Mactan Cebu International Airport Authority vs. Marcos

12/6/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 261
*
G.R. No. 120082. September 11, 1996.
MACTAN CEBU INTERNATIONAL AIRPORT

AUTHORITY, petitioner, vs. HON. FERDINAND J.
MARCOS, in his capacity as the Presiding Judge of the
Regional Trial Court, Branch 20, Cebu City, THE CITY OF
CEBU, represented by its Mayor, HON. TOMAS R.
OSMEÑA, and EUSTAQUIO B. CESA, respondents.
Taxation; As a general rule, the power to tax is an incident of

sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes
the tax on the constituency who are to pay it.—As a general rule,
the power to tax is an incident of sovereignty and is unlimited in
its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility
of the legislature which imposes the tax on the constituency who
are to pay it. Nevertheless, effective limitations thereon may be
imposed by the people through their Constitutions. Our
Constitution, for instance, provides that the rule of taxation shall
be uniform and equitable and Congress shall evolve a progressive
system of taxation. So potent indeed is the power that it was once
opined that “the power to tax involves the power to destroy.”
Same; Statutory Construction; Since taxation is a destructive
power which interferes with the personal and property rights of the
people and takes from them a portion of their property for the
support
______________
* THIRD DIVISION.
668
668 SUPREME COURT REPORTS ANNOTATED
Mactan Cebu International Airport Authority vs. Marcos
http://www.central.com.ph/sfsreader/session/0000016783d56ef81ffebd1b003600fb002c009e/t/?o=False 1/27
of the government, tax statutes must be construed strictly against

the government and liberally in favor of the taxpayer; But since
taxes are what we pay for civilized society, or are the lifeblood of
the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority.—Verily, taxation is a destructive power which
interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the
government. Accordingly, tax statutes must be construed strictly
against the government and liberally in favor of the taxpayer. But
since taxes are what we pay for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed
stricissimi juris against the taxpayer and liberally in favor of the
taxing authority. A claim of exemption from tax payments must
be clearly shown and based on language in the law too plain to be
mistaken. Elsewise stated, taxation is the rule, exemption
therefrom is the exception. However, if the grantee of the
exemption is a political subdivision or instrumentality, the rigid
rule of construction does not apply because the practical effect of
the exemption is merely to reduce the amount of money that has
to be handled by the government in the course of its operations.
Same; Local Government Units; The power to tax is primarily
vested in the Congress but in our jurisdiction, it may be exercised
by local legislative bodies, no longer merely by virtue of a valid
delegation but pursuant to direct authority conferred by the
Constitution.— The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by
Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
Same; Same; Non-Impairment Clause; Since taxation is the
rule and exemption therefrom the exception, the exemption may be
withdrawn at the pleasure of the taxing authority, the only
exception being where the exemption was granted to private parties
based on material consideration of a mutual nature, which then
becomes contractual and thus covered by the non-impairment
clause of the Constitution.—There can be no question that under
Section 14 of R.A.
669
VOL. 261, SEPTEMBER 11, 1996 669
No. 6958 the petitioner is exempt from the payment of realty

taxes imposed by the National Government or any of its political
subdivisions, agencies, and instrumentalities. Nevertheless, since
taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing
authority. The only exception to this rule is where the exemption
was granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus
covered by the nonimpairment clause of the Constitution.
Same; Same; Local Government Code; Words and Phrases;
“Fees” and “Charges,” Explained.—Section 133 of the LGC
prescribes the common limitations on the taxing powers of local
government units. Needless to say, the last item (item 0 of Sec.
133 of the LGC) is pertinent to this case. The “taxes, fees or
charges” referred to are “of any kind;” hence, they include all of
these, unless otherwise provided by the LGC. The term “taxes” is
well understood so as to need no further elaboration, especially in
light of the above enumeration. The term “fees” means charges
fixed by law or ordinance for the regulation or inspection of
business or activity, while “charges” are pecuniary liabilities such
as rents or fees against persons or property.
Same; Same; Same; Since the last paragraph of Section 234 of
the LGC unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural
or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and Mactan
Cebu International Airport Authority is a government-owned
corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A 6958, has been
withdrawn.—Since the last paragraph of Section 234
unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to
natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and
the petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax granted it
in Section 14 of its Charter, R.A. No. 6958, has been withdrawn.
Any claim to the contrary can only be justified if the petitioner
can seek refuge under any of the exceptions provided in Section
234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Sections 232 and 234.
670
Same; Words and Phrases; The terms “Republic of the

