PHILIPPINE BASKETBALL ASSOCIATION vs CA

August 8, 2000; Purisima, J:

FACTS:

On July 21, 1989, the petitioner received an assessment from the CIR for the payment of deficiency amusement tax in the amount of P5,864,260.84 (including 75% surcharge and 25% interest for 2 years). The petitioner contested the assessment but it was denied by the CIR. The Court of Tax Appeals also dismissed the subsequent petition of PBA. The Court of Appeals affirmed the ruling of the CTA so the petitioner filed this petition for certiorari.

Petitioner’s arguments:

- Jurisdiction to collect amusement taxes of PBA is vested with the local government and not the national government. It argues that they should be included in the enumeration provided by Section 13 of the Local Tax Code of 1973.

- Commissioner’s issuance of BIR Ruling No. 231-86 and BIR Revenue Memorandum Circular No. 8-88 -- both upholding the authority of the local government to collect amusement taxes -- should bind the government or that, if there is any revocation or modification of said rule, the same should operate prospectively.

- Income from the cession of streamer and advertising spaces to VEI should not be subject to amusement taxes

- In case they are made liable to pay the deficiency amusement tax, they should not be charged with the 75% surcharge.

ISSUES:

1. WON the amusement tax on admission tickets to PBA games a local tax – NO

2. WON BIR Ruling No. 231-86 and BIR RMC No. 8-88 binds the government – NO

3. WON income from the cession of streamer and advertising spaces to VEI is subject to amusement taxes - YES

4. WON the petitioner should be charged with amusement tax – YES

HELD:

1. Sec 13 of the Local Tax Code 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, wherein it is clear that the "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. 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 generis1, in determining the meaning of the phrase "other places of amusement", one must refer to the prior enumeration of theaters, cinematographs, 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. Also, a historical analysis of pertinent laws does reveal the legislative intent to place professional basketball games within the ambit of a national tax. Previous laws (PD 871 by PD 1456 and PD 1959) shows a recognition that the amusement tax on professional basketball games is a national, and not a local, tax.

2. Commissioner’s issuance of BIR Ruling No. 231-86 and BIR Memorandum Circular No. 8-88, both upholding the authority of the local government to collect amusement taxes cannot bind the government. The government cannot be never be in estoppels, particularly in matters involving tax. 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.

3. PD 1456 provides that 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. That 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.

4. The issue on the payment of surcharge was never posed as an issue before the respondent court so it must necessarily fail

LOPEZ vs CITY of MANILAFebruary 19, 1999; QUISUMBING

FACTS: Sec. 219 of R.A. 7160 (Local Government Code of 1991) requires the

conduct of the general revision of real property. However, up to the year 1995, the basis for collection of real estate taxes in the City of Manila was the old, year-1979, real estate market values the schedule of the real property values in the city because the schedules of real property values was never acted upon.

On 1995, pursuant to a memorandum from the Bureau of Local Government Finance, Department of Finance regarding the failure of most of the cities and municipalities of Metropolitan Manila to conduct the general revision of real property, Manila Ordinance no. 7894 was implemented and the tax on the land owned by the petitioner was increased by 580%. With respect to the improvement on petitioner's property, the tax increased by 250%.

Petitioner filed a special proceeding for the declaration of nullity of the ordinance as it allegedly appears to be unjust, excessive, oppressive or confiscatory.

Meanwhile Ordinance No. 7905 took effect, reducing by 50% the assessment levels (depending on the use of property, e.g., residential,

1 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.

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commercial) for the computation of tax due. The new ordinance amended the assessment levels provided by Ordinance No. 7794. It also provided that the amendment embodied therein shall take effect retroactively to January 1, 1996.

Despite the amendment brought about by Manila Ordinance No. 7905, the controversy proceeded and a motion to dismiss was submitted by the respondents. It alleged that there was failure on the part of the petitioner to exhaust all administrative remedies.

Petitioner claims that when the trial court ruled that it has jurisdiction over the case, the question of whether he needs to resort to the exhaustion of administrative remedies becomes moot and academic. He claims that resort to administrative remedies on constitutionality of law merely permissive as provided by Sec. 187 of R.A. 7160.

ISSUE: 1) WON there was failure to exhaust administrative remedies on the part of the

petitioner2) WON the court erred in applying sections 212 and 221 of the LGC

HELD:1. YES.

As a general rule, where the law provides for the remedies against the action of an administrative board, body, or officer, relief to courts can be sought only after exhausting all remedies provided. The reason rests upon the presumption that the administrative body, if given the chance to correct its mistake or error, may amend its decision on a given matter and decide it properly.

- In this case, the remedies available to taxpayers are provided under Sec 187, 226, and 252 of RA 7160.

- Sec. 187: taxpayer may question the constitutionality or legality of tax ordinance on appeal within thirty (30) days from effectivity thereof, to the Secretary of Justice.

- Sect 226: owner of real property may, within sixty (60) days from notice of assessment, appeal to the Board of Assessment Appeals.

- Sec 252: Should the taxpayers question the excessiveness of the amount of tax, he must first pay the amount due “under protest”

Exceptions:(1) when the question raised is purely legal, (2) when the administrative body is in estoppel; (3) when the act complained of is patently illegal; (4) when there is urgent need for judicial intervention; (5) when the claim involved is small; (6) when irreparable damage will be suffered, (7) when there is no other plain, speedy and adequate remedy, (8) when strong public interest is involved; (9) when the subject of controversy is private land; and (10) in quo-warranto proceeding.

The petition does not admit any exception.

2. Petitioner’s argument: He contends that Sec. 212 of the R.A. 7160 prohibits the general revision of real property assessment before the approval of the schedule of the fair market values. Thus, the alleged revision of real property assessment in 1995 is illegal.

Court: The steps in preparation of fair market values provided under sec 212 of RA 7160 were followed by the city assessor. These steps are: (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned. (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned or the posting in the provincial capitol or other places as required by law.

It was clear from the records that Mrs. Lourdes Laderas, the incumbent City Assessor, prepared the fair market values of real properties and in preparation thereof, she considered the fair market values prepared in the calendar year 1992. Upon that basis, the City Assessor's Office updated the schedule for the year 1995. Under the circumstances of this case, there was compliance with the requirement provided under Sec. 212 of R.A. 7160.

Petitioner’s argument: Since Manila Ordinance No. 7905 was approved on April 10, 1996, it cannot be implemented in the year 1996. Using Section 221 of R.A. 7160 as basis for his argument, petitioner claims that the assessments or reassessments made after the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year.

