G.R. No. 155650. MANILA INTERNATIONAL AIRPORT
AUTHORITY, Petitioner, v. COURT OF APPEALS, ET AL.,
Respondents.
Promulgated :
July 20, 2006
x-------------------------------------------------------------------------------x
DISSENTING OPINION
TINGA, J. :
The
legally correct resolution of this petition would have had the added benefit of
an utterly fair and equitable result – a recognition of the constitutional and
statutory power of the City of Parañaque to impose real property taxes on the
Manila International Airport Authority (MIAA), but at the same time, upholding
a statutory limitation that prevents the City of Parañaque from seizing and
conducting an execution sale over the real properties of MIAA. In the end, all
that the City of
Instead, with blind but measured rage,
the majority today veers wildly off-course, shattering statutes and judicial
precedents left and right in order to protect the precious Ming vase that is
the Manila International Airport Authority (MIAA). While the MIAA is left
unscathed, it is surrounded by the wreckage that once was the constitutional
policy, duly enacted into law, that was local autonomy. Make no mistake, the majority
has virtually declared war on the seventy nine (79) provinces, one hundred
seventeen (117) cities, and one thousand five hundred (1,500) municipalities of
the
The
icing on this inedible cake is the strained and purposely vague rationale used
to justify the majority opinion.
Decisions of the Supreme Court are expected to provide clarity to the parties
and to students of jurisprudence, as to what the law of the case is, especially
when the doctrines of long standing are modified or clarified. With all due
respect, the decision in this case is plainly so, so wrong on many levels. More
egregious, in the majority’s resolve to spare the Manila International Airport
Authority (MIAA) from liability for real estate taxes, no clear-cut rule
emerges on the important question of the power of local government units (LGUs)
to tax government corporations, instrumentalities or agencies.
The majority would overturn sub
silencio, among others, at least one
dozen precedents enumerated below:
1)
2) The rulings in National Power
Corporation v. City of Cabanatuan,[6]
wherein the Court, through Justice Puno, declared that the National Power
Corporation, a GOCC, is liable for franchise taxes under the Local Government
Code, and succeeding cases that have relied on it such as Batangas Power
Corp. v. Batangas City[7]
The majority now states that deems instrumentalities as defined under the
Administrative Code of 1987 as purportedly beyond the reach of any form of
taxation by LGUs, stating “[l]ocal governments are devoid of power to tax the
national government, its agencies and instrumentalities.”[8]
Unfortunately, using the definition employed by the majority, as provided by
Section 2(d) of the Administrative Code, GOCCs are also considered as
instrumentalities, thus leading to the astounding conclusion that GOCCs may not
be taxed by LGUs under the Local Government Code.
3) Lung
Center of the Philippines v. Quezon City,[9]
wherein a unanimous en banc Court held that the
4) City
of
5) The common essence of the Court’s
rulings in the two Philippine Ports Authority v. City of Iloilo,[13]
cases penned by Justices Callejo and Azcuna respectively, which relied in part
on Mactan in holding the Philippine Ports Authority (PPA) liable for
realty taxes, notwithstanding the fact that it is a GOCC. Based on the
reasoning of the majority, the PPA cannot be considered a GOCC. The reliance of
these cases on Mactan, and its rationale for holding governmental
entities like the PPA liable for local government taxation is mooted by the majority.
6) The 1963 precedent of Social
Security System Employees Association v. Soriano,[14]
which declared the Social Security Commission (SSC) as a GOCC performing
proprietary functions. Based on the rationale employed by the majority, the
Social Security System is not a GOCC. Or perhaps more accurately, “no
longer” a GOCC.
7) The decision penned by Justice (now
Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of
Assessment.[15]
The characterization therein of the Light Rail Transit Authority (LRTA) as a
“service-oriented commercial endeavor” whose patrimonial property is subject to
local taxation is now rendered inconsequential, owing to the majority’s thinking
that an entity such as the LRTA is itself exempt from local government taxation[16],
irrespective of the functions it performs. Moreover, based on the majority’s criteria, LRTA is not a
GOCC.
8) The cases of Teodoro v. National Airports Corporation[17] and Civil
Aeronautics Administration v. Court of Appeals.[18]
wherein the Court held that the predecessor agency of the MIAA, which was
similarly engaged in the operation, administration and management of the Manila
International Agency, was engaged in the exercise of proprietary, as opposed to
sovereign functions. The majority would hold otherwise that the property
maintained by MIAA is actually patrimonial, thus implying that MIAA is actually
engaged in sovereign functions.
9) My
own majority in Phividec Industrial
Authority v. Capitol Steel,[19] wherein
the Court held that the Phividec Industrial Authority, a GOCC, was required to
secure the services of the Office of the Government Corporate Counsel for legal
representation.[20] Based on the reasoning of the majority,
Phividec would not be a GOCC, and the mandate of the Office of the Government
Corporate Counsel extends only to GOCCs.
10) Two
decisions promulgated by the Court just last month (June 2006), National
Power Corporation v. Province of Isabela[21]
and GSIS v. City Assessor of Iloilo City.[22]
In the former, the Court pronounced that “[a]lthough as a general rule, LGUs cannot impose taxes, fees, or charges of
any kind on the National Government, its agencies and instrumentalities, this
rule admits of an exception, i.e., when specific provisions of the LGC
authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities.” Yet the majority now rules that the exceptions in the LGC no longer
hold, since “local governments are devoid of power to tax the national
government, its agencies and instrumentalities.”[23]
The ruling in the latter case, which held the GSIS as liable for real property
taxes, is now put in jeopardy by the majority’s ruling.
There are certainly many other precedents
affected, perhaps all previous jurisprudence regarding local government
taxation vis-a-vis government
entities, as well as any previous definitions of GOCCs, and previous
distinctions between the exercise of governmental and proprietary functions (a
distinction laid down by this Court as far back as 1916[24]).
What is the reason offered by the majority for overturning or modifying all
these precedents and doctrines? None is given, for the majority takes comfort instead
in the pretense that these precedents never existed. Only children should be
permitted to subscribe to the theory that something bad will go away if you
pretend hard enough that it does not exist.
I.
Case Should Have Been
Decided
Following Mactan
Precedent
The core issue in this case, whether
the MIAA is liable to the City of
Mactan
Explained
A brief recall of the Mactan case
is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed
that it was exempt from payment of real property taxes to the City of
Sec. 133. Common
Limitations on the Taxing Powers of Local Government Units.— Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
x x x
(o) Taxes, fees or charges
of any kind on the National Government, its agencies and instrumentalities and local government
units. (emphasis and underscoring supplied).
However,
the Court in Mactan noted that Section 133 qualified the exemption of
the National Government, its agencies and instrumentalities from local taxation
with the phrase “unless otherwise provided herein.” It then considered the
other relevant provisions of the Local Government Code, particularly the
following:
SEC. 193. Withdrawal
of Tax Exemption Privileges. –
Unless otherwise provided in this Code, tax exemption or incentives granted
to, or 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.[26]
SECTION 232. Power to
Levy Real Property Tax. – A province or city or a municipality within the
Metropolitan Manila area may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not
hereafter specifically exempted.[27]
SECTION 234. Exemptions
from Real Property Tax. -- The
following are exempted from payment of the real property tax:
(a)
Real
property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person:
(b)
Charitable
institutions, churches, parsonages or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious charitable or
educational purposes;
(c)
All
machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned and controlled corporations engaged
in the distribution of water and/or generation and transmission of electric
power;
(d)
All
real property owned by duly registered cooperatives as provided for under R.A.
No. 6938; and
(e)
Machinery
and equipment used for pollution control and environmental protection.
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 or controlled corporations are hereby withdrawn
upon the effectivity of this Code.[28]
Clearly, Section 133 was not intended
to be so absolute a prohibition on the power of LGUs to tax the National
Government, its agencies and instrumentalities, as evidenced by these cited
provisions which “otherwise provided.” But what was the extent of the
limitation under Section 133? This is how the Court, correctly to my mind,
defined the parameters in Mactan:
The foregoing sections
of the LGC speak of: (a) the limitations on the taxing powers of local government
units and the exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of exceptions or provisos in
these sections, as shown by the following clauses:
(1) "unless
otherwise provided herein" in the opening paragraph of Section 133;
(2) "Unless
otherwise provided in this Code" in Section 193;
(3) "not hereafter
specifically exempted" in Section 232; and
(4) "Except as
provided herein" in the last paragraph of Section 234
initially hampers a
ready understanding of the sections. Note, too, that the aforementioned clause
in Section 133 seems to be inaccurately worded. Instead of the clause
"unless otherwise provided herein," with the "herein" to
mean, of course, the section, it should have used the clause "unless
otherwise provided in this Code." The former results in absurdity since
the section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a) which excepts
income taxes "when levied on banks and other financial institutions";
item (d) which excepts "wharfage on wharves constructed and maintained by
the local government unit concerned"; and item (1) which excepts taxes,
fees and charges for the registration and issuance of licenses or permits for
the driving of "tricycles." It may also be observed that within the
body itself of the section, there are exceptions which can be found only in
other parts of the LGC, but the section interchangeably uses therein the
clause, "except as otherwise provided herein" as in items (c) and
(i), or the clause "except as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere surplusages if the opening
clause of the section were "Unless otherwise provided in this Code"
instead of "Unless otherwise provided herein." In any event, even if
the latter is used, 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
Sections 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 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.
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; all others not
included in the enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as to real property owned by the Republic of the Philippines or
any of its political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of such property
has been granted to a taxable person for consideration or otherwise.
Since the last paragraph
of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as
provided in the said section, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily follows that its exemption from
such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner
can seek refuge under any of the exceptions provided in Section 234, but not
under Section 133, as it now asserts, since, as shown above, the said section
is qualified by Sections 232 and 234.[29]
The
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
provided” insofar as it allowed LGUs 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
Mactan Overturned the
Precedents Now Relied
Upon by the Majority
But the
petitioners in Mactan also raised the Court’s ruling in Basco v.
PAGCOR,[31]
decided before the enactment of the Local Government Code. The Court in Basco
declared the PAGCOR as exempt from local taxes, justifying the exemption in
this wise:
Local
governments have no power to tax instrumentalities of the National Government.
PAGCOR is a government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the National
Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it
also exercises regulatory powers xxx
PAGCOR has
a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality
of the Government. Being an instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government.