Philippines” and “National Government” are not interchangeable
—the former is broader and synonymous with “Government of the
Republic of the Philippines” while the latter refers “to the entire
machinery of the central government, as distinguished from the
different forms of local governments."—The terms “Republic of the
Philippines” and “National Government” are not interchangeable.
The former is broader and synonymous with “Government of the
Republic of the Philippines” which the Administrative Code of
1987 defines as the “corporate governmental entity through which
the functions of government are exercised throughout the
Philippines, including, save as the contrary appears from the
context, the various arms through which political authority is
made effective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or barangay
subdivisions or other forms of local government.” These
“autonomous regions, provincial, city, municipal or barangay
subdivisions” are the political subdivisions. On the other hand,
“National Government” refers “to the entire machinery of the
central government, as distinguished from the different forms of
local governments.” The National Government then is composed
of the three great departments: the executive, the legislative and
the judicial.
Same; Same; “Agency” and “Instrumentality,” Explained.—An
“agency” of the Government refers to “any of the various units of
the Government, including a department, bureau, office,
instrumental“ity, or government-owned or controlled corporation,
or a local government or a distinct unit therein;” while an
“instrumentality” refers to “any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. This
term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations.”
Same; Local Government Units; Local Autonomy; The power
to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of local government units for
the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and
prosperity of the people.—The justification for this restricted
exemption in Section 234(a)
671
VOL. 261, SEPTEMBER 11, 1996 671
seems obvious: to limit further tax exemption privileges,

especially in light of the general provision on withdrawal of tax
exemption privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property taxes in
the last paragraph of Section 234. These policy considerations are
consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine
and meaningful local autonomy to enable them to attain their
fullest development as selfreliant communities and make them
effective partners in the attainment of national goals. The power
to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of local government units
for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and
prosperity of the people. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all
other units of government were that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises, and there was a need for these
entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.
Same; Mactan Cebu International Airport Authority cannot
claim that it was never a “taxable person” under its Charter—it
was only exempted from the payment of real property taxes.—
Moreover, the petitioner cannot claim that it was never a “taxable
person” under its Charter. It was only exempted from the payment
of real property taxes. The grant of the privilege only in respect of
this tax is conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property tax.
Same; Local Government Units; Local Government Code;
Reliance on Basco vs. Philippine Amusement and Gaming
Corporation, 197 SCRA 52 (1991), is unavailing since it was
decided before the effectivity of the LGC.—Accordingly, the
position taken by the petitioner is untenable. Reliance on Basco
vs. Philippine Amusement and Gaming Corporation is unavailing
since it was decided before the effectivity of the LGC. Besides,
nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy,

no one can doubt its wisdom.
672

PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
The Office of the City Attorney for City of Cebu.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on1 a pure

question of law are the decision of 22 March 1995 of the
Regional Trial Court (RTC) of Cebu City, Branch 20,
dismissing the petition for declaratory relief in Civil Case
No. CEB16900, entitled “Mactan Cebu International
Airport
2
Authority vs. City of Cebu,” and its order of 4 May
1995 denying the motion to reconsider the decision.
We resolved to give due course to this petition for it
raises issues dwelling on the scope of the taxing power of
local government units and the limits of tax exemption
privileges of government-owned and controlled
corporations.
The uncontradicted factual antecedents are summarized
in the instant petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA)

was Created by virtue of Republic Act 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, x x x and such other airports as may be established in the
Province of Cebu x x x” (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop international and

domestic air traffic in the Central Visayas and Mindanao
regions as a means of making the regions centers of
international trade and tourism, and accelerating the
development of the means of transportation and
communication in the country; and,
______________
1 Rollo, 27–29. Per Judge Ferdinand J. Marcos.

