212685961 tax-cases

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G.R. No. 144104 June 29, 2004 LUNG CENTER OF THE
PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in
his capacity as City Assessor of Quezon City,respondents. CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP
No. 57014 which affirmed the decision of the Central Board of Assessment Appeals
holding that the lot owned by the petitioner and its hospital building constructed thereon
are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the
registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1,
SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District,
Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer
Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected
in the middle of the aforesaid lot is a hospital known as the Lung Center of the
Philippines. A big space at the ground floor is being leased to private parties, for canteen
and small store spaces, and to medical or professional practitioners who use the same as
their private clinics for their patients whom they charge for their professional services.
Almost one-half of the entire area on the left side of the building along Quezon Avenue
is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue
and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services
to out-patients, both paying and non-paying. Aside from its income from paying patients,
the petitioner receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed
for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon
City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-
2518-A) were issued for the land and the hospital building, respectively.4 On August 25,
1993, the petitioner filed a Claim for Exemption5 from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The petitioner’s
request was denied, and a petition was, thereafter, filed before the Local Board of
1

Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the
resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3
of the 1987 Constitution, the property is exempt from real property taxes. It averred that
a minimum of 60% of its hospital beds are exclusively used for charity patients and that
the major thrust of its hospital operation is to serve charity patients. The petitioner
contends that it is a charitable institution and, as such, is exempt from real property
taxes. The QC-LBAA rendered judgment dismissing the petition and holding the
petitioner liable for real property taxes.6
The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the
petitioner was not a charitable institution and that its real properties were not actually,
directly and exclusively used for charitable purposes; hence, it was not entitled to real
property tax exemption under the constitution and the law. The petitioner sought relief
from the Court of Appeals, which rendered judgment affirming the decision of the
CBAA.8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT
ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT
ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY
DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX
EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY
NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3),
Article VI of the 1987 Constitution. It asserts that its character as a charitable institution
is not altered by the fact that it admits paying patients and renders medical services to
them, leases portions of the land to private parties, and rents out portions of the hospital
to private medical practitioners from which it derives income to be used for operational
expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-
patients were charity patients and of the hospital’s 282-bed capacity, 60% thereof, or 170
beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from
the government attests to its character as a charitable institution. It contends that the
"exclusivity" required in the Constitution does not necessarily mean "solely." Hence,
even if a portion of its real estate is leased out to private individuals from whom it
derives income, it does not lose its character as a charitable institution, and its exemption
from the payment of real estate taxes on its real property. The petitioner cited our ruling
in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that even if
P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not
precluded from seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a
charitable entity. The petitioner’s real property is not exempt from the payment of real
estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed
to prove that it is a charitable institution and that the said property is actually, directly
and exclusively used for charitable purposes. The respondents noted that in a newspaper
report, it appears that graft charges were filed with the Sandiganbayan against the
director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress
of the Elliptical Orchids and Garden Center, for entering into a lease contract over
7,663.13 square meters of the property in 1990 for only P20,000 a month, when the
monthly rental should be P357,000 a month as determined by the Commission on Audit;
and that instead of complying with the directive of the COA for the cancellation of the
contract for being grossly prejudicial to the government, the petitioner renewed the same
on March 13, 1995 for a monthly rental of only P24,000. They assert that the petitioner
uses the subsidies granted by the government for charity patients and uses the rest of its
income from the property for the benefit of paying patients, among other purposes. They
aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients
and 170 beds in the hospital are reserved for indigent patients. The respondents further
assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its
record of service. That before a patient is admitted for treatment in the Center,
first impression is that it is pay-patient and required to pay a certain amount as
deposit. That even if a patient is living below the poverty line, he is charged
with high hospital bills. And, without these bills being first settled, the poor
patient cannot be allowed to leave the hospital or be discharged without first
paying the hospital bills or issue a promissory note guaranteed and indorsed by
an influential agency or person known only to the Center; that even the remains
of deceased poor patients suffered the same fate. Moreover, before a patient is
admitted for treatment as free or charity patient, one must undergo a series of
interviews and must submit all the requirements needed by the Center, usually
accompanied by endorsement by an influential agency or person known only to
the Center. These facts were heard and admitted by the Petitioner LCP during
the hearings before the Honorable QC-BAA and Honorable CBAA. These are
the reasons of indigent patients, instead of seeking treatment with the Center,
they prefer to be treated at the Quezon Institute. Can such practice by the
Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable
institution within the context of Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real
properties of the petitioner are exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context
of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable
2

institution/entity or not, the elements which should be considered include the statute
creating the enterprise, its corporate purposes, its constitution and by-laws, the methods
of administration, the nature of the actual work performed, the character of the services
rendered, the indefiniteness of the beneficiaries, and the use and occupation of the
properties.11
In the legal sense, a 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.14 The test of a charity and
a charitable organization are in law the same. The test whether an enterprise is charitable
or not is whether it exists to carry out a purpose reorganized in law as charitable or
whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of the
President of the Philippines with the Ministry of Health and the Ministry of Human
Settlements. It was 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. The raison d’etre for the creation of the petitioner is stated in the
decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having
been the leading cause of illness and death in the Philippines, comprising more
than 45% of the total annual deaths from all causes, thus, exacting a
tremendous toll on human resources, which ailments are likely to increase and
degenerate into serious lung diseases on account of unabated pollution,
industrialization and unchecked cigarette smoking in the country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent, preventable,
and curable with early and adequate medical care, immunization and through
prompt and intensive prevention and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing
programs, strategies and efforts at preventing, treating and rehabilitating people
affected by lung diseases, and to undertake research and training on the cure
and prevention of lung diseases, through a Lung Center which will house and
nurture the above and related activities and provide tertiary-level care for more
difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material
and financial support towards the establishment and maintenance of a Lung
Center for the welfare and benefit of the Filipino people.15
The purposes for which the petitioner was created are spelled out in its Articles of
Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as
follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated
medical institution which shall specialize in the treatment, care, rehabilitation
and/or relief of lung and allied diseases in line with the concern of the
government to assist and provide material and financial support in the
establishment and maintenance of a lung center primarily to benefit the people
of the Philippines and in pursuance of the policy of the State to secure the well-
being of the people by providing them specialized health and medical services
and by minimizing the incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the
prevention of lung or pulmonary ailments and the care of lung patients,
including the holding of a series of relevant congresses, conventions, seminars
and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the
biological, demographic, social, economic, eugenic and physiological aspects
of lung or pulmonary diseases and their control; and to collect and publish the
findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information
on lung consciousness or awareness, and the development of fact-finding,
information and reporting facilities for and in aid of the general purposes or
objects aforesaid, especially in human lung requirements, general health and
physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social
workers and medical and technical personnel in the practical and scientific
implementation of services to lung patients;
6. To assist universities and research institutions in their studies about lung
diseases, to encourage advanced training in matters of the lung and related
fields and to support educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial
and/or city and local levels; and to coordinate their various efforts and activities
for the purpose of achieving a more effective programmatic approach on the
common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local
foundations and organizations; and to administer grants and funds that may be
given to the organization;
9. To extend, whenever possible and expedient, medical services to the public
and, in general, to promote and protect the health of the masses of our people,
which has long been recognized as an economic asset and a social blessing;
3

