Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge
of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF
CEBU, represented by its Mayor HON. TOMAS R. OSMEA, and
EUSTAQUIO B. CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law are
the decision of 22 March 1995 of the Regional Trial Court (RTC) of Cebu City,
Branch 20, dismissing the petition for declaratory relief in Civil Case No.
CEB-16900 entitled "Mactan Cebu International Airport Authority vs. City of
Cebu", and its order of 4, May 1995 denying the motion to reconsider the
decision.
We resolved to give due course to this petition for its raises issues
dwelling on the scope of the taxing power of local governmentowned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant
petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created
by virtue of Republic Act No. 6958, mandated to "principally undertake the
economical, efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and the Lahug
Airport in Cebu City, . . . and such other Airports as may be established in
the Province of Cebu . . . (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop international and domestic air traffic in
the Central Visayas and Mindanao regions as a means of making the regions
centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the
country; and
b) upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in accordance
with Section 14 of its Charter.
Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities . . .
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On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge,

Office of the Treasurer of the City of Cebu, demanded payment for realty
taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-G,
743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942,
947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified,
claiming in its favor the aforecited Section 14 of RA 6958 which exempt it
from payment of realty taxes. It was also asserted that it is an
instrumentality of the government performing governmental functions,
citing section 133 of the Local Government Code of 1991 which puts
limitations on the taxing powers of local government units:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangay shall not extend to the levy of the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units.
(Emphasis supplied)
Respondent City refused to cancel and set aside petitioner's realty tax
account, insisting that the MCIAA is a government-controlled corporation
whose tax exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the Local Governmental Code that took effect on January 1,
1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock, and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. . . .
(a) . . .
xxx xxx xxx
(c) . . .
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned
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or controlled corporations are hereby withdrawn upon the

effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against the
properties of petitioner, the latter was compelled to pay its tax account
"under protest" and thereafter filed a Petition for Declaratory Relief with the
Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA
basically contended that the taxing powers of local government units do not
extend to the levy of taxes or fees of any kind on an instrumentality of the
national government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same footing
as an agency or instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or instrumentality of
the national government by the very nature of its powers and functions.
Respondent City, however, asserted that MACIAA is not an instrumentality
of the government but merely a government-owned corporation performing
proprietary functions As such, all exemptions previously granted to it were
deemed withdrawn by operation of law, as provided under Sections 193 and
234 of the Local Government Code when it took effect on January 1, 1992.
The petition for declaratory relief was docketed as Civil Case No. CEB16900.
In its decision of 22 March 1995, 4 the trial court dismissed the petition in
light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160
provides the express cancellation and withdrawal of exemption of taxes by
government owned and controlled corporation per Sections after the
effectivity of said Code on January 1, 1992, to wit: [proceeds to quote
Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent City
Government of Cebu are exempted from paying realty taxes in view of the
exemption granted under RA 6958 to pay the same (citing Section 14 of RA
6958).
However, RA 7160 expressly provides that "All general and special laws,
acts, city charters, decress [sic], executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified
accordingly." ([f], Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the
tax exemption provided for in RA 6958 creating petitioner had been
expressly repealed by the provisions of the New Local Government Code of
1991.
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So that petitioner in this case has to pay the assessed realty tax of its
properties effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to
the overall objectives of the New Local Government Code of 1991,
RA 7160. "It is hereby declared the policy of the State that the
territorial and political subdivisions of the State shall enjoy
genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make
them more effective partners in the attainment of national goals.
Towards this end, the State shall provide for a more responsive and
accountable local government structure instituted through a
system of decentralization whereby local government units shall be
given more powers, authority, responsibilities, and resources. The
process of decentralization shall proceed from the national
government to the local government units. . . .
Its motion for reconsideration having been denied by the trial court in its 4
May 1995 order, the petitioner filed the instant petition based on the
following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN
THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation it is mandated to perform
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people. Considering its task "not merely to efficiently operate and manage
the Mactan-Cebu International Airport, but more importantly, to carry out
the Government policies of promoting and developing the Central Visayas
and Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country," and that it is an attached agency of the
Department of Transportation and Communication (DOTC), the petitioner
"may stand in [sic] the same footing as an agency or instrumentality of the
national government." Hence, its tax exemption privilege under Section 14
of its Charter "cannot be considered withdrawn with the passage of the
Local Government Code of 1991 (hereinafter LGC) because Section 133
thereof specifically states that the taxing powers of local government units
shall not extend to the levy of taxes of fees or charges of any kind on the
national government its agencies and instrumentalities."
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As to the second assigned error, the petitioner contends that being an

instrumentality of the National Government, respondent City of Cebu has no
power nor authority to impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation;
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with
an original character, PD 1869. All its shares of stock are owned by the
National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter joke is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National
Government over local government.
Justice Holmes, speaking for the Supreme Court, make references to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau Modern
Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a toll for regulation" (U.S.
v. Sanchez, 340 US 42). The power to tax which was called by Justice
Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity which has
the inherent power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say
that the questioned provisions of the Code do not contain any distinction
between a governmental function as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the
said Code would apply to all government corporations." For it is clear from
Section 133, in relation to Section 234, of the LGC that the legislature meant
5

to exclude instrumentalities of the national government from the taxing

power of the local government units.
In its comment respondent City of Cebu alleges that as local government
unit and a political subdivision, it has the power to impose, levy, assess, and
collect taxes within its jurisdiction. Such power is guaranteed by the
Constitution and enhanced further by the LGC. While it may be true that
under its Charter the petitioner was exempt from the payment of realty
taxes, this exemption was withdrawn by Section 234 of the LGC. In response
to the petitioner's claim that such exemption was not repealed because
being an instrumentality of the National Government, Section 133 of the
LGC prohibits local government units from imposing taxes, fees, or charges
of any kind on it, respondent City of Cebu points out that the petitioner is
likewise a government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234
thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned or
controlled corporations performing governmental and purely proprietary
functions. Respondent city of Cebu urges this the Manila International
Airport Authority is a governmental-owned corporation, and to reject the
application of Basco because it was "promulgated . . . before the enactment
and the singing into law of R.A. No. 7160," and was not, therefore, decided
"in the light of the spirit and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty
and is unlimited in its range, acknowledging in its very nature no
limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions. 13 Our
Constitution, for instance, provides that the rule of taxation shall be uniform
and equitable and Congress shall evolve a progressive system of taxation.
So potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy." Verily, taxation is a destructive power which
interferes with the personal and property for the support of the government.
Accordingly, tax statutes must be construed strictly against the government
and liberally in favor of the taxpayer. But since taxes are what we pay for
civilized society, or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the
taxing authority. A claim of exemption from tax payment must be clearly
shown and based on language in the law too plain to be mistaken. Elsewise
stated, taxation is the rule, exemption therefrom is the exception.
However, if the grantee of the exemption is a political subdivision
or instrumentality, the rigid rule of construction does not apply
6

because the practical effect of the exemption is merely to reduce

the amount of money that has to be handled by the government in
the course of its operations.
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely
by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and limitations as
the Congress may provide which, however, must be consistent with the
basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958
the petitioner is exempt from the payment of realty taxes imposed
by the National Government or any of its political subdivisions,
agencies, and instrumentalities. Nevertheless, since taxation is the
rule and exemption therefrom the exception, the exemption may
thus be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to
private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
The LGC, enacted pursuant to Section 3, Article X of the constitution
provides for the exercise by local government units of their power to tax,
the scope thereof or its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing
powers of local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions
mortis causa, except as otherwise provided herein
(d) Customs duties, registration fees of vessels and wharfage on wharves,
tonnage dues, and all other kinds of customs fees charges and dues except
wharfage on wharves constructed and maintained by the local government
unit concerned:
(e) Taxes, fees and charges and other imposition upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government
units in the guise or charges for wharfages, tolls for bridges or otherwise, or
other taxes, fees or charges in any form whatsoever upon such goods or
merchandise;
7

