PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs.
MUNICIPALITY OF purposes of local self-government carries with it the power to confer on
TANAUAN
69 SCRA 460
GR No. L-31156, February 27, 1976
"Legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental
agencies the power to tax.
FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary
injunction to declare Section 2 of Republic Act No. 2264, otherwise known as
the Local Autonomy Act, unconstitutional as an undue delegation of taxing
authority as well as to declare Ordinances Nos. 23 and 27 denominated as
"municipal production tax" of the Municipality of Tanauan, Leyte, null and void.
Ordinance 23 levies and collects from soft drinks producers and manufacturers
a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked,
and Ordinance 27 levies and collects on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. Aside from
the undue delegation of authority, appellant contends that it allows double
taxation, and that the subject ordinances are void for they impose percentage
or specific tax.
ISSUE: Are the contentions of the appellant tenable?
HELD: No. On the issue of undue delegation of taxing power, it is settled that
the power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. It is a power that is purely legislative and
which the central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. By
necessary implication, the legislative power to create political corporations for
such local governmental agencies the power to tax.
Also, there is no validity to the assertion that the delegated authority
can be declared unconstitutional on the theory of double taxation. It
must be observed that the delegating authority specifies the limitations
and enumerates the taxes over which local taxation may not be
exercised. The reason is that the State has exclusively reserved the
same for its own prerogative. Moreover, double taxation, in general, is
not forbidden by our fundamental law, so that double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity or by the same jurisdiction for the same
purpose, but not in a case where one tax is imposed by the State and
the other by the city or municipality.
On the last issue raised, the ordinances do not partake of the nature
of a percentage tax on sales, or other taxes in any form based thereon.
The tax is levied on the produce (whether sold or not) and not on the
sales. The volume capacity of the taxpayer's production of soft drinks is
considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the
amount of the tax.
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v.
FERDINAND J. MARCOS, GR No. 120082, 1996-09-11
Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA)
Since the time of its creation,... enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter
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,
claiming in its favor the aforecited Section 14 of RA 6958 which exempts it
from payment of realty taxes. It was also asserted that it is an instrumentality
of the government performing... governmental functions, citing Section 133 of
the Local Government Code of 1991 which puts limitations on the taxing
powers of local government units
Section 133. Common Limitations on the Taxing Powers of Local Government
Units. -- Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the... following:
Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units. (underscoring supplied)
Respondent City refused to cancel and set aside petitioner's realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of
the Local Government Code... petitioner... was compelled to pay its tax
account "under protest" and thereafter filed a Petition for Declaratory Relief
with the Regional Trial Court of Cebu
MCIAA basically contended that the taxing powers of local government units
do not extend to the levy of taxes or fees of any kind on an instrumentality of
the national government. Petitioner insisted that while it is indeed a
government-owned corporation, it... nonetheless stands on the same footing
as an agency or instrumentality of the national government by the very nature
of its powers and functions.
trial court dismissed the petition... infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the
provisions of the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of its
properties effective after January 1, 1992 until the present.
Issues:
respondent City of Cebu has no power nor authority to impose realty
taxes upon it... whether the petitioner is a "taxable person."
Ruling:
Considering its task "not merely to efficiently operate and manage the
Mactan-Cebu International Airport, but more importantly, to carry out the
Government... policies of promoting and developing the Central Visayas
and Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country,"... and that it is an attached... agency of
the Department of Transportation and Communication (DOTC),... the
petitioner "may stand in [sic] the same footing as an agency or
instrumentality of the national government." Hence, its tax exemption
privilege under Section 14 of its Charter
"cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133
thereof specifically states that the `taxing powers of local government
units shall not extend to the levy of taxes or fees or charges of any kind
on the... national government, its agencies and instrumentalities.'"
There can be no question that under Section 14 of R.A. No. 6958 the
petitioner is exempt from the payment of realty taxes imposed by the
National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and...
exemption therefrom the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. The only exception to
this rule is where the exemption was granted to private parties based on
material consideration of a mutual nature, which then becomes...
contractual and is thus covered by the non-impairment clause of the
Constitution.
we conclude that as a general rule, as laid down in Section 133, the
taxing powers of local government units cannot extend to the levy of,
inter alia, "taxes, fees and charges of any kind on the National
Government, its agencies and instrumentalities, and local government units";
however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter
alia, "real property owned by the Republic of... the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person," as provided in item (a) of
the first paragraph of Section 234.
upon the effectivity of the LGC, exemptions from payment of real property
taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section,... and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily
follows that its exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn.