10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and
maladies of the people in any and all walks of life, including those who are
poor and needy, all without regard to or discrimination, because of race, creed,
color or political belief of the persons helped; and to enable them to obtain
treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and
carried on to promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment,
educational materials and supplies by purchase, donation, or otherwise and to
dispose of and distribute the same in such manner, and, on such basis as the
Center shall, from time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and
dispose of properties, whether real or personal, for purposes herein mentioned;
and
14. To do everything necessary, proper, advisable or convenient for the
accomplishment of any of the powers herein set forth and to do every other act
and thing incidental thereto or connected therewith.16
Hence, 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 charity.17
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies from the government, so
long as the money received is devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private benefit of the persons
managing or operating the institution.18 In Congregational Sunday School, etc. v. Board
of Review,19 the State Supreme Court of Illinois held, thus:
… [A]n institution does not lose its charitable character, and consequent
exemption from taxation, by reason of the fact that those recipients of its
benefits who are able to pay are required to do so, where no profit is made by
the institution and the amounts so received are applied in furthering its
charitable purposes, and those benefits are refused to none on account of
inability to pay therefor. The fundamental ground upon which all exemptions in
favor of charitable institutions are based is the benefit conferred upon the
public by them, and a consequent relief, to some extent, of the burden upon the
state to care for and advance the interests of its citizens.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital
Association of South Dakota v. Baker:21
… [T]he fact that paying patients are taken, the profits derived from attendance
upon these patients being exclusively devoted to the maintenance of the charity,
seems rather to enhance the usefulness of the institution to the poor; for it is a
matter of common observation amongst those who have gone about at all
amongst the suffering classes, that the deserving poor can with difficulty be
persuaded to enter an asylum of any kind confined to the reception of objects of
charity; and that their honest pride is much less wounded by being placed in an
institution in which paying patients are also received. The fact of receiving
money from some of the patients does not, we think, at all impair the character
of the charity, so long as the money thus received is devoted altogether to the
charitable object which the institution is intended to further.22
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.23
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. As held by the State Supreme Court of
Utah in Yorgason v. County Board of Equalization of Salt Lake County:24
Second, the … government subsidy payments are provided to the project. Thus,
those payments are like a gift or donation of any other kind except they come
from the government. In both Intermountain Health Care and the present case,
the crux is the presence or absence of material reciprocity. It is entirely
irrelevant to this analysis that the government, rather than a private benefactor,
chose to make up the deficit resulting from the exchange between St. Mark’s
Tower and the tenants by making a contribution to the landlord, just as it would
have been irrelevant in Intermountain Health Care if the patients’ income
supplements had come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such
housing is by the government rather than private charitable contributions does
not dictate the denial of a charitable exemption if the facts otherwise support
such an exemption, as they do here.25
In this case, the petitioner adduced substantial evidence that it spent its income,
including the subsidies from the government for 1991 and 1992 for its patients and for
the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its
operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second
issue, that those portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and exclusively used
for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an exemption is
equivalent to an appropriation. Hence, a claim for exemption from tax payments must be
4

clearly shown and based on language in the law too plain to be mistaken.26 As held
in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the taxing
power of the state will never be implied from language which will admit of any
other reasonable construction. Such an intention must be expressed in clear and
unmistakable terms, or must appear by necessary implication from the language
used, for it is a well settled principle that, when a special privilege or
exemption is claimed under a statute, charter or act of incorporation, it is to be
construed strictly against the property owner and in favor of the public. This
principle applies with peculiar force to a claim of exemption from taxation . …
28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-
stock corporation organized primarily to help combat the high incidence of
lung and pulmonary diseases in the Philippines, all donations, contributions,
endowments and equipment and supplies to be imported by authorized entities
or persons and by the Board of Trustees of the Lung Center of the Philippines,
Inc., for the actual use and benefit of 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 Section 30, paragraph (h),
of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes,
charges and fees imposed by the Government or any political subdivision or
instrumentality thereof with respect to equipment purchases made by, or for the
Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have been among the enumeration of tax
exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one
person, thing, or consequence implies the exclusion of all others. The rule is
expressed in the familiar maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of
ways. One variation of the rule is the principle that what is expressed puts an
end to that which is implied. Expressium facit cessare tacitum. Thus, where a
statute, by its terms, is expressly limited to certain matters, it may not, by
interpretation or construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of
restrictive interpretation. They are based on the rules of logic and the natural
workings of the human mind. They are predicated upon one’s own voluntary
act and not upon that of others. They proceed from the premise that the
legislature would not have made specified enumeration in a statute had the
intention been not to restrict its meaning and confine its terms to those
expressly mentioned.30
The exemption must not be so enlarged by construction since the reasonable
presumption is that the State has 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
intended beyond what was meant.31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable
or educational purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision covers property taxes only.33 As
Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional
Commission, explained: ". . . 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."34
Consequently, the constitutional provision is implemented by Section 234(b) of Republic
Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The following are
exempted from payment of the real property tax: ...
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings,
and improvements actually, directly, andexclusively used for religious,
charitable or educational purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and improvements
used ‘exclusively’ for … charitable … purposes shall be exempt from
taxation."36 However, under the 1973 and the present Constitutions, for "lands,
buildings, and improvements" of the charitable institution to be considered exempt, the
same should not only be "exclusively" used for charitable purposes; it is required that
such property be used "actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot
rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was
promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took
effect.38 As this Court held in Province of Abra v. Hernando:39
5

