MCIAA v.

MARCOS
G.R. No. 120082 / September 11, 1996 / DAVIDE, JR., J. / Real Property Taxation / EFHDy
NATURE PETITION for review on certiorari of decision of CA
PETITIONERS Mactan Cebu International Airport Authority
RESPONDENTS Hon. Ferdinand J. Marcos (Cebu City RTC Judge); Tomas
Osmena; Eustaquio Cesa
SUMMARY. Mactan Cebu International Airport Authority (MCIAA), which was
created by virtue of R.A. 6958, was mandated to principally undertake the
economical, efficient, and effective control, management, and supervision of the
Mactan International Airport and Lahug Airport, and such other airports as may be
established in Cebu. Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in accordance with Section 14
of its charter. However, on October 11, 1994, the OIC of the Office of the Treasurer
of the City of Cebu demanded payment from realty taxes in the total amount.
Petitioner objected to such demand for payment as baseless and unjustified
claiming in its favor the aforecited Sec. 14 of R.A. 6958. It was also asserted that it
is an instrumentality of the government performing governmental functions, citing
Section 133 of the LGC. The Court ruled that MCIAA’s exemption from payment of
taxes is withdrawn by virtue of Sections 193 and 234 of LGC. The petitioner cannot
also claim that it was never a “taxable person” under its Charter. It was only
exempted from the payment of realty taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax.
DOCTRINE. Since the last paragraph of Section 234 of the LGC unequivocally
withdrew, upon the effectivity of the LGC, exemptions from payment of real
property taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said section, and
Mactan Cebu International Airport Authority is a government-owned corporation,
it necessarily follows that its exemption from such tax granted it in Section 14 of its
Charter, R.A 6958, has been withdrawn.
FACTS.
• Mactan Cebu International Airport Authority (MCIAA) was created by virtue of RA
No. 6958, mandated to "principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport
in the Province of Cebu and the Lahug Airport in Cebu City, and such other
Airports as may be established in the Province of Cebu.
• Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Sec. 14 of its Charter.
• October 11, 1994: Cesa, OIC of the Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of land belonging to the
petitioner
• Petitioner objected to such demand for payment as baseless and unjustified,
claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from
payment of realty taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing section 133 of the LGC.
• Respondent City refused to cancel and set aside petitioner's realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
LGC.
• As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account "under protest" and
thereafter filed a Petition for Declaratory Relief with the RTC of Cebu.
• MCIAA: the taxing powers of local government units do not extend to the
levy of taxes or fees of any kind on an instrumentality of the national
government. While it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or instrumentality of
the national government by the very nature of its powers and functions.
• Cebu City: MCIAA is not an instrumentality of the government but merely a
government-owned corporation performing proprietary functions As such, all
exemptions previously granted to it were deemed withdrawn by operation of law,
as provided under Sections 193 and 234 of the LGC.
• The RTC dismissed the petition and ruled: a close reading of the LGC provides the
express cancellation and withdrawal of exemption of taxes by government owned
and controlled corporation per Sections after the effectivity of said Code.
ISSUES & RATIO.
1. WON MCIAA is liable to pay the tax. – YES.
• Section 1331 of the LGC prescribes the common limitations on the taxing
powers of local government units.
• The "taxes, fees or charges" referred to are "of any kind", hence they
include all of these, unless otherwise provided by the LGC. The term
"taxes" is well understood so as to need no further elaboration, especially
in the light of the above enumeration. The term "fees" means charges fixed
by law or Ordinance for the regulation or inspection of business activity,
while "charges" are pecuniary liabilities such as rents or fees against person
or property.
• Among the "taxes" enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows: Sec. 232. Power to Levy Real

1   Section   133.   Common   Limitations   on   the   Taxing   Powers   of   Local   Government   Units.—Unless   otherwise   provided   herein,   the   exercise   of   the   taxing   powers   of   provinces,   cities,   municipalities,   and   barangays   shall  

not  extend  to  the  levy  of  the  following:  x  x  x  

o)  Taxes,  fees  or  charges  of  any  kind  on  the  National  Government,  its  agencies  and  instrumentalities,  and  local  government  units.
 Property Tax. — A province or city or a municipality within the Metropolitan water districts, cooperatives duly registered under R.A. No. 6938, non-stock
Manila Area may levy on an annual ad valorem tax on real property such as and non-profit hospitals and educational institutions, and unless otherwise
land, building, machinery and other improvements not hereafter specifically provided in the LGC. The latter proviso could refer to Section 234, which
exempted. enumerates the properties exempt from real property tax. But the last
• Section 2342 of LGC provides for the exemptions from payment of real paragraph of Section 234 further qualifies the retention of the exemption in
property taxes and withdraws previous exemptions therefrom granted to so far as the real property taxes are concerned by limiting the retention only
natural and juridical persons, including government owned and controlled to those enumerated there-in; all others not included in the enumeration
corporations, except as provided therein. lost the privilege upon the effectivity of the LGC. Moreover, even as the real
• Section 1933 of the LGC is the general provision on withdrawal of tax property is owned by the Republic of the Philippines, or any of its political
exemption privileges. subdivisions covered by item (a) of the first paragraph of Section 234, the
• On the other hand, the LGC authorizes local government units to grant tax exemption is withdrawn if the beneficial use of such property has been
exemption privileges. Thus, Section 192 thereof provides: Sec. 192. granted to taxable person for consideration or otherwise.
Authority to Grant Tax Exemption Privileges. — Local government units • Since the last paragraph of Sec. 234 unequivocally withdrew, upon the
may, through ordinances duly approved, grant tax exemptions, incentives or effectivity of the LGC, exemptions from real property taxes granted to
reliefs under such terms and conditions as they may deem necessary. natural or juridical persons, including government-owned or controlled
• The foregoing sections of the LGC speaks of: (a) the limitations on the corporations, except as provided in the said section, and the petitioner
taxing powers of local government units and the exceptions to such is, undoubtedly, a government-owned corporation, it necessarily
limitations; and (b) the rule on tax exemptions and the exceptions thereto. follows that its exemption from such tax granted it in Section 14 of its
The use of exceptions of provisos in these section, as shown by the charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary
following clauses: (1) "unless otherwise provided herein" in the opening can only be justified if the petitioner can seek refuge under any of the
paragraph of Section 133; (2) "Unless otherwise provided in this Code" in exceptions provided in Section 234, but not under Section 133, as it now
section 193; (3) "not hereafter specifically exempted" in Section 232; and (4) asserts, since, as shown above, the said section is qualified by Section 232
"Except as provided herein" in the last paragraph of Section 234 and 234.
• Reading together Sec. 133, 232 and 234 of the LGC, we conclude that as • The petitioner can no longer invoke the general rule in Section 133 that
a general rule, as laid down in Section 133 the taxing powers of LGUs the taxing powers of the local government units cannot extend to the
cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind levy of taxes, fees, or charges of any kind on the National Government,
of the National Government, its agencies and instrumentalties, and local its agencies, or instrumentalities, and local government units. It must
government units"; however, pursuant to Sec. 232, provinces, cities, show that the parcels of land in question, which are real property, are
municipalities in the Metropolitan Manila Area may impose the real property any one of those enumerated in Section 234, either by virtue of
tax except on, inter alia, "real property owned by the Republic of the ownership, character, or use of the property. Most likely, it could only
Philippines or any of its political subdivisions except when the beneficial be the first, but not under any explicit provision of the said section, for
used thereof has been granted, for consideration or otherwise, to a taxable one exists.
person", as provided in item (a) of the first paragraph of Sec. 234. • The petitioner's claim that it is an instrumentality of the Government is
• As to tax exemptions or incentives granted to or presently enjoyed by based on Section 133(o), which expressly mentions the word
natural or juridical persons, including government-owned and controlled "instrumentalities"; and in the second place it fails to consider the fact that
corporations, Sec. 193 of the LGC prescribes the general rule, viz., they are the legislature used the phrase "National Government, its agencies and
withdrawn upon the effectivity of the LGC, except those granted to local instrumentalities" "in Section 133(o), but only the phrase "Republic of the

2  Section  234.  Exemptions  from  Real  Property  Taxes.—  x  x  x  (e)  x  x  x  

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  government-­owned  or  controlled  
corporations  are  hereby  withdrawn  upon  the  effectivity  of  this  Code.

3   Section   193.   Withdrawal   of   Tax   Exemption   Privilege.—Unless   otherwise   provided   in   this   Code,   tax   exemptions   or   incentives   granted   to,   or   presently   enjoyed   by   all   persons   whether   natural   or   juridical,  

including   government-­owned   or   controlled   corporations,   except   local   water   districts,   cooperatives   duly   registered   under   RA   No.   6938,   nonstick   and   nonproRit   hospitals   and   educational   institutions,   are  
hereby  withdrawn  upon  the  effectivity  of  this  Code.
 Philippines or any of its political subdivision "in Section 234(a)4. The terms their intimate conversation during a judiciary fun jog at the Cebu City Sports Center
"Republic of the Philippines" and "National Government" are not as one of the bases of the decision.
interchangeable. If Section 234(a) intended to extend the exception therein
to the withdrawal of the exemption from payment of real property taxes
under the last sentence of the said section to the agencies and
instrumentalities of the National Government mentioned in Section 133(o),
then it should have restated the wording of the latter. Yet, it did not.

[MINOR ISSUES]
2. WON the parcels of land in question belong to the Republic of the Philippines
whose beneficial use has been granted to the petitioner. – YES.
• Section 15 of the petitioner's Charter involves a "transfer" of the "lands"
among other things, to the petitioner and not just the transfer of the
beneficial use thereof, with the ownership being retained by the Republic of
the Philippines. This "transfer" is actually an absolute conveyance of the
ownership thereof because the petitioner's authorized capital stock consists
of, inter alia "the value of such real estate owned and/or administered by
the airports." Hence, the petitioner is now the owner of the land in
question and the exception in Section 234(c) of the LGC is inapplicable.

3. WON the petitioner is a "taxable person". – YES.

• The petitioner cannot claim that it was never a "taxable person" under
its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive
proof of the legislative intent to make it a taxable person subject to all
taxes, except real property tax. Even if the petitioner was originally not a
taxable person for purposes of real property tax, in light of the forgoing
disquisitions, it had already become even if it be conceded to be an
"agency" or "instrumentality" of the Government, a taxable person for such
purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier
adverted to, applies to the petitioner.

DECISION.
Petition DENIED.

NOTES/CHISMIS HEHEHEHEHEHEHEHE.
Judge Ferdinand J. Marcos is not THE dictator. However upon curiosity, a quick
google search revealed that on 2001, he was dismissed by the Supreme Court from
the service for immorality, and was also reportedly abandoned by his alleged
paramour (a law student). Chief Justice Hilario Davide (who is the ponente here) used

4
 (a)
 Real
 property
 owned
 by
 the
 Republic
 of
 the
 Philippines
 or
 any
 of
 its
 political
 subdivisions
 except
 when
 the
 beneRicial
 use
 thereof
 has
 been
 granted,
 for
 consideration
 or
 otherwise,
 to
 a
 taxable
 person;
 MIAA v. PASAY
GR 163072 / Apr 2 2009 / CARPIO, J. / LocGov – Real Property Taxation / BUNYI
PETITIONERS Manila International Airport Authority (MIAA)
RESPONDENTS Pasay City + SP, Mayor, Treasurer, and Assessor of Pasay City
NATURE Petition for review on certiorari
SUMMARY. Pasay City is demanding real property tax from MIAA for its NAIA Complex
properties located in Pasay. CA ruled that MIAA is a GOCC who is liable for real property tax.
SC held that MIAA is not liable for real property tax because (1) it is not a GOCC but is a
government instrumentality which is exempt from any kind of tax from LGUs pursuant to LGC
Sec. 133 and (2) MIAA’s properties are public dominion and are thus exempt from real
property tax pursuant to LGC Sec. 234(a).
  are exempt from tax under existing laws. The only difference between the 2006 MIAA case
DOCTRINE. LGC Sec. 133 which provides that LGUs have no power to tax instrumentalities
of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax
for the NAIA Pasay properties. Furthermore, the airport lands and buildings of MIAA are
properties of public dominion intended for public use, and as such are exempt from real
property tax under LGC Sec. 234(a). However,  if MIAA leases its real property to a taxable
person, the specific property leased becomes subject to real property tax. In this case, only
those portions of the NAIA Pasay properties which are leased to taxable persons like private
parties are subject to real property tax by Pasay City.
FACTS.
• PET Manila International Airport Authority (MIAA) operates and administers the NAIA
Complex under its Revised Charter, EO 903 (1983). Under EO 903, approximately 600h of
land, including the runways, the airport tower, and other airport buildings, were transferred
to MIAA. The NAIA Complex is located along the border between Pasay City and Paraaque
City.
• Aug 28 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City
of Pasay for the taxable years 1992 to 2001, totaling P 1B. Pasay issued notices of levy and
warrants of levy for the NAIA Pasay properties. Thereafter, Pasay’s Mayor threatened to sell
at public auction the NAIA Pasay properties if the delinquent real property taxes remain
unpaid.
• Oct 2001, MIAA filed petition for prohibition and injunction and prayer for PI/TRO with CA
against Pasay. CA dismissed and ruled that since MIAA is a GOCC, its tax exemption under
EO 903 Sec. 21 has been withdrawn and it is now liable for real property tax pursuant to
LGC Sec. 1935 (withdrew tax exemptions granted to GOCCs) and LGC Sec. 2346 (taxed real
property owned by the Republic when beneficial use thereof has been granted to a taxable
person).MR denied.
ISSUES & RATIO.
WON MIAA’s NAIA Pasay properties are exempt from real property tax – YES
• MIAA v. CA (2006) already resolved the issue of whether MIAA’s airport land and buildings
and this 2009 MIAA case is that the former involved airport lands and buildings located in
Paraaque City while this case involved airport lands and buildings located in Pasay City. In
2006 MIAA, SC held:
o MIAA is not a GOCC under Admin Code, Introductory Provs, Sec. 2(13) because it is not
organized as a stock or non-stock corporation and it is not a GOCC under 1987
Constitution, Art. XII, Sec. 16 because it is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Admin Code, Introductory Provs, Sec.
2(10). As a government instrumentality, MIAA is not subject to any kind of tax by local
governments under LGC Sec. 133(o). The exception to the exemption in LGC Sec. 234(a)
does not apply to MIAA because such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity, and MIAAis not a taxable
entity under the LGC.
o MIAA’s airport land and buildings are properties of public dominion under CC Art. 4207
because they are properties intended for public use (at the very least intended for public
service) and the terms “ports constructed by the State” includes airports and seaports. As
properties of public dominion, MIAA’s properties are owned by the Republic and thus
exempt from real estate tax under LGC Sec. 234(a).