In short, the petitioner can no longer invoke the general rule in Section 133 that
the taxing powers of the local government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government, its
agencies or instrumentalities, and local government units.
the petitioner cannot claim that it was never a "taxable person" under its
Charter. It was only exempted from the payment of real property taxes. The
grant of the privilege only in respect of this tax is conclusive proof of the
legislative intent to... make it a taxable person subject to all taxes, except real
property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of
real property tax, in light of the foregoing disquisitions, it had already become,
even if it be conceded to be an "agency" or "instrumentality" of the
Government, a taxable person for such... purpose in view of the withdrawal in
the last paragraph of Section 234 of exemptions from the payment of real
property taxes, which, as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable.
nothing can prevent
Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.
G.R. No. 154993 October 25, 2005
LUZ R. YAMANE, in her capacity as the CITY TREASURER OF
MAKATI, petitioner vs. BA LEPANTO CONDOMINIUM
CORPORATION, respondent.
Facts:
Respondent BA-Lepanto Condominium Corporation (the
“Corporation”) is a 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 (the
“Condominium”), situated in Makati City. Its membership comprises the
various unit owners. The Corporation is authorized, under Article V of its
Amended By-Laws, to collect regular assessments from its members for
operating expenses, capital expenditures on the common areas, and
other special assessments as provided for in the Master Deed with
Declaration of Restrictions of the Condominium.
The Corporation received a Notice of Assessment signed by the
City Treasurer. The Notice of Assessment stated that the Corporation is
“liable to pay the correct city business taxes.” The Notice of Assessment
was silent as to the statutory basis of the business taxes assessed. The
Corporation responded with a written tax protest addressed to the City
Treasurer.
According to respondent, under both the Makati Code and the
Local Government Code, “business” is defined as “trade or commercial
activity regularly engaged in as a means of livelihood or with a view to
profit.” It was submitted that 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 the Corporation authorized, under its articles of incorporation or
by-laws to engage in profit-making activities. The assessments it did collect
from the unit owners were for capital expenditures and operating expenses.
The protest was rejected by the City Treasurer and insisted that the
collection of dues from the unit owners was effected primarily “to sustain and
maintain the expenses of the common areas, with the end in view of getting full
appreciative living values for the individual condominium occupants and to
command better marketable prices for those occupants” who would in the
future sell their respective units. In short, the petitioner avers that it is engaged
in business for profit making.
Because of the denial of the protest, respondent filed an Appeal with the
RTC of Makati. However, the latter dismissed the case. As a recourse,
respondent filed a Petition for Review under Rule 42 of the Rules of Civil
Procedure with the CA. It was dismissed outright because only decisions of the
RTC brought on appeal from a first level court could be elevated for review
under Rule 42. However, it was reinstated by the CA because of Sec. 195 of
the LGC stating that the remedy of the taxpayer on the denial of the protest
filed with the local treasurer is to appeal the denial with the court of competent
jurisdiction. Afterwards, the CA reversed the ruling of the RTC.
Issue:
a. Whether the RTC, in deciding an appeal taken from a denial of a protest by
a local treasurer under Section 195 of the Local Government Code, exercises
“original jurisdiction” or “appellate jurisdiction.”
b. Whether or not the City of Makati may collect business taxes on
condominium corporations.
Held:
a. The review taken by the RTC over the denial of the protest by the local
treasurer would fall within that court’s original jurisdiction. The review 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. Republic Act No. 9282 definitively proves
that the CTA exercises exclusive appellate jurisdiction to review on
appeal decisions, orders or resolutions of the Regional Trial Courts in
local tax cases original decided or resolved by them in the exercise of
their originally or appellate jurisdiction. Moreover, the provision also
states that the review is triggered “by filing a petition for review under a
procedure analogous to that provided for under Rule 42 of the 1997
Rules of Civil Procedure.” Republic Act No. 9282, however, would not
apply to this case simply because it arose prior to the effectivity of that
law.
b. No. Section 143 of the Code specifically enumerates several types of
business on which municipalities and cities may impose taxes.