… 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 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.
…
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 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
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.44
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 petitioner’s 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.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED.
The respondent Quezon City Assessor is hereby DIRECTED to determine, after due
hearing, the precise portions of the land and the area thereof which are leased to private
persons, and to compute the real property taxes due thereon as provided for by law.
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT OF APPEALS
G.R. No. 155650 July 20, 2006
MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Parañaque for the taxable years 1992 to 2001. MIAA’s real estate tax
delinquency was estimated at P624 million.
The City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for prohibition and
injunction, with prayer for preliminary injunction or temporary restraining order.
The petition sought to restrain the City of Parañaque from imposing real estate
tax on, levying against, and auctioning for public sale the Airport Lands and
Buildings.
Paranaque’s Contention: Section 193 of the Local Government Code expressly
withdrew the tax exemption privileges of “government-owned and-controlled
corporations” upon the effectivity of the Local Government Code. Respondents
also argue that a basic rule of statutory construction is that the express mention
of one person, thing, or act excludes all others. An international airport is not
among the exceptions mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
MIAA’s contention: Airport Lands and Buildings are owned by the Republic. The
government cannot tax itself. The reason for tax exemption of public property is
that its taxation would not inure to any public advantage, since in such a case
the tax debtor is also the tax creditor.
Issue:
WON Airport Lands and Buildings of MIAA are exempt from real estate tax under
existing laws? Yes. Ergo, the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such assessments, are void.
Held:
1. MIAA is Not a Government-Owned or Controlled Corporation
6

MIAA is not a government-owned or controlled corporation but an instrumentality
of the National Government and thus exempt from local taxation.
MIAA is not a stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares.
MIAA is also not a non-stock corporation because it has no members. A non-
stock corporation must have members.
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers. Thus, 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 Corporation Law, insofar as
these powers are not inconsistent with the provisions of this Executive Order.”
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines.
No one can dispute that properties of public dominion mentioned in Article 420 of
the Civil Code, like “roads, canals, rivers, torrents, ports and bridges constructed
by the State,” are owned by the State. The term “ports” includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a “port” constructed by
the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation. The
fact that the MIAA collects terminal fees and other charges from the public does
not remove the character of the Airport Lands and Buildings as properties for
public use.
The charging of fees to the public does not determine the character of the
property whether it is of public dominion or not. Article 420 of the Civil Code
defines property of public dominion as one “intended for public use.” The
terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user’s tax. This
means taxing those among the public who actually use a public facility instead of
taxing all the public including those who never use the particular public facility.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance,
levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of
public dominion are subject to encumbrances, foreclosures and auction sale.
This will happen if the City of Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the Republic.
n MIAA’s case, its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance on
behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership of these
assets from the Republic to MIAA. The purpose was merely toreorganize a
division in the Bureau of Air Transportation into a separate and autonomous
body. The Republic remains the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAA’s assets adverse to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Sec 234 of the LGC provides that 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
following are exempted from payment of the real property tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real
estate tax.
7

John Hay Peoples Alternative Coalition vs. Lim [GR 119775, 24 October
2003] En Banc, Carpio-Morales (J): 9 concur, 2 took no part
Facts: Republic Act 7227, entitled "An Act Accellerating the Convetsion of
Military Reservations into other Productive uses, Creating the Bases Conversion
and Development Authority for this Purpose, Providing Funds Therefor and for
other purposes," otherwise known as the "Bases Conversion and Development
Act of 1992," was enacted on 13 March 1992.
The law set out the policy of the government to accelerate the sound
and balanced conversion into alternative productive uses of the former military
bases under the 1947 Philippines-United States of America Military Bases
Agreement, namely, the Clark and Subic military reservations as well as their
extensions including the John Hay Station (Camp John Hay) in the City of
Baguio. RA 7227 created the Bases Conversion and Development Authority'
(BCDA), vesting it with powers pertaining to the multifarious aspects of carrying
out the ultimate objective of utilizing the base areas in accordance with the
declared government policy. RA 7227 likewise created the Subic Special
Economic [and Free Port] Zone (Subic SEZ) the metes and bounds of which
were to be delineated in a proclamation to be issued by the President of the
Philippines; and granted the Subic SEZ incentives ranging from tax and duty-
free importations, exemption of businesses therein from local and national taxes,
to other hall-narks of a liberalized financial and business climate.
RA 7227 expressly gave authority to the President to create through
executive proclamation, subject to the concurrence of the local government units
directly affected, other Special Economic Zones (SEZ) in the areas covered
respectively by the Clark military reservation, the Wallace Air Station in San
Fernando, La Union, and Camp John Hay. On 16 August 1993, BCDA entered
into a Memorandum of Agreement and Escrow Agreement with Tuntex (B.V.L)
Co., Ltd. (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD),
private corporations registered under the laws of the British Virgin Islands,
preparatory to the formation of a joint venture for the development of Poro Point
in La Union and Camp John Hay as premier tourist destinations and recreation
centers. 4 months later or on 16 December 16, 1993, BCDA, TUNTEX and
ASIAWORLD executed a Joint Venture Agreements whereby they bound
themselves to put up a joint venture company known as the Baguio International
Development and Management Corporation which would lease areas within
Camp John Hay and Poro Point for the purpose of turning such places into
principal tourist and recreation spots, as originally envisioned by the parties
under their Memorandum of Agreement.
The Baguio City government meanwhile passed a number of
resolutions in response to the actions taken by BCDA as owner and
administrator of Camp John Hay. By Resolution of 29 September 1993, the
Sangguniang Panlungsod of Baguio City officially asked BCDA to exclude all the
barangays partly or totally located within Camp John Hay from the reach or
coverage of any plan or program for its development. By a subsequent
Resolution dated 19 January 1994, the sanggunian sought from BCDA an
abdication, waiver or quitclaim of its ownership over the home lots being
occupied by residents of 9 barangays surrounding the military reservation. Still
by another resolution passed on 21 February 1994, the sanggunian adopted and
submitted to BCDA a 15-point concept for the development of Camp John Hay.
The sanggunian's vision expressed, among other things, a kind of
development that affords protection to the environment, the making of a family-
oriented type of tourist destination, priority in employment opportunities for
Baguio residents and free access to the base area, guaranteed participation of
the city government in the management and operation of the camp, exclusion of
the previously named nine barangays from the area for development, and
liability for local taxes of businesses to be established within the camp." BCDA,
TUNTEX and ASIAWORLD agreed to some, but rejected or modified the other
proposals of the sanggunian." They stressed the need to declare Camp John
Hay a SEZ as a condition precedent to its full development in accordance with
the mandate of RA 7227.
On 11 May 1994, the sanggunian passed a resolution requesting the
Mayor to order the determination of realty taxes which may otherwise be
collected from real properties of Camp John Hay. The resolution was intended to
intelligently guide the sanggunian in determining its position on whether Camp
John Hay be declared a SEZ, the sanggunian being of the view that such
declaration would exempt the camp's property and the economic activity therein
from local or national taxation. More than a month later, however, the
sanggunian passed Resolution 255, (Series of 1994)," seeking and supporting,
subject to its concurrence, the issuance by then President Ramos of a
presidential proclamation declaring an area of 285.1 hectares of the camp as a
SEZ in accordance with the provisions of RA 7227. Together with this resolution
was submitted a draft of the proposed proclamation for consideration by the
President. On 5 July 1994 then President Ramos issued Proclamation 420
(series of 1994), "creating and designating a portion of the area covered by the
former Camp John Hay as the John Hay Special Economic Zone pursuant to
Republic Act 7227."
The John Hay Peoples Alternative Coalition, et. al. filed the petition for
prohibition, mandamus and declaratory relief with prayer for a temporary
restraining order (TRO) and/or writ of preliminary injunction on 25 April 1995
challenging, in the main, the constitutionality or validity of Proclamation 420 as
well as the legality of the Memorandum of Agreement and Joint Venture
Agreement between the BCDA, and TUNTEX and ASIAWORLD.
Issue: Whether the petitioners have legal standing in filing the case questioning
the validity of Presidential Proclamation 420.
Held: It is settled that when questions of constitutional significance are raised,
the court can exercise its power of judicial review only if the following requisites
8