5
 SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.

6
 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;

7

 Art. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of
similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
• The definition of instrumentality under Admin Code Introductory Provs Sec. 2(10)8 uses the
phrase “includes government-owned or controlled corporations” which  means that a
government instrumentality may or may not be a GOCC because it is a broader term. The
term GOCC, meanwhile, has a separate definition under Admin Code Introductory Provs.
Sec. 2(13)9 . Thus, MIAA is a government instrumentality that does not qualify as a GOCC.
As explained in 2006 MIAA:
o A GOCC must be organized as a stock or non-stock corporation, and MIAA is neither.
Corpo Code Sec. 3 defines a stock corporation as one whose capital stock is divided into
shares and authorized to distribute to the holders of such shares dividends. MIAA is not a
stock corporation because it has no capital stock divided into shares. MIAA has capital
but it is not divided into shares of stock. It has no stockholders of voting shares. Corpo
Code Sec. 87 defines a non-stock corporation as one where no part of its income is
distributable as dividends to its members, trustees or officers, thus, a non-stock
corporation must have members. MIAA is not a non-stock corporation because it has no
members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation.  Non-stock corporations cannot
distribute any part of their income to their members but MIAA Charter Sec. 11 mandates
MIAA to remit 20% of its annual gross operating income to the National Treasury. MIAA is
not organized for any of the purposes mentioned in Corpo Code Sec. 88 10.  MIAA, a
public utility, is organized to operate an international and domestic airport for public use.
o Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
GOCC. MIAA is a government instrumentality, vested with corporate powers to perform
efficiently its governmental functions. When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a corporation. MIAA exercises
the governmental powers of eminent domain, police authority and the levying of fees
and charges, at the same time, MIAA exercises all the powers of a corporation under
the  Corpo Law, insofar as these powers are not inconsistent with the provisions of this
EO.
• MIAA is not a GOCC but a government instrumentality which is exempt from any kind
of tax from the local governments.  The exercise of the taxing power of LGUs is
subject to the limitations in LGC Sec. 133 which provides that LGUs have no power to
tax instrumentalities of the national government like the MIAA. Hence, MIAA is not
liable to pay real property tax for the NAIA Pasay properties. Furthermore, the
airport lands and buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under LGC Sec. 234(a).
However,  if MIAA leases its real property to a taxable person, the specific property
leased becomes subject to real property tax.  In this case, only those portions of the
NAIA Pasay properties which are leased to taxable persons like private parties are
subject to real property tax by Pasay City.
DECISION.
Petition GRANTED. CA reversed. MIAA’s NAIA Pasay properties declared EXEMPT from real
property tax and all real property tax assessments by Pasay, except for the portions MIAA has
leased to private parties, declared VOID.
DISSENT – J. YNARES-SANTIAGO
• The power to impose ad valorem tax on real property is given to LGUs under LGC Sec. 232.
The law also provides exemptions under Sec. 234 which includes properties owned by the
Republic. Since the airport and all its installations are intended for public use, these are of
public dominion. Lands were transferred to MIAA but such is not absolute as the beneficial
ownership is with the government. It is holding these properties only as an agent for the
state. MIAA cannot dispose of the lands without specific approval from the President.
Therefore since all its properties are of public dominion, it must be exempt from real
property tax except if the beneficial use of these properties have been granted to a taxable
person (i.e. lease).
DISSENT – J. TINGA
• Reiterated his dissent in the previous MIAA cases. That the black and white categorization
of stock and non-stock corporations disregards the power of Congress to create GOCC in
whatever structure it deems necessary. The court also failed to consider that an
instrumentality refers to regulatory agencies, chartered institutions and GOCCs. The
majority wrongly defined an instrumentality that the Executive issued an EO clarifying its
definition. All persons, natural or juridical, including GOCCs are liable for real property
taxes. The only exempt properties are those owned by the Republic. Since GOCCs have a
separate personality from the gov’t it is liable for taxes. Any tax exemptions granted to it
prior LGC is deemed repealed under LGC. The properties owned by MIAA are properties of
public dominion but the provision allowing its alienation subject to President’s approval
should be voided to avoid the inconsistency that public properties devoted for public use
cannot be alienated. MIAA is liable for real property taxes but its property is not subject to
foreclosure proceedings as it is owned by the state.
SEPARATE OPINION – J. NACHURA:
• The properties comprising the NAIA being of public dominion which pertain to the State,
the same should be exempt from real property tax following Section 234(a) of the LGC.

8
 SEC. 2. General Terms Defined. (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.

9
  SEC. 2.  General Terms Defined.  (13)  Government-owned or controlled corporation  refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock:  Provided, That government-owned or controlled corporations may further be categorized by the department of Budget, the Civil Service Commission, and the Commission on Audit for the purpose of the exercise and
discharge of their respective powers, functions and responsibilities with respect to such corporations.

10

  Section 88 of the Corporation Code provides that non-stock corporations are organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers.
 PHIL. FISHERIES DEVT AUTHORITY v. CA
G.R. No. 169836 / JUL 31, 2007 / YNARES-SANTIAGO, J. /
LOCGOV - / JCFMAGSINO
NATURE Petition for Review on Certiorari – CA Decision
PETITIONERS Philippine Fisheries Development Authority
RESPONDENTS Court of Appeals, Office of the President, Dept. of Finance, and
City of Iloilo
SUMMARY: PFDA was assessed with tax deficiency by the City of Iloilo for the
operation of the IFPC and eventually wanted to sell IFPC to satisfy its claim. DOF
ruled that PFDA is liable, but should not sell IFPC at public auction since it belongs
to the Republic. PFDA claims that it is not liable to pay for real property taxes. SC
held that PFDA is an instrumentality of the national government, hence, it is liable
to pay real property taxes assessed by the City of Iloilo on the IFPC only with
respect to those portions which are leased to private entities. Notwithstanding said
tax delinquency on the leased portions of the IFPC, the latter or any part thereof,
being a property of public domain, cannot be sold at public auction. This means
that the City of Iloilo has to satisfy the tax delinquency through means other than
the sale at public auction of the IFPC.
DOCTRINE: As a general rule, unlike GOCCs, instrumentalities of the national
government, are exempt from local taxes. An exception to this exemption is with
regard to real property taxes – when an instrumentality of the national government
grants to a taxable person the beneficial use of a real property owned by the
Republic, said instrumentality becomes liable to pay real property tax. (ie. leasing
such properties to private parties)
FACTS.
1. On August 11, 1976, Marcos issued PD 977 creating the PFDA and placing it
under the direct control and supervision of the Sec of Natural Resources.
Thereafter, EO 772 was issued amending PD 977, and renaming the Authority to
its now present name, PFDA, and attaching such to the Ministry of Natural
Resources.
2. Upon effectivity of the Administrative Code (EO 292), the PFDA became an
attached agency of the Dept. of Agriculture.
3. Beginning October 31, 1981, then Ministry of Public Works and Highways
reclaimed from the sea a 21-ha. parcel of land in Brgy. Tanza, Iloilo City, and
constructed thereon the Iloilo Fishing Port Complex (IFPC) – consisting of
breakwater, a landing quay, a refrigeration building, a market hall, a municipal
shed, an administration building, a water and fuel oil supply system and other
port related facilities and machineries.
4. Upon its completion, the MPWH turned over IFPC to PFDA, pursuant to Sec. 11,
PD 977, which places fishing port complexes and related facilities under the
governance of the PFDA.
5. Notwithstanding such turnover, title to the land and buildings remained with the
Republic.
6. PFDA thereafter eased portions of IFPC to private firms and individuals engaged
in fishing related businesses.
7. Sometime in May 1988, City of Iloilo assessed the entire IFPC for real property
taxes. The assessment remained unpaid until the total delinquency for the years
1988 and 89 reached P5,057,349,67.
8. To satisfy this deficiency, City of Iloilo scheduled a sale at public auction of the
IFPC.
9. PFDA filed an injunction case at the RTC. During pre-trial, parties agreed to avail
of administrative proceedings – PFDA will file a claim for tax exemption with the
Iloilo City Assessor’s Office. The latter, however, denied the claim for exemption,
hence PFDA elevated the case to the DOF.
10. DOF ruled that PFDA is liable to pay real property taxes to Iloilo because it
enjoys the beneficial use of the IFPC. However, in satisfying the amount of
unpaid taxes, property owned by PFDA shall be auctioned, and not the IFPC,
which is the property of the Republic.
11. PFDA filed a petition before the OP which was eventually dismissed. MR denied.
12. During appeal to the CA, the OP decision was affirmed. CA opined that IFPC
may be sold at public auction to satisfy the delinquency.
ISSUES & RATIO.
WON PFDA is liable to pay real property tax to the City of Iloilo. If yes, may the
IFPC be sold at public auction to satisfy tax delinquency? - IN PART YES & NO.
NO.
o To resolve this issue, SC first has to determine (1) whether PFDA is a GOCC or
an instrumentality of the national government; and (2) whether IFPC is a
property of public dominion.
o PFDA is not a GOCC, but an instrumentality of the national government
which is generally exempt from the payment of real property tax.
Exemption, however, does not apply to portions of IFPC which PFDA leased
to private entities.
o IFPC is a property of public dominion and cannot be sold at public auction to
satisfy tax delinquency.
o In Manila Intl Airport Auth v. CA, a distinction between an instrumentality and
a GOCC was made:
o Definition of a GOCC:
Sec. 2(13) of the Introductory Provisions of the Administrative Code of
1987: GOCC refers to any agency organized as a stock or nonstock
corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as
 in the case of stock corporations, to the extent of at least fiftyone (51)
percent of its capital stock.
☞ MIAA v. CA: MIAA was not organized as a stock or non-stock
corporation; not a stock corporation since it has no capital stock divided
into shares; no stockholders or voting shares.
o Definition of a Stock Corporation:
Sec. 3, Corpo Code: A stock corporation is one whose “capital stock is
divided into shares and x x x authorized to distribute to the holders of such
shares dividends x x x
☞ MIAA v. CA: has capital but it is not divided into shares of stock. MIAA
has no stockholders or voting shares. Hence, MIAA is not a stock
corporation. MIAA is also not a nonstock corporation because it has no
members. Sec. 87, Corpo Code defines a nonstock corporation as “one
where no part of its income is distributable as dividends to its members,
trustees or officers.”
☞ Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a nonstock corporation. Non
stock corporations cannot distribute any part of their income to their
members. Sec. 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a nonstock corporation.
o Sec. 88, Corpo Code: nonstock corporations are “organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers.”
☞ MIAA v. CA: MIAA is not organized for any of these purposes. MIAA, a
public utility, is organized to operate an international and domestic
airport for public use.
☞ Since MIAA is neither a stock nor a nonstock corporation, MIAA does not
qualify as a governmentowned or controlled corporation.
o Thus, for an entity to be considered as a GOCC, it must either be organized as a
stock or nonstock corporation.
o Two requisites must concur before one may be classified as a stock
corporation, namely: (1) that it has capital stock divided into shares, and (2)
that it is authorized to distribute dividends and allotments of surplus and
profits to its stockholders.
o If only one requisite is present, it cannot be properly classified as a stock
corporation. As for nonstock corporations, they must have members and
must not distribute any part of their income to said members.
o On the basis of the parameters set in the MIAA case, PFDA should be classified
as an instrumentality of the national government. As such, it is generally exempt
from payment of real property tax, except those portions which have been
leased to private entities.
o In the MIAA case, petitioner Philippine Fisheries Development Authority
was cited as among the instrumentalities of the national government.
Indeed, PFDA is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. Also, it
has no stockholders or voting shares. Hence, it is not a stock corporation.
Neither it is a nonstock corporation because it has no members.
o PFDA is actually a national government instrumentality - an agency of the
national government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or
nonstock corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers.
o Hence, PFDA, who is tasked to promote development of the country and
fisihing industry and improve efficiency handling, preserving, marketing, and
distribution of fish and other aquatic products, exercises the governmental
powers of eminent domain (Sec. 4(k), PD 977, a. by EO 772), and the power to
levy fees and charges (Sec. 4(e), PD 977, a. by EO 772). At the same time, PFDA
exercises the general corporate powers conferred by laws upon private and
government-owned or controlled corporations (Sec. 4(j), PD 977, a. by EO 772).
o GR: Unlike GOCCs, instrumentalities of the national government, are exempt
from local taxes pursuant to Sec. 133(o), LGC.
XPN: Real Property Taxes under Sec. 234, LGC – when an instrumentality of the
national government grants to a taxable person the beneficial use of a real
property owned by the Republic, said instrumentality becomes liable to pay real
property tax. (ie. leasing such properties to private parties)
o Thus in MIAA v. CA:
o Sec. 193, LGC. expressly withdrew the tax exemption of all juridical
persons “[u]nless otherwise provided in this Code.”
o Now, Sec. 133(o) of the Local Government Code expressly provides
otherwise, specifically prohibiting local governments from imposing any
kind of tax on national government instrumentalities. Sec. 133, LGC.
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 kinds on the National
Government, its agencies and instrumentalities, and local
government units.
o By express mandate of the LGC, 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.
 o The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, “[u]nless otherwise
provided in this Code” as stated in the saving clause of Sec. 133.
o The saving clause in Sec. 133 refers to the exception to the exemption
in Sec. 234(a), LGC, which makes the national government subject to
real estate tax when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government Code provides:
Sec. 234, LGC. 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.
PFDA should be classified as an instrumentality of the national government which is
liable to pay taxes only with respect to the portions of the property, the beneficial
use of which were vested in private entities. When local governments invoke the
power to tax on national government instrumentalities, such power is construed
strictly against local governments.
levied upon to satisfy the tax delinquency should be resolved against the City of
Iloilo.
CONCLUSION
In sum, the Court finds that PFDA is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC
only with respect to those portions which are leased to private entities.
Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter
or any part thereof, being a property of public domain, cannot be sold at public
auction. This means that the City of Iloilo has to satisfy the tax delinquency through
means other than the sale at public auction of the IFPC.
DECISION.
Petition AFFIRMED.

The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is
resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld
only with respect to the portions leased to private persons. In case the Authority fails
to pay the real property taxes due thereon, said portions cannot be sold at public
auction to satisfy the tax delinquency.

In Chavez v. PEA, reclaimed lands are lands of the public domain and cannot, without
Congressional fiat, be subject of a sale, public or private. In the same vein, the port
built by the State in the IFPC is a property of the public dominion and cannot be sold
at public auction, citing Art. 420, CC as basis.

IFPC was constructed by the State for public use and/or public service falls within the
term “port” which is listed under Art. 420, CC. Being a property of public dominion
the same cannot be subject to execution or foreclosure sale. In like manner, the
reclaimed land on which the IFPC is built cannot be the object of a private or public
sale without Congressional authorization.

