
restriction upon the power of courts to impeach tax assessment
without a prior payment, under protest, of the taxes assessed is
consistent with the doctrine that taxes are the lifeblood of the
nation and as such their collection cannot be curtailed by injunction
or any like action; otherwise, the state or, in this case, the local
government unit, shall be crippled in dispensing the needed

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

services to the people, and its machinery gravely disabled. The right
of local government units to collect taxes due must always be
upheld to avoid severe erosion. This consideration is consistent
with the State policy to guarantee the autonomy of local
governments and the objective of RA No. 7160 or the LGC of 1991
that they enjoy genuine and meaningful local autonomy to empower
them to achieve their fullest development as self-reliant
communities and make them effective partners in the attainment of
national goals. [Camp John Hay Development Corporation vs.

Central Board of Assessment Appeals, 706 SCRA 547(2013)]

Taxation; Tax Refunds; Entitlement to a tax refund does not
necessarily call for the automatic payment of the sum
claimedthe amount must still be proven in the normal course
and in accordance with the administrative procedure.
Petitioner and all those similarly situated are entitled to a tax
refund/credit corresponding to the difference between the
assessed value based on the proviso and the assessed value based
on the then prevailing schedule of fair market values prepared by
the City Assessor. It bears stressing, however, that entitlement to a
tax refund does not necessarily call for the automatic payment of
the sum claimed. The amount of the claim being a factual matter, it
must still be proven in the normal course and in accordance with
the administrative procedure for obtaining a refund of real
property taxes, as provided under the Local Government Code.
Under Section 253 of the Local Government Code, the claim for
refund or credit for taxes must be filed before the city treasurer
who shall decide the claim based on the tax declarations, affidavits,
documents and other documentary evidence to be presented by
petitioner. [Allied Banking Corporation vs. Quezon City

Government, 502 SCRA 113(2006)]

Civil Procedure; Appeals; Prohibitions; One of the recognized
exceptions to the exhaustion-of-administrative remedies rule
is when only legal issues are to be resolved.Petitioners argue
that Bayantel had failed to avail itself of the administrative
remedies provided for under the LGC, adding that the trial court
erred in giving due course to Bayantels petition for prohibition. To
petitioners, the appeal mechanics under the LGC constitute
Bayantels plain and speedy remedy in this case. The Court does not
agree. With the reality that Bayantels real properties were already
levied upon on account of its nonpayment of real estate taxes
thereon, the Court agrees with Bayantel that an appeal to the LBAA
is not a speedy and adequate remedy within the context of the
aforequoted Section 2 of Rule 65. This is not to mention of the
auction sale of said properties already scheduled on July 30, 2002.
Moreover, one of the recognized exceptions to the exhaustion-ofadministrative remedies rule is when, as here, only legal issues are
to be resolved. In fact, the Court, cognizant of the nature of the
questions presently involved, gave due course to the instant
petition. As the Court has said in Ty vs. Trampe, 250 SCRA 500

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(1995): x x x. Although as a rule, administrative remedies must first

be exhausted before resort to judicial action can prosper, there is a
well-settled exception in cases where the controversy does not
involve questions of fact but only of law. x x x.

Taxation; Realty Tax; Franchises; Local Governments; While

Section 14 of Republic Act 3259 may be validly viewed as an
implied delegation of power to tax, the delegation under that
provision, as couched, is limited to impositions over properties
of the franchisee which are not actually, directly and
exclusively used in the pursuit of its franchise.The legislative
intent expressed in the phrase exclusive of this franchise cannot
be construed other than distinguishing between two (2) sets of
properties, be they real or personal, owned by the franchisee,
namely, (a) those actually, directly and exclusively used in its radio
or telecommunications business, and (b) those properties which
are not so used. It is worthy to note that the properties subject of
the present controversy are only those which are admittedly falling
under the first category. To the mind of the Court, Section 14 of Rep.
Act No. 3259 effectively works to grant or delegate to local
governments of Congress inherent power to tax the franchisees
properties belonging to the second group of properties indicated
above, that is, all properties which, exclusive of this franchise, are
not actually and directly used in the pursuit of its franchise. As may
be recalled, the taxing power of local governments under both the
1935 and the 1973 Constitutions solely depended upon an enabling
law. Absent such enabling law, local government units were without
authority to impose and collect taxes on real properties within their
respective territorial jurisdictions. While Section 14 of Rep. Act No.
3259 may be validly viewed as an implied delegation of power to
tax, the delegation under that provision, as couched, is limited to
impositions over properties of the franchisee which are not
actually, directly and exclusively used in the pursuit of its franchise.
Necessarily, other properties of Bayantel directly used in the
pursuit of its business are beyond the pale of the delegated taxing
power of local governments. In a very real sense, therefore, real
properties of Bayantel, save those exclusive of its franchise, are
subject to realty taxes. Ultimately, therefore, the inevitable result
was that all realties which are actually, directly and exclusively
used in the operation of its franchise are exempted from any
property tax. Bayantels franchise being national in character, the
exemption thus granted under Section 14 of Rep. Act No. 3259
applies to all its real or personal properties found anywhere within
the Philippine archipelago.