Court: They agreed with the trial court that the issue has become moot and academic. The trial court viewed that Manila Ordinance No. 7905 affects the resulting tax imposed on the market values of real properties as specified in Manila Ordinance No. 7894. Therefore, this supervening circumstance has rendered the petition, moot and academic, for failure of the petitioner to amend his cause of action.

Also, the court noted 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. 

YAMANE vs BA LEPANTO CORPORATION

October 25, 2005; Tinga, J:

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FACTS:

Respondent BA-Lepanto Condominium Corporation is a duly organized condominium corporation constituted in accordance with the Condominium Act, which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium, situated in Makati City.

Respondent was assessed by the petitioner City Treasurer for P1,601,013.77 as payment for city business taxes, fees and charges. The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. The respondent protested the assessment.

Respondent: The Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati Revenue Code or even under the LGC. Section 3A.02(m) of the Makati Revenue Code which provides for imposition of business tax on owners or operators of any business not specified in the said code is not applicable since the corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the condominium, to manage the condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was it authorized, under its articles of incorporation or by-laws to engage in profit-making activities.

City Treasurer denied the protest. The respondent filed an appeal to the RTC of Makati. The RTC dismissed the appeal and held that he activities of the Corporation fell under the definition of 'business' under Sec 13(b) of the LGC.

From the decision of the RTC, the respondent filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. CA initially dismissed the petition outright but it subsequently reinstated the petition. The CA held that the respondent is not liable to pay business taxes to the City of Makati because it is not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium.

Petitioner’ arguments:

1. The respondent filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42.

2. The respondent Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in 'full appreciative living values' for the condominium units which would command better market prices should they be sold in the future. Also, the rationale for business taxes is not on the income received or profit earned by the business, but the privilege to engage in business.

ISSUES:

1. WON the respondent filed the wrong mode of appeal in the CA – YES, but..2. WON the respondent is liable for local tax – NOHELD:

1. The review taken by the RTC over the denial of the protest by the local treasurer would fall within that court's original jurisdiction so the proper

remedy of the respondent corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals.

In Garcia vs De Jesus, the Court distinguished original jurisdiction and appellate jurisdiction: Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review. In this case, the review of the RTC is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official.

The LGC or any other statute 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 non-judicial entities.

HOWEVER, in this case, there are significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the CA. Procedural rules should not be enforced blindly, especially if mechanical application would defeat the higher ends that animate our civil procedure: the just, speedy and inexpensive disposition of every action and proceeding.

2. The City Treasurer has not informed the respondent, the RTC, the CA, or even the SC, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner.

The notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Sec 195 of the LGC does not expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the respondent did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Sec 195. However, the Revenue Code provides multiple provisions on business taxes, and at varying rates. Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the LGC.

However, the Court may not rule that there has been a due process violation since it was not raised by the respondent. The respondent has focused its argument on the position that the LGC does not sanction the imposition of business taxes against it.

Sec 143 allows local government units to impose local taxes on businesses other than those specified under the provision. The word 'business' itself is defined

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under Sec 131(d) of the Code as 'trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.

The respondent does not fall within the definition of business in the LGC and is thus exempt from local business taxation.

A condominium corporation is specially formed for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units. The Court elicited from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Also, under the By-laws of the respondent, none of the corporate purposes are geared towards maintaining a livelihood or the obtaining profit.

The Court rejected the City Treasurer’s argument that the collection of assessments and dues by the respondent is with the end view of getting full appreciative living values' for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.

The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property. The Court disposed this argument by saying that whatever capacity the respondent may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit.

Possible exception to the rule: when the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation.

MCIAA vs. MarcosSeptember 11, 1996 | Davide

Facts:Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958. Since the time of its creation, petitioner MCIAA enjoyed the

privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter.

However, in 1994, the Office of the Treasurer of the City of Cebu demanded payment for realty taxes on several parcels of land belonging to the petitioner.

Petitioner objected to such demand for payment as baseless and unjustified, invoking Section 14 of RA 6958 which exempts it from payment of realty taxes. It also claims that under section 133 of the Local Government Code of 1991 the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of the national government. While it is a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions.

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu.

RTC: The tax exemption provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991. Petitioner has to pay the assessed realty tax of its properties effective after January 1, 1992.

Issues/Held:

1. WON petitioner can claim exemption from realty taxes under Section 133 of the LGC – NO.

The Local Government Code provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation:

1. Section 133 of the LGC states that the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of taxes, fees or charges of any kind on the national government, its agencies and instrumentalities, and local government units.

2. Section 232 authorizes local government units to impose real property tax. 3. Section 234 provides for the exemptions from payment of real property

taxes and withdraws previous exemptions granted to natural and juridical persons, including government owned and controlled corporations. These exemptions are based on the ownership, character, and use of the property. The exemption includes real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to a taxable person.

4. Section 192 authorizes local government units to grant tax exemption privileges.

5. Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges.

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Since under Section 232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133. Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and local government units". However, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule that they are withdrawn upon the effectivity of the LGC, except those enumerated therein, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. Section 234 is a closed enumeration. All others not included in the enumeration lost the privilege upon the effectivity of the LGC.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from 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 Section 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133.

2. WON petitioner falls under the exceptions provided in Section 234 of the LGC – NO.

In light of the petitioner's theory that it is an "instrumentality of the Government", it can only rely on the first paragraph of Section 234 by expanding the scope of the terms Republic of the Philippines" to embrace "instrumentalities" and "agencies."

Section 234(a) states:(a) real property owned by the Republic of the Philippines, or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

This, however, cannot be done. “Instrumentalities” and “agencies” are associated with the National Government. Section 234 (a) only applies to the Republic of the Philippines or any of its political subdivisions. The terms “National Government” and “Republic of the Philippines” are not interchangeable. Thus, the exception under Section 234(a) does not extend to agencies and instrumentalities of the National Government.

Moreover, the source of the exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code, which grants the exemption to government-owned or controlled corporations (GOCCs are “agencies”). However, Congress excluded such entities when it reproduced the exception in Section 234(a).

Most determinative is the fact that the parcels of land in question do not belong to the Republic of the Philippines. Section 15 of RA 6958 transferred the ownership of the lands in question to the petitioner, not just the beneficial use thereof.

3. WON the petitioner was not a “taxable person” under its charter – NO.

Petitioner 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. Even if the petitioner was originally not a taxable person for purposes of real property tax, it had already become a taxable person for such purpose in view of the withdrawal of its exemption from the payment of real property taxes by Section 234. The same is true even if it is conceded that petitioner is an agency or instrumentality of the Government.

