CASE DIGESTS FOR LOC GOV (MAR.

6, 2021)
TOPIC: LOCAL TAXATION

1)
BASCO v. PAGCOR, G.R. No. 91649 (Digested Case)
G.R. No. 91649             May 14, 1991
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND
LORENZO SANCHEZ,petitioners, v. PHILIPPINE AMUSEMENTS AND GAMING
CORPORATION (PAGCOR), respondent.
Re: Principle of Local Autonomy

FACTS: The PH Amusement and Gaming Corp. was created by PD 1067-A and granted a
franchise under PD 1067-B. Subsequently, under PD 1869, the Government enabled it to
regulate and centralize all games of chance authorized by existing franchise or permitted by
law, under declared policy. But the petitioners think otherwise, that is why, they filed the instant
petition seeking to annul the PAGCOR Charter — PD 1869, because it is allegedly contrary to
morals, public policy and order, and because of the following issues:

ISSUES:
(1) WON it waived the Manila City gov't's right to impose taxes and license fees, which is
recognized by law.

(2) WON it has intruded into the LGUs' right to impose local taxes and license fees, and thus
contrary to the principle of local autonomy enshrined in the Constitution.

(3) WON it violates the equal protection clause as it allows some gambling acts but also
prohibits other gaming acts.

(4) WON it violates the Cory  gov't's policy of being away from monopolistic and crony economy,
and toward free enterprise and privatization.

HELD:
(1) No. The fact that PAGCOR, under its charter, is exempt from paying tax of any kind is not
violative of the principle of local autonomy. LGUs' have no inherent right to impose taxes. LGUs'
power to tax must always yield to a legislative act which is superior having been passed by the
state itself which has the inherent power to tax. The charter of LGUs is subject to control by
Congress as they are mere creatures of Congress. Congress, therefore, has the power of
control over LGUs. And if Congress can grant the City of Manila the power to tax certain
matters, it can also provide for exemptions or even take back the power.

(2) No. LGUs' right to impose license fees on "gambling", has long been revoked. As early as
1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses
or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National
Government. Furthermore, LGUs' have no power to tax instrumentalities of the gov't such as
PAGCOR which exercises governmental functions of regulating gambling activities.

(3) No.  The clause does not preclude classification of individuals who may be accorded
different treatment under the law as long as the classification is not unreasonable or arbitrary. A
law does not have to operate in equal force on all persons or things to be conformable to Article
III, Section 1 of the Constitution. The Constitution does not require situations which are different
in fact or opinion to be treated in law as though they were the same.

(4) No. The judiciary does not settle policy issues. The Court can only declare what the law is
and not what the law should be. Under our system of government, policy issues are within the
domain of the political branches of government and of the people themselves as the repository
of all state power. On the issue of monopoly, the same is not necessarily prohibited by the
Constitution. The state must still decide whether public interest demands that monopolies be
"regulated" or prohibited. Again, this is a matter of policy for the Legislature to decide. The
judiciary can only intervene when there are violations of the statutes passed by Congress
regulating or prohibiting monopolies.

2)
PHILIPPINE PETROLEUM CORPORATION VS MUNICIPALITY OF PILILLA RIZAL
198 SCRA 82 [GR NO. 90776 JUNE 3, 1991]
Facts: Philippine Petroleum Corporation is a business enterprise engaged in the manufacture of
lubricated oil base stocks which is a petroleum product, with its refinery plant situated at Malaya,
Pilillia Rizal, conducting its business activities within the territorial jurisdiction of municipality of
Pilillia, Rizal and is in continuous operation up to the present. PPC owns and maintains an oil
refinery including 49 storage tanks for its petroleum products in Malaya, Pililla, Rizal. Under
section 142 of NIRC of 1939, manufactured oils and other fuels are subject to specific tax.
Respondent municipality of Pilillia, Rizal through municipal council resolution no. 25-s-1974
enacted municipal tax  ordinance no. 1-s-1974 otherwise known as “The Pililla Tax Code Of
1974” on June 14, 1974 which took effect on July 1, 1974. Sections 9 and 10 of the said
ordinance imposed a tax on business, except for those which fixed taxes are provided in the
local tax code on manufacturers, importers, or producers of any article of commerce of whatever
kind or nature, including brewers, distiller, rectifiers, repackers and compounders of liquors
distilled spirits and/or wines in accordance with the schedule found in the local tax code, as well
as mayor’s permit sanitary inspection fee and storage permit fee for flammable, combustible or
explosive substances, while section 139 of the disputed ordinance imposed surcharges and
interests on unpaid taxes, fees or charges. Enforcing the provisions of the above mentioned
ordinance, the respondent filed a complaint on April 4, 1986 docketed as civil case no. 057-T
against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from
1975 to 1986; mayor’s permit fee and sanitary permit inspection fees from 1975 to 1984. PPC,
however, have already paid the last named fees starting 1985.
Issue: Whether or not the Municipality may validly impose taxes on petitioner’s business.
Held: No. While section 2 of PD 436 prohibits the imposition of local taxes on petroleum
products, said decree did not amend sections 19 and 19 (a) of PD 231 as amended by PD 426,
wherein the municipality is granted the right to levy taxes on business of manufacturers,
importers, producers of any article of commerce of whatever kind or nature. A tax on business is
distinct from a tax on the article itself. Thus, if the imposition of tax on business of
manufacturers, etc. in petroleum products contravenes a declared national policy, it should have
been expressly stated in PD No. 436.
The exercise by local governments of the power to tax is ordained by the present constitution.
To allow the continuous effectivity of the prohibition set forth in PC no. 26-73 would be
tantamount to restricting their power to tax by mere administrative issuances. Under section 5,
article X of the 1987 constitution, only guidelines and limitations that may be established by
congress can define and limit such power of local governments.
The storage permit fee being imposed by Pilillia’s tax ordinance is a fee for the installation and
keeping in storage of any flammable, combustible or explosive substances. In as much as said
storage makes use of tanks owned not by the Municipality of Pilillia but by petitioner PPC, same
is obviously not a charge for any service rendered by the municipality as what is envisioned in
section 37 of the same code.