are present: (1) the existence of an actual and appropriate case; (2) a personal
and substantial interest of the party raising the constitutional question; (3) the
exercise of judicial review is pleaded at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case."
RA 7227 expressly requires the concurrence of the affected local
government units to the creation of SEZs out of all the base areas in the
country.'" The grant by the law on local government units of the right of
concurrence on the bases' conversion is equivalent to vesting a legal standing
on them, for it is in effect a recognition of the real interests that communities
nearby or surrounding a particular base area have in its utilization. Thus, the
interest of petitioners, being inhabitants of Baguio, in assailing the legality of
Proclamation 420, is personal and substantial such that they have sustained or
will sustain direct injury as a result of the government act being challenged."
Theirs is a material interest, an interest in issue affected by the
proclamation and not merely an interest in the question involved or an incidental
interest," for what is at stake in the enforcement of Proclamation 420 is the very
economic and social existence of the people of Baguio City. Moreover,
Petitioners Edilberto T. Claravall and Lilia G. Yaranon were duly elected
councilors of Baguio at the time, engaged in the local governance of Baguio City
and whose duties included deciding for and on behalf of their constituents the
question of whether to concur with the declaration of a portion of the area
covered by Camp John Hay as a SEZ. Certainly then, Claravall and Yaranon, as
city officials who voted against" the sanggunian Resolution No. 255 (Series of
1994) supporting the issuance of the now challenged Proclamation 420, have
legal standing to bring the present petition.
Quoted hereunder, for your information, is a resolution of this
Court dated MAR 29 2005.
G.R. No. 119775 (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al
bs. Lim, et al)
By their separate motions for reconsideration, public respondents Bases
Conversion Development Authority (BCDA) John Hay Management Corporation
(JHMC)[1] and Victor Lim, and respondent-in-intervention CJH Development
Corporation (CJHDC) seek the reconsideration of this Court's Decision of
October 24, 2003[2]` which invalidated the second sentence of Section 3 of
Proclamation No. 420 insofar as it granted tax exemptions and incentives to the
John Hay Special Economic Zone (SEZ).
It may be recalled that on March 13, 1992, Republic Act No. 7227,
[3] otherwise known as the "Bases Conversion and Development Act of 1992,"
was enacted with the declared policy of accelerating "the sound and balanced
conversion into alternative productive uses of the Clark and Subic military
reservations and their extensions" -including the John Hay Station.[4]
To this end, R.A. No. 7227 created public respondent BCDA,[5] the Subic
SEZ[6] and the Subic Bay Metropolitan Authority.[7]
R.A. No. 7227 likewise authorized the President, subject to the
concurrence of the local government units directly affected, to create through
executive proclamation other SEZs in the areas covered respectively by the
Clark military reservation, the Wallace Air Station in San Fernando, La Union,
and the Camp John Hay in Baguio. And upon recommendation by the BCDA,
the law also authorized the President to create SEZs in the municipalities of
Morong, Hermosa, Dinalupihan, Castillejos, and San Marcelino.[8]
On July 5, 1994, then President Ramos, on the request of
the Sangguniang Panlungsod of Baguio City,[9] issued Proclamation No. 420
establishing the John Hay SEZ:
PROCLAMATION NO. 420
CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY
THE FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL ECONOMIC
ZONE PURSUANT TO REPUBLIC ACT NO. 7227
Pursuant to the powers vested in me by the law and the resolution of
concurrence by the City Council of Baguio, I, FIDEL V. RAMOS, President of the
Philippines, do hereby create and designate a portion of the area covered by the
former John Hay reservation as embraced, covered, and defined by the 1947
Military Bases Agreement between the Philippines and the United States of
America, as amended, as the John Hay Special Economic Zone, and
accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. - The John Hay
Special Economic Zone shall cover the area consisting of Two Hundred Eighty
Eight and one/tenth (288.1) hectares, more or less, of the total of Six Hundred
Seventy-Seven (677) hectares of the John Hay Reservation, more or less, which
have been surveyed and verified by the Department of Environment and Natural
Resources (DENR) as defined by the following technical description:
A parcel of land, situated in the City of Baguio, Province of Benguet, Island of
Luzon, and particularly described in survey plans Psd-131102-002639 and Ccs-
131102-000030 as approved on 16 August 1993 and 26 August 1993,
respectively, by the Department of Environment and Natural Resources, in detail
containing :
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of
Ccs-131102-000030 - and-
9

Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot
16, Lot 17, and Lot 18 of Psd-131102-002639 being portions of TCT No. T-3812,
LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH
HECTARES (288.1 hectares); Provided that the area consisting of approximately
Six and two/tenth (6.2)hectares, more or less, presently occupied by the VOA
and the residence of the Ambassador of the United States, shall be considered
as part of the SEZ only upon turnover of the properties to the government of the
Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special Economic Zone. - Pursuant to
Section 15 of Republic Act No. 7227, the Bases Conversion and Development
Authority is hereby established as the governing body of the John Hay Special
Economic Zone and, as such, authorized to determine the utilization and
disposition of the lands comprising it, subject to private rights, if any, and in
consultation and coordination with the City Government of Baguio after
consultation with its inhabitants, and to promulgate the necessary policies, rules,
and regulations to govern and regulate the zone thru the John Hay Poro Point
Development Corporation, which is its implementing arm for its economic
development and optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to
Section 5(m) and Section 15 of Republic Act No. 7227, the John Hay Poro Point
Development Corporation shall implement all necessary policies, rules, and
regulations governing the zone, including investment incentives, in consultation
with pertinent government departments. Among others, the zone shall have all
the applicable incentives of the Special Economic Zone under Section 12 of
Republic Act No. 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investment Code of 1987, the Foreign
Investment Act of 1991, and new investment laws that may hereinafter be
enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and
Instrumentalities. - All Heads of departments, bureaus, offices, agencies, and
instrumentalities of the government are hereby directed to give full support to
Bases Conversion and Development Authority and/or its implementing
subsidiary or joint venture to facilitate the necessary approvals to expedite the
implementation of various projects of the conversion program.
Sec. 5. Local Authority. - Except as herein provided, the affected local
government units shall retain their basic autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and regulations, or parts thereof,
which are inconsistent with the provisions of this Proclamation, are hereby
repealed, amended, or modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect immediately.
Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen
hundred and ninety-four.
On April 25, 1995, petitioners filed their Petition for prohibition, mandamus
and declaratory relief assailing (1) the constitutionality of Proclamation No. 420
and (2) the legality of the Memorandum of Agreement and Joint Venture
Agreement previously entered into[10] between public respondent BCDA and
private respondents Tuntex (B.V.I.) Co., Ltd. (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD).
The questions regarding the validity of the agreements between BCDA and
TUNTEX and ASIAWORLD were rendered moot and academic[11]by BCDA's
revocation of these agreements by letter of November 21, 1995.[12]
On October 24, 2003, this Court promulgated its Decision, which disposed
as follows:
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is
hereby declared NULL AND VOID and is accordingly declared of no legal force
and effect. Public respondents are hereby enjoined from implementing the
aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and
effective.
SO ORDERED.
In their Motion for Reconsideration with Manifestation filed on December
29, 2003, public respondents, through the Office of the Government Corporate
Counsel, submit the following grounds for reconsideration:
I. THE HONORABLE COURT ERRED IN RULING THAT SECTION 3 OF
PROCLAMATION NO. 420 IS NULL AND VOID AS THE JOHN HAY SPECIAL
ECONOMIC ZONE ENJOYS EXEMPTION FOR (sic) TAXES, AS WELL AS
OTHER FINANCIAL INCENTIVES GRANTED TO THE SUBIC SPECIAL
ECONOMIC ZONE, IN THAT:
A. THE LAW, CONSIDERED IN ITS ENTIRETY SUPPORTS
THE CONCLUSION THAT THE JOHN HAY SPECIAL ECONOMIC
ZONE ENJOYS THE SAME PRIVILEGES AS THE SUBIC
SPECIAL ECONOMIC ZONE.
B. THE GRANT OF TAX EXEMPTION AND OTHER FINANCIAL
INCENTIVES IS INHERENT IN "SPECIAL ECONOMIC ZONES."
10

II. ASSUMING ARGUENDO THAT REPUBLIC ACT NO. 7227 DOES NOT
GRANT TAX EXEMPTIONS TO SPECIAL ECONOMIC ZONES, THE SECOND
SENTENCE OF SECTION THREE OF PROCLAMATION NO. 420 IS
SUSCEPTIBLE OF OTHER PLAUSIBLE INTERPRETATIONS WHICH WOULD
ADDRESS THE ALLEGED CONSTITUTIONAL INFIRMITY.
Ill. THE JOHN HAY SPECIAL ECONOMIC ZONE MAY BE GRANTED
FINANCIAL INCENTIVES UNDER OTHER LAWS, AS IMPLEMENTED BY THE
EXECUTIVE.
IV. THE HONORABLE COURT ERRED IN RULING THAT PETITIONERS HAVE
LEGAL STANDING TO SUE.
Intervenor CJHDC filed on March 5, 2004 a Motion for Leave to Intervene
alleging that it, together with its consortium partners Fil-Estate Management Inc.
and Penta Capital Investment Corporation, entered into a Lease Agreement
dated October 19, 1996[13] with respondent BCDA for the development of the
John Hay SEZ; and that it "stands to be most affected" by this Court's Decision
"invalidating the grant of tax exemption and other financial incentives" in the
John Hay SEZ since "[i]ts financial obligations and development and investment
commitments under the Lease Agreement were entered into upon the premise
that these incentives are valid and subsisting."
CJHDC, proffering grounds parallel to those of public respondents,[14] thus
prays that: (1) it be granted leave to intervene in this case; (2) its attached
Motion for Reconsideration in Intervention be admitted; and (3) this Court's
Decision of October 24, 2003 be reconsidered and petitioners' petition
dismissed.
By Order of May 25, 2004, this Court granted CJHDC's Motion for leave to
Intervene and noted its Motion for Reconsideration in Intervention.[15]
At bottom, the controversy centers on whether the tax exemptions and
other financial incentives granted to the Subic SEZ under Section 12 of R.A. No.
7227 are applicable to the John Hay SEZ.
Section 12 of R.A. No. 7227, which provides for the "policies" to govern and
regulate the Subic SEZ, reads as follows:
SECTION 12. Subic Special Economic Zone. — Subject to the concurrence by
resolution of the sangguniang panlungsod of the City of Olongapo and the
sangguniang bayan of the Municipalities of Subic, Morong and Hermosa, there
is hereby created a Special Economic and Free-port Zone consisting of the
City of Olongapo and the Municipality of Subic, Province of Zambales, the lands
occupied by the Subic Naval Base and its contiguous extensions as embraced,
covered, and defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America as amended, and within the
territorial jurisdiction of the Municipalities of Morong and Hermosa, Province of
Bataan, hereinafter referred to as the Subic Special Economic Zone whose
metes and bounds shall be delineated in a proclamation to be issued by the
President of the Philippines. Within thirty (30) days after the approval of this Act,
each local government unit shall submit its resolution of concurrence to join the
Subic Special Economic Zone to the office of the President. Thereafter, the
President of the Philippines shall issue a proclamation defining the metes and
bounds of the Zone as provided herein.
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the
Constitution and the pertinent provisions of the Local Government Code, the
Subic Special Economic Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and promote
productive foreign investments;
b) The Subic Special Economic Zone shall be operated and managed as a
separate customs territory ensuring free flow or movement of goods and
capital within, into and exported out of the Subic Special Economic Zone, as well
as provide incentives such as tax and duty free importations of raw
materials, capital and equipment. However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary
notwithstanding, no taxes, local and national, shall be imposed within the
Subic Special Economic Zone. In lieu of paying taxes, three percent (3%)
of the gross income earned by all businesses and enterprises within the
Subic Special Economic Zone shall be remitted to the National
Government, one percent (1%) each to the local government units affected
by the declaration of the zone in proportion to their population area, and
other factors. In addition, there is hereby established a development fund
of one percent (1%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone to be utilized for the
Municipality of Subic, and other municipalities contiguous to [the] base
areas. In case of conflict between national and local laws with respect to tax
exemption privileges in the Subic Special Economic Zone, the same shall be
resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for
foreign exchange, gold, securities and futures shall be allowed and
maintained in the Subic Special Economic Zone;
11