Manila International Airport Authority vs. City of Pasay

April 2, 2009 | Carpio

Facts:

Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO 903), otherwise known as the Revised Charter of the Manila International Airport Authority. Under Sections 3 and 22 of EO 903, approximately 600 hectares of land, including the runways, the airport tower, and other airport buildings, were transferred to MIAA. The NAIA Complex is located along the border between Pasay City and Parañaque City.

MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the taxable years 1992 to 2001. The City of Pasay, through its City Treasurer, issued notices of levy and warrants of levy for the NAIA Pasay properties. Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the delinquent real property taxes remain unpaid.

MIAA filed with the Court of Appeals a petition for prohibition and injunction with prayer for preliminary injunction or temporary restraining order. The petition sought to enjoin the City of Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties.

Court of Appeals: Upheld the power of the City of Pasay to impose and collect realty taxes on the NAIA Pasay properties. Sections 193 and 234 of Republic Act No. 7160 or the Local Government Code withdrew the exemption from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations. Since MIAA is a government-owned corporation, it follows that its tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local Government Code.

Issue:

WON the NAIA Pasay properties of MIAA are exempt from real property tax – YES.

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Held:

1. MIAA is a government "instrumentality" that does not qualify as a "government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, local government units have no power to tax instrumentalities of the national government. Therefore, MIAA is exempt from any kind of tax from the local governments.

A government "instrumentality" may or may not be a "government-owned or controlled corporation" (Section 2(10) of the Introductory Provisions of the Administrative Code of 1987). 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. It is not a stock corporation because it has no capital stock divided into shares. It is also not a non-stock corporation because it has no members. The Government cannot be considered as the sole member of MIAA because 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.

MIAA is like any other government instrumentality, but is vested with corporate powers to perform efficiently its governmental functions. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.

2. 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.

(Note: In Manila International Airport Authority v. Court of Appeals (2006 MIAA case), the Court already resolved the issue of whether the airport lands and buildings of MIAA are exempt from tax under existing laws. The court merely reiterated its ruling in that case.)

Opinions

Ynares-Santiago, dissenting.

The Manila International Airport Authority (MIAA) ruling was incorrectly rationalized, particularly on the unwieldy characterization of MIAA as a species of a government instrumentality.

However, there is no more need to belabor the issue of whether the MIAA is a government-owned or controlled corporation (GOCC) or a government instrumentality. What needs only to be ascertained is whether the airport properties are owned by the Republic, and if such, then said properties are exempt from real property tax. In this case, MIAA is only holding the properties for the benefit of the Republic in its capacity as agent thereof. Despite the conveyance of the title to the said properties to the MIAA, the latter could not dispose of the same through sale or through any other mode unless specifically approved by the President of the Republic. Thus, it is exempt from real property tax.

Tinga, dissenting.

The cited statutory definition of an "instrumentality" is incomplete. The majority opinion omitted portions from Section 2(10) of the Administrative Code of 1987. The matter of whether MIAA is a GOCC or an instrumentality or a "government corporate entity" is irrelevant in determining whether or not the MIAA or other government instrumentalities or GOCCs are exempt from real property taxes.

The Supreme Court refuses to clarify whether its Decision in the Mactan Cebu International Airport case is deemed repealed. There are no good reasons why the Court should not reassert the Mactan Cebu doctrine. Under that ruling, real properties owned by the Republic of the Philippines or any of its political subdivisions are exempted from the payment of real property taxes, while instrumentalities or GOCCs are generally exempted from local government taxes, save for real property taxes.

MIAA properties are not of public dominion. The fact is that the MIAA may, by law, alienate, lease or place the airport properties as the subject matter of contracts. Otherwise, why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale of any of these properties?

While MIAA was liable for the realty taxes, its properties could not be foreclosed upon by the local government unit seeking the taxes. Section 3 of the MIAA charter states that any portion of the lands transferred, conveyed and assigned to the ownership and administration of the MIAA shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. Nothing in the Local Government Code can be deemed as repealing this prohibition under Section 3. Thus, the LGU has to find another way to collect the taxes due from MIAA, paving the way for a mutually acceptable negotiated solution.

Nachura, Separate Opinion.

What need only be ascertained is whether the airport properties are owned by the Republic if the airport Authority is to be freed from the burden of paying the real property tax. Indeed, emphasis should be made on the ownership of the property, rather than on the airport Authority being a taxable entity. This strategy makes it unnecessary to determine whether MIAA is an instrumentality or a GOCC. In this case, even if MIAA holds the record title over the airport properties, such holding can only be for the benefit of the Republic, especially when we consider that MIAA exercises an essentially public function. In fine, the properties comprising the NAIA being of public dominion which pertain to the State, the same should be exempt from real property tax following Section 234(a) of the LGC.

The rulings in Mactan Cebu and MIAA do not really contradict, but, instead, complement each one. Mactan Cebu provides the proper rule that, in order to determine whether airport properties are exempt from real property tax, it is Section 234, not Section 133, of the LGC that should be determinative of the properties exempt from the said tax. MIAA then lays down the correct doctrine that airport properties are of public dominion pertaining to the state, hence, falling within the ambit of Section 234(a) of the LGC.

NAPOCOR V LANAO DEL SUR (1996)

FACTS:

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Napocor is a GOCC owning real properties in Lanao del Sur which included its hydroelectric power complex. The Province of Lanao del Sur assessed Napocor for realty tax on the said complex. The Province based its claim on the fact that the exemption previously granted to Napocor was withdrawn by PD 1931.

Napocor refused to pay on the ground that although PD 1931 and EO 93 revoked the exemption, the same law provides that the exemption can be revived by the President and/or Minister of Finance upon recommendation of the Fiscal Incentives Review Board (FIRB), which the FIRB did by issuing resolutions signed by the Minister of Finance in his dual capacity as Minister of Finance and head of the FIRB.

The province in turn argues that the resolutions did not revive the exemption because the same were made ultra vires (according to them, the power of the FIRB was merely recommendatory, it cannot therefore order the revival of the exemption as such power lies in the President and /or the Minister of Finance) and constituted undue delegation of power.

Because of the refusal of Napocor to pay, the province had its property sold in a public auction where the province was the highest bidder. Napocor now wants the court to declare that it is not liable for realty tax and the sale therefore of its property is null and void.

ISSUES: (1) WON the tax exemption granted under previous laws and withdrawn by PD 1931 has been revived by the subsequent resolutions of the FIRB which were signed by the Minister of Finance both in his capacity as Minister of Finance and head of the FIRB, and (2) WON real property owned by a non-profit GOCC is exempt from realty tax under the Real Property Tax Code.

HELD:

1. Yes. The tax exemption granted under previous laws and withdrawn by PD 1931 has been revived by the subsequent resolutions of the FIRB which were signed by the Minister of Finance both in his capacity as Minister of Finance and head of the FIRB.