"The
states have no power by taxation or otherwise, to retard impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal government."
(McCulloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
This
doctrine emanates from the "supremacy" of the National Government
over local governments.
"Justice
Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
supplied)
Otherwise,
mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activates or enterprise
using the power to tax as "a tool for regulation" (
The power
to tax which was called by Justice Marshall as the "power to destroy"
(McCulloch v.
Basco is as strident a reiteration of
the old guard view that frowned on the principle of local autonomy, especially
as it interfered with the prerogatives and privileges of the national
government. Also consider the following citation from Maceda v. Macaraig,[33]
decided the same year as Basco. Discussing the rule of construction of
tax exemptions on government instrumentalities, the sentiments are of a similar
vein.
Moreover,
it is a recognized principle that the rule on strict interpretation does not
apply in the case of exemptions in favor of a government political subdivision
or instrumentality.
The basis
for applying the rule of strict construction to statutory provisions granting
tax exemptions or deductions, even more obvious than with reference to the
affirmative or levying provisions of tax statutes, is to minimize differential
treatment and foster impartiality, fairness, and equality of treatment among
tax payers.
The reason
for the rule does not apply in the case of exemptions running to the benefit of
the government itself or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed liberally, in favor
of non tax-liability of such agencies.
In the
case of property owned by the state or a city or other public corporations, the
express exemption should not be construed with the same degree of strictness
that applies to exemptions contrary to the policy of the state, since as to
such property "exemption is the rule and taxation the exception."[34]
Strikingly, the majority cites
these two very cases and the stodgy rationale provided therein. This evinces
the perspective from which the majority is coming from. It is admittedly a
viewpoint once shared by this Court, and en
vogue prior to the enactment of the Local Government Code of 1991.
However, the Local Government Code of
1991 ushered in a new ethos on how the art of governance should be practiced in
the
Article II. Declaration
of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local
Government
xxx
Sec. 2. The territorial and political subdivisions shall
enjoy local autonomy.
Section 3. The Congress shall enact a local government
code which shall provide for a more responsive and accountable local government
structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different
local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term,
salaries, powers and functions and duties of local officials, and all other
matters relating to the organization and operation of the local units.
xxx
Section 5. Each local government unit shall have the
power to create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
xxx
The Court in Mactan recognized
that a new day had dawned with the enactment of the 1987 Constitution and the
Local Government Code of 1991. Thus, it expressly rejected the contention of
the MCIAA that Basco was applicable to them. In doing so, the language
of the Court was dramatic, if only to emphasize how monumental the shift in
philosophy was with the enactment of the Local Government Code:
Accordingly, the
position taken by the [MCIAA] is untenable. Reliance on Basco v.
Philippine Amusement and Gaming Corporation is unavailing since it was
decided before the effectivity of the [Local Government Code]. Besides, nothing
can prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to tax. Where
it is done precisely to fulfill a constitutional mandate and national policy,
no one can doubt its wisdom.[35]
(emphasis supplied)
The Court Has
Repeatedly
Reaffirmed
Mactan Over the
Precedents Now
Relied Upon
By the Majority
Since then and until today, the Court
has been emphatic in declaring the Basco doctrine as dead. The notion
that instrumentalities may be subjected to local taxation by LGUs was again
affirmed in National Power Corporation v. City of Cabanatuan,[36]
which was penned by Justice Puno. NPC or Napocor,
invoking its continued exemption from payment of franchise taxes to the City of
xxx[T]he
doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon
by the petitioner to support its claim no longer applies. To emphasize, the
Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the National
Government was in effect. However, as this Court ruled in the case of
In the 2003 case of Philippine Ports
Authority v. City of Iloilo,[38]
the Court, in the able ponencia of Justice Azcuna, affirmed the levy of
realty taxes on the PPA. Although the taxes were assessed under the old Real
Property Tax Code and not the Local Government Code, the Court again cited Mactan
to refute PPA’s invocation of Basco as the basis of its exemption.
[Basco]
did not absolutely prohibit local governments from taxing government
instrumentalities. In fact we stated therein:
The power
of local government to "impose taxes and fees" is always subject to
"limitations" which Congress may provide by law. Since P.D. 1869
remains an "operative" law until "amended, repealed or
revoked". . . its "exemption clause" remains an exemption to the
exercise of the power of local governments to impose taxes and fees.
Furthermore,
in the more recent case of Mactan Cebu International Airport Authority v.
Marcos, where the Basco case was similarly invoked for tax exemption, we
stated: "[N]othing 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."
The fact that tax exemptions of government-owned or controlled corporations
have been expressly withdrawn by the present Local Government Code clearly
attests against petitioner's claim of absolute exemption of government
instrumentalities from local taxation.[39]
Just last month, the Court in National
Power Corporation v. Province of Isabela[40]
again rejected Basco in emphatic terms. Held the Court, through Justice
Callejo, Sr.:
Thus, the doctrine laid down in the Basco
case is no longer true. In the
The taxability of the PPA recently came to fore
in Philippine Ports Authority v. City of Iloilo[42]
case, a decision also penned by Justice
Callejo, Sr., wherein the Court affirmed
the sale of PPA’s properties at public auction for failure to pay realty taxes.
The Court again reiterated that “it was the intention of Congress to withdraw
the tax exemptions granted to or presently enjoyed by all persons, including
government-owned or controlled corporations, upon the effectivity” of the Code.[43] The Court in the second Public Ports
Authority case likewise cited Mactan as providing the “raison
d’etre for the withdrawal of the exemption,” namely, “the State policy to
ensure autonomy to local governments and the objective of the [Local Government
Code] that they enjoy genuine and meaningful local autonomy to enable them to
attain their fullest development as self-reliant communities. . . . ”[44]
Last year, the Court, in City of Davao
v. RTC,[45]
affirmed that the legislated exemption from real property taxes of the
Government Service Insurance System (GSIS) was removed under the Local
Government Code. Again, Mactan was relied upon as the governing
precedent. The removal of the tax exemption stood even though the then GSIS law[46]
prohibited the removal of GSIS’ tax exemptions unless the exemption was
specifically repealed, “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.”[47]
The Court, citing established doctrines in statutory construction and Duarte
v. Dade[48]
ruled that such proscription on future legislation was itself prohibited, as “the legislature
cannot bind a future legislature to a particular mode of repeal.”[49]
And most recently, just less than one month ago,
the Court, through Justice Corona in Government Service Insurance System v.
City Assessor of Iloilo[50]
again affirmed that the Local Government Code removed the previous exemption
from real property taxes of the GSIS. Again Mactan was cited as having
“expressly withdrawn the [tax] exemption of the [GOCC].[51]
Clearly then, Mactan is not a
stray or unique precedent, but the basis of a jurisprudential rule employed by
the Court since its adoption, the doctrine therein consistent with the Local
Government Code. Corollarily, Basco, the polar opposite of Mactan
has been emphatically rejected and declared inconsistent with the Local
Government Code.
II.
Majority, in Effectively
Overturning Mactan,
Refuses to Say Why Mactan Is Wrong
The majority cites Basco in
support. It does not cite Mactan, other than an incidental reference
that it is relied upon by the respondents.[52]
However, the ineluctable conclusion is that the majority rejects the rationale
and ruling in Mactan. The majority provides for a wildly different
interpretation of Section 133, 193 and 234 of the Local Government Code than
that employed by the Court in Mactan. Moreover, the parties in Mactan
and in this case are similarly situated, as can be obviously deducted from the
fact that both petitioners are airport authorities operating under similarly
worded charters. And the fact that the majority cites doctrines contrapuntal to
the Local Government Code as in Basco and Maceda evinces an
intent to go against the Court’s jurisprudential trend adopting the philosophy of expanded local
government rule under the Local Government Code.
Before I dwell upon the numerous flaws
of the majority, a brief comment is necessitated on the majority’s studied
murkiness vis-à-vis the Mactan
precedent. The majority is obviously inconsistent with Mactan and there
is no way these two rulings can stand together. Following basic principles in
statutory construction, Mactan will be deemed as giving way to this new
ruling.
However, the majority does not bother
to explain why Mactan is wrong. The interpretation in Mactan of
the relevant provisions of the Local Government Code is elegant and rational,
yet the majority refuses to explain why this reasoning of the Court in Mactan
is erroneous. In fact, the majority does not even engage Mactan in any
meaningful way. If the majority believes that Mactan may still stand
despite this ruling, it remains silent as to the viable distinctions between
these two cases.
The majority’s silence on Mactan is
baffling, considering how different this new ruling is with the ostensible
precedent. Perhaps the majority does not simply know how to dispense with the
ruling in Mactan. If Mactan truly deserves to be discarded as
precedent, it deserves a more honorable end than death by amnesia or
ignonominous disregard. The majority could have devoted its discussion in
explaining why it thinks Mactan is wrong, instead of pretending that Mactan
never existed at all. Such an approach might not have won the votes of the
minority, but at least it would provide some degree of intellectual clarity for
the parties, LGUs and the national government, students of jurisprudence and
practitioners. A more meaningful debate on the matter would have been possible,
enriching the study of law and the intellectual dynamic of this Court.
There
is no way the majority can be
justified unless Mactan is overturned. The MCIAA and the MIAA
are similarly situated. They are both, as will be demonstrated, GOCCs, commonly
engaged in the business of operating an airport. They are the owners of airport
properties they respectively maintain and hold title over these properties in
their name.[53]
These entities are both owned by the State, and denied by their respective
charters the absolute right to dispose of their properties without prior approval elsewhere.[54]
Both of them are
not empowered to obtain loans or encumber their
properties without prior approval the prior approval of the President.[55]
III.
Instrumentalities,
Agencies
And GOCCs Generally
Liable for Real Property
Tax
I
shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan, which will further demonstrate why the majority has found it inconvenient to even grapple
with the precedent that is Mactan in the first place.
Mactan
held that the prohibition on taxing the national government, its agencies and
instrumentalities under Section 133 is qualified by Section 232 and Section
234, and accordingly, the only relevant exemption now applicable to these
bodies is as provided under Section 234(o), or on “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.”