However, the Corporation does not fall under such law. Moreover,
nowhere in the Makati Revenue Code that would serve as the legal
authority for the collection of business taxes from condominiums in
Makati. We can elicit 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. Neither the maintenance of
livelihood, nor the procurement of profit, fall within the scope of
permissible corporate purposes of a condominium corporation under the
Condominium Act. None of these stated corporate purposes are geared
towards maintaining a livelihood or the obtention of profit. Even though
the Corporation is empowered to levy assessments or dues from the
unit owners, these amounts collected are not intended for the
incurrence of profit by the Corporation or its members, but to shoulder
the multitude of necessary expenses that arise from the maintenance of
the Condominium Project.

LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY
FACTS:
Petitioner is a non-stock, non-profit entity established by virtue of PD No.
1823, seeks exemption from real property taxes when the City Assessor
issued Tax Declarations for the land and the hospital building. Petitioner
predicted on its claim that it is a charitable institution. The request was
denied, and a petition hereafter filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA) for reversal of the
resolution of the City Assessor. Petitioner alleged that as a charitable
institution, is exempted from real property taxes under Sec 28(3) Art VI of
the Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment Appeals
of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.
ISSUE:
1. Whether or not petitioner is a charitable institution within the context of
PD 1823 and the 1973 and 1987 Constitution and Section 234(b) of RA
7160.
2. Whether or not petitioner is exempted from real property taxes.
RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within
the context of the 1973 and 1987 Constitution. Under PD 1823, the
petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the
President with the Ministry of Health and the Ministry of Human
Settlements. The purpose for which it was created was to render medical
services to the public in general including those who are poor and
also the rich, and become a subject of charity. Under PD 1823,
petitioner is entitled to receive donations, even if the gift or donation
is in the form of subsidies granted by the government.
2. Partly No. Under PD 1823, the lung center does not enjoy any
property tax exemption privileges for its real properties as well as
the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the
Constitution of the property taxes only. This provision was implanted
by Sec.243 (b) of RA 7160.which provides that in order to be
entitled to the exemption, the lung center must be able to prove
that: it is a charitable institution and; its real properties are actually,
directly and exclusively used for charitable purpose. Accordingly,
the portions occupied by the hospital used for its patients are
exempt from real property taxes while those leased to private
entities are not exempt from such taxes.
National Power Corporation vs. City of Cabanatuan
GR. No. 149110
April 9, 2003
FACTS:
NAPOCOR, the petitioner, is a government-owed and controlled corporation created
under Commonwealth Act 120. It is tasked to undertake the “development of
hydroelectric generations of power and the production of electricity from nuclear,
geothermal, and other sources, as well as, the transmission of electric power on a
nationwide basis.”
For many years now, NAPOCOR sells electric power to the resident Cabanatuan City,
posting a gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
No. 165-92, the respondent assessed the petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of the former’s gross receipts for the preceding
year.
Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government,
refused to pay the tax assessment. It argued that the respondent has no authority to impose
tax on government entities. Petitioner also contend that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees in accordance with
Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner
pay the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly
interest. Respondent alleged that petitioner’s exemption from local taxes has been repealed by
Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing the
case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the
petitioner to pay the city government the tax assessment.
ISSUES:
(1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government and its charter characterized is as a
‘non-profit organization’?
(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of the
Local Government Code (LGC)?
HELD:
(1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise
by the corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity from the National Government. It can sue and be
sued under its own name, and can exercise all the powers of a corporation under the
Corporation Code.
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is no engage din business.
(2) YES. One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the National Government from the coverage of
local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any
kind on the National Government, its agencies and instrumentalities, this rule now admits an
exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees,
or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges
enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137
and 193 categorically withdrawing such exemption subject only to the exceptions enumerated.