Although Section 1 of PD 1931 withdrew all tax exemptions presumably including those of petitioner, Section 2 thereof authorized and empowered the President and/or the Minister of Finance to restore the same to deserving entities. In order to reinstate the petitioner's tax exemptions, Hon. De Roda, Jr., in his concurrent capacities as Acting Minister of Finance and as Acting Chairman of FIRB, signed FIRB Resolution No. 10-85 which was made effective as of June 11, 1984, the promulgation date of PD 1931, until June 30, 1985. On the other hand, by virtue of FIRB Resolution No. 1-86, Hon. Virata fully restored the tax exemption as of July 1, 1985, to continue for an indefinite period. He also signed the same in his dual capacities as Minister of Finance and as Chairman of the FIRB.

Pursuant thereto, FIRB Resolution No. 17-87 restored the tax exemption privileges of the petitioner effective March 10, 1987. Again, the resolution was signed by De Roda, Jr. in his dual capacities as Acting Secretary of Finance and as Chairman, FIRB. This resolution was confirmed and approved by then Acting Executive Secretary Macaraig, by the authority of the President.

Considering the entire chain of events, it is clear that petitioner's tax exemptions for the period in question (1984-1989) had effectively been preserved intact by virtue of their restoration through FIRB resolutions.

2. Yes. Real property owned by a non-profit GOCC is exempt from realty tax under the Real Property Tax Code. (Note however that this ruling does not pertain to the new Local Government Code which superseded the Real Property Tax Code.)

Aside from the FIRB Resolutions above discussed, there is yet another cogent reason why the properties in question are not subject to realty tax. Section 40 (a) of the Real Property Tax Code, PD 464, as amended, expressly exempts them from such tax.

The exemption is not only legally defensible, but also logically unassailable. The properties in question comprise the site of the entire Agus II Hydroelectric Power Plant Complex, which generates and supplies relatively cheap electricity to the island of Mindanao. These are government properties, wholly owned by petitioner and devoted directly and solely for public service and utilized in the implementation of the state policy of bringing about the total electrification of the country at the least cost to the public, through the development of power from all sources to meet the needs of industrial development and rural electrification. It can be noted, from RA 6395, PD 380 and PD 938, that petitioner's non-profit character has been maintained throughout its existence, and that petitioner is mandated to devote all its returns from capital investment and excess revenues from operations to its expansion. On account thereof, and to enable petitioner to pay its indebtedness and obligations and in furtherance of the state policy on electrification and power generation, petitioner has always been exempted from taxes.

At this juncture, we hasten to point out that the foregoing ruling is solely with respect to the purported realty tax liabilities of petitioner for the period from June 14, 1984 to December 31, 1989. We shall not, in this Decision, rule upon the effect (if any) of Republic Act No. 7160, otherwise) known as the Local Government Code of 1991, upon petitioner's tax-exempt status; we merely make mention of the fact that the exemption claimed by petitioner is partly based on PD 464 which, though repealed by the Local Government Code in its paragraph (c), Section 534, Title Four of Book IV, was still good law during the period the exemption was being claimed in the instant case.

LRTA v CENTRAL BOARD (2000)

FACTS:

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LRTA is a GOCC engaged in public transportation. By virtue of its charter, it acquired real properties. It entered into a contract of management with Metro wherein Metro undertook to manage, operate, and maintain the LRT system owned by LRTA.

The City Assessor assessed LRTA for realty tax. LRTA paid the realty tax, except the assessment made on its carriageways and passenger terminal stations including the land on which they were constructed on the ground that the same were not real properties under the Real Property Tax Code, and that even if the same were real property, it is still exempt from paying the realty tax because said properties are for public use.

ISSUE:

WON a profit-oriented GOCC is exempt from paying realty tax under the Real Property Tax Code.

HELD:

No. A profit-oriented GOCC is not exempt from paying realty tax under the Real Property Tax Code.

Though the creation of the LRTA was impelled by public service -- to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila -- its 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 government-owned or controlled corporation.

True, petitioner's carriageways and terminal stations are anchored, at certain points, on public roads. However, it must be emphasized that these structures do not form part of such roads, since the former have been constructed over the latter in such a way that the flow of vehicular traffic would not be impeded. These carriageways and terminal stations serve a function different from that of the public roads. The former are part and parcel of the light rail transit (LRT) system which, unlike the latter, are not open to use by the general public. The carriageways are accessible only to the LRT trains, while the terminal stations have been built for the convenience of LRTA itself and its customers who pay the required fare.

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.

Other grounds:

1. The charter of LRTA does not provide for any real estate tax exemption.

Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax exemption in its favor. Its exemption is limited to direct and indirect taxes, duties or fees in connection with the importation of equipment not locally available, as the following provision shows:

2. The beneficial use of the properties have been transferred to a taxable entity.

Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.

PHILRECA v. The Sec., DILG (Puno, 2003)

FACTS

A class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under P.D. No. 269 (National Electrification Administration Decree) who are members of Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). PHILRECA is an association of 119 electric cooperatives throughout the country.

Under P.D. No. 269, it is the State’s policy to provide “the total electrification of the Philippines on an area coverage basis” the same “being vital to the people and the sound development of the nation.” Pursuant to this policy, Sec. 392 of P.D. No. 269 tax incentives were granted to electric cooperatives.

To finance the electrification projects under P.D. No. 269, the Philippine Government, through the National Economic Council (now National Economic Development Authority) and the NEA, entered into 6 loan agreements with the US government

2 SECTION 39.      Assistance to Cooperatives; Exemption from Taxes, Imposts,

Duties, Fees; Assistance from the National Power Corporation. — Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares that the following assistance to cooperative is necessary and appropriate:

(a)            Provided that it operates in conformity with the purposes and provisions of this Decree, cooperatives (1) shall be permanently exempt from paying income taxes, and (2) for a period ending on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from the payment (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceeding in which it may be a party, and (b) of all duties or imposts on foreign goods acquired for its operations, the period of such exemption for a new cooperative formed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under this Decree: Provided, That the Board of Administrators shall, after consultation with the Bureau of Internal Revenue, promulgate rules and regulations for the proper implementation of the tax exemptions provided for in this Decree.

8

through the United States Agency for International Development (USAID) with electric cooperatives, including petitioners as beneficiaries.

Petitioners contend that pursuant to P.D. No. 269 and the loan agreements, they are exempt from payment of local taxes, including payment of real property tax. With the passage of the LGC, however, they allege that their tax exemptions have been invalidly withdrawn. Petitioners assail Sections 193 and 234 LGC on the ground that these discriminate against them, in violation of the equal protection clause. They also alleged that the provisions impair the obligation of contracts between the Philippine Government and the US Government.

