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By: Gregorio M. Batiller, Jr.

The legal and the business communities usually look to the Supreme Court’s decisions for guidance or judicial precedence.

Thus in this particular case when the Manila International Airport Authority (MIAA), having been assessed by the City Government of Parañaque for the payment of Real Estate Taxes, sought refuge with the Honorable Court maintaining that it was exempt from payment of real estate taxes, the City Government of Parañaque invoked an earlier case promulgated by the Supreme Court (on September 11, 1996), “Mactan Cebu International Airport (MCIA) vs. Hon. Ferdinand Marcos”, GR 10082, wherein IT found the MCIA to be liable for real estate taxes.

Supreme Court then ruled that with respect to the real properties owned by Republic, it is Section 234 of the Local Government Code (LGC) that is applicable and not Section 133. It explained

“As to tax exemptions or incentives granted to or presently
enjoyed by natural or judicial persons, including governmentowned
and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they are withdrawn upon the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 insofar as real property taxes are
concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration lost the privilege
upon the effectivity of the LGC. Moreover, even as to real property
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234, the exemption is withdrawn if the beneficial use of such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 a taxable person for consideration or

Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from
payment of 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 Sections 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 nay kind
on the National Government, its agencies or instrumentalities, and
local government units.”

The Supreme Court categorically found MCIA to be inevitably a government-owned or controlled corporation (GOCC).

In its petition, the MIAA represented itself as a GOCC but premised its claimed exemption on the ground that it was performing a governmental function.

In resolving the petition the Supreme Court ruled that the MIAA was exempt from the real estate taxes because it was not a GOCC as it represented itself to be but was a mere instrumentality vested with corporate powers. Essentially the Court rationalized thus:

(a) MIAA is not a GOCC under Section 2(10) of the Introductory Provisions of the Revised Administrative Code of 1987 because it was not organized either as a stock or non-stock corporation.

(b) Neither is MIAA required to meet the test of economic viability.

(c) MIAA is a government instrumentality vested with corporate powers and performing essential public services.

(d) As such government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code.

(e) The exception to the exemption in Section 234 (a), LGC does not apply to MIAA because MIAA is not a taxable entity under the LGC. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. Thus, only the portions of the Airport Lands and Buildings which are leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.

What is surprising is that the Supreme Court did not explicitly declare that the Mactan Cebu International Airport case was deemed repealed. Also of interest was the dissenting opinion of Justice Dante Tinga to the effect that the majority opinion failed to quote in full the definition of “government instrumentality”:

The Majority gives the impression that a government instrumentality is a distinct concept from a government corporation. Most tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987, as follows:

“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. xxx (emphasis omitted)”

However, Section 2(10) of the Administrative Code, when read
in full, makes an important clarification which the majority does not
show. The portions omitted by the majority are highlighted below:

“(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.”

So the majority opinion effectively begged the question in finding that the
MIAA was not a GOCC but a mere government instrumentality, which is other
than a GOCC.

Inevitably, the refusal of the Supreme Court to clarify whether its Decision
in the Mactan Cebu International Airport case is deemed repealed would leave
us with an ambiguous situation where two (2) of our major international airports
are treated differently tax wise: one in Cebu which is deemed to be a GOCC
subject to real estate taxes and the other in Manila which is not a GOCC and
exempt from real estate taxes.

Where lies the substantial difference between the two (2) airports? Your
guess is as good as mine.

(Manila International Airport Authority vs. Court of Appeals, et. al. G. R. No.
155650, July 20, 2006).

The author is a managing partner of Gonzales Batiller David Leabres Reyes & Associates and a
legal consultant of the office of the mayor of Mandaluyong City. He is also Corporate Secretary
and Legal Counsel of the Philippine Chamber of Commerce and Industry. Atty. Batiller finished
his Bachelor of Laws degree from the Ateneo de Manila Law School and placed first in the 1979
bar examinations.

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