It should be noted that the express
withdrawal of previously granted exemptions by the Local Government Code do not
even make any distinction as to whether the exempt person is a governmental
entity or not. As Sections 193 and 234 both state, the withdrawal applies to “all persons,
including [GOCCs]”, thus encompassing the two classes of persons recognized
under our laws, natural persons[56]
and juridical persons.[57]
The fact that the Local Government
Code mandates the withdrawal of previously granted exemptions evinces certain
key points. If an entity was previously granted an express exemption from real
property taxes in the first place, the obvious conclusion would be that such entity
would ordinarily be liable for such taxes without the exemption. If such
entities were already deemed exempt due to some overarching principle of law,
then it would be a redundancy or surplusage to grant an exemption to an already
exempt entity. This fact militates against the claim that MIAA is
preternaturally exempt from realty taxes, since it required the enactment of an
express exemption from such taxes in its charter.
Amazingly, the majority all but
ignores the disquisition in Mactan and asserts that government
instrumentalities are not taxable persons unless they lease their properties to
a taxable person. The general rule laid down in Section 232 is given short
shrift. In arriving at this conclusion, several leaps in reasoning are
committed.
Majority’s Flawed Definition
of GOCCs.
The
majority takes pains to assert that the MIAA is not a GOCC, but rather an
instrumentality. However, and quite grievously, the supposed foundation of this
assertion is an adulteration.
The majority gives the impression that a
government instrumentality is a distinct concept from a government corporation.[58] Most
tellingly, the majority selectively cites a portion of Section 2(10) of
the Administrative Code of 1987, as follows:
Instrumentality refers to any agency of the
National Government not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. xxx[59]
(emphasis omitted)
However, Section 2(10) of the
Administrative Code, when read in full, makes an important clarification which
the majority does not show. The portions omitted by the majority are
highlighted below:
(10)Instrumentality refers to any agency of the
National Government not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. This
term includes regulatory agencies, chartered institutions and government—owned
or controlled corporations.[60]
Since
Section 2(10) makes reference to “agency of the National Government,” Section
2(4) is also worth citing in full:
(4) Agency of the Government refers to any of the
various units of the Government, including
a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government
or a distinct unit therein. (emphasis supplied)[61]
Clearly then, based on the Administrative
Code, a GOCC may be an instrumentality or an agency of the National Government.
Thus, there actually is no point in the majority’s assertion that MIAA is
not a GOCC, since based on the majority’s premise of Section 133 as the key
provision, the material question is whether MIAA is either an instrumentality,
an agency, or the National Government itself. The very provisions of the
Administrative Code provide that a GOCC can be either an instrumentality or an
agency, so why even bother to extensively discuss whether or not MIAA is a
GOCC?
Indeed as far back as the 1927 case of Government of the Philippine Islands v.
Springer,[62] the
Supreme Court already noted that a corporation of which the government is the majority
stockholder “remains an agency or instrumentality of government.”[63]
Ordinarily, the inconsequential verbiage stewing
in judicial opinions deserve little rebuttal. However, the entire discussion of the majority
on the definition of a GOCC, obiter as it may ultimately be, deserves
emphatic refutation. The views of the majority on this matter are very
dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For
in fact, the majority effectively declassifies many entities created and
recognized as GOCCs and would give primacy to the Administrative Code of 1987
rather than their respective charters as to the definition of these entities.
Majority Ignores the
Power
Of Congress to Legislate
and
Define Chartered Corporations
First, the majority declares
that, citing Section 2(13) of the Administrative Code, a GOCC must be
“organized as a stock or non-stock corporation,” as defined under the
Corporation Code. To insist on this as an absolute rule fails on bare theory.
Congress has the undeniable power to create a corporation by legislative
charter, and has been doing so throughout legislative history. There is no
constitutional prohibition on Congress as to what structure these chartered
corporations should take on. Clearly, Congress has the prerogative to create a
corporation in whatever form it chooses, and it is not bound by any traditional
format. Even if there is a definition of what a corporation is under the
Corporation Code or the Administrative Code, these laws are by no means
sacrosanct. It should be remembered that these two statutes fall within the
same level of hierarchy as a congressional charter, since they all are
legislative enactments. Certainly, Congress can choose to disregard either the
Corporation Code or the Administrative Code in defining the corporate structure
of a GOCC, utilizing the same extent of legislative powers similarly vesting it
the putative ability to amend or abolish the Corporation Code or the
Administrative Code.
These principles are actually recognized by both
the Administrative Code and the Corporation Code. The definition of GOCCs,
agencies and instrumentalities under the Administrative Code are laid down in
the section entitled “General Terms Defined,” which qualifies:
Sec. 2. General Terms
Defined. – Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:
(emphasis supplied)
xxx
Similar
in vein is Section 6 of the Corporation Code which provides:
SEC. 4. Corporations
created by special laws or charters.— Corporations created by special laws or charters shall be governed primarily by
the provisions of the special law or charter creating them or applicable to
them, supplemented by the provisions of this Code, insofar as they are
applicable. (emphasis supplied)
Thus, the clear doctrine emerges – the law that governs the definition of a
corporation or entity created by Congress is its legislative charter. If the
legislative enactment defines an entity as a corporation, then it is a
corporation, no matter if the Corporation Code or the Administrative Code
seemingly provides otherwise. In case of conflict between the legislative charter
of a government corporation, on one hand, and the Corporate Code and the
Administrative Code, on the other, the former always prevails.
Majority, in Ignoring
the
Legislative Charters,
Effectively
Classifies Duly
Established GOCCs,
With Disastrous and Far
Reaching
Legal Consequences
Second, the majority claims
that MIAA does not qualify either as a stock or non-stock corporation, as
defined under the Corporation Code. It explains that the MIAA is not a stock
corporation because it does not have any capital stock divided into shares.
Neither can it be considered as a non-stock corporation because it has no
members, and under Section 87, a non-stock corporation is one where no part of
its income is distributable as dividends to its members, trustees or officers.
This formulation of course ignores Section 4 of
the Corporation Code, which again provides that corporations created by special
laws or charters shall be governed primarily by the provisions of the special
law or charter, and not the Corporation Code.
That
the MIAA cannot be considered a stock corporation if only because it does not have
a stock structure is hardly a plausible proposition. Indeed, there is no point
in requiring a capital stock structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are not empowered
to declare dividends or alienate their capital shares.
Admittedly,
there are GOCCs established in such a manner, such as the National Power
Corporation (NPC), which is provided with authorized capital stock wholly
subscribed and paid for by the Government of the Philippines, divided into
shares but at the same time, is prohibited from transferring, negotiating,
pledging, mortgaging or otherwise giving these shares as security for payment
of any obligation.[64]
However, based on the Corporation Code definition relied upon by the majority,
even the NPC cannot be considered as a stock corporation. Under Section 3 of
the Corporation Code, stock corporations are defined as being “authorized to
distribute to the holders of its shares dividends or allotments of the surplus
profits on the basis of the shares held.”[65] On
the other hand, Section 13 of the NPC’s charter states that “the Corporation
shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion.”[66]
Can the holder of the shares of NPC, the National Government, receive its
surplus profits on the basis of its shares held? It cannot, according to the
NPC charter, and hence, following Section 3 of the Corporation Code, the NPC is
not a stock corporation, if the majority is to be believed.
The
majority likewise claims that corporations without members cannot be deemed
non-stock corporations. This would seemingly exclude entities such as the NPC,
which like MIAA, has no ostensible members. Moreover, non-stock corporations
cannot distribute any part of its income as dividends to its members, trustees
or officers. The majority faults MIAA for remitting 20% of its gross operating
income to the national government. How about the Philippine Health Insurance
Corporation, created with the “status of a tax-exempt government corporation
attached to the Department of Health” under Rep. Act No. 7875.[67] It
too cannot be considered as a stock corporation because it has no capital stock
structure. But using the criteria of the majority, it is doubtful if it would
pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is
commonly known, is expressly empowered “to
collect, deposit, invest, administer and
disburse” the National Health Insurance Fund.[68]
Or how about the Social Security System, which under its revised charter,
Republic Act No. 8282, is denominated as a “corporate body.”[69] The SSS has no capital stock structure, but
has capital comprised of contributions by its members, which are eventually
remitted back to its members. Does this disqualify the SSS from classification
as a GOCC, notwithstanding this Court’s previous pronouncement in Social
Security System Employees Association v. Soriano?[70]
In fact, Republic Act No. 7656, enacted in 1993,
requires that all GOCCs, whether stock or non-stock,[71]
declare and remit at least fifty percent (50%) of
their annual net earnings as cash, stock or property dividends to the National
Government.[72]
But according to the majority, non-stock corporations are prohibited from declaring
any
part of its income as dividends. But if Republic Act No. 7656 requires even
non-stock corporations to declare dividends from income, should it not follow
that the prohibition against declaration of dividends by non-stock corporations
under the Corporation Code does not apply to government-owned or controlled
corporations? For if not, and the majority’s illogic is pursued, Republic Act
No. 7656, passed in 1993, would be fatally flawed, as it would contravene the
Administrative Code of 1987 and the Corporation Code.
In
fact, the ruinous effects of the majority’s hypothesis on the nature of GOCCs
can be illustrated by Republic Act No. 7656. Following the majority’s
definition of a GOCC and in accordance with Republic Act No. 7656, here are but
a few entities which are not obliged to remit fifty (50%) of its annual net
earnings to the National Government as they are excluded from the scope of Republic
Act No. 7656:
1) Philippine
Ports Authority[73] –
has no capital stock[74], no
members, and obliged to apply the balance of its income or revenue at the end
of each year in a general reserve.[75]
2) Bases
Conversion Development Authority[76]
- has no capital stock,[77]
no members.
3) Philippine
Economic Zone Authority[78]
- no capital stock,[79]
no members.
4) Light Rail
Transit Authority[80]
- no capital stock,[81]
no members.
5) Bangko
Sentral ng Pilipinas[82]
- no capital stock,[83]
no members, required to remit fifty percent (50%) of its net profits to the
National Treasury.[84]
6) National
Power Corporation[85]
- has capital stock but is prohibited from “distributing to the holders of
its shares dividends or allotments of the surplus profits on the basis of the
shares held;”[86] no members.
7)
Thus, for the majority, the MIAA, among many others, cannot be considered as within the
coverage of Republic Act No. 7656. Apparently, President Fidel V. Ramos
disagreed. How else then could Executive Order No. 483, signed in 1998 by
President Ramos, be explained? The issuance provides:
WHEREAS, Section 1 of Republic Act No. 7656
provides that:
"Section 1. Declaration
of Policy. - It is hereby declared the policy of the State that in order
for the National Government to realize additional revenues, government-owned
and/or controlled corporations, without impairing their viability and the
purposes for which they have been established, shall share a substantial amount
of their net earnings to the National Government."