Since it would be tedious and impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more unequivocal language
could have been used.
municipality of san fernando la union vs timoteo sta. Romana
Facts:
In 1968, the Municipality of San Fernando, La Union undertook road
constructions. It sent its trucks to the nearby Municipality of Luna, La
Union to gather sand and gravel. But then the agents of the Luna, La
Union imposed fees on each truck. Mayor Lorenzo Dacanay of San
Fernando then filed for injunction against the mayor of Luna (Timoteo
Sta. Romana), its treasurer and their agents to enjoin them from
collecting said fees. Sta. Romana, in their defense, averred that the
collection of said fees is pursuant to an ordinance duly approved by the
Municipal Council of Luna in consonance with its power to tax, and that
the fees collected are reasonable, fair and legal.
ISSUE: Whether or not the Municipality of Luna is validly exacting the
assailed fees on the hauling of gravel and sand.
HELD: No. Pursuant to the then Local Tax Code, a municipality like
Luna is not authorized to exact fees for the hauling of gravel and sand
within it. Such power is lodged only in the province, in this case, the
province of La Union. Only La Union has the authority to exact taxes for
sand and gravel extracted within its jurisdiction. The tax ordinance of
Luna providing for such power to the municipality is therefore void.
Corollarily, San Fernando cannot extract sand and gravel from the
Municipality of Luna without paying the corresponding taxes or fees that
may be imposed by the province of La Union.
LEPANTO CONSOLIDATED MINING COMPANY vs. AMBANLOC-
Local Business Taxation
FACTS:
Lepanto Consolidated Mining had a mining lease contract for a mining claim in
Benguet. They used the sand and gravel mined to construct and maintain
concrete structures needed in its mining operations such as a tailings dam,
access roads, and offices. The provincial treasurer of Benguet then asked
Lepanto Consolidated Mining to pay sand and gravel tax for the quarry
materials extracted from the mining site. The counterargument was that the
said tax applied only to commercial extractions and since Lepanto did not
supply other users for some profit, the tax should not apply.
ISSUE:
Is Lepanto liable for the tax imposed by Benguet on the sand and gravel that it
extracted from within the area of its mining claim used exclusively in its mining
operations?
HELD:
YES. The CTA erred in applying the provision of the Local Government Code
(Section 138) since the basis of Benguet province emanates from the Revised
Benguet Revenue Code itself. This notwithstanding, the provincial revenue
measure still did not distinguish between commercial and non-commercial
extractions.
In addition, the Petitioner’s argument that when a company is taxed on its main
business it can no longer be taxable for engaging in an activity that is but part
of, incidental to, and necessary to such main business, was held to be
inapplicable. The Court said that the cases where the above principle has been
applied involved business taxes and thus the incidental activities could
not be treated as separate and distinct from the main business. Here
the tax being imposed was an excise tax levied on the privilege of
extracting gravel and sand.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT)
vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as
City Treasurer of Davao
Facts:
PLDT paid a franchise tax equal to three percent (3%) of its gross
receipts. The franchise tax was paid “in lieu of all taxes on this franchise
or earnings thereof” pursuant to RA 7082. The exemption from “all taxes
on this franchise or earnings thereof” was subsequently withdrawn by
RA 7160 (LGC), which at the same time gave local government units
the power to tax businesses enjoying a franchise on the basis of income
received or earned by them within their territorial jurisdiction. The LGC
took effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in
pertinent part provides: Notwithstanding any exemption granted by law
or other special laws, there is hereby imposed a tax on businesses
enjoying a franchise, a rate of seventy-five percent (75%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based
on the income receipts realized within the territorial jurisdiction of Davao
City.
Subsequently, Congress granted in favor of Globe Mackay Cable and
Radio Corporation (Globe) and Smart Information Technologies, Inc. (Smart)
franchises which contained “in leiu of all taxes” provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the
Philippines, Sec. 23 of which provides that any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises. The law took effect on
March 16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to operate its Davao
Metro exchange, it was required to pay the local franchise tax which then had
amounted to P3,681,985.72. PLDT challenged the power of the city
government to collect the local franchise tax and demanded a refund of what
had been paid as a local franchise tax for the year 1997 and for the first to the
third quarters of 1998.
