PAGCOR v. BIR.docx

7/23/2019 PAGCOR v. BIR.docx

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Republic of the Philippines

Supreme Court

Manila

EN BANC

PHILIPPINE AMUSEMENT AND

GAMING CORPORATION

(PAGCOR),

Petitioner ,

- versus -

THE BUREAU OF INTERNAL

REVENUE (BIR), represented heren

!" HON# $OSE MARIO BUAG, n hs

%&&' 'p't" s COMMISSIONER

OF INTERNAL REVENUE,

Public Respondent,

$OHN DOE and $ANE DOE, who are

persons acting for, in behalf, or under the

authority of Respondent.

Public and Private Respondents.

G#R# N%# *+-.+

Present/

CORO!, C.J.,

C!RP"O,

C!RP"O MOR!#$S,

%$#!SCO, &R.,

!C'(R!,)#$O!R*O-*$ C!S+RO,

R"O,)

P$R!#+!,

$RS!M",

*$# C!S+"##O,

!!*,

%"##!R!M!, &R.,

P$R$,

M$*O!, andS$R$O, JJ .

Pr%012ted/

March /, 01

2-----------------------------------------------------------------------------------------2

D E C I S I O N

PERALTA, J .3

4or resolution of this Court is the Petition

for Certiorari and Prohibition[1] with prayer for the issuance of a +emporary

Restraining Order and5or Preliminary "n6unction, dated !pril 7, 0118, of

http://sc.judiciary.gov.ph/jurisprudence/2011/march2011/172087.htm#_ftn1






petitioner Philippine !musement and 9aming Corporation :P!9COR;, see<ing the

declaration of nullity of Section of Republic !ct :R.!.; o. =>>7 insofar as it

amends Section 07 :c; of the ational "nternal Revenue Code of ==7, by

e2cluding petitioner from e2emption from corporate income ta2 for being

repugnant to Sections and 1 of !rticle """ of the Constitution. Petitioner further see<s to prohibit the implementation of ureau of "nternal Revenue :"R; Revenue

Regulations o. 8-011/ for being contrary to law.

+he undisputed facts follow.

P!9COR was created pursuant to Presidential *ecree :P.*.; o. 187-

!?0@ on &anuary , =77. Simultaneous to its creation, P.*. o. 187-

?>@ :supplementing P.*. o. 187-!; was issued e2empting P!9COR from the

payment of any type of ta2, e2cept a franchise ta2 of five percent :/A; of the gross

revenue.?B@ +hereafter, on &une 0, =7, P.*. o. >== was issued e2panding the

scope of P!9CORDs e2emption.?/@

+o consolidate the laws pertaining to the franchise and powers of P!9COR,

P.*. o. 8=?8@ was issued. Section > thereof reads as follows3

Sec. >. Exemptions. 2 2 2

:; Customs *uties, ta2es and other imposts on importations. - !ll

importations of eEuipment, vehicles, automobiles, boats, ships, barges,

aircraft and such other gambling paraphernalia, including accessories or related facilities, for the sole and e2clusive use of the casinos, the proper

and efficient management and administration thereof and such other

clubs, recreation or amusement places to be established under and by

virtue of this 4ranchise shall be e2empt from the payment of duties,

ta2es and other imposts, including all <inds of fees, levies, or charges of

any <ind or nature.

%essels and5or accessory ferry boats imported or to be imported by

any corporation having e2isting contractual arrangements with the

Corporation, for the sole and e2clusive use of the casino or to be used to

service the operations and reEuirements of the casino, shall li<ewise betotally e2empt from the payment of all customs duties, ta2es and other

imposts, including all <inds of fees, levies, assessments or charges of any

<ind or nature, whether ational or #ocal.

() In'%0e nd %ther t3es# 4 () Frn'hse H%der/ N% t3 %&

n" 5nd %r &%r0, n'%0e %r %ther6se, s 6e s &ees, 'hr2es, %r













e7es %& 6hte7er nt1re, 6hether Nt%n %r L%', sh !e

ssessed nd '%e'ted 1nder ths Frn'hse &r%0 the C%rp%rt%n8

n%r sh n" &%r0 %& t3 %r 'hr2e tt'h n n" 6" t% the ernn2s

%& the C%rp%rt%n, e3'ept Frn'hse T3 %& &7e per'ent (9:)%&

the 2r%ss re7en1e %r ernn2s der7ed !" the C%rp%rt%n &r%0 ts

%pert%n 1nder ths Frn'hse# S1'h t3 sh !e d1e nd p"!e

;1rter" t% the Nt%n G%7ern0ent nd sh !e n e1 %&

5nds %& t3es, e7es, &ees %r ssess0ents %& n" 5nd, nt1re %r

des'rpt%n, e7ed, est!shed, %r '%e'ted !" n" 01n'p,

pr%7n' %r nt%n 2%7ern0ent 1th%rt"#

:b; Others3 +he e2emption herein granted for earnings derived

from the operations conducted under the franchise, specifically from the

payment of any ta2, income or otherwise, as well as any form of charges,

fees or levies, shall inure to the benefit of and e2tend to corporation:s;,

association:s;, agency:ies;, or individual:s; with whom the Corporation

or operator has any contractual relationship in connection with the

operations of the casino:s; authoriFed to be conducted under this

4ranchise and to those receiving compensation or other remuneration

from the Corporation as a result of essential facilities furnished and5or

technical services rendered to the Corporation or operator.

+he fee or remuneration of foreign entertainers contracted by the

Corporation or operator in pursuance of this provision shall be free of

any ta2.