WHEREAS,
to support the viability and mandate of government-owned and/or controlled
corporations [GOCCs], the liquidity, retained earnings position and medium-term
plans and programs of these GOCCs were considered in the determination of the reasonable dividend rates
of such corporations on their 1997 net earnings.
WHEREAS,
pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the
adjustment on the percentage of annual net earnings that shall be declared by
the Manila International Airport Authority [MIAA] and Phividec Industrial
Authority [PIA] in the interest of national economy and general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President
of the
SECTION 1. The percentage of net earnings to be
declared and remitted by the MIAA and PIA as dividends to the National
Government as provided for under Section 3 of Republic Act No. 7656 is adjusted
from at least fifty percent [50%] to the rates specified hereunder:
1.
2. Phividec Industrial
Authority
- 25% [cash]
SECTION 2. The adjusted
dividend rates provided for under Section 1 are only applicable on 1997 net
earnings of the concerned government-owned and/or controlled corporations.
Obviously, it was
the opinion of President Ramos and the Secretary of Finance that MIAA is a
GOCC, for how else could it have come under the coverage of Republic Act No.
7656, a law applicable only to GOCCs? But, the majority apparently disagrees,
and resultantly holds that MIAA is not obliged to remit even the reduced rate
of thirty five percent (35%) of its net earnings to the national government,
since it cannot be covered by Republic Act No. 7656.
All this mischief because
the majority would declare the Administrative Code of
1987 and the Corporation Code as the sole sources of law defining what a government
corporation is. As I stated earlier, I find it illogical that chartered
corporations are compelled to comply with the templates of the Corporation
Code, especially when the Corporation Code itself states that these
corporations are to be governed by their own charters. This is especially true
considering that the very provision cited by the majority, Section 87 of the Corporation Code,
expressly says that the definition provided therein is laid down “for
the purposes of this [Corporation] Code.” Read in conjunction with Section 4 of
the Corporation Code which mandates that corporations created by charter be
governed by the law creating them, it is clear that contrary to the majority,
MIAA is not disqualified from classification as a non-stock corporation by
reason of Section 87, the provision not being applicable to corporations
created by special laws or charters. In fact, I see no real impediment why the
MIAA and similarly situated corporations such as the PHIC, the SSS, the
Philippine Deposit Insurance Commission, or maybe even the NPC could at the
very least, be deemed as no stock
corporations (as differentiated from non-stock corporations).
The point, stripped to bare simplicity, is that
entity created by legislative enactment is a corporation if the legislature
says so. After all, it is the legislature that dictates what a corporation is
in the first place. This is better illustrated by another set of entities
created before martial law. These include the Mindanao Development Authority,[90]
the Northern Samar Development Authority,[91]
the Ilocos Sur Development Authority,[92]
the Southeastern Samar Development Authority[93]
and the Mountain Province Development Authority.[94]
An examination of the first section of the statutes creating these entities
reveal that they were established “to foster accelerated and balanced growth”
of their respective regions, and towards such end, the charters commonly
provide that “it is recognized that a government corporation should be
created for the purpose,” and accordingly, these charters “hereby created a
body corporate.”[95]
However, these corporations do not
have capital stock nor members, and are obliged to return the unexpended
balances of their appropriations and earnings to a revolving fund in the
National Treasury. The majority effectively declassifies these entities as
GOCCs, never mind the fact that their very charters declare them to be GOCCs.
I mention these entities not to bring an element
of obscurantism into the fray. I cite them as examples to emphasize my fundamental
point—that it is the legislative charters of these entities, and not the
Administrative Code, which define the class of personality of these entities
created by Congress. To adopt the view of the majority would be, in effect, to
sanction an implied repeal of numerous congressional charters for the purpose
of declassifying GOCCs. Certainly, this could not have been the intent of the
crafters of the Administrative Code when they drafted the “Definition of Terms”
incorporated therein.
MIAA Is Without
Doubt, A GOCC
Following the charters
of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock corporations and
GOCCs which are no stock corporations (as distinguished from non-stock
corporation). Stock GOCCs are simply those which have capital stock while no stock
GOCCs are those which have no capital stock. Obviously these definitions are different
from the definitions of the terms in the Corporation Code. Verily, GOCCs which
are not incorporated with the Securities and Exchange Commission are not
governed by the Corporation Code but by their respective charters.
For the MIAA’s part,
its charter is replete with provisions that indubitably classify it as a GOCC. Observe
the following provisions from MIAA’s charter:
SECTION 3. Creation of the Manila International Airport
Authority.—There is hereby established a body corporate to be known as the
The
land where the Airport is presently located as well as the surrounding land
area of approximately six hundred hectares, are hereby transferred, conveyed
and assigned to the ownership and administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate government agencies
shall undertake an actual survey of the area transferred within one year from
the promulgation of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof shall not be
disposed through sale or through any other mode unless specifically approved by
the President of the
xxx
SECTION 5. Functions,
Powers, and Duties. — The Authority shall have the following functions, powers
and duties:
xxx
(d) To
sue and be sued in its corporate
name;
(e) To
adopt and use a corporate seal;
(f) To
succeed by its corporate name;
(g) To
adopt its by-laws, and to amend or repeal the same from time to time;
(h) To
execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer,
lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable,
or any interest therein;
(j) To
exercise the power of eminent domain in the pursuit of its purposes and
objectives;
xxx
(o) To exercise all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order.
xxx
SECTION 16. Borrowing
Power. — The Authority may, after consultation with the Minister of Finance
and with the approval of the President of the Philippines, as recommended by
the Minister of Transportation and Communications, raise funds, either from
local or international sources, by way of loans, credits or securities, and
other borrowing instruments, with the power to create pledges, mortgages and
other voluntary liens or encumbrances on any of its assets or properties.
All loans contracted by
the Authority under this Section, together with all interests and other sums
payable in respect thereof, shall constitute a charge upon all the revenues and
assets of the Authority and shall rank equally with one another, but shall have
priority over any other claim or charge on the revenue and assets of the
Authority: Provided, That this provision shall not be construed as a
prohibition or restriction on the power of the Authority to create pledges,
mortgages, and other voluntary liens or encumbrances on any assets or property
of the Authority.
Except as expressly
authorized by the President of the
xxx
The President or his
duly authorized representative after consultation with the Minister of Finance
may guarantee, in the name and on behalf of the Republic of the
These
cited provisions establish the fitness
of MIAA to be the subject of legal relations.[96]
MIAA under its charter may acquire and possess property, incur obligations, and
bring civil or criminal actions. It has the power to contract in its own name,
and to acquire title to real or personal property. It likewise may exercise a
panoply of corporate powers and possesses all the trappings of corporate
personality, such as a corporate name, a corporate seal and by-laws. All these
are contained in MIAA’s charter which, as conceded by the Corporation Code and
even the Administrative Code, is the primary law that governs the definition
and organization of the MIAA.
In fact, MIAA itself believes
that it is a GOCC represents itself as such. It said so itself in the very
first paragraph of the present petition before this Court.[97] So
does, apparently, the Department of Budget and Management, which classifies
MIAA as a “government owned & controlled corporation” on its internet
website.[98] There
is also the matter of Executive Order No. 483, which evinces the belief of the
then-president of the
Why
then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts,
it is because MIAA is actually an instrumentality. But the very definition
relied upon by the majority of an instrumentality under the Administrative Code
clearly states that a GOCC is likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might
not even be determinative of this Petition,
but the effect of the majority’s disquisition
on that matter may even be more destructive than the ruling that MIAA is exempt
from realty taxes. Is the majority ready to live up to the momentous
consequences of its flawed reasoning?
Novel Proviso in 1987
Constitution
Prescribing Standards
in the
Creation of GOCCs
Necessarily
Applies only to GOCCs
Created
After 1987.
One last point on this matter on whether MIAA is
a GOCC. The majority triumphantly
points to Section 16, Article XII of the 1987 Constitution, which mandates that
the creation of GOCCs through special charters be “in the interest of the
common good and subject to the test of economic viability.” For the majority,
the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. But this test
of “economic viability” is new to the constitutional framework. No such test
was imposed in previous Constitutions, including the 1973 Constitution which
was the fundamental law in force when the MIAA was created. How then could the
MIAA, or any GOCC created before 1987 be expected to meet this new precondition
to the creation of a GOCC? Does the dissent seriously suggest that GOCCs created
before 1987 may be declassified on account of their failure to meet this
“economic viability test”?
Instrumentalities
and Agencies
Also
Generally Liable For
Real
Property Taxes
Next, the majority, having bludgeoned its way
into asserting that MIAA is not a GOCC, then argues that MIAA is an
instrumentality. It cites incompletely,
as earlier stated, the provision of Section 2(10) of the Administrative Code. A
more convincing view offered during deliberations, but which was not adopted by
the ponencia, argued that MIAA is not an instrumentality but an agency,
considering the fact that under the Administrative Code, the MIAA is attached
within the department framework of the Department of Transportation and
Communications.[100]
Interestingly, Executive Order No. 341, enacted by President Arroyo in 2004,
similarly calls MIAA an agency. Since instrumentalities are expressly defined
as “an agency not integrated within the department framework,” that view
concluded that MIAA cannot be deemed an instrumentality.
Still, that
distinction is ultimately irrelevant. Of course, as stated earlier, the
Administrative Code considers GOCCs as agencies,[101]
so the fact that MIAA is an agency does not exclude it from classification as a
GOCC. On the other hand, the majority justifies MIAA’s purported exemption on
Section 133 of the Local Government Code, which similarly situates “agencies
and instrumentalities” as generally exempt from the taxation powers of LGUs.
And on this point, the majority again evades Mactan and somehow concludes that Section 133 is the general rule,
notwithstanding Sections 232 and 234(a) of the Local Government Code. And the majority’s
ultimate conclusion? “By
express mandate of the Local Government Code, local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA. Local governments are
devoid of power to tax the national government, its agencies and
instrumentalities.”[102]
The Court’s interpretation of the Local
Government Code in Mactan renders the law integrally harmonious and
gives due accord to the respective prerogatives of the national government and
LGUs. Sections 133 and 234(a) ensure that the Republic of the Philippines or
its political subdivisions shall not be subjected to any form of local government
taxation, except realty taxes if the beneficial use of the property owned has
been granted for consideration to a taxable entity or person. On the other
hand, Section 133 likewise assures that government instrumentalities such as
GOCCs may not be arbitrarily taxed by LGUs, since they could be subjected to
local taxation if there is a specific proviso thereon in the Code. One such
proviso is Section 137, which as the Court found in National Power
Corporation,[103]
permits the imposition of a franchise tax on businesses enjoying a franchise,
even if it be a GOCC such as NPC. And, as the Court acknowledged in Mactan,
Section 232 provides another exception on the taxability of instrumentalities.