2 ld., 30–31.
673
VOL. 261, SEPTEMBER 11, 1996 673

b) upgrade the services and facilities of the airports and to

formulate internationally acceptable standards of airport
accommodation and service.
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:
Sec. 14. Tax Exemptions.—The Authority shall be exempt from realty

taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities x x x,
On October 11, 1994, however, Mr. Eustaquio B. Cesa,

Officerin-Charge, Office of the Trasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of land
belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A,
989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd.,
746 and 991A), located at Barrio Apas and Barrio Kasambagan,
Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless
and unjustified, claiming in its favor the aforecited Section 14 of
RA 6958 which exempts it from payment of realty taxes. It was
also asserted that it is an instrumentality of the government
performing governmental functions, citing Section 133 of the
Local Government Code of 1991 which;puts limitations on the
taxing powers of local government units:
Section 133. Common Limitations on the Taxing Powers of Local

Government Units.—Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
a) x x x
xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units. (italics supplied)
Respondent City refused to cancel and set aside petitioner’s

realty tax account, insisting that the MCIAA is a
governmentcontrolled corporation whose tax exemption privilege
has been withdrawn by virtue of Sections 193 and 234 of the Local
Government Code that took effect on January 1, 1992:
674

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, non-stock and nonprofit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code. (italics supplied)
xxx
Section 234. Exemptions from Real Property Taxes.—x x x
(a) x x x
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.
As the City of Cebu was about to issue a warrant of levy against

the properties of petitioner, the latter was compelled to pay its tax
account “under protest” and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch
20, on December 29, 1994. MCIAA basically contended that the
taxing powers of local government units do not extend to the levy
of taxes or fees of any kind on an instrumentality of the national
government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national
government by the very nature of its powers and functions.
Respondent City, however, asserted that 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 3
Local Government Code when it took effect on January 1, 1992.
______________
3 Rollo, 10–13.
675
VOL. 261, SEPTEMBER 11, 1996 675
The petition for declaratory relief was docketed as Civil

Case No. CEB-16900. 4
In its decision of 22 March 1995, the trial court
dismissed the petition in light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA

7160 provides the express cancellation and withdrawal of
exemption of taxes by government owned and controlled
corporation per Sections after the effectivity of said Code on
January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]
Petitioners claimed that its real properties assessed by
respondent City Government of Cebu are exempted from paying
realty taxes in view of the exemption granted under RA 6958 to
pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that “All general and
special laws, acts, city charters, decress [sic], executive orders,
proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly.” (//"/, Section
534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and
state that the tax exemption provided for in RA 6958 creating
petitioner had been expressly repealed by the provisions of the
New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty
tax of its properties effective after January 1, 1992 until the
present.
This Court’s ruling finds expression to give impetus and
meaning to the overall objectives of the New Local Government
Code of 1991, RA 7160. “It is hereby declared the policy of the
State that the territorial and political subdivisions of the State
shall enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant
communities and make them more effective partners in the
attainment of national goals. Toward this end, the State shall
provide for a more responsive and accountable local government
structure instituted through a system of decentralization whereby
local government units shall be given more powers, authority,
responsibilities, and resources. The process
______________
4 Supra note 1.
676

of decentralization shall proceed from

5
the national government to
the local government units. x x x"
Its motion for reconsideration having been denied by the

trial court in its 4 May 1995 order, the petitioner filed the
instant petition based on the following assignment of
errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO

RULE THAT THE PETITIONER IS VESTED
WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME
CATEGORY AS AN INSTRUMENTALITY OR
AGENCY OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING
THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that

although it is a government-owned or controlled
corporation, it is mandated to perform functions in the
same category as an instrumentality of Government. An
instrumentality of Government is one created to perform
governmental functions primarily to promote 6
certain
aspects of the economic life of the people. Considering its
task “not merely to efficiently operate and manage the
Mactan-Cebu International Airport, but more importantly,
to carry out the Government policies of promoting and
developing the Central Visayas and Mindanao regions as
centers of international trade and tourism, and
accelerating the development of the means7 of
transportation and communication in the country," and
that it is an attached agency of the Department 8
of
Transportation and Communication (DOTC), the
petitioner “may stand in [sic] the same footing as an agency
or instrumentality of the national government.” Hence, its
tax exemption privilege under Section 14
______________
5 Rollo, 28–29.
6 Citing Gonzales vs. Hechanova, 118 Phil. 1065 [1963].
7 Citing Section 3, R.A. No. 6958.
8 Citing Section 2, Id.
677
VOL. 261, SEPTEMBER 11, 1996 677

