Case Digest: NAPOCOR v. Albay G.R. No. 87479 June 4, 1990

 Taxation | Inherent Limitation: Non-delegation of the Power to Tax

Facts: 
  • The National Power Corporation (NAPOCOR)  questions the power of the provincial government of Albay to collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, 1984 up to March 10, 1987.
  • In 1989, Albay planned an auction sale of NAPOCOR and the Philippine Geothermal Inc. properties  to be applied to the tax delinquencies claimed amounting to P214,845,184.76.
  • NAPOCOR opposed the sale citing Resolution No. 17-87 of the Fiscal Incentives Review Board (FIRB) and a memorandum from the Executive Secretary, which reinstated tax exemption privileges effective March 10, 1987.
  • Despite a temporary restraining order, Albay proceeded with the auction sale, becoming the highest bidder.
  • The Court gathered that Republic Act No. 6395, Presidential Decree No. 776, Presidential Decree No. 1931, Executive Order No. 93, and various Fiscal Incentives Review Board (FIRB) resolutions provides for NAPOCOR's tax exemption at different periods.
  • Albay contends that FIRB's authority to grant tax exemptions constitutes an unconstitutional delegation of taxing power and argues that Executive Order No. 93, allowing FIRB to grant tax exemptions, is unconstitutional as only the legislature can grant tax exemptions.
Issues: 
  1. Whether FIRB issuances constitute an undue delegation of the taxing Power. YES
  2. Whether Executive Order No. 93 which authorizes the FIRB to grant tax exemptions, is of no force and effect under the constitutional provision allowing the legislature alone to accord tax exemption privileges. NO

Held:
It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature may accomplish.

The question therefore is whether or not the various tax exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and constitutional.

We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we sustain the provincial government of Albay.

As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to "recommend" tax exemptions. By itself, it could not have validly prescribed exemptions or restore taxability. Hence, as of June 11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy tax exemption privileges.

The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax and/or duty exemptions withdrawn hereunder in whole or in part," and "impose conditions for ... tax and/or duty exemption"  is of no moment. These provisions are prospective in character and can not affect the Board's past acts.

The Court is aware that in its preamble, Executive Order No. 93 states:

WHEREAS, a number of affected entities, government and private were able to get back their tax and duty exemption privileges through the review mechanism implemented by the Fiscal Incentives Review Board (FIRB);

 but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from that, Section 2 of the Executive Order was clearly intended to amend Presidential Decree No. 776, which means, mutatis mutandis, that FIRB did not have the right, in the first place, to grant tax exemptions or withdraw existing ones.

Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed that the provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-87 was affirmed by the Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's exemption had been validly restored. 

What it questions is NAPOCOR's liability in the interregnum between June 11, 1984, the date its tax privileges were withdrawn, and March 10, 1987, the date they were purportedly restored. To be sure, it objects to Executive Order No. 93 as allegedly a delegation of legislative power, but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987 tax accumulation is concerned. We therefore leave the issue of "delegation" to the future and its constitutionality when the proper case arises. For the nonce, we leave Executive Order No. 93 alone, and so also, its validity as far as it grants tax exemptions (through the FIRB) beginning December 17, 1986, the date of its promulgation.

NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held:

xxx xxx xxx

The last issue to be resolved is whether or not the private-respondent is liable for the fixed and deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948) before the approval of its municipal franchises. As aforestated, the franchises were approved by the President only on February 24,1948. Therefore, before the said date, the private respondent was liable for the payment of percentage and fixed taxes as seller of light, heat, and power which, as the petitioner claims, amounted to P3,025.96. The legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948. ... 16

Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level, Thus:

SEC. 86. Distribution of proceeds. — (a) The proceeds of the real property tax, except as otherwise provided in this Code, shall accrue to the province, city or municipality where the property subject to the tax is situated and shall be applied by the respective local government unit for its own use and benefit.

(b) Barrio shares in real property tax collections. — The annual shares of the barrios in real property tax collections shall be as follows:

(1) Five per cent of the real property tax collections of the province and another five percent of the collections of the municipality shall accrue to the barrio where the property subject to the tax is situated.

(2) In the case of the city, ten per cent of the collections of the tax shag likewise accrue to the barrio where the property is situated.

Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the barrio officials and other administrative expenses, while the remaining seventy per cent shall be utilized for development projects approved by the Secretary of Local Government and Community Development or by such committee created, or representatives designated, by him.

SEC. 87. Application of proceeds. — (a) The proceeds of the real property tax pertaining to the city and to the municipality shall accrue entirely to their respective general funds. In the case of the province, one-fourth thereof shall accrue to its road and bridge fund and the remaining three-fourths, to its general fund.

(b) The entire proceeds of the additional one per cent real property tax levied for the Special Education Fund created under R.A. No. 5447 collected in the province or city on real property situated in their respective territorial jurisdictions shall be distributed as follows:

(1) Collections in the provinces: Fifty per cent shall accrue to the municipality where the property subject to the tax is situated; twenty per cent shall accrue to the province; and thirty per cent shall be remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the Special Education Fund in municipalities, cities and provinces in accordance with the provisions of Section seven of R.A. No. 5447.

(2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per cent shall be remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the special education fund in municipalities, cities and provinces as provided under Section 7 of R.A. No. 5447.

However, any increase in the shares of provinces, cities and municipalities from said additional tax accruing to their respective local school boards commencing with fiscal year 1973-74 over what has been actually realized during the fiscal year 1971-72 which, for purposes of this Code, shall remain as the based year, shall be divided equally between the general fund and the special education fund of the local government units concerned. The Secretary of Finance may, however, at his discretion, increase to not more than seventy-five per cent the amount that shall accrue annually to the local general fund.

(c) The proceeds of all delinquent taxes and penalties, as well as the income realized from the use, lease or other disposition of real property acquired by the province or city at a public auction in accordance with the provisions of this Code, and the proceeds of the sale of the delinquent real property or, of the redemption thereof shall accrue to the province, city or municipality in the same manner and proportion as if the tax or taxes had been paid in regular course.

(d) The proceeds of the additional real property tax on Idle private lands shall accrue to the respective general funds of the province, city and municipality where the land subject to the tax is situated. 

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the Government be said to have lost anything.

As a rule finally, claims of tax exemption are construed strongly against the claimant. 18 They must also be shown to exist clearly and categorically, and supported by clear legal provisions. 

Taxes are the lifeblood of the nation.  Their primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal.

WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer for real estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared valid.

SO ORDERED.

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