:>; Dividend Income. G otwithstanding any provision of law to

the contrary, in the event the Corporation should declare a cash dividend

income corresponding to the participation of the private sector shall, as

an incentive to the beneficiaries, be sub6ect only to a final flat income

rate of ten percent :1A; of the regular income ta2 rates. +he dividend

income shall not in such case be considered as part of the beneficiariesD

ta2able incomeH provided, however, that such dividend income shall be

totally e2empted from income or other form of ta2es if invested within

si2 :8; months from the date the dividend income is received in the

following3

:a; operation of the casino:s; or investments in any affiliate

activity that will ultimately redound to the benefit of the

CorporationH or any other corporation with whom the Corporation

has any e2isting arrangements in connection with or related to the

operations of the casino:s;H



:b; 9overnment bonds, securities, treasury notes, or

government debenturesH or

:c; O"-registered or e2port-oriented corporation:s;.?7@

P!9CORDs ta2 e2emption was removed in &une =B through P.*. o.

=>, but it was later restored by #etter of "nstruction o. B>1, which was issued

in September =B.

On &anuary , ==, R.!. o. B0B, ?@ otherwise <nown as the National

Internal Revenue Code of 1997 , too< effect. Section 07 :c; of R.!. o. B0B

provides that government-owned and controlled corporations :9OCCs; shall pay

corporate income ta2, e2cept petitioner P!9COR, the 9overnment Service and

"nsurance Corporation, the Social Security System, the Philippine 'ealth "nsurance

Corporation, and the Philippine Charity Sweepsta<es Office, thus3:c; Government-oned or Controlled Corporations! "#encies or

Instrumentalities. - +he provisions of e2isting special general laws to the

contrary notwithstanding, all corporations, agencies or instrumentalities

owned and controlled by the 9overnment, e3'ept the G%7ern0ent

Ser7'e nd Ins1rn'e C%rp%rt%n (GSIS), the S%' Se'1rt"

S"ste0 (SSS), the Phppne Heth Ins1rn'e C%rp%rt%n (PHIC),

the Phppne Chrt" S6eepst5es O&&'e (PCSO), nd the

Phppne A01se0ent nd G0n2 C%rp%rt%n (PAGCOR), shall

pay such rate of ta2 upon their ta2able income as are imposed by this

Section upon corporations or associations engaged in similar business,industry, or activity.?=@

Iith the enactment of R.!. o. =>>7?1@ on May 0B, 011/, certain sections of

the ational "nternal Revenue Code of ==7 were amended. +he particular

amendment that is at issue in this case is Section of R.!. o. =>>7, which

amended Section 07 :c; of the ational "nternal Revenue Code of ==7 by

e2cluding P!9COR from the enumeration of 9OCCs that are e2empt from

payment of corporate income ta2, thus3

:c; Government-oned or Controlled Corporations! "#encies or

Instrumentalities. - +he provisions of e2isting special general laws to the

contrary notwithstanding, all corporations, agencies, or instrumentalities











owned and controlled by the 9overnment, e3'ept the G%7ern0ent

Ser7'e nd Ins1rn'e C%rp%rt%n (GSIS), the S%' Se'1rt"

S"ste0 (SSS), the Phppne Heth Ins1rn'e C%rp%rt%n (PHIC),

nd the Phppne Chrt" S6eepst5es O&&'e (PCSO), shall pay

such rate of ta2 upon their ta2able income as are imposed by this Section

upon corporations or associations engaged in similar business, industry,or activity.

*ifferent groups came to this Court via petitions for certiorari and

prohibition?@ assailing the validity and constitutionality of R.!. o. =>>7,

in particular3

; Section B, which imposes a 1A %alue !dded +a2 :%!+; on sale of goods

and propertiesH Section /, which imposes a 1A %!+ on importation of goodsH and

Section 8, which imposes a 1A %!+ on sale of services and use or lease of

properties, all contain a uniform proviso authoriFing the President, upon the

recommendation of the Secretary of 4inance, to raise the %!+ rate to 0A. +he

said provisions were alleged to be violative of Section 0 :0;, !rticle %" of the

Constitution, which section vests in Congress the e2clusive authority to fi2 the rate

of ta2es, and of Section , !rticle """ of the Constitution on due process, as well as

of Section 08 :0;, !rticle %" of the Constitution, which section provides for the Jno

amendment ruleJ upon the last reading of a billH

0; Sections and 0 were alleged to be violative of Section , !rticle """ of

the Constitution, or the guarantee of eEual protection of the laws, and Section 0

:;, !rticle %" of the ConstitutionH and

>; other technical aspects of the passage of the law, Euestioning the

manner it was passed.

On September , 011/, the Court dismissed all the petitions and upheld the

constitutionality of R.!. o. =>>7.?0@

On the same date, respondent "R issued Revenue Regulations :RR; o.

8-011/,?>@ specifically identifying P!9COR as one of the franchisees sub6ect to

1A %!+ imposed under Section 1 of the ational "nternal Revenue Code of

==7, as amended by R.!. o. =>>7. +he said revenue regulation, in part, reads3









Se'# <# *-.4=# Definitions and Specific Rules on Selected Services.

2 2 2 2

:h; 2 2 2

9ross Receipts of all other franchisees, other than those covered by Sec.

= of the +a2 Code, regardless of how their franchisees may have been granted,shall be sub6ect to the 1A %!+ imposed under Sec.1 of the +a2 Code. +his

includes, among others, the Philippine !musement and 9aming Corporation

:P!9COR;, and its licensees or franchisees.

'ence, the present petition for certiorari.