Whether there are improvements in the fishing port complex that should not be
construed to be embraced within the term “port,” involves evidentiary matters that
cannot be addressed in the present case. As for now, considering that the PFDA is a
national government instrumentality, any doubt on whether the entire IFPC may be
 GOVERNMENT SERVICE INSURANCE SYSTEM v. CITY TREASURER AND CITY
ASSESSOR OF THE CITY OF MANILA
G.R. No. 186242 / 23 December 2009/ Velasco, J. /
Loc Gov / Silva
NATURE Petition for Review on Certiorari
PETITIONERS GSIS
RESPONDENTS CITY TREASURER and CITY ASSESSOR of the CITY OF MANILA
SUMMARY:
The City of Manila assessed GSIS for payment of real estate taxes covering the period of
1992. GSIS refused to pay the tax because it argues that under RA 8291, it is exempt from
paying ANY tax.
The Court held:
1. GSIS is exempt from paying the real property tax. While the LGC revoked the GSIS’
prior tax-exempt status, it was restored by provision of law when Congress enacted RA
8291. Also, as an instrumentality of the national government and following the ruling of
MIAA v. CA, it is outside the purview of local taxation.
2. Since GSIS allowed the Katigbak property to be used by MHC, the property is subject to
real property tax and MHC pays by virtue of the beneficial use doctrine. As to who pays,
the Court cited a case and the contract to point that MHC is liable to pay taxes.
The property is not subject to attachment. This is provided for by RA 8291. On the first part,
since no tax liability attaches to GSIS, its property cannot be subject to attachment. As to the
Katigbak property, regardless whether MHC is liable to pay taxes, by express provision of RA
8291, GSIS’ property may not be subject to attachment.
DOCTRINE:
• GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o)
of the Local Government Code.
• The unpaid tax attaches to the property and is chargeable against the taxable person who
had actual or beneficial use and possession of it regardless of whether or not he is the
owner (MHC as the lease).
• A valid tax levy presupposes a corresponding tax liability; Even granting arguendo that
Government Service Insurance System’s (GSIS’s) liability for realty taxes attached from
1992, when Republic Act No. 7160 effectively lifted its tax exemption under Presidential
Decree Nos. 1146 to 1996, when Republic Act No. 8291 restored the tax incentive, the
levy on the subject properties to answer for the assessed realty tax delinquencies cannot
still be sustained for the simple reason that the governing law, Republic Act No. 8291, in
force at the time of the levy prohibits it.
FACTS.
• GSIS owns two properties in Manila:
o the Katigbak Property and the Concepcion-Arroceros Property.
• Title to the Concepcion property was transferred to the SC in 2005 pursuant to
Proclamation 835 and was used as the site to erect MeTC of Manila.
• Both the GSIS Building and the MTC stands on the Concepcion property.
• The Katigbak property is leased by GSIS to Manila Hotel Corporation (MHC), a taxable
entity.
• The City Treasurer of Manila assessed GSIS delinquent realty taxes on the two
properties for the period of 1992 to 2002, with the usual warning of distraint and/or
levy.
• GSIS denied tax liability, asserting that it is exempt under its OLD Charter (PD 1146)
and NEW charter (RA 8291 or the GSIS Act of 1997).
• LGU claims that GSIS has a tax liability under the LGC
• GSIS then filed a petition for certiorari and prohibition with the RTC to nullify the
assessments made and to proceed with the possible attachment.
• RTC ruled against GSIS and held that the property is subject to real property tax.
ISSUES & RATIO.
1. WON GSIS is exempt from Real Property Tax (RPT)?
• Yes, GSIS is exempt. GSIS was established in 1936 thru Commonwealth Act 186,
establishing it as a non-stock corp. In 1977, GSIS’ charter was amended via PD 1146.
This PD maintained GSIS’ non-stock nature, and also granted its assets immunity from
all taxes (PD 1146, Sec. 33:…the  System, its assets, revenues including all accruals
thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges
or duties of all kinds…”)
• This tax exemption, however, was WITHDRAWN by the LGC in 1992. LGC Sec. 193
and 234 removed GSIS’ exemption from RPT. (SEC. 234.  Exemption from Real
Property Tax.  x x x 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 corporation are
hereby withdrawn upon the effectivity of this Code)
• Nevertheless, this FULL TAX EXEMPTION was REENACTED through RA 8291. Under
it, the full tax exemption privilege of GSIS was restored, the operative provision being
Sec. 39 thereof. Sec 39 of RA 8291: …GSIS, its assets, revenues including all accruals
thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges
or duties of all kinds. These exemptions shall continue unless expressly and specifically
revoked….these exemptions shall not be affected by subsequent laws to the contrary
unless this section is expressly, specifically and categorically revoked or repealed by
law and a provision is enacted to substitute or replace the exemption referred to
herein as an essential factor to maintain or protect the solvency of the fund…
• The foregoing exempting proviso, couched as it were in an encompassing manner,
brooks no other construction but that GSIS is exempt from all forms of taxes. While
not determinative of this case, it is to be noted that prominently added in GSIS
present charter is a paragraph precluding any implied repeal of the tax-exempt clause
so as to protect the solvency of GSIS funds.  Moreover, an express repeal by a
subsequent law would not suffice to affect the full exemption benefits granted the
GSIS, unless  the following conditionalities are met:  (1) The repealing clause must
expressly, specifically, and categorically revoke or repeal Sec. 39; and (2) a provision is
enacted to substitute or replace the exemption  referred to herein as an essential
factor to maintain or protect the solvency of the fund.  These restrictions for a future
express repeal, notwithstanding, do not make the proviso an irrepealable law, for such
restrictions do not impinge or limit the  carte blanche  legislative authority of the
 legislature to so amend it.  The restrictions merely enhance other provisos in the law
ensuring the solvency of the GSIS fund.
• Moreover, GSIS is NOT strictly a GOCC UNDER LGC 193, but an instrumentality of
the State. GSIS manages the funds for the life insurance, retirement, survivorship, and
disability benefits of all government employees and their beneficiaries.  This
undertaking, to be sure, constitutes an essential and vital function which the
government, through one of its agencies or instrumentalities, ought to perform if
social security services to civil service employees are to be delivered with reasonable
dispatch.  Katigbak property to MHC and to pursue other available remedies in case of
• [As an instrumentality of the State,] the subject properties under GSISs name are
owned by the Republic.  The GSIS is but a mere trustee of the subject properties
which have either been ceded to it by the Government or acquired for the
enhancement of the system. This particular property arrangement is clearly shown by
the fact that the disposal or conveyance of said subject properties are either done by
or through the authority of the President of the  Philippines. In fact, the Concepcion
property was already transferred to the SC through Proclamation 835 by the President.
• If any real estate tax is due to the City of Manila, it is, following City of Davao, only for
the interim period, or from 1992 to 1996 (during the period when the LGC withdrew
the tax exemption enjoyed by the GSIS), to be precise.
2. WON GSIS is liable for RPT for the Conception Property during the period when
the LGC withdrew GSIS’ tax exemption
• No. Sec. 39 of RA 8291 is clear:…. any assessment against the GSIS as of the approval
of this Act are hereby considered paid…”
3. WON RPT may be assessed against the Katigbak property
• Yes. LGC 234 provides: The ff. are exempted from payment of RPT: (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… (SC referred to this as the BENEFICIAL USE DOCTRINE)
• This exemption, however, must be read in relation with Sec. 133(o) of the LGC, which
prohibits LGUs from imposing taxes or fees of any kind on the national government,
its agencies, and instrumentalities: LGC 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: xxx (o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local government units.
• Following LGC 234 in LGC 133, GSIS, lost in a sense its NON-TAXABLE STATUS with
respect to the Katigbak property when it contracted its beneficial use to MHC,
doubtless a taxable person. Thus, the real estate tax assessment of PhP 54,826,599.37
covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax
delinquency is concerned as assessed over said property.
4. Who is liable for the RPT assessed against the Katigbak Property, MHC or GSIS?
• MHC is liable. The unpaid tax attaches to the property and is chargeable against the
taxable person who had actual or beneficial use and possession of it regardless of
whether or not he is the owner. Being in possession and having actual use of the
Katigbak property since November 1991, MHC is liable for the realty taxes assessed
over the Katigbak property from 1992 to 2002. 
• The foregoing is not all. As it were,  MHC has obligated itself under the GSIS-MHC
Contract of Lease to shoulder such assessment.  Stipulation l8 of the contract
pertinently reads: [Should there be any change in the law or interpretation of the GSIS
law or any other circumstance which would subject the leased property to any kind of
tax, assessment, or levy…the  Lessee agrees and obligates itself to shoulder and
pay such tax, assessment or levy as it becomes due…
• Considering, however, that MHC has not been impleaded in the instant case, the
remedy of the City of Manila is to serve the realty tax assessment covering the subject
nonpayment, for said property cannot be levied upon as shall be explained below.
5. WON the GSIS properties are exempt from Levy
• Yes. Although this issue has been rendered moot and academic, considering that it is
MHC and not GSIS that is liable for RPT, the SC still held that it is without doubt that
the subject GSIS properties are exempt from any attachment, garnishment, execution,
levy, or other legal processes.  This is the clear import of the third paragraph of Sec.
39, RA 8291: The  funds and/or the properties  referred to herein as well as the
benefits, sums or monies corresponding to the benefits under this Act shall be exempt
from attachment, garnishment, execution, levy or other processes issued by the
courts, quasi-judicial agencies or administrative bodies…
• Thus, even granting arguendo that GSIS liability for realty taxes attached from 1992,
when RA 7160 effectively lifted its tax exemption under PD 1146, to 1996, when RA
8291 restored the tax incentive, the levy on the subject properties to answer for the
assessed realty tax delinquencies cannot still be sustained. The simple reason: The
governing law, RA 8291, in force at the time of the levy prohibits it.  And in the final
analysis, the proscription against the levy extends to the leased Katigbak property, the
beneficial use doctrine, notwithstanding.
DECISION.
Petition is hereby GRANTED. The November 15, 2007 Decision and January 7, 2009 Order
of the Regional Trial Court, Branch 49, Manila are REVERSED and SET ASIDE. Accordingly,
the real property tax assessments issued by the City of Manila to the Government Service
Insurance System on the subject properties are declared VOID, except that the real
property tax assessment pertaining to the leased Katigbak property shall be valid if served
on the Manila Hotel Corporation, as lessee which has actual and beneficial use thereof. The
City of Manila is permanently restrained from levying on or selling at public auction the
subject properties to satisfy the payment of the real property tax delinquency.
 LUNG CENTER OF THE PH v. QUEZON CITY charity patients). QC-LBAA dismissed the petition, which was later affirmed by
G.R. No. 144104 /June 29, 2004 / J. Callejo, Sr../LOCGOV/Miggy the Central Board of Assessment Appeals of QC (CBAA).
PETITIONER Lung Center of the Philippines ● CBAA said that Lung Center ain’t a charitable institution and that it’s property’s
RESPONDENTS Quezon City, QC City Assessor Rosas not actually, directly and exclusively used for charitable purposes. CA affirmed
CBAA.

SUMMARY. City Assessor Rosas assessed real property taxes over Lung Center’s
● Lung Center: I’m a charitable institution within the context of the 1987
land and building used for its hospital. Lung Center argues that it’s a charitable
Constitution. In 1995-99, 100% of my out-patients were charity patients and 60%
institution who is tax exempt. Ct held that while it is a charitable institution, the tax
of the hospital’s beds is allotted to charity patients. I’m obviously a charitable
exemption granted by law covers only property that’s actually, directly, and
institution since I receive govt subsidies, plus “exclusively” under the
exclusively used for charitable purposes. Here, Lung Center leased out a portion of
Constitution doesn’t necessarily mean solely so I don’t lose my charitable
its property to private individuals who used the same as clinics, a canteen, and a
character just cos I derive income from my leases. Also, even if PD 1823 doesn’t
business establishment. The Ct said that the exemption doesn’t cover these
exempt me from payment of real property taxes, I am not precluded from
particular areas.
seeking tax exemption under the 1987 Consti.
DOCTRINE. Laws granting exemption from tax are construed strictissimi juris
●
against the taxpayer. An intention to grant such exemption must be expressed in
● QC: Lung Center is not a charitable institution. It does not use the property
clear and unmistakable terms.
actually, directly and exclusively for charitable purposes. In a newspaper report,
In order to be entitled to the exemption, Lung Center is burdened to prove, by
graft charges were filed against Lung Center before the SB for undercharging
clear and unequivocal proof, that (a) it’s a charitable institution; AND (b) its real
rentals (detrimental to the govt) and for not following the CoA directive to
properties are ACTUALLY, DIRECTLY, and EXCLUSIVELY used for charitable
terminate the lease. It only uses the govt subsidies for charitable patients but
purposes. Exclusive is defined as possessed and enjoyed to the exclusion of others
the income derived is used for the benefit of paying patients. Lastly, hospital
(it is not equal to dominant use of principal use!). If real property’s used for 1 or
charges everyone (even charity patients) before being treated and refuse to let
more commercial purposes, it’s not exclusively used for the exempted purposes
them go if they don’t pay
but is subject to taxation.

ISSUES & RATIO.

FACTS.
● Lung Center is a non-stock and non-profit entity 11 established by PD 1823. It
owns a parcel of land located in Quezon Ave. corner Elliptical Road, Central
District, QC which houses its hospital. A big space at the ground floor of the
hospital is leased to private parties (canteen and small store spaces, private
clinics of medical practitioners who charge their patients, etc). Almost half of the
entire area of the left side of the bldg along Q.Ave is vacant and idle while a big
portion of the right side is leased for commercial purposes (to Elliptical
Orchids and Garden Center).
● On June 7’93, City Assessor Rosas assessed real property taxes over the land
and hospital building of Lung Center (P4,554,860). 2 Tax Declarations were
issued for the land and the hospital building. On Aug 25’93, Lung Center filed a
Claim for Exemption which was denied, causing it to file a petition with the Local
Board of Assessment Appeals of QC (QC-LBAA).
● Lung Center alleged that under Sec. 28 (3) Art VI 1987 Consti, it is a charitable
institution and its property is exempt from real property taxes (min of 60% of its
hospital beds are exclusively used for charity patients + major thrust is to serve
(1) WoN Lung Center is a charitable institution within the context
of PD 1823 and the 1973 and 1987 Constitutions, and RA 7160 Sec.
234(b) – YES
Lung Center is a charitable institution within the context of the 1973 and 1987
Constitutions
Elements to consider in determining WoN an institution is charitable: statute creating
the enterprise, its corporate purpose, its constitution and by-laws, methods of
administration, nature of the actual work performed, character of the services
rendered, indefiniteness of the beneficiaries, and the use and occupation of the
properties.
The test is WoN it exists to carry out a purpose reorganized in law as charitable
or whether it’s maintained for gain, profit, or private advantage.

11 Lung Center accepts both paying and non-paying patients. It renders medical services to out-patients, both paying and non-paying. It also receives annual govt subsidies.
As applied: the whereas clauses of PD 182312 and the purposes13 for which Lung
Center was created under its AoI show the medical services of the petitioner are to
be rendered to the public in general in any and all walks of life including those who
are poor and the needy without discrimination. After all, any person, the rich as well
as the poor, may fall sick or be injured or wounded and become a subject of
charity14 .
BUT those portions of its real property that are leased to private entities aren’t
exempt from real property taxes as these aren’t actually, directly and
exclusively used for charitable purposes.
Laws granting exemption from tax are construed strictissimi juris against the taxpayer.
An intention to grant such exemption must be expressed in clear and unmistakable
terms.

There’s also substantial evidence that it spent its income + govt subsidies for its
patients and operation of the hospital (and even incurred a net loss in 1991 and
1992).
As a general principle, a charitable institution doesn’t lose it character as such
and its exemption under taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or receives subsidies
from the govt, so long as the money received is devoted or used altogether to
the charitable object which it’s intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution.
-->The money received by the petitioner becomes a part of the trust fund and
must be devoted to public trust purposes and cannot be diverted to private
profit or benefit. Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a charitable institution
simply because the gift or donation is in the form of subsidies granted by the
government
(This is supported by the US Ct’s rulings in Congregational Sunday School v Board of
Review, Lutheran Hospital Assocn of South Dakota v Baker, and Yorgason v County
Board of Equalization of Salt Lake County)
(2) WoN the real properties of Lung Center are exempt from real
property taxes – PARTIAL ONLY
PD 1823 Sec. 2 provides that: xxx the Lung Center shall be exempt from income
and gift taxes, the same further deductible in full for the purpose of determining the
maximum deductible amount under NIRC 30 (h). It shall be exempt from the
payment of taxes, charges and fees imposed by the govt or any political
subdivision or instrumentality thereof with respect to equipment purchases
made by, or for the Lung Center.
It’s clear that Lung Center DOES NOT enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If
Congress intended for it to be exempted, it would’ve included it in the enumeration
of the tax exempt privileges. Expressio unius est exclusio alterius.
The exemption mustn’t be so enlarged by construction since the reasonable
presumption is that the State had granted in express terms all it intended to grant at
all, and that unless the privilege is limited to the very terms of the statute, the favor
would be extended beyond what was meant. The tax exemption under Sec. 23(3)
Art VI 1987 Consti15 covers property taxes only, as explained by C.J.
Davide16 (ConCom mem). This exemption is implemented by RA 7160 234 (b)17. Note
that in the 1935, it just says “exclusively” unlike in the 1973 and 1987 Constitutions.
This change in language is significant as held in Province of Abra v Hernando.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be
entitled to the exemption, the petitioner is burdened to prove, by clear and

12Lung Center is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human
Settlements

13 essence: organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines.

14a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by
assisting them to establish themselves in life or otherwise lessening the burden of government.[12] It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the
improvement and promotion of the happiness of man.[13] The word charitable is not restricted to relief of the poor or sick.

15 Sec 28 (3) Art VI Consti: Charitable institutions…and all lands, buildings, and improvements, ACTUALLY, DIRECTLY, and EXCLUSIVELY used for…charitable purposes shall be exempt from taxation.

16 “what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes”

17 LGC 234(b): Exemptions from property tax – (b) charitable institutions…. And all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes.
unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
Exclusive is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and exclusively is defined, in a manner to exclude;
as enjoying a privilege exclusively.[40] If real property is used for one or more
commercial purposes, it is not exclusively used for the exempted purposes but is
subject to taxation.[41] The words dominant use or principal use cannot be
substituted for the words used exclusively without doing violence to the
Constitutions and the law.[42] Solely is synonymous with exclusively.[43]
present Constitution added charitable institutions, mosques, and non-profit
cemeteries and required that for the exemption of lands, buildings, and
improvements, they should not only be exclusively but also actually and directly used
for religious or charitable purposes. The Constitution is worded differently. The
change should not be ignored. It must be duly taken into consideration. Reliance on
past decisions would have sufficed were the words actually as well as directly not
added. There must be proof therefore of the actual and direct use of the lands,
buildings, and improvements for religious or charitable purposes to be exempt from
taxation.

What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property
itself to the purposes for which the charitable institution is organized. It is not
the use of the income from the real property that is determinative of whether
the property is used for tax-exempt purposes.

As applied; The petitioner failed to discharge its burden to prove that the entirety of
its real property is actually, directly and exclusively used for charitable purposes.
While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying, other
portions thereof are being leased to private individuals for their clinics and a canteen.
Further, a portion of the land is being leased to a private individual for her business
enterprise under the business name Elliptical Orchids and Garden Center. Indeed,
the petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991 and
P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
taxes.[45] On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.

Petition partially grated. QC Assessor to determine precise portions leased to private

persons and to compute real property taxes due thereon.