Thus, this petition for prohibition was filed3.

ISSUE: 1. WoN Sections 193 and 234 of the LGC violate the equal protection clause? NO

Petitioners allege that these provisions4 discriminate against petitioners who are registered cooperatives under P.D. No. 269, and not under R.A. No. 6938 or the Cooperative Code of the Philippines. They stress that cooperatives registered under R.A. No. 6938 are singled out for tax exemption privileges under the Local Government Code even though they are similarly situated with them.

The guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class.

There is reasonable classification under the LGC to justify the different tax treatment between electric cooperatives under P.D. No. 269, and electric cooperatives under R.A. No. 6938.

3

? NOTE: the action was filed directly to SC, in disregard of the rule on hierarchy of courts. However, the court opted to take primary jurisdiction over the present petition and decide the same on its merits in view of the significant constitutional issues raised by the parties dealing with the tax treatment of cooperatives under existing laws and in the interest of speedy justice and prompt disposition of the matter.4

? 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 and 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.

Section 234. Exemptions from real property tax.—The following are exempted from payment of the real property tax: (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons whether natural or juridical, including all government-owned and controlled corporations are hereby withdrawn upon effectivity of this Code.

FIRST, substantial distinctions exist between the cooperatives under the different set of laws. These distinctions are manifest in the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the cooperatives under P.D. No. 269.

(1) Cooperatives under RA 6938 are required to make equitable capital contributions unlike the cooperatives under PD No. 269. To qualify as a member under P.D. No. 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. Under the Cooperative Code, 25% of the authorized share capital must be subscribed and at least 25% of the total subscription paid.

(2) Under RA 6938, there is also the principle of subsidiarity. Here, the government may only engage in development activities where cooperatives do not posses the capability nor the resources to do so and only upon the request of such cooperatives. In contrast, P.D. No. 269 is replete with provisions which grant the NEA, upon the happening of certain events, the power to control and take over the management and operations of cooperatives registered under it.

The extent of government control over cooperatives under P.D. No. 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives to finance the development and operations of the electric cooperatives. In contrast, cooperatives under R.A. No. 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.

SECOND, the classification of tax-exempt entities in the LGC is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments is beyond regulation by Congress. While each government unit is granted the power to create its own sources of revenue, Congress has the discretion to determine the extent of the taxing powers of LGUs consistent with the policy of local autonomy.

Section 193 LGC indicates the legislative intent to vest broad taxing powers upon LGUs and to limit exemptions from local taxation to entities specifically provided. It effectively withdraws exemptions from local taxation enjoyed by various entities and organizations upon effectivity of the LGC except for a) local water districts; b) cooperatives duly registered under R.A. No. 6938; and c) non-stock and non-profit hospitals and educational institutions. Further, with respect to real property taxes, the Local Government Code again specifically enumerates entities which are exempt therefrom and withdraws exemptions enjoyed by all other entities upon the effectivity of the code. Moreover, under Sec. 234 LGC, all real property owned by duly registered cooperatives as provided for under R.A. No. 6938 are exempt from real property tax.

LASTLY, Sections 193 and 234 of the Local Government Code permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938.

2. WoN there is a violation of the impairment clause? NO

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Petitioners contend that the withdrawal by the LGC of the tax exemptions of cooperatives under P.D. No. 269 impairs the tax exemptions5 under the loan agreements. The provision does not grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the loan itself or the properties acquired through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, upon repayment by the borrower, shall be without deduction of any tax or fee that may be payable under Philippine law as such tax or fee will be absorbed by the borrower with funds other than the loan proceeds.

The provision does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as in fact, no tax exemption is granted therein.

Lung Center of the Philippines v. Quezon City ( Callejo, Sr., 2004)

FACTS:

Lung Center of the Phils. is a non-stock and non-profit entity established under PD No. 1823. It owns a parcel of land, in the middle of which is the hospital. A big space at the ground floor is leased to private parties, for canteen and small store spaces, and to medical or professional practitioners for their private clinics where patients are charged for their professional services. A big portion is also leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

Both the land and the hospital building of the petitioner were assessed for real property taxes by the City Assessor of QC

petitioner filed a claim for exemption from real property taxes on the ground that it’s a charitable institution but the City Assessor denied this

Petitioner appealed to the Local Board of Assessment Appeals of QC which held that petitioner is liable. On appeal, the Central Board of Assessment Appeals of QC affirmed, ruling that petitioner is not a charitable institution

5 Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and the Loan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deduction for and free from, any taxation or fees imposed under any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those provided under the Loan. To the extent that (a) any contractor, including any consulting firm, any personnel of such contractor financed hereunder, and any property or transactions relating to such contracts and (b) any commodity procurement transactions financed hereunder, are not exempt from identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the same with funds other than those provided under the Loan

and its real properties were not actually, directly and exclusively used for charitable purposes.

CA affirmed petitioner filed its petition in this court alleging that it is a charitable

institution under Sec. 28(3), Art. VI 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses. The fact that it receives subsidies from the government attests to its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property.

ISSUES:

1. WoN petitioner Lung Center of the Philippines is a charitable institution? YES

2. WoN it is exempt from real property taxes? It is partially exempt.

HELD

1. Petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine if it is a charitable institution, the elements 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.

The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which is to be administered by the Office of the President 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 lung and pulmonary diseases in the Philippines. The medical services of the petitioner are to be rendered to the public in general.

As a general principle, a charitable institution does not lose its character and its exemption from taxes 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 used for 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.

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.

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In this case, the petitioner gave substantial evidence that it spent its income and the govt subsidies for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations.

2. However, even if petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.

The rule is that laws granting exemption from tax are strictly construed against the taxpayer and liberally in favor of the taxing power. A claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken

Under Sec. 26 of PD No. 1823, it is clear that 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 Sec. 2.

Under Sec. 28(3)7, Art. VI 1987 Constitution, the tax exemption covers property taxes only. Those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. This consti provision was implemented in Sec. 234(b) LGC. It is also noted that under the 1935 Constitution, "... all lands, buildings, and improvements used ‘exclusively’ for … charitable … purposes shall be exempt..." But under the 1973 and 1987 Constitutions, for 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. Thus, petitioner cannot rely on Herrera v. Quezon City Board of Assessment Appeals which was promulgated on 1961 before the 1973 and 1987 Constitutions took effect.“Exclusive" is defined as possessed and enjoyed to the exclusion of others. The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively.” 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

6 SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for the Lung Center.

7 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.

income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to Elliptical Orchids and Garden Center

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.