P!9COR raises the following issues3

"

I'$+'$R OR O+ R! =>>7, S$C+"O :C; "S (## !* %O"* "$ INI%I& 4OR $"9 R$P(9!+ +O +'$ $K(!# PRO+$C+"O

?C#!(S$@ $MO*"$* " S$C+"O , !R+"C#$ """ O4 +'$ =7

COS+"+(+"O.

""

I'$+'$R OR O+ R! =>>7, S$C+"O :C; "S (## !* %O"* "$ INI%I& 4OR $"9 R$P(9!+ +O +'$ O-"MP!"RM$+ ?C#!(S$@

$MO*"$* " S$C+"O 1, !R+"C#$ """ O4 +'$ =7 COS+"+(+"O.

"""

I'$+'$R OR O+ RR 8-011/, S$C+"O B.1->, P!R!9R!P' :'; "S

(## !* %O"* "$ INI%I& 4OR $"9 $LO* +'$ SCOP$ O4 +'$!S"C #!I, R! B0B,S$C+"O 1, "SO4!R !S +'$ S!"*

R$9(#!+"O "MPOS$* %!+ O +'$ S$R%"C$S O4 +'$ P$+"+"O$R !S

I$## !S P$+"+"O$RS #"C$S$$S OR 4R!C'"S$$S I'$ +'$

!S"C #!I, !S "+$RPR$+$* L !PP#"C!#$ &(R"SPR(*$C$,

*O$S O+ "MPOS$ %!+ O P$+"+"O$R OR O P$+"+"O$RS#"C$S$$S OR 4R!C'"S$$S.?B@

+he "R, in its Comment?/@ dated *ecember 0=, 0118, counters3








"

S$C+"O O4 R.!. O. =>>7 !* S$C+"O > :0; O4 P.*. 8=

!R$ O+' %!#"* !* COS+"+(+"O!# PRO%"S"OS O4

#!IS +'!+ S'O(#* $ '!RMO"O(S#L COS+R($*

+O9$+'$R SO !S +O 9"%$ $44$C+ +O !## O4 +'$"R

PRO%"S"OS I'$$%$R POSS"#$.

""

S$C+"O O4 R.!. O. =>>7 "S O+ %"O#!+"%$ O4 S$C+"O

!* S$C+"O 1, !R+"C#$ """ O4 +'$ =7 COS+"+(+"O.

"""

"R R$%$($ R$9(#!+"OS !R$ PR$S(M$* %!#"* !*

COS+"+(+"O!# (+"# S+R"C$ *OI L #!I4(#

!(+'OR"+"$S.

+he Office of the Solicitor 9eneral :OS9;, by way of Manifestation

"n 'ieu of Comment,?8@ concurred with the arguments of the petitioner. "t added

that although the State is free to select the sub6ects of ta2ation and that the ineEuity

resulting from singling out a particular class for ta2ation or e2emption is not an

infringement of the constitutional limitation, a ta2 law must operate with the same

force and effect to all persons, firms and corporations placed in a similar situation.

4urthermore, according to the OS9, public respondent "R e2ceeded its statutoryauthority when it enacted RR o. 8-011/, because the latterDs provisions are

contrary to the mandates of P.*. o. 8= in relation to R.!. o. =>>7.

+he main issue is whether or not P!9COR is still e2empt from corporate

income ta2 and %!+ with the enactment of R.!. o. =>>7.

!fter a careful study of the positions presented by the parties, this Court

finds the petition partly meritorious.

(nder Section of R.!. o. =>>7, amending Section 07 :c; of the ational"nternal Revenue Code of =77, petitioner is no longer e2empt from corporate

income ta2 as it has been effectively omitted from the list of 9OCCs that are

e2empt from it. Petitioner argues that such omission is unconstitutional, as it is

violative of its right to eEual protection of the laws under Section , !rticle """ of

the Constitution3





Sec. . o person shall be deprived of life, liberty, or property

without due process of law, nor shall any person be denied the eEual

protection of the laws.

.

"n Cit( of )anila v. 'a#uio! Jr.,?7@ this Court e2pounded the meaning and

scope of eEual protection, thus3

$Eual protection reEuires that all persons or things similarly

situated should be treated ali<e, both as to rights conferred and

responsibilities imposed. Similar sub6ects, in other words, should not be

treated differently, so as to give undue favor to some and un6ustly

discriminate against others. +he guarantee means that no person or class of

persons shall be denied the same protection of laws which is en6oyed by

other persons or other classes in li<e circumstances. +he JeEual protectionof the laws is a pledge of the protection of eEual laws.J "t limits

governmental discrimination. +he eEual protection clause e2tends to

artificial persons but only insofar as their property is concerned.

2 2 2 2

#egislative bodies are allowed to classify the sub6ects of

legislation. "f the classification is reasonable, the law may operate only on

some and not all of the people without violating the eEual protection

clause. +he classification must, as an indispensable reEuisite, not be

arbitrary. +o be valid, it must conform to the following reEuirements3; "t must be based on substantial distinctions.

0; "t must be germane to the purposes of the law.

>; "t must not be limited to e2isting conditions only.