of its Charter “cannot be considered withdrawn with the

passage of the Local Government Code of 1991 (hereinafter
LGC) because Section 133 thereof specifically states that
the ‘taxing powers of local government units shall not
extend to the levy of taxes or fees or charges of any kind on
the national government, its agencies and
instrumentalities.'"
As to the second assigned error, the petitioner contends
that being an instrumentality of the National Government,
respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs.
Philippine Amusement and Gaming Corporation:9
Local governments have no power to tax instrumentalities of the

National Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869, All of its
shares of stock are owned by the National Government....
PAGCOR has a dual role, to operate and regulate gambling
casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation
might be burdened, impeded or subjected to control by a mere local
government.
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (McCulloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the “supremacy” of the National
Government over local governments.
“Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the States
to touch, in that way (taxation) at least, the instrumentalities of
the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously
burden it in the ac-
______________
9 197 SCRA 52 [1991].
678

Mactan Cebu International Airport Authority us. Marcos
complishment of them.” (Antieau, Modern Constitutional Law,

Vol. 2, p. 140)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may perceive
to be undesirable activities or enterprise using the power to tax as
“a tool for regulation” (U.S. v. Sanchez, 340 US 42). The power to
tax which was called by Justice Marshall as the “power to destroy”
(Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the
inherent power to wield it. (italics supplied)
It then concludes that the respondent Judge “cannot

therefore correctly say that the questioned provisions of the
Code do not contain any distinction between a government
corporation performing governmental functions as against
one performing merely proprietary ones such that the
exemption privilege withdrawn under the said Code would
apply to all government corporations.” For it is clear from
Section 133, in relation to Section 234, of the LGC that the
legislature meant to exclude instrumentalities of the
national government from the taxing powers of the local
government units.
In its comment, respondent City of Cebu alleges that as
a local government unit and a political subdivision, it has
the power to impose, levy, assess, and collect taxes within
its jurisdiction.
10
Such power is guaranteed by the
Constitution and enhanced further by the LGC. While it
may be true that under its Charter the11 petitioner was
exempt from the payment of realty taxes, this exemption
was withdrawn by Section 234 of the LGC. In response to
the petitioner’s claim that such exemption was not repealed
because being an instrumentality of the National
Government, Section 133 of the LGC prohibits local
government units from imposing taxes, fees, or charges of
any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and
Section 234 thereof does not distinguish between
governmentowned or controlled corporations performing
governmental
______________
10 Section 5, Article X, 1987 Constitution.

11 Section 14, R.A. No. 6958.
679
VOL. 261, SEPTEMBER 11, 1996 679

and purely proprietary functions. Respondent City of Cebu

urges this Court to apply by analogy its ruling that the
Manila International12
Airport Authority is a government-
owned corporation, and to reject the application of Basco
because it was “promulgated ... before the enactment and
the signing into law of R.A. No. 7160," and was not,
therefore, decided “in the light of the spirit and intention of
the framers of’ the said law.
As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in
its very nature no limits, so that security against its abuse
is to be found only in the responsibility of the legislature
which imposes the tax on the constituency who are to pay
it. Nevertheless, effective limitations thereon may 13
be
imposed by the people through their Constitutions. Our
Constitution, for instance, provides that the rule of
taxation shall be uniform and equitable 14 and Congress shall
evolve a progressive system of taxation. So potent indeed
is the power that it was once opined 15
that “the power to tax
involves the power to destroy." Verily, taxation is a
destructive power which interferes with the personal and
property rights of the people and takes from them a portion
of their property for the support of the government.
Accordingly, tax statutes must be construed strictly against
the government and liberally in favor of the tax-
______________
12 Manila International Airport Authority (MIAA) vs. Commission on