(e) The Central Bank, through the Monetary Board, shall supervise and
regulate the operations of banks and other financial institutions within the
Subic Special Economic Zone;
(f) Banking and Finance shall be liberalized with the establishment of
foreign currency depository units of local commercial banks and offshore
banking units of foreign banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing
investment shall not be less than Two Hundred fifty thousand dollars
($250,000), his/her spouse and dependent children under twenty-one (21)
years of age, shall be granted permanent resident status within the Subic
Special Economic Zone. They shall have freedom of ingress and egress to and
from the Subic Special Economic Zone without any need of special authorization
from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue working visas
renewable every two (2) years to foreign executives and other aliens
possessing highly-technical skills which no Filipino within the Subic
Special Economic Zone possesses, as certified by the Department of
Labor and Employment. The names of aliens granted permanent residence
status and working visas by the Subic Bay Metropolitan Authority shall be
reported to the Bureau of Immigration and Deportation within thirty (30) days
after issuance thereof;
(h) The defense of the zone and the security of its perimeters shall be the
responsibility of the National Government in coordination with the Subic Bay
Metropolitan Authority. The Subic Bay Metropolitan Authority shall provide and
establish its own internal security and firefighting forces; and
(i) Except as herein provided, the local government units comprising the Subic
Special Economic Zone shall retain their basic autonomy and identity. The cities
shall be governed by their respective charters and the municipalities shall
operate and function in accordance with Republic Act No. 7160, otherwise
known as the Local Government Code of 1991. (Emphasis supplied)
In their first line of argument, respondents allege that the foregoing
"policies" or incentives, while enumerated in reference to the Subic SEZ, are
nonetheless expressly made applicable to the other SEZs subsequently created
by presidential proclamation, including the John Hay SEZ, by Section 15 of R.A.
No. 7227. Thus, public respondents argue:
That the privileges of tax exemption and other financial incentives were
expressly provided under Section 12, constituting the SSEZ, is merely a result of
the then reality that it is (sic) was only in Subic Bay where the precise metes and
bounds of the SSEZ, as well as other relevant information, were then available
to the Senate. But the intention of the Senate was clearly to empower the
President, who would then have the luxury of time and further studies, to
constitute special economic zones in the former Clark Air Base and its
extensions, including Camp John Hay. This power to proclaim the other
base areas as special economic zones, including all privileged
appurtenant thereto, was instead delegated to the President in Section 15
of the law. x x x
Republic Act No. 7227 authorizes the President to delineate Special
Economic Zones in the former base areas. True, section 12 of the said law
enumerating the tax exemptions and the financial incentives of the Subic
Special Economic Zone, is expressly made applicable to the former Subic
Bay Naval Base. However, there is no showing that the term "special
economic zones", used to denote what the President can establish in John
Hay, does not have the same definition and characteristics as the
SSEZ. (Emphasis supplied; underscoring in the original)
A reading of Section 15 of R.A. No. 7227 does not, however, support this
proposition. There is no doubt that under Section 15 (as in Section 12) the
President has the power to delineate, by proclamation, the metes and bounds of
SEZs which may be created in the other former base lands. However, there is
neither an express reference to Section 12 nor to the incentives granted to the
Subic SEZ:
SECTION 15. Clark and Other Special Economic Zones. — Subject to the
concurrence by resolution of the local government units directly affected, the
President is hereby authorized to create by executive proclamation a
Special Economic Zone covering the lands occupied by the Clark military
reservations and its contiguous extensions as embraced, covered and defined
by the 1947 Military Bases Agreement between the Philippines and the United
States of America, as amended, located within the territorial jurisdiction of
Angeles City, Municipalities of Mabalacat and Porac, Province of Pampanga,
and the Municipality of Capas, Province of Tarlac, in accordance with the
policies as herein provided insofar as applicable to the Clark military
reservations.
The governing body of the Clark Special Economic Zone shall likewise be
established by executive proclamation with such powers and functions exercised
by the Export Processing Zone Authority pursuant to Presidential Decree No. 66
as amended.
The policies to govern and regulate the Clark Special Economic Zone shall
be determined upon consultation with the inhabitants of the local
government units directly affected which shall be conducted within six (6)
months upon approval of this Act.
Similarly, subject to the concurrence by resolution of the local government
units directly affected, the President shall create other Special Economic
Zones, in the base areas of Wallace Air Station in San Fernando, La Union
(excluding areas designated for communications, advance warning and radar
12