(f) Taxes fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprise certified to be the Board of Investment as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively
from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided
herein;
(j) Taxes on the gross receipts of transportation contractor and person
engage in the transportation of passengers of freight by hire and common
carriers by air, land, or water, except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or retrocession;
(l) Taxes, fees, or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving of thereof, except,
tricycles;
(m) Taxes, fees, or other charges on Philippine product actually exported,
except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprise and Cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes,
fees or charges" referred to are "of any kind", hence they include all of
these, unless otherwise provided by the LGC. The term "taxes" is well
understood so as to need no further elaboration, especially in the light of
the above enumeration. The term "fees" means charges fixed by law or
Ordinance for the regulation or inspection of business activity, 24 while
"charges" are pecuniary liabilities such as rents or fees against person or
property.
Among the "taxes" enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. A province or city or a
municipality within the Metropolitan Manila Area may levy on an
annual ad valorem tax on real property such as land, building,
machinery and other improvements not hereafter specifically
exempted.
8

Section 234 of LGC provides for the exemptions from payment of

real property taxes and withdraws previous exemptions therefrom
granted to natural and juridical persons, including government
owned and controlled corporations, except as provided therein. It
provides:
Sec. 234. Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been
granted, for reconsideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenants
thereto, mosques nonprofits or religious cemeteries and all lands, building
and improvements actually, directly, and exclusively used for religious
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and;
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemptions from payment of real property
tax previously granted to or presently enjoyed by, all persons whether
natural or juridical, including all government owned or controlled
corporations are hereby withdrawn upon the effectivity of his Code.
These exemptions are based on the ownership, character, and use
of the property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes on
the basis of ownership are real properties owned by: (i) the
Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a
barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on
the basis of their character are: (i) charitable institutions, (ii)
houses and temples of prayer like churches, parsonages or
convents appurtenant thereto, mosques, and (iii) non profit or
religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the
basis of the actual, direct and exclusive use to which they are
devoted are: (i) all lands buildings and improvements which are
actually, directed and exclusively used for religious, charitable or
9

educational purpose; (ii) all machineries and equipment actually,

directly and exclusively used or by local water districts or by
government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and
equipment used for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization of
the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions previously granted to
natural or juridical persons including government-owned or controlled
corporations are withdrawn upon the effectivity of the Code.
Section 193 of the LGC is the general provision on withdrawal of tax
exemption privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this code, tax exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or juridical, including governmentowned, or controlled corporations, except local water districts, cooperatives
duly registered under R.A. 6938, non stock and non profit hospitals and
educational constitutions, are hereby withdrawn upon the effectivity of this
Code.
On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. Local government
units may, through ordinances duly approved, grant tax exemptions,
incentives or reliefs under such terms and conditions as they may deem
necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions of provisos in these section, as shown by the
following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of Section
133;
(2) "Unless otherwise provided in this Code" in section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded.
Instead of the clause "unless otherwise provided herein," with the "herein"
to mean, of course, the section, it should have used the clause "unless
10

otherwise provided in this Code." The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions
were explicitly indicated in the text. For instance, in item (a) which excepts
the income taxes "when livied on banks and other financial institutions",
item (d) which excepts "wharfage on wharves constructed and maintained
by the local government until concerned"; and item (1) which excepts taxes,
fees, and charges for the registration and issuance of license or permits for
the driving of "tricycles". It may also be observed that within the body itself
of the section, there are exceptions which can be found only in other parts
of the LGC, but the section interchangeably uses therein the clause "except
as otherwise provided herein" as in items (c) and (i), or the clause "except
as otherwise provided herein" as in items (c) and (i), or the clause "excepts
as provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplus-ages if the opening clause of the section were"
"Unless otherwise provided in this Code" instead of "Unless otherwise
provided herein". In any event, even if the latter is used, since under
Section 232 local government units have the power to levy real property
tax, except those exempted therefrom under Section 234, then Section 232
must be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude
that as a general rule, as laid down in Section 133 the taxing powers of local
government units cannot extend to the levy of inter alia, "taxes, fees, and
charges of any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant to Section
232, provinces, cities, municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political subdivisions except
when the beneficial used thereof has been granted, for consideration or
otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz., they
are withdrawn upon the effectivity of the LGC, except upon the effectivity of
the LGC, except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the LGC. The
latter proviso could refer to Section 234, which enumerates the properties
exempt from real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption in so far as the real property taxes
11

are concerned by limiting the retention only to those enumerated there-in;

all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as the real property is owned by the
Republic of the Philippines, or any of its political subdivisions covered by
item (a) of the first paragraph of Section 234, the exemption is withdrawn if
the beneficial use of such property has been granted to taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that
its exemption from such tax granted it in Section 14 of its charter, R.A. No.
6958, has been withdrawn. Any claim to the contrary can only be justified if
the petitioner can seek refuge under any of the exceptions provided in
Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133
that the taxing powers of the local government units cannot extend to the
levy of:
(o) taxes, fees, or charges of any kind on the National Government, its
agencies, or instrumentalities, and local government units.
I must show that the parcels of land in question, which are real property, are
any one of those enumerated in Section 234, either by virtue of ownership,
character, or use of the property.
Most likely, it could only be the first, but not under any explicit provision of
the said section, for one exists. In light of the petitioner's theory that it is an
"instrumentality of the Government", it could only be within be first item of
the first paragraph of the section by expanding the scope of the terms
Republic of the Philippines" to embrace . . . . . . "instrumentalities" and
"agencies" or expediency we quote:
(a) real property owned by the Republic of the Philippines, or any of the
Philippines, or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable
person.
This view does not persuade us. In the first place, the petitioner's claim that
it is an instrumentality of the Government is based on Section 133(o), which
12

expressly mentions the word "instrumentalities"; and in the second place it

fails to consider the fact that the legislature used the phrase "National
Government, its agencies and instrumentalities" "in Section 133(o),but only
the phrase "Republic of the Philippines or any of its political subdivision "in
Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government
of the Republic of the Philippines" which the Administrative Code of the
1987 defines as the "corporate governmental entity though which the
functions of the government are exercised through at the Philippines,
including, saves as the contrary appears from the context, the various arms
through which political authority is made effective in the Philippines,
whether pertaining to the autonomous reason, the provincial, city, municipal
or barangay subdivision or other forms of local government." These
autonomous regions, provincial, city, municipal or barangay subdivisions"
are the political subdivision.
On the other hand, "National Government" refers "to the entire machinery
of the central government, as distinguished from the different forms of local
Governments." The National Government then is composed of the three
great departments the executive, the legislative and the judicial.
An "agency" of the Government refers to "any of the various units
of the Government, including a department, bureau, office
instrumentality, or government-owned or controlled corporation, or
a local government or a distinct unit therein;" while an
"instrumentality" refers to "any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy; usually through a charter. This
term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations".
If Section 234(a) intended to extend the exception therein to the withdrawal
of the exemption from payment of real property taxes under the last
sentence of the said section to the agencies and instrumentalities of the
National Government mentioned in Section 133(o), then it should have
restated the wording of the latter. Yet, it did not Moreover, that Congress did
not wish to expand the scope of the exemption in Section 234(a) to include
real property owned by other instrumentalities or agencies of the
13