Same; Same; Same; Same; The realty tax exemption heretofore

enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by force of Section 234 of the Local
Government Code, has been restored by Section 14 of Republic
Act No. 7633.With the LGCs taking effect on January 1, 1992,
Bayantels exemption from real estate taxes for properties of

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LOCAL AND REAL PROPERTY TAXATION DOCTRINES

whatever kind located within the Metro Manila area was, by force of
Section 234 of the Code, expressly withdrawn. But, not long
thereafter, however, or on July 20, 1992, Congress passed Rep. Act
No. 7633 amending Bayantels original franchise. Worthy of note is
that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the
tax provision, i.e., Section 14, of Bayantels original franchise under
Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259
which was deemed impliedly repealed by Section 234 of the LGC
was expressly revived under Section 14 of Rep. Act No. 7633. In
concrete terms, the realty tax exemption heretofore enjoyed by
Bayantel under its original franchise, but subsequently withdrawn
by force of Section 234 of the LGC, has been restored by Section 14
of Rep. Act No. 7633.

Same; Same; Same; Same; The power to tax is primarily vested

in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the
Constitution.Bayantels posture is well-taken. While the system
of local government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still
limited. As we explained in Mactan Cebu International Airport
Authority: The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X of
the Constitution. Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of
local autonomy. (at p. 680; Emphasis supplied.)

Same; Same; Same; Same; The Supreme Court has upheld the
power of Congress to grant exemptions over the power of
local government units to impose taxes.In Philippine Long
Distance Telephone Company, Inc. (PLDT) vs. City of Davao, 363
SCRA 522 (2001), this Court has upheld the power of Congress to
grant exemptions over the power of local government units to
impose taxes. There, the Court wrote: Indeed, the grant of taxing
powers to local government units under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The legal
effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal
corporations. [City Government of Quezon City vs. Bayan

Telecommunications, Inc., 484 SCRA 169(2006)]

Taxation; An assessment fixes and determines the tax liability
of a taxpayer; It is a notice to the effect that the amount
therein stated is due as tax and a demand for payment thereof;
Assessor mandated under Section 27 of P.D. 464 to give

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written notice within thirty days of such assessment, to the

person in whose name the property is declared.An
assessment fixes and determines the tax liability of a taxpayer. It is
a notice to the effect that the amount therein stated is due as tax
and a demand for payment thereof. The assessor is mandated
under Section 27 of the law to give written notice within thirty days
of such assessment, to the person in whose name the property is
declared. The notice should indicate the kind of property being
assessed, its actual use and market value, the assessment level and
the assessed value. The notice may be delivered either personally
to such person or to the occupant in possession, if any, or by mail,
to the last known address of the person to be served, or through
the assistance of the barrio captain. The issuance of a notice of
assessment by the local assessor shall be his last action on a
particular assessment. For purposes of giving effect to such
assessment, it is deemed made when the notice is released, mailed
or sent to the taxpayer. As soon as the notice is duly served, an
obligation arises on the part of the taxpayer to pay the amount
assessed and demanded.

Same; If the taxpayer is not satisfied with the action of the

local assessor in the assessment of his property, he has the
right, under Section 30 of P.D No. 464, to appeal to the Local
Board of Assessment Appeals by filing a verified petition within
sixty (60) days from service of said notice of assessment;
Failure to do so, the right of the local government to collect
the taxes due becomes absolute upon the expiration of such
period, with respect to the taxpayers property.If the
taxpayer is not satisfied with the action of the local assessor in the
assessment of his property, he has the right, under Section 30 of
P.D. No. 464, to appeal to the Local Board of Assessment Appeals by
filing a verified petition within sixty (60) days from service of said
notice of assessment. If the taxpayer fails to appeal in due course,
the right of the local government to collect the taxes due becomes
absolute upon the expiration of such period, with respect to the
taxpayers property. The action to collect the taxes due is akin to an
action to enforce a judgment. It bears stressing, however, that
Section 30 of P.D. No. 464 pertains to the assessment and valuation
of the property for purposes of real estate taxation. Such provision
does not apply where what is questioned is the imposition of the tax
assessed and who should shoulder the burden of the tax. [Manila

Electric Company vs. Barlis, 433 SCRA 11(2004)]

Local Governments; Local Board of Assessment Appeals;
Appeals; The remedy of appeal to the Local Board of
Assessment Appeals is available from an adverse ruling or
action of the provincial, city or municipal assessor in the
assessment of property.Under Section 226 of RA 7160, the
remedy of appeal to the Local Board of Assessment Appeals is
available from an adverse ruling or action of the provincial, city or
municipal assessor in the assessment of property.

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Same; Same; Same; The determination by the respondent City

Assessor with regard to the taxability of the subject real
properties is subject to appeal before the Local Board of
Assessment Appeals.Under Section 199(f), Title II, Book II, of the
Local Government Code of 1991, assessment is defined as the act
or process of determining the value of a property, or proportion
thereof subject to tax, including the discovery, listing, classification
and appraisal of properties. Viewed from this broader perspective,
the determination made by the respondent City Assessor with
regard to the taxability of the subject real properties squarely falls
within its power to assess properties for taxation purposes subject
to appeal before the Local Board of Assessment Appeals.

Same; Same; Same; Doctrine of exhaustion of administrative

remedies; Before seeking the intervention of the courts, it is a
precondition that Systems Plus Computer College of Caloocan
City vs. Local Government of Caloocan City petitioner should
first avail of all the means afforded by the administrative
processes.The petitioner cannot bypass the authority of the
concerned administrative agencies and directly seek redress from
the courts even on the pretext of raising a supposedly pure
question of law without violating the doctrine of exhaustion of
administrative remedies. Hence, when the law provides for
remedies against the action of an administrative board, body, or
officer, as in the case at bar, relief to the courts can be made only
after exhausting all remedies provided therein. Otherwise stated,
before seeking the intervention of the courts, it is a precondition
that petitioner should first avail of all the means afforded by the
administrative processes. [Systems Plus Computer College of

Caloocan City vs. Local Government of Caloocan City, 408

SCRA 494(2003)]

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