B; "t must apply eEually to all members of the class.?@

"t is not contested that before the enactment of R.!. o. =>>7, petitioner was

one of the five 9OCCs e2empted from payment of corporate income ta2 as shown

in R.!. o. B0B, Section 07 :c; of which, reads3

:c; 9overnment-owned or Controlled Corporations, !gencies or

"nstrumentalities. - +he provisions of e2isting special or general laws to

the contrary notwithstanding, all corporations, agencies or

instrumentalities owned and controlled by the 9overnment, e2cept the







9overnment Service and "nsurance Corporation :9S"S;, the Social

Security System :SSS;, the Philippine 'ealth "nsurance Corporation

:P'"C;, the Philippine Charity Sweepsta<es Office :PCSO;, and

the Phppne A01se0ent nd G0n2 C%rp%rt%n (PAGCOR),

shall pay such rate of ta2 upon their ta2able income as are imposed by

this Section upon corporations or associations engaged in similar business, industry, or activity.?=@

! perusal of the legislative records of the icameral Conference Meeting of

the Committee on Iays on Means dated October 07, ==7 would show that the

e3e0pt%n %& PAGCOR &r%0 the p"0ent %& '%rp%rte n'%0e t3 6s d1e t%

the ';1es'en'e %& the C%00ttee %n >"s %n Mens t% the re;1est %&

PAGCOR tht t !e e3e0pt &r%0 s1'h t3.?01@ +he records of the icameral

Conference Meeting reveal3

'O. R. *"!. +he other thing, sir, is we --- " noticed we

imposed a ta2 on lotto winnings.

C'!"RM! $R"#$. *ala na! tinan##al na namin (on.

'O. R. *"!. %inan##al na +a natin (onN

C'!"RM! $R"#$. &o.

'O. R. *"!. ecause " was wondering whether we covered

the ta2 on --- Ihether on a universal basis, we included a ta2 on

coc<fighting winnings.

C'!"RM! $R"#$. o, we removed the ---

'O. R. *"!. " . . . :inaudible; natin (on# lottoN

C'!"RM! $R"#$. Pati PAGCOR tinanggal 1p%n re;1est#

C'!"RM! &!%"$R. Leah, Philippine "nsurance Commission.







C'!"RM! $R"#$. Philippine "nsurance --- 'ealth, health

ba. ,on an# reEuest n# Chairman, " will accept. :laughter; a#-a#-i+i#

(on! maliliit na sa tao (on.

'O. RO!S. Mr. Chairman, " wonder if in the revenue gainers

if we factored in an amount that would reflect the %!+ and other salesta2es---

C'!"RM! $R"#$. o, were tal<ing of this measure only. Ie

will not --- :discontinued;

'O. RO!S. o, no, no, no, from the --- arising from the

e2emption. !ssuming that when we release the money into the hands of

the public, they will not use that to --- for wallpaper. +hey will spend

that eh, Mr. Chairman. So when they spend that---

C'!"RM! $R"#$. +heres a %!+.

'O. RO!S. +here will be a %!+ and there will be other sales

ta2es no. "s there a EuantificationN "s there an appro2imationN

C'!"RM! &!%"$R. ot anything.

'O. RO!S. So, in effect, we have steriliFed that entire seven

billion. "n effect, it is not circulating in the economy which is unrealistic.

C'!"RM! $R"#$. "t does, it does, because this is ta<en and

spent by government, somebody receives it in the form of wages and

supplies and other services and other goods. +hey are not being ta<en

from the public and stored in a vault.

C'!"RM! &!%"$R. +hat 7.7 loss because of ta2

e2emption. +hat will be e2tra income for the ta2payers.

'O. RO!S. Precisely, so they will be spending it.?0@

+he discussion above bears out that under R.!. o. B0B, the e2emption of

P!9COR from paying corporate income ta2 was not based on a classification

showing substantial distinctions which ma<e for real differences, but to reiterate,





the e2emption was granted upon the reEuest of P!9COR that it be e2empt from

the payment of corporate income ta2.

Iith the subseEuent enactment of R.!. o. =>>7, amending R.!. o. B0B,

P!9COR has been e2cluded from the enumeration of 9OCCs that are e2empt

from paying corporate income ta2. +he records of the icameral Conference

Meeting dated !pril , 011/, of the Committee on the *isagreeing Provisions of

Senate ill o. =/1 and 'ouse ill o. >///, show that it is the legislative intent

that P!9COR be sub6ect to the payment of corporate income ta2, thus3+'$ C'!"RM! :S$. R$C+O;. Les, Osmea, the proponent of the

amendment.

S$. OSM$!. Leah. Mr. Chairman, one of the reasons why weDre even

considering this %!+ bill is we want to show the world who our creditors, thatwe are increasing official revenues that go to the national budget. (nfortunatelytoday, Pagcor is unofficial.

ow, in 011>, " too< a Euic< loo< this morning, Pagcor had a net income of =.7

billion after paying some small ta2es that they are sub6ected to. Of the =.7 billion, they claim they remitted to national government seven

billion. Pag<atapos, there are other specific remittances li<e to the Philippine

Sports Commission, etc., as mandated by various laws, and then about B11million to the PresidentDs Social 4und. ut all in all, their net profit today should

be about 0 billion. +hatDs why " am Euestioning this two billion. Be'1se 6he

essent" the" '0 tht the 0%ne" 2%es t% 2%7ern0ent, nd I 6 ''epttht ?1st &%r the s5e %& r210ent# It d%es n%t pss thr%12h the

ppr%prt%n pr%'ess# And I thn5 tht t est & 6e 'n 'pt1re =9

per'ent %r = per'ent thr%12h the !1d2etr" pr%'ess, &rst, t s re&e'ted n

%1r %&&' n'%0e %& 2%7ern0ent 6h'h s pped t% the nt%n !1d2et,

nd se'%nd", t 2%es thr%12h 6ht s '%nstt1t%n" 0ndted s

C%n2ress ppr%prtn2 nd de&nn2 6here the 0%ne" s spent nd n%t

thr%12h !%rd %& dre't%rs tht hs !s%1te" n% ''%1nt!t"#

R$P. P($+$$##!. Iell, with all due respect, Mr. Chairman, follow up

lang.