government including government-owned and controlled corporations is

further borne out by the fact that the source of this exemption is Section
40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code, which
reads:
Sec 40. Exemption from Real Property Tax. The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or controlled corporations
so exempt by is charter: Provided, however, that this exemption shall not
apply to real property of the above mentioned entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any
government-owned or controlled corporation so exempt by its charter" was
excluded. The justification for this restricted exemption in Section 234(a)
seems obvious: to limit further tax exemption privileges, specially in light of
the general provision on withdrawal of exemption from payment of real
property taxes in the last paragraph of property taxes in the last paragraph
of Section 234. These policy considerations are consistent with the State
policy to ensure autonomy to local governments and the objective of the
LGC that they enjoy genuine and meaningful local autonomy to enable them
to attain their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals. The power to
tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It may also
be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises, and there was a need for this entities to share
in the requirements of the development, fiscal or otherwise, by paying the
taxes and other charges due from them.
The crucial issues then to be addressed are: (a) whether the parcels of land
in question belong to the Republic of the Philippines whose beneficial use
has been granted to the petitioner, and (b) whether the petitioner is a
"taxable person".
Section 15 of the petitioner's Charter provides:
14

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing
public airport facilities, runways, lands, buildings and other properties,
movable or immovable, belonging to or presently administered by the
airports, and all assets, powers, rights, interests and privileges relating on
airport works, or air operations, including all equipment which are necessary
for the operations of air navigation, acrodrome control towers, crash, fire,
and rescue facilities are hereby transferred to the Authority: Provided
however, that the operations control of all equipment necessary for the
operation of radio aids to air navigation, airways communication, the
approach control office, and the area control center shall be retained by the
Air Transportation Office. No equipment, however, shall be removed by the
Air Transportation Office from Mactan without the concurrence of the
authority. The authority may assist in the maintenance of the Air
Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the
"Mactan International AirPort in the Province of Cebu", which belonged to
the Republic of the Philippines, then under the Air Transportation Office
(ATO).
It may be reasonable to assume that the term "lands" refer to "lands" in
Cebu City then administered by the Lahug Air Port and includes the parcels
of land the respondent City of Cebu seeks to levy on for real property taxes.
This section involves a "transfer" of the "lands" among other things, to the
petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership
thereof because the petitioner's authorized capital stock consists
of, inter alia "the value of such real estate owned and/or
administered by the airports." Hence, the petitioner is now the
owner of the land in question and the exception in Section 234(c) of
the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person"
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive
proof of the legislative intent to make it a taxable person subject to all
taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the forgoing disquisitions, it had
15

already become even if it be conceded to be an "agency" or

"instrumentality" of the Government, a taxable person for such purpose in
view of the withdrawal in the last paragraph of Section 234 of exemptions
from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on
Basco vs. Philippine Amusement and Gaming Corporation 39 is unavailing
since it was decided before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and
order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB16900 are AFFIRMED. No pronouncement as to costs.SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 155650
July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF
PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY
ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE,
respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy
Aquino International Airport (NAIA) Complex in Paraaque City under
Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter"). Executive Order No.
903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 909 and 298 amended the MIAA
Charter.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land, including the
16

runways and buildings ("Airport Lands and Buildings") then under the
Bureau of Air Transportation. The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or
any other mode unless specifically approved by the President of the
Philippines.
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC)
issued Opinion No. 061. The OGCC opined that the Local Government Code
of 1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City
of Paraaque to pay the real estate tax imposed by the City. MIAA then paid
some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax
Delinquency from the City of Paraaque for the taxable years 1992 to 2001.
MIAA's real estate tax delinquency is broken down as follows:
TAX
TAXABLE
TAX DUE
PENALTY
TOTAL
DECLARATION YEAR
E-016-01370 1992-2001
19,558,160.0 11,201,083.2 30,789,243.2
0
0
0
E-016-01374 1992-2001
111,689,424. 68,149,479.5 179,838,904.
90
9
49
E-016-01375 1992-2001
20,276,058.0 12,371,832.0 32,647,890.0
0
0
0
E-016-01376 1992-2001
58,144,028.0 35,477,712.0 93,621,740.0
0
0
0
E-016-01377 1992-2001
18,134,614.6 11,065,188.5 29,199,803.2
5
9
4
E-016-01378 1992-2001
111,107,950. 67,794,681.5 178,902,631.
40
9
99
E-016-01379 1992-2001
4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001
7,776,436.00 4,744,944.00 12,521,380.0
0
*E-016-0131998-2001
6,444,810.00 2,900,164.50 9,344,974.50
85
*E-016-01387 1998-2001
34,876,800.0 5,694,560.00 50,571,360.0
0
0
*E-016-01396 1998-2001
75,240.00
33,858.00
109,098.00
GRAND TOTAL
P392,435,86 P232,070,86 P
1.95
3.47
624,506,725.
42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
P4,207,028.75
17

#9476101 for P28,676,480.00

#9476103 for P49,115.00
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings. The
Mayor of the City of Paraaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC
Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is
the proof that MIAA is exempt from real estate tax.
On 1 October 2001, 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
Paraaque from imposing real estate tax on, levying against, and auctioning
for public sale the Airport Lands and Buildings. The petition was docketed as
CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because
MIAA filed it beyond the 60-day reglementary period. The Court of Appeals
also denied on 27 September 2002 MIAA's motion for reconsideration and
supplemental motion for reconsideration. Hence, MIAA filed on 5 December
2002 the present petition for review.
Meanwhile, in January 2003, the City of Paraaque posted notices of auction
sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo,
Paraaque City; in the public market of Barangay La Huerta; and in the main
lobby of the Paraaque City Hall. The City of Paraaque published the
notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer,
a newspaper of general circulation in the Philippines. The notices announced
the public auction sale of the Airport Lands and Buildings to the highest
bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall
Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA
filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the
Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents the City of Paraaque, City Mayor of Paraaque,
Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and
the City Assessor of Paraaque ("respondents") from auctioning the
Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO)
effective immediately. The Court ordered respondents to cease and desist
from selling at public auction the Airport Lands and Buildings. Respondents
18

received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the
conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro
tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In
compliance with the directive issued during the hearing, MIAA, respondent
City of Paraaque, and the Solicitor General subsequently submitted their
respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands
and Buildings in the name of MIAA. However, MIAA points out that it cannot
claim ownership over these properties since the real owner of the Airport
Lands and Buildings is the Republic of the Philippines. The MIAA Charter
mandates MIAA to devote the Airport Lands and Buildings for the benefit of
the general public. Since the Airport Lands and Buildings are devoted to
public use and public service, the ownership of these properties remains
with the State. The Airport Lands and Buildings are thus inalienable and are
not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it is
also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned by
the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that 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.
Respondents invoke Section 193 of the Local Government Code, which
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.
Respondents also cite the ruling of this Court in Mactan International Airport
v. Marcos where we held that the Local Government Code has withdrawn the
exemption from real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid some of the
real estate tax assessments, it is now estopped from claiming that the
Airport Lands and Buildings are exempt from real estate tax.
The Issue
19