requirements of the Philippine Air Force to be determined by the Conversion
Authority) and Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the President is likewise
authorized to create Special Economic Zones covering the Municipalities of
Morong, Hermosa, Dinalupihan, Castillejos, and San Marcelino. (Emphasis
supplied)
Respondent-in-intervention CJHDC submits that by authorizing the
President to create SEZs "in accordance with the policies as herein provided
insofar as applicable," the first paragraph of Section 15 refers to the policies
enumerated in Section 12, including exemption from local and national taxes.
This allusion to "the policies as herein provided" can by no means be
considered an explicit or unequivocal conferment of the tax exemptions and
other incentives set forth in Section 12 on other SEZs. Notably, the preceding
portions of R.A. No. 7227 make mention of two sets of "policies:" (1) the general
"policies" that the law is intended to further,viz:
Sec. 2. Declaration of Policies. — It is hereby declared the policy of the
Government to accelerate the sound and balanced conversion into alternative
productive uses of the Clark and Subic military reservations and their extensions
(John Hay Station, Wallace Air Station, O'Donnell Transmitter Station, San
Miguel Naval Communications Station and Capas Relay Station), to raise funds
by the sale of portions of Metro Manila military camps, and to apply said funds
as provided herein for the development and conversion to productive civilian use
of the lands covered under the 1947 Military Bases Agreement between the
Philippines and the United States of America, as amended.
It is likewise the declared policy of the Government to enhance the benefits to be
derived from said properties in order to promote the economic and social
development of Central Luzon in particular and the country in general.,
and (2) the above-quoted "policies" governing the Subic SEZ.
Considering that the subject matter of the first paragraph of Section 15 is
the authority of the President to create other SEZs in the former base lands, it
stands to reason that the same should be exercised "in accordance with the
policies" which provide the rationale for the law as laid down in Section 2 of R.A.
No. 7227.
In contradistinction, a provision authorizing the President to define the
metes and bounds of other SEZs "in accordance with" the tax and financial
incentives of the Subic SEZ would be nonsensical. These tax and financial
incentives provide neither direction nor guidance to the President in his
determination (subject to the concurrence of the affected local government units)
of the geographic composition of the SEZs.
Moreover, the third and fourth paragraphs of Section 15 explicitly provide
that the "policies to govern and regulate" the John Hay SEZ "shall be
determined upon consultation with the inhabitants of the local government units
directly affected," thereby implying that the governing policies of the John Hay
SEZ, unlike that of the Subic SEZ, were yet to be specified and, thus, not
provided for by R.A. No. 7227 itself.
In any event, whether it is Section 12 or Section 15 of R.A. No. 7227 which
is scrutinized, the result is the same. There is no express extension of the
incentives or benefitsgranted to the Subic SEZ to the other SEZs still to be
created via presidential proclamation.
As for respondent-in-intervention CJHDC's argument that the President's
"power to create Special Economic Zones carries with it the power to provide for
tax and financial incentives," it does not lie. It is the legislative branch which
has the inherent power not only to select the subjects of taxation but to
grant exemptions.[16] Paragraph 4, Section 28 of Article VI of the Constitution
is crystal clear: "[n]o law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress."
Hence, it is only the legislature, as limited by the provisions of the
Constitution, which has full power to exempt any person or corporation or class
of property from taxation. The Constitution itself may provide for specific tax
exemptions[17] or local governments may pass ordinances providing for
exemption from local taxes,[18] but, otherwise, it is only the legislative branch
which has the power to grant tax exemptions, its power to exempt being as
broad as its power to tax.[19]
Perhaps realizing that R.A. No. 7227 does not contain an express grant of
tax exemptions and financial incentives covering the John Hay SEZ,
respondents, as a second line of argument, implore the Court to construe the
existence of such a grant pursuant to what they claim to be the legislative intent
of the law. To this end, they posit that the Court should not apply the deeply-
entrenched rule that tax exemptions cannot be implied but must be categorically
and unmistakably expressed[20] in a language too clear to be mistaken.[21]
In this vein, respondent-in-intervention CJHDC, although acknowledging
that "the law frowns against exemptions from taxation,"[22] nevertheless argues
that "[t]he grant of tax exemption privileges to the [John Hay SEZ] was
addressed primarily to public respondent BCDA" in order "to achieve its
mandate for an accelerated conversion of the former baselands into
economically productive uses, at the least cost and exposure to the
13

government." Thus, it contends that the Court should "apply, at least by analogy,
the principle that strict construction is not applicable where the grantee of the
exemption is a political subdivision or instrumentality."
The Court is not persuaded.
True, it is a recognized principle that the rule on strictissimi juris does not
apply in the case of exemptions in favor of a government political subdivision or
instrumentality,[23]the rationale for which has been identified as follows:
"The basis for applying the rule of strict construction to statutory provisions
granting tax exemptions or deductions, even more obvious than with reference
to the affirmative or levying provisions of tax statutes, is to minimize differential
treatment and foster impartiality, fairness, and equality of treatment among tax
payers.
The reason for the rule does not apply in the case of exemptions running
to the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government agencies
may be construed liberally, in favor of non tax liability of such
agencies."[24] (Emphasis supplied; italics in the original)
However, the foregoing finds no application to the present case.
First, there is absolutely nothing in R.A. No. 7227 which can be considered
a grant of tax exemption in favor of public respondent BCDA. Rather, the
beneficiaries of the tax exemptions and other incentives in Section 12 (the only
provision in R.A. No. 7227 which expressly grants tax exemptions) are clearly
the business enterprises located within the Subic SEZ.
To be sure, nowhere in any of respondents' pleadings is it pretended that
the legislature exempted the BCDA from taxation in order to accomplish its
mandate. On the contrary, the alleged tax exemptions and financial incentives
are plainly asserted to be in favor of private enterprises doing business in the
John Hay SEZ.
Second, as noted above, the liberal construction of tax exemptions in favor
of the government is premised on their resulting only in a reduction in infra-
governmental fund transfers, but not government revenue. Evidently, this
rationale does not apply, whether by analogy or otherwise, in favor
of private business enterprises, such as respondent-in-intervention CJHDC.
Consequently, respondents' arguments for a liberal construction of R.A.
7227 in favor of tax exemptions and incentives to business enterprises in the
John Hay SEZ must necessarily fail. As the Court, speaking through Mr. Justice
Vicente V. Mendoza, in the recent case of Philippine Long Distance Telephone
Company, Inc. v. City of Davao,[25] had occasion to stress:
. . . Along with the police power and eminent domain, taxation is one of the
three necessary attributes of sovereignty. Consequently, statutes in
derogation of sovereignty, such as thosecontaining exemption from taxation,
should be strictly construed in favor of the sate. A state cannot be stripped
of this most essential power by doubtful words and of this highest
attribute of sovereignty by ambiguous language.[26] (Emphasis supplied)
Necessarily, respondents' other arguments, dependent as they are on a
liberal construction of tax exemptions, also fail.
Public respondents' argument that tax exemptions are "inherent" in the
term "special economic zone" stands the concept on its head and cannot be
accepted. The tax exempt character of an SEZ proceeds from the statutory
provisions expressly conferring such exemptions, not vice-versa. The tail does
not wag the dog.
Moreover, a careful scrutiny of the Senate deliberations does not disclose a
clear intention on the part of the law making power to make the tax exemptions
and financial incentives in Section 12 applicable in the other SEZs.
The adoption of a single uniform set of tax exemptions and financial
incentives for all SEZs in the former base lands was indeed suggested by
Senator Paterno when Section 12 was under consideration in the Senate: x x x
Senator Paterno: Thank you Mr. President.
Now, with respect to "B," Mr. President, on items 1 to 6,[27] what are they
supposed to be? Are these policies? Because in my reading, subparagraph,
subparagraph "1" and subparagraph "6" refer to activities; namely, shipping and
tourism-related; while sub-paragraphs "2, 3, 4, and 5" represent policies which
shall apply within the zone.
Senator Shahani: think the intention here really was to specify the activities
which should take place within this economic zone. But, on second reading, yes,
I think there is a mix-up here of activities and policies.
Senator Paterno: Yes.
Senator Shahani: Maybe some of these could be transferred to Section 13.
Senator Paterno: Now, No. "1" and No. "6", are these authorizations to
engage in these activities, or are they mandates for the special economic zone
to engage in these activities?
14