Issue:
Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the
exemption from payment of the local franchise tax in view of the grant of tax
exemption to Globe and Smart.
Held:
Petitioner contends that because their existing franchises contain “in lieu of all
taxes” clauses, the same grant of tax exemption must be deemed to have
become ipso facto part of its previously granted telecommunications franchise.
But the rule is that tax exemptions should be granted only by a clear and
unequivocal provision of law “expressed in a language too plain to be
mistaken” and assuming for the nonce that the charters of Globe and of Smart
grant tax exemptions, then this runabout way of granting tax exemption
to PLDT is not a direct, “clear and unequivocal” way of communicating
the legislative intent.
Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax
exemption. The term refers to exemption from regulations and
requirements imposed by the National Telecommunications Commission
(NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall
exempt any specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure fair and
reasonable rates of tariffs. Another exemption granted by the law in line
with its policy of deregulationis the exemption from the requirement of
securing permits from the NTC every time a telecommunications
company imports equipment.
Tax exemptions should be granted only by clear and unequivocal
provision of law on the basis of language too plain to be mistaken.
PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION,
INC., vs. THE SECRETARY OF DEPARTMENT OF INTERIOR AND
LOCAL GOVERNMENT
Fact: 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, as amended, and registered with the National Electrification
Administration (NEA). Accordingly, petitioners enjoys Assistance;
Exemption from Taxes, Imposts, Duties, Fees; Assistance from the
National Power Corporation. Petitioners contend that they are exempt
from payment of local taxes, including payment of real property tax.
With the passage of the Local Government Code, however, they allege
that their tax exemptions have been invalidly withdrawn. In particular,
petitioners assail Sections 193 and 234 of the Local Government Code on the
ground that the said provisions discriminate against them, in violation of the
equal protection clause. Further, they submit that the said provisions are
unconstitutional because they impair the obligation of contracts between the
Philippine Government and the United States Government.
Issue: Whether the assailed provisions of the Local Government Code violates
the rights of the Petitioners to the Equal Protection clause by unreasonable
classifying them and withdrawing their Tax exemption
Held: There is No Violation of the Equal Protection Clause. The equal
protection clause under the Constitution means that “no person or class of
persons shall be deprived of the same protection of laws which is enjoyed by
other persons or other classes in the same place and in like circumstances.”
Thus, the guaranty of the equal protection of the laws is not violated by a law
based on reasonable classification. The court hold that there is reasonable
classification under the Local Government Code to justify the different tax
treatment between electric cooperatives covered by P.D. No. 269, as
amended, and electric cooperatives under R.A. No. 6938.
First, substantial distinctions exist between cooperatives under P.D. No. 269,
as amended, and cooperatives under R.A. No. 6938. These distinctions are
manifest in at least two material respects which go into the nature of
cooperatives envisioned by R.A. No. 6938 and which characteristics are not
present in the type of cooperative associations created under P.D. No. 269, as
amended.
1 Capital Contributions by Members
2 Extent of Government Control over Cooperatives
Second, the classification of tax-exempt entities in the Local Government Code
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. Thus, while each government unit is granted the power to
create its own sources of revenue, Congress, in light of its broad power
to tax, has the discretion to determine the extent of the taxing powers of
local government units consistent with the policy of local autonomy.
Drilon v. Lim
G.R. No. 112497, August 4, 1994
Cruz, J.
Facts:
The principal issue in this case is the constitutionality of Section 187 of the Local
Government Code1. The Secretary of Justice (on appeal to him of four oil companies and a
taxpayer) declared Ordinance No. 7794 (Manila Revenue Code) null and void for non-
compliance with the procedure in the enactment of tax ordinances and for containing certain
provisions contrary to law and public policy.
The RTC revoked the Secretary’s resolution and sustained the ordinance. It declared Sec
187 of the LGC as unconstitutional because it vests on the Secretary the power of control over
LGUs in violation of the policy of local autonomy mandated in the Constitution. The Secretary
argues that the annulled Section 187 is constitutional and that the procedural requirements for
the enactment of tax ordinances as specified in the Local Government Code had indeed not
been observed. (Petition originally dismissed by the Court due to failure to submit certified true
copy of the decision, but reinstated it anyway.)