This petition raises the threshold issue of whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws. If so
exempt, then the real estate tax assessments issued by the City of
Paraaque, and all proceedings taken pursuant to such assessments, are
void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate
tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of
the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled
corporation, is not exempt from real estate tax. Respondents claim that the
deletion of the phrase "any government-owned or controlled so exempt by
its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations.
The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax
Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is
not exempt from real estate tax. However, MIAA is not a government-owned
or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled
corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating
to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at
least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a
stock or non-stock corporation." MIAA is not organized as a stock or nonstock corporation. MIAA is not a stock corporation because it has no capital
stock divided into shares. MIAA has no stockholders or voting shares.
Section 10 of the MIAA Charter provides:
SECTION 10. Capital. The capital of the Authority to be contributed by the
National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:
20

(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may
be contributed by the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on
the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986 representing
about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted
into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided
into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not divided
into shares of stock. MIAA has no stockholders or voting shares. Hence,
MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as "one
where no part of its income is distributable as dividends to its members,
trustees or officers." A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole member of MIAA,
this will not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross operating
income to the National Treasury. This prevents MIAA from qualifying as a
non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government?
21

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. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
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."
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The
MIAA Charter expressly states that transforming MIAA into a "separate and
autonomous body"will make its operation more "financially viable."
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a governmentowned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate
entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal relationship and status
of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the
Local Government Code, which states:
22

SEC. 133. Common Limitations on the Taxing Powers of Local Government

Units. Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.(Emphasis and
underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may
only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
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.
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public
funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must
be express language in the law empowering local governments to tax
23

national government instrumentalities. Any doubt whether such power

exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax national
government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government
over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a tool for regulation" (U.S.
v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it.
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. The Civil
Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores, roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
24

ARTICLE 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of
the State.
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 operation by the government of a tollway does
not change the character of the road as one for public use. Someone must
pay for the maintenance of the road, either the public indirectly through the
taxes they pay the government, or only those among the public who
actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing
the public for the maintenance of public roads.
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." Even if
the government collects toll fees, the road is still "intended for public use" if
anyone can use the road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the kind of vehicles that
can use the road, the speed restrictions and other conditions for the use of
the road do not affect the public character of the road.
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. A user's tax is more equitable a principle of
taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA, which its Charter calls the
"principal airport of the Philippines for both international and domestic air
traffic," are properties of public dominion because they are intended for
25

public use. As properties of public dominion, they indisputably belong to the

State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus
are properties of public dominion. As properties of public dominion, the
Airport Lands and Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality
of Cavite v. Rojas that properties devoted to public use are outside the
commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a
portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in
the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, and plazas and
streets are outside of this commerce, as was decided by the supreme court
of Spain in its decision of February 12, 1895, which says: "Communal things
that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common
lands, rivers, fountains, etc." (Emphasis supplied)
Again in Espiritu v. Municipal Council, the Court declared that properties of
public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public
use and to be made available to the public in general. They are outside the
commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency,
town plazas may be occupied temporarily by private individuals, as was
done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease,
and the town officials should see to it that the town plazas should ever be
kept open to the public and free from encumbrances or illegal private
constructions. (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.
26

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 Paraaque can
foreclose and compel the auction sale of the 600-hectare runway of the
MIAA for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President
must first withdraw from public use the Airport Lands and Buildings.
Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber
and mineral lands," provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and
Natural Resources, the President may designate by proclamation any tract
or tracts of land of the public domain as reservations for the use of the
Republic of the Philippines or of any of its branches, or of the inhabitants
thereof, in accordance with regulations prescribed for this purposes, or for
quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales, public parks,
public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of
Section eighty-three shall be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other disposition until again declared
alienable under the provisions of this Act or by proclamation of the
President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport
Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they
are not subject to levy on execution or foreclosure sale. As long as the
Airport Lands and Buildings are reserved for public use, their ownership
remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section 14,
Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. (1) The President shall have the power to reserve for
settlement or public use, and for specific public purposes, any of the lands
27

of the public domain, the use of which is not otherwise directed by law. The
reserved land shall thereafter remain subject to the specific public purpose
indicated until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings
are withdrawn by law or presidential proclamation from public use, they are
properties of public dominion, owned by the Republic and outside the
commerce of man.
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, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real
property of the Government is authorized by law to be conveyed, the deed
of conveyance shall be executed in behalf of the government by the
following:
(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly
vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the
name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)
In 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 MIAA Charter, which is a law, transferred to MIAA the title to the Airport
Lands and Buildings from the Bureau of Air Transportation of the
Department of Transportation and Communications. The MIAA Charter
provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the surrounding
land area of approximately six hundred hectares, are hereby transferred,
conveyed and assigned to the ownership and administration of the
Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the
area transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the Authority.
28

Any portion thereof shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines.
(Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the
Bureau of Air Transportation and Transitory Provisions. The Manila
International Airport including the Manila Domestic Airport as a division
under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA
without the Republic receiving cash, promissory notes or even stock since
MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the
transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the
Philippines for both international and domestic air traffic, is required to
provide standards of airport accommodation and service comparable with
the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other
facilities, have to be upgraded to meet the current and future air traffic and
other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the
objectives of providing high standards of accommodation and service within
the context of a financially viable operation, will best be achieved by a
separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential
Decree No. 1772, the President of the Philippines is given continuing
authority to reorganize the National Government, which authority includes
the creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)
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 to
reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport
29

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.
The MIAA Charter expressly provides that the Airport Lands and Buildings
"shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and
Buildings because under Article 428 of the Civil Code, only the "owner has
the right to x x x dispose of a thing." Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport Lands and
Buildings.
At any time, the President can transfer back to the Republic title to the
Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is the only
one who can authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and Buildings belong to
the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax
any "[r]eal property owned by the Republic of the Philippines." Section
234(a) provides:
SEC. 234. Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x." The real properties owned by the Republic are titled
either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from
real estate tax.
The Republic may grant the beneficial use of its real property to an agency
or instrumentality of the national government. This happens when title of
the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its
30

tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted
to MIAA the beneficial use of the Airport Lands and Buildings, such fact does
not make these real properties subject to real estate 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. In such a case, MIAA has granted the beneficial use of
such land area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. In Lung Center of the Philippines v.
Quezon City, the Court ruled:
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. 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.
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax
because Section 193 of the Local Government Code of 1991 withdrew the
tax exemption of "all persons, whether natural or juridical" upon the
effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority
argues that since the Local Government Code withdrew the tax exemption
of all juridical persons, then MIAA is not exempt from real estate tax. Thus,
the minority declares:
It is evident from the quoted provisions of the Local Government Code that
the withdrawn exemptions from realty tax cover not just GOCCs, but all
persons. To repeat, the provisions lay down the explicit proposition that the
withdrawal of realty tax exemption applies to all persons. The reference to
or the inclusion of GOCCs is only clarificatory or illustrative of the explicit
provision.
The term "All persons" encompasses the two classes of persons recognized
under our laws, natural and juridical persons. Obviously, MIAA is not a
31