Senator Shahani: Yes, this is an attempt to specify the features, the kind of
specific activities which would be unique to the special economic zone of Subic.
This is why shipping is given.
Senator Paterno: Yes. Then I would propose, Mr. President, that these two
activities, namely "1" and "6," be segregated as being applicable to the Subic
economic zone, because they will not be applicable, for example, in the Clark
economic zone because there would be no shipping in Clark.
Senator Shahani: Mr. President, Section 12, refers exclusively to Subic. There
is no attempt now in this BCDA to do anything for Clark. I think there is no time.
Senator Paterno: Yes. Yet, Mr. President, paragraph "C" authorizes the
President of the Philippines to proclaim, delineate and specify the metes
and bounds of other special economic zones with particular reference to
Clark. We need to set up certain standards which the President would
observe in setting up those zones.
So I would propose that the policies applicable to all economic zones be
specified here, and those which relate only to Subic be put in a standard
for the Subic economic zone.
Senator Shahani: Mr. President, I thought that this was the special concern of
our Colleague from Cavite. I remember quite clearly that last night, some
concern was expressed, including from this Representation, that there was no
special attention being given to Clark. It think it was also Senator Enrile who said
that Clark has specific features; it is landlocked, et cetera.
Senator Paterno: Yes.
Senator Shahani: So, to show that we are still interested in Clark and its
development, and to avoid this very long process of legislating every detail of
what a special economic zone should be, I thought it was agreed last night that
we should authorize the President to create special economic zones with
specific reference to Clark. This is why this appears in this form, Mr. President.
Senator Paterno: Yes. Without going into the crafting of the text, Mr.
President, it was my thought that, perhaps, there could be a section which
specifies the policies which shall apply to all special economic zones.
Then there would be another section which, in effect, will create the Subic
economic zone which would refer to those unique activities in Subic. Then
there would be another section which would authorize the President to
create other special economic zones, with particular reference to Clark, in
which special economic zones, the standards set up in the first section
would apply.
Senator Shahani: I take it that, that is just a matter of reordering this section.
Senator Paterno: Yes. In other words, I would like to suggest that the bill
contain the features of any special economic zone, and then another
section would contain the features unique to Subic as a special economic
zone.[28](Emphasis supplied)
However, as respondent CJHDC itself admits,
"Senator Paterno's proposal that 'the policies applicable to all special economic
zones be specified here (in what would eventually be Section 15) and those
which relate only to Subic be put in a standard for the Subic economic zone' was
not carried out, as Section 15 as finally passed does not contain an enumeration
of policies specific only to non-Subic SEZs." (Underscoring supplied)
Instead, as previously noted, Section 15 of R.A. No. 7227 provides that the
"policies to govern and regulate" the John Hay SEZ "shall be determined upon
consultation with the inhabitants of the local government units directly affected."
Significantly, these policies need not be identical to those implemented in
the Subic SEZ since there may be real and substantial differences in
development priorities, local conditions and other relevant matters, as the
consultations may reveal. However, insofar as these policies may include tax
exemptions, paragraph 4, Section 28 of Article VI of the Constitution requires
that any such exemptions must be in the form of legislation passed with the
concurrence of a majority of all the Members of the Congress.
Finally, contrary to public respondents' interpretation, the Decision of
October 24, 2003 does not "tie the hands" of executive or administrative
agencies from implementing any present or future legislation which affords tax or
other financial incentives to qualified persons doing business in the John Hay
SEZ or elsewhere. The second sentence of Section 3 of Proclamation No. 420
was declared null and void only insofar as it purported to grant, by executive
proclamation and without statutory basis, tax exemptions and other financial
incentives to business enterprises located in John Hay SEZ. However, where
there is statutory basis for exemptions or incentives, there is nothing to prevent
qualified persons from applying for and availing thereof. As stated in the
dispositive portion of the decision, Proclamation No. 420, without the invalidated
portion, remains valid and effective. WHEREFORE, the motions for
reconsideration are hereby DENIED with FINALITY.
TOLENTINO vs. SECRETARY of FINANCE
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. RA 7716
seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue Code. There are
15

various suits challenging the constitutionality of RA 7716 on various grounds.
One contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is
in fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No.
1630. There is also a contention that S. No. 1630 did not pass 3 readings as
required by the Constitution.
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution
Held: The argument that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear
analysis. To begin with, it is not the law but the revenue bill which is required
by the Constitution to originate exclusively in the House of Representatives. To
insist that a revenuestatute and not only the bill which initiated the legislative
process culminating in the enactment of the law must substantially be the same
as the House bill would be to deny the Senate’s power not only to concur
with amendments but also to propose amendments. Indeed, what the
Constitution simply means is that the initiative for filingrevenue, tariff or tax bills,
bills authorizing an increase of the public debt, private bills and bills of
local application must come from theHouse of Representatives on the theory
that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. Nor does the
Constitution prohibit the filing in the Senate of a substitute bill in anticipation of
its receipt of the bill from the House, so long as action by the Senate as a body
is withheld pending receipt of the House bill.
The next argument of the petitioners was that S. No. 1630 did not pass
3 readings on separate days as required by the Constitution because the
second and third readings were done on the same day. But this was because
the President had certified S. No. 1630 as urgent. The presidential certification
dispensed with the requirement not only of printing but also that of reading the
bill on separate days. That upon the certification of a bill by the President the
requirement of 3 readings on separate days and of printing and distribution can
be dispensed with is supported by the weight of legislative practice.
16

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