Mactan Cebu International Airport Authority vs. Marcos

Tax exemptions granted to government-owned and controlled corporations (GOCCs) under their respective charters are withdrawn upon the effectivity of the Local Government Code of 1991 (RA 7160) pursuant to Sections 193 and 234 thereof; consequently, GOCCs are not entitled to real property tax exemptions under Section 234(a) of the LGC, which is strictly limited to real property owned by the Republic of the Philippines or its political subdivisions, and does not extend to "instrumentalities" of the National Government as mentioned in Section 133(o).

The case arises in the context of the constitutional policy of local autonomy under the 1987 Constitution and the legislative intent behind the Local Government Code of 1991 to empower local government units as self-reliant communities by enhancing their fiscal capacity. Prior to the LGC, various GOCCs enjoyed blanket tax exemptions granted by their respective charters, resulting in tax base erosion. The LGC was enacted to withdraw these exemptions to ensure local governments could generate necessary revenues, except where specifically provided in the Code.

• Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by Republic Act No. 6958 with the mandate to control, manage, and supervise the Mactan International Airport and Lahug Airport in Cebu, promote international and domestic air traffic, and develop the regions as centers of trade and tourism.
• Section 14 of RA 6958, the petitioner's Charter, expressly granted MCIAA exemption from realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities.
• On October 11, 1994, Eustaquio B. Cesa, Officer-in-Charge of the Office of the Treasurer of the City of Cebu, issued a demand letter for payment of realty taxes on sixteen parcels of land owned by MCIAA located in Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
• The City of Cebu maintained that MCIAA's tax exemption was withdrawn by Sections 193 and 234 of the Local Government Code of 1991 (RA 7160), which took effect on January 1, 1992, and which generally withdrew all tax exemptions for government-owned or controlled corporations.
• MCIAA asserted that it was an instrumentality of the national government performing governmental functions and thus exempt from local taxation under Section 133(o) of the LGC, which prohibits local government units from levying taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities.
• The lands in question were transferred to MCIAA by virtue of Section 15 of RA 6958, which provided for the transfer of all existing public airport facilities, runways, lands, buildings, and other properties belonging to or administered by the airports to the Authority.

• MCIAA argued that despite being a government-owned corporation, it functions as an instrumentality of the national government because it performs governmental functions aimed at promoting international trade and tourism, and because it is attached to the Department of Transportation and Communication.
• It contended that Section 133(o) of the LGC expressly prohibits local government units from levying taxes, fees, or charges of any kind on the National Government, its agencies, and instrumentalities, and thus the City of Cebu had no authority to impose real property taxes upon it.
• It cited Basco v. Philippine Amusement and Gaming Corporation to support the doctrine that local governments have no power to tax instrumentalities of the National Government, as such power would burden or impede the operation of governmental functions.
• It maintained that the tax exemption under Section 14 of RA 6958 constituted a contractual obligation protected by the non-impairment clause of the Constitution, which could not be unilaterally withdrawn by the LGC.
• It argued that the repealing clause of the LGC (Section 534) should not apply to it because as a government instrumentality, it was not the intended subject of the withdrawal of exemptions under Sections 193 and 234.

• The City of Cebu argued that as a local government unit, it possessed the power to impose, levy, assess, and collect taxes within its jurisdiction under the Constitution and the LGC.
• It asserted that MCIAA is a government-owned and controlled corporation performing proprietary functions, not a mere instrumentality, and that Section 234 of the LGC withdrew all previous real property tax exemptions for GOCCs without distinguishing between those performing governmental versus proprietary functions.
• It contended that Basco v. PAGCOR was inapplicable because it was decided before the enactment and effectivity of RA 7160, and that the legislature intended to withdraw exemptions like those enjoyed by PAGCOR through the LGC.
• It argued that the policy of local autonomy and the need to enhance the fiscal capacity of local governments mandated the withdrawal of exemptions for GOCCs, and that the repeal clause in Section 534 of the LGC expressly modified or repealed inconsistent provisions in prior laws such as RA 6958.

• Procedural Issues: N/A.
• Substantive Issues:
  • Whether MCIAA qualifies as an instrumentality or agency of the National Government exempt from local real property taxation under Section 133(o) of the LGC, notwithstanding its status as a GOCC.
  • Whether the tax exemption granted to MCIAA under Section 14 of RA 6958 was validly withdrawn by Sections 193 and 234 of the LGC.
  • Whether the real property owned by MCIAA qualifies for exemption under Section 234(a) of the LGC as property owned by the Republic of the Philippines or its political subdivisions.