natural person. Thus, the determinative test is not just whether MIAA is a
GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt
from local taxation is its status whether MIAA is a juridical person or not.
The minority also insists that "Sections 193 and 234 may be examined in
isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local
Government Code expressly withdrew the tax exemption of all juridical
persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of
the Local Government Code expressly provides otherwise, specifically
prohibiting local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis and
underscoring supplied)
By express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government instrumentalities like
the MIAA. Local governments are devoid of power to tax the national
government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as stated in the
saving clause of Section 133. The saving clause refers to Section 234(a) on
the exception to the exemption from real estate tax of real property owned
by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself,
all juridical persons are subject to tax by local governments. The minority
insists that the juridical persons exempt from local taxation are limited to
the three classes of entities specifically enumerated as exempt in Section
193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts;
(b) cooperatives duly registered under Republic Act No. 6938; and (c) nonstock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section
133(o) of the Local Government Code. This theory will result in gross
32

absurdities. It will make the national government, which itself is a juridical

person, subject to tax by local governments since the national government
is not included in the enumeration of exempt entities in Section 193. Under
this theory, local governments can impose any kind of local tax, and not
only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities
with juridical personalities will also be subject to any kind of local tax, and
not only real estate tax. Some of the national government instrumentalities
vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,
Philippine Rice Research Institute, Laguna Lake
Development Authority, Fisheries Development Authority, Bases Conversion
Development Authority, Philippine Ports Authority, Cagayan de Oro Port
Authority, San Fernando Port Authority, Cebu Port Authority, and Philippine
National Railways.
The minority's theory violates Section 133(o) of the Local Government Code
which expressly prohibits local governments from imposing any kind of tax
on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without
juridical personalities. Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative
test whether MIAA is exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government instrumentality
under Section 133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from imposing any
kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause
"[u]nless otherwise provided in this Code." This means that unless the Local
Government Code grants an express authorization, local governments have
no power to tax the national government, its agencies and instrumentalities.
Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule,
local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national government subject
to real estate tax when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are exempted
from payment of the real property tax:

33

(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from
real estate tax. The exception to this exemption is when the government
gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when
the national government, its agencies and instrumentalities are subject to
any kind of tax by local governments. The exception to the exemption
applies only to real estate tax and not to any other tax. The justification for
the exception to the exemption is that the real property, although owned by
the Republic, is not devoted to public use or public service but devoted to
the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and
234 of the Local Government Code, the later provisions prevail over Section
133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234.
Following an accepted rule of construction, in case of conflict the
subsequent provisions should prevail. Therefore, MIAA, as a juridical person,
is subject to real property taxes, the general exemptions attaching to
instrumentalities under Section 133(o) of the Local Government Code being
qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between
Section 133 on one hand, and Sections 193 and 234 on the other. No one
has urged that there is such a conflict, much less has any one presenteda
persuasive argument that there is such a conflict. The minority's assumption
of an irreconcilable conflict in the statutory provisions is an egregious error
for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because
Section 193 expressly admits its subordination to other provisions of the
Code when Section 193 states "[u]nless otherwise provided in this Code." By
its own words, Section 193 admits the superiority of other provisions of the
Local Government Code that limit the exercise of the taxing power in
Section 193. When a provision of law grants a power but withholds such
power on certain matters, there is no conflict between the grant of power
and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers
of Local Government Units." Section 133 limits the grant to local
governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local
34

governments "shall not extend to the levy" of any kind of tax on the national
government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers
of local governments, Section 133 logically prevails over Section 193 which
grants local governments such taxing powers. By their very meaning and
purpose, the "common limitations" on the taxing power prevail over the
grant or exercise of the taxing power. If the taxing power of local
governments in Section 193 prevails over the limitations on such taxing
power in Section 133, then local governments can impose any kind of tax on
the national government, its agencies and instrumentalities a gross
absurdity.
Local governments have no power to tax the national government, its
agencies and instrumentalities, except as otherwise provided in the Local
Government Code pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception which is an
exception to the exemption of the Republic from real estate tax imposed by
local governments refers to Section 234(a) of the Code. The exception to
the exemption in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national government, its
agencies or instrumentalities, to real estate tax if the beneficial use of such
property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the
phrase "government-owned or controlled corporation" is not controlling. The
minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it
provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different
meaning:
xxxx
The minority then concludes that reliance on the Administrative Code
definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a different
meaning than that defined in the Administrative Code. However, this does
not automatically mean that the definition in the Administrative Code does
not apply to the Local Government Code. Section 2 of the Administrative
Code clearly states that "unless the specific words x x x of a particular
statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in
the Local Government Code defining the phrase "government-owned or
35

controlled corporation" differently from the definition in the Administrative

Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code
defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code. Indeed, there is
none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code,
however, expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation"
applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and
procedural principles and rules of governance." Thus, the Administrative
Code is the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for
a specific government unit or entity, the provisions of the Administrative
Code prevail.
The minority also contends that the phrase "government-owned or
controlled corporation" should apply only to corporations organized under
the Corporation Code, the general incorporation law, and not to corporations
created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the
minority declares:
I submit that the definition of "government-owned or controlled
corporations" under the Administrative Code refer to those corporations
owned by the government or its instrumentalities which are created not by
legislative enactment, but formed and organized under the Corporation
Code through registration with the Securities and Exchange Commission. In
short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a
capital structure for GOCCs whose full ownership is limited by its charter to
the State or Republic. Such GOCCs are not empowered to declare dividends
or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned
or controlled corporation" does not distinguish between one incorporated
under the Corporation Code or under a special charter. Where the law does
not distinguish, courts should not distinguish.
36

Second, Congress has created through special charters several governmentowned corporations organized as stock corporations. Prime examples are
the Land Bank of the Philippines and the Development Bank of the
Philippines. The special charter of the Land Bank of the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be
nine billion pesos, divided into seven hundred and eighty million common
shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with
a par value of ten pesos each, which shall be issued in accordance with the
provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter of the Development Bank of the Philippines
provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the
Bank shall be Five Billion Pesos to be divided into Fifty Million common
shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this
Charter, the National Government shall subscribe to Twenty-Five Million
common shares of stock worth Two Billion Five Hundred Million which shall
be deemed paid for by the Government with the net asset values of the
Bank remaining after the transfer of assets and liabilities as provided in
Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations
under their special charters are the Philippine Crop Insurance Corporation,
Philippine International Trading Corporation, and the Philippine National
Bank before it was reorganized as a stock corporation under the Corporation
Code. All these government-owned corporations organized under special
charters as stock corporations are subject to real estate tax on real
properties owned by them. To rule that they are not government-owned or
controlled corporations because they are not registered with the Securities
and Exchange Commission would remove them from the reach of Section
234 of the Local Government Code, thus exempting them from real estate
tax.
Third, the government-owned or controlled corporations created through
special charters are those that meet the two conditions prescribed in
Section 16, Article XII of the Constitution. The first condition is that the
government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government37

owned or controlled corporations may be created or established by special

charters in the interest of the common good and subject to the test of
economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "governmentowned or controlled corporations" through special charters only if these
entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless
they are made to comply with the two conditions of common good and
economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being
essentially economic vehicles of the State for the common good meaning
for economic development purposes these government-owned or
controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public services
for the common good, services that every modern State must provide its
citizens. These instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but performing
essential governmental or public functions. Congress has plenary authority
to create government instrumentalities vested with corporate powers
provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such
entities known as "government-owned or controlled corporations" must
meet the test of economic viability because they compete in the market
place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned or
controlled corporations, which derive their income to meet operating
expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.