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY V. CA | Ynares-Santiago, J. (2007)

FACTS:

The Ministry of Public Works and Highways reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo City, and constructed thereon the IFPC, consisting of breakwater, a landing quay, a refrigeration building, a market hall, a municipal shed, an administration building, a water and fuel oil supply system and other port related facilities and machineries.

Upon its completion, the Ministry of Public Works and Highways turned over IFPC to the Philippine Fisheries Development Authority (Authority), pursuant to Section 11 of PD 977, which places fishing port complexes and related facilities under the governance and operation of the Authority.

o Notwithstanding said turn over, title to the land and buildings of the IFPC remained with the Republic.

The Authority thereafter leased portions of IFPC to private firms and individuals engaged in fishing related businesses.

In May 1988, the City of Iloilo assessed the entire IFPC for real property taxes.

o The assessment remained unpaid until the alleged total tax delinquency of the Authority for the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests.

o To satisfy the tax delinquency, the City of Iloilo scheduled on August 30, 1990, the sale at public auction of the IFPC.

The Authority filed an injunction case with the Regional Trial Court.

11

o At the pre-trial, the parties agreed to avail of administrative proceedings, i.e., for the Authority to file a claim for tax exemption with the Iloilo City Assessor’s Office.

o The latter, however, denied the claim for exemption, hence, the Authority elevated the case to the Department of Finance (DOF).

o The DOF ruled that the Authority is liable to pay real property taxes to the City of Iloilo because it enjoys the beneficial use of the IFPC.

o The DOF added, however, that in satisfying the amount of the unpaid real property taxes, the property that is owned by the Authority shall be auctioned, and not the IFPC, which is a property of the Republic.

The Authority filed a petition before the Office of the President but it was dismissed. It also denied the motion for reconsideration filed by the Authority. The Court of Appeals affirmed the decision of the president.

ISSUE/HELD

WoN the Authority is liable to pay real property tax to the City of Iloilo – Yes. But only for those portions which were leased out to private persons.

RATIO

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.

o With respect to these properties, the Authority is liable to pay real property tax.

o Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency.

For an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation.

o Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders.

o If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their income to said members.

The Authority should be classified as an instrumentality of the national government.

o As such, it is generally exempt from payment of real property tax, except those portions which have been leased to private entities.

In Manila International Airport Authority (MIAA) v. Court of Appeals, the Authority was cited as among the instrumentalities of the national government.

o The Authority has a capital stock but it is not divided into shares of stocks.

o Also, it has no stockholders or voting shares. Hence, it is not a stock corporation. Neither it is a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an 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.

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.

o 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.

The MIAA case also 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.

o This exemption, however, admits of an exception with respect to real property taxes.

o Under Section 234(a) of the Local Government Code, 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.

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Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units.

The Authority should be classified as an instrumentality of the national government which is liable to pay taxes only with respect to the portions of the property, the beneficial use of which were vested in private entities.

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

ISSUE/HELD

WoN the IFPC may be sold at public auction to satisfy the tax delinquency – NO.

RATIO

In case the Authority fails to pay the real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency.

In Chavez v. Public Estates Authority 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.

The Iloilo fishing port which was constructed by the State for public use and/or public service falls within the term "port" in the aforecited provision.

o Being a property of public dominion the same cannot be subject to execution or foreclosure sale.

o In like manner, the reclaimed land on which the IFPC is built cannot be the object of a private or public sale without Congressional authorization.

o Whether there are improvements in the fishing port complex that should not be construed to be embraced within the term "port," involves evidentiary matters that cannot be addressed in the present case.

CITY OF DAVAO V GSIS | Tinga, J. (2005)

FACTS:

On 8 April 1994, the GSIS Davao City branch office received a Notice of Public Auction scheduling the public bidding of GSIS properties located in Matina and Ulas, Davao City for non-payment of realty taxes for the years 1992 to 1994 PHP 295,721.61.

The auction was subsequently reset by virtue of a deadline extension allowed by Davao City for the payment of delinquent real property taxes.

On 28 July 1994, the GSIS received Warrants of Levy and Notices of Levy on three parcels of land owned by the GSIS.  Another Notice of Public Auction was received by the GSIS on 29 August 1994, setting the date of auction sale for 20 September 1994.

On 13 September 1994, the GSIS filed a Petition for Certiorari, Prohibition, Mandamus And/Or Declaratory Relief with the RTC of Davao City. It also sought the issuance of a temporary restraining order.

On 28 May 1996, the RTC rendered the Decision now assailed before this Court.

o It concluded that notwithstanding the enactment of the Local Government Code, the GSIS retained its exemption from all taxes, including real estate taxes. 

o The RTC cited Section 33 of Presidential Decree (P.D.) No. 1146, the Revised Government Service Insurance Act of 1977, as amended by P. D. No. 1981, which mandated such exemption.

ISSUE/HELD

WoN the GSIS tax exemptions can be deemed as withdrawn by the Local Government Code notwithstanding Section 33 of P.D. No. 1146 as amended - YES

CITY OF DAVAO’S ARGUMENT

The exemption granted in Section 33 of P.D. No. 1146, as amended, was effectively withdrawn upon the enactment of the Local Government Code, particularly Sections 193 and 294 thereof.

13

These provisions made the GSIS, along with all other GOCCs, subject to realty taxes.  Petitioners point out that under Section 534(f) of the Local Government Code, even special laws, such as PD No. 1146, which are inconsistent with the Local Government Code, are repealed or modified accordingly.

GSIS’S ARGUMENT

The requisites for repeal are laid down in Section 33 of P.D. No. 1146, as amended, namely that it be done expressly and categorically by law, and that a provision be enacted to substitute the declared policy of exemption from  taxes  as  an  essential factor for the solvency of the GSIS fund.

It stresses that it had been exempt from taxation as far back as 1936, when its original charter was enacted through Commonwealth Act No. 186.

GSIS likewise notes that had it been the intention of the legislature to repeal Section 33 of P.D. No. 1146 through the Local Government Code, said law would have included the appropriate retraction in its repealing clause found in Section 534(f).

However, said section, according to the GSIS, partakes the nature of a general repealing provision which is accorded less weight in light of the rule that implied repeals are not favored.

RATIO

As it stood then, Section 33 merely provided a general rule exempting the GSIS from all taxes.

However, Section 33 of P.D. No. 1146 was amended in 1985 by President Marcos, again in the exercise of his legislative powers, through P.D. No. 1981. It was through this latter decree that a second paragraph was added to Section 33 delineating the requisites for repeal of the tax exemption enjoyed by the GSIS by incorporating the following:

Moreover, these exemptions shall not be affected by subsequent laws to the contrary, such as the provisions of Presidential Decree No. 1931 and other similar laws that have been or will be enacted, unless this section is expressly and categorically repealed by law and a provision is enacted to substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the fund.