• Procedural: N/A.
• Substantive:
  • The Court ruled that while MCIAA may be considered an instrumentality of the Government, Section 133(o) of the LGC must be read in conjunction with Sections 232 and 234, which specifically govern real property taxation; Section 234(a) limits the exemption from real property tax to property owned by the "Republic of the Philippines or any of its political subdivisions," a term which does not include GOCCs or instrumentalities like MCIAA.
  • The Court held that the terms "Republic of the Philippines" and "National Government" are not interchangeable; the former is broader and includes political subdivisions, while the latter refers to the central government machinery; the legislature's use of different terms in Sections 133(o) and 234(a) indicates an intent to exclude GOCCs from the real property tax exemption.
  • The Court found that Section 15 of RA 6958 effected an absolute conveyance of ownership of the lands to MCIAA (whose capital stock includes the value of such real estate), rather than merely a transfer of beneficial use, thus placing the properties beyond the scope of the Section 234(a) exemption which applies only when the Republic retains ownership.
  • The Court held that the tax exemption under RA 6958 was statutory and gratuitous, not contractual, because it was granted to a government entity without material consideration from a private party; therefore, it could be withdrawn at the pleasure of the legislature pursuant to Sections 193 and 234 of the LGC.
  • The Court affirmed the dismissal of the petition, ruling that the LGC validly withdrew MCIAA's exemption to ensure local autonomy and prevent tax base erosion.

• Taxation as the Rule, Exemption as the Exception — Tax statutes must be construed strictly against the government and liberally in favor of the taxpayer, while statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority; however, when the grantee is a political subdivision or instrumentality, the rigid rule of strict construction does not apply because the exemption merely reduces the amount of money handled by the government in its operations.
• Contractual vs. Statutory Tax Exemption — Tax exemptions granted to private parties based on material consideration of a mutual nature become contractual and are protected by the non-impairment clause of the Constitution; conversely, exemptions granted to government entities are statutory and gratuitous, and may be withdrawn at the pleasure of the taxing authority without violating constitutional non-impairment guarantees.
• Distinction Between "National Government" and "Republic of the Philippines" — Under the Administrative Code of 1987, "National Government" refers to the central government machinery (executive, legislative, judicial), while "Republic of the Philippines" is a broader term synonymous with the entire governmental entity including political subdivisions; this distinction is critical in interpreting Sections 133(o) and 234(a) of the LGC to determine that GOCCs are excluded from real property tax exemptions.
• Supremacy of National Legislation over Local Taxation — While local governments possess delegated taxing powers, Congress retains the authority to impose limitations thereon or to subject even governmental instrumentalities to tax to fulfill constitutional mandates and national policies, such as the enhancement of local autonomy through the withdrawal of tax exemptions.

• "Taxation is the rule, exemption therefrom is the exception."
• "The power to tax which was called by Justice Marshall as the 'power to destroy' cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it."
• "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 non-impairment clause of the Constitution."
• "The terms 'Republic of the Philippines' and 'National Government' are not interchangeable."
• "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."

• Basco v. Philippine Amusement and Gaming Corporation — Cited by petitioner to establish the doctrine that local governments have no power to tax instrumentalities of the National Government; distinguished by the Court as having been decided prior to the effectivity of RA 7160 and inapplicable to the specific statutory scheme of real property taxation under Sections 232 and 234 of the LGC.
• Manila International Airport Authority (MIAA) v. Commission on Audit — Cited by respondent and acknowledged by the Court to illustrate that airport authorities organized as GOCCs under special charters are subject to audit and fiscal controls applicable to corporations.
• McCulloch v. Maryland — Referenced for the historical principle that "the power to tax involves the power to destroy," establishing the supremacy of national government operations over state taxation.
• Maceda v. Macaraig, Jr. — Cited for the proposition that tax exemptions granted to government entities are not subject to the rigid rule of strictissimi juris construction applicable to private taxpayers.

• Section 14, Republic Act No. 6958 — Charter provision explicitly granting MCIAA exemption from realty taxes imposed by the National Government or any political subdivisions, which the Court held was repealed by the LGC.
• Section 133(o), Local Government Code of 1991 (RA 7160) — Provision limiting the taxing powers of local government units by prohibiting taxes on the National Government, its agencies and instrumentalities; interpreted by the Court as inapplicable to real property tax when read with Section 234.
• Section 193, RA 7160 — General provision withdrawing all tax exemption privileges granted to persons, whether natural or juridical, including GOCCs, unless otherwise provided in the Code.
• Section 232, RA 7160 — Provision authorizing provinces, cities, and municipalities to levy real property tax, subject to exemptions under Section 234.
• Section 234, RA 7160 — Provision enumerating exemptions from real property tax (limited to property owned by the Republic or political subdivisions) and withdrawing all other exemptions previously granted to GOCCs.
• Section 534, RA 7160 — Repealing clause providing that all inconsistent laws, acts, charters, and decrees are repealed or modified accordingly.
• Section 5, Article X, 1987 Constitution — Constitutional provision granting local government units the power to create their own sources of revenues and levy taxes, subject to guidelines and limitations by Congress.
• Section 28(1), Article VI, 1987 Constitution — Provision requiring that the rule of taxation be uniform and equitable and that Congress evolve a progressive system of taxation.