3)
FLORO CEMENT CORP. V GOROSPE
G.R. No. L-46787, August 12, 1991
FACTS:

 The municipality of Lugait, province of Misamis Oriental, filed a verified complaint for
collection of manufacturer’s and exporter’s taxes against Floro Cement Corporation,
engaged in the manufacture and selling, including exporting, of cement. The municipality
alleged that the imposition and collection of these taxes is based on its Municipal
Ordinance No. 5 (Municipal Revenue Code of 1974) which was passed pursuant to PD
No. 231 and also Municipal Ordinance No. 10 pursuant to PD No. 426, amending PD
No. 231.
  Floro Cement Corporation set up the defense that it is not liable to pay manufacturer's
and exporter's taxes alleging among others that the municipality’s power to levy and
collect taxes, fees, rentals, royalties or charges of any kind whatsoever has been limited
or withdrawn by Section 52 of PD No. 463.
o Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral
Products.—Any law to the contrary notwithstanding, no province, city,
municipality, barrio or municipal district shall levy and collect taxes, fees, rentals,
royalties or charges of any kind whatsoever on mines, mining claims, mineral
products, or on any operation, process or activity connected therewith.

 CFI: Ordered Floro Cement Corporation to pay the manufacturer’s and exporter’s taxes.

ISSUE & HELD: WON Ordinances Nos. 5 and 10 of Lugait, Misamis Oriental apply to petitioner
Floro Corporation notwithstanding the limitation on the taxing power of local government as
provided for in Sec. 5 of P.D. 231 and Sec. 52 of P.D. 463 (Yes)

RATIO:

 Cement is not a mineral product but rather a manufactured product.

 As the power of taxation is a high prerogative of sovereignty, the relinquishment is never

presumed and any reduction or diminution thereof with respect to its mode or its rate,
must be strictly construed, and the same must be coached in clear and unmistakable
terms in order that it may be applied. More specifically stated, the general rule is that any
claim for exemption from the tax statute should be strictly construed against the
taxpayer. He who claims an exemption must be able to point out some provision of law
creating the right; it cannot be allowed to exist upon a mere vague implication or
inference. It must be shown indubitably to exist, for every presumption is against it, and
a well-founded doubt is fatal to the claim. Floro Cement Corporation failed to meet this
requirement.

 The exemption mentioned in Sec. 52 of P.D. No. 463 refers only to machineries,
equipment, tools for production, etc., as provided in Sec. 53 of the same decree. The
manufacture and the export of cement does not fall under the said provision for it is not a
mineral product. It is not cement that is mined only the mineral products composing the
finished product.

 By the parties’ own stipulation of facts submitted before the CFI, it is admitted that Floro
Cement Corporation is engaged in the manufacturing and selling, including exporting of
cement. As such, and since the taxes sought to be collected were levied on these
activities pursuant to Sec. 19 of P.D. No. 231, Ordinances Nos. 5 and 10, which were
enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, properly apply to Floro
Cement Corporation.
4)
TUZON AND MAPUGO V CA AND JURADO
GR NO. 90107, AUGUST 21, 1992

Facts: 
In 1977, the Sangguniang Bayan of Camalaniugan, Cagayan thought of fund-raising scheme to
help finance the construction of a Sports and Nutrition Center. They adopted Resolution No. 9
whereby all thresher operators who will apply for a permit to thresh will be required to
donate 1% of all the palay threshed by them. 

