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CITY OF DAVAO v. RTC

FACTS:

The case involves a dispute over the tax-exempt status of the Government Service Insurance System (GSIS) for the years 1992 to 1994. The GSIS received a Notice of Public Auction for non-payment of realty taxes. They filed a Petition with the RTC of Davao City and obtained a temporary restraining order. The issue for resolution is whether the Local Government Code has withdrawn the real property tax exemption of the GSIS. The RTC ruled in favor of the GSIS, citing Section 33 of Presidential Decree No. 1146 which mandated the exemption. The RTC concluded that the Local Government Code did not expressly and categorically repeal Section 33. The RTC ordered the voiding of the warrants of levy and notices of levy, issued a writ of prohibition to prevent the auction sale of GSIS properties, and compelled the City Assessor to include the properties in the list of tax-exempt properties. The RTC's decision was affirmed on appeal. The petitioners argue that the tax exemption granted to the GSIS was effectively withdrawn upon the enactment of the Local Government Code. On the other hand, the GSIS argues that the requisites for repeal, as laid down in Section 33 of PD No. 1146, were not met by the Local Government Code.

The Government Service Insurance System (GSIS) is a government-owned and controlled corporation (GOCC) established in 1937. It claims to have been exempt from taxation since its original charter was enacted in 1936. The GSIS argues that Section 33 of Presidential Decree No. 1146, which exempts the system from taxes, was not repealed by the Local Government Code of 1992. It asserts that the inclusion of a general repealing provision in the Local Government Code's repealing clause implies that implied repeals are not favored. It argues that the Notices of Assessment, Warrants and Notices of Levy, Notices of Public Auction Sale, and the Annotations of the Notice of Levy are void because the GSIS remains exempt from realty taxation. The GSIS acknowledges that the GSIS is a GOCC and that Presidential Decree No. 1931 expressly withdrew the tax exemption privileges previously granted to the GSIS. It notes that Presidential Decree No. 1981 was enacted to restore the tax-exempt status of the GSIS under Section 33 of Presidential Decree No. 1146, despite the enactment of Presidential Decree No. 1931. It adds that Presidential Decree No. 1981 also imposed restrictions for the future repeal of the tax exemption.

This case involves the interpretation of certain provisions of the Local Government Code with regard to the tax exemption privileges of the National Government and its instrumentalities. The Mactan-Cebu International Airport Authority (MCIAA) is a government-owned and controlled corporation created pursuant to Republic Act No. 6958. The MCIAA filed a petition for declaratory relief seeking the declaration of its tax-exempt status from real property taxes imposed by the Local Government Code. The Court considered Section 133 of the Local Government Code, which provides that taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units shall not be imposed. However, the Court also considered that Section 133 qualified the exemption of the National Government, its agencies, and instrumentalities from local taxation with the phrase "unless otherwise provided herein." The Court then examined the other relevant provisions of the Local Government Code, particularly Section 193, which states that tax exemption or incentives granted to all persons, including government-owned and controlled corporations, are withdrawn upon the effectivity of the Code, unless otherwise provided. Based on these provisions, the Court held that the MCIAA is not exempt from real property taxes.

ISSUES:

  1. What is the extent of the limitation on the power of local government units (LGUs) to tax the National Government, its agencies, and instrumentalities?

  2. What is the effect of the exceptions or provisos found in the Local Government Code (LGC) with regards to tax exemptions?

  3. Whether the tax exemption of the Government Service Insurance System (GSIS) has been withdrawn by the Local Government Code (LGC).

  4. Whether Section 33 of P.D. No. 1146, as amended, imposes restrictions on the competency of Congress to enact legislation on the taxability of the GSIS.

  5. Whether the repeal of the tax-exempt status of GSIS is valid

  6. Whether Section 33 of Presidential Decree No. 1146, as amended, imposes limitations on the power of Congress to repeal the tax exemption

  7. Whether or not the Government Service Insurance System (GSIS) is exempt from paying real property taxes.

  8. Whether or not Section 39 of the Government Service Insurance System Act of 1997 is valid and can restore the GSIS's tax-exempt status.

RULING:

  1. The extent of the limitation on the power of LGUs to tax the National Government, its agencies, and instrumentalities is clarified in Mactan Electric Company v. Province of Cebu (1992) where the Supreme Court defined the parameters. The taxing powers of LGUs cannot extend to the levy of taxes, fees, and charges on the National Government, its agencies, and instrumentalities, except as otherwise provided in the LGC.