+here is wisdom in the comments of my good friend from Cebu, Senator

Osmea.

S$. OSM$!. !nd egros.

R$P. P($+$$##!. !nd egros at the same time ay asimanwa. ut "would not want to put my friends from the *epartment of 4inance in a difficult



position, but may we <now your comments on this <nowing that as Senator

Osmea 6ust mentioned, he said, " accept that that a lot of it is going to spending

for basic services, you <now, going to most, " thin<, supposedly a lot or most of it should go to government spending, social services and the li<e. Ihat is your

comment on thisN +his is going to affect a lot of services on the government

side.

+'$ C'!"RM! :R$P. #!P(S;. Mr. Chair, Mr. Chair.

S$. OSM$!. "t goes from poc<et to the other, Monico.

R$P. P($+$$##!. " <now that. ut " wanted to as< them, Mr. Senator,

because you may have your own pre-6udgment on this and " donDt blame you. "donDt blame you. !nd " <now you have your own research. ut will this not

affect a lot, the disbursements on social services and otherN

R$P. #OCS". Mr. Chairman. Mr. Chairman, if " can add to that Euestionalso. IouldnDt it be easier for you to e2plain to, say, foreign creditors, how do

you e2plain to them that if there is a fiscal gap some of our richest corporationshas ?been@ spared ?from@ ta2ation by the government which is one rich source of

revenues. ow, why do you save, why do you spare certain government

corporations on that, li<e PagcorN So, would it be easier for you to ma<e anargument if everything was e2posed to ta2ationN

R$P. +$%$S. Mr. Chair, please.

+'$ C'!"RM! :R$P. #!P(S;. Can we as< the *O4 to respond to those

before we call Congressman +evesN

MR. P(R"S"M!. +han< you, Mr. Chair.

@es, &r%0 de&nte" 0pr%7n2 the '%e't%n, t 6 hep 1s !e'1se t 6

then enter s n %&&' re7en1e th%12h 6hen d7dends de're t s%

2%es n s %ther n'%0e# :sic;

2 2 2 2

R$P. +$%$S. Mr. Chairman.

2 2 2 2

+'$ C'!"RM! :R$P. #!P(S;. Congressman +eves.

R$P. +$%$S. @eh# P2'%r s '%ntr%ed 1nder Se't%n +, tht s %n n'%0e

t3# N%6, 6e re t5n2 here %n 71e4dded t3# D% "%1 0en t% s" 6e



re 2%n2 t% 0end t &r%0 n'%0e t3 t% 71e4dded t3, s &r s P2'%r

s '%n'erned

+'$ C'!"RM! :S$. R$C+O;. N%# >e re ?1st 0endn2 tht se't%n

6th re2rd t% the e3e0pt%n &r%0 n'%0e t3 %& P2'%r#

2 2 2 2

R$P. O9R!#$S. Mr. Chairman, Mr. Chairman. Mr. Chairman.

+'$ C'!"RM! :R$P. #!P(S;. Congressman ograles.

R$P. O9R!#$S. &ust a point of inEuiry from the Chair. Ihat e2actly are the

functions of Pagcor that are %!+ableN Ihat will we %!+ in PagcorN

+'$ C'!"RM! :R$P. #!P(S;. +his is on own income ta2. +his is Pagcor income ta2.

R$P. O9R!#$S. o, thatDs why. !nong i-va-%at natin sa <anya. Sale of

whatN

2 2 2 2

R$P. %"##!4($R+$. Mr. Chairman, my Euestion is, what are we %!+ing

Pagcor with, is it the . . .

R$P. O9R!#$S. Mr. Chairman, this is a secret agreement or the way they

craft their contract, which basisN

+'$ C'!"RM! :S$. R$C+O;. C%n2ress0n N%2res, the Sente

7ers%n d%es n%t ds'1ss VAT %n P2'%r !1t t ?1st t5es 6" ther

e3e0pt%n &r%0 n%n4p"0ent %& n'%0e t3#

+a2ation is the rule and e2emption is the e2ception.?0>@ +he burden of proof

rests upon the party claiming e2emption to prove that it is, in fact, covered by the

e2emption so claimed.?0B@ !s a rule, ta2 e2emptions are construed strongly against

the claimant.?0/@ $2emptions must be shown to e2ist clearly and categorically, and

supported by clear legal provision.?08@

"n this case, P!9COR failed to prove that it is still e2empt from the payment

of corporate income ta2, considering that Section of R.!. o. =>>7 amended

Section 07 :c; of the ational "nternal Revenue Code of ==7 by omitting













P!9COR from the e2emption. +he legislative intent, as shown by the discussions

in the icameral Conference Meeting, is to reEuire P!9COR to pay corporate

income ta2H hence, the omission or removal of P!9COR from e2emption from the

payment of corporate income ta2. "t is a basic precept of statutory construction that

the e2press mention of one person, thing, act, or conseEuence e2cludes all others ase2pressed in the familiar ma2im expressio unius est exclusio alterius.?07@ +hus, the

e2press mention of the 9OCCs e2empted from payment of corporate income ta2

e2cludes all others. ot being e2cepted, petitioner P!9COR must be regarded as

coming within the purview of the general rule that 9OCCs shall pay corporate

income ta2, e2pressed in the ma2im3 exceptio firmat re#ulam in casi+us non

exceptis.[28]

P!9COR cannot find support in the eEual protection clause of theConstitution, as the legislative records of the icameral Conference Meeting dated

October 07, ==7, of the Committee on Iays and Means, show that P!9CORs

e2emption from payment of corporate income ta2, as provided in Section 07 :c;

of R.!. o. B0B, or the ational "nternal Revenue Code of ==7, was not made

pursuant to a valid classification based on substantial distinctions and the other

reEuirements of a reasonable classification bylegislative bodies, so that the law

may operate only on some, and not all, without violating the eEual protection

clause. +he legislative records show that the basis of the grant of e2emption to

P!9COR from corporate income ta2 was P!9CORs own reEuest to be e2empted.