Private respondent Jurado tried to pay the P285.00 license fee for thresher operators but
Municipal Treasurer Mapagu refused to accept payment and required him to first secure a
mayor’s permit. Mayor Domingo Tuzon, on the other hand, said that Jurado should first comply
with Resolution No. 9 and sign the agreement before the permit could be issued.

Jurado filed an action for mandamus with the CFI Cagayan to compel the issuance of the
mayor’s permit and license. He filed another petition for declaratory judgment against the
resolution for being illegal either as a donation or as a tax measure. Named defendants were
the same respondents and all the members of the Sangguniang Bayan of Camalaniugan

The trial court upheld the challenged measure. Jurado appealed to the Court of Appeals which
affirmed the validity of Resolution No. 9 and the implementing agreement. Nevertheless, it found
Tuzon and Mapagu liable to pay actual and moral damages for acting maliciously and in bad
faith when they denied Jurado's application for the mayor's permit and license. As for the
Resolution, it was passed by the Sanggunian in the lawful exercise of its legislative powers
granted by Article XI, Section 5 of the 1973 Constitution which provided that each LGU shall
have the power to create its own source revenue and to levy taxes, subject to such limitation as
may be provided by law. And also under Article 4, Sec. 29, PD 231: The barrio council may
solicit money, materials, and other contributions from private agencies and individuals.

Issues:

1. WON a resolution imposing a 1% donation is a valid exercise of the taxing power of an LGU.

2. WON petitioners are liable in damages to private respondent Jurado for having withheld from
him the mayor's permit and license because of his refusal to comply with Resolution No. 9.
Held:

1. NO. While it would appear from the wording of the resolution that the municipal government
merely intends to "solicit" the 1% contribution from the threshers, the implementing agreement
seems to make the donation obligatory and a condition precedent to the issuance of the mayor’s
permit. This goes against the nature of a donation, which is an act of liberality and is never
obligatory.

If, on the other hand, it is to be considered a tax ordinance, then it must be shown in view of the
challenge raised by the private respondents to have been enacted in accordance with the
requirements of the Local Tax Code. These would include the holding of a public hearing on the
measure and its subsequent approval by the Secretary of Finance, in addition to the usual
requisites for publication of ordinances in general. .

2. NO. Petitioners acted within the scope of their authority and in consonance with their honest
interpretation of the resolution in question. It was not for them to rule on its validity. In the
absence of a judicial decision declaring it invalid, its legality would have to be presumed. As
executive officials of the municipality, they had the duty to enforce it as long as it had not been
repealed by the Sangguniang Bayan or annulled by the courts. xxx As a rule, a pubic officer,
whether, judicial, quasijudicial or executive, is not personally liable to one injured in
consequence of an act performed within the scope of his official authority, and in line of his
official duty. xxx It has been held that an erroneous interpretation of an ordinance does not
constitute nor does it amount to bad faith, that would entitle an aggrieved party to an award for
damages. (Philippine Match Co. Ltd. v. City of Cebu)

The private respondent anchors his claim for damages on Article 27 of the New Civil Code,
which reads:
Art. 27. Any person suffering material or moral loss because a public servant or employee
refuses or neglects, without just cause, to perform his official duty may file an action for
damages and other relief against the latter, without prejudice to any disciplinary administrative
action that may be taken.
In the present case, it has not even been alleged that the Mayor Tuzon's refusal to act on the
private respondent's application was an attempt to compel him to resort to bribery to obtain
approval of his application. It cannot be said either that the mayor and the municipal treasurer
were motivated by personal spite or were grossly negligent in refusing to issue the permit and
license to Jurado.

It is no less significant that no evidence has been offered to show that the petitioners singled out
the private respondent for persecution. Neither does it appear that the petitioners stood to gain
personally from refusing to issue to Jurado the mayor's permit and license he needed. The
petitioners were not Jurado's business competitors nor has it been established that they
intended to favor his competitors. On the contrary, the record discloses that the resolution was
uniformly applied to all the threshers in the municipality without discrimination or preference.

The private respondent complains that as a result of the petitioners' acts, he was prevented
from operating his business all this time and earning substantial profit therefrom, as he had in
previous years. But as the petitioners correctly observed, he could have taken the prudent
course of signing the agreement under protest and later challenging it in court to relieve him of
the obligation to "donate." Pendente lite, he could have continued to operate his threshing
business and thus avoided the lucrocesante that he now says was the consequence of the
petitioners' wrongful act. He could have opted for the less obstinate but still dissentient action,
without loss of face, or principle, or profit.