As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC.

The latter proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar as real property

taxes are concerned by limiting the retention only to those enumerated therein.

o All others not included in the enumeration lost the privilege upon the effectivity of the LGC.

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 GSIS 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. 

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 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.

Unlike most other GOCCs, there is a statutory provision— Section 33 of P.D. No. 1146, as amended—which imposes conditions on the subsequent withdrawal of the GSIS’s tax exemptions.

Concededly, it does not appear that at the very least, the second conditionality of Section 33 has been met.

o No  provision has been enacted “to substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the fund.”

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.

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This places an undue restraint on the plenary power of the legislature to amend or repeal laws, especially considering that it is a lawmaker’s act that imposes such burden.

Only the Constitution may operate to preclude or place restrictions on the amendment or repeal of laws.

It might be argued that Section 33 of P.D. No. 1146, as amended, does not preclude the repeal of the tax-exempt status of GSIS, but merely imposes conditions for such to validly occur. 

o Yet these conditions, if honored, have the precise effect of limiting the powers of Congress. 

o Thus, the same rationale for prohibiting irrepealable laws applies in prohibiting restraints on future amendatory laws. 

If Congress has the inherent power to abrogate the GSIS itself, then it necessarily has the ability to inflict less detrimental burdens, such as abolishing its tax-exempt status.

If there could be legal authority proscribing the Congress from enacting such legislation, such should be sourced from the Constitution itself, and not from antecedent statutes which were themselves enacted by legislative power.

It is evident that we cannot render effective  the  amendatory second paragraph of Section 33 as the RTC did, for by doing so, we would be giving sanction to a disingenuous means employed through legislative power to bind subsequent legislators to a particular mode of repeal.    

Thus, 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.

NAPOCOR vs. Province of Quezon

Alvarez vs. Guingona

Pimentel v Aguirre (2000, Panganiban J)

FACTS:

On December 27, 1997, President Fidel Ramos issued AO 372, which directs all government departments and agencies, including state universities and colleges, government-owned and controlled corporations and local governments units to identify and implement measures in FY 1998 that will reduce total expenditures for the year by at least 25% of authorized regular appropriations for non-personal services items. The AO further provides that “Pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation, the amount equivalent to 10% of the internal revenue allotment to local government units shall be withheld.”

Subsequently, on December 10, 1998, President Joseph E. Estrada issued AO 43, amending Section 4 of AO 372, by reducing to five percent (5%) the amount of internal revenue allotment (IRA) to be withheld from the LGUs.

Petitioner Aquilino Pimentel contends that the President, in issuing AO 372, was in effect exercising the power of control over LGUs. The Constitution vests in the President, however, only the power of general supervision over LGUs, consistent with the principle of local autonomy. He further argues that the directive to withhold ten percent (10%) of their IRA is in contravention of Section 286 of the Local Government Code and of Section 6, Article X of the Constitution, providing for the automatic release to each of these units its share in the national internal revenue.

The solicitor general, on behalf of the respondents, claims on the other hand that AO 372 was issued to alleviate the "economic difficulties brought about by the peso devaluation" and constituted merely an exercise of the President's power of supervision over LGUs. It allegedly does not violate local fiscal autonomy, because it merely directs local governments to identify measures that will reduce their total expenditures for non-personal services by at least 25 percent. Likewise, the withholding of 10 percent of the LGUs’ IRA does not violate the statutory prohibition on the imposition of any lien or holdback on their revenue shares, because such withholding is "temporary in nature pending the assessment and evaluation by the Development Coordination Committee of the emerging fiscal situation."

ISSUE:

WON the president committed grave abuse of discretion in directing all LGUS to adopt a 25% cost reduction program in violation of the LGU’S fiscal autonomy? -- NO

Under existing law, local government units, in addition to having administrative autonomy in the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local governments have the power to create their own sources of revenue in addition to their equitable share in the national taxes released by the national government, as well as the power to allocate their resources in accordance with their own priorities. It extends to the preparation of their budgets, and local officials in turn have to work within the constraints thereof.

Local fiscal autonomy does not however rule out any manner of national government intervention by way of supervision, in order to ensure that local programs, fiscal and otherwise, are consistent with national goals. Significantly, the President, by constitutional fiat, is the head of the economic and planning agency of the government primarily responsible for formulating and implementing continuing, coordinated and integrated social and economic policies, plans and programs for the entire country. However, under the Constitution, the formulation and the implementation of such policies and programs are subject to "consultations with the appropriate public

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agencies, various private sectors, and local government units." The President cannot do so unilaterally.

Consequently, the Local Government Code provides:"x x x [I]n the event the national government incurs an unmanaged public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of [the] Secretary of Finance, Secretary of the Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year x x x."

There are therefore several requisites before the President may interfere in local fiscal matters: (1) an unmanaged public sector deficit of the national government; (2) consultations with the presiding officers of the Senate and the House of Representatives and the presidents of the various local leagues; and (3) the corresponding recommendation of the secretaries of the Department of Finance, Interior and Local Government, and Budget and Management. Furthermore, any adjustment in the allotment shall in no case be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current one.

Pimentel points out that respondents failed to comply with these requisites before the issuance and the implementation of AO 372. At the very least, they did not even try to show that the national government was suffering from an unmanageable public sector deficit. Neither did they claim having conducted consultations with the different leagues of local governments. Without these requisites, the President has no authority to adjust, much less to reduce, unilaterally the LGU's internal revenue allotment.

The solicitor general insists, however, that AO 372 is merely directory and has been issued by the President consistent with his power of supervision over local governments. It is intended only to advise all government agencies and instrumentalities to undertake cost-reduction measures that will help maintain economic stability in the country, which is facing economic difficulties. Besides, it does not contain any sanction in case of noncompliance. Being merely an advisory, therefore, Section 1 of AO 372 is well within the powers of the President. Since it is not a mandatory imposition, the directive cannot be characterized as an exercise of the power of control.

While the wordings of Section 1 of AO 372 have a rather commanding tone, and while we agree with petitioner that the requirements of Section 284 of the Local Government Code have not been satisfied, we are prepared to accept the solicitor general's assurance that the directive to "identify and implement measures x x x that will reduce total expenditures x x x by at least 25% of authorized regular appropriation" is merely advisory in character, and does not constitute a mandatory or binding order that interferes with local autonomy. The language used, while authoritative, does not amount to a command that emanates from a boss to a subaltern.