Audit, 238 SCRA 714 [1994].
13 COOLEY on Constitutional Law, 4th ed. [1931], 62.
14 Section 28(1), Article VI, 1987 Constitution.
15 Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat, 316, 4 L
ed. 579, 607. Later Justice Holmes brushed this aside by declaring in
Panhandle Oil Co. vs. Mississippi (277 U.S. 218) that “the power to tax is
not the power to destroy while this Court sits.” Justice Frankfurter in
Graves vs. New York (306 U.S. 466) also remarked that Justice Marshall’s
statement was a “mere flourish of rhetoric” and a product of the
“intellectual fashion of the times” to indulge in “a free case of absolutes.”
(See SINCO, Philippine Political Law [1954], 577–578).
680

16
payer. 17 But since taxes are what we pay for civilized
society, or are the lifeblood of the nation, the law frowns
against exemptions from taxation and statutes granting
tax exemptions are thus construed stricissimi juris against 18
the taxpayer and liberally in favor of the taxing authority.
A claim of exemption from tax payments must be clearly
shown and 19
based on language in the law too plain to be
mistaken. Elsewise stated,20 taxation is the rule, exemption
therefrom is the exception. However, if the grantee of the
exemption is a political subdivision or instrumentality, the
rigid rule of construction does not apply because the
practical effect of the exemption is merely to reduce the
amount of money that has to be 21
handled by the government
in the course of its operations.
The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority 22
conferred by Section 5, Article X of the Constitution.
Under the latter, the exercise of the power may be subject
to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic
policy of local autonomy.
There can be no question that under Section 14 of R.A.
No. 6958 the petitioner is exempt from the payment of
realty ‘taxes imposed by the National Government or any of
its political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and exemption
therefrom
______________
16 AGPALO, RUBEN E., Statutory Construction [1990 ed.], 216. See

also SANDS, DALLAS C., Statutes and Statutory Construction, vol. 3
[1974] 179.
17 Justice Holmes in his dissent in Compania General vs. Collector of
Internal Revenue, 275 U.S. 87, 100 [1927].
18 AGPALO, op. cit., 217; SANDS, op. cit., 207.
19 SINCO, op. cit., 587.
20 SANDS, op. cit., 207.
21 Maceda vs. Macaraig, Jr., 197 SCRA 771, 799 [1991], citing 2
COOLEY on the Law on Taxation, 4th ed. [1927], 1414, and SANDS, op.
cit., 207.
22 CRUZ, ISAGANI A., Constitutional Law [1991], 84.
681
VOL. 261, SEPTEMBER 11, 1996 681

Mactan Cebu International Airport Authority us. Marcos
the exception, the exemption may thus be withdrawn at the

pleasure of the taxing authority. The only exception to this
rule is where the exemption was granted to private parties
based on material consideration of a mutual nature, which
then becomes contractual and is thus 23covered by the
nonimpairment clause of the Constitution.
The LGC, enacted pursuant to Section 3, Article X of the
Constitution, provides for the exercise by local government
units of their power to tax, the scope thereof or its
limitations, and the exemptions from taxation.
Section 133 of the LGC prescribes the common
limitations on the taxing powers of local government units
as follows:
SEC. 133. Common Limitations on the Taxing Power 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:
(a) Income tax, except when levied on banks and other

financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
herein;
(d) Customs duties, registration fees of vessel and wharfage
on wharves, tonnage dues, and all other kinds of customs
fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit
concerned;
(e) Taxes, fees and charges and other impositions upon goods
carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or
other taxes, fees or charges in any form whatsoever upon
such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six
(6) and four (4) years, respectively from the date of
registration;
______________
23 Id., Id., 91–92; SINCO, op. cit., 587.
682

(h) Excise taxes on articles enumerated under the National

Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services
except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors
and persons engaged in the transportation of passengers
or freight by hire and common carriers by air, land or
water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered
under R.A. No. 6810 and Republic Act Numbered Sixty-
nine hundred thirtyeight (R.A. No. 6938) otherwise known
as the “Cooperatives Code of the Philippines” respectively;
and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (emphasis supplied)
Needless to say, the last item (item 0) is pertinent to this

case. The “taxes, fees or charges” referred to are “of any
kind;” hence, they include all of these, unless otherwise
provided by the LGC. The term “taxes” is well understood
so as to need no further elaboration, especially in light of
the above enumeration. The term “fees” means charges
fixed by law or ordinance
24
for the regulation or inspection of
business or activity, while “charges” are pecuniary
liabilities25 such as rents or fees against persons or
property.
______________
24 Section 131(1), Local Government Code of 1991.