38

Commissioner Blas F. Ople, proponent of the test of economic viability,

explained to the Constitutional Commission the purpose of this test, as
follows:
MR. OPLE: Madam President, the reason for this concern is really that when
the government creates a corporation, there is a sense in which this
corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it
makes its claim upon the taxpayers' money through new equity infusions
from the government and what is always invoked is the common good. That
is the reason why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to support
a few government financial institutions. And this is all taxpayers' money
which could have been relocated to agrarian reform, to social services like
health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with
the "common good," this becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined
in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common
good.
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the Republic
of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission.
The significant addition, however, is the phrase "in the interest of the
common good and subject to the test of economic viability." The addition
includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector
can do better. Moreover, economic viability is more than financial viability
but also includes capability to make profit and generate benefits not
quantifiable in financial terms. (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities
vested with corporate powers and performing essential public services. The
State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special
charters, organized essentially for economic or commercial objectives, must
39

meet the test of economic viability. These are the government-owned or

controlled corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or
controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10)
of the Administrative Code.
The MIAA need not meet the test of economic viability because the
legislature did not create MIAA to compete in the market place. MIAA does
not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and international airport of
the Philippines. The operation of an international airport requires the
presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and
departure of passengers, screening out those without visas or travel
documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on
prohibited importations;
3. The quarantine office of the Department of Health, to enforce health
measures against the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of
plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to
prevent the entry of terrorists and the escape of criminals, as well as to
secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine airspace,
as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and
buildings for the government personnel, passengers, and airlines, and to
manage the airport operations.
All these agencies of government perform government functions essential to
the operation of an international airport.
MIAA performs an essential public service that every modern State must
provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are regulatory or
administrative fees and not income from commercial transactions.
40

MIAA falls under the definition of a government instrumentality under

Section 2(10) of the Introductory Provisions of the Administrative Code,
which provides:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make
MIAA a government-owned or controlled corporation. Without a change in its
capital structure, MIAA remains a government instrumentality under Section
2(10) of the Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it need not
comply with the test of economic viability. Thus, MIAA is outside the scope
of the phrase "government-owned or controlled corporations" under Section
16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or
illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled
corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as
"clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required
to meet the test of economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject
to any kind of tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section 234(a) does
not apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
41

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores, roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended for
public use or public service, the Airport Lands and Buildings are properties
of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a governmentowned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of any kind" by
local governments. The only exception is when MIAA leases its real property
to a "taxable person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes subject to
real estate tax. Thus, only portions of the Airport Lands and Buildings leased
to taxable persons like private parties are subject to real estate tax by the
City of Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA,
being devoted to public use, are properties of public dominion and thus
owned by the State or the Republic of the Philippines. Article 420 specifically
mentions "ports x x x constructed by the State," which includes public
airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is
no doubt whatsoever that the Airport Lands and Buildings are expressly
exempt from real estate tax under Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions
of the Court of Appeals of 5 October 2001 and 27 September 2002 in CAG.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the
Manila International Airport Authority EXEMPT from the real estate tax
42

imposed by the City of Paraaque. We declare VOID all the real estate tax
assessments, including the final notices of real estate tax delinquencies,
issued by the City of Paraaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport
Lands and Buildings of the Manila International Airport Authority. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 163072
April 2, 2009
MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY
MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR
OF PASAY, Respondents.
DECISION
CARPIO, J.:
This is a petition for review on certiorari of the Decision dated 30 October
2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CAG.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and
administers the Ninoy Aquino International Airport (NAIA) Complex under
Executive Order No. 903 (EO 903), otherwise known as the Revised Charter
of the Manila International Airport Authority. EO 903 was issued on 21 July
1983 by then President Ferdinand E. Marcos. Under Sections 3 and 22 of EO
903, approximately 600 hectares of land, including the runways, the airport
tower, and other airport buildings, were transferred to MIAA. The NAIA
Complex is located along the border between Pasay City and Paraaque
City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax
Delinquency from the City of Pasay for the taxable years 1992 to 2001.
MIAAs real property tax delinquency for its real properties located in NAIA
Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is
tabulated as follows:
TAX DECLATAXABLE
TAX DUE
PENALTY
TOTAL
43

RATION
A7-183-08346

YEAR
1997-2001

243,522,855 123,351,728 366,874,583.1

.00
.18
8
A7-183-05224 1992-2001
113,582,466 71,159,414. 184,741,880.9
.00
98
8
A7-191-00843 1992-2001
54,454,800. 34,115,932. 88,570,732.20
00
20
A7-191-00140 1992-2001
1,632,960.0 1,023,049.4 2,656,009.44
0
4
A7-191-00139 1992-2001
6,068,448.0 3,801,882.8 9,870,330.85
0
5
A7-183-05409 1992-2001
59,129,520. 37,044,644. 96,174,164.28
00
28
A7-183-05410 1992-2001
20,619,720. 12,918,254. 33,537,974.58
00
58
A7-183-05413 1992-2001
7,908,240.0 4,954,512.3 12,862,752.36
0
6
A7-183-05412 1992-2001
18,441,981. 11,553,901. 29,995,882.33
20
13
A7-183-05411 1992-2001
109,946,736 68,881,630. 178,828,366.1
.00
13
3
A7-183-05245 1992-2001
7,440,000.0 4,661,160.0 12,101,160.00
0
0
GRAND TOTAL
P642,747,72 P373,466,11 P1,016,213,83
6.20
0.13
6.33
On 24 August 2001, the City of Pasay, through its City Treasurer, issued
notices of levy and warrants of levy for the NAIA Pasay properties. MIAA
received the notices and warrants of levy on 28 August 2001. Thereafter,
the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay
properties if the delinquent real property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for
prohibition and injunction with prayer for preliminary injunction or
temporary restraining order. The petition sought to enjoin the City of Pasay
from imposing real property taxes on, levying against, and auctioning for
public sale the NAIA Pasay properties.
On 30 October 2002, the Court of Appeals dismissed the petition and upheld
the power of the City of Pasay to impose and collect realty taxes on the
NAIA Pasay properties. MIAA filed a motion for reconsideration, which the
Court of Appeals denied. Hence, this petition.
The Court of Appeals Ruling
44

The Court of Appeals held that Sections 193 and 234 of Republic Act No.
7160 or the Local Government Code, which took effect on 1 January 1992,
withdrew the exemption from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered
under Republic Act No. 6938, non-stock and non-profit hospitals and
educational institutions. Since MIAA is a government-owned corporation, it
follows that its tax exemption under Section 21 of EO 903 has been
withdrawn upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of
MIAA are exempt from real property tax.
The Courts Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of
Appeals cited Sections 193 and 234 of the Local Government Code which
read:
SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code.
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment
protection.
45

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural
or juridical, including all government-owned or controlled corporations are
hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAAs
tax exemption under Section 21 of EO 903 has already been withdrawn
upon the effectivity of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals (2006 MIAA
case), this Court already resolved the issue of whether the airport lands and
buildings of MIAA are exempt from tax under existing laws. The 2006 MIAA
case originated from a petition for prohibition and injunction which MIAA
filed with the Court of Appeals, seeking to restrain the City of Paraaque
from imposing real property tax on, levying against, and auctioning for
public sale the airport lands and buildings located in Paraaque City. The
only difference between the 2006 MIAA case and this case is that the 2006
MIAA case involved airport lands and buildings located in Paraaque City
while this case involved airport lands and buildings located in Pasay City.
The 2006 MIAA case and this case raised the same threshold issue: whether
the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of MIAA. In
the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required
to meet the test of economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject
to any kind of tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section 234(a) does
not apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
Art. 420. The following things are property of public dominion:

46

(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores, roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth.
The term "ports x x x constructed by the State" includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended for
public use or public service, the Airport Lands and Buildings are properties
of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code. (Emphasis in the
original)
The definition of "instrumentality" under Section 2(10) of the Introductory
Provisions of the Administrative Code of 1987 uses the phrase "includes x x
x government-owned or controlled corporations" which means that a
government "instrumentality" may or may not be a "government-owned or
controlled corporation." Obviously, the term government "instrumentality" is
broader than the term "government-owned or controlled corporation."
Section 2(10) provides:
SEC. 2. General Terms Defined. x x x
(10) Instrumentality refers to any agency of the national Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate
definition under Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating
to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at
least fifty-one (51) percent of its capital stock: Provided, That governmentowned or controlled corporations may further be categorized by the
department of Budget, the Civil Service Commission, and the Commission
on Audit for the purpose of the exercise and discharge of their respective
powers, functions and responsibilities with respect to such corporations.
47

The fact that two terms have separate definitions means that while a
government "instrumentality" may include a "government-owned or
controlled corporation," there may be a government "instrumentality" that
will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled
corporation" in Section 2(13) will show that MIAA would not fall under such
definition. MIAA is a government "instrumentality" that does not qualify as a
"government-owned or controlled corporation." As explained in the 2006
MIAA case:
A government-owned or controlled corporation must be "organized as a
stock or non-stock corporation." MIAA is not organized as a stock or nonstock corporation. MIAA is not a stock corporation because it has no capital
stock divided into shares. MIAA has no stockholders or voting shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not divided
into shares of stock. MIAA has no stockholders or voting shares. Hence,
MIAA is not a stock corporation.
xxx
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as "one
where no part of its income is distributable as dividends to its members,
trustees or officers." A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole member of MIAA,
this will not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross operating
income to the National Treasury. This prevents MIAA from qualifying as a
non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government?
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. x x x
48

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."
Thus, MIAA is not a government-owned or controlled corporation but a
government instrumentality which is exempt from any kind of tax from the
local governments. Indeed, the exercise of the taxing power of local
government units is subject to the limitations enumerated in Section 133 of
the Local Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities of the
national government like the MIAA. Hence, MIAA is not liable to pay real
property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public
dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code. However,
under the same provision, if MIAA leases its real property to a taxable
person, the specific property leased becomes subject to real property tax. In
this case, only those portions of the NAIA Pasay properties which are leased
to taxable persons like private parties are subject to real property tax by the
City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30
October 2002 and the Resolution dated 19 March 2004 of the Court of
Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA Pasay properties of
the Manila International Airport Authority EXEMPT from real property tax
imposed by the City of Pasay. We declare VOID all the real property tax
assessments, including the final notices of real property tax delinquencies,
issued by the City of Pasay on the NAIA Pasay properties of the Manila
International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties. No costs. SO
ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 127316
October 12, 2000
LIGHT RAIL TRANSIT AUTHORITY, petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
49

ASSESSMENT APPEALS OF MANILA and the CITY ASSESSOR OF

MANILA, respondents.
DECISION
PANGANIBAN, J.:
The Light Rail Transit Authority and the Metro Transit Organization function
as service-oriented business entities, which provide valuable transportation
facilities to the paying public. In the absence, however, of any express grant
of exemption in their favor, they are subject to the payment of real property
taxes.
The Case
In the Petition for Review before us, the Light Rail Transit Authority (LRTA)
challenges the November 15, 1996 Decision of the Court of Appeals (CA) in
CA-GR SP No. 38137, which disposed as follows:
"WHEREFORE, premises considered, the appealed decision (dated October
15, 1994) of the Central Board of Assessment Appeals is hereby AFFIRMED,
with costs against the petitioner."
The affirmed ruling of the Central Board of Assessment Appeals (CBAA)
upheld the June 26, 1992 Resolution of the Board of Assessment Appeals of
Manila, which had declared petitioner's carriageways and passenger
terminals as improvements subject to real property taxes.
The Facts
The undisputed facts are quoted by the Court of Appeals (CA) from the
CBAA ruling, as follows:
"1. The LRTA is a government-owned and controlled corporation created and
organized under Executive Order No. 603, dated July 12, 1980 'x x x
primarily responsible for the construction, operation, maintenance and/or
lease of light rail transit system in the Philippines, giving due regard to the
[reasonable requirements] of the public transportation of the country' (LRTA
vs. The Hon. Commission on Audit, GR No. No. 88365);
"2. x x x [B]y reason of x x x Executive Order 603, LRTA acquired real
properties x x x constructed structural improvements, such as buildings,
carriageways, passenger terminal stations, and installed various kinds of
machinery and equipment and facilities for the purpose of its operations;
"3. x x x [F]or x x x an effective maintenance, operation and management,
it entered into a Contract of Management with the Meralco Transit
Organization (METRO) in which the latter undertook to manage, operate and
maintain the Light Rail Transit System owned by the LRTA subject to the
specific stipulations contained in said agreement, including payments of a
management fee and real property taxes (Add'l Exhibit "I", Records)
"4. That it commenced its operations in 1984, and that sometime that year,
Respondent-Appellee City Assessor of Manila assessed the real properties of
50

[petitioner], consisting of lands, buildings, carriageways and passenger

terminal stations, machinery and equipment which he considered real
propert[y] under the Real Property Tax Code, to commence with the year
1985;
"5. That [petitioner] paid its real property taxes on all its real property
holdings, except the carriageways and passenger terminal stations including
the land where it is constructed on the ground that the same are not real
properties under the Real Property Tax Code, and if the same are real
propert[y], these x x x are for public use/purpose, therefore, exempt from
realty taxation, which claim was denied by the Respondent-Appellee City
Assessor of Manila; and
"6. x x x [Petitioner], aggrieved by the action of the Respondent-Appellee
City Assessor, filed an appeal with the Local Board of Assessment Appeals of
Manila x x x. Appellee, herein, after due hearing, in its resolution dated June
26, 1992, denied [petitioner's] appeal, and declared that carriageways and
passenger terminal stations are improvements, therefore, are real propert[y]
under the Code, and not exempt from the payment of real property tax.
"A motion for reconsideration filed by [petitioner] was likewise denied."
The CA Ruling
The Court of Appeals held that petitioner's carriageways and passenger
terminal stations constituted real property or improvements thereon and, as
such, were taxable under the Real Property Tax Code. The appellate court
emphasized that such pieces of property did not fall under any of the
exemptions listed in Section 40 of the aforementioned law. The reason was
that they were not owned by the government or any government-owned
corporation which, as such, was exempt from the payment of real property
taxes. True, the government owned the real property upon which the
carriageways and terminal stations were built. However, they were still
taxable, because beneficial use had been transferred to petitioner, a taxable
entity.
The CA debunked the argument of petitioner that carriageways and
terminals were intended for public use. The former agreed, instead, with the
CBAA. The CBAA had concluded that since petitioner was not engaged in
purely governmental or public service, the latter's endeavors were
proprietary. Indeed, petitioner was deemed as a profit-oriented endeavor,
serving as it did, only the paying public.
Hence, this Petition.
The Issues
In its Memorandum, petitioner urges the Court to resolve the following
matters:
"I
51