The
majority abjectly refuses to engage Section 232 of the Local Government Code although
it provides the indubitable general rule that LGUs “may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvements not hereafter specifically exempted.” The specific exemptions are
provided by Section 234. Section 232 comes sequentially after Section 133(o),[104]
and even if the sequencing is irrelevant, Section 232 would fall under the
qualifying phrase of Section 133, “Unless otherwise provided herein.” It is sad, but not surprising that the majority
is not willing to consider or even discuss the general rule, but only the
exemptions under Section 133 and Section 234. After all, if the majority is
dead set in ruling for MIAA no matter what the law says, why bother citing what
the law does say.
Constitution, Laws and
Jurisprudence Have Long
Explained the Rationale
Behind the Local Taxation
Of GOCCs.
This
blithe disregard of precedents, almost all of them unanimously decided, is
nowhere more evident than in the succeeding discussion of the majority, which
asserts that the power of local governments to tax national government
instrumentalities be construed strictly against local governments. The Maceda case, decided before the Local
Government Code, is cited, as is Basco.
This section of the majority employs deliberate pretense that the Code never
existed, or that the fundamentals of local autonomy are of limited effect in
our country. Why is it that the Local Government Code is barely mentioned in
this section of the majority? Because Section 5 of the Code, purposely omitted
by the majority provides for a different rule of interpretation than that
asserted:
Section 5. Rules of Interpretation.
– In the interpretation of the provisions of this Code, the following rules
shall apply:
(a) Any provision on a power
of a local government unit shall be liberally interpreted in its favor, and in
case of doubt, any question thereon shall be resolved in favor of devolution of
powers and of the lower local government unit. Any fair and reasonable doubt as
to the existence of the power shall be interpreted in favor of the local
government unit concerned;
(b) In case of doubt, any
tax ordinance or revenue measure shall be construed strictly against the local
government unit enacting it, and liberally in favor of the taxpayer. Any tax
exemption, incentive or relief granted by any local government unit pursuant to
the provisions of this Code shall be construed strictly against the person
claiming it; xxx
Yet the majority insists that “there is no point in national and local
governments taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to another.”[105]
I wonder whether the Constitution satisfies the majority’s desire for “a sound
and compelling policy.” To repeat:
Article II. Declaration
of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local
governments.
Article X. Local
Government
xxx
Sec. 2. The territorial
and political subdivisions shall enjoy local autonomy.
xxx
Section 5. Each local government unit shall have the
power to create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
Or how about the Local Government Code,
presumably an expression of sound and compelling policy considering that it was
enacted by the legislature, that veritable source of all statutes:
SEC. 129. Power
to Create Sources of Revenue. - Each local government unit shall
exercise its power to create its own sources of revenue and to levy taxes,
fees, and charges subject to the provisions herein, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.
Justice
Puno, in National Power Corporation v. City of Cabanatuan,[106]
provides a more “sound and compelling policy considerations” that would warrant
sustaining the taxability of government-owned entities by local government
units under the Local Government Code.
Doubtless,
the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people. As this
Court observed in the Mactan case, "the original reasons for the
withdrawal of tax exemption privileges granted to government-owned or
controlled corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." With the added burden of devolution, it is
even more imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due from them.[107]
I dare
not improve on Justice Puno’s exhaustive disquisition on the statutory and
jurisprudential shift brought about the acceptance of the principles of local
autonomy:
In recent
years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and
the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. Taxation
assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution, viz:
"Section
5. Each Local Government unit shall
have the power to create its own sources of revenue, to levy taxes, fees and
charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the Local Governments."
This
paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders upon
the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the
part of local government leaders." 35 The only way to shatter this culture
of dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own sources for
the purpose. To achieve this goal, section 3 of Article X of the 1987
Constitution mandates Congress to enact a local government code that will,
consistent with the basic policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers,
viz:
"Section
3. The Congress shall enact a local
government code which shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization with
effective mechanisms of recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities, and resources,
and provide for the qualifications, election, appointment and removal, term,
salaries, powers and functions and duties of local officials, and all other
matters relating to the organization and operation of the local units."
To recall,
prior to the enactment of the Rep. Act No. 7160, also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote
local autonomy. These include the Barrio Charter of 1959, the Local Autonomy
Act of 1959, the Decentralization Act of 1967
and the Local Government Code of 1983. Despite these initiatives,
however, the shackles of dependence on the national government remained. Local
government units were faced with the same problems that hamper their
capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over
external sources of income, (c) limited authority to prioritize and approve
development projects, (d) heavy dependence on external sources of income, and
(e) limited supervisory control over personnel of national line agencies.
Considered
as the most revolutionary piece of legislation on local autonomy, the LGC
effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws such as
the imposition of taxes on forest products, forest concessionaires, mineral
products, mining operations, and the like. The LGC likewise provides enough
flexibility to impose tax rates in accordance with their needs and
capabilities. It does not prescribe graduated fixed rates but merely specifies
the minimum and maximum tax rates and leaves the determination of the actual
rates to the respective sanggunian.[108]
And
the Court’s ruling through Justice Azcuna in Philippine Ports Authority v.
City of Iloilo[109],
provides especially clear and emphatic rationale:
In
closing, we reiterate that in taxing government-owned or controlled
corporations, the State ultimately suffers no loss. In National Power Corp. v. Presiding Judge,
RTC, Br. XXV, 38 we elucidated:
Actually,
the State has no reason to decry the taxation of NPC's properties, as and by
way of real property taxes. Real property taxes, after all, form part and
parcel of the financing apparatus of the Government in development and
nation-building, particularly in the local government level.
xxx xxx xxx
To all
intents and purposes, real property taxes are funds taken by the State with one
hand and given to the other. In no measure can the government be said to have
lost anything.
Finally,
we find it appropriate to restate that the primary reason for the withdrawal of
tax exemption privileges granted to government-owned and controlled
corporations and all other units of government was that such privilege resulted
in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, hence resulting in the need for these entities to share
in the requirements of development, fiscal or otherwise, by paying the taxes
and other charges due from them.[110]
How does the majority counter these seemingly
valid rationales which establish the soundness of a policy consideration
subjecting national instrumentalities to local taxation? Again, by simply
ignoring that these doctrines exist. It is unfortunate if the majority deems
these cases or the principles of devolution and local autonomy as simply too
inconvenient, and relies instead on discredited precedents. Of course, if the majority
faces the issues squarely, and expressly discusses why Basco was right and Mactan
was wrong, then this entire endeavor of the Court would be more intellectually
satisfying. But, this is not a game the majority wants to play.
Mischaracterization of
My
Views on the Tax
Exemption
Enjoyed by the National
Government
Instead, the majority engages in an extended
attack pertaining to Section 193, mischaracterizing my views on that provision
as if I had been interpreting the provision as making “the national government,
which itself is a juridical person, subject to tax by local governments since
the national government is not included in the enumeration of exempt entities
in Section 193.”[111]
Nothing is farther from the truth. I have never advanced any theory of the sort
imputed in the majority. My main thesis on the matter merely echoes the
explicit provision of Section 193 that unless otherwise provided in the Local
Government Code (LGC) all tax exemptions enjoyed by all persons, whether
natural or juridical, including GOCCs, were withdrawn upon the effectivity of
the Code. Since the provision speaks of
withdrawal of tax exemptions of persons, it follows that the exemptions
theretofore enjoyed by MIAA which is definitely a person are deemed withdrawn
upon the advent of the Code.
On the other hand, the provision does
not address the question of who are beyond the reach of the taxing power of
LGUs. In fine, the grant of tax
exemption or the withdrawal thereof assumes that the person or entity involved
is subject to tax. Thus, Section 193
does not apply to entities which were never given any tax exemption. This would
include the national government and its political subdivisions which, as a
general rule, are not subjected to tax in the first place.[112]
Corollarily, the national government and its political subdivisions do not need
tax exemptions. And Section 193 which
ordains the withdrawal of tax exemptions is obviously irrelevant to them.
Section 193 is in point for the
disposition of this case as it forecloses dependence for the grant of tax
exemption to MIAA on Section 21 of its charter. Even the majority should
concede that the charter section is now ineffectual, as Section 193 withdraws
the tax exemptions previously enjoyed by all juridical persons.
With
Section 193 mandating the withdrawal of tax exemptions granted to all persons
upon the effectivity of the LGC, for
MIAA to continue enjoying exemption from realty tax, it will have to rely on a
basis other than Section 21 of its charter.
Lung Center of the Philippines v. Quezon City[113]
provides another illustrative example of the jurisprudential havoc wrought
about by the majority. Pursuant to its charter, the
Another key point. The last paragraph of Section
234 specifically asserts that any previous exemptions from realty taxes granted
to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority’s
interpretation of Sections 133 and 234(a) however necessarily implies that all
instrumentalities, including GOCCs, can never be subjected to real property
taxation under the Code. If that is so, what then is the sense of the last
paragraph specifically withdrawing previous tax exemptions to all persons,
including GOCCs when juridical persons such as MIAA are anyway, to his view,
already exempt from such taxes under Section 133? The majority’s interpretation would effectively
render the express and emphatic withdrawal of previous exemptions to GOCCs
inutile. Ut magis valeat quam pereat. Hence, where a statute is
susceptible of more than one interpretation, the court should adopt such
reasonable and beneficial construction which will render the provision thereof
operative and effective, as well as harmonious with each other.[115]
But, the majority seems content rendering as absurd the Local Government Code, since
it does not have much use anyway for the Code’s general philosophy of fiscal
autonomy, as evidently seen by the continued reliance on Basco or Maceda. Local government rule has never been a grant of
emancipation from the national government. This is the favorite bugaboo of the
opponents of local autonomy—the fallacy that autonomy equates to independence.