  2. Tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, are generally withdrawn upon the effectivity of the LGC. However, there are specific exceptions to this general rule as provided in Section 193 of the LGC, including exemptions granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals, and educational institutions. Unless otherwise provided in the LGC, the exemptions are withdrawn.

  3. The tax exemption of the GSIS has been withdrawn by the LGC. Section 234 of the LGC specifically states that only real properties owned "by the Republic of the Philippines or any of its political subdivisions" are exempted from the payment of real property tax. Instrumentalities or government-owned or controlled corporations (GOCCs) such as the GSIS do not fall within the exceptions under Section 234. Therefore, the exemption granted to the GSIS in its charter has been withdrawn upon the effectivity of the LGC.

  4. Section 33 of P.D. No. 1146, as amended, imposes restrictions on the competency of Congress to enact legislation on the taxability of the GSIS. The second paragraph of Section 33 effectively limits the power of Congress to amend or repeal laws on the taxability of the GSIS. This places an undue restraint on the plenary power of the legislature to amend or repeal laws, which only the Constitution can operate to preclude or place restrictions on. Irrepealable laws deprive succeeding legislatures of the ability to craft laws appropriate to the operative milieu, promote an unhealthy stasis in the legislative front, and go against democratic principles. Therefore, Section 33 of P.D. No. 1146, as amended, cannot preclude the repeal of the tax-exempt status of the GSIS.

  5. Yes, the repeal of the tax-exempt status of GSIS is valid. The Local Government Code expressly withdraws all tax exemptions accorded to all persons, natural or juridical. The City of Davao, as a local government unit, has the authority to impose taxes on GSIS.

  6. No, Section 33 of Presidential Decree No. 1146, as amended, does not impose limitations on the power of Congress to repeal the tax exemption. The conditions stated in Section 33 do not bear relevance to whether the Local Government Code removed the tax-exempt status of GSIS. Congress has the power to amend or repeal laws, and it cannot bind future legislatures to a particular mode of repeal.

  7. The Supreme Court grants the petition for review and reverses and sets aside the decision of the Regional Trial Court. The Court holds that the GSIS is not exempt from paying real property taxes for the years 1992 to 1994. The restoration of the GSIS's tax-exempt status by Section 39 of the Government Service Insurance System Act of 1997 is valid.

PRINCIPLES:

  • The limitations on the taxing powers of LGUs and the exceptions to such limitations are outlined in the LGC.

  • The LGC provides for tax exemptions and the exceptions thereto.

  • The language and placement of exceptions or provisos in the LGC can affect the interpretation and understanding of the sections.

  • The power of LGUs to levy real property tax is subject to exemptions as provided in Section 234 of the LGC.

  • Tax exemptions or incentives granted to natural or judicial persons, including government-owned and controlled corporations, are generally withdrawn upon the effectivity of the LGC, unless otherwise provided in the LGC.

  • Tax exemptions from payment of real property tax granted to natural or juridical persons, including GOCCs, have been withdrawn upon the effectivity of the Local Government Code, unless otherwise provided in Section 234. (Mactan-Cebu International Airport Authority v. Marcos)

  • Section 233 of the Local Government Code allows the levy of an ad valorem real property tax, irrespective of who owns the property, unless the property is specifically exempted under Section 234 of the Code.

  • Irrepealable laws are prohibited as they hinder future legislative bodies from exercising their plenary powers and adapting laws to changing times. Only the Constitution can preclude or place restrictions on the amendment or repeal of laws. (Philippine Rural Electric Cooperatives Association, Inc. v. Secretary of Interior And Local Government)

  • Congress has the authority to diminish funds or even abolish agencies such as GSIS through valid legislation.

  • Legislative bodies may modify or abolish acts passed by themselves or their predecessors.

  • The Local Government Code should be liberally interpreted in favor of devolution of powers and local government units.

  • Tax ordinances or revenue measures should be strictly construed against the local government unit enacting it, and liberally in favor of the taxpayer.

  • The principle of local autonomy, as enshrined in the Constitution, promotes the autonomy of local governments and their power to levy taxes subject to congressional guidelines and limitations.

  • Statutory interpretations of executive bodies are persuasive but do not hold decisive sway upon the judiciary.

  • One legislature cannot enact irrepealable legislation or limit or restrict its own power or the power of its successors as to the repeal of statutes.

  • The act of one legislature is not binding upon and does not tie the hands of future legislatures.