25 Section 131(g), Id.
683
VOL. 261, SEPTEMBER 11, 1996 683

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 Property Tax.—A province or city or

a municipality within the Metropolitan Manila Area may levy an
annual ad valorem tax on real property such as land, building,
machinery, and other improvements not hereafter specifically
exempted.
Section 234 of the LGC provides for the exemptions from

payment of real property taxes and withdraws previous
exemptions therefrom granted to natural and juridical
persons, including government-owned and controlled
corporations, except as provided therein. It provides:
SEC. 234. Exemptions from Real Property Tax.—The following are

exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or

any of its political subdivisions except when the beneficial
use thereof had been granted, for consideration or
otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and
government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real

property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all

governmentowned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
684

These exemptions are based on the ownership, character,

and use of the property. Thus:
(a) Ownership Exemptions. Exemptions from real property

taxes on the basis of ownership are real properties owned
by: (i) the Republic, (ii) a province, (iii) a city, (iv) a
municipality, (v) a barangay, and (vi) registered
cooperatives.
(b) Character Exemptions. Exempted from real property taxes
on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto,
mosques, and (iii) non-profit or religious cemeteries.
(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.
To help provide a healthy environment in the midst of the

modernization of the country, all machinery and equipment for
pollution control and environmental protection may not be taxed
by “local governments.
2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons including
governmentowned or controlled
26
corporations are withdrawn upon
the effectivity of the Code.
Section 193 of the LGC is the general provision on

withdrawal of tax exemption privileges. It provides:
SEC. 193. Withdrawal of Tax Exemption Privileges.—Unless

otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural
or
______________
26 PIMENTEL, AQUILINO, JR., The Local Government Code of 1991—The Key

to National Development [1933], 329.
685
VOL. 261, SEPTEMBER 11, 1996 685

juridical, including government-owned or controlled corporations,

except local water districts, cooperatives duly registered under
R.A. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this
Code.
On the other hand, the LGC authorizes local government

units to grant tax exemption privileges. Thus, Section 192
thereof provides:
SEC. 192. Authority to Grant Tax Exemption Privileges.—Local

government units may, through ordinances duly approved, grant
tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.
The foregoing sections of the LGC speak of: (a) the

limitations on the taxing powers of local government units
and the exceptions to such limitations; and (b) the rule on
tax exemptions and the exceptions thereto. The use of
exceptions or provisos in these sections, as shown by the
following clauses:
(1) “unless otherwise provided herein” in the opening

paragraph of Section 133;
(2) “Unless otherwise provided in this Code” in Section
193;
(3) “not hereafter specifically exempted” in Section 232;
and
(4) “Except as provided herein” in the last paragraph of
Section 234
initially hampers a ready understanding of the sections.

Note, too, that the aforementioned clause in Section 133
seems to be inaccurately worded. Instead of the clause
“unless otherwise provided herein? with the “herein” to

mean, of course, the section, it should have used the clause
“unless otherwise provided in this Code.” The former
results in absurdity since the section itself enumerates
what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions
are explicitly indicated in the text. For instance, in item (a)
which excepts income taxes “when levied on banks and
other financial institutions;” item (d) which excepts
“wharfage on wharves constructed and maintained by
686

the local government unit concerned;” and item (1) which

excepts taxes, fees and charges for the registration and
issuance of licenses or permits for the driving of “tricycles.”
It may also be observed that within the body itself of the
section, there are exceptions which can be found only in
other parts of the LGC, but the section interchangeably
uses therein the clause “except as otherwise provided
herein” as in items (c) and (i), or the clause “except as
provided in this Code” in item (j). These clauses would be
obviously unnecessary or mere surplusages if the opening
clause of the section were “Unless otherwise provided in
this Code” instead of “Unless otherwise provided herein.”
In any event, even if the latter is used, since under Section
232 local government units have the power to levy real
property tax, except those exempted therefrom under
Section 234, then Section 232 must be deemed to qualify
Section 133.
Thus, reading together Sections 133, 232, and 234 of the
LGC, we conclude that as a general rule, as laid down in
Section 133, the taxing powers of local government units
cannot extend to the levy of, inter alia, “taxes, fees and
charges of any kind on the National Government, its
agencies and instrumentalities, and local government
units;” however, pursuant to Section 232, provinces, cities,
and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, “real
property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to
a taxable person,” as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or