Thus, the
conclusion of the majority is that under Section 133(o), MIAA as a government
instrumentality is beyond the reach of local taxation because it is not subject
to taxes, fees or charges of any kind. Moreover, the taxation of national
instrumentalities and agencies by LGUs should be strictly construed against the
LGUs, citing Maceda and Basco. No mention is made of the
subsequent rejection of these cases in jurisprudence following the Local
Government Code, including Mactan.
The majority is similarly silent on the general rule under Section 232 on real
property taxation or Section 5 on the rules of construction of the Local Government Code.
V.
MIAA, and not the National Government
Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government
Code explicitly provides that there are exceptions to the general rule on rule
property taxation, as “hereafter specifically exempted.” Section 234, certainly
“hereafter,” provides indubitable basis for exempting entities from real
property taxation. It provides the most
viable legal support for any claim that an governmental entity such as the MIAA
is exempt from real property taxes. To repeat:
SECTION 234. Exemptions
from Real Property Tax. -- The
following are exempted from payment of the real property tax:
xxx
(f)
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:
The majority
asserts that the properties owned by MIAA are owned by the Republic of the
MIAA Property Is
Patrimonial
And Not Part of Public
Dominion
The majority claims that the
Relevant on this point are the following
provisions of the MIAA charter:
Section 3.
Creation of the
The
land where the Airport is presently located as well as the surrounding land
area of approximately six hundred hectares, are hereby transferred, conveyed
and assigned to the ownership and administration of the Authority, subject
to existing rights, if any. xxx Any portion thereof shall not be disposed
through sale or through any other mode unless specifically approved by the
President of the
Section
22. Transfer of Existing Facilities and Intangible Assets. – All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging
to the Airport, and all assets, powers rights, interests and privileges
belonging to the Bureau of Air Transportation relating to airport works or air
operations, including all equipment which are necessary for the operation of
crash fire and rescue facilities, are
hereby transferred to the Authority.
Clearly, it is the MIAA, and not either the
State, the Republic of the
Nothing in the Civil Code or the Constitution
prohibits the State from transferring ownership over property of public dominion to
an entity that it similarly owns. It is just like a family transferring
ownership over the properties its members own into a family corporation. The
family exercises effective control over the administration and disposition of
these properties. Yet for several purposes under the law, such as taxation, it
is the corporation that is deemed to own those properties. A similar situation
obtains with MIAA, the State, and the
The second Public Ports Authority case,
penned by Justice Callejo, likewise lays down useful doctrines in this regard.
The Court refuted the claim that the properties of the PPA were owned by the
Republic of the Philippines, noting that PPA’s charter expressly transferred
ownership over these properties to the PPA, a situation which similarly obtains
with MIAA. The Court even went as far as saying that the fact that the PPA “had
not been issued any torrens title over the port and port facilities and
appurtenances is of no legal consequence. A torrens title does not, by itself,
vest ownership; it is merely an evidence of title over properties. xxx It has
never been recognized as a mode of acquiring ownership over real properties.”[116]
The Court further added:
xxx The bare
fact that the port and its facilities and appurtenances are accessible to the
general public does not exempt it from the payment of real property taxes. It
must be stressed that the said port facilities and appurtenances are the
petitioner’s corporate patrimonial properties, not for public use, and that the
operation of the port and its facilities and the administration of its
buildings are in the nature of ordinary business. The petitioner is
clothed, under P.D. No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests xxx The petitioner is even empowered
to invest its funds in such government securities approved by the Board of
Directors, and derives its income from rates, charges or fees for the use by
vessels of the port premises, appliances or equipment. xxx Clearly then, the
petitioner is a profit-earning corporation; hence, its patrimonial properties
are subject to tax.[117]
There is no doubt that the properties of the
MIAA, as with the PPA, are in a sense, for public use. A similar argument was
propounded by the Light Rail Transit Authority in Light Rail Transit
Authority v. Central Board of Assessment,[118]
which was cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority
(LRTA), a body corporate, “provides valuable transportation facilities to the
paying public.”[119]
It claimed that its carriage-ways and terminal stations are immovably attached
to government-owned national roads, and to impose real property taxes thereupon
would be to impose taxes on public roads. This view did not persuade the Court,
whose decision was penned by Justice (now Chief Justice) Panganiban. It was noted:
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.
xxx
Petitioner argues that
it merely operates and maintains the LRT system, and that the actual users of
the carriageways and terminal stations are the commuting public. It adds that
the public use character of the LRT is not negated by the fact that revenue is
obtained from the latter's operations.
We do not agree. 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.[120]
xxx
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.[121]
There is no substantial distinction between the
properties held by the PPA, the LRTA, and the MIAA. These three entities are in
the business of operating facilities that promote public transportation.
The majority further asserts that MIAA’s properties, being part of the
public dominion, are outside the commerce of man. But if this is so, then why does
Section 3 of MIAA’s charter authorize the President of the
No Trust Has Been
Created
Over MIAA Properties For
The Benefit of the
Republic
The majority posits that while MIAA might be holding
title over the
Also, the claim that beneficial ownership over
the MIAA remains with the government and not MIAA is ultimately irrelevant. Section
234(a) of the Local Government Code provides among those exempted from paying
real property taxes are “[r]eal property owned by the [Republic]… except when
the beneficial use thereof has been granted, for consideration or otherwise, to
a taxable person.” In the context of Section 234(a), the identity of the beneficial
owner over the properties is not determinative as to whether the exemption
avails. It is the identity of the beneficial user of the property owned
by the Republic or its political subdivisions that is crucial, for if said
beneficial user is a taxable person, then the exemption does not lie.
I
fear the majority confuses the notion of what might be construed as “beneficial
ownership” of the Republic over the properties of MIAA as nothing more than
what arises as a consequence of the fact that the capital of MIAA is
contributed by the National Government.[122] If so, then there is no difference between
the State’s ownership rights over MIAA properties than those of a majority
stockholder over the properties of a corporation. Even if such shareholder effectively owns the
corporation and controls the disposition of its assets, the personality of the
stockholder remains separately distinct from that of the corporation. A brief recall of the entrenched rule in
corporate law is in order:
The first consequence of the doctrine of legal
entity regarding the separate identity of the corporation and its stockholders
insofar as their obligations and liabilities are concerned, is spelled out in
this general rule deeply entrenched in American jurisprudence:
Unless the liability is expressly imposed by
constitutional or statutory provisions, or by the charter, or by special
agreement of the stockholders, stockholders are not personally liable for debts
of the corporation either at law or equity. The reason is that the corporation
is a legal entity or artificial person, distinct from the members who compose
it, in their individual capacity; and when it contracts a debt, it is the debt
of the legal entity or artificial person – the corporation – and not the debt
of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213)
The entirely separate identity of the rights
and remedies of a corporation itself and its individual stockholders have been
given definite recognition for a long time. Applying said principle, the
Supreme Court declared that a corporation may not be made to answer for acts or
liabilities of its stockholders or those of legal entities to which it may be
connected, or vice versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was
likewise declared in a similar case that a bonafide corporation should alone be
liable for corporate acts duly authorized by its officers and directors. (Caram
Jr. v. Court of Appeals et.al. 151 SCRA, p. 372)[123]
It
bears repeating that MIAA under its charter, is expressly conferred the right
to exercise all the powers of a corporation under the Corporation Law,
including the right to corporate succession, and the right to sue and be sued
in its corporate name.[124]
The national government made a particular choice to divest ownership and
operation of the
The majority claims that the transfer the assets
of MIAA was meant merely to effect a reorganization. The imputed rationale for
such transfer does not serve to militate against the legal consequences of such
assignment. Certainly, if it was intended that the transfer should be free of
consequence, then why was it effected to a body corporate, with a distinct
legal personality from that of the State or Republic? The stated aims of the
MIAA could have very well been accomplished by creating an agency without
independent juridical personality.
VI.
MIAA Performs Proprietary Functions
Nonetheless,
Section 234(f) exempts properties owned by the Republic of the
Clearly
then, these political subdivisions are engaged in the exercise of sovereign
functions and are accordingly exempt. The same could be said generally of the
national government, which would be similarly exempt. After all, even with the
principle of local autonomy, it is inherently noxious and self-defeatist for
local taxation to interfere with the sovereign exercise of functions. However,
the exercise of proprietary functions is a different matter altogether.
Sovereign and Proprietary
Functions Distinguished
Sovereign
or constituent functions are those which constitute the very bonds of society
and are compulsory in nature, while ministrant or proprietary functions are
those undertaken by way of advancing the general interests of society and are
merely optional.[126] An exhaustive discussion on the matter was
provided by the Court in Bacani v. NACOCO:[127]
xxx This institution,
when referring to the national government, has reference to what our
Constitution has established composed of three great departments, the
legislative, executive, and the judicial, through which the powers and
functions of government are exercised. These functions are twofold: constituent
and ministrant. The former are those which constitute the very bonds of society
and are compulsory in nature; the latter are those that are undertaken only by
way of advancing the general interests of society, and are merely optional.
President Wilson enumerates the constituent functions as follows:
"'(1) The keeping
of order and providing for the protection of persons and property from violence
and robbery.
'(2) The fixing of the legal relations between man
and wife and between parents and children.
'(3) The regulation of the holding, transmission,
and interchange of property, and the determination of its liabilities for debt
or for crime.
'(4) The determination
of contract rights between individuals.
'(5) The definition and punishment of crime.
'(6) The administration of justice in civil cases.
'(7) The determination
of the political duties, privileges, and relations of citizens.
'(8) Dealings of the state with foreign powers:
the preservation of the state from external danger or encroachment and the
advancement of its international interests.'" (Malcolm, The Government of
the Philippine Islands, p. 19.)
The most important of
the ministrant functions are: public works, public education, public charity,
health and safety regulations, and regulations of trade and industry. The
principles determining whether or not a government shall exercise certain of
these optional functions are: (1) that a government should do for the public
welfare those things which private capital would not naturally undertake and
(2) that a government should do these things which by its very nature it is
better equipped to administer for the public welfare than is any private
individual or group of individuals. (Malcolm, The Government of the Philippine
Islands, pp. 19-20.)