Rather, the provision is merely an advisory to prevail upon local executives to recognize the need for fiscal restraint in a period of economic difficulty. Indeed, all concerned would do well to heed the President's call to unity, solidarity and teamwork to help alleviate the crisis. It is understood, however, that no legal sanction may be

imposed upon LGUs and their officials who do not follow such advice. It is in this light that we sustain the solicitor general's contention in regard to Section 1.

WON the president committed grave abuse of discretion in ordering the withholding of 10% of the LGU’S IRA? YES

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the automatic release of the shares of LGUs in the national internal revenue. This is mandated by no less than the Constitution. The Local Government Code specifies further that the release shall be made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." As a rule, the term "shall" is a word of command that must be given a compulsory meaning. The provision is, therefore, imperative.

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the Constitution and the law. Although temporary, it is equivalent to a holdback, which means "something held back or withheld, often temporarily."Hence, the "temporary" nature of the retention by the national government does not matter. Any retention is prohibited.

Kapunan, J Dissenting

Dissents from the majority opinion on the ff grounds:

1) Section 4 of AO No. 372 does not present a case ripe for adjudication. The language of Section 4 does not conclusively show that, on its face, the constitutional provision on the automatic release of the IRA shares of the LGUs has been violated. Section 4, as worded, expresses the idea that the withholding is merely temporary which fact alone would not merit an outright conclusion of its unconstitutionality, especially in light of the reasonable presumption that administrative agencies act in conformity with the law and the Constitution. Where the conduct has not yet occurred and the challenged construction has not yet been adopted by the agency charged with administering the administrative order, the determination of the scope and constitutionality of the executive action in advance of its immediate adverse effect involves too remote and abstract an inquiry for the proper exercise of judicial function. Petitioners have not shown that the alleged 5% IRA share of LGUs that was temporarily withheld has not yet been released, or that the Department of Budget and Management (DBM) has refused and continues to refuse its release. In view thereof, the Court should not decide as this case suggests an abstract proposition on constitutional issues.

2) The President is the chief fiscal officer of the country. He is ultimately responsible for the collection and distribution of public money:

SECTION 3. Powers and Functions. - The Department of Budget and Management shall assist the President in the preparation of a national resources and expenditures budget, preparation, execution and control of the National Budget, preparation and maintenance of accounting systems essential to the budgetary process, achievement of more economy and efficiency in the management of government operations, administration of compensation and position classification systems, assessment of organizational effectiveness and review and evaluation of legislative proposals having budgetary or organizational implications.

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As chief fiscal officer of the country, the President supervises fiscal development in the local government units and ensures that laws are faithfully executed. For this reason, he can set aside tax ordinances if he finds them contrary to the Local Government Code. Ordinances cannot contravene statutes and public policy as declared by the national govemment. The goal of local economy is not to "end the relation of partnership and inter-dependence between the central administration and local government units," but to make local governments "more responsive and accountable" [to] "ensure their fullest development as self-reliant communities and make them more effective partners in the pursuit of national development and social progress."

Section 4 of AO No. 372 was issued in the exercise by the President not only of his power of general supervision, but also in conformity with his role as chief fiscal officer of the country in the discharge of which he is clothed by law with certain powers to ensure the observance of safeguards and auditing requirements, as well as the legal prerequisites in the release and use of IRAs, taking into account the constitutional and statutory mandates.

3) the withholding of the LGUs’ IRA is implied in the President's authority to adjust it in case of an unmanageable public sector deficit.

Under Article 284 of the Local Govt Code, if facts reveal that the economy has sustained or will likely sustain such "unmanageable public sector deficit," then the LGUs cannot assert absolute right of entitlement to the full amount of forty percent (40%) share in the IRA, because the President is authorized to make an adjustment and to reduce the amount to not less than thirty percent (30%). It is, therefore, impractical to immediately release the full amount of the IRAs and subsequently require the local government units to return at most ten percent (10%) once the President has ascertained that there exists an unmanageable public sector deficit.

By necessary implication, the power to make necessary adjustments (including reduction) in the IRA in case of an unmanageable public sector deficit, includes the discretion to withhold the IRAs temporarily until such time that the determination of the actual fiscal situation is made. The test in determining whether one power is necessarily included in a stated authority is: "The exercise of a more absolute power necessarily includes the lesser power especially where it is needed to make the first power effective." If the discretion to suspend temporarily the release of the IRA pending such examination is withheld from the President, his authority to make the necessary IRA adjustments brought about by the unmanageable public sector deficit would be emasculated in the midst of serious economic crisis. In the situation conjured by the majority opinion, the money would already have been gone even before it is determined that fiscal crisis is indeed happening.

The majority opinion overstates the requirement in Section 286 of the Local Government Code that the IRAs "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose" as proof that no withholding of the release of the IRAs is allowed albeit temporary in nature.

It is worthy to note that this provision does not appear in the Constitution. Section 6, Art X of the Constitution merely directs that LGUs "shall have a just share" in the national taxes "as determined by law" and which share “shall be automatically released to them.” This means that before the LGU’s share is released, there should be first a determination, which requires a process, of what is the correct amount as dictated by existing laws.

Apart from the above, other mandatory deductions are made from the IRAs prior to their release, such as: (1) total actual cost of devolution and the cost of city-funded hospitals; and (2) compulsory contributions and other remittances. It follows, therefore, that the President can withhold portions of IRAs in order to set-off or compensate legitimately incurred obligations and remittances of LGUs.

Significantly, Section 286 of the Local Government Code does not make mention of the exact amount that should be automatically released to the LGUs. The provision does not mandate that the entire 40% share mentioned in Section 284 shall be released. It merely provides that the "share" of each LGU shall be released and which "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." The provision on automatic release of IRA share should, thus, be read together with Section 284, including the proviso on adjustment or reduction of IRAs, as well as other relevant laws. It may happen that the share of the LGUs may amount to the full forty percent (40%) or the reduced amount of thirty percent (30%) as adjusted without any law being violated. In other words, all that Section 286 requires is the automatic release of the amount that the LGUs are rightfully and legally entitled to, which, as the same section provides, should not be less than thirty percent (30%) of the collection of the national revenue taxes. So that even if five percent (5%) or ten percent (10%) is either temporarily or permanently withheld, but the minimum of thirty percent (30%) allotment for the LGUs is released pursuant to the President's authority to make the necessary adjustment in the LGUS' share, there is still full compliance with the requirements of the automatic release of the LGUs' share.

Therefore, even assuming hypothetically that there was effectively a deduction of five percent (5%) of the LGUs' share, which was in accordance with the President's prerogative in view of the pronouncement of the existence of an unmanageable public sector deficit, the deduction would still be valid in the absence of any proof that the LGUs' allotment was less than the thirty percent (30%) limit provided for in Section 284 of the Local Government Code.

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