DECISION.
Petition PARTIALLY GRANTED

NOTES.
Doctrine in Province of Abra:
Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable, or educational purposes shall be exempt from taxation. The
 LRTA v. CENTRAL BOARD
G.R. No. 127316 / October 12, 2000 / PANGANIBAN, J./ LOCGOV – LOCAL GOVERNMENT
TAXATION – REAL PROPERTY TAXATION – RA10149 / REDMAINES
NATURE Petition for review on certiorari of a CA decision
PETITIONERS Light Rail Transit Authority
RESPONDENTS Central Board of Assessment Appeals, Board of Assessment
Appeals of Manila, City Assessor of Manila
SUMMARY. City Assessor imposed real property taxes over the properties of
LRTA. LRTA paid EXCEPT for those over its carriageways and passenger terminal
stations, arguing that these were situated on public roads and are thus exempt.
The SC ruled that:
(1) the subject improvements are not public property under CC
(2) they do not form part of the public roads as they are only accessible to the
paying public, not to the general public, and
(3) even assuming that they are government-owned, under the RPT Code,
properties whose beneficial use is assigned to taxable persons are taxable. In this
case, EO 603, LRTA’s charter, does not grant is exemption from real estate tax.
DOCTRINE. Under the RPT Code, real property is classified for assessment
purposes on the basis of actual use. LRTA does not exist solely for public service
and LRT carriageways and terminal stations are not exclusively for public use. Thus,
RPT may be collected from it.
FACTS.
• LRTA is a GOCC created under EO 603 (1980). It is primarily responsible for the
construction, operation, and maintenance of the LRT system in the country.
Pursuant to its function, it acquired real properties such as buildings,
carriageways, passenger terminal stations, and several kinds of machinery,
equipment, and facilities.
• It then entered into a management contract with MERALCO Transit
Organization, in which the latter undertook to manage, operate, and maintain
the LRT system. It commenced operations in 1984.
• The City Assessor assessed the real properties of LRTA and imposed real
property tax pursuant to the Real Property Tax Code, to commence from the
year 1985.
• LRTA paid its real property taxes on all its real property holdings, EXCEPT for the
carriageways and passenger terminal stations, and the land where these were
situated on the ground that said properties are for PUBLIC USE and are
therefore exempt for realty taxation.
• City Assessor - denied claim.
• Local Board of Assessment Appeals of Manila also denied claim upon appeal,
ruling that the carriageways and passenger terminal stations are improvements,
which are thus taxable under the Real Property Code and not exempt from real
property tax.
• CA affirmed Local Board. Reiterated that properties did not fall under any of the
exemptions listed in Sec. 40 of Real Property Tax Code because they were not
owned by the Gov’t or any GOCC (which are exempt). True, the gov’t owned the
real property upon which the properties were built. However, they were still
taxable because beneficial use had been transferred to LRTA, a taxable entity.
Since LRTA was not engaged in PURELY governmental or public service, its
operations were proprietary and profit-oriented.
ISSUES & RATIO.
1. WON real property taxes may be assessed and collected over the
carriageways and stations – YES.
LRTA: Agrees that the subject carriageways and stations are real property under
Art. 415 of the CC. However, it argues that the same are improvements of
government-owned national roads to which they are immovably attached and
are thus not taxable as improvements under the Real Property Tax Code. In
essence, LRTA argues that to impose a tax on the properties would be to impose
taxes on public roads.
SC: Not persuasive. First of all, it is irrelevant to determine whether the
properties are only accessory improvements of public roads because it is the
character of the property that is fundamentally important in determining
taxability. Art. 423 of the Civil Code divides properties into those for public use and
patrimonial property. Under the enumeration, carriageways or passenger terminals
are not listed as properties strictly for public use exempt from taxes. The character
of LRTA’s property, be it an improvements as otherwise distinguished by
petitioner, needs no further classification when the law already classified it as
patrimonial property that can be subject to tax.
Second, 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. LRTA is clothed
with corporate status and corporate powers in the furtherance of its proprietary
objectives. Indeed, it operates much like any private corporation engaged in the
mass transport industry. Given that it is engaged in a service-oriented commercial
endeavor, its carriageways and terminal stations are patrimonial property subject
to tax, notwithstanding its claim of being a government-owned or controlled
corporation.
True, LRTA’s carriageways and terminal stations are anchored, at certain points, on
public roads. However, it must be emphasized that these structures do not form
part of such roads, since the former have been constructed over the latter in
such a way that the flow of vehicular traffic would not be impeded. These
carriageways and terminal stations serve a function different from that of the public
roads. The former are part and parcel of the LRT system which, unlike the latter, are
not open to use by the general public. The carriageways are accessible only to the
LRT trains, while the terminal stations have been built for the convenience of LRTA DECISION.
itself and its customers who pay the required fare. Petition DENIED.

2. What is the basis of the imposition of real property tax – ACTUAL USE OF
THE PROPERTY.

LRTA: it merely operates and maintains the LRT system and that the actual users of
the carriageways and terminal stations are the commuting public. The public-use
character of the LRT is not negated by the fact that revenue is obtained from the
latter's operations.

SC: No. Under the Sec. 40 of the Real Property Tax Code, real property is classified
for assessment purposes on the basis of actual use, which is defined as "the purpose
for which the property is principally or predominantly utilized by the person in
possession of the property.”

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.

3. WON LRTA is exempt from real property tax – NO.

Under the Real Property Tax Code, real property "owned by the Republic of the
Philippines or any of its political subdivisions and any GOCC so exempt by its
charter, provided, however, that this exemption shall not apply to real property of the
abovenamed entities the beneficial use of which has been granted, for consideration
or otherwise, to a taxable person." (footnote says that this is also found under Sec.
234(a) of LGC)

AS APPLIED: Under EO 603, the charter of LRTA, there is no provision that provides
for any real estate tax exemption. Under Art. 4, Sec. 8 of charter, its exemption is
limited to direct and indirect taxes, duties or fees in connection with the importation
of equipment.

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

CONCLUSION: Taxation is the rule and exemption is the exception. Any claim for
tax exemption is strictly construed against the claimant. LRTA has not shown its
eligibility for exemption and is thus subject to tax.
 PHILRECO v. SECRETARY
G.R. No 143076 / June 10 2003 / Puno, J./Pambid
PETITIONERS Philippine Rural Electric Cooperatives Association, Inc. (Philreca);
Agusan Del Norte Electric Cooperative, Inc. (Aneco); Iloilo I Electric Cooperative, Inc. (Ileco I);
And Isabela I Electric Cooperative, Inc. (Iselco I)
RESPONDENTS Secretary of the DILG, Secretary of the DOFinance
SUMMARY. Petitioners assail the constitutionality of Secs. 193 and 234 of the LGC
for violating the EPC. They claim that electric cooperatives are singled out because
the said provisions withdraw tax exemptions previously granted to them. On the
other hand, cooperatives under RA 6938 continue to enjoy tax exemptions.
The SC upheld the Constitutionality of the LGC provisions. There was no violation
of the EPC, because there was a substantial distinction between electric
cooperatives and cooperatives under RA 6938.
DOCTRINE. . Sec. 6.5 of the Loan Agreement does not grant any tax exemption
in favor of the borrower or the beneficiary either on the proceeds of the loan itself
or the properties acquired through the said loan. It simply states that the loan
proceeds and the principal and interest of the loan, upon repayment by the
borrower, shall be  without deduction of any tax or fee that may be payable
under Philippine law as such tax or fee will be absorbed by the borrower with
funds other than the loan proceeds.
The Tax Exemption:
Following Sec. 3918 of PD 269, electric cooperatives are permanently exempt from
paying income taxes and all National Government, local government and municipal
taxes and fees, including franchise, filing, recordation, license or permit fees or taxes
and any fees, charges, or costs involved in any court or administrative proceeding in
which it may be a party, and all duties or imposts on foreign goods acquired for its
operations.
The Loan Agreements:
To finance the electrification projects envisioned by PD 269, the PHL entered into 6
loan agreements with the USA for the benefit of the electric cooperatives, amounting
to $86M. Sec. 6.519 of the loan agreement provides that “the loan agreement and
the loan provided for herein shall be free from… any taxation or fees imposed under
any laws or decrees in effect within the Republic of the Philippines”.
Enter the LGC:
With the passage of the LGC, the petitioners argue that their tax exemptions have
been invalidly withdrawn. Thus, they assail the constitutionality of Secs. 193 and 234
of the LGC on the ground that the said provisions discriminate against them, in
violation of the equal protection clause. Furthermore, they argue that these
provisions are unconstitutional because they impair the obligation of contracts
between the PHL and the US.

FACTS.
ISSUES & RATIO.
The Petitioners:
WON the provisions are unconstitutional? NO.
Electric cooperatives organized and existing under P.D. 269 (The National
Procedural – Petitioners disregarded the hierarchy of courts, going directly to the SC,
Electrification Administration Decree). Some of them are members of the PHL Rural
but the latter ruled upon it anyway.
Electric Cooperatives Association, Inc. (PHILRECA), an association of 119 electric
cooperatives in the Philippines. Others non-stock, non-profit electric cooperatives
■ No violation of the EPC.
registered with the National Electrification Administration.
Petitioners Argument – Secs. 193 and 234 withdraw tax exemptions previously
granted to all persons except, among others, cooperatives registered under RA

18 SECTION 39.      Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. — Pursuant to the national policy declared in Section 2, the Congress hereby finds and

declares that the following assistance to cooperative is necessary and appropriate:

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

19 Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and the Loan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deduction for and free
from, any taxation or fees imposed under any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those
provided under the Loan. To the extent that (a) any contractor, including any consulting firm, any personnel of such contractor financed hereunder, and any property or transactions relating to such contracts and (b) any commodity
procurement transactions financed hereunder, are not exempt from identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or
reimburse the same with funds other than those provided under the Loan.
6938. Thus, the provisions20 unduly discriminate against the petitioners, who are duly
registered cooperatives under PD 269 but NOT under RA 6938 because the tax
exemption for them has been withdrawn.
Electric cooperatives registered under PD 269 and electric cooperatives registered
with the Cooperative Development Authority (CDA) under RA 6938 are similarly
situated for the following reasons: a) petitioners are registered with the NEA which is
a government agency like the CDA; b)  petitioners, like CDA-registered cooperatives,
operate for service to their member-consumers; and c) prior to the enactment of the
Local Government Code, petitioners, like CDA-registered cooperatives, were already
tax-exempt.
SC – The EPC means that “no person or class of persons shall be deprived of the
same protection of laws which is enjoyed by other persons or other classes in the
same place and in like circumstances.” The guaranty of equal protection is not
violated by a law based on reasonable classification. Classification, to be reasonable,
must (1) rest on substantial distinctions; (2) be germane to the purposes of the law;
(3) not be limited to existing conditions only; and (4) apply equally to all members of
the same class.
As applied:
1) There is a substantial distinction between coops under PD 269 and RA 6938.
Such distinction is manifest in two material respects – capital contributions, and
extent of government control.
a. Capital Contributions
The elements of a cooperative under RA 6938 are a) association of persons; b)
common bond of interest; c) voluntary association; d) lawful common social or
economic end; e) capital contributions; f) fair share of risks and benefits; g)
adherence to cooperative values; and g) registration with the appropriate
government authority.
On the other hand, PD 269 makes no mention of capital contributions.
Why the difference? – Coops under RA 6938 are created under the principle that
the members “bind themselves to help themselves”. Through their collectivity,
they are able to attain economic benefits. Electric coops under PD 269 do not
require capital contributions because it is the government that funds them.
b. Extent of Government Control
20 Section 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned and controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of
this Code
Section 234. Exemptions from real property tax.—The following are exempted from payment of the real property tax:
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
21Art. 2.       Declaration of Policy. — xxx
Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to
cooperatives with government assistance where necessary.
A principle adhered to by RA 6938 is the principle of subsidiarity. Pursuant to
this principle, the government may only engage in development activities where
cooperatives do not possess the capability or the resources to do so and only
upon the request of such cooperatives. This principle is found in Art. 221 of RA
6938.
On the other hand, PD 269 is full of provisions which grant the NEA, upon the
happening of certain events, the power to control and take over the
management and operations of cooperatives registered under it. This include
the following (no need to copy I guess):
a)  the NEA Administrator has the  power to designate, subject to the
confirmation of the Board of Administrators, an Acting General Manager and/or
Project Supervisor for a cooperative where vacancies in the said positions occur
and/or when the interest of the cooperative or the program so requires, and to
prescribe the functions  of the said Acting General Manager and/or Project
Supervisor,  which powers shall not be nullified, altered or diminished by any
policy or resolution of the Board of Directors of the cooperative concerned;
b)  the NEA is given the power of  supervision and control  over electric
cooperatives and pursuant to such powers, NEA may issue orders, rules and
regulations  motu propio  or upon petition of third parties to conduct referenda
and other similar actions in all matters affecting electric cooperatives;
c)   No cooperative shall borrow money from any source without the approval
of the Board of Administrators of the NEA; and
d) The management of a cooperative shall be vested in its Board, subject to the
supervision and control of NEA  which shall have the right to be represented
and to participate in all Board meetings and deliberations and to approve all
policies and resolutions.
Why does NEA control the electric coops? – Remember, NEA was given the
power to incur loans to finance the electric coops. In effect, NEA serves as the
primary source of funds for these electric coops. On the other hand, coops
under RA 6938 are envisioned to be self-sufficient organizations with minimal
need for government regulation.
In any case, transitory provisions of RA 6938 indicate the intent of Congress to
distinguish between electric coops and those under RA 6938. For coops already
existing under previous laws, they are deemed registered with the CDA
(governing body of coops under 6938) upon submission of documents within
 one year. On the other hand, coops existing under PD 269 are given three years The provisions simply shift the tax burden on the transactions under the loan
to qualify and register. agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by
the LGC under Secs. 193 and 234 of the tax exemptions previously enjoyed by
2) Classification is germane to the purpose of the law petitioners does not impair the obligation of the borrower, the lender or the
The Constitutional mandate that every LGU shall enjoy local autonomy does not beneficiary under the loan agreements as in fact, no tax exemption is granted
mean that the exercise of power by local governments is beyond regulation by therein.
Congress. Thus, while each LGU is granted the power to create its own sources
of revenue, Congress, in light of its broad power to tax, has the discretion to DECISION.
determine the extent of the taxing powers of LGUs consistent with the policy Petition DENIED.
of local autonomy.
The limited and restrictive nature of the tax exemption privileges under the LGC
is consistent with the State policy to ensure autonomy of local governments and
the objective of the LGC to grant genuine and meaningful autonomy to enable
LGUs to attain their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals. The intention of the
law is to broaden the tax base of local government units to assure them of
substantial sources of revenue.
Sure, the withdrawal of the petitioners’ tax exemption sucks for them but the
Court said that they can’t go into the wisdom of such legislative enactments.

3 + 4) Secs 193 and 234 of the LGC permit reasonable classification as these
exemptions are not limited to existing conditions and apply equally to all members
of the same class. Exemptions from local taxation, including real property tax, are
granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for
as long as the LGC and the provisions therein on local taxation remain good law.

■ No violation of the non-impairment clause.

The non-impairment clause does not prohibit every change in existing laws.   To fall
within the prohibition, the change must not only impair the obligation of the
existing contract, but the impairment must be substantial.
Substantial amendment -- A law which changes the terms of a legal contract
between parties, either in the time or mode of performance, or imposes new
conditions, or dispenses with those expressed, or authorizes for its satisfaction
something different from that provided in its terms, is law which impairs the
obligation of a contract and is therefore null and void.

Sec. 6.5 of the Loan Agreement does not grant any tax exemption in favor of the
borrower or the beneficiary either on the proceeds of the loan itself or the properties
acquired through the said loan. It simply states that the loan proceeds and the
principal and interest of the loan, upon repayment by the borrower, shall be without
deduction of any tax or fee that may be payable under Philippine law as such
tax or fee will be absorbed by the borrower with funds other than the loan
proceeds.
 PROVINCIAL ASSESSOR OF MARINDUQUE v. CA
G.R. No.170532 / April 30, 2009/ Austria-Martinez, J./ ELEEscober CBAA - MARCOPPER not exempt
- a dam is not machinery but an improvement. To be considered a “machinery,” the
PETITIONERS Provincial Assessor of Marinduque
property must either be a physical facility for production; or a service facility; or one that
RESPONDENTS CA, MARCOPPER
is actually, directly and exclusively used to meet the needs of the particular industry,
business, or activity; and which by its very nature and purpose is designed for, or
SUMMARY. Provincial Assessor wanted to levy real property taxes on necessary to a manufacturing, mining, logging, commercial, industrial or agricultural
MARCOPPER's siltation dam. MARCOPPER claimed an exemption because the purpose.
dam was a "machine" used for pollution control and environmental protection. - The property here does not produce anything nor operate as auxiliary to a production
process; thus, it is neither a physical facility for production nor a service facility. It is not
even necessary to the mining activity of respondent, because its purpose is merely to
SC held that the dam was not a machine because the DENR certification described
contain silt and sediments.
the property as a structure. Based on this finding, the SC held that it was an
- Also, the ocular inspection revealed that the dam has not been operation for 2 years.
improvement adhered to the soil and therefore not a machine as defined in the
LGC for real property tax exemption. CA - REVERSED.
- Dam is considered machinery because the definition is broad enough to include a
DOCTRINE. A claim for exemption under Sec. 234(e), as well as Sec. 206, should “machinery, instrument, apparatus or device consisting of parts which, functioning
be supported by evidence that the property is actually, directly and exclusively together, allows a person to perform a task more efficiently,” such as the subject
used for pollution control and environmental protection. The burden is upon the property.
taxpayer to prove, by clear and convincing evidence, that his claim for exemption - Under the Philippine Mining Act (RA 7942)22 pollution control devices are tax exempt
has legal and factual basis - Its non-operational state of the property does not remove it from the clear provisions of
LGC and (RA 7942), in the absence of clear and convincing evidence that the dam and
decant system was inutile to achieve its purpose.
FACTS.
The Provincial Assessor sent an assessment notice to MARCOPPER for real property taxes Assessor:
(RPT) due on its properties, including its Siltation Dam and Decant System (these are the - CA was wrong in finding that the properties were tax exempt under the LGC and in
properties in question) at Barangay Lamese, Sta. Cruz, Marinduque. The subject property disregarding the findings of both the LBAA and the CBAA that the properties were
has a market value of Php36,360,996.19. not for pollution control, having been non-operational for years after a typhoon
damaged it (Marcopper had even admitted to this and had wanted to repair the
MARCOPPER paid, but appealed before the Local Board of Assessment Appeals (LBAA) on dam).
the ground that the subject property is exempt from real property taxation under Section - CBAA also found that Marcopper did not even obtain a tax exemption certificate
234(e) of the LGC. It attached an Affidavit issued by its Chief Mining Engineer Ricardo from the DENR, nor did Marcopper dispute this finding.
Esquieres, Jr., stating that the subject property were constructed to comply with the DENR
condition that Marcopper prevent run-offs and silt materials from contaminating the Mogpog Marcopper:
and Boac Rivers. Therefore it is exempt because these are "machinery and equipment used - Wrong mode of appeal! Assessor should have filed a Petition for Review on Rule 45
for pollution control and environmental protection". certiorari within 15 days, but filed a Rule 65 Certiorari 60 days after receiving the
decision
Marcopper also submitted a Certification issued by DENR Regional Technical Director Carlos -
J. Mag(si)no that the subject property is a “Siltation Dam structure intended primarily for ISSUES & RATIO.
pollution control of silted materials." 1. WON Assessor filed the proper mode of appeal. NO
Appeal from a CA decision (re: CBAA decisions) to the SC should have been under a Rule 45
LBAA dismissed the appeal, citing the earlier ruling in Benguet Corp. v. Central Board saying certiorari. [CBAA – Petition for Review to CA23 -- appeal to SC o questions of law should be
that a tailings dam is a permanent improvement not exempt from real property tax.