Issue:
WON the lower court has jurisdiction to consider the constitutionality of Sec 187 of the
LGC
Held:
Yes. BP 129 vests in the regional trial courts jurisdiction over all civil cases in which the
subject of the litigation is incapable of pecuniary estimation. Moreover, Article X, Section 5(2),
of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and
orders of lower courts in all cases in which the constitutionality or validity of any treaty,
1
international or executive agreement, law, presidential decree, proclamation, order, instruction, ultra vires provisions and non-compliance with the prescribed procedure in its enactment.
ordinance, or regulation is in question. These grounds affected the legality, not the wisdom or reasonableness, of the tax measure.

In the exercise of this jurisdiction, lower courts are advised to act with the utmost
circumspection, bearing in mind the consequences of a declaration of unconstitutionality upon the
stability of laws, no less than on the doctrine of separation of powers. It is also emphasized that every
court, including this Court, is charged with the duty of a purposeful hesitation before declaring a law
unconstitutional, on the theory that the measure was first carefully studied by the executive and the
legislative departments and determined by them to be in accordance with the fundamental law before it
was finally approved. To doubt is to sustain. The presumption of constitutionality can be overcome only
by the clearest showing that there was indeed an infraction of the Constitution.
Issue:
WON Section 187 of the LGC is unconstitutional
Held:
Yes. Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality
of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or
modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the
judgment of the local government that enacted the measure. Secretary Drilon did set aside the Manila
Revenue Code, but he did not replace it with his own version of what the Code should be.. What he
found only was that it was illegal. All he did in reviewing the said measure was determine if the
petitioners were performing their functions in accordance with law, that is, with the prescribed procedure
for the enactment of tax ordinances and the grant of powers to the city government under the Local
Government Code. As we see it, that was an act not of control but of mere supervision.
An officer in control lays down the rules in the doing of an act. If they are not followed, he
may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it
himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it
that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion
to modify or replace them.
The issue of non-compliance with the prescribed procedure in the enactment of the
Manila Revenue Code is another matter. (allegations: No written notices of public hearing, no
publication of the ordinance, no minutes of public hearing, no posting, no translation into
Tagalog)
Judge Palattao however found that all the procedural requirements had been observed
in the enactment of the Manila Revenue Code and that the City of Manila had not been able to
prove such compliance before the Secretary only because he had given it only five days within
which to gather and present to him all the evidence (consisting of 25 exhibits) later submitted to
the trial court. We agree with the trial court that the procedural requirements have indeed been
observed. Notices of the public hearings were sent to interested parties as evidenced. The
minutes of the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and C show
that the proposed ordinances were published in the Balita and the Manila Standard on April 21
and 25, 1993, respectively, and the approved ordinance was published in the July 3, 4, 5, 1993
issues of the Manila Standard and in the July 6, 1993 issue of Balita, as shown by Exhibits Q,
Q-1, Q-2, and Q-3.
The only exceptions are the posting of the ordinance as approved but this omission
does not affect its validity, considering that its publication in three successive issues of a
newspaper of general circulation will satisfy due process. It has also not been shown that the
text of the ordinance has been translated and disseminated, but this requirement applies to the
approval of local development plans and public investment programs of the local government
unit and not to tax ordinances.

Significantly, a rule similar to Section 187 appeared in the Local Autonomy Act. That section
allowed the Secretary of Finance to suspend the effectivity of a tax ordinance if, in his opinion, the tax
or fee levied was unjust, excessive, oppressive or confiscatory. Determination of these flaws would
involve the exercise of judgment or discretion and not merely an examination of whether or not the
requirements or limitations of the law had been observed; hence, it would smack of control rather than
mere supervision. That power was never questioned before this Court but, at any rate, the Secretary of
Justice is not given the same latitude under Section 187. All he is permitted to do is ascertain the
constitutionality or legality of the tax measure, without the right to declare that, in his opinion, it is
unjust, excessive, oppressive or confiscatory. He has no discretion on this matter. In fact, Secretary
Drilon set aside the Manila Revenue Code only on two grounds, to with, the inclusion therein of certain