Petitioner further contends that Section :c; of R.!. o. =>>7 is null and

void a+ initio for violating the non-impairment clause of the

Constitution. Petitioner avers that laws form part of, and is read into, the contract

even without the parties e2pressly saying so. Petitioner states that the private

parties5investors transacting with it considered the ta2 e2emptions, which inure to

their benefit, as the main consideration and inducement for their decision to

transact5invest with it. Petitioner argues that the withdrawal of its e2emption fromcorporate income ta2 by R.!. o. =>>7 has the effect of changing the main

consideration and inducement for the transactions of private parties with itH thus,

the amendatory provision is violative of the non-impairment clause of the

Constitution.

Petitioners contention lac<s merit.







+he non-impairment clause is contained in Section 1, !rticle """ of the

Constitution, which provides that no law impairing the obligation of contracts shall

be passed. +he non-impairment clause is limited in application to laws that

derogate from prior acts or contracts by enlarging, abridging or in any manner

changing the intention of the parties. ?0=@ +here is impairment if a subseEuent lawchanges the terms of a contract between the parties, imposes new conditions,

dispenses with those agreed upon or withdraws remedies for the enforcement of

the rights of the parties.?>1@

!s regards franchises, Section , !rticle "" of the Constitution?>@ provides

that n% &rn'hse %r r2ht sh !e 2rnted e3'ept 1nder the '%ndt%n tht t

sh !e s1!?e't t% 0end0ent, tert%n, %r repe !" the C%n2ress when the

common good so reEuires.?>0@

"n Manila Electric Company v. Province of Laguna,?>>@ the Court held that

&rn'hse prt5es the nt1re %& 2rnt, 6h'h s !e"%nd the p1r7e6 %& the

n%n40pr0ent '1se %& the C%nstt1t%n.?>B@ +he pertinent portion of the case

states3

Ihile the Court has, not too infreEuently, referred to ta2 e2emptions

contained in special franchises as being in the nature of contracts and a part of theinducement for carrying on the franchise, these e2emptions, nevertheless, are far

from being strictly contractual in nature. Contractual tax exemptions! in te real sense of te term and ere te non-impairment clause of te Constitution can

ri#tl( +e invo/ed! are tose a#reed to +( te taxin# autorit( in contracts! sucas tose contained in #overnment +onds or de+entures! lafull( entered into +(

tem under ena+lin# las in ic te #overnment! actin# in its private capacit(!

seds its cloa/ of autorit( and aives its #overnmental immunit(. +ruly, ta2e2emptions of this <ind may not be revo<ed without impairing the obligations of

contracts. +hese contractual ta2 e2emptions, however, are not to be confused with

ta2 e2emptions granted under franchises. A &rn'hse prt5es the nt1re %&

2rnt 6h'h s !e"%nd the p1r7e6 %& the n%n40pr0ent '1se %& the

C%nstt1t%n# Indeed, Art'e II, Se't%n **, %& the *.+ C%nstt1t%n, 5e ts

pre'1rs%r pr%7s%ns n the *=9 nd the *+= C%nstt1t%ns, s e3p't tht

n% &rn'hse &%r the %pert%n %& p1!' 1tt" sh !e 2rnted e3'ept

1nder the '%ndt%n tht s1'h pr7e2e sh !e s1!?e't t% 0end0ent,

tert%n %r repe !" C%n2ress s nd 6hen the '%00%n 2%%d s% re;1res .?>/@

















"n this case, P!9COR was granted a franchise to operate and maintain

gambling casinos, clubs and other recreation or amusement places, sports, gaming

pools, i.e., bas<etball, football, lotteries, etc., whether on land or sea, within the

territorial 6urisdiction of the Republic of the Philippines.?>8@ (nder Section ,

!rticle "" of the Constitution, P!9CORs franchise is sub6ect to amendment,alteration or repeal by Congress such as the amendment under Section of R.!.

o. =>77. 'ence, the provision in Section of R.!. o. =>>7, amending Section

07 :c; of R.!. o. B0B by withdrawing the e2emption of P!9COR from

corporate income ta2, which may affect any benefits to P!9CORs transactions

with private parties, is not violative of the non-impairment clause of the

Constitution.

!nent the validity of RR o. 8-011/, the Court holds that the provision

sub6ecting P!9COR to 1A %!+ is invalid for being contrary to R.!. o.

=>>7. owhere in R.!. o. =>>7 is it provided that petitioner can be sub6ected to

%!+. R.!. o. =>>7 is clear only as to the removal of petitionerDs e2emption from

the payment of corporate income ta2, which was already addressed above by this

Court.

!s pointed out by the OS9, R.!. o. =>>7 itself e2empts petitioner from

%!+ pursuant to Section 7 :<; thereof, which reads3

Sec. 7. Section 1= of the same Code, as amended, is hereby further

amended to read as follows3Section 1=. Exempt %ransactions. - :; Sub6ect to

the provisions of Subsection :0; hereof, the following

transactions shall be e2empt from the value-added ta23

2 2 2 2

:<; Trns't%ns 6h'h re e3e0pt under

international agreements to which the Philippines is a

signatory or 1nder spe' 6s, e2cept Presidential *ecree

o. /0=.?>7@

Petitioner is e2empt from the payment of %!+, because P!9CORs charter,

P.*. o. 8=, is a special law that grants petitioner e2emption from ta2es.