22  Sec.  91.  Incentives  for  Pollution  Control  Devices.  Pollution  control  devices  acquired,  constructed  or  installed  by  contractors  shall  not  be  considered  as  improvements  on  the  land  or  building  where  they  are  placed,  and  shall  not  be  subject  

to  real  property  and  other  taxes  or  assessments:  Provided,  however,  That  payment  of  mine  wastes  and  tailings  fees  is  not  exempted.

23  Under  SC’s  Admin.  Circ.  1-­‐95

Rule 45 certiorari]. The availability of this remedy bars recourse to a Rule 65 certiorari even if the o The DENR Certification classifies the subject property as a “structure intended
ground invoked is GAD. primarily for pollution control of silted materials in order to protect the
environmental degradation of the surrounding rivers. That the subject property is a
SC still decided on the case as it involved the power of taxation of a local government, and its structure is further underscored by the project design which describes the subject
stewardship of the environment. The higher interest of public welfare dictates that the Court property as a “zoned earth siltation dam.”
suspend its rules pro hac vice in order to resolve the merits of the petition o Thus, by design, composition and function, the properties are structures adhered
to the soil, and has neither a mechanical contrivance, instrument, tool, implement,
WON a siltation dam can be considered machinery and thus exempt from local
2. appliances, apparatus, nor paraphernalia that produces a mechanical effect or
RPT. NO! performs a mechanical work of any kind. IT IS NOT A MACHINE AS DEFINED IN
Section 234 of the LGC grants exemption from real property taxation based on ownership, Sec 199(0) of the LGC27
character or usage. Specific to this case is Sec. 234(e) 24
- While RA 7942 adopted an expanded definition of a pollution control device, this
As held in Mactan Cebu International Airport Authority v. Marcos, the exemption under Sec. cannot be made to apply to Marcopper as the assessment notice given to it was issued
234 (e) is based on usage25 which means direct, immediate and actual application of the before (1993) the amendment of the Machinery definition (1995) in relation to RA 7942.
property itself to the exempting purpose. (copied SC’s exact phrasing in notes section)
- Sec. 199 of the LGC defines actual use as the purpose for which the property is principally - Tax laws are prospective in unless expressly provided otherwise. RA 7942 does not
or predominantly utilized by the person in possession thereof. It contemplates concrete, as provide for retroactive application.
distinguished from mere potential, use
- A claim for exemption under Sec. 234(e) should be supported by evidence that the DECISION. Petition Granted
property is actually, directly and exclusively used for pollution control and environmental
protection. NOTES.
o Marcopper did not present any evidence to prove this. CBAA even found that the That a structure such as the subject property does not qualify as a machinery or equipment
property was non-operational, and could not have controlled pollutants. used for pollution control as contemplated under R.A. No. 7160 is evident from the adoption of
Marcopper even admitted to this. an expanded definition of pollution control device in R.A. No. 7942. Under Section 3 (am)
- Sec. 206 26 of the LGC also provides the evidentiary requirement for Real Property Tax thereof, a pollution control device now also refers to infrastructure or improvement, and not just
(RPT) exemption. The burden is upon the taxpayer to prove, by clear and convincing to machinery or equipment. This new concept, however, cannot benefit respondent, for the
evidence, that his claim for exemption has legal and factual basis assessment notice under review pertains to real property tax assessed prior to the amendment
o Marcopper did not even try to prove that it complied with Sec 206 (that it filed with of Sec. 234 (e) of R.A. No. 7160 by Sec. 91 in relation to Sec. 3 (am) of R.A. No. 7942. It is
the assessor evidence of the exempt status of the property) settled that tax laws are prospective in application, unless expressly provided to apply
o All that it submitted were the affidavit (in facts), the project design of the property, retroactively.[62] R.A. No. 7942 does not provide for the retroactive application of its provisions.
and Mag(si)no’s certification. These documents do not prove that the property is
exempt – only shows further that these are NOT machinery.

24  Sec.  234.  Exemptions  from  Real  Property  Tax.  -­‐  The  following  are  exempted  from  payment  of  the  real  property  tax:  

(e)  Machinery  and  equipment  used  for  pollution  control  and  environmental  protection.

25  (c)  Usage  exemptions.  Exempted  from  real  property  taxes  on  the  basis  of  the  actual,  direct  and  exclusive  use  to  which  they  are  devoted  are:  (i)  all  lands,  buildings  and  improvements  which  are  actually  directly  and  exclusively  used  for  

religious,  charitable  or  educational  purposes;  (ii)  all  machineries  and  equipment  actually,  directly  and  exclusively  used  by  local  water  districts  or  by  government-­‐owned  or  controlled  corporations  engaged  in  the  supply  and  distribution  of  water  and/
or  generation  and  transmission  of  electric  power;  and  (iii)  all  machinery  and  equipment  used  for  pollution  control  and  environmental  protection.

26  Sec.  206.  Proof  of  Exemption  of  Real  Property  from  Taxation.  -­‐  Every  person  by  or  for  whom  real  property  is  declared,  who  shall  claim  tax  exemption  for  such  property  under  this  Title  shall  file  with  the  provincial,  city  or  municipal  

assessor  within  thirty  (30)  days  from  the  date  of  the  declaration  of  real  property  sufficient  documentary  evidence  in  support  of  such  claim  including  corporate  charters,  title  of  ownership,  articles  of  incorporation,  bylaws,  contracts,  
affidavits,  certifications  and  mortgage  deeds,  and  similar  documents.  If  the  required  evidence  is  not  submitted  within  the  period  herein  prescribed,  the  property  shall  be  listed  as  taxable  in  the  assessment  roll.  However,  if  the  property  shall  be  
proven  to  be  tax  exempt,  the  same  shall  be  dropped  from  the  assessment  roll.

27  (o)  Machinery  embraces  machines,  equipment,  mechanical  contrivances,  instruments,  appliances  or  apparatus  which  may  or  may  not  be  attached,  permanently  or  temporarily,  to  the  real  property.  It  includes  the  physical  facilities  for  production,  

the  installations  and  appurtenant  service  facilities,  those  which  are  mobile,  self-­‐powered  or  self-­‐propelled  and  those  not  permanently  attached  to  the  real  property  which  are  actually,  directly,  and  exclusively  used  to  meet  the  needs  of  the  particular  
industry,  business  or  activity  and  which  by  their  very  nature  and  purpose  are  designed  for,  or  necessary  to  its  manufacturing,  mining,  logging,  commercial,  industrial  or  agricultural  purposes.
 NHA v. ILOILO
G.R. No. 172267/ August 20, 2008 / Tinga, J./Real Property Taxation/GRACEgar Rosalina Francisco: NHA’s failure to make a deposit rendered its action jurisdictionally infirm.
NATURE PETITION for review on certiorari of a decision of the CA.
PETITIONERS NATIONAL HOUSING AUTHORITY SC: Under Sec. 267, LGC, a deposit equivalent to the amount of the sale at public auction
RESPONDENTS ILOILO CITY, as represented by its Mayor, HON. JERRY TREÑAS, plus two percent (2%) interest per month from the date of the sale to the time the court
ILOILO CITY TREASURER CATHERINE TINGSON, and ROSALINA FRANCISCO, action is instituted is a condition—a “prerequisite,” to borrow the term used by the
acknowledged father of the Local Government Code7— which must be satisfied before the
court can entertain any action assailing the validity of the public auction sale. The law, in
SUMMARY. City auctioned off NHA’s lot. The latter filed a complaint in the RTC but City plain and unequivocal language, prevents the court from entertaining a suit unless a deposit is
said the lower court did not acquire jurisdiction because of failure to comply with Sec. 267. made. This is evident from the use of the word “shall” in the first sentence of Section 267.
LGC. NHA said it’s tax-exempt so provision not applicable to it. Court sided with NHA.
DOCTRINE. A deposit equivalent to the amount of the sale at public auction plus two What’s with the deposit?
percent (2%) interest per month from the date of the sale to the time the court action is 1. a jurisdictional requirement the nonpayment of which warrants the failure of the
instituted is a condition—a “prerequisite,” to borrow the term used by the acknowledged action
father of the Local Government Code—which must be satisfied before the court can 2. not a tax measure
entertain any action assailing the validity of the public auction sale 3. meant to reimburse the purchaser of the amount he had paid at the auction sale
FACTS. should the court declare the sale invalid.
• The City officials auctioned off NHA’s lot for nonpayment of taxes. There was no private The requirement is not applicable if the plaintiff is the government or any of its agencies as
individual who offered to buy the lot so City bought it and after the expiration of the it is presumed to be solvent ,and more so where the tax exempt status of such plaintiff as
redemption period, Rosalina Francisco purchased the land. basis of the suit is acknowledged.
• NHA filed a complaint to annul the auction sale since it was allegedly done without notice

to NHA as the registered owner thereof, in addition to the fact that the latter is a tax-exempt Case at bar: NHA is indisputably a tax-exempt entity whose exemption covers real property
agency of the government. taxes and so its property should not even be subjected to any delinquency sale. Perforce,
o City and Francisco separately filed MTDs based on the same grounds: lack of the bond mandated in Section 267, whose purpose it is to ensure the collection of the tax
jurisdiction and forum shopping 28. According to them, the lower court did not delinquency should not be required of NHA before it can bring suit assailing the validity of the
acquire jurisdiction for failure of plaintiff to comply with the deposit
 auction sale. Any public auction sale involving property owned by NHA would be null and
mandated under Section 267, R.A. 716029. void and any suit filed by the latter questioning such sale should not be dismissed for
• RTC dismissed. CA affirmed. Hence, this petition. failure to pay the bond. NHA cannot be declared delinquent in the payment of real
property tax obligations which, by reason of its tax-exempt status, cannot even accrue in
ISSUES & RATIO. the first place.
WON NHA’s tax-exempt status vests it with immunity as well from the deposit
requirement under Section 267 of R.A. No. 7160 – YES DECISION.
NHA: 1. Under several statutes—namely Presidential Decree (P.D.) No. 1922, P.D. No. 2013 and Petition granted, judgment reversed and set aside. Case remanded to Regional Trial Court of
Republic Act (R.A.) No. 7279—it is exempt from the payment of any and all fees and taxes of Iloilo City.
any kind, whether local or general. Hence, Sec. 267 not applicable to it.
2. Assuming that it is indeed required to make a deposit, NHA avers that a deposit is not NOTES.
necessary in view of the fact that the government is always presumed to be solvent. Nonetheless, because respondent Iloilo City filed a motion to dismiss NHA’s Complaint dated 5
3. There are irregularities in the conduct of the delinquency sale, such as the fact that it was not June 2002 based on Section 267 and not an answer, it is both proper and prudent to remand
served a copy of the warrant of levy, which allegedly necessitate a review of the case. the case to the trial court in order to afford respondent Iloilo City full opportunity to be heard
on the matters raised in the complaint. Also re forum shopping: the civil case had already been
City of Iloilo: NHA cannot take refuge in its theory that it is exempt from making a deposit previously dismissed for failure to comply with the deposit requirement deemed by the court to
because it is not a taxpayer and is, within the contemplation of the 2nd paragraph of Article 267 be a condition precedent for the filing of that suit. This previous case, however, hardly counts
of R.A. No. 7160, merely a juridical person having legal interest in the subject property. for forum shopping precisely because it is no longer pending.


28  Civil  Case  No.  22090  before  Branch  34  of  Iloilo  RTC.  In  fact,  said  case  has  been  dismissed  on  the  ground  of  noncompliance  with  the  deposit  requirement  under  Sec.  267,  R.A.  7160

29  Sec.  267.  Acting  Assailing  Validity  of  Tax  Sale.—No  court  shall  entertain  any  action  assailing  the  validity  of  any  sale  at  public  auction  of  real  property  or  rights  therein  under  this  Title  until  the  taxpayer  shall  have  deposited  with  the  court  the  amount  for  which  the  real  property  was  sold,  

together
 with
 interest
 of
 two
 (2%)
 per
 month
 from
 the
 date
 of
 sale
 to
 the
 time
 of
 the
 institution
 of
 the
 action.
 The
 amount
 so
 deposited
 shall
 be
 paid
 to
 the
 purchaser
 at
 the
 auction
 sale
 if
 the
 deed
 is
 declared
 invalid
 but
 it
 shall
 be
 returned
 to
 the
 depositor
 if
 the
 action
 fails.
 Neither
 shall
 
any
 court
 declare
 a
 sale
 at
 public
 auction
 invalid
 by
 reason
 of
 irregularities
 or
 informalities
 in
 the
 proceedings
 unless
 the
 substantive
 rights
 o
 the
 delinquent
 owner
 of
 the
 real
 property
 or
 the
 person
 having
 legal
 interest
 therein
 have
 been
 impaired.
 REPUBLIC v. PARAÑAQUE
G.R. No. 191109/ Jul 18, 2012/ Mendoza, J./LOCGOV-Real Property Taxation/
MMBDELACRUZ
NATURE Petition for Review on Certiorari
PETITIONERS Republic of the PH, rep. by the Phil. Reclamation Authority (PRA)
RESPONDENTS City of Parañaque
SUMMARY. The areas reclaimed by PRA were levied upon by Parañaque City after PRA was
assessed of delinquent real property taxes. SC declared the auction sale and assessment
notice void because PRA was a government instrumentality and the reclaimed lands were
part of the public domain.
DOCTRINE. An incorporated government instrumentality that operates for public service
and is not economically viable can’t be taxed as a GOCC. Lands of the public domain are
exempt from real estate tax.
FACTS.
• The Public Estates Authority (PEA) is a government corporation created by
P.D. 1084 to provide a coordinated, economical and efficient reclamation of
lands, and the administration and operation of lands belonging to, managed
and/or operated by, the government with the object of maximizing their
utilization and hastening their development consistent with public interest. E.O.
380 transformed PEA into PRA.
• PRA reclaimed several portions of the foreshore and offshore areas of Manila
Bay, including those located in Parañaque City, and was issued OCsT and TCsT
No. 654 had already been expressly repealed by the LGC and that PRA failed to
comply with the procedural requirements in Sec. 206.
ISSUES & RATIO.
1. WON the PRA is an incorporated instrumentality of the national
government and is, therefore, exempt from payment of real property tax
under Sections 234(a) and 133(o) LGC vis-à-vis MIAA v. CA? YES.
PRA is not a GOCC either under Section 2(3) IPAC or under Section 16, Article XII of
the 1987 Constitution. The facts, the evidence on record and jurisprudence on the
issue support the position that PRA was not organized either as a stock or a non-
stock corporation. Neither was it created by Congress to operate commercially and
compete in the private market. Instead, PRA is a government instrumentality vested
with corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. Being an
incorporated government instrumentality, it is exempt from payment of real property
tax.
1. PRA is not a GOCC because it is neither a stock nor a non-stock
corporation.
GOCC v Instrumentality under the Admin Code
GOCC Government instrumentality/ government corporate
entities

over the reclaimed lands.
• The City Treasurer issued Warrants of Levy on PRA’s reclaimed properties 30
located in Parañaque City based on the assessment for delinquent real
property taxes made by the City Assessor.
• PRA filed a petition for prohibition with prayer for TRO and/or WPI against
Carabeo before the RTC; denied.
• The auction sale of the subject properties was consummated.
• PRA sought to declare as null and void the assessment for real property taxes,
the levy based on the said assessment, the public auction sale, and the
Section 2(13) IPAC defines a GOCC as follows:
(13) Government-owned or controlled corporation
refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to
public needs whether governmental or proprietary
in nature, and owned by the Government directly
or through its instrumentalities either wholly, or,
where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51)
percent of its capital stock:
Section 2(10) IPAC defines a government
"instrumentality" as follows:
(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.