From the above we may
infer that, strictly speaking, there are functions which our government is required
to exercise to promote its objectives as expressed in our Constitution and
which are exercised by it as an attribute of sovereignty, and those which it
may exercise to promote merely the welfare, progress and prosperity of the
people. To this latter class belongs the organization of those corporations
owned or controlled by the government to promote certain aspects of the
economic life of our people such as the National Coconut Corporation. These are what we
call government-owned or controlled corporations which may take on the form of
a private enterprise or one organized with powers and formal characteristics of
a private corporations under the Corporation Law.[128]
The Court in Bacani rejected the
proposition that the National Coconut Corporation exercised sovereign
functions:
Does the
fact that these corporations perform certain functions of government make them
a part of the Government of the
The answer
is simple: they do not acquire that status for the simple reason that they do
not come under the classification of municipal or public corporation. Take for
instance the National Coconut Corporation. While it was organized with the
purpose of "adjusting the coconut industry to a position independent of
trade preferences in the United States" and of providing "Facilities
for the better curing of copra products and the proper utilization of coconut
by-products," a function which our government has chosen to exercise to
promote the coconut industry, however, it was given a corporate power separate
and distinct from our government, for it was made subject to the provisions of
our Corporation Law in so far as its corporate existence and the powers that it
may exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). It may sue and be sued in the same manner as
any other private corporations, and in this sense it is an entity different
from our government. As this Court has aptly said, "The mere fact that
the Government happens to be a majority stockholder does not make it a public corporation"
(National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587).
"By becoming a stockholder in the
National Coal Company, the Government divested itself of its sovereign
character so far as respects the transactions of the corporation. . . . Unlike
the Government, the corporation may be sued without its consent, and is subject
to taxation. Yet the National Coal Company remains an agency or instrumentality
of government." (Government of the Philippine
The following restatement of the entrenched rule
by former SEC Chairperson Rosario Lopez bears noting:
The fact that government corporations are
instrumentalities of the State does not divest them with immunity from suit.
(Malong v. PNR, 138 SCRA p. 63) It is settled that when the government
engages in a particular business through the instrumentality of a corporation,
it divests itself pro hoc vice of its sovereign character so as to subject
itself to the rules governing private corporations, (PNB v. Pabolan 82 SCRA
595) and is to be treated like any other corporation. (PNR v. Union de
Maquinistas Fogonero y Motormen, 84 SCRA 223)
In the same vein, when the government becomes a
stockholder in a corporation, it does not exercise sovereignty as such. It acts
merely as a corporator and exercises no other power in the management of the
affairs of the corporation than are expressly given by the incorporating act.
Nor does the fact that the government
may own all or a majority of the capital stock take from the corporation its
character as such, or make the government the real party in interest. (Amtorg
Trading Corp. v. US 71 F2d 524, 528)[129]
MIAA Performs
Proprietary
Functions No Matter How
Vital to the Public
Interest
The
simple truth is that, based on these accepted doctrinal tests, MIAA performs
proprietary functions. The operation of an airport facility by the State may be
imbued with public interest, but it is by no means indispensable or obligatory
on the national government. In fact, as demonstrated in other countries, it
makes a lot of economic sense to leave the operation of airports to the private
sector.
The
majority tries to becloud this issue by pointing out that the MIAA does not
compete in the marketplace as there is no competing international airport
operated by the private sector; and that MIAA performs an essential public
service as the primary domestic and international airport of the
Even
if it could be conceded that MIAA does not compete in the market place, the
example of the Philippine National Railways should be taken into account. The
PNR does not compete in the marketplace, and performs an essential public
service as the operator of the railway system in the
Even
more relevant to this particular case is Teodoro
v. National Airports Corporation,[132]
concerning the proper appreciation of the functions performed by the Civil
Aeronautics Administration (CAA), which had succeeded the defunction National
Airports Corporation. The CAA claimed that as an unincorporated agency of the
Republic of the
Among the general powers of the Civil
Aeronautics Administration are, under Section 3, to execute contracts of any
kind, to purchase property, and to grant concession rights, and under Section
4, to charge landing fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any property under its
management.
These provisions confer upon the Civil
Aeronautics Administration, in our opinion, the power to sue and be sued. The
power to sue and be sued is implied from the power to transact private
business. And if it has the power to sue and be sued on its behalf, the Civil
Aeronautics Administration with greater reason should have the power to
prosecute and defend suits for and against the National Airports Corporation,
having acquired all the properties, funds and choses in action and assumed all
the liabilities of the latter. To deny the National Airports Corporation's
creditors access to the courts of justice against the Civil Aeronautics
Administration is to say that the government could impair the obligation of its
corporations by the simple expedient of converting them into unincorporated
agencies. [133]
xxx
Eventually, the charter of the
CAA was revised, and it among its expanded functions was “[t]o administer,
operate, manage, control, maintain and develop the
The
Civil Aeronautics Administration comes under the category of a private entity.
Although not a body corporate it was created, like the National Airports
Corporation, not to maintain a necessary function of government, but to run
what is essentially a business, even if revenues be not its prime objective but
rather the promotion of travel and the convenience of the traveling public. It
is engaged in an enterprise which, far from being the exclusive prerogative of
state, may, more than the construction of public roads, be undertaken by
private concerns.[137]
If the determinative point in distinguishing
between sovereign functions and proprietary functions is the vitality of the
public service being performed, then it should be noted that there is no more
important public service performed than that engaged in by public utilities.
But notably, the Constitution itself authorizes private persons to exercise
these functions as it allows them to operate public utilities in this country[138]
If indeed such functions are actually sovereign and belonging properly to the
government, shouldn’t it follow that the exercise of these tasks remain within
the exclusive preserve of the State?
There
really is no prohibition against the government taxing itself,[139]
and nothing obscene with allowing government entities exercising proprietary
functions to be taxed for the purpose of raising the coffers of LGUs. On the
other hand, it would be an even more noxious proposition that the government or
the instrumentalities that it owns are above the law and may refuse to pay a
validly imposed tax. MIAA, or any similar entity engaged in the exercise of
proprietary, and not sovereign functions, cannot avoid the adverse-effects of
tax evasion simply on the claim that it is imbued with some of the attributes
of government.
VII.
MIAA
Property Not Subject to
Execution
Of the
President.
Despite
the fact that the City of
Nothing
in the Local Government Code, even with its wide grant of powers to LGUs, can
be deemed as repealing this prohibition under Section 3, even if it effectively
forecloses one possible remedy of the LGU in the collection of delinquent real
property taxes. While the Local
Government Code withdrew all previous local tax exemptions of the MIAA and
other natural and juridical persons, it did not similarly withdraw any
previously enacted prohibitions on properties owned by GOCCs, agencies or
instrumentalities. Moreover, the resulting legal effect, subjecting on one hand
the MIAA to local taxes but on the other hand shielding its properties from any
form of sale or disposition, is not contradictory or paradoxical, onerous as
its effect may be on the LGU. It simply means that the LGU has to find another
way to collect the taxes due from MIAA, thus paving the way for a mutually
acceptable negotiated solution.[141]
There
are several other reasons this statutory limitation should be upheld and
applied to this case. It is at this juncture that the importance of the
Section
3 of the MIAA charter may also be appreciated as within the proper exercise of
executive control by the President over the MIAA, a GOCC which despite its
separate legal personality, is still subsumed within the executive branch of
government. The power of executive control by the President should be upheld so
long as such exercise does not contravene the Constitution or the law, the
President having the corollary duty to faithfully execute the Constitution and
the laws of the land.[142]
In this case, the exercise of executive control is precisely recognized and
authorized by the legislature, and it should be upheld even if it comes at the
expense of limiting the power of local government units to collect real
property taxes.
Had
this petition been denied instead with Mactan
as basis, but with the caveat that the MIAA properties could not be
subject of execution sale without the
consent of the President, I suspect that the parties would feel little
distress. Through such action, both the Local
Government Code and the MIAA charter
would have been upheld. The prerogatives of LGUs in real property taxation, as
guaranteed by the Local Government Code, would have been preserved, yet the
concerns about the ruinous effects of having to close the
VIII.
Summary of Points
My
points may be summarized as follows:
1) Mactan
and a long line of succeeding cases have already settled the rule that under
the Local Government Code, enacted pursuant to the constitutional mandate of
local autonomy, all natural and juridical persons, even those GOCCs,
instrumentalities and agencies, are no longer exempt from local taxes even if
previously granted an exemption. The only exemptions from local taxes are those
specifically provided under the Local Government Code itself, or those enacted
through subsequent legislation.
2)
Under the Local Government Code, particularly Section 232, instrumentalities,
agencies and GOCCs are generally liable for real property taxes. The only
exemptions therefrom under the same Code are provided in Section 234, which
include real property owned by the Republic of the
3)
The subject properties are owned by MIAA, a GOCC, holding title in its own
name. MIAA, a separate legal entity from the Republic of the
4)
The MIAA charter expressly bars the sale or disposition of MIAA properties. As
a result, the City of
On the other hand,
the majority’s
flaws are summarized as follows:
1)
The majority deliberately ignores all precedents which
run counter to its hypothesis, including Mactan. Instead, it relies
and directly cites those doctrines and precedents which were overturned by Mactan. By imposing a different result than that warranted by the precedents without
explaining why Mactan or the other precedents are wrong, the majority attempts to overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by
the practices and traditions of this Court.
2) The
majority deliberately ignores the policy and
philosophy of local fiscal autonomy, as mandated by the Constitution, enacted
under the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no sound rationale
for local governments to tax national government instrumentalities, despite the
blunt existence of such rationales in the Constitution, the Local Government
Code, and precedents.
3)
The majority, in a needless effort to justify itself,
adopts an extremely strained exaltation of the Administrative Code above and
beyond the Corporation Code and the various legislative charters, in order to
impose a wholly absurd definition of GOCCs that effectively declassifies
innumerable existing GOCCs, to catastrophic legal consequences.
4)
The majority asserts that by virtue of Section 133(o) of
the Local Government Code, all national government agencies and
instrumentalities are exempt from any form of local taxation, in contravention
of several precedents to the contrary and the proviso under Section 133,
“unless otherwise provided herein [the Local Government Code].”
5)
The majority erroneously
argues that MIAA holds its properties in trust for the Republic of the
IX.
Epilogue
If my previous discussion still fails
to convince on how wrong the majority is, then the following points are
well-worth considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government
instrumentality that exercises corporate powers but not organized as a stock or
non-stock corporation. Correspondingly for the majority, the Bangko ng Sentral is
exempt from all forms of local taxation by LGUs by virtue of the Local
Government Code.
Section 125 of Rep. Act No. 7653, The
New Central Bank Act, states:
SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt for a period of five (5) years
from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and
assessments.