Moreover, the e2emption of P!9COR from %!+ is supported by Section 8

of R.!. o. =>>7, which retained Section 1 :; :>; of R.!. o. B0B, thus3







?R.!. o. =>>7@, S$C. 8. Section 1 of the same Code :R.!. o. B0B;,

as amended, is hereby further amended to read as follows3

S$C. 1. 0alue-"dded %ax on ale of ervices and 2se or

'ease of roperties.

:!; Rate and $ase of %ax. +here shall be levied, assessed

and collected, a value-added ta2 eEuivalent to ten percent :1A; of

gross receipts derived from the sale or e2change of services,

including the use or lease of properties3 2 2 2

2 2 2 2

(B) Transactions Subect to !ero Percent "#$% Rate. +he

following services performed in the Philippines by %!+-registered persons shall be sub6ect to Fero percent :1A; rateH

2 2 2 2

:>; Ser7'es rendered t% pers%ns %r enttes 6h%se

e3e0pt%n 1nder spe' 6s or international agreements to

which the Philippines is a signatory effectivelys1!?e'ts the s1pp"

%& s1'h ser7'es t% er% per'ent (-:) rteH

2 2 2 2?>@

!s pointed out by petitioner, although R.!. o. =>>7 introduced

amendments to Section 1 of R.!. o. B0B by imposing %!+ on other services

not previously covered, it did not amend the portion of Section 1 :; :>; that

sub6ects to Fero percent rate services performed by %!+-registered persons to

persons or entities whose e2emption under special laws or international agreements

to which the Philippines is a signatory effectively sub6ects the supply of such

services to 1A rate.

PetitionerDs e2emption from %!+ under Section 1 :; :>; of R.!. o.

B0B has been thoroughly and e2tensively discussed in Commissioner of Internal

Revenue v."cesite 3ilippines4 5otel Corporation.?>=@ !cesite was the owner and

operator of the 'oliday "nn Manila Pavilion 'otel. "t leased a portion of the hotels

premises to P!9COR. "t incurred %!+ amounting to P>1,/0,=0.10 from its

rental income and sale of food and beverages to P!9COR from &anuary ==8 to

!pril ==7. !cesite tried to shift the said ta2es to P!9COR by incorporating it in







the amount assessed to P!9COR. 'owever, P!9COR refused to pay the ta2es

because of its ta2-e2empt status. P!9COR paid only the amount due to !cesite

minus %!+ in the sum of P>1,/0,=0.10. !cesite paid %!+ in the amount

of P>1,/0,=0.10 to the Commissioner of "nternal Revenue, fearing the legal

conseEuences of its non-payment. "n May ==, !cesite sought the refund of theamount it paid as %!+ on the ground that its transaction with P!9COR was sub6ect

to Fero rate as it was rendered to a ta2-e2empt entity. +he Court ruled that

P!9COR and !cesite were both e2empt from paying %!+, thus3

2 2 2 2

PAGCOR s e3e0pt &r%0 p"0ent %& ndre't t3es

"t is undisputed that P.*. 8=, the charter creating P!9COR, grants the

latter an e2emption from the payment of ta2es. Section > of P.*. 8=

pertinently provides3

Sec. >. Exemptions.

2 2 2 2

:0; Income and oter taxes. - :a; 4ranchise 'older3 o ta2of any <ind or form, income or otherwise, as well as fees, charges

or levies of whatever nature, whether ational or #ocal, shall beassessed and collected under this 4ranchise from the CorporationH

nor shall any form of ta2 or charge attach in any way to theearnings of the Corporation, e2cept a 4ranchise +a2 of five :/A;

percent of the gross revenue or earnings derived by the

Corporation from its operation under this 4ranchise. Such ta2 shall be due and payable Euarterly to the ational 9overnment and shall

be in lieu of all <inds of ta2es, levies, fees or assessments of any

<ind, nature or description, levied, established or collected by anymunicipal, provincial, or national government authority.

:b; &ters3 +he e2emptions herein granted for earningsderived from the operations conducted under the franchise

specifically from the payment of any ta2, income or otherwise, as

well as any form of charges, fees or levies, shall inure to the

benefit of and e2tend to corporation:s;, association:s;, agency:ies;,or individual:s; with whom the Corporation or operator has any

contractual relationship in connection with the operations of the

casino:s; authoriFed to be conducted under this 4ranchise and to



those receiving compensation or other remuneration from the

Corporation or operator as a result of essential facilities furnished

and5or technical services rendered to the Corporation or operator.

Petitioner contends that the above ta2 e2emption refers only to

P!9CORDs direct ta2 liability and not to indirect ta2es, li<e the %!+.

Ie disagree.

A '%se s'r1tn" %& the !%7e pr%7s%s 'er" 27es PAGCOR

!n5et e3e0pt%n t% t3es 6th n% dstn't%n %n 6hether the

t3es re dre't %r ndre't# Ie are one with the C! ruling that

P!9COR is also e2empt from indirect ta2es, li<e %!+, as follows3

(nder the above provision ?Section > :0; :b; of P.*.