Certificates of Sale issued pursuant to the auction sale.

• RTC dismissed PRA’s petition saying it was a GOCC under Section 3 of P.D.
1084. It was organized as a stock corporation because it had an authorized
capital stock divided into no par value shares. PRA admitted its corporate
personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by
virtue of Section 193 LGC which was the prevailing law in 2001 and 2002 with
respect to real property taxation. The tax exemption claimed by PRA under E.O.
A GOCC must be "organized as a stock or non- An instrumentality is vested by law with
stock corporation" (see below) corporate powers
When the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not
integrated with the department framework. When the law vests in a government
instrumentality corporate powers, the instrumentality does not necessarily
become a corporation. Unless the government instrumentality is organized as a

30  Central Business Park and Barangay San Dionisio

stock or non-stock corporation, it remains a government instrumentality 2) the GOCC must meet the test of economic viability.
exercising not only governmental but also corporate powers.
In this case, PRA may have passed the first condition of common good but
Stock v Non-stock Corporations under the Corpo Code failed the second one - economic viability.
Stock Non-stock
• The purpose behind the creation of PRA was not for economic or
commercial activities31. Neither was it created to compete in the market
Sec. 3, Corp. Code defines a stock corporation as Sec. 87, Corp. Code defines a non-stock place considering that there were no other competing reclamation
one whose "capital stock is divided into shares and corporation as "one where no part of its income is
companies being operated by the private sector.
x x x authorized to distribute to the holders of such distributable as dividends to its members, trustees
shares dividends x x x." or officers."
• PRA was created essentially to perform a public service considering that
it was primarily responsible for a coordinated, economical and efficient
Sec. 88 provides that non-stock corporations are reclamation, administration and operation of lands belonging to the
"organized for charitable, religious, educational, government with the object of maximizing their utilization and hastening
professional, cultural, recreational, fraternal, literary,
their development consistent with the public interest.
scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers."
Manila International Airport Authority v. Court of Appeals:
Requisites: As for non-stock corporations, they must have • The first condition is that the GOCC must be established for the common good. The second
(1) that it has capital stock divided into shares; and members and must not distribute any part of their condition is that the GOCC must meet the test of economic viability.
(2) that it is authorized to distribute dividends and income to said members. • The test of economic viability applies only to GOCCs that perform economic or commercial
allotments of surplus and profits to its stockholders. activities and need to compete in the market place. Being essentially economic vehicles of the
State for the common good — meaning for economic development purposes — these
In the case at bench: PRA is not a GOCC because it is neither a stock nor a non-stock corporation. government-owned or controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.
PRA is not a stock corporation because although it PRA is not a non-stock corporation because it does • In contrast, government instrumentalities vested with corporate powers and performing
has a capital stock divided into no par value shares, not have members and it was not organized for any governmental or public functions need not meet the test of economic viability. These
it is not authorized to distribute dividends, of the purposes mentioned in Sec. 88 of the Corpo instrumentalities perform essential public services for the common good, services that every
surplus allotments or profits to stockholders. Code. (it was created to manage all government modern State must provide its citizens. These instrumentalities need not be economically viable
There is no provision whatsoever in P.D. 1084 or reclamation projects) since the government may even subsidize their entire operations.
any executive issuance that authorizes PRA to do • This is the situation of the Land Bank of the Philippines and the Development Bank of the
this. Philippines and similar government-owned or controlled corporations, which derive their income
to meet operating expenses solely from commercial transactions in competition with the
private sector.
2. PRA does not meet the test of economic vialbility • Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services.
Sec.16, Art. XII, 1987 Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide for the formation, 2. WON the reclaimed lands are part of the public domain and, hence, exempt
organization, or regulation of private corporations. Government-owned or controlled corporations
from real property tax? YES.
may be created or established by special charters in the interest of the common good and subject
to the test of economic viability.
1. Section 234(a) LGC, in relation to its Section 133(o), exempts PRA from
Congress can create GOCCs through special charters on two conditions: paying realty taxes and protects it from the taxing powers of LGUs.
1) the GOCC must be established for the common good; and

31  P.D. No. 1084: Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated, economical and efficient reclamation of lands, and the administration and operation of lands belonging to,

managed and/or operated by the government, with the object of maximizing their utilization and hastening their development consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by the
government.
(c) To provide for, operate or administer such services as may be necessary for the efficient, economical and beneficial utilization of the above properties.
 SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the • There is no point in national and local governments taxing each other,
real property tax:
unless a sound and compelling policy requires such transfer of public funds
(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
from one government pocket to another.
taxable person. • There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless local governments.
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
2. The subject reclaimed lands are still part of the public domain, owned
instrumentalities, and local government units. by the State and, therefore, exempt from payment of real estate taxes.

It is clear from Section 234 that real property owned by the Republic is exempt
from real property tax unless the beneficial use thereof has been granted to a
taxable person.
• There is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which
prohibits local governments from imposing "taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The Administrative
Code allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.
The Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government when the title of the real property is
transferred to an agency or instrumentality even as the Republic remains the
owner of the real property. Such arrangement does not result in the loss of the tax
exemption, unless "the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person."
Rationale of Sec. 133 (o):
• LGUs cannot tax the national government, which historically merely
delegated to LGUs the power to tax.
Here, the subject lands are reclaimed lands, specifically portions of the
foreshore and offshore areas of Manila Bay. As such, these lands remain public
lands and form part of the public domain. SC cited Section 2, Article XII of the
1987 Constitution32 and Art. 420 CC33.
Chavez v. PEA and AMARI Coastal Development Corporation:
• Foreshore and submerged areas irrefutably belonged to the public domain and were inalienable
unless reclaimed, classified as alienable lands open to disposition and further declared no longer
needed for public service.
• The fact that alienable lands of the public domain were transferred to the PEA (now PRA) and
issued land patents or certificates of title in PEA’s name did not automatically make such lands
private. Reclaimed lands retained their inherent potential as areas for public use or public service.
• Only when qualified private parties acquire these lands will the lands become private lands. In the
hands of the government agency tasked and authorized to dispose of alienable of disposable
lands of the public domain, these lands are still public, not private lands.
• PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any
and all kinds of lands."
Sec. 14, Chap. 4, Title I, Book III, Admin Code:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-
(1)The President shall have the power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of which is not otherwise directed
by law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public
use. They are properties of public dominion. The ownership of such lands

32 Section 2, Article XII of the 1987 Constitution reads in part, as follows:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned
by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of
the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum
of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may provided by
law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure and limit of the grant.

33 Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
remains with the State unless they are withdrawn by law or presidential
proclamation from public use.

Properties of public dominion are not subject to execution or foreclosure sale.

Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by
respondent, as well as the issuances of certificates of title in favor of respondent, are
without basis.

DECISION.
Petition is GRANTED. RTC Order is REVERSED and SET ASIDE. All reclaimed
properties owned by the Philippine Reclamation Authority are hereby declared
EXEMPT from real estate taxes. All real estate tax assessments, including the final
notices of real estate tax delinquencies, issued by the City of Parañaque on the
subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and the
Certificates of Sale subsequently issued by the Parañaque City Treasurer in favor of
the City of Parañaque, are all declared VOID.
 ALVAREZ v. GUINGONA, JR. • HB No. 8817 “An Act Converting the Municipality of Santiago into an Independent
G.R. No. 118303 / JAN 31, 1996 / HERMOSISISMA JR., J. / LOC GOV – General Powers and Component City to be known as the City of Santiago”was filed in the House of
Attributes; Income / LTLimbaring Representatives (HR) with Antonio Abaya as principal author.
• It was then referred to the House Committee (HC) on Local Governments and HC on
NATURE Special Civil Action in the SC
Committee Appropriations.
PETITIONERS Sen. Heherson Alvarez, Sen. Jose Lina, Nicasio Bautista, Jesus
o The Committee submitted to the house a favorable report with amendments.
Gonzaga, et. Al. • Meanwhile, a counterpart of HB 8817, SB 1243 “An Act Converting the Municipality of
RESPONDENTS Hon. Teofisto Guingona Jr. as Exec. Secretary; Hon. Rafael Santiago into an Independent Component City to be Known as the City of Santiago,” was
Alunan as Secretary of Local Government, Hon. Salvador filed in the Senate with Sen. Tito Sotto as principal sponsor just right after the HR had
Enriquezas Secretary of Budget, et al. conducted its first public hearing.
• HB 8817 was passed on 2nd reading and approved on 3rd reading and was thereafter
submitted to the Senate.
SUMMARY. Petitioners challenge the validity of RA 7720 which sought to convert o The Senate Committee on Local Government recommended that HB 8817 be approved
the Municipality of Santiago into an independent component city. They argued without amendment since it was on all fours with SB 1243.
that Santiago can’t qualify as a component city because it doesn’t satisfy o The Committee Report passed the 2nd reading and was approved on the 3rd reading.
P20Million income requirement and because it did not originate in the House of • The enrolled bill as submitted to the President and signed by him on May 5, 1994 as RA
Representatives. As to the income requirement, petitioners stress that the internal 7720.
revenue allotment (IRAs) must not be included in the computation for income. SC • When a plebiscite on the Act was held, a great majority of registered voters of Santiago
ruled against the petitioners. voted in favor of its conversion into a city.
• However, the petitioners assail the validity of RA 7720 arguing that
a. Santiago could not qualify into a component city because its average annual income for
DOCTRINE. A local government unit is autonomous in the sense that it is given
the last 2 consecutive years falls below the required annual income of P20Million34
more powers and increased responsibility. As such, they are provided with
b. The bill did not originate from the House of Representatives.
adequate resources to meet such responsibilities. They may avail of such resources
through (1) local taxes (2) IRAs and (3) national wealth utilization proceeds. ISSUES & RATIO.
1. [MAIN] WON the Internal Revenue Allotments (IRAs) are to be included in the
LGC defines income as all revenues and receipts collected or received forming the computation of the average annual income of a municipality for the purposes of its
gross accretions of funds of the local government unit. The IRAs are items of conversion into an independent component city. – YES! IRAs form part of income of
income because they form part of the gross accretion of the funds of the local LGUs
government unit. The IRAs regularly and automatically accrue to the They thus • PETITIONERS: the IRAs should not be included in the computation to determine the average
constitute income which the local government can invariably rely upon as the annual income of the municipality (see notes). The IRAs are not actually income but transfers
and/or budgetary aid from the national government and that they fluctuate depending on
source of much needed funds
factors like population, land and equal sharing
o Following the proposed computation the average annual income is only about
Dept of Finance Order No 35-93also defines Annual Income to be revenues and
P13Million which is far below the P20 Million average income requirement.
receipts realized by provinces, cities and municipalities from regular sources of the
Local General Fund including the internal revenue allotment and other shares SC: argument is untenable! Internal Revenue Allotments form part of the income of LGUs.
provided for in Sections 284, 290 and 291 of the Code, but exclusive of • A Local Government Unit is a political subdivision of the State which is constituted by law
nonrecurring receipts, such as other national aids, grants, financial assistance, loan and possessed of substantial control over its own affairs. It is autonomous in the sense that it
proceeds, sales of fixed assets and similar others is given more powers, authority, responsibilities and resources.
o Power which used to be highly centralized in Manila, is thereby deconcentrated,
enabling especially the peripheral local government units to develop not only at their
FACTS. own pace and discretion but also with their own resources and assets.

34For  a  municipality  to  be  converted  into  a  component  city,  it  must  (1)  have  an  average  annual  income  of  at  least  Twenty  Million  Pesos  for  the  last  two  (2)  consecutive  years  based  on  1991  constant  prices  and  

(2)Such  income  must  be  duly  certiRied  by  the  Department  of  Finance  
• The practical side to development through a decentralized local government system certainly • Furthermore, petitioners themselves acknowledge that HB No. 8817 was already approved
concerns the matter of financial resources. With its broadened powers and increased on Third Reading and duly transmitted to the Senate when the Senate Committee on Local
responsibilities, an LGU must now operate on a much wider scale. More extensive Government conducted its public hearing on HB No. 8817.
operations, in turn, entail more expenses. Understandably, the vesting of duty, • The filing in the Senate of a substitute bill in anticipation of its receipt of the bill from
responsibility and accountability in every LGU is accompanied with a provision for the House, does not contravene the constitutional requirement that a bill of local
reasonably adequate resources to discharge its powers and effectively carry out its application should originate in the House of Representatives, for as long as the Senate
functions. does not act thereupon until it receives the House bill
o Availment of such resources is effectuated through the vesting in every LGU of:
1. the right to create and broaden its own source of revenue; • SC Final Words: On the side of every law, there is a presumption of constitutionality. Hence,
2. the right to be allocated a just share in national taxes, such share being in the form for RA 7720 to be nullified it must be shown that there is a clear and unequivocal breach of
of internal revenue allotments (IRAs); and the Constitution, not merely a doubtful and equivocal one; the grounds for nullity must be
3. the right to be given its equitable share in the proceeds of the utilization and clear and beyond reasonable doubt.
development of the national wealth, if any, within its territorial boundaries.
• The funds generated from local taxes, IRAs and national wealth utilization proceeds accrue to DECISION.
the general fund of the local government and are used to finance its operations subject to Petition DISMISSED.
specified modes of spending the same as provided in the Local Government Code and its
IRR (i.e. not less than 20% of the IRAs must be set aside for local development projects) NOTES.
• Hence, for purposes of budget preparation, the IRAs and the share in the national wealth Proposed computation by the Petitioners
utilization proceeds are considered items of income. This is also because the Local
Total income (at 1991 constant prices)
Government Code defines income as all revenues and receipts collected or received forming Php 20, 379, 057.07
for
the gross accretions of funds of the local government unit.
o The IRAs are items of income because they form part of the gross accretion of the funds 1991
of the local government unit. The IRAs regularly and automatically accrue to the They
Total income (at 1991 constant prices)
thus constitute income which the local government can invariably rely upon as the
source of much needed funds for Php 21, 570, 106.87
• While Section 450 (c) of the Local Government Code provides that the average annual 1992
income shall include the income accruing to the general fund, exclusive of special funds,
Total income for 1991and 1992 Php 41,949, 163.94
transfers, and nonrecurring income, it must be noted that IRAs are a regular recurring item of
income and can’t be classified as a special fund or transfer.
LESS: IRAs for 1991 and 1992 (Php 15, 730, 043.00)
• Dept of Finance Order No 35-93also defines Annual Income to be revenues and receipts
realized by provinces, cities and municipalities from regular sources of the Local General Total income for 1991 and 1992 Php 26, 219, 120.94
Fund including the internal revenue allotment and other shares provided for in Sections 284,
290 and 291 of the Code, but exclusive of nonrecurring receipts, such as other national aids, Average Annual Income Php 13, 109, 560.47
grants, financial assistance, loan proceeds, sales of fixed assets and similar others
o Such order, constituting executive or contemporaneous construction of a statute by an
administrative agency charged with the task of interpreting and applying the same, is
entitled to full respect and should be accorded great weight by the courts, unless such
construction is clearly shown to be in conflict with the Constitution, the governing
statute, or other laws.