The New Central Bank Act was
promulgated after the Local Government Code if the BSP is already
preternaturally exempt from local taxation owing to its personality as an “government
instrumentality,” why then the need to make a new grant of exemption, which if
the majority is to be believed, is actually a redundancy. But even more
tellingly, does not this provision evince a clear intent that after the lapse
of five (5) years, that the Bangko Sentral will be liable for provincial, municipal and
city taxes? This is the clear congressional intent, and it is Congress, not
this Court which dictates which entities are subject to taxation and which are
exempt.
Perhaps this notion will offend the majority,
because the Bangko Sentral is not even a
government owned corporation, but a government instrumentality, or perhaps
“loosely”, a “government corporate entity.” How could such an entity like the Bangko
Sentral , which is not even a government owned corporation, be subjected to
local taxation like any mere mortal? But then, see Section 1 of the New Central
Bank Act:
SECTION 1. Declaration
of Policy. — The State shall maintain a central monetary authority that
shall function and operate as an independent
and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this
policy, and considering its unique functions and responsibilities, the central monetary authority established
under this Act, while being a government-owned corporation, shall
enjoy fiscal and administrative autonomy.
Apparently, the clear legislative intent
was to create a government corporation known as the Bangko Sentral ng
Pilipinas. But this legislative intent, the sort that is evident from the text
of the provision and not the one that needs to be unearthed from the bowels of
the archival offices of the House and the Senate, is for naught to the majority,
as it contravenes the Administrative Code of 1987, which after all, is “the
governing law defining the status and relationship of government agencies and
instrumentalities” and thus superior to the legislative charter in determining
the personality of a chartered entity. Its like saying that the architect who
designed a school building is better equipped to teach than the professor
because at least the architect is familiar with the geometry of the classroom.
Consider further the example of the
Philippine Institute of Traditional and Alternative Health Care (PITAHC),
created by Republic Act No. 8243 in 1997. It has similar characteristics as
MIAA in that it is established as a body corporate,[144]
and empowered with the attributes of a corporation,[145]
including the power to purchase or
acquire real properties.[146] However the PITAHC has no capital stock and
no members, thus following the majority, it is not a GOCC.
The state policy that guides PITAHC is
the development of traditional and alternative health care,[147]
and its objectives include the promotion and advocacy of alternative,
preventive and curative health care modalities that have been proven safe,
effective and cost effective.[148]
“Alternative health care modalities” include “other forms of non-allophatic,
occasionally non-indigenous or imported healing methods” which include, among
others “reflexology, acupuncture, massage, acupressure” and chiropractics.[149]
Given these premises, there is no
impediment for the PITAHC to purchase land and construct thereupon a massage
parlor that would provide a cheaper alternative to the opulent spas that have
proliferated around the metropolis. Such activity is in line with the purpose
of the PITAHC and with state policy. Is such massage parlor exempt from realty
taxes? For the majority, it is, for PITAHC is an instrumentality or agency
exempt from local government taxation, which does not fall under the exceptions
under Section 234 of the Local Government Code. Hence, this massage parlor
would not just be a shelter for frazzled nerves, but for taxes as well.
Ridiculous? One might say, certainly a
decision of the Supreme Court cannot be construed to promote an absurdity. But
precisely the majority, and the faulty reasoning it utilizes, opens itself up
to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of
the lesser evils that could arise from the majority ruling. This is indeed a very
strange and very wrong decision.
I dissent.
DANTE O. TINGA
Associate Justice
[1]Per Department of Interior and Local
Government. See also “Summary” from the
National Statistical Coordination Board, http://www.nscb.gov.ph/activestats
/psgc/NSCB_PSGC_SUMMARY_DEC04.pdf.
[12]Nonetheless, the Court noted therein GSIS’s
exemption from real property taxes was reenacted in 1997, and the GSIS at
present is exempt from such taxes under the GSIS Act of 1997.
[13]G.R. No. 109791,
[27]Section 232, Rep. Act No. 7160.
[41]
[53]MIAA’s Charter (E.O No.
903, as amended) provides:
Section 3. Creation of the
The land where the Airport is presently
located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. xxx Any
portion thereof shall not be disposed through sale or through any other mode
unless specifically approved by the President of the
Section 22. Transfer of
Existing Facilities and Intangible Assets. – All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers rights, interests and
privileges belonging to the Bureau of Air Transportation relating to airport
works or air operations, including all equipment which are necessary for the
operation of crash fire and rescue facilities, are hereby transferred to the
Authority.
On the other
hand, MCIAA’s charter (Rep. Act No. 6958) provides:
Section 15. Transfer of
Existing Facilities and Intangible Assets. – All existing public airport
facilities, runways, lands, buildings and other properties, movable or
immovable, belonging to or presently administered by the airports, and all
assets, powers, rights, interest and privileges relating to airport works or
air operations, including all equipment which are necessary for the operation
of air navigation, aerodrome control towers, crash, fire, and rescue facilities
are hereby transferred to the Authority: Provided, however, That the
operational control of all equipment necessary for the operation of radio aids
to air navigation, airways communication, the approach control office and the
area control center shall be retained by the Air Transportation Office. xxx
[54]See Section 3, E.O. 903 (as amended), infra
note 140; and Section Section 4(c), Rep. Act No. 6958, which qualifies the
power of the MCIAA to sell its properties, providing that “any asset located in
the Mactan International Airport important to national security shall not be
subject to alienation or mortgage by the Authority nor to transfer to any
entity other than the National Government.”
[58]This is apparent from such assertions as
“When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers.” See Decision, p. 9-10.
[68]See Section 16(i), Rep. Act No. 7875.
[71]See Section 2(b), Rep. Act No. 7656, which
defines GOCCs as “corporations
organized as a stock or non-stock corporation xxx”
[72]See Rep. Act No. 7656, the pertinent provisions of which read:
c. 3. Dividends.—All
government-owned or -controlled corporations shall declare and remit at least
fifty percent (50%) of their annual net earnings as cash, stock or property
dividends to the National Government. This section shall also apply to
those government-owned or -controlled corporations whose profit distribution is
provided by their respective charters or by special law, but shall exclude
those enumerated in Section 4 hereof: Provided, That such dividends
accruing to the National Government shall be received by the National Treasury
and recorded as income of the General Fund.
Sec. 4. Exemptions.—The
provisions of the preceding section notwithstanding, government-owned or
-controlled corporations created or organized by law to administer real or
personal properties or funds held in trust for the use and the benefit of its
members, shall not be covered by this Act such as, but not limited to: the
Government Service Insurance System, the Home Development Mutual Fund, the Employees
Compensation Commission, the Overseas Workers Welfare Administration, and the
Philippine Medical Care Commission.
[82]See Rep. Act No. 7653. If there is any doubt
whether the BSP was intended to be covered by Rep. Act No. 7656, see Section
2(b), Rep. Act No. 7656, which states that “This term [GOCCs] shall also include financial institutions, owned or
controlled by the National Government, but shall exclude acquired asset
corporations, as defined in the next paragraphs, state universities, and
colleges.”
[95]See
e.g., Sections 1 &
2, Rep. Act No. 6070.
Section 1. Declaration of Policy. – It is hereby
declared to be the policy of the Congress to foster the accelerated and
balanced growth of the
Sec. 2. Ilocos Sur Development Authority created.
– There is hereby created a body corporate to be known as the Ilocos Sur
Development Authority xxx. The Authority shall execute the powers and functions
herein vested and conferred upon it in such manner as will in its judgment, aid
to the fullest possible extent in carrying out the aims and purposes set forth
below.”
[96]See Art. 37, Civil Code, which provides in
part, “Juridical capacity, which is the fitness to be the subject of legal
relations…”
[97]See rollo,
p. 18. “Petitioner [MIAA] is a government-owned and controlled corporation
with original charter as
it was created by virtue of Executive Order No. 903 issued by then President
Ferdinand E. Marcos on July 21, 1983, as amended by Executive Order No. 298
issued by President Corazon C. Aquino on July 26, 1987, and with office address
at the MIAA Administration Bldg Complex, MIAA Road, Pasay City.” (emphasis
supplied).
[98]See “Department of Budget and Management –
Web Linkages,” http://www.dbm.
gov.ph/web_linkages.htm (Last visited
[99]G.R. No. 104217,
[104]Assuming that there is conflict between
Section 133(o), Section 193, Section 232 and Section 234 of the Local
Government Code, the rule in statutory construction is, “If there be no such
ground for choice between inharmonious provisions or sections, the latter
provision or section, being the last expression of the legislative will, must,
in construction, vacate the former to the extent of the repugnancy. It has been
held that in case of irreconcilable conflict between two provisions of the same
statute, the last in order of position is frequently held to prevail, unless it
clearly appears that the intent of the legislature is otherwise.” R. Agpalo, Statutory Construction (3rd
ed., 1995), p. 201; citing Lichauco &
Co. v. Apostol, 44 Phil. 138 (1922); Cuyegkeng
v. Cruz, 108 Phil. 1147 (1960); Montenegro
v. Castañeda, 91 Phil. 882 (1952).
[110]
Id, at 102; citing National Power Corp. v. Presiding Judge, RTC, Br. XXV, 190 SCRA 477
(1990).
[112]“Unless otherwise expressed in the tax
law, the government and its political subdivisions are exempt therefrom.” J. Vitug and
[115]R. Agpalo,
Statutory Construction (3rd
ed., 1995), at 199; citing Javellana v. Tayo, G.R. No. 18919,
[125]See Section 1, Article X of the
Constitution, which reads: “The territorial and political subdivisions of the
Republic of the
[127]100 Phil. 468. (1956)
[131]“Did the State act in a sovereign
capacity or in a corporate capacity when it organized the PNR for the purpose
of engaging in transportation? Did it act differently when it organized the PNR
as successor of the Manila Railroad Company? xxx We hold that in the instant
case the State divested itself of its sovereign capacity when it organized the
PNR which is no different from its predecessor, the Manila Railroad Company.”
Id, at 66.
[139]Vitug & Acosta, supra note 112, at 35; citing
Bisaya Land Transportation Co., Inc. v.
Collector of Internal Revenue, L-11812, 29 May 1959, 105 Phil. 1338.
[141]Indeed, last
[142]See Section 17, Article VII,
Constitution. “The President shall have control of all the executive
departments. He shall ensure that the laws be faithfully executed.”
[149]See Section 4(d), Rep. Act No. 8423.