presently enjoyed by natural or juridical persons, including
government-owned and controlled corporations, Section 193
of the LGC prescribes the general rule, viz., they are
withdrawn upon the effectivity of the LGC, except those
granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could
refer to Section 234 which enumerates the
687
VOL. 261, SEPTEMBER 11, 1996 687

properties exempt from real property tax. But the last

paragraph of Section 234 further qualifies the retention of
the exemption insofar as real property taxes are concerned
by limiting the retention only to those enumerated therein;
all others not included in the enumeration lost the privilege
upon the effectivity of the LGC. Moreover, even as to real
property owned by the Republic of the Philippines or any of
its political subdivisions covered by item (a) of the first
paragraph of Section 234, the exemption is withdrawn if
the beneficial use of such property has been granted to a
taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or
juridical persons, including government-owned or
controlled corporations, except as provided in the said
section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption
from such tax granted it in Section 14 of its Charter, R.A.
No. 6958, has been withdrawn. Any claim to the contrary
can only be justified if the petitioner can seek refuge under
any of the exceptions provided in Section 234, but not
under Section 133, as it now asserts, since, as shown above,
the said section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general
rule in Section 133 that the taxing powers of the local
government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government,

its agencies or instrumentalities, and local government units.
It must show that the parcels of land in question, which are

real property, are any one of those enumerated in Section
234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not
under any explicit provision of the said section, for none
exists. In light of the petitioner’s theory that it is an
“instrumentality of the
688

Government,” it could only be within the first item of the

first paragraph of the section by expanding the scope of the
term “Republic of the Philippines” to embrace its
“instrumentalities” and “agencies.” For expediency, we
quote:
(a) real property owned by the Republic of the Philippines, or any

of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person.
This view does not persuade us. In the first place, the
petitioner’s claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly
mentions the word “instrumentalities;” and, in the second
place, it fails to consider the fact that the legislature used
the phrase “National Government, its agencies and
instrumentalities” in Section 133(o), but only the phrase
“Republic of the Philippines or any of its political
subdivisions” in Section 234(a).
The terms “Republic of the Philippines” and “National
Government” are not interchangeable. The former is
broader and synonymous with “Government of the Republic
of the Philippines” which the Administrative Code of 1987
defines as the “corporate governmental entity through
which the functions of government are exercised
throughout the Philippines, including, save as the contrary
appears from the context, the various arms through which
political authority is made effective in the Philippines,
whether pertaining to the autonomous regions, the
provincial, city, municipal or barangay27
subdivisions or
other forms of local government." These “autonomous
regions, provincial, city, municipal 28 or barangay
subdivisions” are the political subdivisions.
On the other hand, “National Government” refers “to the

entire machinery of the central government, as
distinguished 29 from the different forms of local
governments." The National
______________
27 Section 2(1), Introductory Provisions, Administrative Code of 1987.

28 Section 1, Article X, 1987 Constitution.
29 Section 2(2), Introductory Provisions, Administrative Code of
689
VOL. 261, SEPTEMBER 11, 1996 689

Government then is composed of the three great

departments:
30
the executive, the legislative and the
judicial.
An “agency” of the Government refers to “any of the
various units of the Government, including a department,
bureau, office, instrumentality, or government-owned or
controlled corporation,
31
or a local government or a distinct
unit therein;" while an “instrumentality” refers to “any
agency of the National Government, not integrated within
the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter.
This term includes regulatory agencies, chartered
institutions 32and government-owned and controlled
corporations."
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. Moreover, that Congress did not wish to expand the
scope of the exemption in Section 234(a) to include real
property owned by other instrumentalities or agencies of
the government including government-owned and
controlled corporations is further borne out by the fact that
the source of this exemption is Section 40(a) of P.D. No.
464, otherwise known as The Real Property Tax Code,
which reads:
SEC. 40. Exemptions from Real Property Tax.—The exemption

shall be as follows:
(a) Real property owned by the Republic of the Philippines or

any of its political subdivisions and any government-
______________
1987.
30 Bacani vs. National Coconut Corporation, 100 Phil. 468, 472 [1956].
31 Section 2(4), Introductory Provisions, Administrative Code of 1987.
32 Section 2(10), Id., Id.
690

owned or controlled corporation so exempt by its charter:

Provided, however, That this exemption shall not apply to
real property of the above-mentioned entities the
beneficial use of which has been granted, for consideration
or otherwise, to a taxable person.
Note that as reproduced in Section 234(a), the phrase “and

any government-owned or controlled corporation so exempt
by its charter” was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of
the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property
taxes in the last paragraph of Section 234. These policy
considerations are consistent with 33 the State policy to
ensure autonomy to local governments and the objective of
the LGC that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest
development as self-reliant communities and make 34them
effective partners in the attainment of national goals. The
power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of
local government units for the delivery of basic services
essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the
people. It may also be relevant to recall that the original
reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations
and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises, and there

was a need for these entities to share in the requirements
of development, fiscal or otherwise,
35
by paying the taxes and
other charges due from them.
The crucial issues then to be addressed are: (a) whether
the parcels of land in question belong to the Republic of the
Phil-
______________
33 Section 25, Article II, and Section 2, Article X, Constitution.

34 Section 2(a), Local Government Code of 1991.
35 P.D. No. 1931.
691
VOL. 261, SEPTEMBER 11, 1996 691

ippines whose beneficial use has been granted to the

petitioner, and (b) whether the petitioner is a “taxable
person.”
Section 15 of the petitioner’s Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets.—All

existing public airport facilities, runways, lands, buildings and
other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights,
interests and privileges relating on airport works or air
operations, including all equipment which are necessary for the
operations of air navigation, aerodrome control towers, crash, fire,
and rescue facilities are hereby transferred to the Authority:
Provided, however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control
center shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air Transportation
Office from Mactan without the concurrence of the Authority. The
Authority may assist in the maintenance of the Air
Transportation Office equipment.
The “airports” referred to are the “Lahug Air Port” in Cebu

City and the
36
“Mactan International Airport in the Province
of Cebu," which belonged to the Republic of the
Philippines,
37
then under the Air Transportation Office
(ATO).
It may be reasonable to assume that the term “lands”
refer to “lands” in Cebu City then administered by the
Lahug Air Port and includes the parcels of land the

respondent City of Cebu seeks to levy on for real property
taxes. This section 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
______________
36 Section 3, R.A. No. 6958.

37 Section 18, Id.
692

38
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.
Moreover, the petitioner cannot claim that it was never
a “taxable person” under its Charter. It was only exempted
from the payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all
taxes, except real property tax.
Finally, even if the petitioner was originally not a
taxable person for purposes of real property tax, in light of
the foregoing disquisitions, it had already become, even if it
be conceded to be an “agency” or “instrumentality” of the
Govern-ment, a taxable person for such purpose in view of
the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which,
as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is
untenable. Reliance on Basco 39
vs. Philippine Amusement
and Gaming Corporation is unavailing since it was
decided before the effectivity of the LGC. Besides, nothing
can prevent Congress from decreeing that even
instrumentalities or agencies of the Government
performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The

challenged decision and order of the Regional Trial Court of
Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Narvasa (C.J., Chairman), Melo, Francisco and

Panganiban, JJ., concur.
______________
38 Section 9(b), Id.

39 Supra note 9,
693
VOL. 261, SEPTEMBER 11, 1996 693

Paredes-Garcia vs. Court of Appeals
Petition denied. Judgment and order affirmed.
Notes.—The due process clause may be invoked where a

taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown
to amount to confiscation of property. That would be a clear
abuse of power. (Reyes vs. Almanzor, 196 SCRA 322 [1991])
An elementary regard for the sacredness of laws and the
stability of judicial doctrines laid down by superior
authority should have constrained the respondent judge to
be more circumspect in rendering his decision and to spell
out carefully and precisely the reasons for his decision to
invalidate such acts, instead of imperiously decreeing an
implied repeal. (Ty vs. Trampe, 251 SCRA 500 [1995])
——o0o——
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12/6/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 261