2. WON RA 7720 can be said to have originated from the House of Representatives
considering that Senate passed SB No. 1243, its own version of HB 8817. – YES!
• It cannot be denied that HB No. 8817 was filed in the House of Representatives first before
SB No. 1243 was filed in the Senate.
o Petitioners themselves cannot disvow their own admission that HB No. 8817 was filed
on April 18, 1993 while SB No. 1243 was filed on May 19, 1993.The filing of HB No.
8817 was thus precursive not only of the said Act in question but also of SB No. 1243.
 PIMENTEL v. AGUIRRE
G.R. No. 132988 / July 19 2000 / Panganiban, J. / LOCGOV – Local Taxation and Fiscal Matters:
Internal Revenue Allotment / ECSCALA
NATURE Special Civil Action of Certiorari
PETITIONERS Aquilino Pimentel Jr
RESPONDENTS Alexander Aguirre (capacity as Corporate Secretary), Emilia
Boncodin (Sec of DBM), Roberto Pagdanganan (intervenor)
SUMMARY. In 1997, President Ramos issued AO 372 which: (1) required all
government departments and agencies, including SUCs, GOCCs and LGUs to
identify and implement measures in FY 1998 that will reduce total expenditures for
the year by at least 25% of authorized regular appropriations for non-personal
services items (Sec 1) and (2) ordered the withholding of 10% of the IRA to
LGUs (Sec 4). Pimentel assailed these provisions as unconstitutional.SC held that
Sec 1 was valid while Sec 4 was unconstitutional.
DOCTRINE. A basic feature of local fiscal autonomy is the automatic release of the
shares of LGUs in the national internal revenue. This is mandated by no less than
the Constitution. The LGC specifies further that the release shall be made directly
to the LGU concerned within 5 days after every quarter of the year and “shall not
be subject to any lien or holdback that may be imposed by the national
government for whatever purpose.” As a rule, the term “shall” is a word of
command that must be given a compulsory
FACTS.
• Pimentel was assailing two provisions of AO 37235 (issued by Pres. Ramos in Dec 27
1997)
o Sec 1: All government departments and agencies, including state universities
and colleges, GOCCs, and LGUs will identify and implement measures in Fiscal
Year 1998 that will reduce total expenditures for the year by at least 25% of
authorized regular appropriations for non-personal service items
o Sec 4: Pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation, the amount equivalent
to 10% of the IRA to LGUs shall be withheld (this was later amended by AO 43
of ERAP which reduced the amount of IRA to be withheld to 5%)
• Pimentel: AO was in effect an exercise of control of the President over the LGUs in
violation of principle of local autonomy.
o Sec 4 is in contravention of Sec 286 of the LGC and of Sec 6 Article X of the
1987 Constitution providing for the automatic release to each of the units its
share in the national internal revenue
• OSG: AO 372 was issued to alleviate the economic difficulties brought about by the
peso devaluation.
35
 ADOPTION
 OF
 ECONOMY
 MEASURES
 IN
 GOVERNMENT
 FOR
 FY
 1998
o It doesn’t violate local autonomy because it merely directs local governments to
identify measures that can reduce total expenditures.
o It doesn’t violate the prohibition against imposition of holdbacks because the
withholding is only temporary in nature.
ISSUES & RATIO.
1. WON Sec 1 of AO 372, insofar as it “directs” LGUs to reduce their expenditures
by 25 percent is unconstitutional as it violates the principle of local autonomy.–
NO.
[CT began with a discussion on the president’s power of supervision over LGUs & extent
of local autonomY –see notes]
Fiscal Autonomy of LGUs
a. LGUs enjoy fiscal autonomy in addition to administrative autonomy. Fiscal autonomy
means that LGUs have the power to create their own sources of revenue in addition
to their equitable share in the national taxes released by the national government as
well as the power to allocate their resources in accordance with their own priorities.
b. Local autonomy however, does not rule out any manner of national government
intervention by way of supervision.
c. For one, the President, according to the Constitution, is still the head of the NEDA,
the economic and planning agency of the government, primarily responsible for
formulating and implementing integrated social and economic policies plans for the
entire country. The formulation and implementation of the policies and programs
however are subject to consultations with the appropriate public agencies, private
sectors and LGUs.
d. This Constitutional directive was followed in the LGC Sec 284 which provides that:
“In the event that the national government incurs an unmanaged public
sector deficit, the President of the PH is hereby authorized, upon the
recommendation of the Secretary of Finance, Secretary of the Interior and
Local Government and Secretary of Budget and Management, and subject
to consultation with the presiding officers of both houses of Congress and
the presidents of the liga, to make the necessary adjustments in the
internal revenue allotment of LGUs but in no case shall the allotment be
less than 30% of the collection of national internal revenue taxes of the third
fiscal year preceding the current fiscal year”
e. Before the President may therefore interfere in local fiscal matters: [IN THE
BOOK!]
1. There must be an unmanaged public sector deficit in the national government
2. Consultations must be had with the presiding officers of Senate and the House
and the presidents of the various local leagues
3. Recommendation must be obtained from Secretaries of the DILG, DoF and DBM
 4. Any adjustment shall in no case be less than 30% of the national internal
revenue taxes collected of the 3rd fiscal year preceding the current one
Although the requisites were not complied with before AO 372 was implemented, SC
agreed with OSG in that AO 372 is merely directory and was intended only to advise
all government agencies and instrumentalities to undertake cost-reduction
measures. It doesn’t even mention any sanction in case of noncompliance. It merely tells
the LGUs to identify and implement measures that will reduce total expenditures by 25%.
2. WON Sec 4 of the same issuance, which withholds 10 percent of their internal
revenue allotments violates Sec 286 LGC and Sec 6 Art X Consti.– YES. [ISSUE
FOUND IN BOOK!]
a. Sec 4 is invalid for being a holdback imposed by the national
government on the IRA
b. Sec 6 Art X Consti: A basic feature of local fiscal autonomy is the
AUTOMATIC release of the shares of LGUs in the national internal revenue.
This is mandated by no less than the Constitution.
c. Sec 286 LGC: Sec 286 provides that IRA shall be released directly to the
LGU concerned within 5 days after every quarter of the year and SHALL
NOT be subject to any lien or holdback that may be imposed by the
national government for whatever purpose. Since shall is used, as a rule the
provision is compulsory in character
Withholding under Sec 4 of AO 372 thus contravenes the Constitution and the LGC.
Although temporary, it is equivalent to a holdback, which means something held back or
withheld, often temporarily. Hence, the “temporary” nature of the retention by the
national government does not matter. Any retention is prohibited. Any retention is
prohibited.
Majority’s reply to Justice Kapunan’s Dissent
• Dissent: NOT RIPE. Petition is premature. The conduct has not yet occurred
and the challenged construction of the law has not yet been adopted by the
agency charged with implementing the same; thus there is no justiciable
controversy to be decided
SC: Kapunan forgets that the real issue in the case is the validity of Sec 1 and
Sec 4 of the AO, not whether they are violated by the acts implementing it. By
the mere enactment of the questioned law or approval of the challenged action,
the dispute is said to have ripened into a judicial controversy. Citing Tatad v
Secretary of Energy, the Court held that the if the courts are given authority to
determine whether a statute enacted by the legislature violates the constitution,
by the same token, when an act of the President (who in the Constitution is a
coequal of Congress), is seriously alleged to have violated the Constitution and
the laws, settling the dispute becomes the duty and responsibility of the courts
d. Dissent: AO 372 falls within the powers of the President as chief fiscal
officer. The President is clothed by law with certain powers to ensure the
observance of safeguards and auditing requirements, as well as the legal
prerequisites in the release and use of IRAs.
SC: Kapunan is right that President has power to intervene as chief fiscal officer,
subject to constitutional and statutory mandates (again, look at 284). Sec 4 of
the AO contravenes explicit provisions of the LGC and the Constitution.
e. Dissent: Withholding of the LGU’s IRA is implied in the President’s authority to
adjust it in case of an unmanageable public sector deficit
SC: In striking out Sec 4, SC isn’t ruling out any form of reduction of the IRA in
LGUs. As was discussed earlier, in case of an unmanageable public sector deficit,
President may reduce IRA, subject to requirements of Sec 284 LGC. Justice
Kapunan forgot that Sec 284 requires a consultation with the presidents of the
leagues of local governments. The fact that petitioner and intervenor
Pagdanganan (who was a provincial governor and President of the League of
Province) have instituted this action show lack of consultation.
f. Dissent: Sec 287 of the LGC impliedly authorizes the President to withhold the
IRA of an LGU, pending compliance with requirements.
g. SC: Sec 287 merely directs LGUs to appropriate in their annual budgets 20% of
their IRAs for development projects. It speaks of no positive power granted to
the President to withhold any amount.
DECISION.
Petition Dismissed.
NOTES
Scope of President’s Power of Supervision
h. Taule v Santos: President wielded only the authority of checking whether LGUs or
their officials were performing their duties as provided by law. He cannot interfere
with local governments, as long as they act within the scope of their authority
i. Supervisory power, when contrasted with control, is the power of mereoversight over
an inferior body; it does not include any restrainingauthority over such body.
Extent of Local Autonomy
j. Ganzon v CA: local autonomy signified a more responsive and accountable local
government structure instituted through a system of decentralization.
Decentralization on the other hand means the devolution of national administration,
not power, to local governments.
k. Under the Philippine concept of local autonomy, the national government has not
completely relinquished all its powers over local governments. Only admin powers
over local affairs are delegated so that LGUs are more responsive and effective at
the local levels. Still, to enable the country to develop as a whole, the programs
and policies effected locally must be integrated and coordinated towards a
common national goal

 BATANGAS v. ROMULO Equalization Fund” was created. This was in order to address the funding shortfalls of functions
G.R. No. 152774 / 27 May 2004/ CALLEJO, J./ LOCGOV /MJCMARTINEZ and services devolved to LGUs.
Through the program, the DBM was to set aside an amount from the savings of the
NATURE Petition for Review on Certiorari
national government, to be determined by the Oversight Committee (OC) established in the
PETITIONERS The Province of Batangas, represented by Gov. Mandanas
LGC. Said amount was then to be incorporated in the annual General Appropriations Act
RESPONDENTS Hon. Alberto G. Romulo, Executive Secretary and Chairman of
(GAA). The OC was then authorized to issue the implementing rules and regulations governing
the Oversight Committee on Devolution; Hon. Emilia Boncodin, Secretary, the allocation and distribution of said fund to the LGUs.
Department of Budget and Management; Hon. Jose D. Lina, Jr., Secretary,
Department of Interior and Local Government 1999 GAA: Rebirth as the LGSEF
The program was renamed the Local Government Service Equalization Fund (LGSEF) in
RA 8745, or the 1999 GAA. Under said appropriations law, P96.780B was allotted as the LGUs’
SUMMARY.
  In each of the 1999, 2001, and 2002 GAAs, P5B of the IRA due to LGUs was
share in the internal revenue taxes. Out of this amount, P5B was set aside as the LGSEF.
earmarked as the Local Gov’t Service Equalization Fund (LGSEF). Each P5B portion was
The OC then passed three resolutions related to the LGSEF:
specifically allocated to the LGUs in varying percentages, and also partly set aside for local
(a) OCD-99-005: Resolution adopting the allocation scheme for the P5B 1999 LGSEF
affirmative action projects, subject to the approval of the Oversight Committee. Petitioner
(b) OCD-99-006: Resolution adopting the allocation scheme for the first P4B of the 1999
assailed the LGSEF as unconstitutional, first, for being contrary to the mandate that the LGUs’
LGSEF and its concomitant general framework, implementing guidelines and
just share be “automatically released” to them; and second, for illegally amending §285,
mechanics for its implementation and release
LGC, which already provides for the percentage sharing of LGUs in the IRA. The SC agreed:
(c) OCD-99-003: Resolution setting aside 20% of the LGSEF (or the remaining P1B) for
the fact that the release of portions of the LGSEF is subject to the OC’s approval is contrary
local affirmative action projects (LAAP) and other priority initiatives for LGUs
to the principle of local autonomy, and any amendment to the percentage sharing embodied
Hence, the 1999 LGSEF was to be allocated as follows:
in the LGC should be made in a separate law, not in a GAA.
(a) First P2B: In accordance with the codal formula sharing scheme prescribed in the LGC
DOCTRINE. Pursuant to the precept of Local Autonomy, the Constitution and the LGC both
(b) Second P2B: Modified cost of devolution fund, with a formula as follows:
mandate the automatic release of the LGUs’ share in the national revenue taxes. Therefore,
- Provinces: 40%
such releases cannot be subject to conditions.
- Cities: 20%
The only possible exception to the mandatory automatic release of the LGUs’ IRA is if the
- Municipalities: 40%
national internal revenue collections for the current fiscal year is less than 40 percent of the
(c) Remaining P1B: Earmarked to support LAAP and other priority initiatives submitted
collections of the preceding third fiscal year, in which case what should be automatically
to the OC on Devolution for approval.36
released shall be a proportionate amount of the collections for the current fiscal year. The
2000 GAA: The LGSEF reappears
adjustment may even be made on a quarterly basis depending on the actual collections of
P111.778B was the LGUs’ internal revenue allotment in RA 8760, or the 2000 GAA. The
national internal revenue taxesfor the quarter of the current fiscal year.
2000 GAA, like in 1999, also contained a proviso earmarking P5B of the IRA as the LGSEF. The
allocation is as follows:
FACTS. (a) P3.5B: Percentage-sharing formula:
Background: The beginnings of the LGSEF - Provinces: 26% (P910M)
In 1998, Pres. Estrada issued EO No. 48, which established a “Program for Devolution - Cities: 23% (P805M)
Adjustment and Equalization,” by virtue of which a “Devolution Adjustment and - Municipalities: 35% (P1.225B)
- Barangays: 16% (P560M)

36  A  summary  of  the  guidelines  for  approval:  

(a) LGUs
 must
 identify
 the
 projects
 eligible
 for
 funding,
 based
 on
 the
 criteria
 laid
 down
 by
 the
 OC;
 
(b) LGUs
 must
 submit
 their
 project
 proposals
 to
 the
 DILG
 fo
 appraisal;
 and
 
(c) The
 project
 proposals
 that
 pass
 DILG
 appraisal
 are
 submitted
 to
 the
 OC
 for
 review,
 evaluation,
 and
 approval.
 
Just
 for
 background,
 some
 of
 the
 projects
 eligible
 for
 funding
 are
 the
 following:
 
(a) Delivery
 of
 local
 health
 and
 sanitation
 services,
 hospital
 services
 and
 other
 tertiary
 services;
 
 
(b) Delivery
 of
 social
 welfare
 services;
 
 
(c) Provision
 of
 socio-­‐cultural
 services
 and
 facilities
 for
 youth
 and
 community
 development;
 
 
(d) Provision
 of
 agricultural
 and
 on-­‐site
 related
 research;
 
 
(e) Improvement
 of
 community-­‐based
 forestry
 projects
 and
 other
 local
 projects
 on
 environment
 and
 natural
 resources
 protection
 and
 conservation;
 
 
(f) Improvement
 of
 tourism
 facilities
 and
 promotion
 of
 tourism;
 
 
(g) Peace
 and
 order
 and
 public
 safety;
 
 
(h) Construction,
 repair
 and
 maintenance
 of
 public
 works
 and
 infrastructure,
 including
 public
 buildings
 and
 facilities
 for
 public
 use,
 especially
 those
 destroyed
 or
 damaged
 by
 man-­‐made
 or
 natural
 calamities
 and
 disaster
 as
 well
 as
 facilities
 for
 water
 supply,
 Rlood
 control
 
and
 river
 dikes;
 
 
(i) Provision
 of
 local
 electriRication
 facilities;
 
 
(j) Livelihood
 and
 food
 production
 services,
 facilities
 and
 equipment;
 and
 