8=@, the term JCorporationJ or operator refers to

P!9COR. !lthough the law does not specifically mention

P!9CORDs e2emption from indirect ta2es, PAGCOR s

1nd%1!ted" e3e0pt &r%0 s1'h t3es !e'1se the 6e3e0pts &r%0 t3es pers%ns %r enttes '%ntr'tn2 6th

PAGCOR n 'sn% %pert%ns. !lthough, differently

worded, the provision clearly e2empts P!9COR from

indirect ta2es. In &'t, t 2%es %ne step &1rther !"

2rntn2 t3 e3e0pt stt1s t% pers%ns den2 6th

PAGCOR n 'sn% %pert%ns. +he unmista<able

conclusion is that P!9COR is not liable for the P>1,

/0,=0.10 %!+ and neither is !cesite as the latter is

effectively sub6ect to Fero percent rate under Sec. 1

:>;, R.!. B0B. :$mphasis supplied.;

"ndeed, by e2tending the e2emption to entities or individuals

dealing with P!9COR, the legislature clearly granted e2emption also

from indirect ta2es. "t must be noted that the indirect ta2 of %!+, as in

the instant case, can be shifted or passed to the buyer, transferee, or

lessee of the goods, properties, or services sub6ect to %!+. Th1s, !"

e3tendn2 the t3 e3e0pt%n t% enttes %r nd7d1s den2 6th

PAGCOR n 'sn% %pert%ns, t s e3e0ptn2 PAGCOR &r%0 !en2

!e t% ndre't t3es#

The 0nner %& 'hr2n2 VAT d%es n%t 05e PAGCOR !e t% sd

t3#

"t is true that %!+ can either be incorporated in the value of the

goods, properties, or services sold or leased, in which case it is computed

as 5 of such value, or charged as an additional 1A to the value.

%erily, the seller or lessor has the option to follow either way in charging



its clients and customer. "n the instant case, !cesite followed the latter

method, that is, charging an additional 1A of the gross sales and

rentals. e that as it may, the use of either method, and in particular, the

first method, does not denigrate the fact that P!9COR is e2empt from

an indirect ta2, li<e %!+.

VAT e3e0pt%n e3tends t% A'este

+hus, while it was proper for P!9COR not to pay the 1A %!+

charged by !cesite, the latter is not liable for the payment of it as it is

e2empt in this particular transaction by operation of law to pay the

indirect ta2. Such e2emption falls within the former Section 10 :b; :>;

of the =77 +a2 Code, as amended :n%6 Se'# *-. ! = %& R#A# .<<;,

which provides3

Section 10. 0alue-added tax on sale of services.- :a;

Rate and base of ta2 - +here shall be levied, assessed and

collected, a value-added ta2 eEuivalent to 1A of gross

receipts derived by any person engaged in the sale of

services 2 2 2H Provided, that the following services

performed in the Philippines by %!+ registered persons shall

be sub6ect to 1A.

2 2 2 2

:>; Ser7'es rendered t% pers%ns %r enttes 6h%se

e3e0pt%n 1nder spe' 6s or international agreements

to which the Philippines is a signatory effectively sub6ectsthe supply of such services to Fero :1A; rate :emphasis

supplied;.

+he rationale for the e2emption from indirect ta2es provided for

in P.*. 8= and the e2tension of such e2emption to entities or

individuals dealing with P!9COR in casino operations are best

elucidated from the =7 case of Commissioner of Internal

Revenue v. Jon Gotamco ons! Inc.! where the absolute ta2

e2emption of the Iorld 'ealth OrganiFation :I'O; upon an

international agreement was upheld. Ie held in said case that thee2emption of contractee I'O should be implemented to mean that the

entity or person e2empt is the contractor itself who constructed the

building owned by contractee I'O, and such does not violate the rule

that ta2 e2emptions are personal because the manifest intention of the

agreement is to e2empt the contractor so that no contractorDs ta2 may be

shifted to the contractee I'O. Th1s, the pr%7s% n P#D# *.,



e3tendn2 the e3e0pt%n t% enttes %r nd7d1s den2 6th

PAGCOR n 'sn% %pert%ns, s 'er" t% pr%s'r!e n" ndre't

t3, 5e VAT, tht 0" !e sh&ted t% PAGCOR .?B1@

!lthough the basis of the e2emption of P!9COR and !cesite from %!+ in

the case of %e Commissioner of Internal Revenue v. "cesite 3ilippines4 5otel

Corporationwas Section 10 :b; of the =77 +a2 Code, as amended, which section

was retained as Section 1 :; :>; in R.!. o. B0B, ?B@ it is still applicable to this

case, since the provision relied upon has been retained in R.!. o. =>>7.?B0@

"t is settled rule that in case of discrepancy between the basic law and a rule

or regulation issued to implement said law, the basic law prevails, because the said

rule or regulation cannot go beyond the terms and provisions of the basic law.?B>@ RR o. 8-011/, therefore, cannot go beyond the provisions of R.!. o.

=>>7. Since P!9COR is e2empt from %!+ under R.!. o. =>>7, the "R e2ceeded its authority in sub6ecting P!9COR to 1A %!+ under RR o. 8-011/H

hence, the said regulatory provision is hereby nullified.

>HEREFORE, the petition is PARTL@ GRANTED# Section of

Republic !ct o. =>>7, amending Section 07 :c; of the ational "nternal Revenue

Code of ==7, by e2cluding petitioner Philippine !musement and 9aming

Corporation from the enumeration of government-owned and controlled

corporations e2empted from corporate income ta2 is valid and constitutional,

while "R Revenue Regulations o. 8-011/ insofar as it sub6ects P!9COR to

1A %!+ is null and void for being contrary to the ational "nternal Revenue

Code of ==7, as amended by Republic !ct o. =>>7.

o costs.

SO ORDERED#









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