The Honorable Court of Appeals erred in not holding that the carriageways
and terminal stations of petitioner are not improvements for purposes of the
Real Property Tax Code.
"II
The Honorable Court of Appeals erred in not holding that being attached to
national roads owned by the national government, subject carriageways and
terminal stations should be considered property of the national government.
"III
The Honorable Court of Appeals erred in not holding that payment of
charges or fares in the operation of the light rail transit system does not
alter the nature of the subject carriageways and terminal stations as
devoted for public use.
"IV
The Honorable Court of Appeals erred in failing to consider the view
advanced by the Department of Finance, which takes charge of the overall
collection of taxes, that subject carriageways and terminal stations are not
subject to realty taxes.
"V
The Honorable Court of Appeals erred in failing to consider that payment of
the realty taxes assessed is not warranted and should the legality of the
questioned assessment be upheld, the amount of the realty taxes assessed
would far exceed the annual earnings of petitioner, a government
corporation."
The foregoing all point to one main issue: whether petitioner's carriageways
and passenger terminal stations are subject to real property taxes.
The Court's Ruling
The Petition has no merit.
Main Issue:
May Real Property Taxes be Assessed and Collected?
The Real Property Tax Code, the law in force at the time of the assailed
assessment in 1984, mandated that "there shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax
on real property such as lands, buildings, machinery and other
improvements affixed or attached to real property not hereinafter
specifically exempted."
Petitioner does not dispute that its subject carriageways and stations may
be considered real property under Article 415 of the Civil Code. However, it
resolutely argues that the same are improvements, not of its properties, but
of the government-owned national roads to which they are immovably
attached. They are thus not taxable as improvements under the Real
Property Tax Code. In essence, it contends that to impose a tax on the
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carriageways and terminal stations would be to impose taxes on public

roads.
The argument does not persuade. We quote with approval the solicitor
general's astute comment on this matter:
"There is no point in clarifying the concept of industrial accession to
determine the nature of the property when what is fundamentally important
for purposes of tax classification is to determine the character of the
property subject [to] tax. The character of tax as a property tax must be
determined by its incidents, and form the natural and legal effect thereof. It
is irrelevant to associate the carriageways and/or the passenger terminals
as accessory improvements when the view of taxability is focused on the
character of the property. The latter situation is not a novel issue as it has
already been resolved by this Honorable Court in the case of City of Manila
vs. IAC (GR No. 71159, November 15, 1989) wherein it was held:
'The New Civil Code divides the properties into property for public and
patrimonial property (Art. 423), and further enumerates the property for
public use as provincial road, city streets, municipal streets, squares,
fountains, public waters, public works for public service paid for by said
[provinces], cities or municipalities; all other property is patrimonial without
prejudice to provisions of special laws. (Art. 424, Province of Zamboanga v.
City of Zamboanga, 22 SCRA 1334 [1968])
xxx
'...while the following are corporate or proprietary property in character, viz:
'municipal water works, slaughter houses, markets, stables, bathing
establishments, wharves, ferries and fisheries.' Maintenance of parks, golf
courses, cemeteries and airports, among others, are also recognized as
municipal or city activities of a proprietary character (Dept. of Treasury v.
City of Evansville; 60 NE 2nd 952)'
"The foregoing enumeration in law does not specify or include carriageway
or passenger terminals as inclusive of properties strictly for public use to
exempt petitioner's properties from taxes. Precisely, the properties of
petitioner are not exclusively considered as public roads being
improvements placed upon the public road, and this separability nature of
the structure in itself physically distinguishes it from a public road.
Considering further that carriageways or passenger terminals are elevated
structures which are not freely accessible to the public, viz-a-viz roads which
are public improvements openly utilized by the public, the former are
entirely different from the latter.
"The character of petitioner's property, be it an improvements as otherwise
distinguished by petitioner, needs no further classification when the law
already classified it as patrimonial property that can be subject to tax. This
is in line with the old ruling that if the public works is not for such free public
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service, it is not within the purview of the first paragraph of Art. 424 if the
New Civil Code."
Though the creation of the LRTA was impelled by public service -- to provide
mass transportation to alleviate the traffic and transportation situation in
Metro Manila -- its operation undeniably partakes of ordinary business.
Petitioner is clothed with corporate status and corporate powers in the
furtherance of its proprietary objectives. Indeed, it operates much like any
private corporation engaged in the mass transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its carriageways and
terminal stations are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled corporation.
True, petitioner's carriageways and terminal stations are anchored, at
certain points, on public roads. However, it must be emphasized that these
structures do not form part of such roads, since the former have been
constructed over the latter in such a way that the flow of vehicular traffic
would not be impeded. These carriageways and terminal stations serve a
function different from that of the public roads. The former are part and
parcel of the light rail transit (LRT) system which, unlike the latter, are not
open to use by the general public. The carriageways are accessible only to
the LRT trains, while the terminal stations have been built for the
convenience of LRTA itself and its customers who pay the required fare.
Basis of Assessment Is Actual Use of Real Property
Under the Real Property Tax Code, real property is classified for assessment
purposes on the basis of actual use, which is defined as "the purpose for
which the property is principally or predominantly utilized by the person in
possession of the property."
Petitioner argues that it merely operates and maintains the LRT system, and
that the actual users of the carriageways and terminal stations are the
commuting public. It adds that the public-use character of the LRT is not
negated by the fact that revenue is obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone,
the LRT is accessible only to those who pay the required fare. It is thus
apparent that petitioner does not exist solely for public service, and that the
LRT carriageways and terminal stations are not exclusively for public use.
Although petitioner is a public utility, it is nonetheless profit-earning. It
actually uses those carriageways and terminal stations in its public utility
business and earns money therefrom.
Petitioner Not Exempt from Payment of Real Property Taxes
In any event, there is another legal justification for upholding the assailed
CA Decision.1wphi1 Under the Real Property Tax Code, real property
"owned by the Republic of the Philippines or any of its political subdivisions
and any government-owned or controlled corporation so exempt by its
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charter, provided, however, that this exemption shall not apply to real
property of the abovenamed entities the beneficial use of which has been
granted, for consideration or otherwise, to a taxable person."
Executive Order No. 603, the charter of petitioner, does not provide for any
real estate tax exemption in its favor. Its exemption is limited to direct and
indirect taxes, duties or fees in connection with the importation of
equipment not locally available, as the following provision shows:
"ARTICLE 4
TAX AND DUTY EXEMPTIONS
Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and
Materials. - The importation of equipment, machineries, spare parts,
accessories and other materials, including supplies and services, used
directly in the operations of the Light Rails Transit System, not obtainable
locally on favorable terms, out of any funds of the authority including, as
stated in Section 7 above, proceeds from foreign loans credits or
indebtedness, shall likewise be exempted from all direct and indirect taxes,
customs duties, fees, imposts, tariff duties, compensating taxes, wharfage
fees and other charges and restrictions, the provisions of existing laws to
the contrary notwithstanding."
Even granting that the national government indeed owns the carriageways
and terminal stations, the exemption would not apply because their
beneficial use has been granted to petitioner, a taxable entity.
Taxation is the rule and exemption is the exception. Any claim for tax
exemption is strictly construed against the claimant. LRTA has not shown its
eligibility for exemption; hence, it is subject to the tax.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against the petitioner. SO ORDERED.

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