(k) Other
 projects
 that
 may
 be
 authorized
 by
 the
 OC
 consistent
 with
 the
 aforementioned
 objectives
 and
 guidelines.
 (b) Remaining P1.5B: Earmarked again to support LAAP, to be endorsed and
approved by the OC, in accordance with its guidelines, procedures, and
documentary requirements
Pres. Estrada then authorized the Executive Secretary and the DBM to release the first
P2.5B of the 2000 LGSEF. Later, the OC, under the new administration of Pres. Macapagal-
Arroyo, promulgated OCD-2001-29 for the allocation, implementation, and release of the
remaining P2.5B of the 2000 LGSEF.
2001 GAA: The LGSEF reappears
In 2001, Congress failed to enact a GAA, so the 2000 GAA was deemed re-enacted,
together with the IRA of the LGUs therein. The proviso earmarking P5B for the LGSEF was
therefore also re-enacted, and allocated as follows: P111.778B was the LGUs’ internal
revenue allotment in RA 8760, or the 2000 GAA. The 2000 GAA, like in 1999, also contained a
proviso earmarking P5B of the IRA as the LGSEF. The allocation is as follows:
(a) P3B: Modified codal formula:
- Provinces: 25% (P750M)
- Cities: 25% (P750M)
- Municipalities: 35% (P1.050B)
- Barangays: 15% (P450M)
(b) P1.9B: LAAP
(c) Remaining P100M: LGSEF “capability building fund”
The petitioner’s arguments
Gov. Mandanas of Batangas then wrote to the members of the OC seeking
reconsideration, and also to PGMA, urging her to disapprove the allocation for violating the
Constitution and the LGC. However, PGMA approved the OC Resolution embodying the above
allocation.
The Province, represented by Gov. Mandanas, thus come before the Court to assail the
constitutionality of the LGSEF provisos in the 1999, 2000, and 2001 GAAs, and the OC
resolutions,37 on the following grounds:
(1) The LGSEF violates the Constitution and LGC insofar as the mandate that
the just share of LGUs in the national taxes shall be “automatically released”
to them. Subjecting the distribution and release of the P5B LGSEF, which is part
of the IRA, to compliance by the LGUs to the rules, regulations, mechanisms, and
guidelines prescribed by the OC contravenes the explicit directive of the
Constitution (Art. X, §6) and the LGC (§18 and §286) that their share in the
national taxes be automatically released to them. This is repugnant to the
principle of local autonomy: as an example, in 2001, the release of the LGSEF
was long delayed, because the OC was unable to convene and issue guidelines.
(2) The LGSEF improperly amends §285, LGC, which prescribes the percentage
sharing 38 of the IRA among LGUs. The modifications with respect to the LGSEF
constitute an illegal amendment by the executive branch of a substantive law.
(Further, petitioner mentions that in a Dec. 2001 letter, Exec. Sec. Romulo
endorsed to DBM Sec. Boncodin the release of the LGSEF to certain LGUs in
accordance with PGMA’s handwritten instructions. Hence, the LGUs are at a loss
as to how a portion of the LGSEF was actually allocated.) Finally, portions of the
LGSEF are yet to be released, resulting in damage and injury to the petitioner.
The respondents’ arguments
The respondents contend that:
(1) Congress is the arbiter of what should be the “just share” of the LGUs in the
national taxes. Art. X, §6 does not specify that the just share of the LGUs shall be
determined solely by the LGC. Moreover, the phrase “as determined by law” in that
provision means that there exists no limitation on the power of Congress to
determine what is the just share of the LGU’s in the national taxes.
(2) §285, LGC was not intended to be a fixed determination of their share in the
national taxes. Congress may enact other laws, including appropriations laws,
providing for a different sharing formula. The provision was merely intended to be the
default share of the LGUs, but they have no vested right in a permanent or fixed
percentage, because Congress may increase or decrease the LGUs’ share in
accordance with what it believes is appropriate for their operation.
(3) The petition is procedurally infirm because:
(a) It raises factual issues that should be threshed out in the lower courts.
(Specifically, they refer to petitioner’s allegation that because portions of the
LGSEF have not been released, injury and damage has been incurred.
Respondents argue that such allegation is subject to proof in the proper venue.)
(b) It is moot and academic. The IRAs for the years 1999, 2000, and 2001 have been
released, and the government is now operating under the 2003 budget.
(c) Petitioner has no legal standing, because it has not suffered any injury.
ISSUES & RATIO.
Procedural
1. Whether the petitioner has legal standing.—YES.
Petitioner has legal standing. As a local government unit, it seeks relief in order to protect or
vindicate its own interest, as well as that of the other LGUs. This interest pertains to the LGUs’
share in the national taxes, or the IRA.
2. Whether the petition involves factual questions properly cognizable by the lower
courts.—NO.
The instant controversy is predicated upon a substantial issue (see above). Further, the
following facts are necessary to resolve the issue before the Court, and being undisputed, they
no longer need to be determined by a trial court:

37  OCD-­‐99-­‐003,  OCD  99-­‐005,  OCD-­‐99-­‐006,  OCD-­‐2000-­‐023,  OCD-­‐2001-­‐029,  and  OCD-­‐2002-­‐001

38  §285  provides  for  the  following  allocation  of  the  IRA:  

(a) Provinces:  23%  

(b) Cities:  23%  
(c) Municipalities:  34%  
(d) Barangays:  20%
 (a) That P5B was earmarked in the 1999, 2000, and 2001 GAAs; Constitution. (The OC was created under the LGC’s “Transitory Provisions,” and principal
(b) That the OC promulgated the assailed resolutions; and author and sponsor Sen. Pimentel has said that the OC’s work should have terminated a year
(c) That the LGSEF was to be released to the LGUs only upon their compliance with from the LGC’s approval.)
implementing rules and regulations, as prescribed by the OC. Local autonomy includes both administrative and fiscal autonomy. The assailed GAA
provisos and OC resolutions constitute a “withholding” of portions of the IRA, which
3. Whether the issue had been rendered moot and academic.—NO. effectively encroach on the LGUs’ fiscal autonomy. They thus cannot be upheld.
There is compelling reason for the Court to resolve the substantive issue in spite of
supervening events. = Capable of repetition, evading review, controlling principles to guide 2. Whether the assailed GAA provisos and OCD resolutions constitute an illegal
bench, bar, and public. amendment to the LGC, insofar as they prescribe a different allocation of the IRA to
LGUs.—YES.
Substantial
1. Whether the assailed GAA provisos and OCD resolutions infringe upon the The assailed GAA provisions and OC resolutions cannot amend §285, LGC.
Constitutional and statutory mandate that the IRAs “automatically released” to LGUs.— §285 provides for the allocation of the IRA.40 The only possible exception thereto is
YES. embodied in §284,41 but there is no allegation that the national internal revenue tax collections
The assailed GAA provisions and OC resolutions violate the constitutional principle of for the fiscal years 1999, 2000, and 2001 have fallen compared to the preceding years.
local autonomy. The percentage allocations for the LGSEF are thus contrary to the LGC. Though
respondents argue that the Congress has the power to enact other laws to increase or
The Court first cited Art. X, §639 of the Constitution and §§18 and 286 of the LGC to decrease the LGUs’ just share, Congress may not amend the LGC through GAAs. Any
highlight the automatic release of the IRA. §286 particularly states that the IRA “shall not be amendment to the LGC should be done in a separate law. A GAA is a special type of
subject to any lien or holdback that may be imposed by the national government for legislation, limited to specified sums of money, dedicated to a specific purpose or separate
whatever purpose.” fiscal unit. Increasing or decreasing the LGUs’ IRAs or modifying their percentage sharing
It also looked to Webster’s Dictionary for a definition of automatic: “involuntary either therein as fixed in the LGC are matters of substantive law. To permit Congress to
wholly or to a major extent so that any activity of the will is largely negligible.” Hence, it undertake these amendments through the GAAs would give Congress unbridled authority
connotes something mechanical, spontaneous, and perfunctory: LGUs are thus not required to unduly infringe the LGUs’ fiscal autonomy.
to perform any act to receive their just share.
The Court also referred to its ruling in Pimentel v. Aguirre: “A basic feature of local fiscal The Court noted that the 2002 and 2003 GAAs no longer contain provisos earmarking any
autonomy is the automatic release of the shares of LGUs in the national internal revenue. portion of the IRA for the LGSEF. Hence, it seems Congress has seen fit to discontinue a
[…] Any retention is prohibited.” practice that it recognizes as infirm.
In the 1999, 2000, and 2001 GAAs, a P5B-portion of the IRA was earmarked for the LGSEF,
and its release was subject to compliance with implementing rules and regulations prescribed DECISION.
by the OC. The LGSEF could therefore not be released to the LGUs without the OC’s prior The petition is granted.
approval.
The entire process is constitutionally impermissible. The LGSEF is part of the IRA,
and to subject its distribution and release to implementing rules and regulations
unilaterally prescribed by the OC makes the release not automatic.
The OC’s exercise of discretion, even control, over the distribution and release of part of
the IRA is contrary to the principle of local autonomy. Moreover, there is no statutory basis for
it, since the OC was created merely to formulate rules and regulations to effectively
implement the LGC and ensure compliance with the principles of local autonomy in the

39  They  parsed  the  provision  as  having  three  mandates:  

(a) The  LGUs  shall  have  a  just  share  in  the  national  taxes;  
(b) That  just  share  shall  be  determined  by  law;  and  
(c) That  just  share  shall  be  automatically  released  to  the  LGUs.

40  Supra  footnote  4.

41  If  the  national  internal  revenue  collections  for  the  current  Riscal  year  is  less  than  40%  of  the  collections  of  the  preceding  3rd  Riscal  year,  what  should  be  automatically  released  shall  be  a  proportionate  amount  of  the  collections  for  the  current  

Riscal  year.
 ACORD v. ZAMORA
G.R. No. 144256 / JUNE 8, 2000 / CARPIO-MORALES, J./LOCGOV/AMOR ISSUES & RATIO.
1. WON the petition contains proper verifications and certifications against forum-
shopping. – YES. Petitioners substantially complied with the RoC.
NATURE Petition for Certiorari, etc.
PETITIONERS Lots of NGOs and POs, 3 brgy officials, and the Provinces of
Despite merely stating that the allegations are ‘true of our knowledge and belief’ instead of
Batangas and Nueva Ecija as petitioner-intervenors
‘ture and correct of our personal knowledge or based on authentic records’, the statement
RESPONDENTS Hon. Ronaldo Zamora, in his capacity as Exec Sec, Hon. constitutes substantial compliance especially when the question at issue is one purely of law
Benjamin Diokno, in his capacity as SoBM, Hon. Leonor Magtolis-Briones, in her and the veracity of the allegations are not disputed. Even if the verifications for the
capacity as National Treasurer, and the Commission on Audit organizations were not signed by those authorized, there would remain the indivs who validly
executed their verifications.

SUMMARY. GAA for 2000 had a provision allotting P10B as part of IRA subject to
2. WON Petitioners have standing. – Moot and academic since the provinces of Batangas
the condition that the revenue targets submitted by the Pres are met. The SC held
and NE, both LGUs, have adopted the arguments of the Petitioners.
that the provision is void for being in contravention to the constitutional mandate
of the automatic release of the IRA, pursuant to Art. X, Sec. 6. It is the LGUs, each having a separate juridical entity, which stand to be injured—Adoption of
DOCTRINE. As the Consti lays upon the executive the duty to automatically the provinces of petitioners’ arguments made the question of standing academic.
release the just share of LGUs in the natl taxes, so it enjoins the legislature not to
pass laws that might prevent the executive from performing this duty. If indeed the No cause of action against Respondents as they have no responsibility with respect to the
framers intended to allow the enactment of statutes making the release of IRA mandate of the GAA provisions, and that the committees mentioned in the GAA should
conditional instead of automatic, then Art. X, Sec. 6 would have been worded instead have been impleaded – The GAA provisions were not to be implemented solely by
differently. The last part of the sentence, ‘which shall be automatically released to the committees named therein, but also by the executive branch, particularly the DBM and
the Natl Treasurer. The committees were tasked merely to conduct quarterly assessments,
them,’ would have been qualified by the phrase ‘as provided by law’, or something
and not in the actual release of the IRA, which is the duty of the executive. Since the present
to that effect. And since under the provision, only the just share is qualified by the
controversy centers on the proper manner of releasing the IRA, respondents are the proper
words ‘as determined by law,’ and not the release thereof, the plain implication is
parties to the suit.
that Congress is not authorized by the Consti to hinder or impede the automatic
release of the IRA. 3. WON the provision violates the constitutional injunction that the just share of local
govts in the natl taxes or the IRA shall be automatically released. — YES.
FACTS.
(SUB-ISSUE NO. 1)
● Pursuant to Sec. 22, Art. VII Consti, President Estrada submitted the Natl Expenditures
Program for Fiscal Yr 2000.
Petitioners: the GAA violated Art. X, Sec. 6 Consti42 when it made the release of IRA
● The program proposed an IRA in the amt of P121.778B ff the formula in Sec. 284 LGC
contingent on whether revenue collections could meet the revenue targets originally
(IRA=40% of natl internal revenue taxes).
submitted by the Pres, rather than making the release automatic.
● Eventually, the GAA for the Yr 2000 was enacted.
● It provided that the IRA for LGUs shall amount to P111.778B.
Respondents: the consti provision is addressed to the executive, not to the legislature,
● In another part of the GAA, under the heading “UNPROGRAMMED FUND”, it is provided
hence, it does not prevent the legislature from imposing conditions upon the release of the
that an amount of P10B, apart from the P111.778B, shall be used to fund the IRA, which
IRA, based on the delibs43 of the ConComm. Davide and Nolledo shared a common
amount shall be released only when the original revenue targets submitted by the Pres to
assumption that the entity which would execute the automatic release of internal revenue
Congress can be realized based on a quarterly assessment to be conducted by certain
was the executive dept. The Pres or any member of the Exec Dept cannot unilaterally,
committees, namely, the Devt Budget Coordinating Committee, Senate’s Committee on
without the backing statute, withhold the release of the IRA.
Finance, and the HoR’s Committee on Appropriations.
● Hence, this petition questioning the constitutionality of this provision.One to two sentences
per bullet only.

42  Section 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.

43 Basta nag-aaway lang sila kung dapat may word na “periodically” sa phrase na ‘which shall be automatically (periodically) released to them.’
 SC: As the Consti lays upon the executive the duty to automatically release the just share of
LGUs in the natl taxes, so it enjoins the legislature not to pass laws that might prevent the
executive from performing this duty. If indeed the framers intended to allow the enactment
of statutes making the release of IRA conditional instead of automatic, then Art. X, Sec. 6
would have been worded differently. The last part of the sentence, ‘which shall be
automatically released to them,’ would have been qualified by the phrase ‘as provided by
law’, or something to that effect. And since under the provision, only the just share is
qualified by the words ‘as determined by law,’ and not the release thereof, the plain
implication is that Congress is not authorized by the Consti to hinder or impede the
automatic release of the IRA.
(SUB-ISSUE NO. 2)
Respondents: But these statutory provisions show the legislature authorizing the executive
branch to withhold the IRA in certain circumstances: Sec. 70 of the PNP Reform and
Reorganization Act of 199844, Sec. 531 LGC 45, Sec. 10, RA 792446 , and Rule XXXII, Art. 383(c)
of the Rules and Reglns Implementing the LGC47.
SC: Where the meaning of a consti provision is clear, contemporaneous or practical,
executive interpretation is entitled to no weight. This is because the application of the
doctrine of contemporaneous construction is more restricted as applied to the interpretation
of consti provisions than when applied to statutory provisions, and that except as to matters
committed by the consti itself to the discretion of some other dept, contemporaneous or
practical construction is not necessarily binding upon the courts, even in a doubtful case.
Applied: The consti provision mandates: (1) The LGUs shall have a just share in the natl taxes;
(2) the just share shall be determined by law; and (3) the just share shall be automatically
released to the LGUs. Being “automatic” connotes something mechanical, spontaneous, and
perfunctory. The GAA provisions withhold the releasing of the IRA pending an event which is
not even certain of occurring. To rule that the term “automatic release” contemplates such
conditional release would be to strip the term “automatic” of all meaning.
Additionally, to interpret “automatic release” in such a broad manner would be inconsistent
with the ruling in Pimentel v Aguirre. In that case, the withholding by the executive was ruled
to have contravened the constitutional mandate of an automatic release. There is no
substantial difference between the withholding of the IRA there and in this case, except that
here it is the legislature, not the executive, which has authorized such. Despite this
distinction, the Pimentel ruling remains applicable, since Art. X, Sec. 6 Consti enjoins both
the legislative and executive branches of govt.
Only exception to the bar from withholding the IRA: Sec. 284 LGC48 . If the natl internal
revenue collections for the current fiscal yr is less than 40% of the collections of the
preceding 3rd fiscal yr, what should be automatically released shall be a proportionate
amount of the collections for the current fiscal yr. Such adjustment may even be made on a
quarterly basis depending on the actual collections of natl internal revenue taxes for the qtr
of the current fiscal year.
DECISION.
Petition GRANTED.

44 SECTION 70.  Budget Allocation. – x x x The Secretary shall submit a report to Congress and the President within fifteen (15) days from the effectivity of this Act on the number of PLEBs already organized as well as the LGUs
still without PLEBs.  Municipalities or cities without a PLEB or with an insufficient number of organized PLEBs shall have thirty (30) days to organize their respective PLEBs.  After such period, the DILG and the Department of
Budget and Management shall withhold the release of the LGUs share in the national taxes in cities and municipalities still without PLEB(s). 

45This provision is among the Transitory Provisions of the Code, and is quoted by respondents as follows:
“SECTION 531.  Debt Relief for Local Government Units.— x x x “The national government is hereby authorized to deduct from the quarterly share of each local government unit in the internal revenue collections an
amount to be determined on the basis of the amortization schedule of the local unit concerned: Provided, That such amount shall not exceed five percent (5%) of the monthly internal revenue allotment of the local
government unit concerned.

46Sources of Funds and the Operating Budget of MMDA:

x x x (d) Five percent (5%) of the total annual gross revenue of the preceding year, net of the internal revenue allotment, or each local government unit mentioned in Section 2 hereof, shall accrue and become payable monthly to
the MMDA by each city or municipality.  In case of failure to remit the said fixed contribution, the DBM shall cause the disbursement of the same to the MMDA chargeable against the IRA allotment of the city or
municipality concerned, the provisions of Section 286 of RA 7160 to the contrary notwithstanding. 

47ARTICLE 383.  Automatic Release of IRA Shares of LGUs. – x x x (c) The IRA share of LGUs shall not be subject to any lien or holdback that may be imposed by the National Government for whatever purpose unless
otherwise provided in the Code or other applicable laws and loan contract or project agreements arising from foreign loans and international commitments, such as premium contributions of LGUs to the Government Service
Insurance System and loans contracted by LGUs under foreign-assisted projects.

48 Provided, That in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of Secretary of Finance, Secretary of
Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the "liga," to make the necessary adjustments in
the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year:
Provided, further, That in the first year of the effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal revenue allotment which shall include the cost of devolved functions for essential
public services, be entitled to receive the amount equivalent to the cost of devolved personal services.